Monday, July 30, 2012

The unsustainable power prism!

Pakistan as an economy and political entity is in a mess. However, a handful of financially stable corporations do give some hope. But are they really up to it or is this just another political-business nexus?

It is sometimes rather baffling to think how the belief of a single man can transform the fate of millions, once and forever. Despite being an independent country for 64 years, Pakistan stands as one of those unique experiments in policy and geopolitics which well, still remains an experiment. If one wants to gauge the difference between this nation torn apart by whimsical fancies and India, then it would be advisable to flick through the data compiled by Center for Research & Security Studies based out of Islamabad in 2009. The independent think tank reveals that “the two Ambani brothers can buy 100% of every company listed on the Karachi Stock Exchange (KSE) and would still be left with $30 billion.” Further, the entire Pakistani produce of a year can be purchased by the four richest Indians with $60 billion still left over to spare!

However, while US drones continue to bombard the federally administered tribal areas of the beleaguered state, Mian Muhammad Mansha (Pakistan’s richest man with a net worth of $1 billion), Founder and Chairman of Nishat Group (one of Pakistan’s top five business houses) sits in his plush office based out of Lahore planning the future strategic orientation of his $5 billion empire. In fact, Nishat Group is the face of a coin which the world never attempts to notice. What started as a single textile mill in 1951 has now grown in to a conglomerate with interests in banking, textiles, cement, aviation and energy. Today, the group’s annual sales have surpassed Rs.2.2 billion and the corporate giant now employees a work force of 30,000.

A robust machinery on the face of a failed state gives rise to what is both a question and hope – are companies like Nishat Group Pakistan Inc.’s last hope? After all, at the end of the day, it is business which runs your economy (given you have a sturdy political structure in place). Nevertheless, it would be a futile effort to address this predicament without dwelling into the finer nuances of Pakistan’s unique genetic makeup. Since 1947, upheavals witnessed by Pakistan’s economy can be broadly broken into six definitive periods each lasting approximately a decade. The first one started with this country emerging on the world map and lasted till about 1958. This was a phase marred by issues which any newly formed state would face. Ayub Khan (apart from being Pakistan’s first ruthless dictator) was also a shrewed strategist. Aided by advisors from Harvard University, Pakistan was exposed to one of the most healthy cycles of economic development in the country’s short and chequered history. While agriculture grew at 4%, manufacturing took off at a phenomenal rate of 9% per annum. This had a direct impact on GDP which doubled to 6% from 3% in the 1950s. Astonishingly, by 1969, Pakistan was exporting more manufactured goods than Thailand, Malaysia and Indonesia put together.


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Saturday, July 28, 2012

The Domestic Airline Business

Inorganic Activity is Inevitable in The Domestic Airline Business, given The Huge Overdues, debt load and losses. The Skies are open for Consolidation and pe activity. Sellouts or mergers – what will happen? 

Given the strong promoter backing of SpiceJet, JetLite and IndiGo, these three cannot be counted as takeover targets. Not for now. But cash infusion through the PE route is a strong possibility. In this regard, the spotlight is on the two profitable SpiceJet (PAT: Rs.0.61 billion during FY2010) and IndiGo (Rs.5.5 billion).

Acquisition of controlling stakes in Indian carriers by foreign carriers cannot be ruled out either. Though the government has not taken a decision on this, since March 2010, discussions have been on to increase the FDI limit in aviation to 74%. [Given that Air India is in trouble, it is expected to become a candidate for such a case soon!] So we could well see a repeat of the Emirates-SriLankan Airlines deal where Emirates bought over 40% of SriLankan to take control of the airline and bring about a significant improvement in the financial & operational performance of SriLankan. There could even be a PE firm interested in one of the larger Indian airline companies, whose huge debt load ($13 billion in total – the highest in Asia) and poor financials automatically would make it a steal, as Port Washington-based airline industry expert Robert Mann (CEO of R. W. Mann & Co.) tells B&E, “Where barriers to entry have risen, consolidation has stabilised pricing and airline fortunes. Barriers to entry remain low in India, thus there has been limited success of M&As to date in India. In this case you could see a pure financial player – a PE firm – buying a huge stake in an airline over the next few quarters.” It is not to be forgotten that PE investor Texas Pacific Group’s entry into management and restructuring of Continental Airlines and its simultaneous board-level involvement with America West helped the merged entity bounce back. Though it is always considered better if the suitor is an airline, for selling airline seats may be selling hotdogs, but running an airline is no driving around fast-food stall. And the domestic circuit would hate to see another failure, whether an airline-airline or a PE-airline deal. In the past there have been many instances of non-airline investors having largely failed in airlines such as Malev, Mexicana and other Asian airlines. And many-a-time, the accrued debt has overwhelmed the airline and its revenue-generating potential.

So the forecast is – over the next 24 month, there will be some notable inorganic activities in the sector. At the same time, it is important that the government gives the domestic airline industry a chance to behave rationally. Someone has to be allowed to fail. Air India’s failure in July 2011 to gain entry into Star Alliance indicates that there is no clear way ahead for the carrier and that it continues to operate under short-term begging measures. With airlines on perpetual financial life-support, the industry cannot invest in a successful business model. Similarly, ailing companies will continue to deter new market entrants whilst at the same time, plead for protection to maintain their presence (like the shield being put in place to restrict Lufthansa’s A380s entering the Indian market). This neither benefits the industry nor the investment community. Creating ‘zombie’ carriers and merging them – both are fruitless. The failed merger between Pan Am and TWA in the 1980s is a lesson. Fundamentals have to improve to have a healthy business environment – and then will consolidation make sense for Indian carriers.


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Friday, July 27, 2012

Why Isn’t Japan being Sanctioned by IAEA?

Had Iran been the purveyor of a nuclear disaster, IAEA and most definitely US would have jumped on to the bandwagon to issue global sanctions against the nation. Today, Japan – a nation which criminally failed to make a fail-safe nuclear plant and has continued to lie to international communities about the amount of radiation leakage from Fukushima – is not even being castigated for its abhorring mistakes, leave alone being sanctioned

Years ago, a war was suddenly ended, and yet a grave crime was committed on humanity with the twin atomic bombings on Hiroshima and Nagasaki. What made it worse was the nuclear race it initiated among nations, putting the entire mankind under serious threat. Not surprisingly, Japan, the first (and hopefully the only one forever) victim of a nuclear attack; stayed away from nuclear weapons, while it continued to judiciously use nuclear energy for peaceful ends. However, the country perhaps did not realise the perils of using nuclear reactors not insulated against the laws of nature. March 11, 2011 proved to be a day of mourning for Japan when it was hit by an earthquake followed by a tsunami; events that subsequently exacerbated the nuclear disaster at the Fukushima nuclear plants.

Yes, the lives lost are mourned. But what cannot be forgiven is Japan’s deliberate and criminal behaviour towards two critical issues: Firstly, it is unfathomable that a nation can claim that a tidal wave ensured that its nuclear reactors went out of control. Given the infinitely exponential danger levels of nuclear radiation, wasn’t it Japan’s primary responsibility to operate only fail-safe reactors that automatically shut off at the first instant of a natural disaster? Or is Japan, which experiences some of the maximum frequencies of earthquakes, peddling to us the theory that it didn’t know what a natural disaster was? Secondly, what Japan did by deliberately lying to the world about the nuclear radiation leakage levels from its four damaged nuclear reactors at Fukushima is not just a crime against humanity, but should immediately invite global sanctions by both the IAEA and the Western world. This irresponsible doublespeak from Japan is unpardonable – especially when the world is going to suffer hugely due to Japan’s intransigence, which includes its act of releasing radioactive water into the Pacific Ocean that killed millions of sea animals in a matter of one week.

The Fukushima incident is considered now to be the second-most severe nuclear plant disaster after the Chernobyl incident 25 years ago on April 26, 1986. But what was really surprising was that, despite knowing the extent of havoc that nuclear radiations can cause, Japan deliberately manipulated the information about radiation levels since the beginning of the incident. While the Nuclear and Industrial Safety Agency (NISA) is the regulator of Japan’s nuclear industry, the Fukushima Daiichi Nuclear Power Station was operated by The Tokyo Electric Power Company (TEPCO). Immediately after the disaster on April 12, 2011, NISA’s radiation estimate was 370,000 terabecquerels. Global agencies accepted NISA’s estimate as being true and honest. How wrong they were? Firstly, all climactic data on radiation levels was going against NISA’s fraudulent estimations – regions as far as Canada and United States were detecting radiation due to the Japan disaster. Secondly, while Japan had evacuated people in an area of 20 km around the plant, all radiation surveys showed high radiation exposure to people even 60 km away from the plant. On June 15, Japanese government shamelessly accepted this fact and issued new evacuation advisories for people living in the 60 km radius. More pathetically, NISA, in a report to International Atomic Energy Agency (IAEA), accepted that their initial estimates were completely off the mark and increased the radiation leakage estimate to 770,000 terabecquerels. In the report, Japan admits that “it was unprepared for a severe nuclear accident.”

As per the World Nuclear Association, 100 millisieverts nuclear radiation a year is the limit that one can be exposed to, and exposure above this limit leads to a serious risk of cancer. As per present reports, radiation levels went as high as 400 millisieverts per hour, which could have been as lethal as a nuclear bomb! More surprisingly, Japan rated this terrible nuclear crisis at five out of seven on the International Nuclear and Radiological Event Scale (INES) initially. France’s nuclear safety authority ASN warned that the minimum should have been rating the disaster at level-six. Later, under extreme pressure, Japan raised the score to 7, indicating a ‘major nuclear incident.’

Clearly, the radiation impact on the environment and on humanity will remain much longer and worsen too. There are over 100,000 tons of highly radioactive water inside the buildings. Its decontamination is very lengthy, expensive and exhausting work. Radioactive particles are spreading through the air, which will also impact other nations. Three months since the incident, the nuclear plant is still leaking radioactive material.

Yet, if you go by the Japanese government’s claims, no direct death has occurred due to nuclear radiation; over 10,000 people have died in the earthquake so far and it cost around $250 billion to the Japanese economy. Over 180,000 people were evacuated from within a 20-30 km. radius of the accident. So far, only 160 people, as per the Japanese government, have been found exposed to radiation.


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Thursday, July 26, 2012

A Reality Check Is In Order

The World Bank has been known for The Quality of Information it Provides. But The Status Quo is fast Getting Depleted

Since its origins, the World Bank redefined the concept of money lending, and even that of survival. As similar international institutions emerged, the World Bank survived to remain among the most important institutions because it distinctively established itself as not only a global central bank, but it also defined its role as the centre for “production, accumulation, circulation and functioning” of knowledge.

But the institution is fast losing its credibility. Its reports, findings and analyses are no longer attractive, reliable and comprehensive. A recent report titled ‘Social Protection for a Changing India’ released by World Bank is a case in point. The report was launched in New Delhi on May 18, 2011 in front of over 30 journalists and had nothing credible to present. Firstly, when its chief economist John D. Blomquist was asked about the source of inspiration for the project, his reply was the Planning Commission asked them to do it. The contributors had no idea when the report was first outlined! Surprisingly, data used in the report was old, outdated and badly presented. In volume 1, pages 13-20 have been trussed up non-sequentially. Empty spaces exist where graphs perhaps should have been. Data of “share of PDS grain in consumption quantile” is as old as 2004/05. Similarly, data on PDS grain leakage is as old as 2000.

The only reason countries still entertain World Bank’s reports is ostensibly because it is still a huge lender. For example, it approved two big loans to India – $975 million for Eastern dedicated Freight Corridor project and a whopping $1 billion to clean the Ganga.


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Tuesday, July 24, 2012

No Dictator is above Trade!

When it comes to Dealing with Dictators, American Foreign Policy is Remarkably selective, Depending on Strategic Interests

Here it goes. What is one thing common between Paul Biya, Berdymukhamedov, Obiang Nguema, Idriss Deby, Karimov, Zenawi and King Abdullah? Well, you got us right they are all world renowned dictators. But then, one thing that is even more common is the fact that in spite of being dictators, they are all US allies.

Interestingly, these dictators also feature in Amnesty International reports either as criminals or as human rights abusers. Berdymukhamedov of Turkmenistan is known for his authoritarian rule. Similarly, Obiang Nguema of Equatorial Guinea, Biya of Cameroon and Islam Karimov of Uzbekistan are involved in numerous executions. Deby of Chad and Meles Zenawi of Ethiopia are also behind ongoing slaughters, rapes and abductions going on in the country and King Abdullah of Saudi Arabia denies freedom of expression and legitimacy and practices unfair trials. With almost all these dictators, US has oil trade to the tune of billions. It imports oil from Turkmenistan (1,000 barrels/day in 2009) and sells Boeing jets to the Turkmen government. Similarly, it imports petroleum products from Equatorial Guinea (58,000 barrels/day in 2010) and Chad, while it imports uranium from Uzbekistan (51,000 barrels/day in 2010). Ethiopia is the largest aid recipient from US & US imports around 160 million barrels annually from Saudi Arabia.

To say the least, US, the world’s greatest superpower and self proclaimed upholder of human values seems to judge a nation only by strategic worth.


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Friday, July 20, 2012

In Terms of both Content & Intent, Yunus’ ouster Elicits Controversy

In 1997, when the world was worried about providing micro loans to 100 million poor people by 2005, Yunus was one of the key enablers who made it possible by 2006. The recent bashing against him can only breed conspiracy theories. The most prominent is that Sheikh Hasina has been livid that Yunus’ Nobel Prize makes his stature in Bangladesh higher than her own. She has spared no opportunity to malign him since he planned a political party in 2007.

Moreover, the central bank has set a new record in bad timing! The argument that the retirement age was 60 (he’s 70 now) and Yunus had failed to take permission when appointed indefinitely to the post in 1999 does not help the government’s cause at all. If the issue was alleged financial irregularities, it never came to the fore in the ruling. Unfortunately, the only achievement is a bad name to Grameen Bank and the micro finance industry. And it hasn’t made Sheikh Hasina’s glory any greater.
 

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Wednesday, July 18, 2012

The Communications Industry, in toto, by Becoming a Telecom Operator

Google is Huge. Its m-cap of $201 Billion Proves it. And it can Easily Grow Bigger by Conquering The Communications Industry, in toto, by Becoming a Telecom Operator. Question is – should it take The Chance?

There are however some challenges. First, infrastructure, which it lacks. Explaining one disadvantage, New York-based Jordan Monahan, Analyst, Goldman Sachs, tells B&E, “Google could use Android to encourage the concept of a single portable contact which could shift from cellphone to fixed-line phone to PC, depending on one’s accessibility. But Google does not own last-mile connections, so the telecos could drive up the cost of last-mile access to render a Google calling-plan unattractive.” Even 4G spectrum is not something with which Google is operationally familiar. If Google is to match investments in infrastructure made by US’ #1 carrier Verizon (with 93.2 mn subscribers), which has spent more than $98.1 billion on it over the past decade (including $10 billion for 4G spectrum), Google will have to invest 41.5% of its revenues each year, on stitching together just the skeleton for providing mobile services. Expensive, but not out of reach, considering that at present the company has $30 billion in cash balance. Also, if required, it can easily raise billions by dilution of shares, considering that at current level of m-cap, the company has to dilute only 1% to raise $2.01 billion!

But there is the dark side as well. Currently, Google’s Android OS is a craze amongst mobile manufacturers. Being an open source software stack, it does not have the liberty to anger the likes of Verizon and AT&T. In short there could be an attack on Google’s popularity if it decides to rise in the telecom services market. The Federal Communications Commission still does not have “appropriate” net-neutrality rules in place for telecom operators, that can prevent them from blocking Google from their subscribers. Quite possible therefore, that a repeat of Verizon making Bing the default search platform on its new Android launches (instead of Google) and of Apple blocking Google Voice from iPhone users for 18 long months (post launch), can occur, if Google tries to become an all-integrated player. So what’s the way out for Google, for whom a new dream could well threaten much of the very present?

With millions across the world already familiar with Google, what the company could do to live its mobile carrier dream, is to take the middle path – become a mobile virtual network operator (MVNO; similar to Virgin Mobile which was acquired by Sprint). While speaking to B&E from Massachusetts, Charles King, President of Mindspring & Pund-IT Services adds, “At this point, with the market changing so quickly – via the rapid growth of smart phones and emerging tablets – I think Google is best served by remaining as it is and not becoming a Mobile Network Operator (MNO). It is a trusted OS/services partner, which is an enviable position to have in such a market. It could however try its hands at the MNVO model.”

Google should not apply for a mobile licence, not bid for spectrum or bother about infrastructure. All it has to ensure is to work on a retail format to connect directly with end users, strike roaming deals with current operators, distribute voice minutes and data traffic and tie-up with third-party app-providers. Given that Google has been a master at handling marketing and dealing with end-users in the past, it could live its mobile carrier dream as a “virtual” operator. Not that Google cannot anger competition and become the largest US telecom operator. Cash it has and time too. But it has to realise that the power of possessing nuclear weapons is in “not” detonating them. For now, Google should let the Android magic work wonders and according to plan.


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