by Alex Evans | May 1, 2009 | Influence and networks
John Authers has an interesting observation this morning:
For years, a global influenza epidemic was at or near the top of the list of geopolitical risks that scared markets. That epidemic is here, with each day bringing news that the risk of a pandemic has intensified. How has the market brushed it off?
The S&P 500 is up 33 per cent since its March nadir. April is on course to be the best month for US stocks since 1987. More to the point, the flu has barely dented stocks in Mexico, which plainly stands at risk of severe economic damage from a disease that has been linked to the deaths of almost 200 of its citizens. In dollar terms, Mexican stocks are down 4.5 per cent since the outbreak was confirmed, having risen 57 per cent in the preceding six weeks – a tiny impact on a market primed for a correction.
If markets can survive news like this, optimism must be well entrenched.
But is it warranted? Albert Edwards, a bearish strategist at SocGen, notes elsewhere in today’s FT that,
The current pop in the market is not dissimilar to the many bear market rallies between 1929-1933 where signs of economic stabilisation were met with strong 25 per cent rallies … This optimism was subsequently crushed.
Meanwhile, Alain de Botton is also warning against optimism today, albeit from a somewhat more philosophical perspective:
It is time to recognise how odd and counter-productive is the optimism on which we have grown up. For the last 200 years, despite occasional shocks, the western world has been dominated by a belief in progress, based on its extraordinary scientific and entrepreneurial achievements. On a broader perspective, this optimism is a grave anomaly. Humans have spent most of recorded history drawing a curious comfort from expecting the worst. In the west, lessons in pessimism have derived from two sources: Roman Stoic philosophy and Christianity. It may be time to revisit some of these teachings, not to add to our misery but precisely so as to alleviate our sorrow.
Jules has been arguing the same thing for a while, too – his interview on Stoicism with Martha Nussbaum a couple of months back is especially recommended (find it on Jules’s blog here).
by Mark Weston | May 1, 2009 | Africa, Climate and resource scarcity
Just a quickie on the Madagascar coup from a Royal Africa Society talk I attended on Tuesday. According to Volatiana Rahaga, who is president of the Association of Malagasy Residents in the UK (all 100 of them), news of South Korea’s deal to buy up a large chunk of Madagascar’s arable land may never have filtered through to the public had it not been for a pesky FT journalist.
The FT’s Javier Blas reported on the deal when the negotiations had almost finished. Until then, nobody in Madagascar knew anything about it. When members of Ms Rahaga’s group read Blas’s article, they e-mailed the news to colleagues in France (which has a much larger Malagasy diaspora). The latter then told their friends and relatives back home about it, and the brown stuff promptly hit the fan. At first, the recently-ousted president, Marc Ravalomanana, denied that any such deal was going through; when he was eventually forced to tell the truth, it was too late. Everyone assumed the worst – that he and his cronies were making millions from the plan at the expense of the Malagasy public, who not only would not be compensated but would face an increased risk of food shortages once they surrendered all that farmland.
As an environmental consultant based in Antananarivo told me, this failure to communicate the deal doomed it, and public anger about the sell-off was partly responsible for the coup that deposed Ravalomanana this spring. In today’s wired up world, it seems, even authoritarian African governments can no longer count on a monopoly on information.
by Jules Evans | May 1, 2009 | Conflict and security, Global system, Middle East and North Africa, North America
Justin Webb at the BBC speculates whether this interesting article at Salon.com by Andrew Bacevich, professor of international relations at Boston University, illustrates the “secret underpinning” of Obama’s foreign policy.
Bacevich’s article takes issue with the idea of the American century, as famously put forward by Henry Luce in a 1941 issue of Life magazine, which suggested that America should be “the Good Samaritan to the world”. Bacevich writes:
In its classic formulation, the central theme of the American Century has been one of righteousness overcoming evil. The United States (above all the U.S. military) made that triumph possible. When, having been given a final nudge on Dec. 7, 1941, Americans finally accepted their duty to lead, they saved the world from successive diabolical totalitarianisms. In doing so, the U.S. not only preserved the possibility of human freedom but modeled what freedom ought to look like.
The idea was obviously a defining influence on neo-con thinking, like the Project for a New American Century.
Bacevich suggests:
The problems with this account are twofold. First, it claims for the United States excessive credit. Second, it excludes, ignores or trivializes matters at odds with the triumphal story line.
The net effect is to perpetuate an array of illusions that, whatever their value in prior decades, have long since outlived their usefulness. In short, the persistence of this self-congratulatory account deprives Americans of self-awareness, hindering our efforts to navigate the treacherous waters in which the country finds itself at present. Bluntly, we are perpetuating a mythic version of the past that never even approximated reality and today has become downright malignant. Although Richard Cohen [a Washington Post columnist] may be right in declaring the American Century over, the American people — and especially the American political class — still remain in its thrall.
Meanwhile, the Republican party has renewed its attack of Obama’s first 100 days of foreign policy, in an advert that looks like it was made by Adam Curtis, maker of The Power of Nightmares.
by Jules Evans | May 1, 2009 | Economics and development, Middle East and North Africa
I was at the Invest in Iraq conference yesterday, being heralded by Lord Mandelson as a “new chapter” in Iraq’s history. I wondered if the timing was planned – the UK unveils a big conference to attract private investment into Iraq, the same day it pulls its troops out of Basra…out with the troops, in with the bankers! – but maybe that’s cynical.
It was an impressive event – the main hall at the Landmark Hotel, which seats around 500, was completely full, with people being turned away. Prime minister Al-Maliki and several other ministers gave a strong message: Iraq is moving from a centrally-planned to a free market economy, and it wants to move very quickly to provide jobs and services to the economy. ‘Otherwise’, as the suave deputy PM Barham Saleh put it, ‘we will be voted out at the next election.’
One of the key talking points was the negotiations now going on between the government and around 30 foreign oil companies, for the rights to develop Iraq’s enormous oil reserves. This will be the first major post-war private investment into the country, and the deal that really kicks off the country’s post-war reconstruction.
Apparently the negotiations are going well, though I heard mixed reports about what the government is demanding – some said a 51% stake in projects, others a 75% stake, others that they may allow foreign companies to take a controlling stake in projects, which would be fairly unheard of in most emerging markets, but the government needs money to stay in power, the price of oil is low, so it’s not in as strong a bargaining position as say the Kremlin was in 2007, when it ‘re-negotiated’ several 90s era deals.
Hopefully the Iraqi government will build some flexibility into deals, so that it will get a greater share of profits if and when the oil price rises.
The other question was the reconstruction of the electricity sector. Apparently, it’s now back to pre-war output levels, which means the country receives on average 14 hours of electricity a day. Improving this will be key to the government and economy’s success.
It’s a daunting task. One businessman I spoke to, who’s advising on the sector’s reconstruction, said output needed to be quintupled to cope with the rising energy demands of Iraqis. Western private investment could be persuaded into that sector, according to some bankers I spoke to, but it would need western government support, because unlike the oil sector, electricity revenues cannot be secured offshore, so there’s all the local legal risk for big electricity investments.
That support could come in the form of export credit agency (ECA) guarantees. Such ECA guarantees are quite normal for big infrastructure projects in emerging markets, and in today’s low liquidity market, it’s essential if public-private deals are going to get done. Otherwise, governments have to finance deals off their own balance sheet, which Iraq’s government cannot yet afford to do. So ECA coverage would seem to be essential for the reconstruction of Iraq’s infrastructure.
But here’s the rub – not a single western government provides any export credit agency coverage (ECA) for project finance in Iraq. Not the US, not the UK, nothing.
Many bankers I spoke to said they are willing to put alot more money into the reconstruction of infrastructure, but they would need ECA coverage to do so.
I was really shocked to hear we don’t provide any ECA coverage for the country. All that talk of nation-building, and according to Hugh Sykes of the Today show, all Basra has to show for it is a UK army-constructed fish market.
There’s a strong economic motive for providing ECA coverage for private firms to help re-build Iraq. And, I would argue, there is also a moral argument for it.
At the moment, however, Iraq is apparently ‘too risky’ for ECA coverage. But if western governments are not prepared to risk their money in Iraq, how ever are they meant to persuade private companies to do so?
by Alex Evans | Apr 30, 2009 | Climate and resource scarcity
Lots of media coverage today of a special edition of Nature that’s just been published, and in particular on two articles that discuss what it will take to limit global average warming to 2 degrees C.
The headline finding that most of the press coverage runs with is that the total, cumulative carbon budget that the world can emit without hitting catastrophic tipping points is estimated at 1 trillion tonnes of carbon – and that we’ve already used up half of this. What’s more, as Wired notes, at present we’re sending another 9 billion tonnes of carbon up into the air each year – meaning that on present rates, we’re going to hit the buffers within half a century.
So, according to the authors of the studies, we need to reduce global emissions by around 80% by 2050 – quite some distance more demanding a target than the 50% by 2050 target that the G8 has committed to, though in line with Obama’s headline objective. (As I noted here back in 2007, the G8 should have known better than to take 50% as their headline global target – which rested on a rather optimistic interpretation of figures set out in the last IPCC assessment report.)
One thing that confused me in the two Nature articles, though, was this point – summed up on Real Climate (emphasis added):
Both [articles] find that the most directly relevant quantity is the total amount of CO2 ultimately released, rather than a target atmospheric CO2 concentration or emission rate. This is an extremely useful result, giving us a clear statement of how our policy goals should be framed. We have a total emission quota; if we keep going now, we will have to cut back more quickly later.
Needless to say, the question of what metric we use to measure success on climate change is a very big deal, given the extent of policy implications that flow from it. So are the authors right to suggest that instead of aiming for a target CO2 concentration level, we should be focusing primarily on cumulative emissions?
Well, by way of comparison of the different metrics, think of the atmosphere as a bath-tub and CO2 as water. Too much water, and the bath will overflow (as we start hitting buffers, tipping points, positive feedbacks, abrupt climate change and other Bad Things). In this metaphor:
- Emissions = the amount of water flowing into the bath
- Sinks (the amount of CO2 soaked up by oceans, forests etc.) = the amount of water flowing out of the plughole
- Concentration levels (how much CO2 or CO2e there is in the air, in parts per million) = the level of water in the bath
Now as Myles Allen, lead author of one of the Nature articles, observes in the Guardian today, it’s clearly true that if cumulative emissions matter more than our current rate of emissions right now. To return to the bath-tub metaphor: if you’re worried about the risk of the bath overflowing, then the question of the rate at which is flowing into the bath is clearly less relevant than the total amount of water that’s flowed into the bath since you turned on the tap.
But what I don’t get is why we should be more interested in cumulative emissions (how much water has flowed into the bath) than in concentration levels (the level of water in the bath).
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