Politics and Risk

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Entrepreneurship demonised
2008-02-17 22:31:00
Political culture can be defined as a collection of values and opinions about politics and politicians - what the trade should be like and how participants ought to behave. Attitudes about the role of government are shaped at an early stage, hence Mao Zedong's obsession with educational policy and researchers' fascination with history text books.A recent article in the FT sheds light on the teaching of economics in (Continental) Europe's secondary schools. According to the author, Stefan Theil, French and German school books cultivate socialist ideals at the expense of entrepreneural spirit, as companies feature as the source of all evil and the welfare state as the solution to the horrors of capitalism. Entrepreneurs are portrayed as "idle, cigar-smoking plutocrats" connected to "child labour, internet fraud, mobile phone addiction, alcoholism and redundancies", while "self-help groups and anti-reform protests" are the only way to achieve social innovation.Theil's comment is in...
More About: Entrepreneurship

Microfinance direct
2008-01-06 19:01:00
Forget about your high street branch, the future of banks is online. Why do borrowers and lenders need an intermediate institution if there is the Internet? It works for books, holiday homes and unwanted Christmas presents, so why not for credit, the founders of websites like Zopa and LendingClub must have thought.The principle has also been adopted in the charity world. Microfinance , made popular by Nobel Price winner Muhammad Yunus and Dutch fund manager Marilou van Golstein Brouwers, has discovered online lending as a cheap and effective way to match small business owners in the developing world with individual investors. An intermediate organisation such as Kiva allows you to lend $325 to Thuli Maiya Lama in Nepal, who needs the money to buy seeds and fertilizer for her farm. Kiva's local partners take care of the loan servicing and collection, and if all is well you should have the money back in 12 months, repaid in monthly terms.Some teething problems remain. The Dutch peer-t...
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Risk takers in carbon
2007-12-09 17:03:00
Not only environmental groups are watching the proceedings of the climate change summit on Bali this week. Carb on traders, hedge fund managers and project developers are equally impatient to hear news about the future of the Kyoto Protocol.So far, the Kyoto Protocol runs up to 2012. Nations subscribing to the Protocol have committed to reducing green house gas emissions relative to 1990 levels. For some, this means an actual cut in total emissions; others, particularly the youngest members of the EU, are allowed a slight increase as not to hamper economic growth.Kyoto allows for two trading mechanisms that allow countries or individual companies that are 'short' of carbon allowances to purchase 'carbon credits' on the market. The first of these mechanisms is allowance based, facilitating the trade of emission allowances allocated by the regulators between those who have too few and those who have too many. EU Allowances (EUAs) issued under the EU Emissions Trading Scheme (EU ETS...
More About: Risk , Taker

Palin's New Europe
2007-10-21 22:10:00
Michael Palin travels through the New Europe every Sunday eve on BBC1. We see him call on count Dracula's castle, visit places of communist remembrance, appear on Polish breakfast TV, and walk a fashion show in Budapest.It's lonely-planet style; up to five countries in one hour leaves little space for anything off the beaten track. But Palin's programme does a great job in showing us what the new European countries are really like: places where communism is equally despised and loved nostalgically, where immigration to the West puts strain on economic growth at home, and where the latest trends are discussed over soy-milk lates in fashionable cafes.Palin's visit to Lithuania can be viewed on youtube:See also the 'Unofficial Fan Center' on blogspot.
More About: Rope

Another take on asset-backed security
2007-10-14 00:29:00
With the credit market in distress, and the market for asset-backed securities under public scrutiny, it might be interesting to note that a very different interpretation can be found in public policy.Perhaps little more than a silly word game, but the concept of asset-backed security has arisen as one of the latest trends in social policy making. Ownership or even plain cash in the bank gives people a sense of responsibility and empowerment, so goes New Labour's philosophy, and it's therefore down to the government to help people acquire wealth. Gordon Brown made headlines with his baby bonds, and the Institute for Public Policy Research (ippr), a centre-left think tank based in London, decided to dedicate a research centre to study the concept.Unfortunately not much help for the bankers in distress, who worry about their own security now assets prove worth little to nothing.
More About: Security , Asset

The end of emerging markets?
2007-09-07 13:17:00
Investors in emerging markets have not massively pulled out of this asset class during the credit squeeze, writes the Financial Times. Whereas in previous periods of uncertainty emerging markets were the first to take a hit, this summer they have been affected no more than others. What's more, investors are starting to differentiate: Russia's bonds and equities have suffered less than Venezuela's, where Hugo Chavez maintains fears of sudden government intervention.Over the past decade, balance sheets of companies in developing countries have strengthened, and also public finances have become more reliable. This has led a handful of analysts to believe that the term "emerging markets" is no longer relevant, and that movements within this asset class should be studied by looking at individual countries, as is custom for the "developed markets". But only a real wave of market panic could test investors' appetite for risk. This summer's troubles suggest that developing economies mi...
More About: Markets

Investing in Africa
2007-08-28 21:37:00
FT's Lex reports today on the rapid development of the Africa n financial markets (we're talking Sub-Saharan Africa, minus South Africa, Nigeria being the most important player at the moment). Full of enthusiasm, the newspaper states that '[a]fter several years of strong economic growth, fuelled by a commodities boom, the private sector is developing rapidly and there is massive demand for infrastructure financing'.There are, in my view, two questions that every morally minded entrepreneur should ask before investing in one of Africa's rising stars.First, what additional risks do I expose my employees (myself, my family) to, and how do these differ from the 'general' risks (relative political instability, street crime, risk of illness) that can be found across the emerging markets? I remember an interview with Tara O'Connor, director of Africa Risk Consulting, in the same newspaper, who discusses security risks and hijacking in particular.Second, who benefits from my activiti...
More About: Investing

Floods in India
2007-08-23 17:11:00
Reuters Alertnet reports that there might be a causal link between urbanisation and flooding.This summer's flooding of large parts of India 's countryside is a key example. Compared to 20 years ago, the population living in urban areas has gone up with 5%, increasing the need to build "embankments" to control rising water levels and stop water from entering towns and cities. As a result, excess water is redirected to rural areas where flooding risk has increased significantly.
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Smart people welcome
2007-08-20 11:11:00
Whereas in most countries immigration restrictions have become increasingly stringent for poor migrant workers, the higher educated find a warmer welcome.The International Herald Tribune today reports that the number of highly skilled immigrants in Europe and North America rose 69% in the last quarter of the twentieth century. In comparison, the number or migrants with little or no education went up by 31%.The news coincides with a recent change in UK law, making it possible for post-graduate students to prolong their stay in the UK with at least one year, giving them the opportunities to earn the credits for a "proper" work visa.Good news for friends who would otherwise have to leave the country. However, the occasional anecdote makes clear that the reality of this type of scheme is far from perfect. An application for a so-called "knowledge visa" for the Netherlands took over 9 months, a friend complained. Her company decided to employ her through the US instead. High salary requi...
More About: People , Smart

Al-Qaeda translated
2007-08-15 16:48:00
If Osama Bin Laden despises America's freedom, why didn't he attack Sweden? There is, among the US public, little understanding of what Al Qaeda wants, writes Reza Aslan in Slate. Time to visit the original sources. Will reading Bin Laden's Messages to the World, translated by a Duke University Professor, or The Al Qaeda Reader, provide some insight into the masterminding of America's greatest enemy?Aslan isn't satisfied. Specific social or political problems remain unaddressed, and the essays are little more than a series of complaints about Palestine, the occupation of Iraq and America's role in global warming. Even though sometimes legitimate, they offer little understanding about the organisation's ideology, and what's really being discussed behind the scenes.Eye-opening reads on Al Qaeda should perhaps be sought in the secondary sphere. Amazon's best sellers include Al-Qaeda : The True Story of Radical Islam and Al Qaeda and What it Means to be Modern. Or try The Loomin...
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Urban risk at Brookings
2007-08-10 12:49:00
Cities are a special kind of environment for business and policy making and deserve more attention as a separate area of research. The Brookings Institute is doing a great job by bringing all its research on the urban environment together in the Urban Markets Initative (UMI).Next autumn, for example, the UMI is launching the results of a study into the challenges faced by consumer businesses in urban areas. Retailers Operating at a Profit: Models of Urban Retail Success highlights the realities of the urban market and gives examples of best practices as well as recommendations to policy makers.Another paper sponsored by the Initiative concerns the informal economy, and gives an overview of attempts by others to measure such things as the black market and exchange of services. Related to this -- check out the Brookings page on Cities and Suburbs, which features another two articles on informal economics.
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Mapping the credit crunch
2007-08-09 18:40:00
The world of credit is in turmoil. As the subprime mortage crisis unfolds, investment banks, hedge funds and private players are lining up on the sides of winners and losers. Speculation stands at an all time high, cause we don't know exactly what's going on. Most subprime lenders took out 2-year fixed rate mortgages, and only when these are adjusted to higher interest rates will we know who can pay and who can't.The FT has made a smart map, showing who stands and falls in the "credit crunch". By no means a complete picture - few hedge funds freely publish their gains and losses - but and interesting tool to monitor the growing impact of the subprime crisis.
More About: Credit , Crunch , Ping , Mapping

Eurasia director comments on stability and shock
2007-07-20 16:17:00
Ian Bremmer, director of political consultancy Eurasia Group, talks about political risk on the wesbite of Inc.com, a "Daily Resource or Entrepreneurs".According to Bremmer, even small companies should be aware of how politics affect their markets, and how to protect against unforeseen government intervention or changes in macro environment. Bremmer makes two interesting points:that political risk refers to two elements: shock and stability;that stability can be analysed, while shock is unpredictable and therefore impossible to model.Stability , Bremmer writes 'is the measure of a government's capacity to implement policy during a political, social, or economic crisis'. The question all entrepreneurs should ask themselves is whether the institutions of the country in which they operate can withstand political turmoil. Would a corruption schandal trigger the fall of an entire government? Would the rule of law be upheld even in a situation of extreme political distress? Bremmer's s...
More About: Shock , Comments , Director , Dire

German Chancellor warns for sovereign funds
2007-07-19 17:15:00
German Chan cellor Angela Merkel warned her fellow EU colleagues last week of the political implications of sovereign wealth funds. Accordig to Merkel, investments made by such funds are often driven by political rather than economic considerations, and she proposes a European advisory council based on American model that has the power to block investment in areas that are considered of national strategic importance.Asian and Middle Eastern sovereign wealth funds are on the radar of European politicians since the Chinese government fund bought a piece of US private equity group Blackstone. Such funds are said to control assets worth $2,500 billion, and are becoming more visible as they take on stakes in European and North American companies.European politicians feel they're losing grip on the rapid development of the global financial markets. Hedge funds and private equity firms have been blamed of endangering economic stability, and policy makers are calling for increased control f...
More About: German , Funds , Cello , Germ

Indicating governance
2007-07-18 12:31:00
The World Bank today publishes its long awaited Worldwide Governance Indica tors.I always think of governance as a term that's extremely vague and quite unhelpful when trying to understand the politics of a particular country. Especially the practice of ranking countries on the same scale can be confusing. Corruption, for example, has a different meaning depending on context -- what might be "grease money" in one place could be a universally rejected and criminal practice in another.It's also important to remember that the governance indicators are top-down measurements and say very little about what's happening on the ground. A critical posting on the blog of the Singapore Democrates states that, even though Singapore ranks high on government effectiveness and rule of law, 'whether such policies benefit local small- and medium-sized entrepreneurs and, more importantly, whether Singaporeans gain from such policies is quite another matter.'This doesn't take away that there's pl...

Review: www.countryrisk.com
2007-07-14 11:14:00
Trying to map out the online universum of political risk, I bumped into this website, put together by Sam Wilkin. Wilkin works for the political consultancy Oxford Analytica, and I had the pleasure of briefly working with him during my time as an editorial assistant with OA.The website itself is a bit dated and seems to have been abandoned some time in 2005, but the content is still relevant, and it contains several links to blogs, books and consultancies that have something to do with country risk. 'Country risk', Wilkin writes, or 'the threat that a country will become politically or economically unstable ... is critical to success in most international endeavors. It is the core of US efforts in Iraq, fundamental to any attempt to improve the lot of the poor in the developing world, and crucial in international business.'The site lists about 70 political risk consultancies, including some that I'd never heard of: MacIvor Grant, the illustrous Stratfor, and Madeleine Albright...
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Dollar down, up economy?
2007-07-13 12:41:00
The dollar is weakening against the euro and other currencies. I've always read this development as a sign that the US is losing its dominant position in the world economy, but apparently it isn't.London Times economist Anatole Kaletsky writes in yesterday's newspaper that weak currencies do not necessarily signal weak economies. On the contrary, appreciating currencies usually precede recessions, think for example of Japan's economic decline after 1995, when the yen was stronger than ever. There is not one single explanation for this paradoxical relationship between currency strength and economic wellbeing. But Kaletsky demonstrates that there is plenty of historic evidence to warn European politicians that the party won't last forever.It's a compelling argument against the thesis that the US is losing its global supremacy, but an isolated one when we take other factors into account. The so-called BRIC economies continue to expand with an amazing speed. Currency reserves incr...
More About: Economy , Dollar , Econ , Doll

Emerged Markets?
2007-07-10 11:50:00
Emerging markets - developing economies that have only recently started to participate in the global financial markets - are hot. The MSCI Emerging Markets index has performed better this year than the FTSE world index, the benchmark that covers both developed and developing economies, reports the Financial Times.It makes you wonder why emerging markets are still seen as a separate and unique asset class. Countries belonging to this club are as diverse as Portugal and Nigeria, Pakistan and Finland. Previously, problems in one emerging market country would lead to an immediate "flight to quality": a transfer from funds invested in emerging countries to virtual risk-free assets such as US Treasury bonds. However, recent market turmoil in Venzuela, Ecuador or Thailand has hardly had an impact on other members of the emerging markets club. Many emerging market countries have significantly improved their balance sheets, paying off external debt with petro, gold or copper dollars, thus im...
More About: Merge , Emerge

The causes of terrorism
2007-07-05 11:33:00
What makes someone commit an act of terrorism? The involvement of seven medical doctors in the failed bomb attacks in London and Glasgow has questioned the image of terrorist activists as poor and uneducated.Alan Krueger, a social scientist based at Princeton, points at other factors that breed terrorism: deprivation of civil liberties and political rights. 'When nonviolent means of protest are curtailed,' he argues, 'malcontents appear to be more likely to turn to terrorist tactics.'But there are other theories. According to his lawyer, infamous "shoe bomber" Richard Reid's decision to join militant islam was motivated by the discrimination and racism he experienced when growing up in London.The study of the psychology of terrorists has only just begun. We do, however, know a lot about the the factors that drive people to join social movements. Research has shown that support for right-wing parties, environmental groups and religious sects is strongly encouraged by organisatio...
More About: Terrorism

Stories about intellectuals and politics
2007-07-03 16:08:00
Political whizzkid Geoff Mulgan (previously Demos, Prime Minister's Strategy Unit and currently Director of the Young Foundation) recalls in this month's Prospect Magazine how Gordon Brown, when still Chancellor, met management guru Michael Porter:'Porter had just published a weighty book on the competitiveness of nations; it seemed relevant to Labour's industrial policy, which was taking shape around industry clusters, technology transfer and the potential role of regional development agencies. As Brown commented in detail on the ceramics industries of northern Italy and machine tool industries in Germany, it gradually dawned on me that he knew more about the book's detail than the author. Porter was fine on the broad brush, but vague when the discussion turned to real examples.'Other authors in the issue agree: Brown is a real intellectual, with a keen key eye for detail. But how helpful is knowledge from books in real life? To what extent do citizens benefit from a Prime Mi...
More About: Politics , Stories , Tori , Poli , Politic

Cristina Kirchner and the politics of power
2007-07-02 16:42:00
Cristina Kirchner , spouse of Nestor, will run for President in October, the papers announce today. If Mrs Kirchner wins, one of her first challenges as Head of State will be to sort out her husband's disastrous energy policies. At the time of Argentina's economic crisis, five years ago, the government turned energy tariffs from dollars into pesos, thus effectively lowering price levels by two-thirds. Since then, price controls have been maintained, discouraging investment in the energy sector. Declining electricity reserves and inadequate infrastructure have been the result. As an immediate solution for the shortages, the Argentine government has started to import electricity from Brazil and Uruguay, at significant costs. Capital injections are needed to get the energy sector back up to speed, and enable energy companies to cater to an economy expanding at 8% per year.Argentina's energy problems will eventually put a strain on economic growth. At the moment, the country has an es...
More About: Politics , Power , Cristina , Poli

Hillary or Michael Moore for President: what are the odds?
2007-06-30 20:57:00
The term 'political risk' takes on an entirely different meaning when applied to the betting market, that is, the political betting market. Slate magazine this weekend does an excellent piece on political gambling. Pay $29.20 and receive $100 if Barack Obama wins the 2008 presidential elections (Hillary is a lot less rewarding: pay $45.10, get $100). And if you think you really know it better: film maker Michael Moore is currently quoted at odds of 5000-1.Also in Britain, where one can bet on anything from running dogs to the weather, political gambling is hot. Someone even wrote a book about it.Political betting markets are a bit like opinion polls really, and according to Slate they are even better at predicting election outcomes. Tim Harford comments in the Financial Times: 'There are several reasons to lie to pollsters but no reasons to make a money-losing bet'. Which makes the odds something to keep an eye on, even if you're not interested in making money.Wanna give it a t...
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Possessive governments and asset protectionism
2007-06-29 13:19:00
And you thought protectionism was something of the pre-globalisation era? Ever since the Chinese government bought a significant stake in private equity firm Blackstone, investors are worried about possessive governments wanting to shield their countries' key industries. Trade protectionism - so 19th century - is on the way out, now welcome asset protectionism: restrictions on foreign direct investment imposed on areas that are considered of national importance.The US has the Committee on Foreign Investment (Cfius) and Germany now considers setting up a similar agency, fearing the consequences if a foreign government would control one of its "national champions". The start of a worrying trend for those who like liquid markets without barriers? Not if sovereign wealth funds increase their transparency and take away suspicions of hidden political agendas. Norway's pension fund, for example, avoids hostility by reporting regularly on its investments and even has an 'ethical code'.
More About: Asset , Prot , Governments

What role is left for development banks?
2007-06-27 13:13:00
The Inter-American Develop ment Bank announces that it willtake on more risk, for example by lending to subsovereign entities without central bank pay-back guarantees;increase lending to private-sector players and;expand the range of financial vehicles is used to offer assisance to developing countries.The Wall Street Journal concludes that in a world of high commodity prices, where also governments of developing countries have access to private capital, 'international financial institutions are struggling to show they still matter'.One wonders whether the proposed measures will have the desired effect. With outstanding loans paid off, foreign reserves piled up high in Central Banks , and sovereign wealth funds buying into North American and European companies, international organisations such as the IMF, the World Bank and the IADB find it difficult to tell governments of developing countries what to do. If governments need extra cash, they borrow from neighbours or issue bonds on ...
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The informal economy of the slums
2007-06-25 17:38:00
Dutch documentary maker Rob Schröder treks through the slums of Carácas together with local architects Alfredo Brillembourg and Hubert Klumpner. What they find is an informal city with its own rules, where development is driven by the needs of local inhabitants rather than imposed by city planners. Interesting for all who take an interest in emerging markets and urban risk, and want to gain a better understanding of the consumer base of many Latin American companies.Available online: Carácas: The Informal City (Carácas: De informele stad)
More About: Economy , Econ , Formal