Surplus and Deficit in the Golden Age of Gas (part 2—EU)


1.  Reliance on imports

In Europe, as opposed to the US, oil production is in decline, and shale gas is not yet an option as it is in the US, so imports of oil and gas are required.  (BCM = billion cubic meters)

By 2020 consumption 627 BCM, production 259 BCM, with a shortfall of 368 BCM.

By 2035 consumption 671 BCM, production 204 BCM, with a shortfall of 467 BCM.

This shows the increasing reliance on Europe for imports of petroleum products.

2.  Import sources

Europe is located close to vast resources of natural gas, but geopolitics complicates access to some of these resources.   Iran is a source of petroleum products that could be available to the EU, but EU has decided not to accept imports from Iran in order to participate in the sanctions imposed by the US.   (For details, please refer to my earlier blog post    https://4squareviews.com/2012/04/09/iran-sanctions-just-right-or-a-step-too-far/).

There are currently three import sources that are under development.

1)  Nord Stream, originating in Russia, which is scheduled for completion in 2012 with a capacity of 55 BCM (billion cubic meters)

2) Nabucco, originating in Iraq and Turkmenistan, which is scheduled for completion in 2014 with a capacity of 31 BCM.

3)  South Stream, originating in Central Asia and Kazakhstan, which is scheduled for completion in 2015 with a capacity of 63 BCM.

3.  Shale oil potential

There is shale gas potential in Europe (France, Poland, and Norway) and in North Africa (Algeria and Libya).   However, shale gas in Europe unlikely to develop in the same way as in the US.   It will be available but in the longer term compared to the US (after 2015).

One of the reasons for this is that there is relatively more pressure on the governments of the EU regarding  environmental effects of shale gas production than there is in the US.

Tomorrow I will post on the portion of the webinar dealing with the oil and gas market in China.

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Surplus and Deficit in the Golden Age of Gas (part 1—US)


On April 13th, 2012, Peter Kiernan, the Energy Analyst of the Economist Intelligence Unit, put on a webinar on the current state of supply and demand with respect to oil and gas in North America, Europe, and China.   The following are my notes of the webinar; I’m splitting the post into three parts, covering the three areas covered by the webinar as mentioned above.   I do not have a separate post for the Q&A session after the webinar as I had with previous EIU seminars, because I did not have a recording of that session available.   

Here are some trends with regard to natural gas in the United States, and its effect on other fossil fuels (oil, coal) and renewable energy sources.

1.  Shale gas boom

Shale gas is different than shale oil in that the natural gas is usually on top of a reservoir of shale oil, which usually means that it is more accessible than shale oil.

In the United States, natural gas production was on the decline before 2006, and was expected to become a major importer of LNG (liquefied natural gas), particularly from Canada.

However, since then proven shale gas reserves have increased and gas production itself has increased, to the point where shale gas now comprises 25% of total US gas production.   The supply has increased to the point where US is now expecting LNG.   Several LNG supply deals have concluded and LNG export terminals are under construction.

The shale gas boom and the relatively weak demand have led to lower prices for shale gas, and consequently a cut on production.

2.  Effect on shale oil

The shale oil that is more accessible is that found in tight or densely packed shale formations called light, tight oil or LTO.   Often this LTO is found in conjunction with natural gas which tends to rise to the top of the formation.   The gas production mentioned in paragraph 1 has therefore had a spillover effect on the increased production of LTO.   High oil prices make it profitable at this time to go after this type of oil.

Both shale gas and shale oil are considered unconventional supplies because they rely on methods such as fracking (or fracturing) of the shale in order to release the oil and gas contained therein.   High oil prices make the additional costs of these unconventional methods more economically viable.

3.  Effect on coal

As the US oil and gas production increase, the US dependence on coal production to meet its energy demands decreases.

4.  Effect on renewable energy

The lower prices on the production side (note we are not talking about lower gas prices that you are paying for at the gasoline pump) mean that renewable energy sources do have a role, but economic forces do not give incentive towards their development in the absence of government subsidies.

5.  Environmental scrutiny

One of the issues affecting oil and gas production in the US is the increasing environmental scrutiny attached to the fracking process, with the main short-term environmental hazards being the potential contamination of groundwater and increased earthquakes in production areas adjacent to fault lines, not to mention the long-term environmental hazards having to do with increased carbon dioxide in the atmosphere and its effect on climate patterns.

This increasing environmental scrutiny may pressure the US government to factor in some of these environmental impacts into decisions regarding the implementation of further shale development projects.     However, absent this political pressure, economic forces now favor an increased shift in the US from coal and oil production towards the production of natural gas, which is a relatively cleaner-burning fossil fuel.

Tomorrow I will post on the effect of shale gas and oil production in the EU.

Social Media as Literature—Story & Style (part 3)


The third literary style is the epic style where the writer presents the object in mediate relation to the (other) object(s).    This means that the writer presents the objects or facts while adding a layer of commentary or explanation, which mediates or interprets them.   This style is in direct contrast with the dramatic style (explained in part 2) that has no extra layer of commentary.   “Here are the facts, ma’am, and here’s what they mean.”   It focuses on the second-person viewpoint, as if the writer is addressing the audience with his comments.   Joseph Campbell in his lectures on James Joyce stated that Thomas Mann liked the epic style for his writings.   He compared James Joyce to Thomas Mann because they both used mythology in service of literature but used different literary styles to create their own unique “voice” in telling a story.

An example of the epic style from blogs regarding the Middle East would be from Informed Comment, the blog by Prof. Juan Cole, the Richard P. Mitchell Collegiate Professor of History at the University of Michigan.   In his blog post of April 18th, he is describing a recent appearance of Republican strategist David Frum on Erin Burnett’s program on CNN on April 17th.   He was stating the points where he agreed with David Frum, and the points where he disagreed with him.  But then he explained why he disagreed with him.

For example, he stated that David Frum was of the opinion that President Obama could affect the price of petroleum by offering more clarity on his Iran policy.   Prof. Cole disagreed with him, saying that the clarity of that policy is exactly what was contributing to higher prices, but he then went on to explain his position.   The policy of a financial embargo on the sale of Iranian petroleum sends a clear signal to an oil futures trader that Iranian petroleum will be taken off the market, and that future prices will rise.

So Prof. Cole says that President Obama’s policy should rather be more ambiguous to avoid such a negative signal to the market.   You may agree or disagree with his position, but you are in an informed position to comment on Prof. Cole’s opinion because he took the time to explain how he came to his conclusion.

I think this style is good for someone who is explaining a complex subject matter to those who may not be experts but rather educated laymen who are trying to learn about it.   In reality, however, a person may use both the epic or dramatic styles when blogging, with the dramatic or “newspaper” style used for tweets or for snapshots of a conference, let’s say, and the epic or “commentary” style used for longer blog posts or for explaining the topic to a general audience.

Social Media as Literature–Story & Style (part 2)


The second literary style you can use when blogging is the dramatic style where the writer presents the objects in direct relation to the other objects.   This means that the writer presents the facts in an objective manner without any explanation or commentary.  “Just the facts, ma’am.”  It focuses on the third-person viewpoint, and is what we think of as the “newspaper” voice.   

According to Joseph Campbell, James Joyce used the dramatic style for his work, which meant that he would describe in objective terms what the characters were doing, saying, or even thinking.   However, the drawback of not adding the author’s commentary on those descriptions is that the reader sometimes finds it hard to follow what is going on.

An example from blogs regarding the Middle East would be the blog post on April 16th on the Angry Arab News Service written by Prof. As’ad AbuKhalil, professor of political science at California State University at Stanislaus and visiting professor at University of California at Berkeley.   It stated “All websites of Lebanese government have been hacked” without any further comment of explanation.   This is simply a statement of fact which can be independently verified.   He gives links to those websites so people can check it out for themselves.  Now I’m sure he has a subjective opinion about this incident but they are not stated in the post itself.  

I find this mode of blogging among experts who are doing blog posts or especially in tweets to each other.  They don’t have the space in 140 characters to provide explanations, and they usually don’t need to provide them if they are sending to people who are already “in the know”.   So I find this to be a good mode of blogging if you are trying to describe the events in a neutral of non-partisan manner, or if you are writing for a sophisticated audience for whom explanation might be superfluous.   

In reality, however, dramatic style is often mixed with the epic style, which I will describe in tomorrow’s post. 

Social Media as Literature—Story & Style (part 1)


For someone who is starting to write a blog, it is important to try to find one’s own unique personal style.  In trying to come up with a style that fits my personality and my purpose for writing, I first look at the definition of three literary styles or genres based on definitions given by Joseph Campbell in his lectures on James Joyce entitled Wings of Art.   Then I locate examples of each of these styles in blogs regarding the Middle East that I have either followed in the past or am following now.   Finally I discuss why one might want to use these styles for one’s blogs or tweets.

The first style is lyric style, which is defined by Joseph Campbell in his lecture on James Joyce’s Portrait of the Artist as a Young Man as the style where the writer presents the object in direct relation to the subject.   This means the writer is using words that give clues to what the writer is feeling or experiencing.   It focuses on the “I” or “subjective viewpoint” of the writer.

Examples from blogs regarding the Middle East are the blogs that I read during the Iraq war that were written by ordinary Iraqis themselves:   Baghdad Burning by Riverbend, and Where is Raed? by Salam Pax.   These are pseudonyms of Iraqis who lived in Iraq during the time of the Iraq war.   Their blog posts were collected into books, respectively “Baghdad Burning: Girl Blog from Iraq” and “Salam Pax: The Clandestine Diary of an Ordinary Iraqi”.  Their subjective impressions of the war in Iraq as it was being waged around them were invaluable for me in understanding what the average Iraqi experienced during the war.

The lyric style is good for reporting on events when you’re experiencing some special event.  If you’re describing ordinary life, however, then this will be entertaining or informative for readers or tweets or blogs only if they care about you personally.

Tomorrow, I will talk about the epic or narrative style of blogging.

Two Weeks To Eternity–the Cuban Missile Crisis


The following is the text of the speech that was my entry for the International Speech contest for Toastmasters; it won second place in the area-level competition this Spring.

There were two weeks in October 1962 when the Cold War between the United States and Soviet Union was in danger of becoming a very hot war indeed.    How hot?   Oh, a couple million degrees, because that’s the temperature in the center of a nuclear explosion.   You see, we almost had a nuclear war during the Cuban Missile Crisis.  At that time, John F. Kennedy was the president of the United States and Nikita Khrushchev was the Premier of the Soviet Union.

The United States had deployed nuclear missiles in Turkey that were capable of reaching Moscow, and so in a sort of global chess game, Khrushchev conceived of a plan to counter this by deploying nuclear missiles in Cuba that could be pointed towards the U.S.    

On October 14th, 1962, their plans were found out.   A US spy plane on a reconnaissance mission over Cuba took pictures of seemed to be a missile base construction site.    

The CIA analyzed the photographs identified the objects as being medium-range ballistic missiles.   These were the rockets that would carry nuclear warheads to their targets in the U.S., but they did not see any warheads themselves.    So they assumed that the warheads had not yet been delivered, and that the Soviet Union would soon be sending ships to deliver them to Cuba. 

The President was informed of the existence of the missiles in Cuba and he held a meeting with members of the National Security Council, and the Joint Chiefs of Staff of the U.S. military.    There were three options discussed, diplomacy, a limited blockade to prevent the warheads from reaching Cuba, and a full-scale invasion. 

The Joint Chiefs of Staff unanimously agreed that the only option to remove the threat was a full-scale attack and invasion.   They figured that since the nuclear warheads were not yet in Cuba, the Soviets would not be able to stop the U.S.   

The National Security Council preferred the blockade option, which Kennedy accepted,  but the military was directed to prepared for the full invasion just in case. 

Meanwhile, on a beach in Miami, Florida there was a little boy who was playing with his grandfather.    He and his mother had flown from Chicago to spend a vacation there.    That night they saw President Kennedy on the television who announced that Cuba had missiles aimed at the U.S. and that the U.S. would launch a blockade around Cuba.  

The Soviet Union now gave its response, saying that it would view a blockade as an act of aggression and that their ships would defy the blockade.   The situation was now at a stalemate; the U.S. raised its defense level to condition red.   There is only condition beyond this, condition white, which just happens to be the color of the center of a nuclear explosion.   

That night, the boy who staying with his grandfather heard the voice of his father on the telephone calling to tell him that he loved him very much.    You see, the father was a reporter who knew the seriousness of the situation, and knew that his son was in a place that would very likely be a target of a nuclear attack in the case that war broke out.   He wanted to memorize the sound of his son’s voice in case he never heard it again.  

At 6:00 PM on the night of October 26th, the State Department received by teletype a very long and emotional letter written by Khrushchev .   

“Mr. President, we and you ought not now to pull on the ends of a rope in which you have tied the knot of war.   Let us take measures to untie that knot.  We are ready for this.”

Tommy Thompson from the State Department,  a former ambassador to the Soviet Union, was sitting at the elbow of the President reading what he referred to as the soft, diplomatic message which he said had come directly from Khrushchev.    Just then, another message that came in that was more threatening and it was the message that had written by the hardliners in the Kremlin. 

The crucial question now was:   which message should the U.S. respond to, the soft message or the hard message?  

Tommy Thompson had knowledge of the Russian language, but even more importantly, because of his time as ambassador to the Soviet Union, he knew the Premier personally.   He could empathize with him, and knew exactly what the Premier was thinking.   He said that the Premier was being pushed by his hardliners into a military confrontation and he wanted desperately to find a diplomatic solution that would allow him to save not only the Cuban people from invasion, but to help him save face politically.   President Kennedy finally understood exactly how the Premier felt.  

President Kennedy listened to Tommy Thompson, and made a deal with the Soviet Union.   You pull out the missiles from Cuba, and we will remove ours from Turkey.    Khrushchev agreed, and the crisis was now over. 

In 1992, it was discovered that the CIA had made a mistake.    Remember how they had assumed there were no warheads in Cuba?   There were over 160 nuclear warheads already in Cuba.   So the blockade accomplished nothing.    But more importantly, if Kennedy had listened to the military, who based their strategic plans on what the CIA had told them, the invasion would have failed and nuclear war would have resulted.   

And I would not be standing here today.    Why?   Because that boy I mentioned in the story–was me.  

I urge you to see the documentary The Fog of War, the former Secretary of State Robert McNamara listed several lessons to be learned from the Cuban Missile Crisis, among them 1) be prepared to re-examine your reasoning, which you can see by the fact that the CIA made a mistake regarding the warheads, and 2) empathize with your enemy, which was the key to Tommy Thompson’s diplomatic breakthrough.

And to that, I would like to add a lesson of my own.  We can learn from Tommy Thompson and use the power of language to engage the language of power.   And it is the power of language, and its ability to be an window of understanding, and through that window, to be an instrument of peace, that has motivated me throughout my life, and it is what inspired me to join Toastmasters.

John LaBonty speaks at Costa Mesa Connectors–10 tips for networking


On Friday morning, April 13th, 2012, John LaBonty’s spoke at the Costa Mesa Connectors networking group and gave his personal story of career transition.   He inspired the group with his talk on recognizing your own worth and on expanding your network.   I sincerely wanted to thank Debra for putting on the event; for those who did not make it to the event, Oscar Hernandez plans on making a video of John’s talk.  In the meanwhile, in gratitude for John’s talk and to Costa Mesa Connectors for putting on the event, I wanted to offer the group my blog post which summarized his talk.   I grouped his comments according to common themes and applied headlines to each of these themes.   This is my own personal reorganization of the talk I heard on Friday.

1.   Don’t apply for jobs—go out and find them

In today’s world of high unemployment, applying for jobs online is an extremely inefficient way of trying to get a job.   Although it seems counterintuitive, going out and finding a job through networking has a good probability of being a shorter path to employment.  But you will have to put in work for this method to succeed.   In discussing job searches with people at the Career Ministry, many people will put in somewhere on the order of 20 hours of job searching a week, but in reality, the vast majority only spend about half that.   In order to make networking through a job search to work, you will have to put in at least TWICE that, or 40 hours a week.   In other words, your job search needs to be your full-time job.

2. No cold calls—expand your network through referrals

Cold calling is an extremely inefficient way of generating any sales leads.   In your job search, he recommends rather using the core group of people you meet at a networking event to generate your first set of one-on-one meetings, and then using them to get referrals to generate the next set, and so on.

3.  Your face is the ultimate social medium

The means ways of communicating with people are

a) through e-mail (or nowadays through LinkedIn),

b) letter (less common these days),

c) telephone, and

d) in person, or face-to-face.

The further you go down the list, the more the effective the relationship will be.   Unfortunately, when people network, the most common are at the top of the list, not the bottom.   They seek to get 500+ “connections” on LinkedIn.  Don’t go for connections, go for relationships.   When you meet over 500+ in person, then you can truly say you have a network that is deep as it is wide.

4.  Qualify your referrals

To make sure that your referrals have a high probability of agreeing to meet with you, qualify them when you request them in the first place.   When you ask for a referral, ask the person “who is the most successful person you know?”   Then ask the person how well he or she knows the referral:   on a scale from 1 to 10, with 1 meaning you exchanged business cards at a networking event, and 10 meaning that they are your best friend, how would you rate that person?    If the person responds that they are less than, say, a 5, then ask them if they someone with whom they have an even better relationship with.   By getting to the people the person knows the best, you will be increasing your chance of getting a “yes” from the referral based on the strength of that relationship.

5.  Put your fears to work—against each other

If you’re afraid of going out and meeting people, because you may face rejection, or you have other issues connected with being an introvert, then realize that you are NORMAL.  If you are honest with yourself, you will realize that you have a larger fear, which is the fear of not being able to support yourself and the fear of being irrelevant in today’s world of work.   Use this larger fear as a motivation to conquer your smaller fear of speaking in public and get out there and meet people.   Take that smaller fear with you on the road, but keep moving.

6. How to prepare for a one-to-one meeting

It takes about 30 seconds, because all you need to ask are two basic questions:  a) How can I help you? and b) Tell me your story.   By focusing on how you can help them, you are not coming across as needy, but as someone who is there to help solve their problems, whatever they may be.   If you ask them about themselves, they will open up and let you know what issues are important to them.   You will come across as personable and likeable, because you have an interest in common:   the life story of the person you are sitting down with.

7. Go to the meeting in “open” mode

No matter what your personal needs and wishes are, you need to have them take a back seat when you are networking, so that you can project calmness and confidence.   By having the right attitude and asking the right questions as mentioned above, you will conduct the meeting in “open” mode.   This means that you are geared towards giving them ideas which may help them, because if the relationship is established, they will want to turn around and do the same for you.   If you go in there projecting that the most important thing on your mind is that you need something from them, that may put them into “closed” mode and the relationship will not be as productive.

8. Practice quality control over your network

To do this you need to develop a series of metrics (# of networking events/week, # of one-to-one meetings, etc.) that you keep track of in a matrix that can be printed out in convenient form and placed in a prominent place, like over your computer or on your refrigerator.   And to guarantee your success, you need an accountability partner whom you can meet at least once a week to go over your progress and analyze what worked in the previous work and what didn’t.   These quality control ideas work in project management; just consider your job search as a project that you apply the same techniques to.

9.  Meet with EVERYBODY and follow up after meetings

If you have connections with people at networking events, you will be making a subjective assessment about who is most likely to be able to help you.   Put those preconceived notions, and try to meet if at all feasible with EVERYBODY with whom you exchanged business cards and had a chance to speak to.   There will be “hidden gems” among them whom you did not expect to be in a position to be of help to you, but who may turn out to be one of your valuable allies on your path to success.   Also, by reaching out to others rather than waiting for them to reach out to you, you will sit down with those who have the hardest time breaking through their social barriers, and be doing the most amount of good in the process.

After the meeting, follow up with a telephone call, or if the person is a baby boomer, a personal handwritten note.   These things mean a lot to those in the generation that remembers such courtesies and finds them all-too rare in our digital world.   E-mail if you must, but make sure the person knows that you valued the time they took out of their busy schedule to speak to you.

10. If you find yourself falling, DIVE!

Going out on a job search is something which is not pleasant, and is very uncomfortable for people, because they need to encounter and overcome their own fears and limitations in order to accomplish it.   Just say “yes” to it—if it is uncomfortable, then MAKE it comfortable by saying to yourself that, rather than looking for a job, you are trying to build a network, and each day say to yourself, “today I am going to make a new friend!”   The worst thing that can possibly happen is that, despite doing everything that was recommended above, they turn out not to like you and will be unwilling to help you.  If that happens, then THEY have failed, not you.

You have to be convinced that you were given certain talents and qualities that make you valuable.   Walk up to the person you are to meet with the conviction that it is the privilege of a lifetime to be who you are,  but you create the relationship by asking for the privilege of knowing them better and letting them know they are valuable because YOU are willing to help THEM.

That’s how it starts—keep working on it so that each night, you can face your conscience and your loved ones and say you did all you could that day to expand your network.   Let God do the rest!

Iran nuclear talks to be held in Turkey


On April 14, 2012, there will be a new round of talks held in Istanbul, Turkey regarding Iranian’s nuclear program.   There is guarded optimism about the talks, but there is also concern that an additional demand stated by the US last weekend may make upcoming negotiations more difficult.

1.  General issue

Iran is a signatory to the Nuclear Nonproliferation Treaty and has the right under international law to enrich uranium for commercial and research purposes.   However, enriching uranium can also be used for building a nuclear weapon, and some Western countries suspect that this is the true purpose of Iran’s nuclear program.   The talks between Iran and the so-called P5+1 (U.S., France, Britain, Russia, China and Germany) will begin Saturday in Turkey in order to ease tensions regarding this program.

2.   Iranian compromise on enrichment level

According to a report from CNN (http://www.cnn.com/2012/04/09/world/meast/iran-nuclear-talks/index.html), Iran has suggested it is willing to compromise regarding the amount and the level of uranium enrichment.

The level of enrichment of natural uranium for the purpose of nuclear power is typically between 3-5% 235U (http://www.nrc.gov/reading-rm/doc-collections/fact-sheets/enrichment.html); this is referred to as low-enriched uranium or LEU.   Uranium used in nuclear weapons contained 85% or more 235U, and this is referred to as highly enriched uranium or HEU.   The problem is that Iran is enriching uranium to a 20% concentration of 235U.   This 20% level just so happens to be the dividing line between LEU and HEU, and this ambiguity has contributed to the international concern about the true motives of Iran’s program.

Iran has said it is willing to reduce the level of enrichment from 20% to 3.5%, which would definitely put its uranium in the LEU category, and perhaps reduce that concern.

3.  US asks for dismantling of nuclear enrichment facility

However, the Obama administration added an additional demand that Iran immediately close and ultimately dismantle Iran’s uranium-enrichment facility at Fordo (http://ow.ly/afbue), according to an article on April 7th in the New York Times.  Paul Pillar, in his April 8 blog post at the National Interest called “Hostages in Iran” (http://nationalinterest.org/blog/paul-pillar/hostages-iran-6749) says that the reason why the US is making this request is because this new facility is relatively invulnerable to air attack, which is presumably why the Iranians placed it there.  According to Paul Pillar, in making a demand which effectively would make Iran more vulnerable to airstrikes by Israel, the US has taken a tougher bargaining position before the commencement of negotiations.

What are the possibilities of the negotiations succeeding given this additional hurdle to be overcome?    If Iran agrees to close the facility in Fordo, the nuclear facilities in central Iran in Natanz have more than enough capacity to keep the nuclear program going, so Iran might agree to the dismantling of the Fordo nuclear enrichment facility in addition to its agreeing to limit its level of uranium enrichment to 3.5%.   However, it would probably do so only if there was an agreement on dismantling some of the sanctions that Iran faces from the West, according to an analysis by Brian Murphy in the Associated Press (http://ow.ly/afxCh).

A complete dismantlement of the nuclear enrichment program would not be acceptable to the Supreme Leader Ayatollah Ali Hosseini-Khamenei and the clerical conservatives, who are solidly behind the nuclear program (see Economist Intelligence Unit Webinar on Iran sanctions, summarized in https://4squareviews.com/2012/04/09/iran-sanctions-just-right-or-a-step-too-far/).

4.  Guarded optimism

The world seems to be guardedly optimistic about the upcoming negotiations.  This can be seen reflected in the price of a barrel of crude oil, which according to this Associated Press article (http://www.wsbtv.com/news/ap/energy/oil-climbs-above-102/nMW7j/) has jumped from $75 in October to a high of $110 last month based on concerns by investors regarding a possible military attack on Iran by Israel.   Optimism regarding the talks has caused the price of crude oil to slide to $104, and “If negotiations were to succeed and some acceptable compromise achieved, the energy markets would breathe a collective sigh of relief and prices would decline,” said Richard Soultanian of NUS Consulting in that same AP article.

Of course, if the negotiations do not succeed, the prices will increase beyond the $110 peak that occurred in March.   So it is important to pay close attention to the upcoming talks this weekend, which are most likely the opening bid in negotiations that may last for months.

Africa: potential, challenges & risks–Q&A session


This Economist Intelligence Unit webinar was presented by the Regional Director for Africa, Pratibha (Pat) Thaker on Wednesday, April 4th, 2012.   The following are my notes from the Q&A session held after the webinar.

1.  What is prospect for increased regional cooperation in the future?

Regional trade is increasing; prospects are good for future, provided progress is made in infrastructure, regulation, and political commitment by member countries.

2.  To what extent has current prosperity in Africa been built on current commodities supercycle?

To be sure, Nigeria, Angola, and Ghana are the key drivers of continental growth related to oil, and this growth has been stimulated by the commodity price bubble.  However, there has been a diversification into non-oil and natural-resource based growth in the past decade as well.   This diversification has been supported by governmental reforms and private development.

3.  Why is China so heavily invested in Africa compared to Western countries?   Is it driven by oil and natural resource consumption?

China is an important part of Africa’s economic story today.   China’s investment in oil and natural resources has gone on for the past 14 years.   It is one of the largest investors in every region of Africa.   Even the last global downturn in 2008 did not affect this relationship.   However, since 2008 the investment in manufacturing has tremendously increased.   The investment in natural resources is driving investment in infrastructure and the investment in manufacturing is driving investment in skills.

4.  What are the top investment opportunities in Africa?

There are investment opportunities in infrastructure, natural resources, and services (health care, retail, and finance).   The fastest growing opportunities (besides natural resources) are health care, retail, and consumer goods based on the increasing level of urbanization and the growth in the middle class.

5.   What are the long-term challenges for Africa with respect to politics?

Demographics is the biggest challenge:   rising young population will have increasing economic expectations of growth, jobs, and quality of life.  If governments and corporations cannot deliver on these expectations, that will be a huge challenge.

6.  What are the effects of human rights concerns on economic development?

Treatment of local labor issues is important for governments; for example, in the mining industry in Zambia, this was one of the key electoral issues in the last election.   Treatment of local workers has been brought up by various international human rights groups.   Governments are concerned; they need investment and money to make sure development takes place, and they do not have organized unions like in South Africa, but they face pressure from the people not to tolerate abusive treatment of local workers.

7.   Has there been a movement from microfinance to more formal banking structures?

The opportunity for growth in banking is large:  as economies grow, services sectors grow, and most of the people in Africa do not keep money in banks.   Microfinance is growing, but won’t be replaced by traditional banking for at least the next 5 years.

8.  What is the prospect for long-term political stability in Africa?

There are countries where political risks are high, but in general there has been a change in quality of leadership, with fewer coups.   There has been a greater consistency of government; and improvement in governance.  Ghana is good example of how good governance has shown benefits to economy.   However, corruption remains a problem across most of the country.  It remains a major deterrent for investment.   The most unstable area of Africa is probably Somalia, which is a risk to all of North Africa, particularly Kenya.   Regional security in North Africa is an ongoing concern.

9.  How are governments increasing the skill level of the workforce?

Quality of labor market depends on quality of education and training.  Besides infrastructure, the lack of a highly skilled workforce is of most concern to investors, particularly those in manufacturing.   Governments are concerned about this because they want to attract investment, and therefore are allocate increasing amounts of money to improve education.

10.  How has investment in agriculture improved?

It has been growing, but from a very low base.   Only 10% of the agricultural land is being cultivated at present.   Ethiopia is an example of a country where investment in agriculture has paid off.

11.  How are governments developing a tax mix between income, corporate and indirect taxes?

As part of reform programs from IMF and World Bank in exchange for debt relief in 2007 and 2008, better fiscal machinery was required.   Much of the fiscal revenue was dependent on taxation from natural resources.   This will have to shift to corporate taxes, but the shift will not happen overnight; it will take a decade.

Africa: potential, challenges & risks


This Economist Intelligence Unit webinar was presented by the EIU Regional Director for Africa, Pratibha (Pat) Thaker on .   The following are my notes from the webinar.

1.  Introduction: Growth forecast optimistic

The continent of Africa is growing faster than any other place in the world other than India and China.   The fastest growing economies in the continent are Angola (10.3%), Nigeria, and South Africa.  Most of the other countries are expected to grow quickly as well; there are some exceptions such as Zimbabwe and Swaziland (-1 and 3% growth, respectively), but these are in the minority.

2.  What is driving growth in Africa

a.  External demand from China and India, particularly for natural resources such as oil (Nigeria and Angola) and minerals (Tanzania).   This demand is keeping commodity prices high, which has fueled much of Africa’s growth recently.   Oil has been discovered in Uganda recently and in Kenya as well.

b.  Domestic demand driven by increasing urbanization and rising disposable incomes.   This is true of emerging service sectors such as telecommunications and banking, but in traditional sectors such as agriculture (Ethiopia, Rwanda).

c.  Political changes have brought stability and growth.   Improved economic management after the debt relief in 2006 and 2007 has led to increased capital inflow.

d.  Demographics:   Africa has the youngest and most populated market in the world.    More than half of population is under 24.   By 2050, Africa’s population will be 2 billion, greater than the 1.6 billion in India or 1.4 billion in China.   Urbanization is rapid: 40% of Africans live in cities; lower than China but higher than India, but by 2030, urbanization will increase to 63% of Africa.   Meanwhile, the middle class is growing and families are starting to have fewer children.   10 years ago the average African woman had 6 children; today she has 5 (compared to the average of 1.7 in Asia).    The growing middle class will create demand for schools and utilities.

3.  Foreign investment in Africa

Foreign direct investment peaked in 2008, dipped in 2009 and 2010 in line with global recession, but has quickly picked up again.   The top three deals that foreign companies have recently made in Africa are the following:

a.  Bharti Airtel (India) buys Zain’s African assets for $10.7B, which overnight allowed it to do business in over 15 African countries.

b.  NTT (Japan) completes takeover of South Africa’s Dimension Data for $3.3B

c.  Wal-Mart (US) buys 51% of SA retailer Massmart for $2.4B after finally winning approval from the competition authorities who were concerned about trade union opposition.   Wal-Mart wants to use South Africa as the gateway to the rest of Africa.

Most African markets are open in telecommunications and banking, but there are some exceptions:  Ethiopia does not allow foreign direct investment in either sector.

4.  Regional trade is growing

There are four main trading blocs in Africa:

a.  SADC (S)

b.  Comesa (SE)—links Egypt to Africa

c.  EAC (E)—integrating the fastest of all blocs; common market introduced in July 2010

d. Ecowas (W)

A common African bloc unifying all four regional blocs will take several years to materialize.   A single currency has been proposed by 2012, but will probably take until 2015 to complete.   A single currency has been proposed by 2012, but will probably take until 2015 to complete.

5.  Key obstacles to foreign investment

1.  Cost and difficulty of setting up a business—varies from country to country:  takes 2 days in Rwanda, 18 months in Kenya, and hard to get business visa in Angola.   Mauritius, South Africa, and Botswana are the 3 easiest locations for doing business in Africa.

2.  Skill shortages, labor market restrictions

3.  High taxes and complex tax systems

4.  Dealing with licenses and property registration

5.  Contract investment

Overall the top worries of investors are the infrastructure and skill level of workers, but improvements are going on in these areas.   In fact, investments in infrastructure and education are some of the most promising areas for growth.

6.  Political liberalization

After Arab Spring last year, what are prospects of an “African Spring”?

Underlying conditions are similar:
a.  Authoritarian governments & geriatric rulers

b.  high unemployment & widespread poverty

c.  corruption & excessive regulations

But there are key differences between Africa and Arab countries:

a.  Larger rural populations in SSA

b.  Less extensive use of the Internet & social networking

c.  Smaller middle class

d.  Less organized opposition groups

e.  Slightly better democratic record

For the above reasons, Pat Thaker thinks it is unlikely an Arab Spring willspread into SSA (sub-Saharan Africa); however, there may be sporadic food and fuel related protests.  However, over the medium term, political pressure on governments to deliver goods and services to people will be ongoing due to the demographic pressures mentioned above.

7.  Conclusion

In short, there has been an increased global understanding of the tremendous potential for growth in Africa in the next 5 or 10 years.