Showing posts with label article. Show all posts
Showing posts with label article. Show all posts
Tuesday, August 24, 2010
FUUO is back!
After a short hiatus I am back! Last week got a little busy and but now I am back ready to write. I took the day off on Monday so sadly this week's blog will have no protester of the week. Hopefully next week they will really step up their game-my request would be for drums and possibly a flute or other woodwind instrument!
Wednesday, August 18, 2010
Article of the Week: Single Region Currency?
A thoughtful editorial that addresses the dangers of adopting a single currency (and especially outsourcing consulting to the European Central Bank) before a political union (or federation) is achieved.
Of course if Gadaffi has his way a United States of Africa would be forming in the near future (http://en.wikipedia.org/wiki/United_States_of_Africa) but let's not hold our breath.
Ideally, the AU needs to better harness the potential power of the RECs (the 8 regional economic communities) and improve their effectiveness FIRST. Their disparate levels of power and effectiveness handcuff Africa on an international/global level.
Kampala — On July 1, 127 million people of East Africa (EA), a block of five nation states with combined purchasing power of $150b became a single market.
In principle a trained chef in Kampala can get a job in a restaurant in Bujumbura, Quality supermarket can start a branch in Arusha or JESA dairy farm can sell its yoghurt in Uchumi in Nairobi.
There will be no border taxes on goods and services or restrictions on movements of labour, capital within the member countries. It is sunrise for the EA consumers, entrepreneurs and service providers. Deepening further the process of integration, plans are in high gear for EA to have a common currency by 2012.
The key question is; can a single currency succeed before a political union in EA? In this piece I explore some of the potential challenges of sovereign states under a common currency.
First, there has not been a smooth implementation of a currency union without a successful political union in human history. The challenge of having fives states with one central bank, single monetary policy without a common treasury can be daunting.
The modern model of a common currency, the Euro-zone is now in disarray because of this structural flaw in design i.e, a common central bank, the common currency (the Euro) but each of the 16 Euro-zone member countries has its own treasury and the Euro-zone is under threat of disintegration.
The European Union countries had similar ambitions like the EAC, but the political union agenda has dragged on and it increasingly gets unlikely that there will ever be a united states of Europe. Will the EAC follow suit if it adopts similar flawed structural design of the integration process? Ironically, the EAC's monetary affairs committee has out sourced the services of the European Central Bank to guide the process of attaining a single currency.
Normally, a government of a sovereign state has two policy instruments for steering its economy to create jobs for its citizens. They keep prices of goods and services stable (control inflation), keep its exports competitive, sustain long run individual and national income growth (GDP) per capita growth and GDP) and maintain macroeconomic stability.
Typically, a central bank manages monetary policy via controlling quantity of money in the economy, interest rates, maintaining prices of goods, services and exchange rate stable. Thus, monetary policy decisions are largely technical and not political, and central banks are supposed to be independent.
When nations join in a monetary union before a political union, it means that a typical member state will have no decision power over the key elements of monetary policy alone. A nation would not be able to control money supply and interest rates to stabilise prices of goods and services and control exchange rate for export competitiveness.
Usually, political and development needs will determine the national budget revenue sources and expenditure priorities.
This is where the problem begins. The European experience reveals that when countries manage their national budgets with different politically guided fiscal policy priorities under a single regional monetary policy, there is bound to be a mismatch. So a common treasury is an essential component for successful integration.
Second, with labour productivity differing significantly in the EAC region with Kenya at the top, more unemployed people, language barriers, movement of workers in the region will be less than perfect.
This, with standardised fiscal and monetary policy discipline, will hurt the weaker members of EAC. For instance, focusing on fiscal policy through budget targets could curtail individual government development projects, stifle employment creation, and reduce tax receipts and exports competitiveness.
This could lead to overall downward spiral in demand of goods and services. Therefore, a single market and currency union are only small steps that can lead forward or stall the integration process. The EAC needs to move a political federation rapidly.
http://fuuo.blogspot.com/2010/08/article-of-week-barrons-africa-final.html
http://fuuo.blogspot.com/2010/07/article-of-week-politically-incorrect.html
http://fuuo.blogspot.com/2010/07/cno-dishes-on-fishor-fish-is-new.html
http://fuuo.blogspot.com/2010/06/vp-bidens-africa-trip.html
http://fuuo.blogspot.com/2010/06/china-in-africa.html
http://fuuo.blogspot.com/2010/04/ethiopia-chinese-fund-to-embark-on.html
Ideally, the AU needs to better harness the potential power of the RECs (the 8 regional economic communities) and improve their effectiveness FIRST. Their disparate levels of power and effectiveness handcuff Africa on an international/global level.
Kampala — On July 1, 127 million people of East Africa (EA), a block of five nation states with combined purchasing power of $150b became a single market.
In principle a trained chef in Kampala can get a job in a restaurant in Bujumbura, Quality supermarket can start a branch in Arusha or JESA dairy farm can sell its yoghurt in Uchumi in Nairobi.
There will be no border taxes on goods and services or restrictions on movements of labour, capital within the member countries. It is sunrise for the EA consumers, entrepreneurs and service providers. Deepening further the process of integration, plans are in high gear for EA to have a common currency by 2012.
The key question is; can a single currency succeed before a political union in EA? In this piece I explore some of the potential challenges of sovereign states under a common currency.
First, there has not been a smooth implementation of a currency union without a successful political union in human history. The challenge of having fives states with one central bank, single monetary policy without a common treasury can be daunting.
The modern model of a common currency, the Euro-zone is now in disarray because of this structural flaw in design i.e, a common central bank, the common currency (the Euro) but each of the 16 Euro-zone member countries has its own treasury and the Euro-zone is under threat of disintegration.
The European Union countries had similar ambitions like the EAC, but the political union agenda has dragged on and it increasingly gets unlikely that there will ever be a united states of Europe. Will the EAC follow suit if it adopts similar flawed structural design of the integration process? Ironically, the EAC's monetary affairs committee has out sourced the services of the European Central Bank to guide the process of attaining a single currency.
Normally, a government of a sovereign state has two policy instruments for steering its economy to create jobs for its citizens. They keep prices of goods and services stable (control inflation), keep its exports competitive, sustain long run individual and national income growth (GDP) per capita growth and GDP) and maintain macroeconomic stability.
Typically, a central bank manages monetary policy via controlling quantity of money in the economy, interest rates, maintaining prices of goods, services and exchange rate stable. Thus, monetary policy decisions are largely technical and not political, and central banks are supposed to be independent.
When nations join in a monetary union before a political union, it means that a typical member state will have no decision power over the key elements of monetary policy alone. A nation would not be able to control money supply and interest rates to stabilise prices of goods and services and control exchange rate for export competitiveness.
Usually, political and development needs will determine the national budget revenue sources and expenditure priorities.
This is where the problem begins. The European experience reveals that when countries manage their national budgets with different politically guided fiscal policy priorities under a single regional monetary policy, there is bound to be a mismatch. So a common treasury is an essential component for successful integration.
Second, with labour productivity differing significantly in the EAC region with Kenya at the top, more unemployed people, language barriers, movement of workers in the region will be less than perfect.
This, with standardised fiscal and monetary policy discipline, will hurt the weaker members of EAC. For instance, focusing on fiscal policy through budget targets could curtail individual government development projects, stifle employment creation, and reduce tax receipts and exports competitiveness.
This could lead to overall downward spiral in demand of goods and services. Therefore, a single market and currency union are only small steps that can lead forward or stall the integration process. The EAC needs to move a political federation rapidly.
Past Articles of the Week:
http://fuuo.blogspot.com/2010/08/article-of-week-barrons-africa-final.html
http://fuuo.blogspot.com/2010/07/article-of-week-politically-incorrect.html
http://fuuo.blogspot.com/2010/07/cno-dishes-on-fishor-fish-is-new.html
http://fuuo.blogspot.com/2010/06/vp-bidens-africa-trip.html
http://fuuo.blogspot.com/2010/06/china-in-africa.html
http://fuuo.blogspot.com/2010/04/ethiopia-chinese-fund-to-embark-on.html
Friday, August 6, 2010
Article of the Week-Barron's Africa the Final Frontier
This is a HUGE article for Africa but I say that with MAJOR reservations. I begin by saying before you invest a dollar there that you first read "Dead Aid" by Dambisa Moyo. In her book she highlights the GROSS misuse of aid in Africa (almost an across the board misuse by the countries there on the continent) which leads me to think that if they can't manage "free money" why should I trust them with my money as an investment?! Of course this question easily serves as a lead-in for one of the points of her book which is that it's easy for corrupt regimes to misue aid because there's so little oversight or repercussions, but you can only ripoff an investor once (hopefully).
A couple of specific issues I had with the article:
1. "The image of lawlessness, corruption, unstable governments, an inadequate infrastructure, uneducated or untrained people and an unwelcoming government attitude toward business serve as major deterrents. That depiction is increasely mistaken"
This is true for a select few countries (just look where our major defense contractors are investing), but by and large this still holds true.
2. "People... are amazed to learn [that Africa] has transformed itself into one of the fastest-growing regions in the world, where banks haven't needed bailing out, no large companies have folded, with no accounting scandals and where the biggest problem businessman have is getting capital to finance growth."
Hahahahahah for so many of those naive 'jingoist' statements.
If you don't have reliable stable banks (as we know them here) to begin with-of course they don't need bailing out.
If you don't have large companies to begin with-of course they can't fold.
There may not have been any accounting scandals (an assertion I find hard to believe)- just civil wars and political scandals and coups.
3. The article trumpets Nigeria as the next Brazil, which it has the 'opportunity' to become to be sure, HOWEVER there is still plenty of corruption to overcome before that happens.
4. The author's assertion that China is "helping to raise income levels on the continent" is an very oversimplified view of China's involvement in Africa! Then the author continues to laud China's efforts at building infrastructure on the continent which is well and good, but completely ignores the detrimental effects of building infrastructure without also building the capacity to sustain and maintain that infrastructure! (See Howard French's The Next Empire from the May issue of The Atlantic Monthly for more on China in Africa)
5. "The consumer growth potential is huge...While many are very poor, incomes generally are rising, thanks to globalization and China's hefty appetite from commodities."
Are you serious?! 'Very poor' is a gross understatement and is also very lazy! Please tell us Vito 'how poor' they are because most Americans can't even begin to fathom just how poor they are.
Furthermore, what does 'generally are rising' mean?! More sloppy journalism! How long have they been rising? In what countries or regions? From what $365 a year to $367? Give us a scale to work with!
Finally, it would be more accurate to say 'thanks to China's pillaging of their natural resources.'
To get a sense on China's involvement in Africa, go to Professor Brautigam's thoughtful blog:
http://www.chinaafricarealstory.com/
Now none of this is to say that there isn't infinite potential for Africa, but our financial investment there needs to be done thoughtfully and in a manner that is globally responsible.
Most of these countries are in their infancy and have been taken advantage of for far too long. The people of Africa deserve to engaged in the process and not merely looked at as pawns in a game of corporate investment chess!
A couple of specific issues I had with the article:
1. "The image of lawlessness, corruption, unstable governments, an inadequate infrastructure, uneducated or untrained people and an unwelcoming government attitude toward business serve as major deterrents. That depiction is increasely mistaken"
This is true for a select few countries (just look where our major defense contractors are investing), but by and large this still holds true.
2. "People... are amazed to learn [that Africa] has transformed itself into one of the fastest-growing regions in the world, where banks haven't needed bailing out, no large companies have folded, with no accounting scandals and where the biggest problem businessman have is getting capital to finance growth."
Hahahahahah for so many of those naive 'jingoist' statements.
If you don't have reliable stable banks (as we know them here) to begin with-of course they don't need bailing out.
If you don't have large companies to begin with-of course they can't fold.
There may not have been any accounting scandals (an assertion I find hard to believe)- just civil wars and political scandals and coups.
3. The article trumpets Nigeria as the next Brazil, which it has the 'opportunity' to become to be sure, HOWEVER there is still plenty of corruption to overcome before that happens.
4. The author's assertion that China is "helping to raise income levels on the continent" is an very oversimplified view of China's involvement in Africa! Then the author continues to laud China's efforts at building infrastructure on the continent which is well and good, but completely ignores the detrimental effects of building infrastructure without also building the capacity to sustain and maintain that infrastructure! (See Howard French's The Next Empire from the May issue of The Atlantic Monthly for more on China in Africa)
5. "The consumer growth potential is huge...While many are very poor, incomes generally are rising, thanks to globalization and China's hefty appetite from commodities."
Are you serious?! 'Very poor' is a gross understatement and is also very lazy! Please tell us Vito 'how poor' they are because most Americans can't even begin to fathom just how poor they are.
Furthermore, what does 'generally are rising' mean?! More sloppy journalism! How long have they been rising? In what countries or regions? From what $365 a year to $367? Give us a scale to work with!
Finally, it would be more accurate to say 'thanks to China's pillaging of their natural resources.'
To get a sense on China's involvement in Africa, go to Professor Brautigam's thoughtful blog:
http://www.chinaafricarealstory.com/
Now none of this is to say that there isn't infinite potential for Africa, but our financial investment there needs to be done thoughtfully and in a manner that is globally responsible.
Most of these countries are in their infancy and have been taken advantage of for far too long. The people of Africa deserve to engaged in the process and not merely looked at as pawns in a game of corporate investment chess!
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