Occupation of an Egyptian factory: downsizing to increase efficiency or cutting people out

Under the previous Egyptian president, Hosni Mubarak, numerous public companies were sold off to the private sector. The process left many workers without employment from layoffs and factory closures. Here is a video of Egyptian workers explaining the situation they are  in as they occupying an abandoned factory.

Privatization was represented as a move to efficient business practice. In that case, it should have helped improve the country’s economy, if we understand improvement to mean better standards of living that would support the basic life needs of people.

This sort of doing business, ‘rationalizing’ both private and public firms, is not unique to Egypt. The problem with its practice is that even if the GDP of a country grows, poverty is in most cases is increasing.

This is true in many countries, no matter the size of their economies. And the practice of buying existing companies (or factories) and shutting them down is not new. On paper, it might even be shown to provide a short-term increase in the nation’s profits, depending on how you like to calculate such things.

For example, a group buys a working factory at low cost, closes it, and sells off all of its assets (machines, land, etc.) for a nice profit over the initial cost of purchase. They might decide to keep a few factories open in the short to medium term with reduced number of employees and call this efficiency. In time, even these can be closed and sold off as social and political pressure from the initial round of mass closures eases up.

Downsizing is another word for this sort of efficiency, putting capital markets in control of business management. For an example of this in the US, during the Reagan’s presidency, see the video clip below. It’s from Adam Curtis’ documentary, The Mayfair Set. I recommend watching the video from about 2 minutes and 10 seconds in.

You can watch the entire four part documentary for free on Youtube .

Start of: Episode 1 | Episode 2 | Episode 3 | Episode 4

Episode one and four are also available at the Internet Archive. Part 1 (the end is missing) | Part 4

China’s foreign aid

Internal reporting on China’s foreign aid has been released for the first time, out this April 21, 2011. In brief, China has mostly invested its funds in infrastructure projects such as transport, power supply, and telecommunications.

The aid comes in the form of grants, and various types of loans. About 41%, by capital investment, of the aid is grants. Of the loans, a little over half are interest free. The interest on concession loans is current indicated as 2% to 3%, and the majority of these types of loans support transportation, communication, and electricity infrastructure.

The Chinese report introduces the subject of foreign aid by plainly indicating the country`s status as a developing country. This is an interesting choice of emphasis, threading the report with a narrative that presents China`s foreign aid as altruistic due to their sharing in spite of domestic difficulties. It also frames the country as part of the club of developing counties rather than as an external philanthropist. I think that the narrative arc of the report, backed by the statistics made available strives to express at least a limited form of solidarity.

You can read the full report, published in English, at Xinhua.

Russia’s presidential tag team continues, the U.S. plans to build new military sites in Central Asia and China’s growth hastens

The expected has happened, which somehow has stirred a lot of speculation about the future of Russia. Prime Minister Vladimir Putin said he would consider taking back the country’s presidency during the 2012 elections.

“Naturally, I am already thinking about this issue with President Medvedev but have decided not to make much fuss about it, not to let ourselves be distracted by this problem,” Putin said to French media.

It appears that the Medvedev-Putin duo are working out plans for the next round of elections and are likely not going to run against each other but manage a deal in which they can together govern Russia as they have been doing after Putin stepped down from the presidency in 2008 and picked Medvedev as his favoured successor.

And it seems that Russia is playing with both Iran and the U.S. by sending mixed messages on its sale of anti-aircraft missiles. Iran wants what is called a S-300 missile defence system from Russia. The order has long been placed, and delayed. Shortly after UN Security Council sanctions were passed against Iran, a Russian arms supplier was quoted saying the missiles would never be delivered.

Russia’s Foreign Minister, on Thursday, responsed to Iran’s complaint and publicly gave hollow assurances. So the official line is that there are no legal constraints holding Russia back from selling S-300 milles (the fourth round of sanctions against Iran really didn’t add much that is new). But, this is a far cry from saying that Russia is prepared to complete delivery. So, it seems the ball is still in play on this one, and Russia is likely using this in negotiations with the U.S. and perhaps to make sure the U.S. keeps its end of any bargain in the long term.

Just a reminder, the U.S. is still set to implement and expand covert military activity inside and around Iran. A directive signed by General Petraeus in September 2009 is still in play, deepening related plans that began under the Bush administration and continue under President Obama.

“The seven-page directive appears to authorize specific operations in Iran, most likely to gather intelligence about the country’s nuclear program or identify dissident groups that might be useful for a future military offensive,” writes Mark Mazzetti in the New York Times.

More recently, it was revealed that the U.S. is indulging in a small building binge: it will be setting up new military facilities in all Central Asian countries. There seems to be a jostling for such facilities between both the U.S. and Russia.

China, meanwhile, is stamping its presence in the same Central Asian countries economically instead, such as by taking majority shares in a Kazakh oil venture in exchange for a US$10 billion line of credit to Kazakhstan. This sort of lavish spending and economic investment is made possible by its fast growing economy, and, maybe, we might also say that its fast growing economy is a little aided by its economic investments.

Numbers just came out: China’s exports have risen by almost 50% over the past year (no that’s not a typo). It rakes in US$1.2 trillion in export revenues in a year. The economy as a whole has grown at a rate of 11.9% in the first quarter, and all this heat is pushing up housing prices very rapidly which could be leading to a real estate bubble in China. Workers have been increasingly demanding that they get a fair share of all of these profits and have staged various actions including strikes. The most famous case, in a Honda plant, has seen wage levels for its workers rise by between 24% and 33%.

As for Turkey, it seems to expect to reap some economic rewards from the sanctions against Iran. Today’s Zaman writes:

“Strategic Thought Institute (SDE) President Professor Yasin Aktay said the sanctions bring advantages that outweigh any damage that they could present for Turkish-Iranian trade. ‘The sanctions are more concerned with weapons and [Iran’s] Revolutionary Guards; there’s not much activity between [Iran and Turkey] in these fields. Our trade with Iran is concentrated in oil, natural gas, industry and consumer products,’ Aktay said. He further commented that sanctions had above all a strong psychological effect and that this could lead to increased trade with Turkey in fields not covered by the sanctions. ‘It’s an important position to be in when you are a country that can say ‘no’ and remain on its feet; there’s no better public diplomacy than this,’ he said.”

Currently, a natural gas pipeline delivers US$1.5 to US$2 billion of energy from Iran to Turkey each year, and there is talk of more such ventures. In various statements in the early part of this year, Turkish leaders have suggested significantly multiplying trade with Iran, which is at the moment focused on transfers of energy.

(First published at Rabble.ca)

Seven of ten top companies in oil; World’s top 10 companies richer than Egypt

The world’s four largest companies are richer than all but two of the Middle East’s leading economies. Turkey and Saudi Arabia are the only exceptions to this case.

Of the top 10 largest global companies in 2009, 7 are in the business of energy and hydrocarbons, 4 of them are from the USA, and 2 from the Netherlands.

Here they are in ranking by revenues (source: CNNMoney.com’s Fortune magazine):

1. Royal Dutch Shell, revenues of: $458.4 billion (Netherlands) Hydrocarbons 
2. Exxon Mobil: $442.9 billion (USA) Hydrocarbons
3. Wal-Mart: $405.6 billion (USA)
4. BP: $367.1 billion (Britain) Hydrocarbons
5. Chevron: $263.2 billion (USA) Hydrocarbons
6. Total: $237.7 billion (France) Hydrocarbons
7. ConocoPhillips: $230.8 billion (USA) Hydrocarbons
8. ING Group: $226.6 billion (Netherlands)
9. Sinopec: $207.8 billion (China) Hydrocarbons
10. Toyota Motor: $204.4 billion (Japan)

Here are some of the Middle East’s top economies by GDP (2008, from the World Bank):

Turkey: $734.9 billion

Saudi Arabia: $468.8 billion

Iran: $286.1 billion (2007)

Israel: $202.1 billion

Egypt: $162.3 billion

And now for the top 10 world economies by GDP (2008, from the World Bank):

1. USA: $14,093.3 billion
2. Japan: $4,910.8 billion
3. China: $4,327.0 billion
4. Germany: $3,649.5 billion
5. France: $2,856.6 billion
6. UK: $2,674.1 billion
7. Italy: $2,303.1 billion
8. Russian Federation: $1,679.5 billion
9. Spain: $1,604.2 billion
10. Brazil: $1,575.2 billion

Turkey in numbers: a growing population and general economy

Here is quick and rough compilation of statistics on Turkey:

Population

Turkey’s population was estimated to be 74.8 million in 2008, up from 67.4 million in 2000. 27.3 million people are less than 15 years of age, and 6.1 million are 65 and over. (1: Country statistical profile 2010: Turkey — OECD)

68.7% of the population lives in urban areas. (2)

Education

There is 88.7% literacy among adults 15 years and older. (3)

There were 25.4 million (34.4% of the population) Internet users in 2008, up from 9.9 million (13.9%) in 2005. (4: Word Bank statistics, from Download Data spreadsheet)

Health

Spending on healthcare accounted for 5.7% of GDP in 2005 (there is an average of 8.9% in the OECD). The US spends the most on healthcare within the OECD, with 16% of GDP in 2007, followed by France at 11%.

Turkey has the lowest health spending per capita within the OECD.

The share of public spending on healthcare has increased in Turkey from 63% in 2000 to 71% in 2005 (the average in the was OECD 73% in 2005).

Between 1960 and 2007, Turkey has had increase in life expectancy of 23 years, to 71.8 years by 2007 (OECD avg of 79 years).

(5: All data for health sourced from an OECD report here)

Economy/GDP

Between 2001 and 2007, Turkey’s GDP has increased by 242% to reach $656.6 billion in 2007, to become the 15^th largest economy in the world. (6: Captured on June 10, 2010 from the Foreign Economic Relations Board of Turkey, here)

Turkey’s GDP is expected to grow by 6.8% in 2010 compared to a 3.7% average for the OECD. It shrank by 4.9% in 2009, the country’s worst recession in over half a century (7). The recession began in 2008, when the country’s GDP grew by a little less than 1%. (8)

Its GDP in 2008 was $734.9 billion. (9)

Investors in Turkey are diversifying from traditional investments in Europe to include Russia and the Middle East and Brazil as economic demand in Europe remains weak. (10)

Tax revenues made up 18.6% of GDP in 2008. (11: Word Bank statistics, from Download Data spreadsheet)

The country had gross savings at 17.7% of GDP in 2008. (12: Word Bank statistics, from Download Data spreadsheet)

About 31% of income share was held by the wealthiest 10% of the population in 2006. About 2% was held by poorest 10% in the same year. (13: Word Bank statistics, from Download Data spreadsheet) I tried to compare this the situation in the USA but the World Bank’s data spreadsheet did not have recent numbers. It did have numbers for 2000 though, which indicate that the richest 10% of the population held 29.9% of total income while the poorest 10% of the population in the US had 1.9% of income share. By all accounts this gap has since widened.

Employment

Unemployment is expected to remain a problem as the population continues to grow. (14)

Unemployment stood at 9.4% in 2008. (15: Word Bank statistics, from Download Data spreadsheet)

Trade

Trade accounted for about 26.1% of the share of GDP in 2008, up from 21.6% in 2000. (16)

At the same time, Turkey has a growing negative trade balance, importing more than it exports. (17)

Turkey imported 73% of its energy needs in 2007. (18: Word Bank statistics, from Download Data spreadsheet)

Odd assortment of barred goods to Gaza

“Newspapers, tea, A4 paper and chocolate are among the items that have at one point been barred,” from entry into the Gaza strip, writes the Economist. Gisha, an Israeli human rights organization has a recent partial list of barred and permitted goods into Gaza.

Gisha’s site provides helpful answers to frequently questions regarding the blockade.

The long siege of Gaza

The Gaza Strip has been under siege for a long time. As a result, people are out of jobs, have trouble finding adequate housing, healthcare has suffered, unemployment risen, and the economy taken a lethal beating.

Gaza is densely packed with some 1.5 million people. The Majority of Gazans are refugees who fled or were expelled from the land that is today Israel following the Arab-Israeli War of 1948. Over 3/4 of residents are registered refugees. Most Gazans live in refugee camps.

Over half of these refugees live in eight large camps. These camps depend on UN deliveries of aid for food, health, and education.

The UN states that:

The refugee camps in the Gaza Strip have among the highest population densities in the world. For example, over 80,688 refugees live in Beach camp whose area is less than one square kilometer. This high population density is reflected in the overcrowded UNRWA schools and classrooms.

In February 2009 The Word Health Organization assessed the damage following the 2008-2009 Israeli invasion of Gaza, and found that nearly half of health facilities assessed were damaged or destroyed during the attack. The same report indicated that during the war, over 430 children and 112 women were killed, while nearly 1900 children and about 800 women were injured.

The siege and suffering of the people of Gaza has been long lasting.

The BMJ medical journal published a survey in 2002 indicating that, in the Gaza Strip, “13% of children under 5 years old were suffering from short term malnutrition and almost 18% had long term malnutrition—compared with a level of about 2% in countries that the World Health Organization defines as having moderate malnutrition.” Things are bad when almost a third of children under 5 suffer from malnutrition.

Since the 2007 Hamas takeover of Gaza, Israel has greatly intensified the blockade of the Gaza Strip, cutting off the region from the outside world, and reducing to a trickle access to essential supplies.

The UN Food and Agriculture Organization (FAO) released a report in May 2010 that found “46% of agricultural lands were assessed to be inaccessible or out of production in Gaza.“

The FAO report further states that:

The  Agriculture  Sector  in  the Gaza  Strip  has  the  potential  to  export  2300  tons  of strawberries,  55  million  carnation  flowers,  and  714  tons  of  cherry  tomatoes  per annum  in addition  to  locally consumed products. There has been close  to zero export  activity  due  to  restrictions  since  the  blockade.  Exceptions  to  these  export restrictions  during  the  last  winter  season  presented  little  change  with  only  2%  of strawberries and 25% of  cut  flowers of  the  total pre‐blockade potential  for export.

[...]Since January 2009, fishers’ access to fishing grounds has been further restricted to 3 nautical miles (nm) from the shore. This has resulted in a depletion of catches and revenues.

In Gaza, the majority of profits from fishing come from sardines, however, schools of sardine pass beyond the 3 nm mark and sardine catches are down 72%.

Adult  fish are mostly  found beyond  the 3 nm  limit and  therefore  fishing within  the current  zone  rapidly  depletes new  generations of  fish, with  severe  implications  for fish life‐cycles and therefore long‐term fishing livelihoods. (The previous fishing zone was 6‐9 nm before  ‘Cast Lead’, 12 nm from Bertini Commitments, and 20 nm under the Oslo Accords.

A World Bank report from 2008 indicates that “according to business associations in Gaza, the current restrictions have led to the suspension of 96% of Gaza’s industrial operations.”

Most Gazan industries are export-oriented and have purchase and supply contracts with Israeli and other firms. Gazan manufacturers rely almost entirely on imports for their inputs and until recently, about 76% of their furniture products, 90% of their garments and 20% of their food products were exported to Israel, and some to the West Bank.

China in the Middle East

China’s influence in key Middle Eastern countries has increased thanks to its economic clout. It is becoming a primary export market for countries of the region (and much of the world in general), while also making significant and strategic investments in numerous regions.

From a FPIF/Asia Times article:

In the past five years, China has emerged as the major investor in Iran, with an estimated US$120 billion worth of energy investments. Despite the sanctions already in place, trade between the countries grew by 35% in 2008, to $27 billion. In 2009, China signed over $8 billion in new energy investments. Seemingly, there is an emerging China-Iran tandem.

Saudi Arabia and Iran are among China’s biggest suppliers of crude oil.

China is Saudi Arabia’s top export market. Trade between the two countries had increased to US$41.8 billion in 2008. 16,000 Chinese workers were employed in Saudi Arabia in 2009, representing 70 companies.

It is estimated that in 2010 China will be Egypt’s largest trade partner.

The world’s prime oil route: The Strait of Hormuz

The Strait of Hormuz is one of the world’s most important waterways. Some 40% of all seaborne oil passes through this narrow passageway, which is equivalent to about 20% of total oil traded worldwide. This amounts to 16.5 to 17 million barrels per day, according to the US Energy Information Administration. The strait is vital to the international economy; it is the access point to the heart of the world’s largest producers of oil, such as Saudi Arabia, Iran, the UAE, and Iraq.

This very narrow waterway lies between Iran and Oman. It is about 34 km (21 miles) wide at its narrowest point. The strait is so shallow that oil tankers can effectively navigate only some 9.7 km (6 miles) of the width. According to Finian Cunningham, writing for Globalresearch.ca, 2 miles are reserved for traffic into the Gulf, 2 miles for traffic leading out, and 2 miles as a buffer zone between the two lanes.

Cunningham writes that “[u]nder international maritime law, Iran (along with Oman) has sovereign territorial rights over these waters. Iran has under United Nations law agreed to grant ‘innocent passage’ to ships through its waters provided there is no infringement of its security.”

In comparison to the Strait of Hormuz, other significant seaborne chokepoints for the transit of oil include the Suez Canal (4.5 million barrels per day), and the Strait of Malacca (15 million barrels per day). The Strait of Hormuz does not only see more transit of oil, but it is also the passage on which the other straights depend for much of their own traffic since most oil exported from the the energy abundant Gulf states are overwhelmingly reliant on Hormuz to access global markets.

More from the US Energy Information Administration:

In 2007, total world oil production amounted to approximately 85 million barrels per day (bbl/d), and around one-half, or over 43 million bbl/d of oil was moved by tankers on fixed maritime routes. The international energy market is dependent upon reliable transport. The blockage of a chokepoint, even temporarily, can lead to substantial increases in total energy costs.

The bulk of the Middle East oil passing through the Strait of Hormuz makes its way to Asia, the US, and Western Europe.

3/4 of Japan’s consumption of oil passes through the strait.

China, the world’s second largest oil consumer, sources over 70% of its imported oil from the Middle East, according to the People’s Daily.

India depends on the Middle East for nearly 74% of its imports of crude oil (2007-8).

South Korea received over 80% of its imported crude oil from the Middle East for the greater part of 2009.

The US imports about 24% of its crude oil from the Gulf (2008).

USAID funds an expensive power plant that may never be used in Afghanistan

President Karzai energizes a substation to begin the transfer of electricity from Uzbekistan to Afghanistan. (Source: USAID)

A USAID funded, foreign constructed power plant in Afghanistan has become a money sink and may never be used by the local government due to its extravagant maintenance costs.

The diesel-powered plant is nearly complete, yet its future is uncertain, and events so far have been stitched with controversy. Pratap Chatterjee, in an IPS article, writes that, “three independent investigations into U.S.-financed reconstruction of the Afghan electricity sector, as well as IPS interviews with Afghan government officials and contractors, suggest that the power plant – which will cost taxpayers almost three times as much as comparable projects – may never be used.”

First the U.S. planners chose to ignore other ongoing reconstruction projects that were cheaper and more likely to succeed, or to pay attention to alternative recommendations from Afghan government officials.

Second, the planners picked expensive technologies that the city of Kabul could not afford to maintain or utilise.

The project was launched in 2007, as a joint venture between two US contractors, Louis Berger and Black & Veatch. In an earlier post, I had mentioned a previously bungled construction contract by Louis Berger.  They had received a contract to build 1,000 schools, each costing US$274,000.  The schools were built according to designs suitable for the US, not Afghanistan. They did not consider local climate, nor local cost considerations. The Afghan government not only has to worry about maintaining these expensive schools, they might not even be usable. In January 2009, Ann Jones, who for years worked in Afghanistan as an aid worker, said that Louis Berger, “already way behind schedule in 2005, had finished only a small fraction of them when roofs began to collapse under the snows of winter.”

The 105 megawatt power plant under construction is estimated to cost over US$300 million, the latest price tag being given after several cost hikes in the project’s life span.

Chatterjee writes that “the power plant is expected to be completed this spring. But the electricity is no longer urgent. One year ago, a 300-megawatt power line to Kabul from Uzbekistan was completed, with funding from the World Bank, German and Indian governments. The construction cost was just 35 million dollars and the operation costs are expected to be just over six cents a kilowatt hour compared to the 22 cents a kilowatt hour that it will cost to run the diesel plant.”

The contract was awarded by USAID under a cost-plus deal. Cost-plus contracts guarantee a set profit above the cost of projects. This has become a preferred form of contract for Western firms taking on US government contracts in Afghanistan and Iraq. The argument in favour of them is that, given the poor security conditions of these countries, and the uncertain costs of construction in a war zone, private firms want a guarantee of profits before they begin work. The problem here is that, in this schema, there is no incentive for contractors to limit costs, and they could very well gain by pushing them up and generating more work for themselves knowing full well that they will get their share of profits no matter what.

Chatterjee’s report revealed the following:

“This situation illustrates the twin policy evils of the cost-plus contracts,” says R. Scott Greathead, a New York lawyer who advised Symbion on the project. “First, they impose no cost or penalty on the cost-plus contractor for its incompetence, inefficiency or failure to perform, and second, they punish two victims, the fixed-price subcontractor, who incurs costs that may never be fully reimbursed, and the U.S. government, which pays in the end for everything.”

Construction of the power plant has been slowed by disagreements.

On May 19, 2009, Symbion [a subcontractor] stopped work – because Black & Veatch had failed to pay them for four months. A USAID Inspector General audit published in November 2009 found that Black & Veatch “had charged USAID for subcontractor costs that the contractor had not paid the subcontractor.”

The power plant, near Kabul, is said to cost nearly three times more than similar projects.

Afghanistan’s 2008 annual government revenue was estimated to be about US$685 million according to the minister of finance, Anwar-ul-Haq Ahadi, during an interview with foreign press.