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Opportunities and Challenges of International Retailing in China

Night view of Nanjing Road in Shanghai.

By Lisa Qixun Siebers

The performance of foreign retailers in China has shown a reversed U shape since their market entry in the 1990s. By the destruction of digitalisation, large retail giants continue to reduce both the number and the size of their stores, protecting bigger loss but worsening their sales too. They launched omnichannel retail after China’s online sales had started to soar in 2010 and introduced the experience-based retail ecosystem mostly in collaboration with local companies. However, their long-term performance will largely rely on the local consumption demands and institutional environment.

China has become the world’s largest e-commerce market, accounting for 40% of the value of worldwide e-commerce transaction by 2017, up from less than 1% ten years ago. China’s online retail market has also become the world’s largest, with a 38% annual growth rate of US$830 billion by 2017, compared to 14% in the U.S. In 2016, China’s internet users reached to 731 million, overtaking the combined number of the European Union and the U.S.; 20% of the internet users rely on mobile only, compared with 5% in the U.S., and China’s mobile payment has 11 times the transaction value of the U.S. The online competition has boosted customer-centred and experienced-based innovation in a physical shopping environment, represented by Life Mall (e.g., Parkson from Malaysia) and themed department store – Fashion Gallery (e.g., the New World from HK). Most of the foreign retailers have also started to emphasise private labels or owned brands, such as Carrefour’s Quality Line and French Touch brands. For foreign retailers or brands to succeed, it is important to understand the key development stages of China’s retail sector and what foreign retailers have experienced in the market in order to set up potential effective strategies they may implement in the future.

To increase online sales, many foreign retailers have collaborated with Chinese online platforms such as Alibaba and JD.com or social media platforms such as WeChat owned by Tencent Group to increase sales through e-tailing.

1995 – 2005 market development

China opened its retail market in the mid-1990s, when foreign retailers started to enter by introducing retail formats that were new to Chinese consumers, such as supermarkets and hypermarkets. They were obliged to adapt to the local environment such as laws and regulations after entry and used adaptation strategies to penetrate the market. China retail sector fully opened in 2004 following the World Trade Organisation agreement, when foreign retailers obtained all freedom to expand in the country. Until then, they have cultivated the shopping habits of Chinese consumers who switched their shopping from merely local open market to sometimes supermarkets, especially the middle class enjoyed more shopping in modern retail format. During this period, price was the key competitive factor.

2006 – 2010 market competition

After fully openning China’s retail market, competition has increased. Domestic retailers started to benefit from foreign retail knowledge transfer and capable human resources who change their jobs between foreign and domestic retail organisations. The Chinese government also encouraged domestic retailers to compete with foreign rivals. For example, the merge of two large Chinese supermarkets Lianhua and Huanlian in 2010 formed the largest supermarket chain in China, managed by state-owned parent company Bailian Group.

2010 – date growth potential

Benefiting from the increase in the number of middle class and the improvement of technological infrastructure, China’s internet sales started to soar in 2010, resulting in the declination of large-sized physical stores. Some foreign retailers exited from China, e.g. Best Buy; some sold majority of their shares to local companies such as Tesco and B&Q. Majority of foreign retailers closed stores that did not make a profit, including Wal-Mart and Carrefour.

Since 2015, the Chinese central government called for participation of provincial governments, the general public, and online retailers to encouraging digital players to experiment before enacting official regulations. Since 2016, the Chinese central government has encouraged high-level offerings of both products and services and collaborations between physical stores and online platforms, calling for retail stores to improve their uniqueness, core competencies, and differentiation. In 2017, the first cybersecurity law became effective, which includes measures to protect personal information, security requirements for network operators, and restrictions on personal and business data transfers. There are intensive activities undertaken by retailers both online and offline. On the one hand, the majority of retailers started to emphasise their online businesses; on the other, online retailers started to open physical stores. For example, Alibaba’s Hemashengxian (‮٢٠‬马٪ح鲜) sells fresh food in residential areas to provide convenience to customers.

To increase online sales, many foreign retailers have collaborated with Chinese online platforms such as Alibaba and JD.com or social media platforms such as WeChat (the Chinese twitter) owned by Tencent Group to increase sales through e-tailing (electronic retailing). For example, Wal-Mart formed a collaboration with both JD.com and Tencent in 2016 and mid-2018 respectively. By August 2018, some stores of Wal-Mart in Shenzhen (where its headquarter is located) have achieved 50% of its total monthly sales online; Carrefour is collaborating with Tencent too; RT-Mart is collaborating with Alibaba; and new entrants Macy’s, Costco, Woolworths, and Sainsbury’s chose to enter online first by collaborating with Alibaba’s Tmall. Virtual platforms help to enhance customer experiences by offering fast information flow and providing convenience in purchasing and delivery.

Consequently, there is also a trend of continuously expanding physical stores, especially shopping malls, where experience-based shopping environment has been intensified. Many shopping malls have been upgraded to include entertaining and services centres such as floors for dining, children’s playground, gym and so on. Some retailers use high-tech to provide the advanced virtual environment, such as B&T (the new name of B&Q in China) introduced online showroom in store in 2017, by which consumers can see how products look like when in a room by clicking on the screen while passing by these products. Others open flower shows or mini zoos in their shopping malls to attract customer flow. These possibilities attract more retail investors in physical stores. For example, the British department store House of Fraser opened its first store in Nanjing in 2016, named East Fulaide (东‮$‬و:ض来‮<‬w, meaning Eastern happiness and virtue), offering over 20 private labels.

Challenges forward

Aging population and reduction of birth rate

By 2014, China has had over 0.2 billion aging population, which is expected to increase to 0.4 billion by 2030. Because China had a high birth rate between 1962 and 1972, after 2020 this population is becoming aged consumers. The case of the aging population in China is different from that of the U.S.A., Europe, and Japan because of these people age before having become middle class. This situation worsens combined with the one-child policy that impacted the same population. There are an increasing number of households without young residents, which will impact on retailing.

The average birth rate against the number of women of childbearing age was 1.05 in 2017, meaning that by every other generation, the population will be cut in half. As a result of both an aging population and low birth rate, the retail consumption is expected to reduce.

The birth rate in China faces severe challenges. The second child policy implemented by the Chinese central government in 2017 has not seen effective results. Small-sized families will continue to dominate the retail market. The average birth rate against the number of women of childbearing age was 1.05 in 2017, meaning that by every other generation, the population will be cut in half. The dependency ratio will change from 5.8 laborers supporting one aged man in 1988 to 1.9 labours to one aged man in 2030. As a result of both an aging population and low birth rate, the retail consumption is expected to reduce.        

Residential retailing

The ways of consumption have changed as the population born in the 1990s have become the main consumption force, challenging existing ways of retailing. An increasing number of consumers in this group are becoming middle class or new entrepreneurs. They are not only hard working adopting traditional Chinese working culture but also adopt a lifestyle for enjoyment. Considering this group of consumers and the increase of small-sized household and aged population, in the coming decades, a retail transformation that provides life solution in residential areas is expected to be popular. In the current situation, residential grocery stores simply sell goods to community residents. Their competitive advantage focusses on prices. There is a need to transit from this price competition to value improvement, emphasising both communities and fresh supermarkets in the communities.

Competing with rural retailing

Rural consumers account for about 30% of Chinese online purchasers, about 186 million out of a total of 668 million online purchasers according to data in China Daily in 2015. Under the Chinese central government’s support, the growth of e-commerce in rural areas overtook that of cities in 2016 and reached US$133 billion, about a five-fold increase from 2014, making up 17.4 percent of the whole e-commerce sales. The three Chinese e-tailing giants (Alibaba, JD.com, and Suning) have stepped up their efforts to develop rural e-commerce since 2015. This fast rise of rural e-tailing also put pressure on foreign retailers to enhance their online sales strategies. New alliances with local online platforms have become an important approach for foreign retailers to enhance customer experiences, transfer store information, and provide convenient services.

Although there is growth in online sales from both city and rural areas, the overall retail growth in China is expected to slow down in the next two decades, mainly due to the expected increase in costs as a combination of results from low birth rate, aged population, and changes in shopping behaviours.

 

Expected slow retail growth

Although there is growth in online sales from both city and rural areas, the overall retail growth in China is expected to slow down in the next two decades, mainly due to the expected increase in costs as a combination of results from low birth rate, aged population, and changes in shopping behaviours. Currently, online shoppers are mainly younger consumers. For those retailers which target at the population who were born in or after the 1990s, it is important to offer a lifestyle that fit these generations. Moreover, such institutional issues as dealing with state-owned enterprises and local government as well as seeking local human resources remain as challenges faced by international retailers in China. Crucially, the strength of the capital determines long-term success. Most foreign retailers including the currently fast-growing convenience stores may make a profit between 8 and 20 years. This can be an advantage for large retail giants with strong capital, for example, Lawson has just started to make a profit after its market entry in 1996 from Japan. From the holistic picture discussed from foreign retailers’ market entry stage to their processes of digitalisation, while there is potential growth in the market, it is apparent that market competition and institutional impacts may put some foreign operations at a disadvantageous position if without appropriate strategies. 

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About The Author

Lisa Qixun Siebers is Associate Professor of International Business at Nottingham Trent University, UK. She obtained her first degree in economics in China and MBA and Ph.D. degrees in the UK. She has been investigating foreign retailers’ expansion in China from the 1990s to date and has disseminated her work in books, journals, news articles, and online resources. Her monograph entitled Retail Internationalisation in China: Expansion of Foreign Retailers was published in 2011.

How to keep the Philippine economic future on track

A money bill looking like a growth graph with an upwardspointing arrow symbolizing economic relationships.

By Dan Steinbock              

The Philippines is on the right path, if the government can continue to balance between strong growth amid international uncertainty, while pushing reforms that raise living standards. Inflation and foreign investment tell the story.

According to the just-released report by the International Monetary Fund (IMF), Philippine real GDP grew by 6.7% in 2017 and by 6.3% in the first half of 2018 on a year-to-year basis, led by strong public investment.

The current challenge is inflation, which rose to 6.4% in August 2018. That’s an average of 4.8% percent year to date, which is above the inflation target band of 2−4%.

The medium-term challenge is the infrastructure program, particularly foreign investment which supports investment growth – and which has taken off dramatically in the Duterte era.

The forces behind inflation

Self-induced policy mistakes play a role in higher-than-expected inflation. The IMF attributes more than half of Philippine inflation to price increases in food, beverages and tobacco, particularly rice.

The National Food Authority administrator resigned a month ago after failures to purchase enough rice grains from local farms to stave off the need to import. The IMF supports the Philippine policymakers’ plan to replace the rice import quota system with one based on tariffs, while stressing the need to support small farmers affected by the reform.

As monetary policy has been accommodative, inflation has been driven by adjustments in excise taxes, rising oil prices, the weaker peso, and above-trend growth. That’s why Bangko Sentral raised its benchmark interest by half a percentage point last week. Inflation remains the top concern of Filipinos, as evidenced by the recent Pulse Asia survey.

The IMF supports the Philippine policymakers’ plan to replace the rice import quota system with one based on tariffs, while stressing the need to support small farmers affected by the reform.

The effort to curb inflation must remain elevated, however, because inflation may remain a challenge in the foreseeable future. First, while real GDP growth is projected at almost 7% over the medium term, inflation has also been projected at above the 4% upper target bound in 2018 and around 3−4% during 2019–20. Recent monthly figures exceeded the target bound by margin that’s too wide. Second, in normal times, mild discrepancies could be tolerated. But these are no normal times, as evidenced by the Fed’s rate hikes, strengthening dollar and escalating trade wars.

That’s also why Philippines is not alone in this battle. In my last column, I showed how the U.S. rate hikes and the dollar have penalized emerging Asian currencies causing significant damage in Asia’s most rapidly-growing economies, including India, Indonesia and the Philippines.

That’s why Indonesia’s central bank raised its policy rate to 5.75% last Thursday. The Bangko Sentral has raised rates by 150 basis points since May, which is its most aggressive tightening since 2000. Indonesia’s rate hikes this year also amount to 1.50 percentage points. India’s central bank has already raised its rate to 6.5% and is expected to hike ratesates for the third time in October.

The difference of capital flows in Aquino and Duterte eras

Following surpluses before 2016, the current account deficit widened to 0.8% of GDP in 2017, driven mainly by imports of capital goods, oil and raw materials, reflecting strong investment growth. According to the IMF, the Philippine current account deficit is projected to remain manageable. In this view, Philippine output would stay above potential in 2018-20, even though the current account deficit may widen to 1.5% of GDP in 2018 driven by a continued rise of capital goods imports, mostly financed by foreign direct investment (FDI).

The U.S. rate hikes and the dollar have penalized emerging Asian currencies causing significant damage in Asia’s most rapidly-growing economies, including India, Indonesia and the Philippines.

Here’s the difference between the Aquino and Duterte governments: In the Aquino era, early optimism and promises to change the FDI legislation paced an increase of capital flows in the early 2010s. But these flows represented mainly portfolio and other investments, not foreign investment. Eventually, these capital inflows reversed into significant outflows. In the Duterte era, early optimism and promises to bring in more FDI have paced a dramatic increase of capital flows, which could be sustained until early 2020s (Figure).

 

Figure: Great Difference: Capital flows in Aquino and Duterte Eras*

* Capital Flows (In billions of U.S. dollars, + = inflow) 

Source: Data from IMF(September 2018)

 

True, the current account balance declined in 2017, as the critics complain, but it did so mainly due to higher investment, which reflects Philippines attractiveness as an investment destination, and higher oil prices, which are not under the control of domestic policymakers. Moreover, last year FDI inflows more than offset the outflows in portfolio and other investment.

In the Duterte era, early optimism and promises to bring in more FDI have paced a dramatic increase of capital flows, which could be sustained until early 2020s.

It is also true that international reserves have declined in the Duterte era. However, Philippine reserves remain higher than in most emerging economies worldwide – and significantly higher than in India and Indonesia which cope with similar challenges.

That’s precisely why the overwhelming majority of Filipinos oppose any effort at a destabilization of the Duterte government. That’s why they stand behind its economic program and the war against drugs and corruption. They want no return to the past. They want the economic future that has eluded them far too long.

The original commentary was released by The Manila Times on October 1, 2018

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About the Author

Dr. Dan Steinbock is the founder of Difference Group and has served as research director at the India, China and America Institute (USA) and visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more, see https://www.differencegroup.net/

Dubai is Boosting Startups and SMEs – Are You Capitalising?

Spectacular skyline of Dubai, UAE. Futuristic modern architecture of a big city at sunset. Aerial view.

By Neil Petch

In this article, the author outlines the latest and most exciting entrepreneur-friendly initiatives from the Dubai Department of Economic Development (DED), and summarise how they can help catalyse your business activities in the UAE.

It’s good to know that the UAE government continues in its determined push to make it as easy as possible for entrepreneurs to start and grow an enterprise. Proof of this proactivity is in the avalanche of new initiatives aimed at cutting red tape and fostering growth. There are also services available like this accelerator program Dubai as well, aimed at startups.

Commenting on the World Economic Forum website, Dr. Aisha Bin Bishr, Director General of the Smart Dubai Office explained: “We have established an international reputation as an economic and investment centre. And we have achieved this success by diversifying our economy through vast development in sectors such as tourism, real estate, retail, travel, logistics, and finance.”

In fact, the city’s Department of Economic Development (DED) has gone into overdrive to help entrepreneurs start and grow their ventures.

There’s a wealth of information out there, so to help out, I’ve pulled together the latest and most exciting  entrepreneur-friendly initiatives from the Dubai DED (below), and I’ve summarised how they can help catalyse your business activities in the UAE.

What Dubai’s DED does for you

The Dubai DED is a government body that “is entrusted to set and drive the economic agenda of the emirate of Dubai.” Its objective is to support the transformation of Dubai into “a diversified, innovative service-based economy that aims to improve the business environment and accelerate productivity growth.”

This is great for Dubai as a city, but what about for your venture specifically?

The good news for startups is that the Dubai DED initiatives help business owners launch and expand their operations without the need for lengthy processes and administration. Here’s how:

The good news for startups is that the Dubai DED initiatives help business owners launch and expand their operations without the need for lengthy processes and administration.

 

1. Freeze on government fees

The recent decision to freeze government fees (such as business licensing and real estate approvals) for the next three years in Dubai was met with much praise, and relief.

The fee freeze comes at a time when many SMEs are facing challenges in securing funding for working capital and business expansion, with banks implementing tighter lending standards. Even more welcome after the UAE’s introduction of a 5% value-added tax (VAT) this year.

State news agency WAM reported in March that the move is aimed at “promoting Dubai’s economic competitiveness, enhancing social stability and supporting investments in Dubai.”

2. E-commerce

Dr Bin Bishr says digitalisation has played a key role in the transformation of Dubai into a global city, and regional business and tourism hub, opening up opportunities for startups and SMEs.

On the e-commerce front, help is at hand for licenced e-traders working from home. In a joint venture, the Dubai DED and Emaratech – part of the Investment Corporation of Dubai – have unveiled plans to launch DubaiStore, the first local online marketplace to focus on SMEs and home-based e-traders.

The new initiative, entitled Digital Economy Solutions (DES), will focus primarily on promoting businesses, and there’s no danger of direct competition since DubaiStore does not own or sell any products of its own.

Due to be launched in the third quarter of 2018, it will provide a platform for these licensed e-traders. Consumers can access a range of products, many of which are not found in the retail market, creating a new sales avenue for SMEs.

Digitalisation has played a key role in the transformation of Dubai into a global city, and regional business and tourism hub, opening up opportunities for startups and SMEs.

 

3. Stimulating competition

The support doesn’t stop there. The Dubai DED is implementing a new package of government reforms to stimulate competition and achieve sustainable economic development in Dubai, WAM reports. It includes:

• Proposals to allocate 20% of government tenders to SMEs – enabling smaller businesses to gain a foothold in government programmes that might otherwise have seemed out of reach.

• Exemptions from fines and trade violations – to reduce the financial burden on businesses.

•  A retail cost reduction programme – to reduce operating costs in the retail sector and ensure retail real estate rent increases are fair and reasonable.

• A local production and procurement support programme – to encourage companies to procure goods and services from local suppliers rather than from abroad. This will support entrepreneurship and increase domestic investment in production by involving local commercial banks in extending facilities and financing to local firms, as well as enhancing cash flows in the SME sector.

•  Continued support – to establish, grow and expand startups by attracting the world’s leading business incubators and accelerators with a global network of resources.

The Dubai government’s new package of reforms also includes developing low-cost family tourism systems through a timeshare basis, and the introduction of a mortgage law to enhance demand and prices in the real estate sector.

In terms of the government tender reform, it’s worth noting that before a business can submit a tender for a government job, they must first register with eSupply, the online eSupply portal operated by Dubai eGovernment and procurement firm Tejari. Also, as per dubai.ae, the official portal of the Dubai government, companies must be certain that they can meet departmental requirements before they’re considered eligible for hire.

There are also plans to encourage more involvement from international companies. The new reforms include a proposal for a consultative council whereby international companies will be invited to participate in shaping legislative changes needed to enhance investments and competitiveness. This will be managed by Dubai Chamber of Commerce and Industry according to Reuters.

This is a great time to create and innovate in Dubai, and those who take advantage now stand all the more chance of gaining significant competitive advantage.

 

4. Business as usual

Don’t forget, as well as these reforms, the Dubai DED also provides services to protect day-to-day business operations. This includes support with IP/trademark or agency complaints, payment vouchers, NOC registration and grievances. Assistance is also provided in the form of legal assistance such as help with sale of share contracts and advice on business laws and regulations.

 

5. Digital transformation

So we’re clear the Dubai DED offers a wealth of support for entrepreneurs, but this is only part of the story. As previously mentioned, Dubai is undergoing a massive programme of digital transformation set to bring major benefits for startups and SMEs alongside the rest of Dubai. Indeed according to Digital Middle East by Digital McKinsey, the UAE government leads the Middle East in digital adoption.

The transformation is being driven by the government initiative Smart Dubai which describes itself as “anchored in the vision of His Highness Sheikh Mohammed bin Rashid Al Maktoum to make Dubai the happiest city on earth.”

Launched in 2014, the Smart Dubai initiative is now working towards a 2021 strategy that has six main action areas:

• A smart, liveable and resilient digital city

• A connected, lean government

• A globally-competitive economy powered

   by disruptive technologies

• An interconnected society with easily-

   accessible social services

•  Smooth transport provided by autonomous    

   and shared mobility solutions

• A clean environment via cutting-edge

   ICT innovations

   As such, Smart Dubai is developing new technology such as Internet of things (IoT) systems, data analytics, blockchain, hyperloop projects, innovative 3D printing, autonomous vehicles and drones, robotics, and artificial intelligence (AI) applications.

 

Moving forward – Dubai DED and your business

Entrepreneurs seeking to start or grow a business in Dubai should work with a company formation specialist to ensure they tap into the best support available when working with the Dubai DED. This is a great time to create and innovate in Dubai, and those who take advantage now stand all the more chance of gaining significant competitive advantage. 

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About The Author

Neil Petch is the Chairman of Virtugroup. With a history of business successes, he is well known in the UAE and beyond as a visionary entrepreneur with a passion for helping others establish and grow their own businesses. He founded Virtuzone in 2009 and quickly established it as the region’s leading company formation expert, before launching Virtugroup, a holding company that has a wider mandate of supporting startups from establishment; to successful market entry; and all the way through to exit.

Personal Finance: Positioning Breastfeeding on Family Balance Sheet

Young beautiful mother, breastfeeding her newborn baby boy at night, dim light. Mom breastfeeding infant

By Sa’idu Sulaiman

This paper argues that most of the benefits of breastfeeding enhance the financial well-being of a child bearing family which is an asset appearing on its balance sheet. It then recommends that gender roles such as breastfeeding and child care need not to be valued in monetary terms only.

There are three types of finance; public finance for government and its institutions, corporate finance for businesses, and personal finance for groups and individuals. As the concern of this paper is personal finance, it is pertinent to define it and mention its scope.

Personal finance refers to the financial decisions which an individual or a group of individuals such as a family must make to plan for a prosperous future. The decisions border on sourcing, investing, spending money as well as budgeting. These constitute the scope of personal finance. Sourcing money for personal use may involve savings from wages and salaries, taking loans, obtaining financial assistance from relatives, friends, charities, etc. The sourced funds can be invested in several ways such as personal development through pursuit of education, enhancement of a healthy living among family members, venturing into farming, horticulture, etc. Spending money would involve expenditure on food, shelter, and on means of transport and entertainment facilities for one’s family, among others. Personal budget entails forecast about the income that would be received by an individual or a family and the expenditures to be made in a specified period, which can be a week, a month or a year.

Family finance, which could be another name for personal finance, covers all income, expenses, and financial accounts related to the maintenance and upkeep of an entire family household. Its scope covers sources of income to the family which includes wages, investments, savings accounts, trusts, etc, while the expenses include mortgage or lease payments, car payments, utility bills, clothing, education, taxes, grocery bills, retirement plan contributions and other sundry purchases.1

In the process of making financial decisions, one is expected to take into account various financial risks and future life events that may affect current and projected income level, and plan for them.2 Life events for a family that bear children must include venturing into breastfeeding or resorting to its alternatives. Each choice made has implications for family finance because there are costs and benefits in both short and long run. Put in another way, breastfeeding and its alternatives must appear on the lists of family assets and or liabilities, and subsequently, of family balance sheet.  In corporate finance, the balance sheet is financial statement indicating the position of a company’s assets acquired by using its capital and liabilities as at a given date in its life.

This paper aims to shed light on where to put breastfeeding on the balance sheet of a child-bearing family. Doing this is an attempt to provide an answer to the question “is breastfeeding an asset or liability to a child-bearing family?”

 

Benefits of Breastfeeding

A document provided by the World Health Organization says breastfeeding is an unequalled way of providing ideal food for the healthy growth and development of infants. Exclusive breastfeeding, as recommended by the World Health Organisation, is feeding of infants with breast milk without any additional food or drink, not even water, during the first six months of their lives. Breast milk provides all the energy and nutrients that the infants need for the first months of life, and continues to meet half more of their nutritional needs during the second half of their first year. During the second year of infants’ life, one-third of their nutritional needs come from breast milk. The document further reveals that breast milk promotes infant’s sensory and cognitive development, and protects it against infectious and chronic diseases. The advantages of exclusive breastfeeding include reducing infant mortality caused by diseases such as diarrhea or pneumonia, and facilitating quicker recovery during illness. For mothers, breastfeeding contributes to their health and well-being and reduces the risk of ovarian and breast cancer. Other benefits of breastfeeding are that it helps to space children, increases family and national resources, etc.3 Breastfeeding has long-term benefits for a baby, lasting right into adulthood. Breastfeeding reduces baby’s risk of cardiovascular disease in adulthood and the longer a mother breastfeeds her baby, the longer the protection lasts and the greater the benefits. Breastfeeding lowers the mother’s risk of osteoporosis (weak bones), obesity, etc.4   

The United Nations Children’s Fund (UNICEF) also states that breastfed children have lower rates of childhood cancers, including leukaemia and lymphoma, and are less vulnerable to pneumonia, asthma, allergies, childhood diabetes, gastrointestinal illnesses and infections that affect their hearing. Another benefit of breastfeeding is that it saves money as it eliminates the expense of infant formula and other costs in money, time, energy and sufferings related to illness and death caused by artificial feeding. Most families in developing nations cannot afford the cost of substitutes to breast milk. In Vietnam, for instance, a year’s supply of breast milk substitute costs $257, which is high when compared to the country’s per capita gross national product (GNP) of only $320.5

The advantages of exclusive breastfeeding include reducing infant mortality caused by diseases such as diarrhea or pneumonia, and facilitating quicker recovery during illness.

Motee and Jeewon report that several studies have highlighted innumerable benefits of breastfeeding for infants, for mothers and the society; they include lowered risk of otitis media, gastroenteritis, respiratory illness, sudden infant death syndrome, necrotising enterocolitis, obesity, hypertension in infants; and reduced risk of breast and ovarian cancer, Type 2 diabetes, and postpartum depression among mothers who breastfeed and their babies. Benefits that accrue to the society that embraces breastfeeding include decrease health care related costs and fewer absences from work.6

 

Disadvantages of Breastfeeding

Every coin has two sides. Breastfeeding has some disadvantages or problems. These include breast engorgement, sore nipples, milk insufficiency, and societal barriers such as employment, length of maternity leave and medical complications such as mastitis and breast abscess.7 Other problems associated with breastfeeding are that it requires an ample time commitment from mothers, especially when babies feed very often, it brings discomfort to mothers at the initial stage, it requires mothers to be aware of what they eat and drink because what they consume can be passed on to their babies through the breast milk. Lastly, medical conditions such as HIV/AIDS and consumptions of certain medicines can make breastfeeding unsafe. Although experts believe that breast milk is the best nutritional choice for infants, breastfeeding may not be possible for all women; as such the decision by certain mothers to breastfeed or to resort to alternatives to breastfeeding can depend on their lifestyle, conformability and medical situations.8

Most of what that has been said about the benefits and disadvantages of breastfeeding have financial implication for family finance, and therefore, can be used as basis for regarding breastfeeding practice among child-bearing families either an asset or a liability. The fact that the breastmilk becomes freely available when a child is born means that it is a blessing and gift from God. A blessing cannot at the same time be a liability, in fact the liability comes when a couple has to be buying cow milk or infant formula for their baby for several months when its mother dies or is incapable of breasting the baby due to certain illnesses.

On account of being a money-saving practice, breastfeeding enhances the financial condition of the families that embrace the practice because they do not have to spend money on infant formula and other substitutes to breast milk.

 

Positioning of Breastfeeding on the Balance Sheet of a Child-bearing Family

On account of being a money-saving practice, breastfeeding enhances the financial condition of the families that embrace the practice because they do not have to spend money on infant formula and other substitutes to breast milk. On account of its power in reducing risks of contracting diseases by babies and their mothers, breastfeeding reduces family spending on medical services and medications. In addition, a healthy family can also be a wealthy family because an improved health condition of a family or a community forms part of its human capital. The micro evidences from a study by Hoyt Bleakley also show that childhood health is an input in producing other forms of human capital.9  One can, therefore, justify the positioning of breastfeeding practice by a child-bearing family or couple on the same place with other assets appearing on its balance sheet.

As for the mentioned disadvantages or problems of breastfeeding, it needs to be stated that every human undertaking that brings income or other benefits also entails some problems. Working in a bank, for instance, has its own disadvantages which differ from the problems of going into farming or joining military service. Moreover, every chosen action has an opportunity cost. When an individual chooses to incur a given cost from available alternatives, the Ricardian principle of comparative cost advantage should be observed.10 This principle is applicable to gender roles in a family. A child-bearing family should, for example, compare costs associated with abstaining from breastfeeding because of the office work done by a mother with the cost of employing another person to do the work. Firms employing women should also compare the options of allowing mothers to go on long vacation (at least six months for exclusive breastfeeding) or of employed men who, by their nature, are not fit for breastfeeding of babies. Gender differences are real and they greatly determine gender roles. Despite being a woman academic and philosopher, Helena Cronic debunks the notion that gender differences are merely social constructs, saying:

Men and women look unalike, walk unalike, talk unalike. They differ on who is more competitive, single minded and risk taking; who is more likely to climb Everest, drive too fast, become President of the United States, commit murder, or win a Nobel prize… 11

These and similar differences, she adds, transcend religion, culture, politics, education, social class and ethnicity. They are universal.

In conclusion, it suffices to say that most of the benefits of breastfeeding enhance the financial wellbeing of a child-bearing family, and therefore, constitute an asset that can be added to the family balance sheet. So, there is the need for the continuous enlightenment of people getting married on the benefits of breastfeeding to supplement the activities of the annual World Breastfeeding Week observed in the month of August of every year. Gender roles should be assigned to male and female members of families in line with their biological characteristics, approved values and cultural norms with a view of enhancing their health status and financial position. Finally, individuals, governments and organisations should value the contributions made by women to societal development through breastfeeding, child care and other domestic services, in their own right, instead of attacking value to monetary rewards attached to paid jobs done by women. 

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About the Author

Sa’idu Sulaiman is a Chief Lecturer of Economics at the Sa’adatu Rimi College of Education, Kano, Nigeria. He is also an author of books such as 12 Facts about Protectionism and the Global Economy, 9 Requirements for Quality Research and Academic Papers, Unforgettable Experiences in Abuja, Manchester and London, and two recent novels, The Desperate Migrant and What Matters Most.

References

1.“Family Finance”, retrieved on August 27, 2017 from http://www.investorwords.com/19074/family_finances.html

2.Refer to “What is Finance? Meaning, Definition and Features of Finance”, retrieved on August 27, 2017 from http://www.technofunc.com/index.php/domain-knowledge/finance-domain/item/what-is-finance-meaning-definition-features-of-finance

3.WHO (2017). Exclusive Breastfeeding, retrieved on August 27, 2017 from http://www.who.int/nutrition/topics/exclusive_breastfeeding/en/

4.“Benefits of breastfeeding” (reviewed on 28/02/2017) retrieved on August 27, 2017 from http://www.nhs.uk/Conditions/pregnancy-and-baby/Pages/benefits-breastfeeding.aspx 

5.For details, refer to the UNICEF’s brochure entitled Breastfeeding: Foundation For a Healthy Future. Retrieved on August 28, 2017 from https://www.unicef.org › pub_brochure_en     

6.Motee A, Jeewon R. “Importance of Exclusive Breastfeeding and Complementary Feeding among Infants”. Curr Res Nutr Food Sci 2014;2(2). Available from  http://www.foodandnutritionjournal.org/?p=814 doi : http://dx.doi.org/10.12944/CRNFSJ.2.2.02

7.ibid.

8.See  the article “Breastfeeding vs. Formula Feeding” reviewed in February 2015 by Elana Pearl Ben-Joseph, MD. The Nemours Foundation. Retrieved on August 28, 2017 from http://m.kidshealth.org/en/parents/breast-bottle-feeding.html?WT.ac=

9. See Bleakly, Hoyt (2010).  “Health, Human Capital and Development” Annual Review of Economics, 2010;283-310.  Doi: 10.1146/annurev.economics.102308.124436. Retrieved on August 30, 2017 from  https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3800109/

10.David Ricardo, a renowned British economist, argues that there would be gains from trade if each nation specializes in the production of the commodity in which it has a comparative cost advantage in producing and then buys the other commodity from the other nation. 

11.For details refer to Cronin, Helena (2006). “Darwinian Insights into Sex and Gender”, Microsoft Encarta 2006. Microsoft Corporation.

A Message from London: Pay Your “Zakat” Locally

Istanbul, Turkey - January 22, 2015: The mullas collect the sadaqat (donations) at the entrance to the New Mosque in the city center

By Greget Kalla Buana

Zakat (Islamic alms giving) is now consi-dered as an alternative resource to help achieve the SDGs. London, the capital of a developed Muslim-minority country, has a unique approach to encouraging Muslims to pay zakat, resulting in a significant amount of almost the same with that in Indonesia, the world’s most populous Muslim-majority country.

In the last few weeks before Ramadan, an advert from the National Zakat Foundations urging Muslims to pay their zakat locally in the UK was posted at the Hainault Street bus stop. This particular campaign caught the attention of and earned praise from UK Muslims. In 2016, number of UK Muslims surpassed three million of which one-third resides in London. More specifically, data from the 2011 census stated that one out of eight Londoners is Muslim making the city a home to large Muslim community.

Such phenomenon has portrayed UK Muslims’ undeniable power to play a major role in helping the society through a religious charitable fund called zakat. Zakat is a mandatory giving paid by eligible Muslim earning above certain threshold, which, when it has reached a specified amount, is commanded to be given to the deserving people (eight group of beneficiaries according to Quran). This social part of Islamic finance has an enormous potential and been considered as an alternative resource to help achieving the Sustainable Development Goals (SDGs).

An end to poverty and inequality is the biggest challenge now to be addressed through the SDGs. Given the principles of Islam in favour of socially inclusive development, funding from Islamic finance, such as zakat, has the chance to play an important role. Zakat and the SDGs overlap in terms of compatibility and embeddedness with the five foundational goals of Islam (Maqasid al Shariah).

With the annual worldwide value of zakat alone estimated at U.S.$200 billion to U.S.$1 trillion, it has a tremendous potential to fill the $2.5 trillion financing shortfall to achieve the SDGs. Reported by the National Zakat Foundation, the annual value of zakat paid by UK Muslims alone could be as much as U.S.$353 million. However, over 98 percent is distributed abroad whilst less than the remaining two percent (U.S.$6.7 million) is for domestic causes.

Zakat is a mandatory giving paid by eligible Muslim earning above certain threshold, which, when it has reached a specified amount, is commanded to be given to the deserving people.

Following the global trend, particularly in a Muslim-majority country, a different perspective has been continuously happening around the mechanism of zakat collection – either it is supposed to be ruled by the government or private sector and between formal and informal giving. The UK has illustrated a new story. Instead of pushing people to pay their zakat by mentioning a specific institution, the National Zakat Foundation preferred having a jargon “locally” to evoke that it does not really matter where you would like to pay the zakat as long as it is through a local group. Noting that world-class zakat organisations are also based in London, namely Human Appeal, Islamic Relief, and Muslim Aid, they are not competing with each other. This reflects the spirit of brotherhood in Islam.    

Compared to Indonesia, as mentioned by the National Zakat Agency (Baznas), only three percent (U.S.$480 million) of the potential was realised within last year given that some people are continuing predilection toward short-term and interpersonally oriented. The lack of public trust to non-certified zakat institutions and such behaviours of the payer exacerbated the condition. Having said that zakat is only assigned to those who are capable, when there are more poor people, more needs to be spent for their welfare. In other words, the zakat collected is not sufficient for the poverty alleviation strategy. This is contrary to the UK situation where only small percentage of zakat is disbursed domestically.

Lesson learned from London is, instead of coping up too much into the debate between formal and informal mechanism, they prefer “local” as the most persuasive terminology.

In exploring the correlation between Muslim population and zakat collection, both UK and Indonesia can learn from each other. In addition, comparing these two countries reveals commonality among so many different characteristics of demography, political economy, and socio culture. According to the World Giving Index 2017 by Charities Aid Foundation, the average UK’s and Indonesia’s participation rates for donating money in the last five years were 71 and 70 percent, respectively. The amount of zakat paid by UK Muslims is nearly as much as that of Indonesian Muslims actually do. However, UK deploys the zakat mostly abroad while in Indonesia zakat cannot address the internal problem of extreme poverty.

The word “locally” in the billboard has delivered a strong message. For the case of Indonesia, the huge potential of zakat is largely untapped and overlooked, presumably because informal giving remains much larger than contributions made through formal organisation. Lesson learned from London is, instead of coping up too much into the debate between formal and informal mechanism, they prefer “local” as the most persuasive terminology. Put simply, “pay your zakat locally” reflects a more enforcing meaning than just “give” that is commonly used for charitable action. By paying zakat locally, the ad reassures the payers two points: (1) to put their zakat money in any nearby competent authority and (2) to watch where the money goes, meaning that they consciously understand how their money can give impact to surrounding or nearby society. Same approach could be implemented by Baznas and other zakat authority in other countries.

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About the Author

Greget Kalla Buana is an Islamic Finance Specialist at the United Nations Development Programme and graduated from Master of Islamic Finance and Management, Durham University, UK. His work experiences have always been in Islamic finance sector, such as Dompet Dhuafa (Indonesia Humanitarian NGO which is also a consultative member of ECOSOC, using Islamic finance instruments as fund resources), Islamic Banking Department of Indonesia Financial Services Authority, and UNDP where they established partnership with Islamic Research and Training Institute of Islamic Development Bank. 

Hindu Nationalism and the Consolidation of Hate Politics in India

By Kalim Siddiqui

When we look back, since the demolition of the Babri Masjid a quarter of century ago, it seems a well-planned and well-thought act, as it paved the way for the dramatic rise to power of Hindu nationalists. It raises a question: is there really an irreconcilable contradiction between liberal democratic institutions and the takeover of the state by the extreme far right Hindus?

For the last quarter of a century, Indian polity seems to be undergoing a historically unprecedented process of change and the irresistible rise of far right Hindu parties (i.e. BJP, RSS, Shiv Sena also known as Hindutva) to dominate the areas of culture, educational institutions, judiciary and administration. It raises a question: is there really an irreconcilable contradiction between liberal democratic institutions and the takeover of the state by the extreme far right Hindus?

The ascendency of the BJP (Bharatiya Janata Party) in politics has coincided with a sharp rise in sectarian hatred and attacks against Muslims. Then, a number of riots took place in north and west part of India where thousands of Muslim lives were lost and the police was criticised for acting in partisan manner. Jurist B.N. Srikrishna in the Commission on Enquiry Report on 1992 riots in Bombay (now Mumbai) indicted Bal Thackeray, then leader of the Shiv Sena, to incite riots. The Commission also indicted the police who have indulged in violence, looting and attacks against Muslims. Moreover, those responsible of burning properties and killing Muslims in Mumbai who were identified by the Srikrishna judicial commission are now in power and despite the judicial inquiry report, almost no one was punished. This happened despite India being a home to a tenth of the world’s Muslims of around 180 million people, making it the largest Muslim country after Indonesia and Pakistan.

When we look back, since the demolition of the Babri Masjid a quarter of century ago, it seems a well-planned and well-thought act as it resulted in huge electoral dividends for the Hindu extremists, especially BJP and its allies. Clearly, the mobilisation to attack and destroy the mosque was a political move, as L.K. Advani, then leader of BJP, acknowledged during the Rath Yatra that he is “a political, not a religious leader”.

The mobilisation by the far-right Hindu groups is based on religious identities, which is shaping the Indian politics towards Hindu nationalism. This means a further subordination and subjugation of minorities.

The mobilisation by the far-right Hindu groups is based on religious identities, which is shaping the Indian politics towards Hindu nationalism. This means a further subordination and subjugation of minorities. These semi-fascist groups achieved legitimacy by claiming that Hindus were subject to discriminatory treatments, even though this is completely false as the upper-caste Hindus dominate all institutions and are very powerful politically, economically and culturally. The far right has spread lies that Hindus have received unfair deal in the post-independent India. They are changing educational syllabus, and textbooks to incorporate views of history based on mythology and religious texts as they define it. To accomplish this, Hindutva sympathisers are being appointed to top positions in the country’s prime educational and cultural institutions to promote extremist ideas of Hindu nationalism. Such steps will mark the end of secular India and the creation of a Hindu nation. However, Hinduism remains a very varied religion and India is a very diverse country with an ancient, pluralist tradition.

It is important to emphasise that in India, the BJP government is run by the RSS (Rashtriya Swayamsevak Sangh), which not only provides the cadres and money but also the muscle during elections. The RSS officials also serve as secretaries in the BJP. The RSS/BJP main agenda is to establish “Hindu Rastra” and to undermine secularism in India.1 Their strategy of arousing fear of the alien, particularly Muslims and Christians is the cornerstone of the Hindutva movement. As a result, atrocities against Muslims in the country have risen sharply, since Narendra Modi became Prime Minister of India three years ago. In India, cow slaughter is banned in most states. Since Modi and his party assumed power in 2014, this beef ban has been used by Hindu nationalists to justify their attacks on innocent Muslims in public.

The recent report on mob violence in India says since 2015, in cow vigilantes attack 34 persons (mainly Muslims) have been murdered and these attacks are not spontaneous expressions of mob anger, but product of incitement to violence and hate propaganda.

The recent report on mob violence in India says since 2015, in cow vigilantes attack 34 persons (mainly Muslims) have been murdered and these attacks are not spontaneous expressions of mob anger, but product of incitement to violence and hate propaganda. As the report Lynching Without End (2017): “The shift in method, from mass violence to low intensity individualised ones, being perhaps a deliberate strategy by those behind the violence, to at once avoid too much public scrutiny, whilst also ensuring that the minorities [Muslims] are constantly under attack” (Indian Express, New Delhi, 17 March, 2018).

Last month Hapur, near Delhi, two Muslim men were attacked on the street while police stood by guarding the mob. One of the two was kicked and dragged along as he lay unconscious and later died of his injuries. The other, an elderly man, was pulled by his beard and dragged through a field and attacked by the BJP members. A recent report by news organisation called IndiaSpend noted that “Muslims were the target of 51% of violence centred on bovine issues over nearly eight years (2010 to 2017) – and they comprised 84% of 25 Indians killed in 60 incidents. As many as 97% of these attacks were reported after Narendra Modi’s government came to power in May 2014.”2

On 17 July 2018, the Supreme Court of India condemned the rising incidence mob lynching in India and asked the Indian parliament to draft legislation that would stop people from taking the law into their own hands. The attackers are often members of BJP.

India’s Prime Minister Narendra Modi is creating a dangerous precedent before the next general election, setting the tone for an India whose syncretic values and democratic principles are under threat. He was Head of the State of Gujarat when thousands of Muslims were killed in front of the police in the riots of 2002. As he gears up for re-election, that legacy looms large over the whole country.

Moreover, Hindu far right parties would like to declare India as a Hindu nation, which poses a challenge to its multi-faith constitutional commitment. Harsh Mander, activist and former bureaucrat, says there is a “growing climate of hate” in India. “We have a political leadership now in the country that has created an environment which is permissive of acting out hate speeches and hate actions. Lynching of this kind is a growing phenomenon in many parts of the country.”

Despite the hate propaganda and exaggeration of occurrence of violence about the past between Hindus and Muslims, the truth is very different. As eminent historian Professor Mukhia noted: “there is no record of what we know as communal riots anytime from around 1200 (establishment of Delhi Sultanate) to the first quarter of 18th century, when the Mughal state had started to run its downward course. The first communal riots was recorded in 1713-14 in Ahmedabad on the day of Holi rivalry, instigated by two rivals in the jewellery business, one Hindu and the other Muslim. This was brought under control within two days”.3

The present government of BJP in India is not a normal right wing political party but it is a mass political front of semi-fascist organisation, the RSS, which describe itself as “cultural” and “non-political” organisation, but has declared its intention to transform India’s political, cultural and social life.

In fact, the present government of BJP in India is not a normal rigt wing political party such as the Republican Party in the United States or the Conservative Party in the UK or the Christian Democratic Union of Germany (CDU), but it is a mass political front of semi-fascist organisation, the RSS, which describe itself as “cultural” and “non-political” organisation, but has declared its intention to transform India’s political, cultural and social life. The RSS was founded in 1913 and its founders had nostalgia for a Hindu Golden Age, which totally ignores caste subjugation, atrocities against women and the socio-economic marginalisation of Dalits at hands of upper caste Hindus. There was plenty of evidence of RSS that the organisation had been inspired by German and Italian fascism and also had collaborated with the British colonial rulers. The RSS declares itself “cultural” organisation, which is to exempt any kind of accountability and scrutinising that is required of political parties.

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About the Author

Dr. Kalim Siddiqui teaches International Economics at University of Huddersfield, UK. He is an economist, specialising in Development Economics and has written extensively on development economics, economic reforms as well as on the political economy of development. He may be reached at [email protected]

 

References:

1. Siddiqui, Kalim. 2016. “A Critical Study of Hindu Nationalism in India”, Journal of Business and Economic Policy 3(2):9-28. ISSN 2375-0766. (Print), 2375-0774 (Online) USA. http://jbepnet.com/journals/Vol_3_No_2_June_2016/2.pdf

2. IndiaSpend. 2017. “Dead In Cow-Related Violence Since 2010”, http://www.indiaspend.com/cover-story/86-dead-in-cow-related-violence-since-2010-are-muslim-97-attacks-after-2014-2014

3. Siddiqui, Kalim. 2017. “Hindutva, Neoliberalism and the Reinventing of India”, Journal of Economic and Social Thought, 4(2):142-186, June.  ISSN 149-0422

 

How China’s Simultaneous Carrots and Sticks Work in Southeast Asia

By Huong Le Thu

China’s applies simultaneously dual tactics of coercion and inducement to assert its position regionally and globally. Demonstrations in Vietnam and the Philippines only confirm that the harder China pushes, the more agitated responses from the coerced actors. Pursuing coercion tactics on individual actors is a long-term process and requires supportive conditions, like the case of Vietnam and the Philippines showed.

China’s applies simultaneously dual tactics of coercion and inducement to assert its position regionally and globally. In its direct neighbourhood – Southeast Asia – these practices are most evident in region’s collective response (or lack of it) towards some key security issues. As a result, the faith in the Association of Southeast Asian Nations’ (ASEAN) regional role and relevance are diminishing. The dual tactics combines the economic inducement through a variety of trade, infrastructure and investment projects with coercive action – be it threat of use of force or more diplomatic and psychological pressure.

Neighbouring countries, such as Vietnam, know that China has a long tradition of exploiting potential force for political purposes. An example close to date is the Chinese deployment on May 2, 2014 of the Haiyang Shiyou 981 (HYSY-981) oil rig – known in Vietnamese as Hai Duong 98 (HD-981) – within Vietnam’s claimed Exclusive Economic Zone (EEZ). The deployment provoked strong reactions in Vietnam and across the Asia-Pacific. The positioning of HYSY-981 by the China National Offshore Oil Corporation (CNOOC) 120 nautical miles off Vietnam’s mainland coast (and 18nm off Triton Island in the Paracel Islands group) sparked a national security alert. There existed a tangible threat of escalation into an open confrontation. The oil rig deployment was considered the worst incident in the South China Sea since China’s occupation of Mischief Reef in 1995 and also the worst incident in the Hanoi-Beijing relationship since the normalisation of ties in 1991. The incident drew global attention due to the high potential of escalation. The leaders of the U.S. and Japan expressed their concerns about the challenge to regional stability posed by China’s increasingly assertive maritime strategy at the Shangri-La Dialogue in Singapore in late May 2014 (Le Thu, 2016). I argue that this case can be seen as Vietnam’s partial attempt to counter-coerce with efforts to purse a coercive equilibrium by internationalising the incident and involving other parties. Beijing subsequently accelerated the removal of the oil rig in July after 10 weeks of intense standoff and international media scrutiny. The threat of potential costs of escalation remain a lasting coercive mechanism that China can further abuse even after the oil rig crisis was resolved.

The Philippines was another claimant that experienced China’s hard line politics in the maritime domain, including the Scarborough Shoal fishermen confrontations (Baviera, 2014). However, unlike Hanoi, Manila, having a formal alliance with the U.S., being less economically tied to China and in not sharing direct borders with it, has more room to manoeuver and arguably tried dismissing the coercion threat. The Philippines launched a formal legal case in the Arbitration Tribunal against China, claiming that the Professional Regulation Commission (PRC)’s nine-dash-line claims were a violation of the United Nations Convention on the Law of the Sea (UNCLOS). On July 14, 2016 the ruling was announced a favourable decision for the Philippines confirming that China’s claim does not have legal ground (PCA News Press, 2016). Contrary to the expectations of what an ostensible spirit of regional unity might suggest, instead of celebrating a fellow ASEAN member’s judicial victory, or expressing a sense of relief in having at least legal clarity after decades of dispute, the regional reaction was ambivalent. A hesitant reception, including from the Philippines itself, was accompanied by further divisions at the following Special ASEAN-China Foreign Ministers’ Meeting in June (Bloomberg, 2016a) and the ASEAN Foreign Ministers’ Meeting in July (Bloomberg, 2016b).

Manila, having a formal alliance with the U.S., being less economically tied to China and in not sharing direct borders with it, has more room to manoeuver and arguably tried dismissing the coercion threat.

Individual coercion can invite pushback. Demonstrations in Vietnam and the Philippines only confirm that the harder China pushes, the more agitated responses from the coerced actors. Territorial disputes, but also some economic and environmental controversies, support the nationalist sentiments in those societies. As a result, societal pressure will push governments – even if to some degree disinclined to escalate – to have accountable responses to coercion. That said, Vietnam – on top of many considerations, including geographic, lack of formal alliances, economic ties and other political connections – is not a democratic political system, hence the societal pressure have its limit. The Philippines – although reassurance in the form of alliance with the U.S. – with the change of president to a populist leader has opted for economic boost from China, even at the expense of the territorial claims as well as the alliance with the U.S. Nevertheless, pursuing coercion tactics on individual actors is a long-term process and requires supportive conditions, like the case of Vietnam and the Philippines showed. Otherwise, strong coercion would result in costly counter-coercion, which in this case could potentially transform into an elaborated conflict – which is not necessarily within China’s tolerance.

Hence, there needs to be the other spectrum – the economic inducement. From that angle, China’s worldwide power projection has been largely successful. For the neighbouring Southeast Asian countries, China’s rise presents opportunities that may outweigh concerns. Along with the coercive signals, there are economic promises and inducements. The varying ratios of coercion and inducement are the source of the divergent options that the Southeast Asian states chose. However, one conviction is rather uncontested: their perception that, either way, China’s influence will prevail. The economic might of China is recognized rather unambiguously across the region – there is little if any contestation about this. It is fair to say that the Southeast Asian economies watch Chinese economic growth with some degree of anxiety, but certainly with admiration. “The belief that China’s economic importance in the region will translate into greater strategic clout seems self-evident. After all, the highest priority for Southeast Asian states is prosperity and economic growth” (Lee, 2015; 7). Given the level of development in Southeast Asia and common needs – foreign investment, market access and infrastructure – China’s wealth and might is very attractive. PRC-led initiatives outshine the ASEAN-led initiatives, including the ASEAN Economic Community (AEC), as the pictures of individual gains allegedly would top the collective regional ones. These have contributed to reinforcing China’s new role as a regional “provider”.

While all ASEAN countries look forward to strengthening East Asian regional cooperation and increased trade networks like RCEP materialising, many of them also welcome other initiatives especially given that China is not the only power that is interested in exercising its influence in the region.

China remains the biggest trading partner of five of the ten ASEAN countries. As of 2015, trade with China constitutes 15.2 percent of ASEAN trade, only second to intra-ASEAN trade (24 percent) (ASEAN Statistics 2015). The ASEAN-China Free Trade Area (ACFTA) is another strong binding factor, along with several other ASEAN Plus and East Asian initiatives. For example, an East Asia Free Trade Area (EAFTA) – involving ASEAN Plus Three countries (China, Japan, and South Korea) – was first suggested in 2001 by the Asia Vision Group. ASEAN’s response to the China-driven process of EAFTA was the Regional Comprehensive Economic Partnership (RCEP), covering ASEAN Plus Six states (additionally India, Australia and New Zealand) in 2012. Nevertheless, China is still considered as playing the role of “dominant economic powerhouse” in RCEP (Kumar 2014), for this FTA network will further tie the ASEAN economies closer to China. While all ASEAN countries look forward to strengthening East Asian regional cooperation and increased trade networks like RCEP materialising, many of them also welcome other initiatives especially given that China is not the only power that is interested in exercising its influence in the region. The economic relations between China and Southeast Asian states go beyond trade: concessional project loans, grants for infrastructure projects, special economic zones and industrial parks etc. are often involved.

By the sheer scale of economy, China can create the impact with the way she manages trade deals. Either expanding or limiting the trade deals with a given country, China can in relatively short period of time create fluctuation and economic impact she wants to make. Both Vietnam and the Philippines have experienced economic punishment from China for enacting their maritime claims. One of the most often quoted cases of economic fallout from the Philippines’ standoff with China over the Scarborough Shoal in 2012 was the “banana war”. China boycotted the import of Filipino bananas overnight cause a damage for farmers estimated at $US 380 million and reaching 90 percent of banana production of the Mindanao region and potentially affecting some 200,000 livelihoods (Hingis, 2012). Similar tactics were applied to Vietnamese lychees in the summer of 2014 after Hanoi protested against Chinese oil rig.  The season for lychee is short and usually some 60 percent of total production of lychee in Vietnam is directed at Chinese markets. That summer transports of lychee were stopped at the border and left to rot causing massive lost. Blocking agricultural product is a powerful tool, given that majority of Southeast Asian countries still heavily depend on agriculture.

Beijing’s new economic initiatives on a regional and trans-regional scale, such as Belt Road Initiative (BRI), more popularly known as One Belt One Road (OBOR 一代一路) and the Asian Infrastructure Investment Bank (AIIB) are very attractive, including for the Southeast Asian states. The OBOR was initially proposed in October 2013 during Xi Jinping’s visit to Indonesia. China has pledged $US 40 billion to revive economic cooperation and connectivity inspired by the ancient Silk Road trading routes. Along with the Asian Infrastructure Investment Bank (AIIB), which promises to provide for infrastructure in the Asia-Pacific, China embarked upon a strong economic “offensive” in the region (Summers, 2015). The AIIB’s future activities stretch beyond Asia-Pacific to parts of Europe, South America and Africa. It is thought to be a Chinese response to the International Monetary Fund (IMF), the World Bank and Asian Development Bank (ADB) that are dominated by American, European and Japanese interests. The AIIB has received considerable global attention, having almost 85 members at the time of writing (AIIB, 2016), but it has also sparked concern about China using its economic incentives to leverage its own political-strategic agenda.

If all feel coerced, and hence threatened, it is likely to invoke joint effort and unity against a larger coercer.

There are indeed some concerns attached to Chinese economic presence in the region. Substantial economic benefits are not devoid of political expectations. This is well-observed in of the area of political controversies or disputed issues that China cares about, including territorial ones. David Arase pointed out that ASEAN states will “endorse her economic, political and security leadership agendas” (Arase, 2015; 21). Such forms of economic leverage create cleavages amongst the ASEAN members, because the benefits that China offers differ significantly from one country to another. China’s economic initiatives cannot be separated from the importance it assigns the South China Sea question. Thus OBOR’s strategic objectives are at least on par with the economic ones. Under the Maritime Silk Road initiative, new high-speed railways, motorways, pipelines, and sea ports are envisioned across the larger Asian region to reinforce China’s idea of “shared interests, destiny and responsibilities” (Zhao, 2015). It is very difficult for any country, especially the smaller Southeast Asian ones, to resist China’s economic appeal. Even those with conflicting territorial claims, like Vietnam or the Philippines, are keen to be involved with China when it comes to economic and development initiatives. A conditionality of their participation, however, will be some sort of compromise on their maritime claims.

China’s modes of coercion are sophisticated – a combination of threat and inducement in the right proportions because repetitive coercion would invite consolidated response. Repetitive inducement, on the other hand, is costly and likely not to be efficient. The proportion of coercion and inducement also needs to be varied in applying to a larger group. If all feel coerced, and hence threatened, it is likely to invoke joint effort and unity against a larger coercer. The sense of inducement, on the other hand, is a more effective divider.

This article has been adapted from the academic journal article “China’s dual strategy of coercion and inducement towards ASEAN”, The Pacific Review, January 2018.

Featured Image: China is in conflict with the Philippines. A Chinese broadcasting station team recently landed and flipped the Chinese flag. http://news.zum.com

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About the Author

Dr. Huong Le Thu is a senior analyst at Australian Strategic Policy Institute and associate fellow at the Coral Bell School of Asia-Pacific Affairs, Australian National University. You can follow her work on Twitter: @le2huong

The Hallyu Lens: The Success of Korean Pop (K-Pop) Music as an International Business Strategy

This article focusses on the success of the K-Pop industry, with a background on the industry itself, and how it can become a business strategy that international businesses can use.

BTS, EXO, TWICE and Seventeen are some of the biggest names in Korean Pop (K-Pop) music in the 21st century, and have brought fans worldwide into the world of Hallyu or Korean Wave. “Hallyu refers to the phenomenon of Korean popular culture, which came into vogue in Southeast Asia and Mainland China in late 1990s.”1 Anything that has to do with the consumption of Korean culture can be considered as Hallyu. This has taken different forms of entertainment and media such as dramas, movies, fashion, beauty and, the most popular, music.

In the perspective of an average Joe whose limited knowledge on Hallyu is prevalent, K-Pop would not seem like a big enough deal to read or know about. Hallyu in itself is a pop culture, since it has been widely accepted and supported internationally by people of any age. This vast amount of culture consumed by people worldwide through K-Pop creates a stable yet successful business structure among Korean entertainment companies; slowly taking advantage of the popularity of the culture itself.

As K-Pop becomes even more widespread, South Korea’s economic success drags on with entertainment companies to explore what the fans or consumers want to see or hear from their artists. This is where their business strategies start: surveillance and creation.

Surveillance is a huge part of the industry today as they continue to mold and create artists or idols  (“someone reaches idol status after training for years and successfully debuting either as a soloist or in a group”2) in this manner. Companies observe the latest trends and what people all over the world would want in an artist, and go from there. For example, BigHit’s BTS, or Bangtan Sonyeondan was created slowly and is known for writing and producing their own music as well as choreography. Their raw abilities, plus countless amounts of training before being able to debut, are what made their name huge in the international market.

Competition is huge in the K-Pop industry, with selling out albums to stadiums and building bigger fandoms. Auditions or street castings are usually the first step in becoming a K-Pop star, and once passed, the auditionee becomes a trainee (a “K-Pop artist in the making who lives, trains, and performs together starting from ages as young as 9 or 10, or as old as 18-23, all while kept under the tight supervision of their music label”).3

Anything that has to do with the consumption of Korean culture can be considered as Hallyu. This has taken different forms of entertainment and media such as dramas, movies, fashion, beauty and, the most popular, music.

Some trainees are able to debut, but some are held back as the company thinks they need more training. TWICE and Monsta X are groups that have been created through pre-debut and post-debut reality shows in order to catch the public’s interest, create a following and to show the challenges they must overcome to achieve their dreams.4

Once a group or an artist has debuted, the next step of their business strategies start: production. Creating music, videos or anything that would get an artist an amount of following is hard enough, and it can be the cause of an idol’s success or failure. The K-Pop industry is found to be quite reliant of producers to write lyrics and create melodies for artists, and certain companies have grown to have staple sounds and themes to their music. While there are artists who write their own music, there are still a large number of artists who rely on producers. Music videos are also a huge deal in the industry, as these give different vibes and interpretations to the audience. This is mainly the outlet for the international audience to experience firsthand what K-Pop is all about. It gives them and the fans close-up shots of the idol or group, amazing choreography and out-of-this-world fashion.

As K-Pop becomes even more widespread, South Korea’s economic success drags on with entertainment companies to explore what the fans or consumers want to see or hear from their artists.

Artists are given a boost in the rankings and popularity with the help of music videos, especially when they trend on YouTube. Several groups have broken records, such as having the most or a certain amount of views in the first 24 hours after their video has been uploaded. Famous for his song, “Gangnam Style”, Psy is the top artist to have had the most views on his “Gentleman” music video in 2013, with a whopping 38.4 million in just 24 hours. BTS seconds Psy with their latest comeback, “Fake Love”, with over 35.9 million views in 24 hours. They also set the record for the most liked video in a day in YouTube history taking in an incredible 3.9 million likes for the same song.5

With their music videos and albums ready, entertainment companies move on to campaigns. Campaigning in K-Pop is similar to that in politics, where the artist campaigns his or her name or group in different media outlets, like social media networks (SNS), variety shows, and music shows. The only way to get your name across millions of people worldwide is to campaign for it yourself. Once an idol or group debuts or has a comeback, they often tend to perform a lot in music shows across Seoul to promote their new song and themselves. K-Pop artists use SNS regularly to update their fans on what they are up to and if they ever have any announcements. Selcas (Korean equivalent of selfie, which stands for “self-camera”) are seen a lot in Twitter and Instagram, and even in other SNS apps such as Fancafe, and Weibo.

Promotions through endorsement deals are also common with idols and Korean celebrities. This allows them to not only get their name out there, but have their faces be recognised too. It correlates to what they do as “cross-selling”6, where collaborations of brands and the artist’s names are done to sell a certain product. This method isn’t usually done in Western countries, but it is prevalent in South Korea.

Song Seng Wun, an economist at CIMB Private Bank who has been following K-wave trends for 15 years, says “effective cross-selling” is a key success factor. “They are good in tying everything together. There’s the music and drama, but the pop stars, actors and actresses portray a certain style or look that in turn created demand for fashion and skincare products or cosmetic procedures,” Song said in a report from The Straits Times.7

 

The Visible Success of K-Pop and What international Businesses Can Learn

K-Pop is now an industry well known worldwide and making millions and billions in less than a decade.8 Millions of albums sold by different artists, title tracks streamed thousands of times on Spotify, Shazam, and iTunes, and hundreds of arenas and venues sold out. If this doesn’t spell success for the K-Pop industry, then there must be something wrong.

The amount of Hallyu or K-Pop itself that the audience consumes is huge, and this is what makes the K-Pop industry so successful. What does the audience consume? Official Merchandise. This varies per country that an artist debuts in. Companies create and design merchandise that reflects the artist’s new music or main concept. One of the most famous merch in the K-Pop industry is the lightstick. Usually found in boy or girl groups, an official lightstick is presented to the fans for them to use in concerts or music shows.

K-Pop is played across radio stations, and TV shows, and sometimes appears in YouTube videos as backing tracks. K-Pop music videos appear on the trending pages and shared on SNS.

K-Pop’s revenue has become a strategic asset and recorded 5 trillion won (over $4.4 million) of economic effects in 2010. The total income gained from Hallyu is estimated to be over $50 billion dollars in 2020 Moreover, the music industry export (mostly in terms of CD sales) also recorded an astonishing number of more than 100% rise during 2008-2011 and averagely 36.4 percent per year. K-Pop market share in world music also increased from 33rd in 2005 to 11th in 2012.9

As the K-Pop industry is a fandom industry, the B2C (business-to-consumers) strategy that they employ becomes successful; in a way that the industry sells physical albums, digital songs, official merchandises, concerts, product endorsements, and official fanclubs registration with fanclub manuals.

Entertainment companies become successful businesses of their consumers: the fans. The fans’ continuous support and consumption of these artists’ music and projects are what makes the entertainment companies. It’s not just mediaplay to become successful in the K-Pop industry. A huge amount of following and statistics need to back up an artist or the company to be considered as successful.

According to Seo Min-soo, a Research Fellow at the Samsung Economic Research Institute, businesses should try and develop products derived from K-pop to create added value. Game developers and animators should create products that feature K-pop characters and contents, while producers of musicals and TV dramas should explore ways to incorporate K-pop songs and the singers. Second, products that will attract K-pop fans should be developed, such as merchandise and endorsement deals.10

To attract more tourists, it is necessary to create tourist products that combine K-pop content with sightseeing and shopping, and turn places strongly associated with K-pop into landmark sites. In regions like Europe, America and Australia, tourism agencies can develop tourism packages that cater to people whose interests are in the music scene, art scene, movie scene, etc. This provides not only a better solution for sustainable tourism in the region, wherein consumers can ogle at the sight of their favorite places and celebrities, but it is also a better way to promote businesses in the region as they tour.

Third, to make the most of publicity and marketing, collaborative efforts should be made with K-pop singers, who are known for their fashion and sense of style. Fourth, new marketing strategies should be adopted, such as using K-pop stars as models to advertise products that are closely connected to pop music. Lastly, K-pop fans can be used to pave the way for Korean products overseas. Using YouTube and other social media, the major medium for the spread of K-pop, plans for the overseas entry of Korean products need to be fine-tuned according to region.11

Korean businesses have done quite a lot to break into the international industry, with the help of K-pop. The adaptation of these strategies could be enforced by businesses worldwide to deliver cultural marketing in countries that haven’t been huge consumers of their companies.

International businesses can jump onto endorsement deals with trending artists and celebrities in their respective areas, in the hopes of expanding their market to different kinds of consumers in different countries.

For example, the use of SNS and YouTube is a strategy that can be applied to any business in the world. It is the fastest and easiest way to promote a business. Developing advertisements that appear on YouTube videos and SNS timelines can create a boost in the revenue margins of business, solely on the ads. Also, businesses can tap into the creation of marketing events that promote their product or services every once in a while, like what the K-pop industry does. International businesses can jump onto endorsement deals with trending artists and celebrities in their respective areas, in the hopes of expanding their market to different kinds of consumers in different countries.

The K-pop industry is a global strategy that every business can learn from. Investors and entrepreneurs should look at it in a global perspective, and apply it in their business models. “A global strategy should be seen not just as a way to enter foreign markets but the pursuit of open innovation whereby research and development and supply of key resources is carried out on a global level. Businesses should seek to complement their weaknesses with resources in the global market rather than trying to be an expert in all areas before entering international competition.”12 It should look into targeting a transnational market, wherein it focusses on the various cultures and interests of people living in specific parts of the world. Securing opportunities in brand exposure is a must for international businesses to be able to go global, raise brand awareness and build competence through this strategic long-term investment.13 Long-term planning, with several bumps along the road, but with a destination filled with lifetime rewards and revenues will always be better than weak brand endorsements, resulting in short-term profits.

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References

1. Kim Bokrae; Past, Present and Future of Hallyu (Korean Wave), American International Journal of Contemporary Research Vol. 5, No. 5; October 2015;  http://www.aijcrnet.com/journals/Vol_5_No_5_October_2015/19.pdf

2. Tucci, Sherry. “K-pop A to Z: A beginner’s dictionary” The Daily Dot

https://www.dailydot.com/upstream/kpop – common – terms – to – know/

3. “How to Be a K Pop Trainee” https://www.wikihow.com/Be-a-K-Pop-Trainee

4. “Former SM Entertainment Trainee Reveals What Trainee Life Is Really Like” https://www.koreaboo.com/stories/former-sm-trainee-reveals-trainee-life-truth/

5. DatJoeDoe. (2018) “Most viewed K-pop music videos in the first 24 hours” SBS https://www.sbs.com.au/popasia/blog/2018/05/23/most – viewed – k – pop – music – videos – first – 24 – hours

6. Wong Siew Ying. “How can Singapore learn from the success of Hallyu?” The Straight Times.  https://www.straitstimes.com / business / takeaways – from – the – success – of – hallyu

7. Wong. “How can Singapore.” https://www.straitstimes.com/business/takeaways-from-the-success-of-hallyu

8. “The Success of the K-Pop Industry.” The Asian Entrepreneur. http://www.asianentrepreneur.org/spread – k – pop – industry/

9. Pratamasari, Annisa. International Business Strategy in Selling Korean Pop Music:
A Case Study of SM Entertainment, International_Business_Strategy_in_Selling_Korean_.pdf

10. Seo, Min-soo. “What Business Can Learn from K-pop for Global Strategy.” Korea Focus http://www.koreafocus.or.kr/design2/layout/content_print.asp?group_id=104017

11. Seo. “What Business Can Learn.” http://www.koreafocus.or.kr/design2/layout/content_print.asp?group_id=104017

12. “Ibid.”

13. Seo, Min-soo. “Lessons from K-Pop’s Global Success.” 060 – Lessons – from – K-pops – Global – Success.pdf

Ethiopia – A Case Study in Take-Over by Western Interests

By Peter Koenig

Ethiopia is a landlocked country, bordering on Somalia which is dominating the Horn of Africa. Due to several border conflicts during the past decades with Somalia, many of them supportive of Ethiopia by the US military, the border between the two countries has become porous and ill-defined. Ethiopia is also bordering on Djibouti, where the United States has a Naval Base, Camp Lemonnier, next to Djibouti’s international airport. The base is under AFRICOM, the Pentagon’s African Command. AFRICOM has its boots in Ethiopia, as it does in many other African countries.

Ethiopia’s new Prime Minister, Abiy Ahmed, has already demonstrated that he is poised to hand over his country to western interests, vultures, such as the World Bank, IMF and eventually the globalized Wall Street banking clan. In fact, it looks like these institutions were instrumental in manipulating parliamentary maneuvers, with arm-twisting of the ruling Ethiopian People’s Revolutionary Democratic Front (EPRDF) to make Mr. Abyi the new Prime Minister, succeeding Mr. Hailemariam Desalegn, who rather suddenly was forced to resign in February 2018, amidst endless foreign induced protests and violent street demonstrations. With EPRDF Ethiopia is a de facto one-party state. EPRDF is a coalition of different regional representations.

The country is being enslaved by the new western colonial instruments, the so-called international development institutions, the World Bank, IMF – and others will follow.

Proud Ethiopia, has never been colonized by western powers per se, except for a brief Italian military occupation (1935 – 1939) by Mussolini. And now, in the space of a few months, since Mr. Abiy’s ascent to power, the country is being enslaved by the new western colonial instruments, the so-called international development institutions, the World Bank, IMF – and others will follow.

Mr. Abiy is an Oromo leader; Oromia being a disputed area between Ethiopia and Somalia. The latter is effectively controlling the Horn of Africa, overseeing the Gulf of Aden (Yemen) and the entire Iran controlled Persian Gulf area. Control over the Horn of Africa is on Washington’s strategic wish list and may have become an attainable target, with the Oromo leader and new PM, Abiy Ahmed.

Think about it – Yemen, another ultra-strategic location, being bombed to ashes by the Saudis on behalf of the western powers, primarily the US and the UK, being subdued for domination by the west wanting to control the Gulf area, foremost Iran and her riches. On the other hand, Ethiopia, a prime location as an assault basis for drones, war planes and ships.

Curiously, Prime Minister Meles Zenawi, a former rebel leader, elected in 1991 and in power for 21 years, died suddenly at age 57 in August 2012, while actually recovering from an undisclosed illness in a hospital abroad, allegedly from an infection – according to official Ethiopian state television. He was succeeded by Mr. Hailemariam, who last February had to resign.

In the same vein of strange events – events to reflect on – PM Zenawi, about 18 months before he died, signed on 31 March 2011 a no-bid contract for US$ 4.8 billion with ‘Salini Costruttori’, alias Salini Impregilo. The Italian company, well established in Ethiopia since 1957, is responsible for the construction of the controversial “Grand Ethiopian Renaissance Dam”, formerly the Millennium Dam on the Nile. When finished, it will be African’s largest artificial water reservoir with a capacity of 74 billion m3.

Under construction since 2011, this gravity dam on the Blue Nile River in Ethiopia’s Benishangul-Gumuz Region, about 15 km from the Sudanese border, is expected to produce 6.45 gigawatts which will make it the largest hydroelectric power plant in Africa and the 7th largest in the world. The works are about two thirds completed, and the dam will take from 5 to 15 years to fill up.

The project was fiercely contested by Egypt which claimed that the dam would reduce the agreed amount of Nile water flowing into Egypt. However, Prime Minister Zenawi argued that the dam would not reduce the downstream flow, and – in addition to generating hydropower and making Ethiopia Africa’s largest electricity exporter, would help regulate irrigation, thus, helping to avert Ethiopia’s notorious droughts and famines that kill regularly tens of thousands of people. Indications are that this dam project could become an economic “power house” for Ethiopia, a country otherwise known as impoverished and destitute.

This water flow conflict between Ethiopia and Egypt was discussed in numerous meetings and conferences of the World Bank sponsored Nile Basin Initiative (NBI), encompassing ten riparian countries (Burundi, D.R. Congo, Egypt, Eritrea, Ethiopia, Kenya, Rwanda, Sudan, Tanzania, Uganda); and about 350 – 400 million people. It is not clear whether the dispute was ever satisfactorily settled.

Mr. Zenawi’s successor, PM Hailemariam Desalegn, continued with the project unchallenged and unchanged until his sudden resignation earlier this year. At the end of August 2018, in a surprise move, the new PM, Abiy Ahmed, ousted the dam project’s subcontractor, METEC, under the pretext of numerous work delays. METEC is a state enterprise run by the Ethiopian military. According to several insider accounts, there were never any complaints about project delays, caused by METEC. The new sub-contract was to be awarded to a foreign private company.

Simultaneously, in another alarming occurrence, on 26 August 2018, Mr. Simegnew Bekele, the chief engineer and project manager of the controversial dam, was found murdered, shot to death, in his Landcruiser in an Addis Ababa parking lot.

The series of events, starting from the signing of the dam project in 2011, to the sudden death of then PM Zenawi a year later, the resignation of his successor, Mr. Hailemariam, earlier this year, the hasty appointment of the neoliberal PM Abiy Ahmed in February 2018, the assassination of the dam’s project manager in August 2018 – all this looks like well-orchestrated, with a few hick-ups in between that were rapidly ironed out – to pave the way for a neoliberal, corporate and maybe foreign military take-over of this once proudly independent country, an African nation with a potentially prosperous future.

This leads to the other side of the same coin, the west is interested in.

With a population of about 104 million (2018 est.), Ethiopia is the second most populous country in Sub-Saharan Africa and one of the most densely populated ones, with an annual population growth rate of about 2.5%. Ethiopia is known for endemic poverty and her periodic droughts. Ethiopia is also the world’s second fastest growing non-oil economy (after Bhutan), having increased her GDP more than ten-fold since 2000, from US$ 8 billion to US$ 80.6 billion in 2017, however with a nominal GDP of only US$850, or US$2,100 PPP (Purchasing Power Parity).

Agriculture contributes about 36% to GDP, indicating a considerable growth potential with regulated irrigation expected to emanate from the Renaissance Dam project. Economic expansion amounted to more than 10% in 2017 and is projected at close to 9% per year through 2019.

This economic profile, plus the potential increase in output from the Grand Renaissance Dam, offer more than fertile grounds for corporate exploitation through debt enslavement and privatization of public, civil and social services. This has already started. Ethiopia’s current debt is a modest 33.5% of GDP – but is predicted to grow to at least 70% by 2022. – Why?

In November 2017 the World Bank has committed US$ 4.7 billion over the coming 5 years, roughly a billion per year – which may be called blank checks. These funds are destined for structural adjustment type activities, for loosely defined and little controlled budget support measures, much of which, as worldwide experience shows, is likely to ‘disappear’ unproductively, leaving behind public debt – and what’s much worse, a plethora of austerity conditions, from cutting public employment, to privatization of water, electricity and other public services, as well as ‘land-grabbing’ type agricultural concessions to foreign agricultural enterprises.

The latter will be especially attractive, thanks to the new regulated irrigation potential, making Ethiopia’s desert fertile – but leaving hardly any additional food at affordable prices for the impoverished population in the country. Frequently such land concessions come with long-term GMO contracts attached. Bayer-Monsanto may already be a player in Ethiopia’s future agricultural sector. If so, the country may not only be enslaved by debt, but also by endless, oppressive, land-destructive GMO contracts that bear high risks for human health.

Such a WB commitment will usually be followed by an IMF intervention, both of which will serve as leverage for further debt from private banking and corporate investors. The modest 2017 debt ratio of about one third to GDP may explode and skyrocket in the near future, making Ethiopia to the Greece of Africa, shamelessly exploited and “milked” to the bones by western corporate and financial interests.

The modest 2017 debt ratio of about one third to GDP may explode and skyrocket in the near future, making Ethiopia to the Greece of Africa, shamelessly exploited and “milked” to the bones by western corporate and financial interests.

Fortunately, there are other economic interests alive in Africa and especially in Ethiopia. There is, for example, China, for whom Ethiopia is a key partner and a linchpin for President Xi’s Belt and Road Initiative (BRI), a massive China-initiated infrastructure development plan, spanning the globe from east to west, via different routes, one of them via Africa. Although China has become cautious over the past years with direct investments in Ethiopia, mainly due to the lasting unrests, said to be over ‘territorial issues’, Ethiopia remains an important partner, because of its strategic location next to the tiny port of Djibouti, where China has a naval base. Ethiopia is also attractive for manufacturing with low-cost labor and because of her transport links to other African countries, and a potentially large consumer market.

Chinese, Russian and other eastern investments are usually based on mutual benefits, in contrast to the western one-sided exploitation method. Hopefully, Chinese, Russian and other eastern investments may continue as a strong counter-balance to the west, and help bringing a more equitable development model not only to Ethiopia, but to the African Continent in general. In fact, recent statements by the leaders of South Africa, Ghana and Rwanda have praised Chinese investments over the western abusive ‘carrot and stick approach’. With the help of China, Russia and other eastern investors, Ethiopia might prevent western vultures from devouring the poverty struck nation and from falling into the trap of neoliberal, everything-goes “free market ideology” – to the detriment of the Ethiopian population.

Feature image: Egypt, Ethiopia and Sudan have reached an agreement in their ongoing dispute over the construction of the Renaissance Dam on the River Nile. (dams-ethiopianism.blogspot.com)

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About the Author

Peter Koenig is an economist and geopolitical analyst. He is also a water resources and environmental specialist. He worked for over 30 years with the World Bank and the World Health Organization around the world in the fields of environment and water. He lectures at universities in the US, Europe and South America. He writes regularly for Global Research; ICH; RT; Sputnik; PressTV; The 21st Century; TeleSUR; The Vineyard of The Saker Blog; and other internet sites. He is the author of Implosion – An Economic Thriller about War, Environmental Destruction and Corporate Greed – fiction based on facts and on 30 years of World Bank experience around the globe. He is also a co-author of The World Order and Revolution! – Essays from the Resistance.

First published by New Eastern Outlook

 

 

The Four Steel Men Behind Trump’s Trade War

By Dan Steinbock

In just a few months, the Trump administration has undermined more than seven decades of U.S. free trade legacies. Who are the policymakers behind this reversal? What is their agenda? And why is steel their common denominator?

Recently, the Trump administration hammered a revised North American Free Trade Agreement (NAFTA) by pressuring Mexico and then strong-arming Canada to the tentative deal. The White House’s objective is either to redefine the terms on the basis of U.S. economic leverage and unipolar geopolitics or – if that is not acceptable to other parties – to withdraw the U.S. from such FTAs. It is not “either you are with us or against us,” as in the Bush years, but “America First – or nothing.”

Today, Trump’s tariff wars are led by Peter Navarro, Director of Trade and Industrial Policy, and Director of the White House National Trade Council, as well as his ally and Trump trade advisor Dan DiMicco, former CEO of the U.S. steel giant Nucor.

It is not “either you are with us or against us,” as in the Bush years, but “America First – or nothing.” 

The two are supported by Robert Lighthizer, U.S. Trade Representative and former Reagan administration trade hawk, and Secretary of Commerce Wilbur Ross, a bankruptcy expert who made his fortune from restructured and offshored U.S. jobs.

Last year, the trade hawks were still contained by mainstream policymakers, such as former Secretary of State Rex Tillerson, Director of the National Economic Council Gary Cohn and Treasury Secretary Steve Mnuchin.

After Tillerson lost his job and particularly when the tree-trader Cohn resigned, things changed. Cohn’s Goldman Sachs companion Mnuchin proved weak, and Ross leans on winners, regardless of the cause. As free-traders were out, protectionists stepped in. That was more in line with Trump’s 2016 campaign promises, when he threatened to use 35% – 45% import tariffs against nations that have a significant trade surplus with the U.S.

The Uncompromising but Compromised Navarro and DiMicco

In the protectionist camp, the key player is Peter Navarro, the author of sensationalist China-bashing books, and his longtime friend DiMicco, a vocal free trade critic. For years, the two have been determined to prioritise steel industry, even at the expense of other American industries that offer more jobs, profits, or both.

With Navarro, the path to notoriety began with great political aspirations and failures. In the ‘90s, he lost five elections in San Diego; for mayor in 1992, city council in 1993 and 2001, county supervisor in 1994, and Congress in 1996. As politics did not work, he scribbled half a dozen business books, including If It’s Raining in Brazil, Buy Starbucks (2001), When the Market Moves, Will You Be Ready? (2003), What the Best MBAs Know (2005), The Well Timed Strategy (2006) and Always a Winner (2009). Intriguingly, all of them were typical feel-good-win-the-world business staple, and none of them focussed on China. But then came the global crisis. This was a problem to Navarro and others who mistook short-term bubbles for sustained growth. That’s when China became a convenient scapegoat.

So a repackaged Navarro hit the market with The Coming China Wars (2008), which claimed that America was facing battles with China over everything from decent jobs, and advanced technologies to strategic resources. Surprisingly, these hateful ramblings that smacked of simple China basing were given legitimacy by the reputable FT Press, the “world’s leading educational publishing company.” As Navarro realised he had found a gold mine, he released the more extreme Death by China (2011), which was published by Pearson Prentice Hall, the parent of the FT Press. Paradoxically, the more Sinophobic he got, the more he was rewarded.

Peter Navarro  and his book “Death of China”

Even stranger was Navarro’s debacle that resulted from efforts to fund a documentary based on his book, which went hand in hand with suspected “financial irregularities”, a subpoena by an FBI agent, and a charge for document destruction.[1] Like the over-driver Energizer Bunny, Navarro did not let such hindrances stop him. Even during the debacle, he co-authored a book on America’s economic ruin in cooperation with R. Glenn Hubbard, the heavy-weight economic advisor of Mitt Romney’s presidential campaign. But unlike former Fed chief Alan Greenspan who got caught for glorifying laissez-faire policies that led to the 2008 crisis, Hubbard had a lower public profile which allowed him to capitalise on the crisis via excessive consulting fees.[2]

Ironically, Death by China accused China for environmental pollution worldwide, whereas Nucor, one of America’s largest corporate contributor to U.S. air pollution, had already in 2000 paid almost $100 million to half a dozen U.S. states in the largest environmental settlement ever with a steel manufacturer. Death by China was co-authored with Greg Autry, an economist who represents Coalition for a Prosperous America and the American Jobs Alliance, which believes that U.S. trade policies have severely harmed the nation’s economy, security and people.[3]

Dan Dimicco

That is how China became a convenient scapegoat for Nucor’s dramatic fall. As long as free markets, deregulation and globalisation boomed, Nucor soared. As Dan DiMicco took over in 2000, its stock price more than doubled to $31 in half a decade. But thereafter it more than doubled again to a peak of $75 in fall 2008. How did DiMicco do it? The simple answer is: the fastest possible way, via mergers and acquisitions (M&As).

First DiMicco took over Auburn Steel (2001), Nucor’s first acquisition in 36 years, the came Birmingham Steel (2002). Smart CEOs got more cautious by 2005, when U.S. subprime market first tanked, but not DiMicco. After the mid-decade, he got hungrier acquiring even bigger targets, such as Connecticut Steel, Verco Decking and Harris Steel (2006). And even as U.S. real estate sector began to sink into recession, DiMicco bought Magnatrax (2007), and David J. Joseph Co. (2008). That’s when the $20 billion steel giant posted a loss of $293 million, its first loss since 1966. Unsurprisingly, in the aftermath of the financial crisis, Nucor lost all those gains by early 2009, within a few months as Nucor’s stock plunged back to $34 (see Figure 1).[4]

 

 

The punchline of the story is how DiMicco explained the fall of Nucor after 2008. It was not the excessive M&A wave. Nor was it the lack of foresight after the mid-decade, when many signs surfaced that Nucor’s growth was untenable. Instead, and once again, China served as a scapegoat. In the past, DiMicco had endorsed Navarro’s books. Now the two began to co-write op-eds bashing China.

Despite their more recent stated reservations about Navarro, Wall Street Journal, Barron’s and others highly-regarded business publications were glad to give him space at the time. In April 2009, the two argued that China’s currency manipulation accounted for U.S. trade deficits with China (Wall Street Journal). In October 2009, they decried China’s “weapon of mass production,” which they claimed was fueled by currency manipulation, unfair trade practices and gutting U.S. manufacturing (San Francisco Chronicle). (For a sanity check, it should be recalled that during this period Chinese economy accounted for almost half of global growth, which spared the world economy from Great Depression 2.0.)

To the two, these financial op-eds were but a stepping-stone to Capitol Hill’s kingmakers. In September 2009, DiMicco gave testimony on Chinese currency to the House Ways and Means Committee. By early 2010, they proclaimed China an emerging global threat and that it was time to “get tough” with the mainland (Barron’s); that is, assertive slogans that somehow found their way to the official U.S. 2017 National Security Strategy, after Trump was willing to see America’s ailing steel industry as a national security issue, at par with Pentagon’s rearmament.

Navarro’s Death by China had a simple solution to America: it urged business executives to be like Nucor, America’s largest steel producer, and Dan DiMicco, its chairman. “If American corporate executives want to better understand the art of fighting back against Chinese mercantilism and protectionism, they need look no further than Nucor…and the example set by its [chairman], Dan DiMicco [who] spends considerable time in the public arena lobbying for real trade reform with China.”

 

Lighthizer’s Tariffic Republican Party

Neither Lighthizer nor Ross has the public profile of Navarro and DiMicco. Yet, neither is without controversies. When Lighthizer arrived in the White House, he spent nearly $1 million on new furniture alone, attributing the costs to the Obama administration. But his ambitions went far beyond subsidised furniture – and they too, were sparked by the eclipse of U.S. steel industry.

Growing up in Ashtabula, Ohio, near the steel mills that used to be the bedrock of the little Lake Erie port city, he saw them shutter one after another. Today, Ashtabula is known as one of the poorest places in America. Like Navarro and DiMicco, Lighthizer believes that the loss of good-paying manufacturing jobs in his home place has nothing to do with the erosion of low-margin, high-polluting steel industry and the proliferation of steel factories around the world and thus intensified competition. He grew of age in the postwar age of “American Century,” not in the multipolar era of 21st century. As far as he was concerned, Ashtabula’s fall was triggered by unfair competition from cheap, foreign imports, particularly from China.

That’s the story Lighthizer likes to tell to U.S. journalists. The problem with the story is that he left his hometown more than four decades ago in the ‘70s, when Deng Xiaoping was only initiating China’s economic reforms and opening-up policies. Second, America’s trade deficits started in 1971, with Western Europe, then Japan and the “Asian dragons”; that is, Taiwan, South Korea, Singapore and Hong Kong. Third, U.S. deficits with China began only in the 2000s, decades after the fall of the Ashtabula of Lighthizer’s youth.

Lighthizer was a trade hawk already in the Reagan administration when he served as Deputy U.S. Trade Representative.

In reality, Lighthizer was a trade hawk already in the Reagan administration when he served as Deputy U.S. Trade Representative and the White House targeted Japan for alleged trade and currency abuses and then forced Tokyo to agree to the Plaza Accord (1985), to depreciate the U.S. dollar in relation to the Japanese yen and German Deutsche mark by intervening in currency markets. It was that deal – signed in a hotel that would soon become known as the Trump Plaza – that effectively broke Japan’s economic rise, paved the way to its asset bubble and lost decades.

Lighthizer greeting President Ronald Reagan in 1983

During those years, Ambassador Lighthizer claims to have negotiated over two dozen bilateral international agreements, including agreements on steel, automobiles, and agricultural products. As Deputy USTR, he also served as Vice Chairman of the Board of the Overseas Private Investment Corporation (OPIC). Indeed, OPIC had begun to serve as the U.S. government’s development institution after 1971, when it insured IT&T in Chile thus ensuring de facto U.S. government support to a company that was meddling in Chilean elections, which led to General Pinochet’s violent coup.

Just as Lighthizer in the Reagan administration sought to contain Japan’s rise with new trade and currency policies, he now hopes to use tariffs against China and, truth to be told, against any country that is perceived to stand in America’s way. It is what he believes to be the true tradition of the Republican party: “The icon of modern conservatism, Ronald Reagan, imposed quotas on imported steel, protected Harley-Davidson from Japanese competition, restrained import of semiconductors and automobiles, and took myriad similar steps to keep American industry strong. How does allowing China to constantly rig trade in its favor advance the core conservative goal of making markets more efficient?”

To Lighthizer, tariffs are as American as apple pie; a way to promote American industry and a key Republican tenet originating from the pro-business politicians who created the party. Already in 2011 – five years before the Trump election triumph – Lighthizer argued that Trump’s “get-tough views on China” recall the roots of the party: “For most of its 157-year history, the Republican Party has been the party of building domestic industry by using trade policy to promote U.S. exports and fend off unfairly traded imports. American conservatives have had that view for even longer.”

Like Trump, Lighthizer sees China as a problem, along with the U.S. NAFTA partners, Canada and Mexico, Germany and the EU, Japan and South Korea, and the WTO itself. America is on the right track; the other countries aren’t. So they have to be transformed by America.

 

Ross, “the Greatest Gifter in American History”

While Navarro and Lighthizer flex their muscles behind the TV cameras, the 80-year old Secretary of Commerce Wilbur Ross has been the trade war’s public face. Nicknamed the “King of Bankruptcy,” Ross made his estimated $700 million in assets by buying bankrupt companies, especially in manufacturing and steel, and then selling them for a great profit after restructuring.

Ironically, Wilbur Ross made his fortunes by doing everything Trump claims is wrong with America.

The prime examples include the International Steel Group (ISG), which he founded in 2002 after purchasing the assets of several bankrupt steel companies and which was followed by International Textile Group (ITG), International Automotive Components Group (IAC) and International Coal Group (ICG). Ironically, he made his fortunes by doing everything Trump claims is wrong with America.

Wilbur Ross

In the Trump administration, Ross presumably is going after the kind of offshoring of U.S. jobs that gained him with a fortune. Nevertheless, charges of conflicts of interest, including possibly illegal failures to divest from financial holdings (violating a pledge to the Office of Government Ethics), and to disclose financial ties to Russian interests in confirmation hearings (according to the Paradise Papers) keep haunting the semi-billionaire.

Worse, a recent Forbes in-depth report indicates that “allegations [against Ross] — which sparked lawsuits, reimbursements and an SEC fine — come to more than $120 million. If even half of the accusations are legitimate, the current United States secretary of commerce could rank among the biggest gifters in American history.”

As Forbes’ Dan Alexander sees it, the timing of Trump’s job offer was economic manna from heaven: “From Ross’ vantage point, Trump offered the perfect exit. The future cabinet secretary’s private equity funds were underperforming — one on track to lose 26% of its initial value and another two dribbling out mediocre returns — and the accusations were starting to pile up.”

 

Four Steely Men

So these are the not-so-fabulous four: an idea peddler haunted by fraud allegations, a senior executive willing to promote steel industry at the expense of American innovation; a trade hawk who would like to re-create the Republican Party and the WTO in the image of America; and a bankruptcy wizard and grafter extraordinaire who made his millions by offshoring those jobs that Trump claims to want back.

In each case, protectionism has been less an intellectual matter of correcting the wrongs in international trade. In each case, it has served as an opportunist career enhancer, profit-maker and ideological pretext.

In the U.S. industrial landscape, the four steely men seek a return to the past “American Century” by boosting artificially old and low-margin industries, at the expense of new and profitable ones. Steel is their common denominator.

Paradoxically, the Trump administration seeks progress in secondary priority areas where it is destined to generate minimal or transient progress, while ignoring viable advances in those areas of competitiveness and innovation, where it could thrive.

Since the postwar era, employment in manufacturing has fallen in most major manufacturing countries. Due to the emerging economies’ low-cost advantage and offshoring, advanced economies focus more on higher value-added, that’s their comparative advantage. In contrast, Trump hopes to facilitate U.S. growth with re-negotiated or rejected trade deals to “bring good-paying jobs to our shores and support American manufacturing, the backbone of our economy.” In reality, the reliance on controversial policy instruments (lower taxes, aggressive deregulation, new energy exports), may boost U.S. economic fortunes in the short-term but contribute to broader deterioration in the long-term (deeper income polarisation, social costs of misguided deregulation, environmental hazards associated with shale extraction).

Paradoxically, the Trump administration seeks progress in secondary priority areas where it is destined to generate minimal or transient progress, while ignoring viable advances in those areas of competitiveness and innovation, where it could thrive.

In the view of the steely trade hawks, even the reversal of postwar global economic cooperation is fully legitimate – as long as it is seen to serve the America First doctrine rather than each one’s private agenda.

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About the Author

Dr. Dan Steinbock is the founder of Difference Group and has served as research director at the India, China and America Institute (USA) and visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more, see https://www.differencegroup.net/

 

 

Notes

[1] Once again,Navarro turned to Nucor, but he wanted the deal done through Utility Consumers’ Action Network (UCAN), a San Diego non-profit, led by his friend Michael Shames. So, UCAN deposited Nucor’s checks to Navarro’s production company. Perhaps the hope was that this would be easier to explain to Nucor’s shareholders. In February 2012, UCAN, Navarro’s production company, Navarro and his wife were subpoenaed by an FBI agent to testify before a federal grand jury, due to suspected financial irregularities. Soon thereafter UCAN was charged for document destruction. By fall 2012 Shames was replaced. But the debacle is not over. The following year, UCAN and Shames sued each other.

[2] In Inside Job (2010), the Oscar-winning documentary on the 2008 Great Recession, Hubbard was questioned on his support for deregulation, lucrative consulting, and conflict of interest. Hubbard was dean of Columbia’s School of Business and formerly deputy assistant secretary at the US Treasury (1991-93), chairman of the Council of Economic Advisors (2001-2003).

[3] The Coalition promotes a harder line against China. It represents agriculture, manufacturing and organized labor associations and small exporters. In turn, the American Jobs Alliance is dedicated to fostering U.S. system of free enterprise. The leaders of these two organizations are well-known trade hawks and include a former commissioner of U.S.-China Economic and Security Commission, president of Economic Strategy Institute, Ross Perot’s economic advisor, and Reform Party candidates.

[4] Just months before his successor John Ferriola took over as the CEO in January 2013, DiMicco still bought the $605 million Skyline Steel, which boosted Nucor’s price to almost $45 thus making his departure look a bit more respectable.

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