Thursday, November 29, 2007

Mugabe-cide Economics

Some things in life you just can't buy. Like inflation statistics in Zimbabwe.

Zimbabwe's chief statistician has said it is impossible to work out the country's latest inflation rate because of the lack of goods in shops.
"There are too many data gaps," the Central Statistical Office's Moffat Nyoni told state media.

Many staple goods are often absent from shop shelves after the government ordered prices to be halved or frozen in a bid to stem galloping inflation.

September's inflation rate was put at almost 8,000%, the world's highest.

Other reports suggest the rate could be at near 15,000% and the International Monetary Fund had warned it could reach 100,000% by the end of the year.
Mugabe-cide economics would be funny if it wasn't so sad. From an earlier BBC report:
People are starving. The evidence is in the hospitals where tiny, wizened babies lie dying in their cots while their mothers look on helplessly.

One mother cradles a child who is losing her hair and her skin, a sign of the most advanced form of Kwashiorkor or vitamin deficiency.

It is certainly the first time I have seen this condition in 20 years of reporting on the developing world.

"Zimbabwe once offered the most comprehensive medical service in Africa," a doctor explains. "It is now becoming a textbook case of medical horror."

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Wednesday, November 28, 2007

See the world and buy it up, all the day you'll have good luck

Benjamin Franklin made famous the saying, "see a penny, pick it up, all the day you'll have good luck." He also said, "neither a borrower nor a lender be."

Whatever. Flush with cash, oil exporting countries are looking for some place to stick it. The New York Times reports:
“If you look at gulf countries, they have a total common economy that is about the size of the Netherlands,” said Edward L. Morse, chief energy economist of Lehman Brothers. “These are tiny countries, but they have to place collectively over $5 billion a week from their oil revenues. It’s not an easy thing to do.”
Though oil-producing countries have been looking at investments in the West since the 1970s, their strategies back then were largely confined to safe assets with a low return, like United States Treasury debt.

By 2001, with the collapse in oil prices, many of the oil exporters had depleted their dollar reserves, economists say.

But the boom in oil prices in the last five years has changed all that. It has persuaded oil producers to set up or expand “sovereign wealth funds” as vehicles to invest far more aggressively in the West, in their own economies and in emerging markets.
“The oil-producing countries simply cannot absorb the amount of wealth they are generating,” said J. Robinson West, chairman of PFC Energy. “We are seeing a transfer of wealth of historic dimensions. It is not just Qatar and Abu Dhabi. Investment funds are being set up in places like Kazakhstan and Equatorial Guinea.”
Recently Ben S. Bernanke, chairman of the Federal Reserve, has spoken of a “global savings glut” that has lowered interest rates worldwide. Ms. Farrell, of the McKinsey Institute, estimates that petrodollars may have kept American interest rates three-quarters of a percentage point lower than they would otherwise be, a direct benefit to American consumers.

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A closer look at the Citigroup deal with Abu Dhabi

The New York Times takes an extensive look at the Citigroup-Abu Dhabi deal:
Despite its size, Abu Dhabi’s royal family has been largely content to pour money into low-return, low-profile investments — until now.

But Abu Dhabi, the largest oil producer of the seven city-states that compose the United Arab Emirates, is worried enough about the eroding value of its pile of petrodollars that it appears ready to pursue more big-ticket deals.
While Abu Dhabi contains about 94 percent of the oil reserves in the U.A.E. and includes about 87 percent of the country’s land mass, the city-state’s international profile has paled in recent years in contrast to that of its neighbor, Dubai.

Thanks to a series of big-name deals and an audacious growth strategy, Dubai is becoming a tourism destination, a regional financial center and a favored buyer of marquee assets. On Monday, Dubai International Capital said it had bought a substantial stake in the Sony Corporation.

“They are different animals,” said David Butter, the Middle East regional head at the Economist Intelligence Unit, comparing Dubai’s growth strategy with Abu Dhabi’s. “The purpose of A.D.I.A. is to invest surplus cash in assets that would provide steady gain and returns over time,” he said, while Dubai, with less oil reserves, has had to create its own sources of wealth.
Like other sovereign wealth funds, the Abu Dhabi fund is looking for investments to help diversify foreign currency reserves earned from exporting oil.

Its shift in investment strategy is not immediately being accompanied by an increase in public transparency. Several calls to the company’s headquarters in Abu Dhabi went unreturned.

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Tuesday, November 27, 2007

Abu Dhabi will invest $7.5 billion in Citigroup

Los Angeles Times today:
Citigroup Inc., suffering huge losses on mortgage-related securities, said late Monday that an arm of the Abu Dhabi government would invest $7.5 billion in the giant U.S. bank.

The cash infusion would give the Abu Dhabi Investment Authority a stake of as much as 4.9% in Citigroup.
Abu Dhabi, one of the United Arab Emirates, is buying from Citigroup equity units that would pay an 11% annual dividend and be converted into Citigroup common stock in 2010 and 2011 at prices of $31.83 to $37.24 a share, depending on the bank's stock price at that time.

Before the deal was announced, Citigroup shares fell $1, or 3.2%, to $30.70. They are off 45% this year.

Citigroup said Abu Dhabi would have "no role in the management or governance of Citi, including no right to designate a member" of its board.
Abu Dhabi. You know the one. Or is it Abu Dubai? Or Apple?


Monday, November 26, 2007

UN charter and GCC labor rotation scheme

You might wonder why a country would want to limit the stay of "unskilled" guest workers who are doing a good job and have gained local knowledge that is valuable to their employers. I certainly have.

When economists see firms or households doing something odd we don't immediately discard our model of rational behavior. We look for constraints or incentives that are not immediately apparent to the observer. In the USA, for example, the answer often lies in government regulation or perverse incentives created by taxes.

The Gulf Coast Countries are considering a plan to limit the stay of unskilled guest workers. The Gulf News yesterday:
The 3+3 law proposes a residency cap of six years for unskilled labourers. If the law is passed, then unskilled workers will come to work in a GCC country with a three-year labour contract which can only be renewed once.
However the law would only be applied separately to each country, which means that a labourer could continue to work in the GCC after completing six years but not in the same country.
The last paragraph explains why I've included "labor rotation scheme" in the title.

What rational explanation is there for this plan?

The explanation for this plan can be found a Gulf News article that appeared last month:
Bahraini Minister of Labour, Dr Majeed Al Alawi, told Gulf News ... the residency time ceiling proposed for foreign workers in the Gulf is meant to ensure that unskilled foreign manpower taking part in different development projects do not come to live here for long periods that might entitle them the rights of immigrant workers under the UN conventions.
So, once again, there is a straightforward explanation that comes from regulation -- in this case the UN conventions. The GCC rotation plan dodges the problem of the guest workers being classified as immigrants. Immigrants have rights under the UN conventions, particularly a route to citizenship.

There are other plausible explanations. One is that the longer workers stay the more likely they will be able to organize and achieve collective action -- strikes.

Demographic imbalance is often cited as a reason to limit the number of guest workers. The notion here is that the greater the proportion of the population that is foreign the more that local culture will erode. Limiting the stay would not address demographic imbalance. It would have some cultural effects. For example, consider the family that employs a foreign maid or nannie. They would not be able to keep her beyond six years.

The first article referenced above does also discuss a separate measure to limit the number of unskilled workers. The article states,
The growing number of expatriates in the region has become a matter of grave concern to local governments as unemployment levels have also risen proportionately.
It may be that in some of the poorer GCC countries nationals would take jobs in the unskilled sector. But not in the UAE.

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Remittances and the role Western Union

Anyone familiar with the UAE knows that a majority of the population (working and nonworking) are foreign guest workers. The guest workers send much of what they earn to family in their home country.

Last week the New York Times published a major piece on remittances and about Western Union in particular.
To glimpse how migration is changing the world, consider Western Union, a fixture of American lore that went bankrupt selling telegrams at the dawn of the Internet age but now earns nearly $1 billion a year helping poor migrants across the globe send money home.
Migration is so central to Western Union that forecasts of border movements drive the company’s stock. Its researchers outpace the Census Bureau in tracking migrant locations.
With five times as many locations worldwide as McDonald’s, Starbucks, Burger King and Wal-Mart combined, Western Union is the lone behemoth among hundreds of money transfer companies. Little noticed by the public and seldom studied by scholars, these businesses form the infrastructure of global migration, a force remaking economics, politics and cultures across the world.

Last year migrants from poor countries sent home $300 billion, nearly three times the world’s foreign aid budgets combined.
While some migrant groups still complain of predatory pricing, the company has won unlikely praise.

“Western Union has become a company that values and protects its customers,” said Matthew J. Piers, the Chicago lawyer who sued the company over its fees. “Nobody was more surprised at the change than me, because I was Western Union critic Numero Uno.”

This is a story of how a goliath fell when the telegraph market collapsed and how it reemerged on the strength of its existing network of outlet around the world and grasped the market opportunity in the growth of remittances. And how it remade itself again in response to criticism - and I think more likely, the threat of competition - with a focus on customer service.

Here are the other stories in the NYT series on migration by Jason DeParle.

Lost Luster - In India, Even Cared-For Populace Leaves for Work - In the Indian state of Kerala, remittances from global capitalism are now a central part of the local economy. (September 7, 2007)

Middle Class Migrants - Rising Breed of Migrant Worker: Skilled, Salaried and Welcome - While many countries are seeking to restrict immigration by low-skilled migrants, they are increasingly working to attract those with advanced degrees and scarce skills. (August 20, 2007)

Building Blocks - Fearful of Restive Foreign Labor, Dubai Eyes Reforms - After several years of labor unrest in the United Arab Emirates, the government is seeking peace with the migrant workers who make local citizens a minority. (August 6, 2007)

The View From Cape Verde - In a World on the Move, a Tiny Land Strains to Cope - The West African nation of Cape Verde, where almost everyone has a relative abroad, is a microcosm of the forces of migration that are remaking societies across the globe. (June 24, 2007)

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Friday, November 23, 2007

Price controls divorced from reality

Here's what you get when you combine growing demand fueled by growing oil income with tough enforcement of price controls:
The lines formed at dawn and remained long throughout the day - hundreds upon hundreds of _____s queuing up to buy scarce milk, chicken and sugar at state-run outdoor markets staffed by soldiers in fatigues.
The long lines for basic foods at subsidised prices are paradoxical for an oil-rich nation. Shopping malls are bustling, new car sales are booming and privately owned supermarkets are stocked with American potato chips, French wines and Swiss Gruyere cheese.

Yet other foods covered by price controls - eggs, fresh chicken - periodically are hard to find in supermarkets.

Fresh milk has become a luxury, and even baby formula is scarcer nowadays.
It's not a paradox. Paradoxes don't have explanations. This is Venezeula under Hugo Chavez. Price controls create shortages. Milk has become rare only because the price is artificially low.

It's interesting that the Gulf News is running this AP story. The story concludes,
The government's price controls are also "totally divorced" from reality - in some cases below production costs - making it unprofitable for suppliers to sell their products at official prices, said econ-omist Pedro Palma of consultants MetroEconomica.

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Thursday, November 22, 2007

70% pay raise for UAE federal employees

It was announced the other day that employees of the federal government would receive a 70% pay increase.

There's a problem. Pay increases this large, out of line with private sector wage increases, run entirely contrary to the government's expressed desire to see more Emiratis in the private sector. Very few are, and with good reason. Their time would be better spent hounding someone for a job in government. That's a waste from the social perspective. It's a waste because it's effort that just moves money from one pocket to another and produces nothing. It discourages Emiratis from becoming engaged with the private sector and the virtue of merit-based reward. And not least of all the country develops no institutions of its own to foster economic growth.

In short, the country is suffering the curse of resource abundance.

There are better ways to share the plenty of high oil prices with its citizens. Write them a check; unhitch payment from employment in the government sector. Make them owners of the oil that is currently owned by the government. Make it difficult to reverse course -- as happened in Saudi Arabia where so much of the oil revenue now goes to maintaining a large royal family.

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Woman too large for New Zealand

The Guardian
New Zealand has added another cruel cut to the myriad indignities visited upon those of larger girth: anyone with a dangerously high body mass index (BMI) is likely to be denied permission to emigrate there. Richie Trezise, 35, a Welsh submarine cable specialist, was initially rejected because of a BMI of 42 (25 or higher is regarded as overweight); he lost weight, but his wife Rowan, 33, has not found it so easy. For months she has tried to slim down enough to join her husband; if she can't do it by Christmas, he will have to give up his job and come home.

The government's reasoning is simple: it will take only immigrants of an "acceptable standard of health", ie those "unlikely to impose significant costs or demands on New Zealand's health or special education services" (a requirement that raises the even more controversial possibility of applicants being turned down for mental health reasons). Obese people are more likely to suffer from heart disease, diabetes, strokes and high blood pressure; ergo, obese people are not allowed.
The Sun has pictures.

New Zealand can't be blamed for Mrs. Trezise's weight. It can be blamed for causing its own citizens to be overweight. Its healthcare policy has weakened the incentive to stay fit.

Evidence? Obesity is an epidemic in New Zealand. As one news source points out,
The country's health care system cannot afford to open its doors to overweight immigrants, a spokesman for New Zealand's Fight the Obesity Epidemic explained to the Daily Mail.

Over half of New Zealand adults and nearly one-third of New Zealand children are already overweight or obese, according to the group. Those figures are expected to rise, as are the health problems associated with being overweight, such as high blood pressure and diabetes.
The UAE does not limit immigrants by weight, but then it doesn't let them participate in the health plan for citizens. Obesity among UAE nationals is a considered a social problem and is related to the high rate of diabetes.

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Tuesday, November 20, 2007

GCC currencies and the dollar drama

'Independent decisions likely' on currency peg - "The Gulf states are discussing the issue of regional currency pegs to the dollar and ideally there should be a regional consensus at the GCC level, failing which many countries are likely to take independent decisions, said Dr Omar Bin Sulaiman, Governor of the Dubai International Financial Centre."

UAE keeps up pressure for dollar peg review - "The Saudi riyal hit a 21-year high and investors bet on an appreciation of 2.4 per cent in a year after a source familiar with Saudi policy said the kingdom could consider its first revaluation since 1986."

Tools limited in inflation fight - ' "Since January 2001 and until September 2007, the dollar lost around 32 per cent of its value against the euro and 27 per cent of its value against the British pound. Imports from these countries constitute around a third of our total imports. Since the dirham is pegged at a fixed rate to the dollar, the prices of imports from these countries have risen in dirhams, leading to imported inflation," the UAE Ministry of Economy revealed in a report yesterday.'

Saudi Riyal Touches 21-Year High - "UAE Central Bank Gov. Sultan Nasser Al-Suweidi said last week he too could start tracking a currency basket including the euro, but would only act along with Saudi Arabia and three other oil producers preparing for monetary union as early as 2010. The UAE is under mounting social and economic pressure to drop the peg, Suweidi said on Thursday in an interview that drove the dirham to a five-year high."


Monday, November 19, 2007

The Jeddah dump society

Hasan Hatrash has written a nice article on the economics and self government of dump pickers at the Jeddah dump. Read the whole thing in the Arab News.

The dump is to be relocated to a modern facility. One reason is that the trash pickers burn discarded items to extract valuable metal. The burning plastics create pollution and the neighbors are complaining.

Sunday, November 18, 2007

Not to put too fine a point on it

We appreciate the accuracy: Mugabenomics drives inflation rate to 14,840.6 percent.


Saturday, November 17, 2007

Some things you just can not make up

Undercover Economist
John Nye and Charles Moul, two economists at Washington University in St Louis, have now checked some basic macroeconomic statistics using Benford’s Law. They find that OECD statistics fit the law quite well, suggesting that GDP data should follow Benford. But African GDP data do not fit. It is not possible to say whether the anomaly is due to fraud or underfunded statistical offices. But it is a reminder that some data should come with a health warning.
Another thing I learned from this post: Hal Varian is Google's chief economist.


Working to improve the lot of house servants in the UAE

Sharla, a US national married to a UAE national

I run the City of Hope, which is a shelter for battered women. We've dealt with about 400 victims in the past six months.

I think the United Arab Emirate is really trying to improve the situation for housemaids.

They are working with Sri Lanka and the Philippines to crack down on the problems.

Currently, the biggest issue is with Ethiopians. Traffickers are going to the most remote villages in Ethiopia and tricking these women into coming here. Their families pay the traffickers up to a thousand dollars to send them to work in Dubai.

They then put them in these villas. The women are completely illiterate, completely overwhelmed and they can't cope, so they run away. We sent more than a hundred victims back to Ethiopia in July and August alone.

I have had a positive experience with the authorities here, although at a lower level I go through a lot of harassment. If you're any type of victim, your first point of contact is with the lower level police, which is not fun.

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Dubai Media City "seemed to be a sanctuary"

Gulf News
Geo and ARY One World, which have studios in Dubai Media City, were ordered off air in Pakistan during President Pervez Musharraf's emergency rule.

"We have been told by the [Dubai] Media City that our transmission will be shut down," said Imran Aslam, president of Geo News. "This is all I can say at the moment."
WAM [official news agency of UAE government] adds: The decision by the Dubai Media City to stop the transmission of two Pakistan's leading private television stations is in line with the UAE's foreign policy based on neutrality and non-interference in other's domestic affairs, said Ebrahim Al Abid, Director General of the National Media Council.
Both networks had been banned from Pakistan's cable television system -- along with other networks, including CNN and BBC -- since Musharraf declared a state of emergency on November 3.

This latest action prevents the two Pakistani networks from broadcasting worldwide via satellite.

"This was basically our window to the world, GEO President Imran Aslan said. "In Pakistan, we've been shut down since the 3rd."

The action was not wholly unexpected, but surprising nevertheless, Aslan said.

"We uplink from Dubai, never having had a license to uplink from Pakistan," he said. "Dubai is a media city which seemed to be a haven and a sanctuary."


Friday, November 16, 2007

Second-hand fat?

Attention students of economics. Do you see an externality here? Or not?
Dr Tickell, a leading nutritionist and author, told the BBC that society should take a more hardline stance against obesity and get tough on fat airline passengers. He said that Australian airlines should impose charges on their overweight clients, as they do for excess baggage, because heavier loads increase fuel costs. It's not fair to single out those people who have a problem, which is already impacting greatly on their life, and make them feel like pariahs

"I fly Sydney to Perth - five hours - and being totally disadvantaged by some huge person next to me literally flopping over into my seat. Why should I pay the same as them?" he asked.
But the chief executive of the Australasian Society for the Study of Obesity, Dr Tim Gill, said penalty charges should not be imposed on overweight passengers. "It's not fair to single out those people who have a problem, which is already impacting greatly on their life, and make them feel like pariahs," he said.

A spokesman for the Australian budget airline, Jetstar, said it had no plans to charge larger passengers more for their seats. Airlines are, however, monitoring long-term trends in the size and shape of their customers, the BBC's Phil Mercer in Sydney says.

Isn't there a straightforward solution here? If there is an externality the airline could eliminate it and increase its profit by charging the obese passenger more for a bigger seat. (No, I don't want to be the airline employee who enforces this policy.)


Wednesday, November 14, 2007

Scottish roads too safe :: EclectEcon

White lines will be removed, or, rather, not repainted.

Read about the natural experiment that supports this policy in this story in the Scotsman:
Although white centre lines can greatly assist drivers on major unlit rural roads, research in Wiltshire has shown that when white centre lines on lit roads within a 30mph speed limit were not replaced, traffic speeds and accidents were both reduced. It is, therefore, proposed that a similar experimental policy should be adopted in Aberdeenshire when roads with street lighting within 30mph speed limits are resurfaced or surface dressed.
Thanks to EclectEcon for the link. Read his analysis here.

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Bread shortage created by municipality

If prices are allowed there won't be shortages. Here's a classic example from today's news of a shortage created by government price intervention:
Fujairah: For the second day running, small bakeries have stopped supplying grocery shops over a price dispute with the municipality.

A number of bakeries have already hiked the price of Arabic bread to Dh3, after getting approval from the municipality's consumer protection department.

The dispute started after the consumer protection department insisted on vetting each bakery's price list. The municipality had ordered small bakers to roll back their prices until the case of each bread-maker is assessed.
Bakers cite a steep increase in flour prices, along with other costs of labour and transport, as the main reason for rising prices.
Read it all in the Gulf News.

And here's more bread news from the yesterday's Gulf News: Bread to cost 20% more from next week .


Rights report 'ignores UAE steps to protect workers' :: Gulf News

Dollar peg at the crossroads

Gulf News
The UAE Central Bank Governor yesterday hinted at a potential change in the UAE's exchange rate policy currently anchored on fixed peg against the US dollar.

"The dirham's peg to the US dollar has served the economy of the UAE very well in the past. However, we have reached the crossroads now with a further deterioration in the US dollar and expected further weakening of the US economy," Reuters quoted Sultan Bin Nasser Al Suwaidi as saying in Tokyo yesterday.

Analysts saw the statement as a clear shift in central bank's stand on the peg.


Tuesday, November 13, 2007

Quote of the day

Greg Mankiw:
Given how overweight we Americans are compared with citizens of other countries, it is amazing that we live as long as we do. If we further standardized life expectancy by body-mass index, the U.S. lead in health outcomes would likely grow even larger.
Mankiw argues convincingly that it's not the fault of the US health care system that Americans are so unhealthy. See more here and here.

Mankiw points to this article in the Washington Post. An extract:
I was talking to Barry Nalebuff, a professor at Yale University and one the country's top game-theory economists. He has studied weight-loss incentives extensively. When I told him what my wife was paying me, he said: "It's not going to work. It's not big enough. Not even close." He had another idea: Take a picture of myself in a Speedo, and if I don't lose weight, he gets to hang the picture in my office. For extra motivation, he suggested I procure a similar picture of my wife, theorizing (correctly) that she wouldn't want my colleagues to see that much of her. "Then you'll really lose the weight," he said. He has done two nationally televised studies showing that this strategy works.

Nalebuff thinks the weight loss will happen only if there is something of importance being risked. When I told him that my wife might kill me under his proposed arrangement -- thereby defeating the purpose of me losing weight -- he suggested I enter into a contract in which I agree to pay him if I don't drop some pounds. "As much as people don't like to lose money, what they really don't like to lose is their own money," he said.

In fact, some of his Yale colleagues are in the final stages of launching a business based on this very concept.
Perhaps they could open a branch in the UAE. According to the Gulf News Treatment of diabetes is a big drain on national healthcare budget. Diabetes is caused by diet. Here's where healthcare policy comes in. When your government takes care of you if you don't take care of yourself, then incentives are screwed up. But it's very difficult for the government to refuse to take care of you, especially if it's a wealthy nation. Perhaps the UAE government should commit to giving a few billion dollars away to Darfur if it fails to stick to a policy of refusing to take care of people who don't take care of themselves.

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Wall Street Journal considers switching to ad revenue model

ADELAIDE, Australia, Nov. 13 (AP) — Rupert Murdoch, the chairman of the News Corporation, said today that he intended to make access to The Wall Street Journal’s Web site free, trading subscription fees for anticipated ad revenue.

“We are studying it and we expect to make that free, and instead of having one million, having at least 10 million-15 million in every corner of the earth,” Mr. Murdoch said, referring to The Journal’s online readership.
Read it all in the New York Times.

I'm one of the one million online subscribers to the Wall Street Journal, and have been for more than 10 years.

Islamic car :: Markets in everything

Gulf News
Iran, Turkey and Malaysia are planning to build an "Islamic car" that will have a compass to find the direction of Makkah, Malaysia's state news agency reported.

The proposed car will also have a compartment for the Quran and prayer scarves, the Bernama agency quoted an official of Malaysian automaker Proton as saying.
Syed Zainal [of Proton] said the vehicle was an Iranian initiative. "What they (Iran) want to do is to call that an Islamic car," he said.
I doubt the car will sell well in the UAE. The Phantom Drophead is more our speed.

It's another one for Marginal Revolution's "markets in everything" category. The marginal on that subject there is on cheat offsets.


There's a new blog in town

And its name is Experiencing the Emirates. Its keep is Geoff Pound. Geoff and I seem to have similar and complementary interests and perspective. I'll be checking out his blog on a regular basis.

Go check it out and just keep scrolling.


Monday, November 12, 2007

One maid for every child

Gulf News
Five per cent of the population of the UAE are domestic workers, according to a new study by the Abu Dhabi Chamber of Commerce and Industry.
Abu Dhabi: Mohammad Al Saeedi has four housemaids, one for each of his children.
Al Saeedi affirms the study's findings by saying, "I know countless families who have more maids than there are people in the house."
26-year-old Mohammad Al Ganabi says this idea has to change. "It is actually not healthy to the structure of the family to have these many housemaids.
Besides housemaids other there are other categories of domestic workers such as chauffeurs.

It is not only Emirati families that employ domestics. Many middle and upper class ex pat families employ live-in domestics as well. Still, 5% is substantial in a country where less than 30% of the population are citizens and most of the 70% ex pats are low wage workers.

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Sunday, November 11, 2007

Sitting ducks are on offer :: Telegraph

Back in October, in The Telegraph
The wolf packs are circling. Fifteen years after George Soros smashed the sterling and lira pegs of Europe's Exchange Rate Mechanism, central banks have invited hedge funds to pounce again. This time on a global scale.

Sitting ducks are on offer across Eastern Europe, the Middle East and emerging Asia, each offering an irresistible one-way bet for speculators with deep pockets.

What the candidates all have in common is inflation, the ever-higher penalty they pay for chaining their destinies through currency pegs and dirty floats to the dollar and the euro, the currencies of two enfeebled blocs – one a fat roué at the end of his credit, the other a stooped old gentleman with a stick.

The global M3 money supply is growing at 10.6pc as stimulus from America, Europe – and Japan, through the carry trade – leaks out to the vibrant parts of the world economy.

Money is expanding at 18pc in Saudi Arabia, 19pc in China, 24pc in India, 36pc in the United Arab Emirates, 41pc in Russia and 69pc in Venezuela.

With the usual lag, inflation has at last hit. Prices are rising at 6.5pc in China, 9pc in Russia, 9pc in Vietnam, 11pc in the UAE and 12pc in Qatar – to name a few.

Only nations with very rigorous monetary regimes seem able to resist this tide of liquidity. Most are floundering. Hence the rush by investors to profit from these unrestrained bubbles by piling into their stock markets.

Kuwait became the first Gulf state to ditch its dollar peg. Others are hanging on, but inflation has reached 10pc in the United Arab Emirates and 11.8pc in the gas-rich neighbour of Qatar.

They have balked at cutting interest rates in lockstep with the Fed. So have the Saudis. This makes pegs untenable over time. Matt Vogel, of Barclays Capital, says a riyal "carry trade" has already begun in Saudi Arabia. Speculative flows are surging into the kingdom.

The Gulf region has $3,500bn under management in reserves and wealth funds. It has the firepower to shoot wolves, but does it make any sense to do so? Buying dollars leads to even more inflation. In any case, Qatar has already slashed the dollar share of its $50bn investment fund from 99pc to 40pc. The game is up.

Further east, Vietnam is throwing in the towel as inflation hits 9pc. It said it will no longer hold down the dong by massive purchases of US bonds.
Plenty of metaphors on offer as well.

If you've not watched this informative video it is well worth your time:

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Strike ends, 30,000 return to work :: Gulf News

Dirham under fresh pressure :: Gulf News

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Saturday, November 10, 2007

Christians are coming back to Arabia

So says Chisea, a website providing "news, analysis, and documents on the Catholic Church." According to Chisea,
On May 31, the Holy See established diplomatic relations and exchanged ambassadors with the United Arab Emirates. Few noted the fact that the United Arab Emirates has the greatest Christian presence of any Islamic country.

And it is a new and growing presence. Exactly the opposite of what is happening in other regions in the Middle East like Iraq, Lebanon, the Holy Land, where Christian communities of very ancient origin actually face extinction.

The United Arab Emirates is a federation of seven emirates ... . Almost all of the citizens belong to the official religion, Islam.

But there are many more immigrants than citizens. Foreigners now make up more than 70 percent of the more than 4 million inhabitants, coming from other Arab countries, Pakistan, India, Bangladesh, the Philippines.

More than half of these foreign workers are Christians. Adding up the figures, Christians account for more than 35 percent of the population of the United Arab Emirates. Around a million of them are Catholic. And it's not only in the UAE – in Saudi Arabia, too, it is estimated that there are already about a million Catholics from the Philippines.
The article goes on to describe the worship especially amongst Filipino maids. One example is those who have fled their employers and are sheltered by the Filipino embassy. Another example is of maids who arrange their own services together because their jobs do not allow them to get a church.

Unlike Saudi Arabia, the UAE is good in giving freedom to foreigners to celebrate their religion. But Chisea points to issues that should be addressed. The first is that maids working for families have very little free time, and little freedom of movement both of which limit their freedom of worship - in particular, preventing them from obtaining the sacrament of communion.

The second is that workers in low-wage jobs are virtually indentured servants. This leaves them vulnerable to the capriciousness of their employer. As I have argued before, there would be far fewer stories of employer abuse in the UAE if workers had the freedom to change jobs. As it is, the bad behavior of a few spoils the reputation of the country and makes it more expensive for all employers to hire workers from abroad.

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Friday, November 09, 2007

Put that dog on a lease

ABC News:
Earlier this year a San Diego-based company called FlexPetz started renting man's best friend for pet lovers who might want to take a dog on a long walk and maybe play a game of fetch, but don't have the time to own a pet full time.
FlexPetz offers different types of dogs in each location. The company conducts surveys to find out which dogs potential customers want. Larger breeds are popular on the west coast, while smaller dogs are in demand in New York.

FlexPetz members might as well get what they want for the hefty price they pay.

Members are charged a one-time-$150 initiation fee, followed by a $49.95 monthly membership fee for the right to limited visitation. But the fees don't end there. There's a $99.95 annual maintenance fee and, of course, the actual charge to rent the dog: $39.95 a day on weekends and $24.95 per day on weekdays.

Which is well worth it to some people. And just think about the annual savings in food, vet fees, damage, and - for when you're away - kennels. And the psychic costs owners bear if they feel guily of leaving their pets alone while their at work all day.


Sunday, November 04, 2007

Prepare for depegging? (Updated)

9 Nov - Gulf News
The UAE or Qatar may drop their currencies' pegs to the dollar within six months as inflationary pressures outweigh the benefits of maintaining the links, Merrill Lynch & Co said.

"We believe there is a significant risk of a change in the policy regimes of either the UAE of Qatar in the coming six months," Merrill Lynch said in a research note yesterday.
The central bank governors of Qatar, Oman, Bahrain and Saudi Arabia have all said a number of times since May that they have no plans to drop their currencies' pegs to the dollar.

Of course "no plans" does not equal "won't."

The Wall Street Journal, page A2, November 2, 2007 (subscriber link)
DUBAI, United Arab Emirates -- Oil-rich Arab sheikdoms, risking new inflation pressure, followed the U.S. Federal Reserve's lead by lowering official interest rates to keep their currencies aligned with the dollar.

Saudi Arabia, the United Arab Emirates, Qatar, Kuwait and Bahrain followed the Fed's decision to cut interest rates by a quarter percentage point.
The moves came despite concerns over rampant inflation in the region, which suggest central banks should be raising, instead of lowering, rates. Bankers said the policy conflict is building pressure on the Gulf states to unbind from the dollar.
With inflation expected to exceed 10% for a second consecutive year in the U.A.E., the emirates' ruling sheiks face the region's greatest fiscal policy challenge since the U.K. devalued sterling in 1967, forcing Gulf states to turn to the dollar as a benchmark.

When the emirates created the dirham in 1973 they linked it effectively to the dollar. Now bankers such as Deutsche's Mr. Azzam are unsure whether the U.A.E. is ready for another such change. "I don't think a depeg will happen because that's a regional decision and it has served the U.A.E. so far," he said.
Nowhere in the Middle East are the strains more acute than in the U.A.E., where investors are betting on a "depegging" of the dirham as domestic inflation pressures increase.

"Speculators are definitely bidding on a depegging, and that's why they're increasing their dirham deposits," Henry Azzam, Middle East chief executive at Deutsche Bank AG, told Zawya Dow Jones Newswires in an interview.

Attracting that money are chances of a quick profit once the peg snaps. Deposits held in the emirates' banks have exceeded one trillion dirhams ($272.3 billion) for the first time, more than is deposited in the region's largest economy, Saudi Arabia, latest central-bank figures show.

"The probability of depegging has increased," said Kamran Butt, Dubai-based chief economist at Credit Suisse Group. "The market consensus is for the U.A.E. to depeg."

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Dubai Strife

The Wall Street Journal, page A8, November 1, 2007 (link for subscribers):
DUBAI, United Arab Emirates -- In this oil-fueled boomtown, which runs on imported labor, the dollar's sharp tumble is contributing to civil strife.

In recent days, thousands of expatriate construction workers walked off job sites to protest low pay and the rising cost of living. Law-enforcement officials -- who typically play down the scope of labor actions here -- have acknowledged widespread protests, isolated violence and dozens of arrests.
[O]fficials are finding it more difficult to deal with what has increasingly become one of the workers' chief complaints: A weak dollar, coupled with rampant inflation, means it is hard to send enough money home to make it worth sticking around.
The World Bank estimates that $20.75 billion in remittances was sent in 2006 from the four Gulf countries for which it has numbers: Bahrain, Kuwait, Oman and Saudi Arabia. Remittance data are difficult to track, and other estimates put outflows from the Gulf much higher. When the dollar falls against home currencies, those remittances don't go as far.

At the same time, soaring domestic demand for such things as housing and imports has stoked inflation across the Gulf. Because of its dollar link, the UAE's central bank typically can't use monetary levers, such as raising interest rates, to battle inflation. The UAE's inflation rate was 9.3% last year and is expected to be around 8% this year, according to the International Monetary Fund.
In recent interviews, officials at the ministries of economy and labor say there is no sign of an impending labor shortage. Plenty of workers are eager to come into the country to take the place of leaving workers, they say.

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