World Economic Forum in Myanmar: Isolated No More

In the retail space, there are certain token signs of global integration: McDonalds, KFC and Starbucks. In the realm of economic summitry, there too are certain "franchises" one can have: Think of hosting IMF/World Bank meetings...or, in this case, a World Economic Forum event. What brought Myanmar to mind is the country hosting that most neoliberal of talk shops, the World Economic Forum, from 5-7 June. If you had told me as late as 2010 that this nation would soon be hosting Klaus Schwab's schmooze-a-thon of global movers and shakers, I'd have probably chuckled heartily in dismissing it. Klaus Schwab and Thein Sein sharing the same stage; what an idea!

Well, dismiss it no more since it's actually happened. More remarkable yet, the WEF East Asia event was held in Nay Pyi Daw--the capital created by the generals from virtually scratch starting in 2002. To escape scrutiny of their less-than-proletarian lifestyles, it was thought that Southeast Asian equivalents of McMansions were better shielded out in the boondocks. Again, who would have thought that the hermit-generals would open up to the world once more, or that a marquee WEF event would be held in Nay Pyi Daw of all places.

At any rate, the presence of Tony Fernandes (head of AirAsia--the region's largest budget carrier) and Indra Nooyi (global head of PepsiCo) and other movers and shakers in the worlds of business and politics guaranteed attention. Indeed, that few remarked on how exceptional it was that such an event was held there indicates how far Myanmar has gone towards mainstreaming itself into global affairs. Given how marginalized Myanmar has been in ASEAN in the past few years largely through its own actions, the rapid transformation of the country augurs well for the group moving forward:

John Riady, director of [multinational conglomerate] Lippo Group, said: "I think the opening up of Myanmar over the last 12-18 months is nothing short of amazing. And we should all seize this opportunity as a moment to come together and try to work out our differences and achieve a breakthrough for the integration of the region." Now that Myanmar is facing fewer sanctions and easing controls on its governing style, it'll be able to contribute as a more active member within ASEAN.

The message has been served, then: Myanmar may not remain the "weakest link" in Southeast Asia for long. Besides, with more cooperation and less fear in store for ASEAN, who's complaining?

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Why World Bank Doesn't Get 'Doing Business'

The World Bank's Doing Business report has garnered much attention in purportedly comparing the ease of doing business in different countries. That is, how is easy is it to start up or close a business? Oftentimes, it's not only how easy it is to set up a business that determines entrepreneurship but also closing one down if it proves unviable. Seen from this perspective, the likes of Hong Kong and Singapore which are recognized as incubators of entrepreneurship may not really have a concentration of business geniuses but instead make possible trial-and-error until a satisfactory proposition is found.

That said, the Doing Business report I've always found curious in certain respects. Importantly, they are based on the inputs of those familiar with fairly large businesses alike those conducting international commerce and may thus not reflect conditions faced by SMEs. As it so happens, Seth Kaplan over at Policy Innovations expands on this line of argument that perhaps the title of the report ought to be "Doing Business for Multinationals" or "Doing Business for Conglomerates" as opposed to referring to the minimally capitalized who actually do most of the business in developing countries in numerical terms. He points out how incomplete the indicators are for such entities...

The easier it is to start a company, the likelier it is people will do so. The easier it is to register property, the more likely it will be registered, potentially providing a spur to investment in housing, spending on household goods, and capital formation. The easier it is to get a construction permit, the likelier it is companies will invest in new projects that involve construction. But there are many more serious obstacles to doing business in less developed countries that are not addressed in these reports—namely those related to transaction costs. As such, the narrow focus and wide influence of Doing Business distorts priorities and leads reformers to ignore key problems.

A better approach would be to actually consider the typical challenges a small-to-medium sized enterprise (containing, say, 5 to 50 employees) faces in a less developed country. This is what DB is supposed to be doing, but its focus on the formal procedures of government ignores how most companies operate: If they are large, firms use "workarounds;" if they are small, firms operate in the informal economy.

Especially problematic is the report's reliance on the opinions of folks accustomed to handling businesses with economies of scale that are not necessarily typical of the sort of fledgling firms originally envisioned. Startups and mom-and-pop, anyone?

The dependence of Doing Business on "local experts, including lawyers, business consultants, accountants, freight forwarders, government officials and other professionals routinely administering or advising on legal and regulatory requirements" means that results reflect the needs and perspectives of these respondents, not that of a SME owner, especially in less developed countries where these "local experts" rarely work for SMEs. Limiting data collection to the single, largest city—which may contain only a small proportion of a country's businesses—further reduces the usefulness of the data.

Operating in the informal economy, generally avoiding contact with goverment bodies that are not trusted, confronting myriad infrastructure problems, regularly struggling to get paid for services rendered, SMEs in less developed countries have many more important things to worry about than "resolving insolvency" and "protecting investors," which combine to make up one-fifth of the DB aggregate score. Such issues are more important to foreign investors than local retail stores, trading companies, manufacturers, and trucking firms.

Good stuff; and I think the overall criticism that this report is geared towards larger-scale enterprises is essentially correct.

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IMF Agrees w/Cheney: Deficits Don't Matter for US

Here we go again: for everyone else--especially the likes of Egypt, Pakistan and so forth, deficits do matter. But for the United States which (they say) has little funding its current account deficit, it's not really a problem. In essence it's the IMF approving of American deficits as per Dick Cheney's famous dictum that "deficits don't matter." To be exact, there's always the qualified economistic wording about how short-term fiscal consolidation is not required but rather stimulative policies to get the economy unstuck or suchlike. Instead, the real fiscal challenge for the United States is in the medium- to long-term when it must deal with its health care and pensions unfunded liabilities as baby boomers retire en masse:

Here is the IMF head honcho on the subject matter:

The U.S. economy would be faring much better were it not for the "self-inflicted" wound of tighter fiscal policy, the head of the International Monetary Fund said on Tuesday. "The U.S. is not doing as well as it could be, because of self-inflicted fiscal wounds. This year alone, fiscal adjustment will constitute an enormous 2.5 percent of GDP," IMF Managing Director Christine Lagarde said at the Brookings Institution.

She said the challenge was not the near-term fiscal outlook for the longer-term one, given the pressures of healthcare and Social Security spending. "The next couple of years are going to be quite positive looking. But if nothing is done about the medium and long-term horizon ... then the picture is a lot bleaker," Lagarde said. "This is the major challenge facing the U.S. economy today, and it must be met."

I am beginning to wonder when the medium- and long-term will arrive since they never seem to come when the IMF speaks about the US. It's in essence a free pass. Actually, the Yanks have a term for delaying the inevitable time and again in plain English: "kicking the can down the road."

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Money Printing Plus: Japan's Other Growth Strategies

Everyone knows of Japanese PM Shinzo Abe's money-printing strategies for combating Japan's seemingly unconquerable deflation. However, it is but one tactic in a multi-pronged strategy to get the world's third largest economy growing again in a noticeable fashion. Tomorrow Abe unveils a raft of other initiatives for doing so. Reuters has a list of expected steps in the so-called "Third Arrow of Abenomics" compiled from various news sources (don't ask me why it's called that).

Of particular interest to me are those concerning free trade agreements and migration. First, let's begin with FTAs. Belatedly keen on not losing its competitive advantage alongside those FTA-crazy South Koreans, it too is supposedly going to embark on an FTA frenzy:

Hit a target of 70 percent of exports covered by free trade deals by 2018, compared with around 19 percent, by pushing the U.S.-led Trans-Pacific Economic Partnership (TPP) and other trade deals with the European Union, China and South Korea, and aim to create an Asia-Pacific free trade area. 

Insofar as Japan has virtually zero multilateral FTAs at present (only partially implemented Japan-ASEAN FTA aside) but a whole host of bilatereal FTAs, let's say it has a lot of work to do if it truly intends to compete with Korea in this respect. With Japan's strong agricultural lobby complicating matters, expect tense negotiations when these products are discussed. That said, it's interesting how Japan is not playing geopolitics if this were truly the case in being willing to join any sort of FTA negotiation whether it be led by the US (TPP), China or whomever.

Another point of interest is opening up Japan to migration. Its population is shrinking, yet it remains easier for a camel to enter the eye of a needle than to be an economic migrant to Japan. Or is that assertion about to be shattered?

Shorten the duration of stay in Japan required for approval of permanent residency to three years from five years to encourage high-skilled foreigners to keep working in the country.

Let's just say that Japan's come up with all sorts of plans to generate growth since 1990 that have since been shelved or have borne little fruit. 

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Endangered Species: SMEs in Italy, Spain

Make no mistake: there are giant companies in Italy and Spain. However, many of the specialist products these countries are known for are from small- and medium-sized enterprises (SMEs) which also provide the bulk of employment. Unfortunately for them, the credit crisis has made their existences rather difficult. Especially since they are not very large, they find it hard to raise capital via stock or bond issuances. In other words, their modest size makes them reliant on bank loans for finance.

It's too bad that the European crisis has made many banks doubly wary of lending to these SMEs at a time when their needs for credit are the greatest. Hence the sob stories in these troubled times in troubled Latin economies. Let us begin with Italy, whose leaders haven't been especially keen on lending them a helping hand:

With an estimated 5 million enterprises accounting for 80 percent of Italy's gross domestic product, SMEs have long been the main driver of Italy's export-led economy.The crisis for the SME sector is prompting widespread calls for the government to help small businesses and save the 'Made in Italy' brand from collapse...

Italy's SMEs are also notoriously inefficient. There are approximately 65 SMEs per 1000 inhabitants in Italy, substantially above the European Union average of 40 per 1000 inhabitants, according to data from the European Commission (EC). But while Italy has some 1.7 million more SMEs than Germany, they provide 3 million fewer jobs (12.2 million persons employed as opposed to 15.2 million in Germany) and produce only 56 percent of the total value-added of their German counterparts.

Such inefficiency, the EC noted in its 'Small Business" report on Italy in 2012, is part of the reason why, despite the attraction of the "Made in Italy" brand, Italy's SMEs "trailed their EU peers in recovering from the crisis."

Ah yes, Germany again. This excerpt is interesting in noting that not all SMEs are created equal. For all its monster firms, Germany also has a world-renowned Mittelstand doing what the Italians do by and large--make specialist low-volume products. However, on average, German SMEs provide more jobs and have more remunerative value-added content due to their knowledge-intensive, precision manufacturing orientation. As the Paymasters of Europe, it's Germany's inevitable lot though to find solutions for their miserable European neighbours' largely self-inflicted woes: Yes, the Chinese have wiped out their firms making me-too products alike affordable clothing by making, well, even more affordable clothing.

The cure, as in the case of that other sob story, Spain, may be for the Germans to provide the credit so clearly lacking in the private financial sectors of these troubled economies. Is it "European finance"? Well, no--it's "financial aid":

Germany will provide about 1 billion euros to Spanish small and medium enterprises (SMEs) in a bilateral aid programme, Germany's finance ministry said in a draft outline of the plan obtained by Reuters on Monday. Germany's development bank KfW will provide 800 million euros in global loans and take stakes in funds to boost the expansion and employment potential of Spanish SMEs, the ministry said in a draft to the Bundestag's budget committee.

In other words, it's "We'll sort out the developing world as soon as we're done sorted out these EuroBrokes." Lest you think Germany not favouring SMEs or lending to them is a source of their global advantage, take note that lending to the Mittelstand is not only quite profitable but their business is also very much sought after by major financial services providers.

I get tired of saying this, but Germany's example is so much better than that of the rest. It's a pity then that the rest have a hard time emulating Germany's example--which may not be directly transferable in any case. In the meantime, does anyone really doubt why Missus Merkel literally and figuratively wears the pants in Europe?

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Why Eastern Europe Spanks US in Software Development

Last Thursday our home computer running Windows XP was infected by a fairly old autorun.inf virus. For, we accidentally brought home an infected USB thumb drive from the workplace, which has computers running unpatched versions of XP. Unfortunately for us, we were also running copies of Microsoft Security Essentials for our antivirus, which I belatedly found out to be a pincushion for viruses that detects next to no threats. It took me hours to find a solution to cleaning up our infected home computers, and one of the programmes I found most useful was Bitdefender's USB Immunizer. Seeing how well it worked, I became curious about their antivirus software and discovered that it was very highly rated. (I guess that shows you how much I knew about antivirus programmes...)

So Bitdefender Free is now our antivirus programme of choice for an XP and a Vista machine we still find useful despite their age. Though I did not know it at the time, it turns out that Bitdefender is a Romanian firm. By coincidence, I too am playing a video game from a Hungarian developer right now, The Incredible Adventures of Van Helsing. While rather derivative, it boasts offbeat humour of its own along with class-leading graphics. As with most things, it is no accident that Eastern Europe is becoming a hotbed of software development since these are not isolated examples. Avast! antivirus from the Czech Republic has literally topped Download.com's charts for years and years. Video game enthusiasts should also be familiar with Polish CD Projekt's Witcher 2 from a year and a half ago that won a lot of "Game of the Year" plaudits from critics.

To be sure, Eastern Europe' emergence as a hotbed of software development has been a long time coming. The educational systems there are strong in science, engineering, technology and math (STEM )subjects--partly as a reflection of the Warsaw Pact era (go ask Google's Sergey Brin). As early as 2007, Eastern Europe was already being touted as the next India. As far as Western Europe is concerned, instead of outsourcing to India, some have found it more convenient to "nearshore" to Eastern Europe where both physical and cultural distance are not as great. Indeed,  2013 may be the year Eastern Europe gains the attention it deserves with such outstanding software titles becoming evident to the global community of computer users.
  
In the past, I've written about the challenges Asians have--China and India especially--in creating homemade brands with global recognition. With all due respect to our Indian colleagues, they haven't developed antivirus software or games of their own recognized in global markets unlike the Eastern Europeans. By contrast, the latter have the chops in incorporating their culture into their products and they know how to market these worldwide. Just as the Chinese are very good at manufacturing goods to others' specifications, the Indians are obviously talented when it comes to programming software tailored to specified needs. However, when it comes to incorporating folk tales into cutting-edge video games alike Witcher 2--or devising tongue-in-cheek Diablo knock-offs like The Incredible Adventures of Van Helsing--let's just say us Asians aren't quite there yet in terms of branding and marketing. Nor are we in the running for most downloaded (Avast!) or outright best-performing antivirus software programmes in the world (Bitdefender).

The post title also said something about Eastern Europeans spanking the Yanks in software development. I have already alluded to the incredibly poor performance of Microsoft Software Essentials, but as it turns out, it is the absolute worst at virus detection, bar none. (Yeah, go America!) As for video games, the US er, "boasts" of having the world's largest game publisher, Electronic Arts. For two years in a row, though, it's been named not just America's worst video game company but its absolute worst company, period. Microsoft and Electronic Arts are miniatures of modern-day America: having been innovative firms in the past, they've since grown fat, dumb and happy. Meanwhile, there are dozens of lithe, hungry, and infinitely more deserving software labs in Eastern Europe literally waiting to spank these moribund American giants.

They say competition improves the breed, and I'm certainly glad that our choices are not limited to US crapware. Hopefully, these Eastern European upstarts can show the Americans how fat, dumb and happy they've become before it's too late.

Just imagine how much better Windows 8 would have been if the task of developing it were left to the Eastern Europeans...we can only hope for a better world of computing.

UPDATE: Other antivirus test results are of similar opinion in that Bitdefender is tops, while Microsoft Security Essentials is deemed (gasp!) non-competitive.

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Too Strategic to Fail? The IMF & Pakistan (Again)

With its forex reserves down to a trifling $6.4 billion, Pakistan is definitely in trouble. You know the drill: the United States will not let Pakistan descend into chaos--make that civil disorder even worse than its regular state of perma-anarchy--because it's a nuclear-armed state with a constant Taliban menace. Surely Pakistani elites have noticed this paradox: the key to securing their continued stay in power is to keep things disorderly enough to maintain foreign interest.

This backdrop is probably why we (surprise!) have yet another news article touting imminent Pakistani collapse on hand. I am fascinated how this nation with next-to-no reserves has seemingly staved the inevitable for so long in the form of another IMF package. But before we get to that, let's recount the Egypt-like repeat borrowing habits of this nation:

Since 1988, Pakistan has signed onto eight IMF programs that demanded structural changes in the economy. But it has never managed to resolve its chronic problems...If Pakistan does have to turn to the IMF, it will bring its own set of challenges.

For one, the country has a patchy track record in upholding promised reforms that secured past IMF loans, including an $11 billion program granted amid the last foreign reserves crisis in 2008. The former government abandoned that program in 2011 because it refused to carry out the strict financial reforms required by the IMF. But it still owes the lending agency nearly $5 billion from that old loan.

However, it is generally known that IMF lending is not really conditioned on meeting conditionalities or implementing structural reforms. How important the borrower is to the United States geopolitically matters, and supposedly Pakistan is as strategically important as they come in South Asia. The question to me, then, is not whether Pakistan changes its ways (not likely), but how much the Yanks raise a stink about non-compliance with conditionalities that will, at most, merely result in an Egypt-like delay in disbursing emergency funding:

The new government [of once-and-future PM Nawaz Sharif] will have to convince the IMF with quick actions that this time around will be different. The IMF will want to see far-reaching reforms fast-tracked to reduce the chance of another reversal part way through a multi-year program. And the lending agency is expected to demand vast improvements in a woeful tax system that collects very little money. Taxes currently bring in only about 10 percent of gross domestic product, one of the lowest effective rates in the world. 

The IMF is also likely to press for major changes in the energy sector such as raising prices and phasing out costly subsidies that disproportionately benefit the wealthy, who use far more energy than the poor. The government spends about $1 billion in foreign currency each month to import oil to run its power plants — a costly way to generate electricity and another drain on foreign reserves. Building new hydroelectric plans or converting to less expensive natural gas production would be very expensive and take years. The IMF is also expected to demand some kind of plan to curb losses from state-owned enterprises that amount to billions of dollars a year.

Fat chance, I say. What I predict is the same old, same old: The IMF will b*tch for a while--the duration varies--about Pakistan's intransigence about structural reform when the country inevitably approaches it on its last legs. Ultimately, though, they will lend Pakistan. While making half-hearted gestures to implementing conditionalities, meanwhile, the country will back down amid the usual protests and riots. Thus, unpaid debts to the IMF will pile up as Pakistan tries to make its way out of its untenable situation alone once more. For a while it will resume its messed-up state until foreign exchange dries up again, necessitating another IMF visit.

Repeat over and over again. That is modern-day Pakistan.

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