China / Japan? History repeating itself?

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Too far fetched?

Let’s consider briefly the facts and also some important caveats.

Population demographics

The results of a census taken in 2015 has placed Japan’s population at just over 127 million – a decline of about 1 million in about 5 years. Japan’s birth rate has been long below the total fertility ratio of 2.1 (currently 1.4) and nearly a third of all Japanese citizens are now over 65. This is already a source of policy and economic challenges for Japan and one that is likely to keep growing.

China’s one-child policy starting in the 70s has had a major impact. Whilst the policy has now been relaxed, the population control genie, once out of the bottle can rarely be controlled. Changing economic trends, mindset shifts, and a movement towards an urban citizenry means less people are keen on having children. The United Nations estimates that that the number of Chinese over 65 will increase by 85% to 243 million in 2030 (from the current 131 million). The Chinese working population saw its biggest decline in 2015 – a fall by a record 4.87 million.

Both Japan and China have very restrictive and insular immigration policies which will only serve to further exacerbate the population and demographic challenges. These demographic issues will also impact economic growth and development as in time both economies will have inverted population pyramids, where one active working individual will be supporting two parents and four grandparents – and better medical facilities and healthcare will lead to a greater demand on the working population.

Perhaps the spur in investment in robotics will help alleviate these challenges?

Economic growth history

Japan’s economic growth started with the development of its manufacturing base following World War Two with support from the USA and other Allied nations. Japan’s growth was an average of 9% between 1955 and 1973 (when the first ‘oil shock’ impeded growth).

In the case of China, following a debilitating post-war economic situation and the challenges of the Cultural Revolution, the opening up and reformation of the economic system from 1978 was instrumental in China’s economic story. China’s growth has averaged between 7% and 10% since.

The main engine of growth both in the case of Japan and subsequently China was manufacturing. It will surprise users of top-notch Japanese products today to learn that from the 1950s to around the 80s, ‘Made in Japan’ meant low-quality and cheap and people preferred to use American or European produced goods. However, the Japanese investment into their manufacturing processes, research and development over time meant that they started developing high-value and high-quality goods and products. It’s a process that took decades and systemic investment into innovation.

In the case of China-made products, there are still some challenges around quality and value, but this is something that is being addressed as we now increasingly see greater investment into research and innovation.

Funding world’s developing needs

Japan became development donor from as early as the mid-50s and by the early 90s, Japan became one of the largest officual development assistance (ODA) providers in the world. Grants, aids and soft loans were provided through agencies such as the Japan International Cooperation Agency (JICA) to countries across Asia, Latin America and Africa.

Japan then became instrumental in the establishment of the Asian Development Bank (an institution for which it has maintained presidency since inception in the 60s).

This allowed Japan to project its soft-power and help foster policies favourable to Japan across recipient nations.

If we examine China’s development assistance, aid and grants – it has grown from less than US$1 billion in 2002 to over $25 billion in 2007 to currently over US$100 billion. Due to differences in the way ODAs are valued, it is possible that China’s current aid and grants may be undervalued.

China also was instrumental in the set-up of the Asian Infrastructure Investment Bank (AIIB) with an express aim of building infrastructure across Asia-Pacific. Whilst both ADB and AIIB officials have been at pains to stress that they do not see each other as competitors (indeed they have already co-financed a number of projects), a primary reason why the AIIB was set up so as to have greater autonomy by China and other partners in multilateral banking institutions.

Slowing growth and liquidity trap

In the late 80s, Japan was running a very large trade surplus and the stock market and property prices were booming (there were properties which were valued at US$1.5 million per square meter – or ten square feet in Ginza!) which collapsed in the 90s. There was an asset bubble across both the stock and property markets and when the bubbles burst, it led to the loss of trillions of dollars of value.

Deflation set in and whilst the Japanese government tried its best to promote spending (including setting interest rates at near zero levels), there was little effect. Growth has been anaemic and in 2009 the GDP fell by 5.2%.

Japan found itself stuck in a classic liquidity trap where where its monetary policy had little or no impact on economic output and production levels. This led to the ‘tragedy of Japan’s lost decades.’

Let us now consider China. Relatively easy loans made by banks? Check. Booming property prices? Check. Booming stock market? Check. Corrections across all three areas? Check.

China’s economy has been slowly significantly and it’s GDP growth rate has fallen to a level not seen since 1990. A report from the Wall Street Journal indicated that investors are hoarding cash rather than investing – a classic sign of a liquidity trap. The stock market debacle in Shanghai in 2015/2016 has also dampened investor enthusiasm.

The Chinese Communist Party Politburo has also cautioned against debt-fuelled growth and rising asset bubbles. There is also evidence to suggest that the stimulus packages initiated by the government are having little impact.

Some key differences.

Whilst there are some similarities, it is important to note a number of major differences and caveats before any quick conclusions are made. Firstly, China starts off with a much bigger population base and the reverberations from the impacts will take a much longer time before they are felt.

Secondly, China’s political system lends itself to a greater continuity in policies which may be effective in warding off economic downturns and avoid ‘lost decades’ the likes which Japan went through. Japan on the other hand went through nine prime ministers in the 11 years between 1989 and 2000 which hardly allows for lasting measures and policies.

In order to avoid the liquidity trap challenges, the Chinese government will need to focus on its war against graft and corruption and instil trust in the public institutions. Long-term and difficult policy decisions in the areas of state-owned enterprises reform need to be made in order to boost productivity. There needs to be continued efforts to keep narrowing the inequality gap and create greater employment opportunities which will in turn boost spending and help deter deflation.

The road ahead is a difficult one but there is no reason for history to repeat itself as long as the mistakes of the past are not repeated.

 

The Indonesian Connection – Islam in South Africa

 

During my exploration in the beautiful city of Cape Town, I came across a most remarkable tale. It is the story of one man’s perseverance against immense odds and the profound influence he left on a society hundreds of years later.

It is the story of how Islam spread in South Africa, from Cape Town through a man from Indonesia who was jailed in Robben Island (the very same island another great man was jailed for 27 years almost two centuries later – Nelson Mandela) by the Dutch. Globalisation was very much a part of life then as it is now! Robben Island also has now the dubious distinction of having hosted (against their will) of a number of great reformers!

This is the story of how the Auwal Mosque came to be in the Bo-Kaap (the Cape Malay part of Cape Town) and the fascinating tale of a man fondly known by all as Tuan Guru (or Sir Teacher in Malay).

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Auwal Mosque, Bo-Kaap, Cape Town

Tuan Guru or Imam Abdullah Qadhu Abdus Salaam (born 1712)was a man belonging to royalty from the Sultanate of Tidore ( part of the Maluku Islands in Indonesia). Abdullah led the Indonesian resistance against the Dutch invasion in the 1700s until he was finally captured along with a handful of other Indonesian resistance fighters. (It is worth bearing in mind that the Dutch East India Company brought slaves, political exiles and other prisoners from India, Indonesia, Malaysia, Ceylon amongst other places to South Africa from the 1700s onwards).

The Dutch made it a point to remove all religious paraphernalia especially the Quran from Abdullah and his men before they were sent into exile to Robben Island. The rationale for this was that by removing Islamic religious material, Abdullah will not be able to propagate Islam in South Africa and in the process curtail his ability to lead a religious resistance against them.

Abdullah was incarcerated in Robben Island from 1780 to 1792. Now, the Dutch were confident that Abdullah’s ability to preach Islam was going to be limited due to the lack of religious materials. However what they failed to understand that merely removing the Quran physically from Abdullah wasn’t going to be sufficient because Imam Abdullah was a hafiz or someone who had committed the entire Quran to memory.

During his time on Robben Island, Imam Abdullah wrote several copies of the Quran entirely from memory, two of which are preserved top this day. One of the handwritten copies is now on display at the Auwal Mosque in Bo-Kaap in Cape Town. Imam Abdullah also wrote a book on Islamic Jurisprudence which became a reference manual for Muslims in South Africa in the 18th and 19th centuries. Imam Abdullah did not allow his incarceration to fulfill what he felt was his manifest destiny nor quench his zeal to remain free spiritually whilst he was imprisoned.

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One of the remaining copies of the handwritten Quran by Tuan Guru at the Auwal Mosque in Bo-Kaap, Cape Town

When Imam Abdullah was released, he was already 81 but that did not dampen his enthusiasm nor his sense of purpose. He stayed on in Bo-Kaap in Cape Town and started the first madarasah or Islamic School and he taught Islam and Arabic to freed slaves. Over time, he also organised prayers and established the first mosque, the Auwal mosque in 1794

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Tuan Guru (Imam Abdullah) teaching children at his madrasah. An mural in Bo-Kaap, Cape Town

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It is worth bearing in mind that the practice or indeed the propagation of Islam was deemed a criminal offence until 1804. It was Tuan Guru’s unstinting efforts that led to the establishment of the first mosque in Southern Africa.

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Auwal Mosque (est 1794) in Bo-Kaap, Cape Town
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Interior of Auwal Mosque

Imam Abdullah or Tuan Guru died when he was 95 (in 1807) and left behind the foundations of what is Islam in South Africa today. Tuan Guru remains a testament to the indomitable spirit and will to effect change in a society despite the challenges and opposition to any reforms. This remains inspiring today as it was over two centuries ago.

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Mural depicting the development of Islam in South Africa, Bo-Kaap, Cape Town

Dhanushkodi Dreams

I had the pleasure of visiting the most south-eastern tip of Rameshwaram, a place called Dhanushkodi (a word which means ‘tip of the bow’ as the Ramayana epic has Lord Rama marking this as the spot to connect Sri Lanka to India with the tip if his bow). This entire village was destroyed almost to the day on the 23rd of December 1964, 52 years ago by the Rameshwaram Cyclone of 1964.

This area is under just 30 kilometers from Sri Lanka (Talaimannar) and was a bustling port city during British rule. It is also a spot where the Palk Strait and the Gulf of Mannar meet. The ruins of a bustling port city can still be seen here and is a reminder of how immensely powerful nature can be. This area remains fairly difficult to reach but efforts are being made to make it more accessible for people to reach and regale in the beauty of the place.

My forefathers used to ply the trade route between India and Sri Lanka through Dhanushkodi and it was a thoroughly humbling experience being here.

The Wheels Are Off – the Italian Referendum Results

The majority of Italians have voted against the constitutional reforms proposed in a national referendum and Italian Premier Matteo Renzi’s “experience of government” is now over as he steps down.

The Italian economy has been like a Ferrari with its wheels slashed – its economic performance has been the worst amongst any of the Eurozone country with the exception of Greece; it’s government loans sit at 130% of GDP and unemployment exceeds 11%.

This failure of the referendum is now akin to the Ferrari with its wheels completely off the axle – and the casualties won’t just be the Italians in the Ferrari but indeed the whole of the Eurozone.

Early indicators are that the Euro has fallen sharply against the Dollar and the Asian markets are spooked by what is to come from Europe.

What does this result mean for Italy, Europe and the world?

1. Brace for a hard landing of the banking sector.

We could see the demise of a few banks in Italy, starting with the Monte dei Paschi di Siena (MPS) – the world’s oldest bank – which has already lost almost 90% of its value this year. MPS is already one of Europe’s weakest banks and they are subject to a bailout plan which may now not come to fruition.

Italian banks are struggling with about €360 billion of bad loans and are significantly undercapitalised. There will be a huge sell-off of Italian and European banking stock once the markets open.

The problem is that the scale of interconnectedness means that a hit to the Italian banking system will leave a trail of destruction across the rest of the European and global banking sector starting with the largest European lenders such as Deutsche Bank.

2. The EU and Euro are both going to go through an existentialist phase

Brexit dealt a big blow to the EU project. The rise of the Five Star Movement, a Eurosceptic opposition which has already claimed ‘victory’ in this referendum means that over time their views on EU and the Euro are going to gain even further traction. Even if the Five Star Movement do not win in any early elections called as a result of this referendum (they have a campaign promise to hold another referendum on Italy’s membership within the EU), their views are going to be, over time, become mainstream.

3. Imposition of capital controls?

In 2015 we saw capital controls applied in Greece to stop a run on the banking system and see a flood of capital out of the country. A run on the Italian banking sector will have a colossal impact and a pre-emptive series of capital controls, though damaging from a reputational perspective, may be required for reasons of survival.

4. An Italian sneeze will cause an European contagion.

This result will no doubt cause another slump in the Eurozone economy and will cause a negative investment sentiment. Unemployment will continue rising and living standards will fall, not just in Italy but across Europe.

The people have spoken and have demonstrated a willingness to face a hard landing. Whether they are prepared for a hard reset is another matter altogether and this is going to be the start of a period of extreme uncertainty, economic uncertainty and hardship.

What Italy needs now is an expert driver who is going to be able to manouvere the Ferrari with no wheels skillfully so that it causes the least damage both to the Ferrari’s passengers and other Eurozone travellers.

 

 

 

Of Pianos and Harmony

At the Africa National Congress office in Kliptown

This is Thamba (in the photo next to me), originally from Swaziland but who was born and brought up in Soweto, Johannesburg. I had the pleasure of Thamba’s company as he showed me Soweto and helped me understand the history of South Africa, the impacts of apartheid era on society and on him personally. He went to school with Mandela’s daughter and therefore had the unique experience of having walked with Mandela and been very much a part of the struggle for equality as a young man.

Thamba recounted a very interesting anecdote about Nelson Mandela’s view on social cohesion and the need for harmony between the different races in post-apartheid South Africa. Madiba  (as Mandela is known fondly in his homeland) used the parable of a piano to highlight why everyone needed to march together to achieve progress. He explained that playing the piano with just the white keys or just the black keys, whilst able to produce a tune, will never be as rich as the symphony one can create if one was to use both the black and white keys together. This, he explained, was the route towards a  better and greater society and stressed the need for the white, black and other communities to all work together to achieve social progress. 

A simple message, elegantly put and to very powerful effect!

Control content, control data, control the world – the AT&T buyout of Time Warner

AT&T’s takeover of Time Warner makes strategic sense for the shareholders of AT&T. The only surprise is that early rumours of Apple buying over Time Warner did not come to pass.

AT&T are primarily a telecommunications company. They already control the data flows and analytics and understand all the little things that make people/customers tick. However, what they’ve not had is the content that their customers require and monetise the flow of content to the people who need it most.

Through the acquisition of Time Warner, it reduces AT&T’s transaction cost of providing the content to customers which is supported by superior data.

It’s akin to an infrastructure company laying pipes to bring water to households actually now providing the water along with the pipes they already have rather than have a separate company providing the water.

Why content matters

You have data on the information and content your customers require. However, you cannot act on the data yourself if you do not control the development of the content and intellectual property (IP). You can either try and create the content on your own or simply buy the largest available content provider available for sale.

This is what AT&T have done and it allows them to suddenly use the data and deliver even larger profitability to their shareholders by giving their customers the data they seek.

HBO (think Game of Thrones, Curb Your Enthusiasm, The Sopranos, etc), CNN, DC Comics (Superman, Batman, and the new UN ambassador, Wonder Woman), Hulu (Netflix’s rivals) are all now going to be under AT&T’s control.

This will allow them to control the entire spectrum of services they provide to customers and create an ecosystem (of both infrastructure and content) that may be difficult or unfeasible to leave for any customer.

Big data just gotten bigger

You know HOW your customers access information. You now know WHAT information your customers seek. Bring the two together and you create superior propositions for customers which rivals are unable to match.

The advertising potential also has now grown exponentially as AT&T monetise the data analytics and provide superior insight to advertisers.

Bringing the fight to the competition

The moment Google and Facebook moved from being search engines or networking platforms to becoming media and content companies with their own telecommunications infrastructure, the fight was on.

Facebook and Google are already providing Internet and call facilities. They also started buying or developing content facilities (Youtube acquisition by Google or Facebook Video/live).

This mean either existing telecommunications companies get into the business of content development or acquisition or they themselves get acquired. I suspect this was a major impetus for AT&T in their decision to buy Time Warner.

What next?

It’s always easy to bite, but it’s important to be able to chew and swallow. It remains to be seen how well the merger itself works. Most mergers are fraught with complications, from realising business benefits to cultural differences.

It will be interesting to examine Apple and Google’s next reactions. Google have developed their own hardware (Pixel) and Apple have long wanted to get into the business of content and IP.

Perhaps a takeover of Netflix by Apple in the offing?

The unassuming flower – The books that shaped the life of APJ Abdul Kalam

 

apj-kalam-my-journeyI recently read Abdul Kalam’s (the 11th President of India and one of India’s greatest sons) biography, ‘My Journey – Transforming Dreams into Actions,’ which was a brief book about his early childhood, his development and anecdotes about how his life was shaped.

In the book, Abdul Kalam touched on the topic of books that shaped his worldview. I wanted to share his thoughts about books and the ones that shaped his life as he himself said: “the transfer of thoughts and ideas, ideals and principles is a part of the circle that is life.”

Abdul Kalam describes books having always been “close companions” in his life life and how he used them to help him“understand the world.”

The works of Leo Tolstoy, Walter Scott and Thomas Hardy were constant companions of Abdul Kalam. He also was moved profoundly by the poetry of T.S. Eliot, Lewis Caroll and Wlliam Butler Yeats.

He however highlighted a few books that had a last impact of him.

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The first was ‘Light from Many Lamps,’ which was an anthology of inspiring stories by various authors and edited by Lilian Eichler Watson. He describes the impact this book had on him as thus: “If I am ever in danger of being swept away by my own emotions, this book brings about a balance in my thinking.”

 

 

thirukkuralThe second book was the Thirukural by Thiruvalluvar, a collection of Tamil rhyming couplets.

Written over 2000 years ago, the Thirukkural is arguably one of India’s greatest written work and discusses the human condition, ethics, morality and virtue.

He describes this particular kural (or rhyming couple) as one that has influenced him profoundly:

 

உள்ளுவ தெல்லாம் உயர்வுள்ளல் மற்றது

தள்ளினுந் தள்ளாமை நீர்த்து

(Think of rising higher. Let it be your only thought.

Even if your object be not attained, the thought itself will have raised you.)

 

 

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Finally, the religious texts of India, including the Quran, the Vedas and the Bhagawat Gita were also instrumental in Abdul Kalam’s development.

He considered that these religious texts “all hold deep philosophical insights into the plight of man and have helped me resolve many dilemmas.”

 

From the Quran, he narrated how an excerpt from verse 35 of Surah An-Nur (‘The Light’) had a particularly profound impact on him,

نُورٌ عَلَىٰ نُورٍ ۗ يَهْدِي اللَّهُ لِنُورِهِ مَنْ يَشَاءُ

“Light upon light. Allah guides to His Light to whom He wills”

From the Bhagavat Gita, Abdul Kalam narrates the words of Lord Krishna to Arjuna in the battle of Mahabharata (during another vision of the garden where all the flowers which blossomed in the morning now fall to the ground)

See the flower,
how generously it distributes
perfume and honey.

It gives to all,
gives freely of its love.

When its work is done,
it falls away quietly.

Try to be like the flower,
unassuming
despite all its qualities.

 

Abdul Kalam once wrote a poem which he used to recite to young people he met which best describes his feelings about the written word:

Books were always my friends
Last more than fifty years

Books gave me dreams
Dreams resulted in missions

Books helped me confidently take up the missions
Books gave me courage at the time of failures

Good books were for me angels
Touched my heart gently at the time

Hence I ask young friends to have books as friends
Books are your good friends.

This was the legacy of the great Abdul Kalam.

“Hard work and piety, study and learning, compassion and forgiveness – these have been the cornerstones of my life.”

Former Indian President APJ Abdul Kalam Died At Age Of 84