Going Global

Looks like we'll be soon confronting higher oil prices again. But the paradox is that the prices will remain low as long as the economy is in a slump. The moment it picks up the pace and starts wanting more fuel to power its machine the prices will start flying.

This Economist report quotes analysts as predicting the arising of more 'super cycles' where the usual boom bust commodity cyles are interrupted and longer periods of price increases are seen as developing economies start absorbing and draining resources and thereby initiating prolonged (and potentially destructive) demand cycles.

The main reasons behind the initial price hike have apparently remain unchanged. All the easy-to-access oil fields are in the hands of governments and the Big Oil firms are having to increasingly resort to drilling in nooks and crannies to find more oil. Also a slump in oil prices back in the 80s have limited investment in oil reserves amd therefore most of current sites not new ones.

The Big oil firms claim to be heavily investing in new oil fields and technology although the benefits will only be reaped in a decade or so. Government companies Like Saudi's Aramco and Brazil's Petrobas have invested heavily in more capacity but other governments like Iran and Venzuela are reluctant to do this due to the current low prices in the market.

Countries like Russia and Venezuela are facing serious cash flow problems and are pressurizing private investement and sub-contractors with more taxes and no wages. In Nigeria the fighting around the Niger Delta with forces such as the MEND are creating some serious barriers to development of production

So oil firms have no new oil to speak of and other pressures on goverment firms will prevent them from increasing output. All except for the Saudi's who have about three times the current capacity of production up their sleeves.

McKinsey, the consultants, argue that governments can help overcome this problem with a few simple measures. The more practical of which are increasing lorry load limits to increase fuel efficiency, increasing emmission standards and efficiency standards even more in the long run will undoubtedly help to curb demand.

Other measures that have been carried out in the past include investment in alternate energy sources, but the disastrous impact of bio fuels should have taught us a thing or two about the importance of thinking out such steps in detail. Electric cars are also a good option and it is encouraging to see quite a few global car makers coming out with models.

But all this has taken a back seat to the financial crisis. When the oil prices dropped so drastically everyone stopped thinking of the 'oil problem' in the classic short termist fashion characteristic of world governance. Bigger problems were at hand and opportunities to perhaps lay a foundation for a whole new energy culture were probably too far fetched and unimportant to care about then.

So now as the economy picks up again we may be confronted with bigger problems because now we won't have a sub-prime morgage crisis to pull us away from strangling each other in a scramble for natural resources. Already oil futures markets are indicating a potential rise in prices.

Which brings me to McKinsey's other suggestion; convincing developing economies to remove oil subsidies. This is something that these economies will definitely not agree to. They will argue that subsidies are essential to their growth. Moreover, they will question the fairness of such a request as economies that are 'developed' today got to such a state by the unrestricted consumption of all the resources they could lay their hands on.

China's Oil demand has risen to pre-crisis levels (and unrelated note: their military prowess has arisen to previously unheard of levels), but global demand is still on a downward trend as decline is still apparent from other big world economies. But as long as oil remians a critical resource, the problem faced a few months ago will materialize again, and specultion will drive the prices even higher, with a corresponding increase in other commodity prices worldwide.

Steps need to be taken starting immeditely to make sure that oil is not a  critical resource, but to this end there is also a lot of disincentive for powerful oil economies and lobby groups. There is always money to be made for the oligarchs, and high oil prices are something they will definitely welcome with open arms.

Yes. Again. And this time it seems, on a far bigger scale.

The Merchant Bank of Sri Lanka an 'investment bank' and a listed subsidiary of state-run Bank of Ceylon has taken over and is planning to 'restructure' Ceyliinco Group's Finance and Guarantee group of companies. According to this LBO report.

Meanwhile, all refunds from these companies have been stopped. Mainly to prevent 'influential' depositors getting their funds at the expense of others and a recovery plan will be revealed in 'two weeks' according to a media report released by MBSL.

Apparently there is a 'sufficent asset base' present and investors in F&G real Estate Co. will have to only sacrifice 'certain time period' to get their refunds. This from the MBSL chairman Janaka Ratnayake.

Now it doesnt exactly specify if full refunds will be available, but if you were an investor in that group, and if i was you, i'd start wondering a bit because the same report specifically states that the F&G groups assets were 13.5 billion while their liabilities were 12879 billion.

Yeah, have another look at those numbers. Now im not a big financial guy but even i know that a thousand to one difference between liabilities and assets will spell trouble. Even assuming most of these liabilities were not long term.

Mr. Ratnayake also said that F&G Real Estate Company Ltd had been offering interest rates of 42% per year for some customers and has been rolling over deposits. Now does that 'investment strategy' remind you of anything else? like for e.g. Bernard Maddof? The chap who pulled off a $50 Billion Ponzi scheme under the eyes of the likes of Alan Greenspan?

And if we thought Sakvithi was bad, he'll be chickenfeed in comparison to the potential destruction if the MBSL restructuring plan somehow fails and all this money is lost.

Dialog just reported a loss of 3 billion for the year ended 31st December 2008.

Jack Point seems to think the sole reason for it centred around the Blaster Package. But theres more to the story than just the blaster package, the blaster package was necessary to ensure the non erosion of Dialog's customer base, which was essential taking immediate market implications into consideration.

While the Sri Lankan telco market has almost bordered on a price war over the past few months, this has been good for the population and the economy as a whole as it reduces communication costs and in turn increases productivity, providing a much needed boost to a relative downturn.

Also this has a penetrative effect where new users previously unable to afford a mobile subscription entering the fray, the blaster/ Upahara packages also have a potential to create a loyal customer base provided service levels are high and coverage problems are minimal. And however much Dialog is criticized for its bad customer service, they are still pretty much the best at it in comparison to their competitors. That may not be saying much, but it's all that matters. Coverage wise Dialog is the undisputed leader with most of its competitors struggling to keep up, but Mobitel is an exception posing a strong challenge and will probably catch up sooner or later.

The problems rather, were caused by a too-big organization, it is a structural/ managerial problem rather than a marketing one. Dialog has a bureaucratic culture with a largely centralized decision making system with a maze of divisions and departments. They need to restructure fast to cope with the suddenly dynamic nature of the Sri Lankan Telco market. To streamline themselves to be able to swim faster. They are also laden with two subsidiaries that are yet to turn a substantial profit (as is evidenced by the disparity between the 'group' and 'company' losses) Dialog TV and Dialog CDMA, the latter which is seen to be an entry into a declining market by many pundits.

Jack Point also seems to think that the share prices of Dialog will drop to Rs. 2 but it’s my personal opinion that things won't get that bad, but his reasoning is also realistic. If there is a selling scramble prices could drop to a previously unheard of level but i think the worst has already happened, most investors would not have been expecting a profit for the last quarter anyway, although the level of  the loss incurred may have been un-anticipated.

A lot will depend onDialog's relationship with its major shareholders and their level of confidence in Dialog's ability to turn a proifit soon. Dialog still has a strong equity base with a relatively small portion of it actually public. This will squeeze demand and increase prices soon enough if they pick up their ball game. But they are notoriously resistive to internal change and it will remain to be seen of they can actually make a drastic pull-together.

2008 was one of the most volatile years the Telco market in Sri Lanka has ever experienced. Mainly due to the hype generated by Airtel. But as I blogged about it earlier, the panic attack generated by the threat of Airtel's entry is yet to materialize and be justified.

In most stable markets around the world, in any industry, the market leader usually does not possess more than 30% share. Dialog currently possesses closer to 50% of the mobile market if my figures are correct. Any change that happens will be for the overall good of the industry and for Dialog as well, which will have to eventually stabilize with a leaner operation and a more profitable portfolio, in order to remain dominant.

So one of India's biggest tech giants just did an Enron. Their head just resigned and stocks plunge 82%. Market watchers are harping about potential implications for Indian business due to loss in confidence. Satyam was the only Indian tech firm to be listed in the Nasdaq as well. The credit crunch hitting India may have been a somewhat muted (or at least a bit turned down) threat, but this kind of stuff wouldnt help their situ at all.

for one hundred bucks a few months ago may have seemed like a dream to many, well i know it was dream to me. now, thanks to lanka IOC at least, the dream seems to have materialized again.

Now here's the deal though. petrol prices still haven't 'officially' been reduced to one hundred bucks, and IOC controlling only one third of the petrol market, will soon begin to feel the demand pressure with the full market force focused on it. Since no one in their right minds would buy petrol from CPC at 122 when they could guzzle it down at 100 bucks at IOC.

This is going to put a definite strain on their operations. Also, if CPC as the only wholesale supplier of petrol to the local market, refuse to reduce their wholesale price in compliance with the SC order, then that’s going to put a tough constraints on margins.

So they've got reduced margins, but increased demand, by almost 200 percent as a matter of fact. Assuming constant supply of oil, will this still be a profitable formula for IOC? they'll definitely bring in tons of new revenue but will their cost model be able to hold it up.

They've probably thought about all this. And maybe they know something about the political situation that I don't. One thing’s for sure this was a pretty good marketing ploy. Remember back in the day when IOC had a bad reputation because of perceived exploitative motives in the SL petroleum market? They hadn't quite untarnished their image as yet but hell, this hundred bucks thing will definitely put them in the public's affectionate eye.

Going on like this while the official price remains at 122 will not last though. if they keep at it and absorb reserves from India to cover up losses made through giving oil at 100 bucks, they could completely destroy the image, market share and business of CPC's retail division and hell man I’m all for that. Not too sure of they'll be able to get away with such anti competitive practices, but the possibility definitely exists.

If they can't then they'll simply switch back to 122 bucks a liter in a little while. But there is still hope that our block headed cabinet will actually move and reduce the prices. What’s the point of law if the government doesn't adhere to it?

There is, surprisingly (?) an overwhelming level of confidence within the company it will survive through the oncoming onslaught. So far all it's been is a war of hype.

Like a playground bully threatening unbelievable physical damage if the lunch box is not handed over, but never really having to go through with it due to the fear induced in his victims, the mere news of Airtel, biggest player in India, massively profitable, phenomenally experienced etc entering the market has succeeded in turning the telecom sector upside down over the past few months. rates have dropped to hitherto unheard of levels. Dialog's revenues have dropped, share prices have dropped further and they reported a loss for Q3 2008 for the first time ever after 40 quarters of operations.

Truth be told, Mobitel would have played a much bigger role in bringing down Dialog's profits than threats of new entrants. Propelled by big capital infusions, great marketing campaigns and technological innovations Mobitel had started gaining a substantial chunk of Dialog's market share by the time the giant actually woke up to realize that Jack was out the door and fast on the way to the beanstalk already.

Also, major reasons for cuts in revenue are attributed to diversification strategies that are yet to turn into cash cows which require a substantial amount of group revenues to maintain. DTV, CDMA and Broadband segments are performing well, and there is expectation that they will soon break even and yield profits.

Some would say the timing is bad, that Dialog needed all its financial clout to focus on a suddenly volatile market. Time will tell if it was a stupid move or a brilliant one. And now is the time that the mettle of Dialog's charismatic leaders Dr. Hans Wijayasuriya and Nushad Perera will be really tested and proven. Anyone can lead when cruising, but real leaders shine out during a crisis.

There is however, a lot of readjustment required. Dialog suffers from a bureaucratic and heavily process driven culture and some may say that it's already too big for its own good. Airtel, on the other hand is rumored to sport and extremely lean operation outsourcing everything from customer service to engineering and are said to be entering the local market with around 200 direct staff vs. Dialog's 4000 or so. They operate in India with 2000, for a customer base of 80 million or so.

Heavy reorganization started taking place inside Dialog Telekom more than a year ago, but a fully operational smooth internal culture is yet to emerge.

So if you chaps are licking your lips waiting for December's end when Airtel is finally supposed to launch with a massive event including Shah - Rukh Kahn and A.R. Rahman and think they'll sweep the floor with the existing players with one blow, wait and see, and I will join you. These are interesting times indeed for those working in the telco sector.

Babies are a-booming in the modern world. Especially across the western hemisphere, increasing numbers of couples are looking to adopt after exhausting all other methods of procuring offspring. Therefore ‘babies’ have blossomed into a full scale industry. Driven by the same demand that say, fertility clinics are driven by.


Supply of course is monopolized by fully legalized adoption agencies. And this works like any other market in the sense that there is a cost attached to adoption, mainly when it comes to fees. And there is also a prosperous bunch of intermediaries operating such as lawyers, counselors etc. But this is a highly regularized process and with supply unable to keep up with demand, a black market for baby trade has emerged and is prospering resulting in kidnappings and even blatant baby selling.

The incident that triggered this post happened in good old Ceylon. And we’re well-known to have a highly de-regularized baby trade market. We’ve been hearing about it for years. Ever since i was a kid, I remember it as being a part of popular culture, there were countless numbers of Singhalese tele-dramas I’ve watched that talked about how this baby was sold to (for e.g. a family in UK) and how the kid returns after long years of absence to a remote village in a sunny island etc to find its birth parents in a poor little house built of clay etc.

The point being that due to poverty and various other reasons like loose sexual habits among rural youth and the lack of reliable abortion options lot of babies were being born that were unwanted. Many of these babies were literally being treated as garbage with numerous incidents of unwanted offspring being found dumped by the sides of roads (apparently baskets and doorsteps are an alien concept over here) and even murdered.

As discussed, at the same time, there was burgeoning demand for babies in many Western states. In states where populations were on the decline and prosperity was on the rise, couples were increasingly looking choosing adoption as an option instead of giving birth or due to impotency.

So now we have the demand for babies as well as the supply of babies which are the main ingredients of any industry right? But much of the fees potential adopters have to pay (which sometimes number in the thousands, and I am talking hard currency) go to all the intermediaries and to adoption agencies. Poor parents will only have the satisfaction of knowing that that cuddly little bundle of love will have found a (hopefully) happy home.

But why does this have to be the case? Why can’t we make sure the baby gets a good place to grow up and make a buck at the same time? i guess most of them started to think that way and i think despite popular belief, rural Sri Lankans do have a grasp of market economics for this has been happening for quite some time. The latest going price seems to have been Rs. 66,000. But then again, that was a domestic sale. If it was a foreigner the price would undoubtedly have doubled (just like tuk tuk and bus fare and basically anything else a white skinned person tries to buy on our golden shores). Clever aren’t we?

But it’s not only here where this is happening; Africa is major supplier of babies, also countries like Indonesia, Philippines, Cambodia, Vietnam (just look at the celebrity list of adopters).

So why don’t they just de-regularize the whole thing and let babies be treated as just another export good? We could have separate baby commodity markets as well, maybe diversify our investment portfolios now that oil is on the drop, stock markets are crashing and even gold isn’t as reliable as it used to be. Hell, babies could end up saving the world from a Great Depression. And Friedman would be happy too. A free market should, after all, be a free market. What do you think?

So the All Island Lottery Dealers' Society (AILDS) is going to strike on Thursday and bring to a standstill one of the main contributors to the Sri Lankan economy is it? 35 million in revenues per day im told. taken at an average of 10 bucks a sweep ticket. thats 3.5 million sweep tickets sold per day and i suppose it would be safe to assume that approximately 3.5 million people buy those tickets (excluding the few who are more addicted and maybe blow a good proportion of their paycheck on them).

whats my point? well i dont really have one to tell you the truth, except to explore this whole business of sweep ticket selling and how it affects a country like ours. So lets see, the AILDB (The dealers netwok) says that they are currently only entitled to 1.5% of the revenues from a ticket and out of that, 1.35% goes to the sweep ticket seller. so out of 35 million thats about an average of Rs. 525,000 for the dealer network and about Rs.472,500 for the ticket sellers as a whole, per day.


Well do the math and consider the massive amounts of tickets sellers that the dealer network has an it is pretty apparent that they only make a pittance compared to the total revenue generated by the lotteries board. After the planned increase if ticket prices this might change and double their revenues. So that would probably keep them happy.

Meanwhile, the lottery board continues to contribute to the economy and infrastructure of the country and also dish out gazillions to the occasional jackpot winner. So that is the current set-up and it doesnt look like its going to change any time soon.
I wonder how much of these 'funds' are being absorbed by corruption though eh