Where is the Market’s Invisible Hand gone?

An article in French by Ramdane Mohand Achour and published on March 25th, 2017 by LibreAlgerie is proposed. It is about Algeria in the course of the persistently decline of its hydrocarbon exports related revenues is currently undergoing soul searching questioning of what is best for making its economy work. Many are wondering where is the market’s invisible hand gone? Like many countries, Algeria that is struggling with falling revenue from lower oil prices is presently looking for ways to upgrade its energy systems to fully support current and future requirements of its economic growth.

Where is the Market’s Invisible Hand gone?

Proponents of liberalism argue that the market naturally produced a self-regulating mechanism that corrects imbalances born out of the multitude of society shaping special interests. This mechanism, called “the invisible hand of the market”, would satisfy the public interest. The law of supply and demand would naturally harmonize economic situation marked by the selfish will of each individual. In this scheme, the State doesn’t have to intervene if it is to guarantee the exercise of free and undistorted competition intended to benefit at all.

The current state of the oil international market turns wrong this angelic vision of a self-regulated inclusive market. Left to itself, the market has experienced a bullish cycle during ten years (1999 – 2008). The price of the barrel thus reached 140 dollars in June 2008 before tumbling within the 2008 crisis, but he soon to rise in 2009 again to be slightly above 120 dollars in April 2011. In 2014, it exceeded even the 110 dollars.

Such a situation was undoubtedly beneficial to the producing countries and companies in the sector as well as those rich countries whose States taxed petroleum products so as to keep their economy afloat. It was not the same for the non-producers, and all poor and middle-income countries who were struggling to feed themselves because of their limited financial resources. The market did not benefit to all, far from it.

The second disadvantage of this situation of relatively expensive oil lay in the fact that it boosted search for more hydrocarbon and production and allowed shale oils to make a big splash, in a full sense of the word, on the world market. With a production of 11 million barrels a day, the United States will see their rate of dependence on foreign oil drop to 30% in 2016 down from 60 percent in 2005.

Such a dynamic did fail to cause a state of overproduction; the purpose of the market is not, contrary to the image that its promoters sell us, to satisfy human needs, but rather to garner, first and above all for not only, profits, but for maximum profits.

Proponents of the “the invisible hand of the market” were right about one thing: in an economy obedient to the laws of the market, the engine of the “economic agents” is selfishness, the individual profit, at the expense of the lives of the producers (workers), consumer and research of nature which we see what mess it is today.

Overproduction intervening in a situation of de facto global stagnation, in the first place, the downturn in the economy of emerging countries (China, Brazil…) dropped slowly but inexorably the price of the barrel. Out of $110, it fell to $35 in February 2016. Decided to reduce the share of the North American Shale oil producers, Saudi Arabia will trigger a price war which played a vital role in this descent into hell.

If the drop in prices could theoretically help poor and middle-income countries producers, it on the other hand hit with full force the producing countries, primarily those of OPEC. For the first time in its history, the rich Saudi Arabia could no more balance its budget and had to resort to austerity. Its involvement in Yemen who turned into a quagmire for Riyadh, financial support of ‘takfirist’ groups in Syria and Iraq and a fierce will to challenge Iran contributed to accentuate its financial crisis. In this sequence of fall in the price of oil, as in the previous bullish sequence, no sign of self-regulation by the market. The invisible hand had other things to look after.

Last November and to everybody’s surprise, the 14 member countries of OPEC, under the impetus of Algeria but due to the will of Saudi Arabia, decided to reduce their production to the tune of 1.2 million barrels a day. Eleven countries non-members of the cartel, including Russia, committed as well to reduce their 560000 barrels per day. In the month of December, stocks of the OECD countries dropped to 1.2 MBD.

 

Number of non-conventional oil producers will be forced to close their wells that became no more profitable below a price floor of around $50 a barrel. The agreement of the producing countries, OPEC and non-OPEC, which was not an action of “the invisible hand of the market”, but of the conscious and active action of 25 States, will result in stopping the fall in prices on the world market and could even allow the beginnings of a rebound in prices which will pass from between 45-50 dollars to 50-55 dollars.

Number of non-conventional oil producers will be forced to close their wells that were most profitable below a price floor of turning around 50 dollars per barrel. The agreement of the producing countries, OPEC and non-OPEC, which was not the action of “the invisible hand of the market”, but the conscious and active in 25 States, will result will stop the fall in prices on the world market and will allow even the beginnings of a rebound in prices which will pass a fork understood between 45-50 dollars to 50-55 dollars.

There is however, that this new ‘virtuous cycle’ for producing countries is not shared by the importing poor and middle-income countries. It also translates into a revival of the production of Shales. In the United States, the number of wells increased each week. Mid-March 2017, it stood at 617 and the U.S. production has reached the historical peak of 9.1 MBD that recalls the production rate of the 1970s. Stocks of oil and oil products are at the highest historical level at 2 billion barrels. The commercial reserves of the country reached 528,4 million barrels with an increase of 8.2 million barrels, the largest weekly increase since 19821.

This new overproduction mechanically caused a new fall in the price of oil, which threatens the stability of many countries. We think first of countries such as the Venezuela struck by an economic and social crisis. But it does not spare the rich monarchies of the Gulf as well. Thus, below a certain price, producers of Shale disappear from the market while exporters suffer a severe income crisis whereas if prices were back on the rise, Shale producers will return to the market. But in the absence of a significant global economic recovery, they contribute quickly to only flooding the market.

The bullish and bearish cycles seem to alternate way more and faster, impeding the process of renewal of the facilities and the discovery of new deposits that require significant investment that the big oil companies do not realize by altruism, but through their search for profits.

One could therefore ascertain that the market does not regulate anything and that without the intervention of the State that plays a major role but not always effective, the market being not self-regulated, would verge onto anarchy causing economic, social, and humanitarian crises as the deterioration of the environment.

The reality of the international oil market confirms that the role of “the invisible hand of the market” is just a myth. The Liberals, who are constantly putting their realism and their pragmatism forward but who do not have enough teeth against their opponents, in ideology, swim themselves in full ideology. Behind a friendly speech sold according to the lastest in marketing theories, formidable doctrinaires could be hiding.

Source : Libre-Algérie

 

Real Leaders need to make Globalization work for all

 

As we head into 2017, and further to our previous contribution Leadership Priorities in Year 2017 we would like to give this opportunity to our readers to go through this article written by Rawan Al-Butairi, Financial analyst of Saudi Aramco and published on Monday 2 January 2017 on the WEF website.  The author questions leaderships attributes but within the specific Arab context of the MENA countries.  Experience tells us that practitioners love to see what is happening in their domain and for one reason or another do generalise it to all by asserting that Real leaders need to make globalization work for all .

The above image is of REUTERS/Victor Ruiz Garcia

 

What does leadership really mean? Two things

 

 

 

A young person could almost be forgiven for feeling despair and hopelessness today. Everywhere they look, there is escalating inequality and a lack of opportunity.

In certain regions and countries, the problem is more acute; from hyperinflation and a collapsed economy in Venezuela to an Arab Spring in Egypt which toppled a government but ultimately has yet to improve the lives of ordinary Egyptians. In fact, with a recently de-pegged currency and an IMF bailout, it will ostensibly get much worse there before it starts to get better.

At the time, many pundits argued that the 2011 Arab Spring was about people in the region demanding greater democracy and liberal freedom. However, I think this misses the heart of the problem. At that time, Egypt was still suffering from the aftermath of the 2008 financial crisis, with important industries such as tourism still far from recovery. Moreover, large increases in food and raw material prices caused a huge trade imbalance (Egypt- as well as Venezuala – is a significant net importer of food).

With the rising cost of food, an unsustainable trade imbalance leading to unaffordable domestic subsidy programs, an overly concentrated economic model susceptible to crippling exogenous shocks, and a growing population to “feed”, the situation mirrored the predictable fall of a neatly stacked set of domino chips. These countries simply ran out of room and ran out of time to modernize their economies to provide opportunities for their growing young population.

Leaders fell back on the status quo, too afraid, too self-interested, or too corrupt to make the difficult trade-off decisions to fix the numerous structural imbalances. These were tragic and epic failures.

In this context, what does responsible leadership mean? While it is tempting to provide the never incorrect “it depends” answer, I believe there are two universal and key themes.

First, globalization, like capitalism, must be effectively managed to be more inclusive. Globalization leads to a bigger overall pie, but responsible leaders must find ways to distribute that pie to more people. Conversely, protectionism and populism to me is just Neo-Luddism, a misguided and ultimately futile tilting against windmills which will only lead to a smaller pie for everyone.

With technological advancement and the oft-touted “knowledge economy” naturally favoring a small group of the highly skilled, government and the private sector can and must do more to even the playing field, including potentially higher minimum wage laws or progressive taxation to fund more targeted and effective social programs. These programs must be financially sustainable, free of corruption, and efficiently enacted.

At a community level, responsible leadership must encourage more volunteerism and gifting – of not just money, but time, knowledge, and mentoring those with less opportunity – and these individuals and institutions must personally lead by example. The leaders and workers of tomorrow need to understand the impact of globalization, both its benefits and its implications, so that workers are motivated to develop competitive skills in an increasingly global and interconnected economy. Inevitably, there will be groups who will be marginalized and unable or unwilling to adapt to this future, and the social programs will need to be creatively designed to reach and help these people.

Second, responsible leaders must have deep social capital, particularly “bridging social capital”. According to Robert Putnam, a political scientist and Harvard Kennedy School of Government professor, bridging social capital builds key networks between different social groups. It allows people from different socio-economic backgrounds, genders, ethnicities and cultures to share and exchange ideas and build consensus among groups with diverse interests.

Responsible leaders must develop empathy and solidarity with all people they serve, so that they will forge collective benefits that enlarge the pie for everyone. Again, volunteerism and community engagement are crucial. Unfortunately, with social media and an overabundance of choice, people are easily conditioned to only seek out interactions with people they “like” or to “friend” people of similar views or backgrounds. This is the exact opposite of the desired outcome, and can lead to irresponsible leaders with low social capital, and low empathy, who see the world as a fixed pie that must be divided up with the largest slice going to themselves and people like them. The future of the world, particularly the one that the young will inherit, must be defined by what we share, not our superficial differences.

So what, again, is a responsible leader?

In summary, a responsible leader to me is person who has abundant social capital, an intrinsic desire to maximize the economic pie to create opportunities for everyone, someone who is able to effectively manage globalization, and looks to build bridges instead of walls. He or she will enable hope to once again flourish within the sea of hopelessness, and turn despair into optimism.

About this article: Rawan Al-Butairi is a World Economic Forum Global Shaper. Her article is one of the short-listed entries in the 2016 Global Shaper essay competition on the theme of responsive and responsible leadership.

What next for Middle East’s media?

 

AMEinfo produced this article written by Mujeeb Rahman, Journalist on 28 December 2016; it is republished here below.  It is question of the Mass Media notably of the printed type.  But the media generally are lately undergoing some sort of mutations with the online one coming up to maturity possibly at the expense  of its printed counterpart.  Mujeeb’s question What next for Middle East’s media? should be answered but only if taking every aspect of life in the countries of the MENA are taken into account. 

In that region, the other problem would be that of the Freedom of Speech as illustrated by 2 recent events that were covered here in MENA-Forum.   A journalist dies whilst held in prison for alleged defamation in Algeria Friend and Fellow Countryman M. Tamalt Passing Away or simply imprisoned for one reason or another as in More journalists jailed than in nearly 3 decades  and their media literally obstructed by the authorities as in In solidarity with Doha News .

 What next for Middle East’s media?

  •  2016 has been the year that wasn’t for the Middle East media
  •  7DAYS closed down, Emirates 24/7 and Khaleej Times slashed jobs
  •  GN Media closed down four popular radio stations
  •  Newspapers and magazines adverting spend to drop by by 6.1 per cent and 4.5 per cent, respectively, in 2017

The year 2016 ends with yet another blow to the Middle East’s media industry as UAE’s free tabloid newspaper 7DAYS shut down on December 22 because of the “challenging” market conditions.

The newspaper, owned by the UK-based Daily Mail & General Trust Plc (DMGT), had earlier announced that it was ceasing the publication after 13 years, citing bleak prospects of print media.

The industry had also witnessed a few other closures and job cuts due to rising cost and major decline in ad revenues during the difficult year.

The year that wasn’t

2016 has been the year that wasn’t for the media in the region.

As it tried everything it could to survive, 7DAYS cut its frequency from five days a week to weekly in November. But the newspaper, neck-deep in financial trouble, met with the ultimate fate as it also shut down online news website on the same day the last copy rolled-off the press.

“The current trading environment and future global outlook for print advertising remains severely challenged,” Mark Rix, CEO of 7DAYS Media, said when announcing the closure.

News website Emirates 24/7, run by government-owned Dubai Media Incorporated, shed staff as part of a restructuring. Media reports suggest that Khaleej Times daily had also laid-off nearly 30 staff during this year.

Dubai-based GN Media closed down popular Radio 1 and Radio 2 stations in June. Later in September, the media group closed two other remaining radio stations, Josh and Hayat.

“Following a strategic review of our operations, GN Media have made the decision to exit the broadcasting sector,” the company said then referring to the closure of its broadcasting arm, Gulf News Broadcasting.

Not only the small fries but also major publication and broadcast organizations had tough time during the past 12 months.

The Doha-based Al Jazeera media network announced in March that it was cutting 500 jobs. The broadcaster had earlier this year shut down its English-language channel in the US, Al Jazeera America, saying the business model was “simply not sustainable in light of the economic challenges”.

Declining ad spend

Print ad spend has drastically declined in the past few years in the UAE and across the worlds.

Globally, adverting spend in newspapers and magazines dropped this year from 2015 by 8 per cent and 5.9 per cent respectively, according to a recent report by London-based consultancy Warc. They are projected to fall further in 2017 by 6.1 per cent and 4.5 per cent.

In the region, newspapers accounted for 45 per cent of the advertising market in 2010. But they now represent only 32 per cent the market, according to the findings in a study by Northwest University Qatar.

Zenith Optimedia had earlier this year forecast an 11 percent drop in overall advertising spending in the region for 2016 as the region’s governments, the largest buyers of advertising, were trimming down spending on the back of lower oil prices.

Changing trends

Television still accounts for the vast majority of advertising in the region. Leading professional services firm PwC has revealed that the TV advertising market in Middle East and Africa (MEA) has seen double digit growth despite the economic and political turbulence. It predicts that the region will be the fastest-growing region globally with 12.1 per cent CAGR for TV advertising.

Digital advertising is picking up pace with the fast growing Internet and Smartphone population in the region. Both TV and digital advertising platforms are growing at the expense of print. From 2010 to 2015, digital advertising grew from $105 million to $550 million, or 10 per cent of industry mediums, NUQ finds.

PwC projects that by 2018, Internet advertising will overtake TV as the largest advertising segment

By Mujeeb Rahman, Journalist

Mujeeb Rahman is a business journalist at AMEinfo. His areas of focus include economy, markets, politics and international relations in MENA and Asia-Pacific regions. An ex-BBC digital journalist, he delves deeper into the subjects that matter most