B360-36, GDP expansion in South Asia, 1995 - 2015

* This is my article in the business magazine in Kathmandu, May 2016 issue.

GDP expansion in South Asia from 1995 to 2015

Anywhere in the planet, the pursuit for faster and quicker economic growth by countries and economies is being sought and tested. This is because no amount of income and property redistribution will be successful if the economic pie remains small. The pie must expand first so that the share of various sectors and stakeholders will rise in absolute amount, even if their percentage share remains the same or small.

Let us review the economic expansion of South Asian economies over the past two decades, from 1995 to 2015, and draw some lessons from them.

In nominal prices, India’s GDP has expanded 5.7x; Pakistan’s GDP by 3.4x; Bangladesh’s by 4.5x; Sri Lanka’s by 6.3x; and Nepal’s by 4.2x.

In PPP values for the same period, India’s GDP has expanded by 5.6x; Pakistan’s by 3.3x; Bangladesh’s by 4.5x; Sri Lanka’s by 4.4x; and Nepal’s by 3.3x. These are modest growth and may be fine, although certain sectors in these countries would be unhappy with such expansion of their economy after 20 years. They would wish to copy many South East Asian economies that expand their GDP by 6-10x after two decades. 

 Notice Japan’s economy: in nominal prices, its GDP has stunted while in PPP values, the economy expanded less than 2x after two decades. Whereas economic expansion in China was buzzing at a fast rate.

In per capita GDP at current or nominal prices from 1995 to 2015, South Asian economies’ per capita income has expanded between 2.2x (Pakistan’s) to 5.3x (Sri Lanka’s). In PPP values, the per capita income expansion was between 2.1x (Pakistan’s) to 4.2x (Maldives’).

Compared to the levels enjoyed by developed Asian economies like Singapore, Brunei, Hong Kong and Japan, their per capita GDP are really huge. 

If we review again the growth trajectory of many Asian tiger economies aside from Japan – S. Korea, Taiwan, Singapore and Hong Kong – they managed to grow fast because of (a) market- and outward-oriented economic policies, (b) technological advances and competition, and (c) prevalence of the rule of law. So while their governments started with cronyism and state-sponsored industrialization, the main contribution of their governments was the promulgation and respect for the rule of law. Laws that generally apply to everyone, little or no exception.

Doing business in this kind of environment is stable and relatively easier. Entrepreneurs can put their huge savings and borrowings to long-term business projects knowing that rules and policies remain for many years and not changed midway to favor certain business interests that are close to the President or Prime Minister of the country.

It is good that a number of South Asian economies are slowly realizing this. More trade liberalization, whether via regional, bilateral or unilateral liberalization, any of such move will produce net gains (advantages are larger than disadvantages) because people trade only if they realize there is net gain for them.

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See also:

Business 360-33, Cheap energy now and in the future, January 28, 2016

Business 360-34, Hydropower in Asia, March 17, 2016 

Business 360-35, Economic expansion in South Asia, May 28, 2016

Business 360-34, Hydropower in Asia

* This  is my article in Business 360, a magazine published monthly in Kathmandu, Nepal, February 2016 issue.
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Hydropower in Asia

Asia being mostly tropical, the potentials of hydro power is big, in mainland Asia in general, and in mountainous countries in particular. Dams of hydro power plants not only serve as storage for electricity production, they also impound huge amount of flash flood that can inundate low-lying areas of a country near the rivers.

The biggest producers of hydro power in Asia in terms of high percentage of hydro dependence are Nepal, Bhutan, Myanmar and Vietnam.

I was lucky to visit Nepal and Bhutan in winter months of 2015.  January in Nepal and November in Bhutan. Electricity supply in both countries are very different. While parts of Kathmandu can experience 14 hours or more of black outs or power outages daily in January, the situation is very different in Bhutan as they do not experience black outs during winter.

One reason why this is so is that  Bhutan has only 0.7 million people while Nepal has nearly 28 million people and hence, demand for  electricity is much larger in Nepal than  in Bhutan.

In terms of actual hydro power production, the biggest producers are China, India, and S. Korea. Bhutan and Nepal are not included in this list below.

To help address the severe lack of electricity in Nepal during the winter season  and hence,  reduce the need for generator sets, other factors, the following are suggested.

One, expand the capacities of existing hydro power plants by dredging heavily-silted dams, by improving and  modernizing the turbines.

Two, allow private players to build dams and produce hydro electricity. Government resources will always be insufficient to build such huge structures, but government can facilitate the acquisition of right of  way (ROW) like houses and other  structures that stand on the roads or water reservoir. These must be relocated elsewhere.

Three, encourage multiple use of water in  dams to generate additional revenues. Like fishing and water sports.

Having cheaper and huge, stable energy supply has become more common among many Asian countries now. It is a good development and it should continue.

Governments must give more leeway to market players to flourish and expand, to introduce more innovation. This means reducing the number of bureaucracies, taxes  and  permits. Which will attract more traders and businessmen to do business in the country.

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See also:

Business 360 17: Electricity and GDP Growth, April 15, 2014

Business 360 21: Cheap Oil and Nepal, February 20, 2015

Business 360 23: Electricity and Development, March 07, 2015

Business 360-29, Low oil prices and energy development in South Asia, October 25, 2015

Business 360-32, Energy independence in Asia, December 24, 2015

Business 360-33, Cheap energy now and in the future, January 28, 2016

Energy 57, Tony la Vina's anti-coal alarmism, February 06, 2016

Energy 58, Sen. Loren Legarda and renewables, February 27, 2016
Energy 59, Cheap oil and the OFWs, March 07, 2016

Energy 60, PH solar companies, PagIBIG loan for solar, March 12, 2016

Business 360-33, Cheap energy now and in the future

* This is my article in the monthly business magazine in Kathmandu, Nepal, January 2016 issue.
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Cheap energy now and in the future

Cheap oil has become even cheaper. High oil, coal, natural gas supply and inventories have become even higher. The prospect for more economic prosperity of many developing  countries has become bigger.

This is the current and near-future scenario in global energy prices and supply. There is more supply of oil, coal, natural gas and other energy products than the world can use and consume and store. So the natural and predictable result is low and even lower prices.

Below are the charts for the last five years of West Texas Intermediate (WTI) and Brent crude prices. These are low prices which have not been seen since six or more years ago.

Figure 1. Crude oil prices as of December 19, 2015

Source: http://oil-price.net/

While the members of the Organization of Petroleum Exporting Countries (OPEC) are unhappy with these low oil prices, most industries and sectors that rely on oil products are relieved. People who save on their land travels because of high oil prices can now drive and visit more places. Airlines, shipping lines and bus lines should be capable of cutting their fares as their fuel costs have significantly decline There should be more tourism, more use of farm tractors and machines and less of farm animals, more use of gas for cooking and less use of firewood and charcoal, saving more forests.

World coal prices too are stabilizing at low levels. The recent UN Conference of Parties (COP) climate meeting in Paris has produced a general but non-binding agreement. No penalties for countries that do not obey their promised emission cuts, or countries that do not give their share of the targeted $100 billion a year starting 2020.

Figure 2. World coal prices in the last 10 years

Source: http://www.infomine.com/investment/metal-prices/coal/all/

Coal use by more developing countries like India, China, Indonesia, Philippines, Brazil, etc. will be rising; And rich countries too like Japan and the US.

Peak oil, along with peak food and Malthusian hypothesis of more hunger and massive deaths, has been discredited since many years ago.  The short- and medium-term scenario is that world oil prices will hover between $40-$50, still low compared to 2012-2013 levels of nearly $100. And lower than the past decade's prices.

We are in a period of cheaper energy, cheaper food, longer lifespan, healthier people. The problem of many countries now is there are more fat/obese people than thin and undernourished people. When people die at 50 or 60 yrs old, some would say, "he/she died young". In 1900, when a person dies at 40 yrs old, that's "long" already because life expectancy was only around 33 years.

So a few decades from now, if a person dies at 70-80 years old, other people will say, "he/she died young." Why, because the average life expectancy then will be around 90-100 yrs old.

This period of cheaper energy is a good opportunity for countries and governments to depoliticize energy pricing and procurement, to depoliticize the pricing of gas and  other petroleum products.

Governments should not heed any advice from multilateral agencies (World Bank, IMF, ADB, etc.) to raise fuel taxes and royalties. It is not a wise move by governments and the multilaterals to make cheaper energy to become expensive again.

More energy at cheaper price, more prosperity.

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See also:

Business 360-29, Low oil prices and energy development in South Asia, October 25, 2015

Business 360-30, Freedom to trade in South and East Asia, October 29, 2015
Business 360-31, SAARC, RCEP and free trade, December 23, 2015 

Business 360-32, Energy independence in Asia, December 24, 2015

Energy 53, Expensive electricity + mandatory renewables, Philippine case, January 17, 2016

Energy 54, Need for cheaper, reliable energy sources, January 18, 2016

Business 360-32, Energy independence in Asia

* This is my article in Business 360 magazine in Kathmandu, Nepal, December 2015 issue.
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Energy Independence in Asia

Energy independence is a virtue that a country must pursue. And this independence can mean two things. One, independence from only one major energy source because if that resource would experience a major price hike or supply disruption, the economy can be endangered. And two, independence from only one major country supplier because if there is any political or economic tension and instability in that country, energy supply to the home country can also be endangered.

Here is a review of electricity production per country and what energy sources they come from.

Laos has14.9 bill. kWh production in 2014, but no data on distribution of energy sources. Brunei produced 3.9 bill. kWh in 2012, 99% of it from natural gas. And Cambodia produced 1.4 bill. kWh in 2012, 60% from oil, 36% from hydro.

Nepal has high dependence on hydro power. While this is a good thing as Nepal has lots of rivers and lakes, big and small, this can be dangerous too during severe winter and frozen water stays longer in the mountains, meaning longer power supply disruption.

Mongolia has high dependence on coal and this can produce some dangers in the future if the price of coal shoots up very high, although currently, coal prices remain low and stable. Brunei too has high dependence on natural gas, but this might be an exception to the risks mentioned above because Brunei is a major natural gas producer and exporter in Asia.

When I was in Nepal for one week in January 2015, the lack of electricity was among the most prominent issues that I observed. Many road intersections have no stoplights, all hotels have generator sets, many streets are dark at night, and so on.

In previous papers in this magazine over the past two years, this column has advocated the need to liberalize and deregulate the energy sector in Nepal and other countries in Asia. In particular:

Prioritize the liberalization and deregulation of the power generation sector, encourage more hydro power companies, big and  small, to come and build more dams, or expand power capacity in existing dams.

Second, allow other indigenous energy production like coal power if there is sufficient amount of coal that can be mined and extracted within Nepal.

Third, facilitate more power imports from India especially that India is building more coal plants now. Coal is generally cheap and supply from abroad is stable. This means the construction of more transmission lines and facilities from India to Nepal.

Fourth, deregulate power rates. Let those who can afford to pay higher electricity rates in exchange for more stable supply do so, whether imported from India or locally produced. This has been happening actually for many years now as the richer residential areas and big commercial centers have their own generator sets. Their willingness to pay higher rates in exchange for stable electricity supply is already there. Power rate deregulation will encourage faster construction of more power generation plants and transmission lines.

Fifth, privatize some power plants that produce more losses than revenues for the government, sell to private power companies in a competitive bidding. Privatization of course should be coupled with industry deregulation, to encourage competition among more players.

And finally, reduce the number of permits, bureaucracies, taxes and fees for companies putting up new power generation plants and transmission lines.  Invite and call in more power generation companies, more suppliers of large engines and turbines from many countries to enter Nepal.

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See also:

Business 360-28, FDIs in South and East Asia, August 22, 2015 

Business 360-29, Low oil prices and energy development in South Asia, October 25, 2015

Business 360-30, Freedom to trade in South and East Asia, October 29, 2015
Business 360-31, SAARC, RCEP and free trade, December 23, 2015

BWorld 29, Paris COP's emission cut targets vs. energy needs, December 06, 2015 

Energy 50, Cheap oil, natural gas and coal prices, December 15, 2015

Business 360-31, SAARC, RCEP and free trade

* This is my article in Business 360 magazine in Kathmandu, Nepal, December 2015 issue.
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SAARC, RCEP and free trade

Free trade is beautiful. A seller decides the price that he/she thinks will optimize the sale of goods and/or services. A buyer comes and if he/she thinks the price is commensurate to the quality, he/she gets it, or walks away to find another seller who will give him/her good value for money. Things happen voluntarily, little or no coercion involved. Trade can happen only if it benefits both parties and hence, public welfare is served.

Elevate the scene at the international or  global level and the same principle happens. Trade can happen only if it benefits both the sellers and consumers overall. Otherwise, there  is temporary “market failure” where supply does not need demand or vice versa, until market solution involving new pricing and product/service quality comes in.

Free trade negotiations at the World Trade Organization (WTO) keep dragging into minor and not-so-significant changes despite years of talks, meetings and what some people say as frequent “junkets”. Thus, bilateral and regional talks and free trade agreements (FTAs) and economic partnership agreements (EPAs) arose.

These FTAs and EPAs are not exactly “free trade” deals because there are still so many preconditions and protectionist measures involved. With human and economic  evolution through time, member-countries of such FTAs are moving towards real free trade in  the future.

One such regional FTA is the South Asian Association for Regional Cooperation (SAARC) composed of eight countries – Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka. Potential members in the future are China, Myanmar, plus other observers: Iran, Japan, Mauritius, S. Korea, Australia, EU, US.

SAARC was formed to promote peace, stability, progress and economic cooperation in the region. Among the mechanisms to attain this goal is the establishment of the South Asia Free Trade Area (SAFTA) where traded goods among member-countries will have zero customs duties by 2016.

The 5^th column, exports expansion over the past 14 years, is not part of the ADB report and is added only in this paper.

There is a huge disparity in trade performance in the association as two countries have expanded their exports more than six times (6x) while four countries were still unable to  export more than $1 billion in 2014.

Another regional trade agreement is the ASEAN FTA (AFTA) composed of the 10 member-states of the Association of South East Asia Nations (ASEAN): Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam.

The creation of the ASEAN Economic Community (AEC) by end-December 2015, zero export duties among member-states, will be a huge market market of around 620+ million people, slightly higher than the combined population of the US + EU.

A bigger FTA is the Regional Comprehensive Economic Partnership (RCEP) composed of all ASEAN countries + 6 partner economies: China, Japan, S. Korea, India, Australia and New Zealand.

Table 3. Merchandise exports of the 6 ASEAN partners in RCEP, in $ Billion

	2000	2005	2010	2014	Expansion, 2000-2014
China	249.20	761.95	1,577.75	2,342.75	9.4x
Japan	479.32	595.70	767.82	689.92	1.4x
S. Korea	172.27	284.42	466.38	572.66	3.3x
India	45.30	103.50	255.09	317.07	7.0x
Australia	63.98	106.21	212.03	239.74	3.7x
New Zealand	13.29	21.70	31.36	39.43 #	3.0x
* Hong Kong	201.86	289.32	390.13	473.65	2.3x
* Taiwan	151.46	198.17	273.59	312.50	2.1x

# New Zealand, 2013 data

RCEP is looking at a semi-FTA among the 16 countries by 2015.

It may sound ironic that socialist governments in China and Vietnam were able to maximize their integration with global capitalism that they experienced exports expansion of 10x and 9x respectively, in just 14 years.

Some national laws and taxes like gross sales tax (GST) or value added tax (VAT) can distort a free trade policy. For instance in the Philippines, while most imported goods are levied with zero to three percent import duties, they are slapped with 12 percent VAT and that immediately raises the price of previously cheap imports. Lots of oil smuggling in the country for instance, is done not so much to avoid the one or three percent import duties for oil products, but to avoid the 12 percent VAT.

Asian people may consider the policy of unilateral trade liberalization over the long-term. Trade with no political preconditions, no prolonged trade negotiations and disputes. Such policy has been practiced by some dynamic economies like Hong Kong and Singapore.

All goods are allowed at zero tariff, except for a few regulated items like guns, bombs, poisonous substances, fake medicines, disease-tainted meat products, and so on.

We are far from that ideal trade policy, so we have to live with the reality of continued intervention by governments in trade like SAFTA, AFTA  and RCEP. These trade alliances are better than economic nationalism and protectionism. 

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See also:

Business 360-27, Public health in Asia, July 18, 2015 

Business 360-28, FDIs in South and East Asia, August 22, 2015 

Business 360-29, Low oil prices and energy development in South Asia, October 25, 2015

Business 360-30, Freedom to trade in South and East Asia, October 29, 2015

Business 360-30, Freedom to trade in South and East Asia

* This is my article in Business 360, published in Kathmandu, October 2015 issue.

Freedom to Trade in South and East Asia

The freedom to sell one’s extra output and services, and the freedom to buy other people’s goods and services, is part of human nature. Humanity’s economic, social and cultural advancement from the primitive to modern times was made possible only with their freedom to trade and freedom of entrepreneurship and innovation.

There are various measurements of freedom to trade of countries today. One of which is Fraser Institute’s Economic Freedom of the World (EFW) annual reports.

The EFW is composed of five areas: (1) Size of government, (2) Legal system and property rights, (3) Sound money, (4) Freedom to trade internationally, and (5) Regulation.  And area 4 is composed of four sub-areas, shown in the tables below.

The EFW employs a scoring system of 0 to 10, where zero is totally unfree and 10 means there is full economic freedom.  Thus, high revenues from trade taxes, high tariff, wide variations and deviation of tariff rates mean low score. And more regulatory barriers, more NTBs also mean low score, low degrees of economic freedom for entrepreneurs.

In South Asia, Nepal and Bangladesh have scored better than India, Sri Lanka and Pakistan. Nepal in particular scored 122^nd out of 157 countries. It ranked high in sub-areas (a), and average or mean tariff rate with just 12.2 percent, but it scored low in sub-areas (b) regulatory trade barriers and in (d) controls  of  movement of capital and people.

India ranked high in revenues from trade taxes and mean tariff rate, but was pulled down by big standard deviation of tariff rates, and controls of movement of goods and people.

Source: Fraser Institute, EFW 2015 Report,

http://www.freetheworld.com/2015/economic-freedom-of-the-world-2015.pdf

To serve as comparison, four ASEAN countries are also studied. The 10 countries in the ASEAN generally have low tariff rates, with scores of 8 to almost 10 (Singapore and Brunei). This is a reflection of the accelerated trade liberalization in goods in the region.

There are problems of course, like having wide variations and high standard deviations in tariff rates, like Singapore, Malaysia, Thailand and Vietnam; they scored below 6.

The 9 countries above except Singapore and Malaysia scored below 6, rather low, in NTBs. EFW used data from the WEF’s Global Competitiveness Report, survey on NTBs.

ASEAN countries generally have low tariff rates, with scores of 8 to almost 10 (Singapore and Brunei). This is a reflection of the accelerated trade liberalization in goods in the region.

But there are problems too, like having wide variations and high standard deviations in tariff rates, like Singapore, Malaysia, Thailand and Vietnam; they scored below 6. EFW used data from the WEF’s Global Competitiveness Report, survey on NTBs.

Possible lesson for Asian economies, continue reducing import tariff rates….

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See also:

Business 360-26, Nepal earthquake and lessons from it, July 12, 2015
Business 360-27, Public health in Asia, July 18, 2015 

Business 360-28, FDIs in South and East Asia, August 22, 2015 

Business 360-29, Low oil prices and energy development in South Asia, October 25, 2015

Free Trade 54, Eco-protectionism at APEC 2015 meeting, September 28, 2015 

Free Trade 55, TPP Agreement, finally, October 06, 2015