Saturday, June 25, 2016

Weekend reading links

1. On the US Pharma industry,
A recent Plos One study found that about 36 percent of all new drugs approved in the United States between 1988 and 2005 were protected solely by secondary, or trivial, patents.
There are as many as 8.2m assault-style weapons at large in the US, which almost certainly exceeds that of any uniformed armoury in the world, barring the Russian and Chinese militaries. That is without mentioning the more than 300m estimated smaller firearms in US homes.
3. Is Uber leading a race to elimination in the car aggregator market? The company plans to undertake more fund-raising, bringing its total mobilization to $15 bn since starting out in 2009 and its valuation to $68 bn, and it has no plans in the foreseeable future to go public. To put this in perspective, when Amazon went public in 1997, it raised $54 million and was valued at $438 million! So what is the game plan?
Every time Uber raises another $1 billion, venture capital investors and others may find it less attractive to back one of Uber’s many rivals: Didi Chuxing, Lyft, Gett, Halo, Juno. In other words, Uber’s fund-raising efforts have seemingly become part of the contest: It’s not just a rivalry over customers and drivers; it’s a war of attrition, a mad scramble to starve the competition of cash. At the moment, Uber’s success has had the opposite effect: It has spawned a long list of rivals, big and little guys who say, “We can do it too.” But over time, as the smaller competitors run out of cash — after heavily subsidizing riders in an effort to steal business from Uber — venture capitalists should be less inclined to put up even more cash to go up against Fortress Uber. 
Uber’s fund-raising arms race comes against the backdrop of falling valuations for many Silicon Valley unicorns — private companies worth $1 billion or more. So there’s clearly a rush to take the money while it’s still available... So far, Uber is clearly winning the valuation game: It is worth more than virtually all of its rivals combined... Uber is currently on track to lose about $2 billion annually in China and India as it heavily subsidizes customers and drivers to gain market share.
This is clearly a race to the bottom, where only those with enough firepower will survive. But the end game could turn out different than anticipated, especially if the markets itself shrinks considerably once the subsidies are removed. 

4. More on this from this fascinating essay on Uber's challenges in China, where Didi Kuadi dominates, and where ride-sharing apps and aggregators are still not fully legal, and Uber China is an independent entity,
Typically, Uber takes a cut of about 25 per cent of the passenger’s fare and passes the rest of the fare on to the driver. Costs are kept low because Uber doesn’t employ the drivers, or own the cars. However, in China, Uber pays drivers a multiple of the passenger’s fare, meaning that the company loses money on most rides. Other Chinese ride-hailing companies employ a similar strategy... Many drivers for Uber say they would not be driving if it weren’t for the bonuses, while passengers also say they would ride less if the services became more expensive... While Uber’s services include luxury cars, cheaper rides are a bulwark of Uber’s business in China. Uber’s carpool service, with fares as low as Rmb2 (21 pence) accounts for more than half of rides in several key cities... removing subsidies altogether will not be easy. Examples from other markets show that heavily subsidised businesses sometimes just evaporate once the subsidies disappear. The taxi-hailing business of Didi and Kuaidi, which was initially fuelled by subsidies, is now a tiny fraction of their merged business and generates no revenues. Smaller ride-hailing companies in other markets, such as EasyTaxi in Jakarta, found that their business dried up completely when subsidies ended.
5. Livemint points to an India Ratings report on the asset quality of the country's top 500 corporate borrowers. It classifies their loans into four categories - stressed, elevated risk of refinance (ERR), medium ease of refinance (MER) and high ease of refinance (HER). The stressed loans form a counter-party to the Rs 5.8 trillion stressed loan book of the country's banks as on end-March 2016. The report says,
240 of the top 500 borrowers belong to the stressed and ERR (elevated risk of refinance) categories and will remain exposed to significant refinancing risk during FY17. These 240 borrowers hold about 42% of the total outstanding debt of Rs.28.1 trillion i.e. Rs.11.8 trillion, of which Rs.5.1 trillion is stressed and another Rs.6.7 trillion falls in the ERR (elevated risk of refinance) category
 And the larger share of refinancing requirement in 2016-17 is for stressed and ERR loans.
6. Livemint, again, points to the elevated debt to equity ratios and decadal low of return on equity on 303 manufacturing firms in the BSE 500.
One observation from this is that indebtedness is pervasive among the country's corporate and not the exclusive preserve of infrastructure firms.

7. Livemint feels that the "key to affordable and egalitarian housing ought to unlock India’s vacant houses first". As per census 2011, there were 2.47 vacant houses in India, or 90% of the number of rented houses in the country.
8. The Times points to the latest EPI study of income inequality in the US. The picture is very alarming.
Between 2009 and 2013, for example — a period that encompasses most of the post-Great Recession era – the top 1 percent captured all of the income growth in 15 states (Connecticut, Florida, Georgia, Louisiana, Maryland, Mississippi, Missouri, Nevada, New Jersey, New York, North Carolina, South Carolina, Virginia, Washington and Wyoming)... In all, the top 1 percent in the United States captured 85.1 percent of total income growth from 2009 to 2013. In 2013, the 1.6 million families in the top 1 percent made 25.3 times as much on average as the 161 million families in the bottom 99 percent. Those and other figures are reminiscent of conditions in the Roaring Twenties. In 1928, the peak year of that decade’s boom, the top 1 percent took home 24 percent of the nation’s income. In 2013, the top 1 percent nationally took home 20.1 percent of all income, while in five states (New York, Connecticut, Wyoming, Nevada and Florida) the income share for the top 1 percent exceeded the peak from 1928.
9. Bloomberg points to the shifts in the source and volume of US oil imports.
While Canada has become the country's largest source of oil imports, Middle East continues to play an important role.

10. The World Bank's latest report on Private Participation in Infrastructure (energy, transport, and water projects) in low and middle-income countries reveals that total investment in 2015 was $111.6 bn, compared to $111.7 bn in 2014 and $124.1 bn over the previous five years. Transportation and energy, as usual, dominated the investment destination by sector. Excluding Brazil, China, and India, investment rose 92%, on the back of Turkey’s US$35.6 billion IGA Airport (New International Airport) investment commitment. Solar energy investment rose 72% over the previous five-year average to reach US$9.4 billion and renewables captured nearly two-thirds of energy investments with private participation.
11. Ian Bremmer has this nice illustration of the web of geopolitical relationships in the Middle East.
12. Finally, on the Brexit vote, one commentator in the FT draws attention to the class divide by arguing that "the lower down the social and educational ladder you descend the greater likelihood that someone will have voted to Leave, while the best markets for Remainers is having a degree and being aged 18-29". This class divide largely replicates itself in the rise of people like Donald Trump and anti-Establishment and Far Right parties across continental Europe. But the British vote must be among the most surprising outcomes of the populist backlash against globalization, cross-national integration, and economic liberalization.

In any case, now the challenge would be about firming up the British relationship with the EU. In order to send out a strong signal to potential similar exits, the EU leaders would want to ensure that the costs of an exit are prohibitive enough. An accommodative exit for UK could encourage similar movements in other member countries. Here is a good graphic of the options available.
Another concern would be the dynamics of independence movements in Scotland, surely, and maybe Northern Ireland. The Brexit vote could well be the starting of the dissolution of the United Kingdom.

While the British exit would undoubtedly set back the European project, if the continent can weather it without further member exits or substantive reversals, it may well strengthen the Project's multi-track pathway towards integration.

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