Sunday, March 6, 2016

Weekend reading links

1. From The Economist on India's e-commerce marketplace,
In the next 15 years India will see more people come online than any other country. Last year e-commerce sales were about $16 billion; by 2020, according to Morgan Stanley, a bank, the online retail market could be more than seven times larger. Such sales are expected to grow faster in India than in any other market. This has attracted a flood of investment in e-commerce firms, the impact of which may go far beyond just displacing offline retail.
I am not sure of this simple linear extrapolation of the market size, prompted by China's 600% expansion in the 2010-14 period. The underlying assumptions about the size of the Indian middle class and the ability of squeezing large incremental value once customers are captured are largely questionable. And the price sensitive nature of the majority of customer base means that phasing out the discounts may lead to large attritions. 

2. Fascinating long forms in FT on 'land grabs' across Ethiopia, Indonesia (where deforestation loses 100,000 soccer pitches of dense rainforest each year), and Myanmar. The Myanmar essay is about a 4000-acre special economic zone with 'deep sea port' facilities being built involving mainly Chinese firms at Kyaukphyu, which is being touted as a 'mini-Singapore', potentially providing a trade corridor between China, Africa, and the Middle East. Kyaukphyu is also the origin of a nearly 800 km twin gas and oil pipelines, each a meter wide, landing in China's Yunnan province and a gas terminal off its coast.

The gas pipeline project started operations in 2013 and oil pipeline in 2015. Its geo-strategic importance for China is immense,
Kyaukphyu links the Middle Kingdom to seaways towards south Asia, Africa, the Gulf and beyond. It cuts the long and sometimes perilous journey round the Strait of Malacca, which has long been a piracy hotspot. It also reduces China’s reliance on this crucial channel, to which the US Navy has access through its Southeast Asian regional allies.
The project has aroused resentment in the area among locals who were forced to give up their land without any transparent and fair compensation and rehabilitation process. As one of the workers said, 
I work as a casual labourer on my own land. I am doing it just to survive... I can only eat when I work now. I have to wish that someone will ask me to come and work for them. When I had my own land, I didn’t have to feel that way.
3. An investigation by the Competition Commission of India (CCI) finds that the five biggest tyre manufacturers, who  control 83% of the market, were guilty of cartelization in the 2011-12 to 2013-14 period. Business Standard points to the CCI report,
Despite a significant decline in input costs, particularly in 2012-13 and 2013-14, prices were kept higher, which could not have been possible without an agreement among these companies. The presence of conducive conditions in the market facilitated a cartel among the companies... Despite slack tyre demand in in 2012-13 and 2013-14, the companies were able to significantly enhance operating margins, a strong indication of coordinated action... The increase and decrease by similar magnitude during 2011-12 to 2013-14 indicated tyre prices moved in tandem.
Such anti-competitive practices are pervasive in India's corporate sector and rarely get the attention that they deserve. 

4. The Dutch Institute which monitors international trade has reported an alarming 13.8% decline in global trade value in 2015 on the back of a 40% decline in oil prices and 14% in that of other commodities, coupled with weakness in China. 
A few interesting trends. One, even as the dollar value of international trade has declined, its volumes have remained on the upward trend. Second, in fact since 2005, growth in international trade volumes have remained ahead of industrial production (or value added in mining, manufacturing, and utilities). Third, the decoupling in value terms between industrial production and world trade. 

The big disturbing trend, evident since mid-2014, has been the declining value of international trade, even as industrual value addition has been rising. 

5. Livemint reports that India has emerged as the world's largest PE and VC investment destination, attracting $22.4 bn in 2015, the highest ever, and a 47% increase over 2014. 
A vast majority of these investments are focused in ecommerce, real estate, and IT sector. Unlike the rest of the world, investments in distressed assets is a very small proportion of the investments in India and venture capital investments have tended to dominate. Given the perilous state of the banking sector and the large pool of leveraged buyout (LBO) dry powder available with PE firms, as well as the limited depth of India's financial markets to absorb and restructure large volumes of stressed assets, it may be a good idea to encourage PE investments in asset resolution. 
Such PE funds would bargain hard, force large haircuts, and would naturally raise concerns about asset stripping and windfall gains. The absence of adequate regulatory oversight and systemic weaknesses amplify those concerns. But given their expertise in structuring and managing leveraged buyouts of stressed assets across the world, it is surely an experiment well worth the cost.

6. Finally, Edward Luce,
Nations, it seems, suffer from similar disorders to humans — what happens in their formative years shapes their character for evermore. Just as India sees foreign investors as potential colonisers, and Britain confuses Brussels with the papacy, so the US is enchained to its original sin of slavery. Half a millennium after the first Africans were shipped across the Atlantic, the US still has one foot in its past.

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