1. Brett Christophers has a very good article which links to several examples of infrastructure funds and private equity ownership of infrastructure assets gone wrong. It has become conventional wisdom that governments should stay out of infrastructure and should, at best, use public finance to de-risk projects so that private investors can come and invest. The main source of private investment in infrastructure is nowadays from infrastructure funds. Christophers writes that the number of global infrastructure focused funds rose from fewer than 100 in 2016 to more than 250 by 2020, with the total assets under management having quintipled since 2009.
Led by Macquarie, an Australian financial services group that is the sector pioneer, asset managers began investing substantially in Asian and European infrastructure in the early 1990s. Today, in countries such as South Korea and Britain, infrastructure funds are the leading owners of major infrastructure assets in a range of sectors, among them energy, transportation and water.The story of asset-manager-led infrastructure investment is overwhelmingly a negative one. Asset managers are focused on optimizing returns on the assets they control by maximizing the income they generate while minimizing operating and capital costs. Many users of infrastructure that has come under asset manager ownership have suffered, as service rates have risen quickly and service quality has deteriorated. Nowhere is this better illustrated than in Britain. There, numerous types of infrastructure have come substantially under asset manager ownership. This has led to consistently negative outcomes in, for example, care facilities, schools and water supply. Many observers have concluded that essential infrastructure and asset manager ownership simply don’t mix.And in South Korea, Macquarie’s eight-year investment in Metro Line 9, part of the Seoul subway system, involved a bitter spat with the metropolitan government over a proposal to hike fares by nearly 50 percent. That led Macquarie and other shareholders in 2013 to unceremoniously sell their stake, in what commuters came to call the subway line from hell. Local critics charged Macquarie with taking excessive profits without assuming any risk, an accusation that has been a consistent drumbeat accompanying the phenomenon of asset manager infrastructure investment around the world. Macquarie said that it is committed to its operations in Korea and that its Korean infrastructure fund is a “passive financial investor” that has cooperated fully with the city of Seoul.The story has been much the same when housing is owned by asset managers. There have been allegations of skimped maintenance and egregious eviction practices in some areas. Such outcomes have been reported in Spain, for example, a notable hot spot of asset manager investment in housing since the global financial crisis, by a series of academic researchers. If the United States has been a relative laggard in asset-manager-owned infrastructure, it has been in the vanguard of asset-manager-owned housing.
2. Productivity booms lag behind inventions.
3. FT feature on South Africa's izinyoka's or copper thieves who steal for survival or to maintain drug addiction.
Copper was the new gold, as far as their gang was concerned, and anywhere it could be found was fair plunder. Theoretically, the sale and export of scrap copper is carefully controlled by South African officials. But the properties that make it the world’s third most-used metal also make copper a smuggler’s dream. Malleable and recyclable, it is easily melted down, after which its origin becomes virtually untraceable. It was February 2021 and prices had hit a 10-year high, reaching $9,000 a tonne on international markets. Any number of unscrupulous dealers would buy the coveted metal, then resell it in South Africa or, more likely, help smuggle it to booming markets in China and India... That made a ragtag group of izinyoka the first link in a lucrative supply chain ultimately controlled by international syndicates... in their time working together, they had all hacked down telephone poles, dug up underground cables and broken into industrial plants. Train stations were a favourite target. By the end of that year, izinyoka had ripped out more than 1,000 kilometres of overhead cable from Transnet, the state-owned freight rail operator, prompting it to contemplate switching from hybrid electric locomotives to diesel-only models that don’t require cabling...In January, the consequences of industrial-scale theft in South Africa included: three security guards killed during heists; three hospitals scaling back operations because stolen copper plumbing hampers their ability to pipe oxygen to intensive care units; trains cancelled due to stolen signalling cable or track sleepers; parts of the city going without electricity for days after thieves toppled pylons. Mining, South Africa’s largest industry, has been severely disrupted. Pits across the country churn up gold, gemstones, rare earth metals and coal, and the country is home to about 90 per cent of known deposits of platinum, vital for electronics and electric vehicles. One morning in March, a platinum operator discovered 300 metres of copper cabling had been stolen from a production site. Workers at Royal Bafokeng Platinum laid new cables the following day, but the thieves were back by nightfall... City Power, Johannesburg’s main power utility, reported the cost of replacing cables stolen between July 2022 and February this year at R380mn ($21mn).
4. Edward Glaeser and Carlo Ratti write about reviving New York City, which like other cities around the developed world is facing large office vacancies in the aftermath of the pandemic
New York needs to attract the rich and talented, but the poem beneath the Statue of Liberty reminds us that the city’s greatness comes just as much from being the landing site for “your tired, your poor, your huddled masses” that it is now pricing out. One way to balance these two governmental imperatives — to help the poor and generate tax revenue from the affluent — is to view the city as a for-profit real estate development company wholly owned by a nonprofit poverty-alleviation entity. The for-profit company focuses on keeping the city attractive to the rich, and the revenue it generates gets plowed into schools and support for the poor.
This about how the office spaces can be converted into residential spaces and people brought back to the streets
Modern office towers have deep floor plans meant to maximize square footage, but units in residential buildings need windows and their natural ventilation and daylight. To achieve conversion at scale, we must therefore look past the architecture of the traditional apartment. Deep-core office buildings could be converted into new kinds of spaces optimized for co-living and co-working. Bedrooms, with windows, could line the perimeter while common areas for cooking, laundry, work, exercise and socializing could fill the middle. Such arrangements could also help meet one of the social challenges of our time: loneliness... The urban playground should be constantly rearranged: Streets could be cleared for weekends, annual festivals and temporary exhibitions; food bazaars and pop-up shops could multiply. Movie theaters struggle to compete with boundless streaming catalogs available on cheap 4K televisions. More outdoor screenings on summer nights could tip the balance back toward collective experience. These easy interventions are especially useful for garnering public support. To draw people into the Playground City, we need to show, not tell.
5. TSMC is facing a crunch on its most important resource, skilled chip engineers. Taiwan's chip sector employs around 326,000 engineers. There is an acute shortage of chip engineers, with China reporting an estimated shortage of 200,000 engineers.
6. The debate on the proper role of the corporation has a century old echo
Chief executives have been debating the proper role of corporations — to make profits for shareholders or to serve society at large? — for more than a century. The Michigan Supreme Court considered the question in 1919, when the Dodge brothers, as shareholders in the Ford Motor Company, complained that Henry Ford was diverting profits into expanding the business and lowering the price of cars, rather than paying dividends. More than 50 years before Milton Friedman would famously declare that an executive’s responsibility was to make “as much money as possible,” Ford argued the opposite, saying the purpose of a corporation was to increase employment and pay good wages, and only incidentally to make money. The court ruled in favor of the Dodges. Some business leaders sided with Ford. Owen Young, the chairman of General Electric, said in the 1920s that, in addition to paying a “fair rate of return,” corporations had an obligation to labor, customers and the public.
7. Norway is at the vanguard of the shift to electric vehicles
Last year, 80 percent of new-car sales in Norway were electric, putting the country at the vanguard of the shift to battery-powered mobility. It has also turned Norway into an observatory for figuring out what the electric vehicle revolution might mean for the environment, workers and life in general. The country will end the sales of internal combustion engine cars in 2025. Norway’s experience suggests that electric vehicles bring benefits without the dire consequences predicted by some critics. There are problems, of course, including unreliable chargers and long waits during periods of high demand. Auto dealers and retailers have had to adapt. The switch has reordered the auto industry, making Tesla the best-selling brand and marginalizing established carmakers like Renault and Fiat. But the air in Oslo, Norway’s capital, is measurably cleaner. The city is also quieter as noisier gasoline and diesel vehicles are scrapped. Oslo’s greenhouse gas emissions have fallen 30 percent since 2009, yet there has not been mass unemployment among gas station workers and the electrical grid has not collapsed.
8. The Economist has an article which suggests that in relative economic terms China may already have peaked and it may never surpass the US GDP.
Capital Economics, a research firm, argues that China’s economy will never be number one. It will reach 90% of America’s size in 2035 and then lose ground. In so far as the Peak China thesis can be captured in a single projection, this is it. What accounts for the lower expectations for China’s economy? And how much of a reduction is warranted? The answers hinge on three variables: population, productivity and prices. Start with population. China’s workforce has already peaked, according to official statistics. It has 4.5 times as many 15- to 64-year-olds as America. By mid-century it will have only 3.4 times as many, according to the un’s “median” forecast. By the end of the century the ratio will drop to 1.7...
The biggest swing in sentiment relates not to population but to productivity. Back in 2011 Goldman Sachs thought labour productivity would grow by about 4.8% a year on average over the next 20 years. Now the bank thinks it will grow by about 3%. Mark Williams of Capital Economics takes a similar view... As China ages, it will have to devote more of its economic energies to serving the elderly, leaving less to invest in new kit and capacity. What is more, after decades of rapid capital accumulation, the returns to new investments are diminishing...If China’s prices or exchange rate fail to rise as Goldman Sachs expects, then China’s gdp might never overtake America’s. If China’s labour productivity grows just half a percentage point slower than Goldman Sachs envisages, its gdp, everything else constant, will also never surpass America’s (see chart). The same is true if America grows half a point faster (as Capital Economic projects). If China’s fertility rate declines further (to 0.85 children per woman by mid-century), it might eke out a lead in the 2030s only to lose it in the 2050s. Even if China’s economy does become the biggest in the world, its lead is likely to remain small.
9. For all the talk about its decline, The Economist points to some staggering numbers about the American economic progress over the decades, and it continues.
America’s $25.5trn in GDP last year represented 25% of the world’s total—almost the same share as it had in 1990. On that measure China’s share is now 18%... In 1990 America accounted for 40% of the nominal GDP of the G7, a group of the world’s seven biggest advanced economies, including Japan and Germany. Today it accounts for 58%. In PPP terms the increase was smaller, but still significant: from 43% of the G7‘s GDP in 1990 to 51% now... A hundred dollars invested in the S&P 500, a stock index of America’s biggest companies, in 1990 would have grown to be worth about $2,300 today. By contrast, if someone had invested the same amount at the same time in an index of the biggest rich-world stocks which excluded American equities they would now have just about $510...America’s working-age population—those between 25 and 64—rose from 127m in 1990 to 175m in 2022, an increase of 38%. Contrast that with western Europe, where the working-age population rose just 9% during that period, from 94m to 102m... between 1990 and 2022 American labour productivity (what workers produce in an hour) increased by 67%, compared with 55% in Europe and 51% in Japan... TFP in America increased by about 20% between 1990 and 2019. The G7 as a whole averaged less than half that... roughly 34% of Americans have completed tertiary education... Only Singapore has a higher rate... America is home to 11 of the world’s 15 top-ranked universities in the most recent Times Higher Education table.
And some pointers of economic dynamism,
In 2013 a Gallup survey found that about one in four adult Americans had moved from one city or area within the country to another over the past five years, compared with one in ten in other developed countries. About 5m move between states each year... Stockmarket capitalisation runs to about 170% of GDP; in most other countries it comes in below 100%... about half of the world’s venture capital goes to firms in America... 5.4m new businesses started in 2021, an annual record and a 53% increase from 2019... an OECD measure of the personal cost of failure for entrepreneurs consistently puts America and Canada at the bottom... (in the) World Management Survey America sits at the top of their ranking. Fierce competition... helps to explain America’s corporate culture. Bosses are more comfortable with firing employees... Markets are readier to reward companies for evidence that they are well run. America’s managerial strength, the survey finds, explains as much as half of the productivity lead that it has over other developed countries.
10. Novovax struggles with getting countries to comply with their advance market commitments to purchase Covid 19 vaccines. The lack of demand has led to governments either reneging or seeking to renegotiate their AMCs. The same problem is there with other vaccine makers' AMCs too.
12. Indian Express article on Kerala's neighbourhood women's groups, Kudumbashree, that is the largest women's collective in the world and has completed 25 years of existence.
It runs 49,200 micro-enterprises — 31,589 individual units and 17,611 group enterprises. So ubiquitous that in every half a kilometre in the state, you bump into one initiative or the other of Kudumbashree... Kudumbashree’s 46,16,837 members have organised themselves into 3,09,667 neighbourhood groups (or NHGs, called ayalkootam in Malayalam). The neighbourhood group is the primary level unit of Kudumbashree that has a three-tier hierarchy. The next rung is the Area Development Society (ADS) that functions at the level of the ward, followed by the Community Development Society that works at the local government. The NHGs usually begin with thrift and credit programmes, lending money to members using the group’s savings. Subsequently, NHGs are graded and once they qualify, they are eligible for bank loans. These loans address the immediate financial needs of the group members. Subsequently, the state government supplies grants and subsidies, besides administrative support. Banks provide loans to members at low interest rates. The total thrift collected by NHGs in the state, according to Kudumbashree’s website, stands at Rs 5,786.69 crore and the internal loans generated are to the tune of Rs 23,852.45 crore.
This is a striking achievement
Besides social mobility, the movement has armed women with political mobility too. Of the 11,000-odd seats reserved for women, 7,038 were won by active Kudumbashree members in the 2020 local body elections, up from 848 in 2005.
13. Argentina's latest bout of hyper inflation, spike in interest rate, currency collapse, foreign debt default, IMF bailout, economic contraction is on.
Argentina will announce on Monday a new round of emergency government measures, including raising interest rates 600 basis points to 97 per cent, to try to stave off the country’s worst economic crisis in two decades. The Peronist government is desperate to avoid a big devaluation before elections in October. But the South American country is also running out of foreign exchange reserves as Argentines abandon the fast-devaluing peso and embrace the US dollar. Fuelled by money-printing to finance a large government deficit, Argentine inflation hit 109 per cent a year in April, the highest level since 1991. The economy ministry said the new measures, to be announced Monday, would involve the central bank stepping up intervention in the foreign exchange market to try to slow the peso’s fall. Economy minister Sergio Massa is also trying to persuade the IMF to bring forward the disbursement of agreed loans and will travel to China on May 29 to seek greater use of the renminbi in foreign trade.
14. The Business Standard has an article which analysed 10 infrastructure stocks over the last twenty years and found them big wealth destroyers.
Companies in the construction and infrastructure sector have been among the biggest underperformers and wealth destroyers in the stock market in the past 20 years. The sector has also seen a wave of corporate failures and bankruptcies, making it tough for retail or non-promoter shareholders to make money on their investments. The numbers suggest that companies in the infrastructure sector go through a typical boom-and-bust cycle. First, there is a sharp rally in the share price as companies report rapid growth in revenues and profits, but then earnings growth loses steam, triggering a big sell-off in these stocks and a further decline in share prices that lasts for years. For the poor showing by these companies, analysts blame high debt, poor return on capital and equity, and the inability of these firms to sustain growth and earnings when financial and macroeconomic conditions turn adverse.
15. Ghana signs a $3 bn bailout from IMF following defaulting on its $34 billion debt in December last. The IMF estimates another 19 countries in the continent could face the same fate.
The government borrowed heavily to insulate the economy from the effects of the pandemic and may have avoided a recession as a result. But the country’s debt as a percentage of GDP went from 62.7 per cent in 2020 to more than 100 per cent last year, according to finance minister Ken Ofori-Atta. Debt servicing now takes up about 70 per cent of government revenue... The administration stopped charging for mains water and brought in cheaper tariffs on electricity... The government saw an opportunity in leveraging the Covid pandemic to engage in reckless expenditure in view of the 2020 election... Much of the Ghanaian government’s spending took place in a world of low-interest rates. Ghana gorged on cheap money, raising almost $17bn in eurobonds that the Ministry of Finance frequently said were oversubscribed for nine straight years. But as central banks began raising rates to control inflation — the Bank of Ghana has raised rates by 1,250 basis points since March 2022 — Ghana found itself shut out of international debt markets as concerns grew over its ability to repay what it owed. The government has since been forced to rely heavily on a domestic capital market, where interest rates are as high as 40 per cent, and central bank financing of 37.9bn cedis ($3.2bn) in 2022. Some of the money being injected into the economy by the central bank may have helped to fuel inflation.
Historically, Ghana, like Sri Lanka, has been a relative good performer in the region.
16. Finally, Gillian Tett has more data on how bad mobile phone use is on children's mental health.
A group called Sapien Labs, which studies mental health, has polled almost 28,000 18-24-year-olds. Part of Gen Z, Sapien describes this cohort as “the first generation who went through adolescence with this technology”. It’s no surprise that this research shows that Gen Z’s mental state is worse than earlier generations. As psychologist Jean Twenge notes in Generations, teenage mental health has worsened sharply in the past decade, the period after smartphones went mainstream. Covid-19 has exacerbated the problem, according to the Centers for Disease Control and Prevention. What’s most interesting, however, is that Sapien tracked the age at which respondents first got cell phones and compared this with their reported mental health. This showed a clear pattern: kids who received phones at a younger age had worse mental health, even after adjusting for reported incidents of childhood trauma. The share of females experiencing mental health challenges ranged from 74 per cent for those who received their first smartphone at age six to 46 per cent who received it at age 18. For males, the numbers were 42 per cent and 36 per cent... The pattern was particularly stark in one of six mental health categories, known as the “social self”, which tracks how we view ourselves and relate to others.
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