1. Times has a very good article that highlights the Faustian bargain Indonesia has struck with Chinese Nickel mining companies - invest, extract, and process nickel and create jobs and increase local incomes and tax revenues, but in return comes pollution and social strife.
The scale of mining operations in Sulawesi is immense,
Much of the nickel was headed north to the Morowali Industrial Park, an empire of 50 factories sprawling across nearly 10,000 acres that operates like a gated city, complete with a private airport, a dedicated seaport and a central kitchen that churns out 70,000 meals a day. The park was officially created in 2013 through an agreement announced by Indonesia’s then-president, Susilo Bambang Yudhoyono, and President Xi Jinping of China. China Development Bank provided a loan of more than $1.2 billion.Roughly 6,000 workers from China live in dormitory blocks, their laundry drying from railings. Visiting Chinese executives sleep at a five-star hotel run by Tsingshan, a Chinese company invested in a smelter that makes elements for electric vehicle batteries. Its restaurant, which serves dim sum and rice porridge, looks out over trucks disgorging cargo on the pier. Five million metric tons of nickel ore is spread on a hillside above the port — a stockpile on a cosmic scale. A structure the size of several airplane hangars holds mountains of coal waiting to be fed into the park’s power plant to generate electricity.
Unsurprisingly the presence of the large contingent of Chinese workers in all these factories has sparked local discontent. All high paying jobs are with the Chinese, and the locals are confined to lower level jobs.
2. From a new working paper by Ejaz Ghani and others, who use data from the RBI to study the impact of India's national highways, Golden Quadrilateral, on finance-dependent activities.
Loan volumes increase by 20-30% in districts along GQ and are stronger in industries more dependent upon external finance. Loan growth begins with increases in average branch size and in places with more pre-GQ loan activity. New branch openings come later, consistent with short-run adjustment costs to expanding branch networks. These patterns are not evident in placebo tests using delayed investments in NS-EW highways. Results suggest the depth of initial financial infrastructure shapes how infrastructure investments impact localities...
Motivated by the promise of using infrastructure to reduce disparity across regions, many policy makers ask a question along the lines of "build it and they will come?" Our analysis of the GQ experience suggests a nuanced answer. To begin, the very rapid and substantial response in loans in precisely the industries and locations predicted suggests a strong elasticity in the supply of credit to meet demand enabled by the GQ. However, we also find descriptive evidence that initial credit supply growth is tightly linked to places where banking loans were already happening before GQ. This suggests that understanding how finance responds to infrastructure may be key to understanding the distributional effects of infrastructure investments. If adjustment costs are substantial, the complementarity between finance and infrastructure can exacerbate, rather than attenuate, pre-existing differences in economic activity prior to infrastructure investment, at least in the short run.
3. On the magnificent seven
So far this year, the combined group — Apple, Microsoft, Google parent Alphabet, Amazon, Tesla, Nvidia and Facebook parent Meta — are responsible for three-quarters of the S&P 500’s gains.
4. Devangshu Datta writes about the collateral benefits of space exploration programs
We bounce radio, television and telecom signals off satellites as a matter of course. Global communications and entertainment depends totally on satellites... Weather prediction and hurricane warnings are also a direct payoff from the space presence. Solar power systems were also first developed for space. Telemedicine and its tools were built to enable doctors sitting on the ground to track the health of astronauts in space. The equipment in a modern gym was initially designed for use in space. Urban water supply and sewage systems use recycling methods developed for human waste recycling in space. The same applies to plumbing in airliners and trains. Ditto for air filtration systems to capture and clean up carbon dioxide. The geolocational technologies we use in our cars, and the mapping tools that help line up power lines, align road designs, and track the number of buildings in a city, were also developed for space and rely on satellites. Other cutting-edge technologies like robotics, autonomous vehicles, laser power, computing hardware and software, exotic alloys, and ceramics that provide heat and radiation shielding, were all developed to enable space exploration. Space has contributed hundreds of other off-the-shelf technologies, which we use on a daily basis.
5. Important snippet from the recently concluded BRICS summit in South Africa,
Indonesia, a natural Brics candidate in economic terms as the world’s fourth most populous country and South-east Asia’s largest economy, also appears cautious about adhering to an increasingly China-dominated club. Jakarta was set to be among this week’s invitees, but declined to submit its interest as President Joko Widodo’s government debates whether to join, despite fast-growing economic ties to other members.
All the six additions - Argentina, Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates - are very close to China.
6. Consumption of textiles, and especially fast fashion, has the fourth highest adverse impact on the environment. It's estimated that the average European throws away 12 kg of clothes every year. From an FT long read
But it is the rise of ultrafast online retailers that has led to an unprecedented volume of cheap, poor-quality clothes made from virgin polyester and other synthetic fabrics derived from fossil fuels. These items have little to no resale value and end up being incinerated or languishing for hundreds of years in landfills, usually in developing countries. Global textile production, of which 81 per cent is used by the clothing industry, nearly doubled between 2000 and 2015. Consumption of apparel and footwear is expected to grow another 63 per cent between 2022 and 2030 to 102mn tonnes, predicts the European Environment Agency. The glut of low-priced clothes has contributed to a culture in which consumers increasingly think of them as disposable. More than half of all fast fashion is discarded in less than a year, according to the Ellen MacArthur Foundation, a non-profit that campaigns against waste and pollution. If the average price on an item sold by Shein is about $7.60, for example, it becomes more convenient for consumers to buy new than to repair existing clothing or buy second-hand.
But there are changes afoot in the fast fashion industry. In order to meet its climate target of net zero emissions by 2050, the EU has announced an Extended Producer Responsibility (EPR) scheme that mandates all imported textile products by 2030 should be "long-lived and recyclable, to a great extent made of recycled fibres, free of hazardous substances and produced in respect of social rights and the environment".
6. Diabetes drug maker Novo Nordisk has hit gold with two weight loss drugs Ozempic and Wegovy, that have been proclaimed revolutionary in the field of obesity. And the company's revenues are reshaping the Danish economy.
The company’s booming success now explains almost all of Denmark’s recent economic growth, and the surge in overseas sales in the drugs is prompting the Danish central bank to keep interest rates lower than it otherwise would, economists say. In the past few weeks, Novo Nordisk’s market value has exceeded the size of the Danish economy. Its soaring share price has made it the second most valuable public company in Europe, after the luxury goods group LVMH. The company’s shadow is so expansive that Danish economists are now debating whether the country needs to publish another set of economic statistics that strips out Novo Nordisk. In other words, there’s Novo Nordisk, and there’s the rest of the economy...Last year, two-thirds of Denmark’s economic growth could be attributed to the pharmaceutical industry... The Danish economy grew 1.9 percent over that period, with 1.7 percentage points of that contributed by pharma... Denmark is the home of other pharmaceutical companies, but Novo Nordisk has far outpaced them. The company’s revenue last year was about 10 times that of the next largest Danish pharmaceutical company, Lundbeck... its new weight-loss drugs are now heavily prescribed, particularly in the United States. The U.S. Food and Drug Administration approved Ozempic as a diabetes medication in 2017; the agency approved Wegovy in 2021. Novo Nordisk’s profit surged 45 percent to 39 billion Danish kroner, about $5.7 billion, in the first half of the year... Even though Denmark’s pharmaceutical industry has had a substantial impact on economic growth data, there hasn’t been a corresponding increase in employment. Over the past five years, the industry has added 3.4 percentage points to Denmark’s growth but just 0.1 points to employment.
This has naturally posed concerns of Dutch Disease and comparisons with Nokia and the Finnish economy
With all this money being made, and expected to be made, in the United States, economists say there is an influence on Denmark’s currency. “You have companies, such as Novo Nordisk, that have a greater need for exchanging foreign currency into Danish kroner, then you start to see an upward pressure emerge on the Danish krone,” Mr. Pedersen of Danske Bank said. But Denmark keeps the krone pegged to the euro, so when the krone rises in value, “the central bank has to respond,” he added. The central bank has been spending kroner to buy foreign exchange and building up reserves. Because of these purchases, the central bank has also increased the gap between Denmark’s interest rates and the ones set by the European Central Bank. By keeping the Danish interest rate slightly lower than the one in the eurozone — currently 0.4 percentage points lower than the E.C.B.’s rate — it should discourage foreign investors from holding the krone...
Some economists in Denmark worry that the country could become too dependent on Novo Nordisk, with fretful comparisons to the fate of the Finnish economy when Nokia lost its dominancein the cellphone industry. There are also concerns that so-called Dutch disease could come to Denmark, said Helge J. Pedersen, the chief economist at Nordea, referring to the economic phenomenon when a country suddenly experiences a large increase in income, which is seemingly good economic news, but it actually has a negative effect on the rest of the economy.
This is a good long read on the popularity of Ozempic and Wegovy.
In the meantime, Novo Nordisk eclipsed LVMH as Europe's most valuable company.
Novo’s success with Wegovy has increased the value of its shares more than fourfold since 2018. The company’s market capitalisation hit an even higher peak — of $423bn — in August after the company published trial data showing that Wegovy reduced the risk of serious cardiac events like heart attacks by 20 per cent.
7. Who's displacing the Chinese imports into the US?
But there may be a sub-plot to the apparent decline in Chinese exports to the US
Both Mexico and Vietnam have themselves been importing more products from China, and Chinese direct investment into those countries has surged, indicating that Chinese firms are setting up more factories there. The trends suggest that firms may simply be moving the last steps in their lengthy supply chains out of China, and that some companies are using countries like Vietnam or Mexico as staging areas to send goods that are still partly or largely made in China into the United States...
The countries that were able to capture the market share lost by China were those that already specialized in making the products that were subject to tariffs, like electronics or chemicals, as well as countries that were deeply integrated into China’s supply chains and had a lot of trade back and forth with China, Ms. Caroline Freund said. They included Vietnam, Mexico and Taiwan. “They’re also increasing imports from China, precisely in those products that they’re exporting to the U.S.,” she said.
8. Fascinating read in FT on the expanding size of wind turbines.
The 169 wind turbines spinning off the Yorkshire coast are an engineering feat: each eight-megawatt model erected by Danish developer Ørsted can power a home for 24 hours with a single rotation of its 81-metre turbine blades. Dozens of miles north, rival wind farm developer SSE is already upping the ante with its newest turbines, where a single rotation of the 107-metre blade can power a home for two days. The jump in turbine size in the offshore wind industry, where blades can reach higher than New York’s Rockefeller Center and provide electricity for millions of homes, reflects the fierce race for scale over the past decade or more...
From the early models in the 1990s of less than one megawatt, turbines are now being developed with a capacity of 18MW or more, with blades longer than football pitches supported by towers rising more than 100 metres above the water’s surface. Getting more electricity from each turbine has helped push down the costs of energy from wind by 60 per cent during the decade to 2021, according to the International Renewable Energy Agency.
This however has now started to create diminishing returns on all sides as technical risks, logistics problems, and commercial viability concerns surface,
The rapid pace of development brings its challenges, however, for example for makers of the vessels installing the turbines as well as other parts of the supply chain that need to adapt to the huge increases in size and weight. “You are [now] talking about nacelles [part of the turbine] weighing 800 to 1,000 tonnes,” said Anders Nielsen, chief technology officer at leading turbine manufacturer Vestas. “You need to reinforce the quayside [to cope].” A report from consultants Wood Mackenzie this month said that about half of the world’s installation vessels are set to retire because they are not designed to cope with the newer turbine models, with about $13bn of investment needed for replacements.
In any case, this expansion in size has had the effect of pushing down wind power prices, like with all other renewable sources.
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