Archive for the ‘Emerging Economies’ Category

Running Naked

Wednesday, December 30th, 2009
I Photographed This Sign at the San Diego Border Crossing

My Photo of the San Diego Border Crossing

“Running naked” refers to the decision to forego insurance for known risks. It is an increasingly popular strategy among states experiencing budget constraints. But it is risky. Pre-financing a natural disaster through insurance is more cost-effective than financing recovery but for governments with falling tax receipts, the temptation to forego insurance arises if probability of a natural disaster is low. Funds spent on insurance premiums are not recoverable, which could lead to regret when funds are diverted from other programs for insurance coverage and the storm season proves mild. To save resources following the credit crisis, states are cutting public reinsurance programs to save premium expense. For example, less than one year after reinsurers paid $1.5 billion in claims related to Hurricane Ike, Texas opted out of its reinsurance program to save premium expense. California soon followed.

Governments typically fund emergency and relief efforts and rebuild public infrastructure after a disaster by issuing debt, raising taxes or reallocating funds from other budget items. These alternatives are considerably more expensive than pre-financing risks, but the states are presumably gambling that the federal government will bail them out in the event of a major natural disaster. European governments have also been cutting their pre-disaster risk bills to alleviate budget strains. But the gamble may not pay off. The U.K. this year experienced unexpected flooding in some parts of central and western England. In any given year, 30% of floods occur in regions that have no prior history of flooding, making the choice to forego insurance a risky one.

Ironically, developing countries are moving in the opposite direction. They face considerably greater challenges, such as the awful trade-off of limited resources and compelling needs to invest in education, health and other infrastructure. To resolve these competing interests, the World Bank structured its MultiCat Program to allow countries to purchase cost-effective coverage through the capital markets for various threats, including floods, earthquakes, hurricanes and windstorms. The first such program was structured in Mexico.

Will the bet pay off? Should a major disaster strike California or Texas, residents of those states will face onerous tax increases if they cannot persuade the federal government to bail them out. But even should the U.S. be lucky enough to avoid a major catastrophe, we are at risk of ceding the lead in financial innovation to other countries.

Severe Blizzard in China Tests Disaster Readiness

Monday, November 16th, 2009
Made in China

Made in China

A massive snowstorm in northern China this past week caused $650 million in damages and killed more than 40 people who died in building collapses triggered by snow and ice or in automobile accidents. This provoked fears that the snowstorm was the result of Beijing’s Weather Modification program to seed for snow and rainstorms, addressing crippling water shortages in China’s arid northern regions.  The program is intended to provide drinking water and water for irrigation, but has provoked concerns as to possible misuse. But experts say that a blizzard of this scale could not have been triggered by cloud-seeding efforts. The more relevant concern is China’s disaster level of disaster preparedness, which certainly elicits raw emotions given the casualties following China’s severe earthquake. It is typically the most vulnerable who suffer the greatest losses, both in human and financial terms, for inadequate disaster preparedness. And they are the ones who lack a basic social safety net, such as insurance. In case you were wondering about the photograph, since I have never seen snow in China, I included this picture I took at a Chinese silk factory. These are the silk coccoons made by worms, but as close a resemblance to snow as I could get!

Typhoon Kills 95 in the Philippines

Sunday, September 27th, 2009
Calm Before the Storm

Calm Before the Storm

A typhoon swept the main island of Luzon in the Philippines, killing at least 95 people and displacing more than 337,000 residents. The event sadly recollects Katrina as delays in the rescue of flood victims provoked public anger towards President Gloria Macapagal Arroyo’s government. Civilian and military rescuers have struggled for two days to reach people stranded on the rooftops of their flooded homes waving for food and supplies. As of this evening, they have rescued more than 5,000 people. The Philippines disaster management agency reported that 68,550 people were housed in 118 emergency evacuation centers. The government is scrambling to get as many boats as it can for use as rescue vehicles. San Miguel, the largest food and beverage company in the Philippines, offered to purchase up to 50 boats for that purpose and the national dragon boat rescue team also contributed to the effort. Although the typhoon wind speeds reached only 85 km/hour, the storm deposited more than a month’s worth of rain in the capital city of Manila in just six hours, causing the flooding. The storm has moved on towards the South China Sea. The government declared a “state of calamity” in Manila and the surrounding areas, closing many schools and businesses.  Particularly for those of us who do business in the Philippines, contributions to the Red Cross and other disaster relief agencies will be welcome.

Microinsurance Partnership in Sri Lanka

Monday, September 21st, 2009

Microinsurance protects very small enterprises against financial ruin from events such as medical emergencies, drought, flood and other natural disasters. Such disasters occur frequently in the developing world; a mudslide in an urban center can eliminate whatever modest shelters slum dwellers had built. Vulnerability to such risks keeps people trapped in the vicious spiral of poverty. They lack basic social protections or any kind of safety net. And as we know from our experience in the U.S., relief aid rarely trickles down.  Microinsurance is complementary to microfinance (the provision of credit) and plays an important role in development.  In Sri Lanka, where less than 1% of the country’s 19 million citizens are covered by insurance, there is strong market potential.  To develop this sector, Janashakthi Insurance PLC announced a partnership with Hannover Re, one of the world’s largest reinsurers, with 8 billion Euros in annual premiums. It will be interesting to see how this market develops and if such products can be successfully exported to low-income entrepreneurs in the developed world.

Natural Disasters in Southeast Asia

Wednesday, September 9th, 2009

Natural disasters continue to devastate smaller enterprises in the emerging market countries, where underdeveloped insurance markets do not provide an adequate safety net. A powerful earthquake struck Indonesia’s main island of Java where the capital city Jakarta is located, causing major destruction. In India, where the summer rainfall was 25% less than normal, the driest spell in nearly 40 years, prices of food from recently-harvested crops have risen by 14.5%. The State Bank of India has responded with a drought relief package, including cuts on lending rates for farms and rural producers. The Bank reduced crop loan interest rates from 11.75 – 12.75% floating rates to 10% fixed. The Bank cut loan rates on irrigation programs from 10.50 – 13.25% to 8 – 9%. Both reduced rates remain in effect through March 2010, with an extra percentage point reduction on interest rates offered for timely repayment.

Typhoon Morakot Threatens China

Saturday, August 8th, 2009
Rough Waters in Southeast Asia

Rough Waters in Southeast Asia

We know from our experience with hurricanes in the Gulf Coast the long-term damage that can be wrought on vulnerable populations. But the consequences are even more devastating to developing countries that have fewer social safety nets for victims of natural disasters. This week, the National Disaster Coordinating Council reported that the tier of Typhoon Morakot killed ten people in the Philippines.  Five casualties were tourists and their guides who were swept into the water. The heavy rains were responsible for more than ten landslides that destroyed or damaged close to 30 properties.  The storm then picked up wind speeds of 92 mph and made landfall in Taiwan where it killed two people and left behind 51 inches of rainfall. The forecast calls for the storm to drop another 39 inches of rain on Taiwan.  The damage caused by the heavy rainfall is amplified by the recent drought that left the ground unable to absorb water, such that flooding results.  China is next in the path of Typhoon Morakot. Chinese authorities have already begun evacuating residents of islands along the coastal storm path.  Let’s hope that the storm does not claim any more lives and we should all be prepared to give whatever we can to relief efforts.

Protecting Your Health on Business Travel

Friday, July 10th, 2009
My UN Passport

My UN Passport

This is a topic I know well and I learned from the best. This image here is the cover of my United Nations Laisser Passer (French for “allow to pass”). It was my diplomatic passport for my work for the United Nations Capital Development Fund. I had served as the Senior Policy Advisor to the United Nations Advisors Group on Inclusive Financial Sectors. This was a successor initiative to the United Nations International Year of Microcredit to follow up on some of the outstanding work, such as dealing with regulatory issues to expand access to financial services for the poor. The position required that I travel to areas of the developing world, as I did for other projects of my business. Owing to the public health concerns of certain of those regions, I had to exercise care and learned from the best – the physicians and nurses at the UN Medical Office. I wanted to share with you some of what I learned from them. This information may help you and your employees enjoy safer business travel.

The first is to be certain to keep at least two copies of your passports, visas, and vaccination records in two different locations, with one at your office, so it can be retrieved in an emergency. Your government’s embassy can help to re-issue your travel documents if your passport is lost or stolen, but it expedites the process if you can produce a copy with your original information. Ditto for your itinerary; make sure at least two people have copies, with at least one in your office. Second, I always travel with a small medical kit, containing everything from bandages to over-the-counter medications. Magellan’s Travel Supplies offers one that is very similar to the one issued by the UN to its staff and contractors. The UN kit also includes a clean needle and syringe, as we often work in parts of the world where conditions are unsanitary and HIV infection rates are high. When working projects in the developing world for clients other than the UN, meaning I did not have access to the UN medical office, I visit a physician who is a specialist in travel medicine and infectious diseases at New York University Medical Center. If you don’t have access to such a specialist, consult the online resources of the World Health Organization to find out about required vaccinations and particular health risks of the region to which you will be traveling so that you can work with your primary care physician to prepare for a safe trip. I always bring lots of protein bars with me, so if there is ever a concern about food safety, I have something nourishing to eat. Of course, they also come in handy when stuck in the airport after hours when the food court is closed. Finally, never drink coffee or tea inflight. Consume only bottled beverages. The water used to brew those beverages isn’t always safe to consume; studies show that one out of every seven aircraft tested had E.Coli in their onboard water systems. Also use a small travel-size hand sanitizer to ensure proper hygiene.

Small Businesses Need to Contain the Spread of Swine Flu

Sunday, April 26th, 2009
We Work in Close Quarters

We Work in Close Quarters

The U.S. has declared a public health emergency to facilitate the shipment of approximately 12 million doses of flu  medications from a federal stockpile to states in case they may be eventually needed. Thankfully, that does not yet appear necessary. As Mexico has reported 86 people died as a result of the swine flu, possible swine flu cases have surfaced from as far away as New Zealand. Canada has confirmed six cases of swine flu and the U.S. confirmed 20 cases in 5 states, all with mild symptoms, who are recovering easily. In both the U.S. and Canada, the confirmed cases appear to have originated with students who had recently visited Mexico.

As the cases of swine flu reported outside of Mexico appear to be mild and have not resulted in any fatalities, public health officials do not consider the flu to be a pandemic threat. Nevertheless, the public should take precautions to contain the spread of the flu virus.  I had the opportunity to discuss this topic, in the context of the SARS threat, when working in Beijing not long ago. Many factories in mainland China experience significant workforce absenteeism owing to SARS-related illnesses. Working remotely is not an option for assembly line workers, but for other factory employees, such as office staff, it might be. Preparing for remote operations, or telecommuting from home, is a precaution that you should take in dealing with less severe threats. If employees don’t have to come to work, where they will be in close contact with other, possibly contagious people, in public transport or in the work place, allowing them to work from home may slow the spread of the illness. Some employees may have to work from home if they are caring for sick relatives.

I wish I had done that this past week. I spent the week in a newsroom where people work in very close proximity to one another. All week long, I had people coughing around me, but I felt great. Of course, this being the ideal weekend for outdoor activities with beautiful weather, I became ill on Friday within a few hours of coming home. I spent the weekend in bed, drinking lots of fluids and taking over-the-counter remedies. I think I have something more mundane than the flu, but it was unpleasant. I should take my own advice. For more information on how small businesses may prepare for public health risks, please see the attached article from New York Times Small Business feature. Reporter Patricia Olsen interviewed me in connection with a SARS-type threat, but the lessons remain applicable.

Russian Entrepreneurs Face a Crisis

Sunday, April 12th, 2009
Russian Nesting Dolls

Russian Nesting Dolls

As Russia struggles with the falling price of oil (its chief hard currency export), increasing unemployment and the global economic crisis, native craftsman are struggling to preserve a cultural tradition: the matryoshka, or Russian nesting dolls. To assist artisans and small merchants in this difficult economy, Russia’s Industry and Trade Ministry announced that it will spend close to $30 million for the Kremlin and government agencies to purchase matryoshka and other hand-painted Russian crafts to give as diplomatic gifts. I had occasion to work in Russia on a project funded by the U.S. Agency for International Development, which was one of the most professionally and personally rewarding experiences of my life. In addition to the matryoshka, I also purchased the hand-painted Russian laquer boxes depicting scenes from Russian fairytales. As difficult as economic conditions are in the U.S., they are much more severe for entrepreneurs and the self-employed in less developed economies. At least the Russian government provided direct aid to those truly in need. This year, I am making all of my gift purchases from smaller, locally-owned businesses to help those entrepreneurs and hope we can all show support for the small business community globally. There are retail sites on the Internet, such as Ten Thousand Villages, where you can purchase fair trade goods from local artisans to support their work.

Inspiration from India, Part III

Saturday, April 11th, 2009
SEWA Pride

SEWA Pride

The greatest inspiration I drew from my meetings with women entrepreneurs in India occurred during the “visioning” exercise. As new members join SEWA, they participate in facilitated training sessions to identify their means of self-employment (such as needlework, growing vegetables in small plots of land, paid childcare in their homes for other workers and other home-based businesses). The training sessions help them to build the skills required for the success of their businesses, such as budgeting, a challenge for many members who are illiterate. (The ATM’s of SEWA bank have graphic icons for illiterate users and are hugely popular with members, who are some of the most enthusiastic adopters of technology I have ever met.)

At the last of the training sessions, the group participates in a “visioning” exercise. Each member shares her vision for a better future. For women mired in extreme poverty, envisioning a better future is a challenge. Their lives are spent on tasks for basic survival. But with the encouragement of the other members of the group, each woman, often in a very shy, reluctant manner at first, begins to articulate her dream for the future: perhaps a new roof for her shanty, or a new well for fresh water or other amenities that her increased income can provide her household.

No Visit to India Would Be Complete Without a Visit to The Taj Mahal

Almost as Beautiful as SEWA

And the dream always includes an education for her children, as her first priority is to pay the school fees to invest in a better future for the next generation. By the time the session is over, everyone is in tears as we each imagine what a better future would look like for the families of women entrepreneurs. I am sure that in these difficult economic times, that is what sustains each of us.