Farvel Telenor ... and Thank You!

As you may have guessed, "farvel" is Norwegian for "farewell" or "goodbye"!
I refer of course to statements by Telenor executives indicating an exit from India is an option. A WSJ Article discusses this further - though I notice the article glosses over the fact that Telenor's Indian partner figures prominently in the ongoing trial of the then Telecoms Minister and several others.
Now, while no-one should be pleased that an amount of over $1.25 billion should be written off by anyone due significantly to India's Government's inability or unwillingness to manage itself better, the flip side of the argument is that this may help end the well known practice of international strategic investors in India and several other countries in Asia and elsewhere, relying on local partners to "take care" of the less than wholesome side of business in those countries while claiming a track record of impeccable business practices.
If this happens, as the international company with the most to potentially lose from the cancellation of 2G licences, Telenor is unwittingly owed a debt of gratitude.
A word on the cancellation of licenses - given the trial is still in progress at a special court, hasn't India's Supreme Court jumped the gun? Also, shouldn't a contract entered into by the Indian Government have some  sanctity?
My recommendation - the licences should stand with it being made clear to the holders that any determination at the trial of wrong doing by either partner or by the joint venture itself of would involve heavy fines of perhaps 75% of the estimated price of the spectrum today. Such estimate to be done by an independent, qualified entity commissioned for the purpose by the Government.
Clearly everyone directly and indirectly involved with Indian business can take something away from this otherwise unfortunate chain of events!

When it rains it pours (or in defence of Capitalism) ...

... the title could refer to this being my second blog post in less than a fortnight and also to the flood of criticism of capitalism being highlighted by many - you be the judge.

Came across an interesting FT Article - Capitalism in Crisis. Recommend a read but at the same time request that we collectively think back a few years - say to the late 1980s, and the state some major economies were put in by socialism and quasi-socialism - think of Russia/USSR, China and India. Socialism clearly was a system that was too ideological in its assumptions and inconsistent with the frailties of humanity.

These three economies have all been driven to a new growth phase by their economies becoming more capitalist. There have certainly been abuses and resulting inequality but in each of these countries you could make the case that the abuses have generally been because of their Governments continuing to exert more influence on their economies than is necessary.

A significant advantage of capitalism is that it works with what several consider a failing, but one that all of us have, perhaps to varying degrees - namely greed, and channels that into resources necessary for productive economic activity. There is something quite fair and democratic about that and we should never forget that in the post economic crises hyperbole.

Private enterprise needs to assume most of the blame for the crises however and it is important that the right lessons are learned and acted on appropriately, among them:

1) Basic risk management - those in charge of large institutions' finances only need to exercise similar prudence as they would with their own money;

2) Shareholders of companies, people like you and me, need to show companies we invest in that risky behaviour that may drive up profits in the short term won't necessary lead to a flood of demand for the shares and a higher stock price;

3) Business Education needs to move away from a narrow focus on the stock price and hence profits and faster growth;

4) Boards of Directors have a much more important role to play and some examination of how boards are appointed and function may be appropriate

5) Finally, but by no means lastly, Governments need to eliminate distortions to the extent possible with efficient and transparent systems that govern dealings with private enterprise.

Have a good week!

Year end Reflections 2011

Apologies for the blogging silence over the last several months - no excuses, I tend to wait till I think I have a point I think is worth making, and then I wait some more!!

A few things have dominated the political and economic landscape this year - the economic frailties of what we believe to be a significant part of the developed world (Europe) and the exposure of some fundamental weaknesses in what the world seemed to be hoping would be the next growth engines - significantly India and China! Closer to home we have the remarkable India against Corruption movement of Anna Hazare leading to the farcical scenes in the upper house of India's Parliament yesterday and the not unrelated fallout from the Indian telecom, among other scams - including a Government unable to do much more than react to each real or perceived crisis. Financial markets have reacted predictably to all this uncertainty.

For this post I would like to focus on the India against Corruption movement leading to the failed attempt to push the Lokpal bill through Parliament. Specifically the talk about the movement and the cause itself, a lot more important than the individuals involved, having lost steam and momentum.

As background, we need to consider India has been and in many ways remains, an over-regulated and over-taxed economy and a few generations of Indians have now grown up with the realisation that for a half decent standard of living some bending of the rules is necessary. The worrying thing about this was that the limits to this became a matter of personal opinion given a significantly corrupt system - private and public sector. Excesses have happened and will continue to happen, whether they result in arrests and trials that feed a media frenzy or not.

Let us consider however that:
- The public movement against corruption is only a few months old;
- A former Cabinet Minister is in jail, bail denied, and is being tried for corruption among other things - several senior managers of large companies will be similarly tried - this has to have an impact on how willing Ministers and corporate managers will be to indulge in this, especially for big ticket, prominent projects.

While things may not now move fast enough for the media to keep it on the front pages and for the cause to figure prominently in cocktail party chatter the fact is that the solution to India's very real corruption problem is one that will take time to evolve. Those among us who care for the cause must not let recent events lead us to turn our backs on it.

My own view is that the real momentum will come when several thousand, perhaps several million Indian individuals and small businesses come to the realisation that the payer of a bribe is as guilty as the payee and the short term advantages of participating in this just aren't worth it. For this to happen though we also need better and more transparent systems and processes to be adopted by the public and the private sectors - this is actually a lot less complicated than most might assume. A few entities taking the lead will see several follow.

On this note of optimism, my best wishes for 2012!!

The US Economy - a Visitor's take

Spent a couple of weeks in the US, outside a major city - a visit after several years and was struck by how expensive labour generally remains - as reflected by the cost of labour intensive services including taxis, laundry and baby sitting for example. Sort of flies in the face of everything you might expect after the credit crunch. F&B in restaurants and clubs in comparison is generally only slightly more expensive than in comparable facilities in larger Indian cities.

An American friend told me about an American company, owner of a famous brand, re-opening a manufacturing plant in the US where workers previously laid off when manufacturing moved offshore are being re-hired for a little more than the US minimum wage and for about 2/3 the price of the aforementioned baby sitting service!!

Something isn't right - my perhaps simplistic prescription for a sustained American recovery would be to resurrect manufacturing there which can only be done if the cost of living is reduced - the incremental cost of (some) labour would be the obvious place to start.

Why does this matter? Because the US will remain a major driver of global growth and investment for several years to come and a strong stable US economy and currency is therefore desirable.

An aside - they're fairly rigorous, to the point of sometimes being anal, about segregating trash that can be recycled - two bins right outside the garage where the SUV is parked ;-)