Category Archives: Entrepreneurs

Drug Pricing: Market Conundrum?

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Pricing in the pharmaceutical markets is dicey.

When the new owners of a life-saving AIDS drug raised its price by 5,000%, an online backlash forced the CEO to change his mind. While the public might have been outraged, this was hardly the first time the pharmaceutical industry the failed to make a cheap-to-produce but essential medicine easily available to those who need it.

Experts warned that a vital snakebite antidote had been withdrawn from the market by its manufacturers and that soon there would be no equivalent treatment available at all.

Too often the knowledge and the means to save lives are put at risk by problems with the pharmaceutical market. When these medicines are already developed and can be produced at modest cost, it is all the more frustrating and morally questionable.

We live in a world where the economic system can generally be relied upon to produce things that people want or need – even when those wants and needs could be viewed as trivial.

The arrangements in the markets for life-saving medicines – – especially those that target diseases prevalent in low-income countries – – are complex. They are characterised by powerful interests, on the sides of both producers and purchasers.

One obvious way we can see this is in how a drug’s developer is granted a legal monopoly over its sale through patents and licenses, preventing other companies from reproducing the same drug at a cheaper price. Producers then can (and do) sometimes target very high prices.

Some producers point to the very high costs and substantial risks associated with developing new drugs to justify these prices. They argue the patent system is a means of generating the necessary finance for these risky investments.

Through the patent system we are inherently relying on prices to generate incentives for investments. This makes life-saving drugs often unaffordable and skews investment in favour of those drugs that can command the highest prices rather than those that may save the most lives.

More is spent on R&D for minor ailments in high-income countries, such as for hair loss, than for major global killers afflicting mainly the poor, such as malaria.

Against this backdrop, big purchasers such as governments and aid agencies try to steer a course between negotiating lower prices and encouraging investment in new drugs – and keeping existing ones on the market. They too have limited budgets and cannot know for sure what prices they can afford in the long run.

This means the availability of drugs and the direction of R&D expenditures depend upon the actions of multiple agencies across different countries. If the negotiations go wrong or buyers don’t signal enough demand to manufacturers, vital drugs such as snakebite antidotes may cease to exist.

Drug Pricing

Islamic Finance to Benefit Women and Everyone Else

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Christine Lagarde speaks about possibilities for Islamic finance.

Lagarde, the head of the International Monetary Fund, says Islamic finance offers the possibility of extending banking services to many who are underserved in the Muslim world.

Lagarde told an audience in Kuwait City that only a quarter of Muslim adults have access to a bank account.

Lagarde said on Wednesday that “Islamic finance has the potential to contribute to higher and more inclusive economic growth by increasing access of banking services to underserved populations.”

Lagarde took no questions at the end of her speech.

She has recently said that Kuwait should consider imposing taxes on commercial profits and address the massive subsidies the oil-rich tiny country offers its citizens in the wake of low global oil prices.   Lagarde Speech 11/11/2015

Possibilities for Islamic Finance

Entrepreneur Alert: Cuba

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The Rocky Road to Globalization

About 50 American businesses came to Havana for a trade expo, many of them intrigued but still unclear how to make money in a Communist-ruled country of 11 million people who have little purchasing power.

With detente raising hopes that full commercial ties could be restored, U.S. companies are being drawn to Cuba. But it is a market whose attraction defies convention, given that foreign businesses complain about the island’s bizarre dual-currency system, rigid labor market and opaque legal guarantees.

One U.S. company that is in line to open the first American factory in Cuba in more than half a century is interested in the island only because its co-founder was born here.

Alabama-based Cleber LLC says it has been approved by the Cuban government to assemble tractors at the special development zone surrounding the port of Mariel. But because of the continuing U.S. trade embargo, Cleber would need special U.S. permission to open shop.

“We can open businesses anywhere in the world. Cuba is special on a personal basis,” said Saul Berenthal, a Cuban-American who left the island in 1960, the year after Fidel Castro’s rebels came to power.

U.S. President Barack Obama and Cuban President Raul Castro agreed last December to end Cold War-era animosity and restore diplomatic relations, but the embargo remains in place as only the U.S. Congress can lift it.

Obama has permitted some commerce, such as telecommunications, and allowed U.S. companies to sell to Cuba’s nascent private sector, adding to existing limited business.

The newcomers can look at the experience of privately held shipping company Crowley Maritime Corporation, which has been making losses or breaking even in Cuba for 14 years.

Jacksonville, Florida-based Crowley entered Cuba in 2001, after Washington started allowing food sales to Cuba, largely because Jay Brickman fell in love with Cuba in 1978, when his boss Thomas Crowley first sent him to Cuba to investigate business opportunities.

Brickman, now vice president of government services for Crowley, said he expects profits soon under the market-friendly changes from the U.S. and Cuban governments.

“Is it worth it, only in a business sense? No,” Brickman said from the annual Havana International Fair. His reward has been many friendships and a book he authored, he said.

As Crowley and European, Canadian and Latin American investors can attest, uncertainties hang over the business climate.

“How guaranteed is your investment? Are you sure that you can make profits? Are you sure that there will be no confiscation of your industry?” Brickman said.

There are U.S. companies with a firm business plan. Sprint Corp signed an agreement with Cuba’s state telecoms monopoly Etecsa on Sept. 25 and added an agreement on roaming services on Monday.

Others are global giants that see every market as worthy of capturing. Among the visiting U.S. companies this week were PepsiCo, American Airlines, Boeing, Cargill and Caterpillar.

U.S. businesses at the trade fair appeared united in opposing the embargo. Congressional advocates of the embargo argue it should remain in place to pressure Cuba on human rights.

“It’s not fair for our politicians to be blocking us from at least exploring the opportunity,” said Michael Maisel, international liaison for Commonwealth Packaging Company. “At that point, we take the risk, but at least let us get to that point.”

Cuba Opportunities

Financing Infrastructure

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Financing infrastructure is one of the most important challenges faced by governments worldwide.

Thomas Maier writes: Infrastructure – from roads and railways to ports and bridges – and economic growth go together. That is why international financial institutions need to answer appeals for greater investment to help close a $1 trillion global “infrastructure gap.” Our best chance of meeting the world’s growing infrastructure needs is to use multilateral development banks’ unique relationships with governments and the private sector to coordinate our response.

Consider, for example, the progress already being felt in emerging markets. In the past year, the World Bank Group, the Asian Development Bank (ADB), the Inter-American Development Bank (IADB), the African Development Bank, the European Investment Bank, and the European Bank for Reconstruction and Development (EBRD) have all created “project preparation facilities” (PPFs) to improve the quality of project development, while also strengthening the local capacity needed to ensure lasting results.

The various PPFs that have been launched can act as a model for public officials in emerging markets to emulate. The Infrastructure Project Preparation Facility, launched by the EBRD last year, is one example: by using pre-selected “framework consultants,” the facility can accelerate high-quality project preparation for both public-sector projects and public-private partnerships (PPPs). This dual focus is important: private-sector finance is critical, but the public sector still finances some 90% of all infrastructure investment worldwide.

Another important innovation is the online “PPP Knowledge Lab,” launched in June with support from multilateral development banks

Then there is the International Infrastructure Support System (IISS), an online tool directly supported by a number of international financial institutions during its initial start-up phase in 2015 and early 2016.

But any system is only as good as its participants. Responding to the need for more systematic and “standardized” learning, the World Bank Group, supported by the ADB, IADB, EBRD, and the Islamic Development Bank, has commissioned a new Global Certification Program for PPP Professionals. Emerging-market officials will earn accreditation by demonstrating the ability to apply their knowledge practically.

One useful tool in the effort is “Infrascope,”a benchmarking index created by the Economist Intelligence Unit that assesses the capacity of emerging-market countries across the Asia-Pacific region, Latin America, Africa, Eastern Europe, and the former Soviet republics in the Commonwealth of Independent States to deliver sustainable PPPs.

Another is the G-20’s new Global Infrastructure Hub, which shares international good practice and comprehensive data on infrastructure. The Hub has a four-year mandate to focus on five main areas: a network to share information on infrastructure projects and financing; better data on infrastructure investment; the G-20’s recommendations for voluntary lending; government officials’ capacity to share best practices; and a database to match infrastructure projects with potential investors.

It is easy to be daunted by the vast sums needed to close the gap between the infrastructure the developing world has and the infrastructure it needs to support sustainable, inclusive economic growth. But compare the world today with the world a century or more ago, and it is clear that the gap is so much narrower than it was. What will narrow it still more, and so sustain the gains in global growth, will be the spread of infrastructure know-how at the local level in emerging markets. We and our fellow multilateral institutions have a clear duty not just to increase our expertise, but also to share it.

Infrastructure

 

Japan and the TPP

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Considerations for Japan as they participate in TPP.

Yuriko Koiki writes:  After years of exhausting – and exhaustive – haggling, a dozen Pacific Rim countries finally signed up to the Trans-Pacific Partnership (TPP), an agreement that promises everything from more trade to a cleaner environment. The negotiations were such that the hair of Akira Amari, Japan’s economic and fiscal policy minister, turned completely grey. His solace, however, is that the TPP will prove to be a key foundation stone of the “Asian Century.”.

China’s exclusion was no accident. Its huge and complex economy would have injected insuperable problems.  In response, China has launched its “Silk Road” initiative to create an economic zone that will favor its own priorities. It is also seeking greater trade cooperation with European countries. One example is President Xi Jinping’s recent visit to the United Kingdom – which in essence is also an attempt to weaken Britain’s “special relationship” with the US by creating a cat’s cradle of trade, financial, and investment ties with Britain.

But, as Japanese Prime Minister Shinzo Abe’s recent call for talks with China on the issue confirm, the TPP is not off-limits to China – or to other Asian economies. South Korea is warming to the idea of the TPP, as is Indonesia, following President Joko Widodo’s recent visit to Washington, DC.

For Japan, the TPP is vital to achieve economic liberalization – the third arrow of “Abenomics,” the government’s program to revitalize the country’s ailing economy. The legislation to enact the TPP will simply push aside the lobbies and vested interests that have been so effective in slowing down or diverting piecemeal reforms.

The promise of greater exchange of goods, services, and capital across the Pacific, as well as the creation of international standards (for example, for intellectual-property rights), is simply too appealing to ignore. When Japan and other Asian countries weigh the risk of implementing the TPP against the risk of not participating, the risk of not participating is overwhelmingly higher.

Japan’s political challenge will be to sell the TPP to its voters, especially the farm lobby. The customs duty on beef imports, for example, is currently 38.5%. It will be 27.5% in the first year after the TPP takes effect, and will then be gradually lowered to 9% in the agreement’s 16th year.

That should surely provide more than enough time for Japanese beef ranchers to prepare themselves for foreign competition (of the 870,000 tons of beef imported annually, 520,000 tons come from Australia, the US, and New Zealand). And it will certainly be a boon for consumers, as the price of their beef-noodle soup and sukiyaki falls dramatically.

Japan’s ranchers do need time to adjust. Because they deal with animals, shortcuts cannot be taken, and there are limits to mechanization, particularly in creating the type of beef that Japanese consumers demand. Whereas ranchers in Australia and the US have huge herds of cattle, Japanese ranchers raise each individual cow on beer and massages.

The same applies to rice. Rumor has it that when the wife of a certain Chinese leader visited Japan, she bought a delicious variety of Japanese rice by the ton. Taking advantage of the worldwide sushi boom, Japan needs to emphasize that “real sushi requires Japanese rice,” branding it an exclusive product.

In fact, regardless of whether or not the TPP is implemented, Japan’s farmers must pursue this approach to secure their futures, rather than hoping that protective subsidies continue ad infinitum.

But now comes the truly hard part. The TPP has been signed – but it will not be implemented unless and until it is ratified by the legislatures of countries such as the US and Canada. That process could well be enough to turn Amari’s gray hair white.

Japan and TPP

Entrepreneur Alert: Aluminum?

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Alcoa Inc.’s latest aluminum-making cutback is signaling the end of the iconic American industry.

For 127 years, the New York-based company has been churning out the lightweight metal used in everything from beverage cans to airplanes, once making it a symbol of U.S. industrial might. Now, with prices languishing near six-year lows, it’s wiping out almost a third of domestic operating capacity, Harbor Intelligence estimates. If prices don’t recover, the researcher predicts almost all U.S. smelting plants will close by next year.

While that’s a big deal for the U.S. industry and the people it employs, it doesn’t mean much for global supplies. Alcoa’s decision to eliminate 503,000 metric tons of smelting capacity accounts for about 31 percent of the U.S. total for primary aluminum, but less than one percent of the global total, according to Harbor. For more than a decade, output has been moving to where it’s cheaper to produce: Russia, the Middle East and China. A global glut has driven prices down by 27 percent in the past year, rendering American operations unprofitable and accelerating the pace of the industry’s demise.

Jay Armstrong, the president of Trialco Inc. in Chicago Heights, Illinois, now buys about 80 percent of the supplies it turns into car wheels from overseas. That’s up from 40 percent five years ago.

Aluminum is down 19 percent this year to $1,501 a ton on the London Metal Exchange. The metal touched $1,460 last week, the lowest since 2009, and most American smelters can’t make money when prices are near $1,500 or below, Austin, Texas-based Harbor estimates. Plants overseas usually have the advantage of lower labor costs, cheaper energy expenses and weaker domestic currencies that favor exports to the U.S.

Aluminum Prices

While output has been moving abroad for some time, the game changer in the past year has been the domination of China, where ballooning output has compounded a global surplus and driven prices so low that Bank of America estimates more than 50 percent of producers globally lose money. Smelters in the Asian country are still profitable, helped by higher physical premiums in the region.

China probably will account for 55 percent of global aluminum production this year, up from 24 percent in 2005, according to Harbor research. The U.S. has gone in the opposite direction: from 2.5 million tons in 2005 to 1.6 million in 2015, it said.

Still, not all U.S. smelters will benefit from closing down. Citigroup Inc. says some domestic operations with long-term energy contracts will have to pay regardless and are better off making the metal than simply paying the energy bill. Some plants also have access to cheap hydro power, said David Wilson, an analyst at Citigroup in London.

Aluminum

Bitcoin’s Blockchain Goes Mainstream

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Blockchain technology may well be what remains of bitcoin technology.  At a conference sponsored by the New Yorker earlier this fall, all the participants agreed that bitcoin as an alternate currency had a questionable future.  Yet the blockchain technology that releases bitcoins into the market may work well for credit card companies and online banking.

Nine of the world’s biggest banks have thrown their weight behind blockchain,

Barclays, BBVA, Commonwealth Bank of Australia, Credit Suisse, JPMorgan, State Street, Royal Bank of Scotland, and UBS have all formed a partnership to draw up industry standards and protocols for using the blockchain in banking.

The partnership is being led by R3, a startup with offices in New York and London headed by David Rutter, the former CEO of ICAP Electronic Broking and a 32-year veteran of Wall Street.

Rutter’s plan is to build the “fabric” of blockchain technology for banking, as well as develop commercial applications for banks and financial firms.

The blockchain is the software that both powers and regulates cryptocurrency bitcoin. In its most basic form, it records ownership of bitcoin — money — and transactions — one person paying another.

Transactions are signed off by the parties involved using the software, then added to the blockchain, a long string of code that records all activity.

Once other transactions are added on in front of an exchange, the transaction is stuck there forever and can’t be changed, in the same way you can’t change a brick once it’s been built into a wall.

The software cuts out the need for a “trusted middleman” to sit in between parties in a transaction as it acts as that middleman. This makes transactions quicker, cheaper, and easier when compared to the current systems banks use.

Banks are therefore keen to see if it can be adapted for use with traditional currency, rather than just bitcoin.

The blockchain uses open ledger technology, meaning all of these transactions are free for anyone to look at and not stashed in some private data centre in Canary Wharf. Anyone can theoretically check to see if someone’s using stolen bitcoin and this adds a level of transparency to the system.

Rutter says R3 has drawn up a “wish list” of what its banking partners want to use blockchain technology for, which covers “everything from issuance, to clearing and settlement and smart contracts, where the code is the contract and it saves on back office costs.”

As part of the partnership, banks are investing in R3. Rutter said: “I can’t reveal that but it’s been reported that it’s several million. From my prospective of having the banks involved, the human element is more valuable.”

Blockchain

Entrepreneur Alert: Opportunities in the Opening the World

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New countries in the international decision-making mix will impact entrepreneurial opportunities across the globe.

Anne-Marie Slaughter writes:  Extending the list of countries involved in international policy meetings is crucial.  The other countries have plenty of motivation – and plenty to offer.

India – as well as Pakistan – has a great deal to gain from strengthening Southwest Asian trade, energy, and investment ties. Since the signing of the Iran nuclear deal, India has been contemplating renewing the plan for an Iran-Pakistan-India gas pipeline, with the participation of China and Russia. But that will be impossible without a settlement in Syria and a decision by Iran to stop supporting Hezbollah.

India has a strong relationship with Iran, underpinned by long-standing cultural, social, political, and economic ties, with India now funding an overhaul of the Iranian port of Chabahar, which will give it direct access to Afghanistan. This places India in a strong position to push Iran to put pressure on Assad. Likewise, India can leverage its relationship with Russia – it remains a major importer of Russian arms – to help drive progress.

Japan’s potential contribution also involves Iran, with which Japan has lately been pursuing a closer relationship – not least because Japan needs Iranian oil and gas. Earlier this month in Tehran, the Japanese and Iranian foreign ministers agreed to begin negotiations on a bilateral investment treaty. Japan also wants to speed up implementation of the Iran nuclear deal, so that it can take advantage of the business opportunities that will result when economic sanctions on the Islamic Republic are lifted.

But if Iran is truly to rejoin the international community, it must play a constructive role in its region. Japan, which now aspires to enhance its own role on the world stage, must not shy away from making that clear. A bonus here is that Japanese and Indian interest in the Syrian peace process could spur China to play an active role in reaching, rather than blocking, a solution.

Brazil, despite confronting plenty of domestic problems right now, is also in a position to help. Not only does it have substantial ties with Russia; it is also linked to Turkey, exemplified by the two countries’ 2010 effort to broker a deal with Iran over its nuclear program.

Moreover, in 2011, Brazil put forward a concept paper at the UN outlining how countries seeking to implement the “responsibility to protect” doctrine should behave. With the Syrian government – through its murder of tens of thousands of civilians with barrel bombs and poison gas – having more than fulfilled the criteria for triggering the international community’s obligation to intervene, Brazil could suggest what an intervention that reflected the principle of “responsibility while protecting” might look like.

Finally, Egypt – a perennial candidate for a permanent or rotating African seat in a reformed Security Council – has important relationships throughout the region, particularly with Saudi Arabia and other Gulf countries that are directly supporting some Syrian opposition groups. The government of Egyptian President Abdel Fattah el-Sisi, who has emphasized the need for a comprehensive political settlement, is tacitly supporting Assad, but is also deeply concerned about the Islamic State. Egyptian diplomats are thus excellent candidates to exert pressure for compromise.

Greeting Iran

 

Horn of Africa Drying?

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A new study finds that the Horn of Africa has become progressively drier over the past century and that it is drying at a rate that is both unusual in the context of the past 2,000 years and in step with human-influenced warming. The study also projects that the drying will continue as the region gets warmer. If the researchers are right, the trend could exacerbate tensions in one of the most unstable regions in the world.

“Right now, aid groups are expecting a wetter, greener future for the Horn of Africa, but our findings show that the exact opposite is occurring. The region is drying and will continue to do so with rising carbon emissions,” said study coauthor Peter deMenocal, who heads the Center for Climate and Life at Columbia University’s Lamont-Doherty Earth Observatory.

The study used a sediment core that deMenocal and his colleagues extracted from the pirate-ridden Gulf of Aden. They used the core to infer past changes in temperature and aridity. By pairing the paleoclimate record from the core with 20th century observations, the researchers determined that drying will probably continue across Somalia, Djibouti and Ethiopia. That contradicts more optimistic models that have suggested future warming might bring rainier weather patterns that could benefit the region.

Global-scale models used to predict future changes under global warming suggest that the region should become wetter, primarily during the “short rains” season from September to November. But the new study suggests that those gains may be offset by declining rainfall during the “long rains” season from March to May, on which the region’s rain-fed agriculture relies.)

The outcome has serious implications for a region that has been racked with political instability and violence as it has dried. The Horn of Africa has suffered deadly droughts every few years in recent decades, and with them humanitarian crises as famine and violence spread. It has also become one of the most unstable regions in the world. In Somalia, as the political situation deteriorated amid droughts of the 1980s and `90s, hundreds of thousands of refugees fled the country, and pirates began raiding ships off the coast.

That sediment core, which dates back about 40,000 years, has already provided new insights into Africa’s climate. In a 2013 study analyzing parts of the core, Tierney and deMenocal showed that the Sahara, which once bloomed with regular rainfall, suddenly dried out over the span of a century or two, during a warm period some 5,000 years ago—not more gradually, as many researchers had assumed. It provided evidence that climate shifts can happen quite suddenly, even if the forces driving them are gradual.

The new study uses isotopes from leaf waxes found in the sediment sample to compare rates of drying over the past 2,000 years. Plants reflect the environment that sustains them. When the climate is drier, leaf waxes are more enriched with deuterium, or heavy hydrogen isotopes; leaf waxes from wetter climates reflect the more abundant rainfall through the presence of the normal hydrogen isotopes. The researchers found an increasing shift toward heavy hydrogen in the last century as the climate, which had experienced a wet period during the Little Ice Age (1450—1850 AD), dried out.

The findings suggest that climate modeling, frequently done at a global scale, would benefit from region-specific studies with higher resolution results in high-impact areas such as the Horn of Africa,

Horn of Africa Drying