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Thursday, December 31, 2015

Economies of Scale: How to take advantage of them

One of the topics, I learnt in economics, fascinated me a lot. It was economies of scale.  It refers to reduction in per unit cost owing to increased production.
It explains how a firm can reap benefits by growing in size.  This concept not only proves helpful on production side but also in consumption. The greater the size of consumption the greater will be savings in per unit cost.
Heating expense, for example, for room is constant for any number of people. Hence more the number of people living in a room lesser will be the per person expenditure for heating. Same goes for housing space. More number of people needs more rooms but space requirement for kitchen, TV. Lounge, bathrooms per person reduces as number of people rises. Machine, vehicle, etc can also be shared if more people are living in a combined household.
It is not only the case with your housing budget; it does benefits nations as well. Any country having large size of population can reap economies of scale. China and India for example have huge population and they can use it to their advantage.  They have huge bargaining power. They can use it for getting discounts which smaller nations like Maldives cannot think of. Furthermore businesses based in these countries are better able to compete globally owing to economies of scale which they achieved due to huge consumer market in their native country.
The same benefit, nations try to achieve by forming free trade regions.
Let us take the example of ASEAN region.  Combined population of ASEAN member states is 625 million. The huge population will help people access good quality goods and services at low prices. For supplying these goods and services business community will need to operate their plants at full speed, this would reap economies of scale for them as well, hence more job opportunities for people living in these regions.
Learning about these benefits, you must be thinking of ways to reap these benefits for yourself and your family. Some of them are here; while you may think of many others.
You can start living in combined household and if possible by living tribal lifestyle, take advantage of companies that are owned by their customers, purchase in bulk, eat together, for housing; get a plot of land in cooperative housing society and the best way to reap these economies is strengthening family bond; through marriages, reducing divorce rates, and keeping good relationships with kith and kin.                                 

Thursday, December 24, 2015

Can potato help Pakistan fight malnutrition, water shortage and poverty

During 2014, death of children in Thar made headlines. District administration provided 253,590 families with bags, containing 50 KGs of wheat. People in poor regions are facing malnourishment. People in many poor regions, like Thar, rely on wheat for fulfilling their calorie needs.

Wheat crop needs more water to grow than potato crop. Rice, second most consumed food in Pakistan, also uses huge water. Rather than letting people die of under nutrition, policy-makers should introduce potato as popular diet.

Earlier efforts were made by General Ayub’s military Govt. to introduce potato as staple food, but these were unsuccessful.

At present Potatoes, after rice, wheat, and corn, is the fourth-most-consumed food crop in the world.

Potato, first domesticated in areas of southern Peru and north western Bolivia, had played huge role in Europe rise. Since the time it was introduced by Spanish, it has revolutionized the Europe’s economy and impacted demographics. According to historian William H. McNeill : “By feeding rapidly growing populations, [it] permitted a handful of European nations to assert dominion over most of the world between 1750 and 1950”

Agronomists have long been in favor of potato farming in regions with malnutrition, pasture shortage, and poverty due to its high nutrient levels and the ability to grow in challenging conditions.


The potato stands out for its effective water use, yielding more food per unit of water than any other major crop. An increase in the proportion of potato in daily diet can help alleviate pressure on fresh water resources.

Furthermore, Potato production is two times more labor intensive than grain production. Hence more jobs for people living in unirrigated lands. Its productive land usage is another edge over other crops, as it yields four times more per hectare yield than wheat. It can free up land for rapid urbanization.

Replacing wheat with potato in our daily diet is not only healthy but also good for economy. 

Wednesday, December 23, 2015

Low birth rates in the advanced world

Germany is facing dearth of births. It has dropped below Japan to have the lowest birth rate globally.

It is expected that low birth rate would cause shrinkage in workforce by 6 million over the next 15 years.

With fall in birthrate the population between 20-65 years will fall to 54% by 2030.On the other hand, the life expectancy for women is expected to continue rising to 88 and for men to 84 by 2050. This will push the dependency ratio to 1.1, threatening the solvency of public pension system.

Germany is not alone. The entire developed world is facing the same problem. Japan, third largest economy in the world after United States and China, is also facing sharp decline in work age population.

According to U.S. Census Bureau, Japan will face 18% decrease in workforce and 8% decrease in consumer population by 2030. Fall in workforce and consumer population may hurt companies as they have to face escalating cost of labor along with loss of economies of scale.

United States is also facing workforce shrinkage, due to age, albeit at low rate than faced by the rest of the developed world. China, in order to avert population decline, has ended one child policy.

United States, China, Japan, Germany along with Italy, and Russia contribute nearly 50% of global GDP. Fall in their population can cause balance of power to shift away from these regions.

Monday, December 21, 2015

Eco-friendly shipping

Vindskip is a concept designed, by Norwegian firm Lade AS, for harnessing wind energy to propel cargo vessels.  The designed ship, Vindskip, uses a hull that acts as a sail.

According to its manufacturer, Lade AS, the designed ship reduces fuel consumption up to 60% while reducing greenhouse emission up to 80%.

It uses liquefied natural gas-powered generator for the remainder of its energy and get it moving from standstill.

Germany’s Fraunhofer Center for Maritime Logistics and Services has developed its software. This software will help choose best possible route in accordance with the wind direction. Cruise Control will balance the LNG-electric propulsion system with the Wind Power System - keeping a constant speed of the ship.

The development in wind-powered shipping is important as today 95 % of goods are carried through ships, furthermore, according to the guardian, one giant container ship can emit as much cancer and asthma causing chemicals as 50 million cars. Therefore, small reduction in emission by shipping industry can have great impact on the global greenhouse emission.
today 95 % of goods are carried through ships


For reducing greenhouse emission ships should be more fuel efficient, as reduced fuel consumption means reduced greenhouse emission.

Along with using renewable energy sources another way of reducing fuel consumption is slow steaming.

Marine engine manufacturer Wärtsilä estimates that fuel consumption can be reduced by 59% by reducing cargo ship speed from 27 knots to 18 knots, at the cost of an additional week's sailing time on Asia-Europe routes.

Fall in bunker prices may prove to be barrier in opting for slow steaming and going for renewable energy sources. Therefore UN's International Maritime Organization and the EU should intervene to tighten laws governing ship emissions and fuel efficiency.



 Related link

Friday, May 22, 2015

How to keep your home cool without AC

Hot summers have arrived. With rampant power outages many Pakistanis are suffering from severe wrath of sun. Air conditioning can help but it costs a lot in terms of electricity bills and installation expenditure. Furthermore when summers are its peak air conditioning efficiency falls to its lowest.

So you should find some other means to remain cool in face of severe electricity crisis. One of the best ways is to avoid your home and offices from heating up. Rather than consuming electricity for cooling the building after it gets warmed up by sun, you should be proactive and take some steps which can help you keeping your residence cool.  This can be done in many ways.

 Roof shading

About a third of the unwanted heat that builds up in your home comes in through the roof. By shading the roof you can save a lot on energy bills along with reduced emission of green house gases.
Shading your home can reduce indoor temperatures by as much as 20°F (11°C). Effective Shading can be done by growing trees strategically around your home or office.

Window coverage

Roughly 40% of the unwanted heat that builds up in your home comes in through windows. You can close windows in the day time in order to avoid heat gain. Alternatively you can use window awning for shading windows.
Window blinds, as well, horizontal or vertical, can help reduce heat gain in summer and heat loss in winter.
An awning is a secondary covering attached to the exterior wall of a building

Roof garden

Roof garden also helps you in keeping the building cool and is legally compulsory for all new buildings in many countries.
Roof garden also helps you keeping your roof cool. Photosynthesis, evaporation and shading are the ways in which plants keep your roof cool.

Roof gardens help reduce heat gain in buildings


Research published by the National Research Council of Canada found that an extensive green roof reduced the daily energy demand for air conditioning in the summer by over 75% (Liu 2003).
Other benefits of green roofs does include Increase in building’s marketability.

Moreover, roof with more trees can help reduce the temperature of your house, to protect your home against fire and noise reduction effectively.

Ground covering

A grass-covered lawn is usually 10°F (6°C) cooler than bare ground in the summer. So you can grow grass on ground rather than keeping it bare.



Tuesday, May 19, 2015

The enormous wealth of presidential contestants

Hillary Clinton and her husband have earned 30 million dollars during previous 16 months, according to ‘financial disclosure forms’ filed with federal elections officials on Friday.

Bill Clinton, husband of Hillary Clinton



In the 2016 presidential elections many of the possible contenders are much wealthier than average American citizen.

Jeb bush, for example, is a member of wealthy families that own Oceanside compound in Kennebunkport, Maine. Democrat’s possible contender Hillary Clinton, wife of former President Bill Clinton, has earned 200,000 dollars as speaking fees over the past year. The one hour speech can earn Mrs. Clinton what average American make in four years.

 In addition to speaking fees she was known to have received a $14 million advance for the book she released last year.

Other contestants include Ted Cruz having worth of $3.2 million, Rand Paul having $1.3 million.

Businesswoman Carly Fiorina is one of the wealthiest potential White house contenders. She is worth an estimated $ 71 million.

But these contestants are nowhere near to the former contestant, private equity mogul, Mitt Romney. At the time of contest he had had somewhere between $190 million to $250 million.

The tendency of power to concentrate in the hands of rich and those having strong family connection is seen in the World’s sole super power.

Past presidents did include millionaires. The richest president till now is J. F. Kennedy who is estimated to be a billionaire in 2010 dollar terms. Other rich presidents in 2010 dollars terms were George Washington 525 million dollars, Thomas Jefferson 212 million dollars, Theodore Roosevelt 125 million dollars, Andrew Jackson 119 million dollars, James Madison 101 million dollars, Lyndon Johnson 98 million dollars, Herbert Hoover 75 million dollars, Franklin Roosevelt 60 million dollars, bill Clinton 55 million dollars, George H W Bush 23 million dollars, George W Bush 20 million dollars.

Although J. F. Kennedy is considered to be billionaire but conservative estimates suggest much less figure hence George Washington can be considered to be the richest president of all. President Washington owned nearly 60,000 acres and more than 300 slaves.

George Washington was in the business of flour milling, fishing, horse breeding, spinning, weaving and (in the 1790s) whiskey production.

Wealth of congressman, senators and presidential contestants has brought severe criticism from general public. The criticism is not entirely unwarranted.

 The general trend of American society from meritocracy to aristocracy has been noticed.  

Saturday, May 16, 2015

Slow steaming saves fuel

Slowing down may not seem to be a good advice for many businesses but many shipping lines are saving hefty amounts in fuel by just reducing their speed a little bit.
Marine engine manufacturer Wärtsilä estimates that fuel consumption can be reduced by 59% by reducing cargo ship speed from 27 knots to 18 knots, at the cost of an additional week's sailing time on Asia-Europe routes.
The speed less than 18 knots is called super slow steaming.

 This practice of slow steaming in maritime industry emerged during the financial crisis of 2008-2009. During the crisis international trade and demand for containerized shipping plummeted at the same time as new capacity in pipeline came online. As a response, maritime shipping companies adopted slow steaming and even extra slow steaming services on several of their routes. This response helped these companies to accommodate additional ships with similar demand. As an increase of just one knot would free up enough vessels to grow global capacity by 6.2 percent and one further knot would add another 5.9 percent of global capacity.
Slow steaming does involves adjusting the ship engines.

The additional benefit of high fuel efficiency is reduced emission of green house gases. Ships are most efficient mode of transport as far as green house emission is concerned.

Slow steaming may has its own downside. For example Slow steaming' upsets some customers, who worry about delays in delivery. At the same time the risk of pirates attacking the ship increases as Pirates have never managed to board a vessel travelling at 18 knots or more and container ships and other faster vessels have traditionally crossed the high risk area up to 1,500 miles off Somalia’s coast at up to 24 knots.

Saturday, May 9, 2015

The nation of ship-owners

No nation has ever been so much successful in maritime industry as this nation. Today 95 % goods are carried through ships and shipping magnate from this nation owns 23% of the world bulk carriers.
95% of merchant goods are carried through ships

The fleet belonging to wealthy of this nation is valued at 105 billion dollars, according to vesselvalues.com. The combined value of global fleet of vessels is 680.4 billion dollars. Hence the maritime nation owns 15.43% worth of global fleet. 

The maritime nation is no other than Greek, who have been fighting severe debt crisis since 2009. Severe Government debt crisis has caused many Greeks to lose their jobs. The unemployment rate is as high as 25.40% for February 2015. But the families involved in shipping business are spending as if there were no crisis.

Ship owning business is part of Greek culture. Owing to mountainous landscape, limited availability of farming land and extended coastline, Greek, at an earlier stage, turned to maritime business. Furthermore Greece, being situated at crossroads of ancient sea lanes in eastern Mediterranean and proximity of other advanced civilizations helped Greek succeed in this business. New evidence suggest that since ancient times wine, oil and honey were traded, as well as fruit, fish, meat and resin by Greek ship owners.

The majority of these maritime companies are run by families with a long tradition in shipping.

There are 800-900 families involved in this business, leading among them are Onassis, Niarchos, Evgenidis, Latsis, Lemos, Laskaridis, Pateras, and Tsakos families.

Today constitutional protection related to taxation provided to ship owners and geographical factors led the ship-owning families to live like landed aristocrats of medieval times. Like aristocratic families ship-owning families have their own family culture, and a thrust to protect their status in Greek society. These families often inter-marry thus multiplying power and wealth of these families.

These 800-900 families, involved in Ship-owning business, own slightly more than 4000 vessels.  Hence per family average ownership comes to 4.7 vessels. Families in Greece along with Spain and Italy are more cohesive than many other European counterparts. Hence the help and support from family is also an important factor in the success of Greece's maritime business.


These rich families, although are accused of not doing enough for Greece; especially during the time of crisis, are also involved in philanthropy. Foundations bearing the names of the rich maritime families like Onassis foundation are highly involved in charity.

Thursday, May 7, 2015

Indian Silicon Valley

San Jose; California, is nick named silicon valley, owing to presence of large number of technology companies in this city.

Now the term Silicon Valley has become so popular that any area having sizeable number of technology firms is known as Silicon Valley.  Bangalore, India is one of these cities famously dubbed as Indian Silicon Valley. It is home to as many as 900 IT firms.

The Indian Silicon Valley Bangalore has increased in size to more or less the same size as that of San Jose, The American Silicon Valley. The estimated GDP of the city during 2007 was 83 billion us dollars.

The rise of Bangalore as IT city is attributed to various factors.
First of all its location helped it to be the hub for defense technology and supply companies. As it was situated away from Pakistan and China, Indian planners considered it to be suitable for locating strategic industries. Hence they located important defense equipment manufacturing factories in Bangalore.  For example The Hindustan Aeronautics Limited (HAL) headquarters is based in Bangalore, and is responsible for research and development activities needed to develop indigenous fighter aircraft for the Indian Air Force. Other such companies which were homed in Bangalore were HAL, DRDO, BHEL, and ISRO.

Owing to these strategic industries and defense manufacturers skilled engineers were in high demand in this city. Engineers from neighboring regions shifted to Bangalore. Later on these highly skilled engineers supported the growth of IT. In other words the growth in IT was a direct result of external economies of scale generated by the defense equipment manufacturers.

Another reason was boom in engineering colleges in Karnataka.

Boost came from the liberalization policies adopted by the Government is also one of these factors which established Bangalore as IT capital of India. In 1991, Government actively pursued the liberalization of the economy. This provided the best environment for start ups.

High speed internet was another reason as Bangalore was technology intensive city hence Bangalore was first city to be connected to internet. The Internet boom along with economic liberalization of 90’s provided double boom to IT industry of Bangalore.  


Special Economic Zone (SEZ)   Karnataka was among the first to setup tax free zones to support technology companies. This further encouraged ICT companies to set their businesses in Bangalore.

Low crime rate and great weather Compared to other metropolitan and bigger Indian cities, Bangalore has relatively low crime rate. Weather of the city is also pleasant almost throughout the year. This encouraged entrepreneurs to move to Bangalore.
The rise of Indian information technology has created many millionaires in this city. Now the city is the third largest hub for high-net-worth individuals. The city can boost over 10,000-dollar millionaires and about 60,000 super-rich people who have an investable surplus of US$714,299 and US$79,400 respectively.
These Information Technology firms located in the city contributed 33% of India’s 23 billion dollars IT exports in 2006-07.

The dark side of Bangalore growth

The growth of IT has presented the city with unique challenges. The encouragement of high-tech industry in Bangalore, for example, has not favored local employment development, rather it forced out small enterprise. The state Government has also resisted the massive investments, required by Cities’ IT moguls, to reverse the rapid decline in intra-city transport which has already begun to drive new and expanding businesses to other centers across India.


Thursday, April 23, 2015

Qatar spending spree

Qatar is a small gulf country with vast oil and gas reserves. The export of oil and gas has led Qatar to enjoy highest per capita income in the world. 

The government is in the hands of Al Thani family who are governing Qatar as hereditary state since its founding.  The Government of Emir Shaikh Tamim Bin Hammad Al Thani provides subsidies to its people on almost everything from health care to education.

 Owing to huge subsidies, Qatar has not seen Arab spring. Rather it funded the rise against Arab monarchs some of whom were governing for many decades. The funding of Arab spring has now backfired and it has to put an end on its spending for its expansionary plans.

Still Qatar has other options to spend her shale money. The preparations for FIFA football worldcup in 2022, is an outlet for the government to bankroll the projects in order to successfully hold the event. The total expenditure on these projects is planned to be in excess of 200 billion dollars. Regional business intelligence specialist MEED has predicted that Qatar will see $30 billion worth of new infrastructure projects through 2015 alone.

Unlike other Gulf countries like Saudi Arabia and UAE, Qatar has not seen slow down in mega projects due to fall in oil prices. This has been said by Abu Dhabi Commercial Bank in a report showing the mixed impact of cheap oil on the Gulf.


Friday, April 10, 2015

6 thirsty industries

Water, the most abundant compound on earth, is used by many industries. When you use computers, wear cotton shirts, drink beverages you are actually consuming water. The industries which are most water thirsty are listed below. In terms of direct water usage, agriculture and power-generation industries top the list, which together are responsible for 90 percent of direct water withdrawals.
1.       Agriculture
Agriculture is the major water consumer of all the industries. For India more than 90% fresh water usage is in agriculture industry.
 The room for improvement in water usage efficiency is also in this industry. Using modern techniques like sprinter irrigation, drip irrigation etc can help to make use of water efficiently. In developing countries huge amount of water can be saved by simple improvements in the method of irrigation.
2.       Power generation
Generation of electricity is another bigg consumer of water.  Ultimately, it takes a staggering 95 liters of water to produce one kilowatt-hour of electricity, according to Tamim Younos, research professor of water resources at Virginia Tech.
Pumping oil, cooling the power plant, removing pollutants from power plant exhaust, generating steam to run turbines, and washing away residue after fossil fuels are burned all involve water usage.
All sources of power generation are not equal in water consumption efficiency. For example natural gas is the most efficient source of energy in terms of water consumption.
3.       Food processing
Huge water is used to wash and rinse fruits, vegetables and meat. Food processing industry uses water to
1.       Wash raw food,
2.       washing after steaming/peeling/ size reducing,
3.       Balanching
4.       Filling
5.       Sanitation and plant cleaning
Half of the water used in the fruit and vegetable sector is for washing and rinsing
4.       Textile and garment industry
Textile and garment industry is very water intensive. Most of the water used is in wet processing and dyeing fabrics. The textile industry uses 100 liter of water to process only 1 kg of textile fabrics.
5.       Meat production
According to a study by the UNESCO Institute for Water Education, conducted between 1996 and 2005, “29 percent of the total water footprint of the agricultural sector in the world is related to the production of animal products.”
 It takes more than 1,800 gallons of water to produce 1 pound of beef
6.       Semiconductor manufacturing
Semiconductor Manufacturing Plants can use as much water as a small city. These plants use water in washing the silicon wafers with ultra pure water. One manufacturing plant uses anywhere between 2 to 4 million gallons of very, very pure water— ultrapure water—per day, and that is roughly equivalent to the water usage of a city of around 40,000 people.

Ultrapure water is a term in the semiconductor industry to emphasize the fact that the water is treated to the highest levels of purity for all contaminant types, including: organic and inorganic compounds; dissolved and particulate matter; volatile and non-volatile, reactive and inert; hydrophilic and hydrophobic; and dissolved gases.

Wednesday, April 8, 2015

Kingmakers of the Indian sub-continent during dynastic rule

Kingmaker is the one who either lack resources or due to other restraints such as legal one cannot be contender to the throne, but can influence the successful candidate in the game of throne. The person or group can be termed as king makers. Kingmaker can use political, monetary, religious or military means to influence the succession.

The word kingmaker has negative connotation. The very idea of someone ruling from the shadows might go some way toward explaining why there is a negative connotation to the term "kingmaker”.


Two interesting groups and individuals who were termed as power broker or king maker During Indian dynastic rule are discussed below.


Chihalgain, Chalisa or Turkan-i-chihalgani was a group of nobles.

Shams-ud-din Iltutmish or Altamash (1167-1236) after ascending to the throne realized that Turkish nobles were not trustworthy and could conspire against him to overthrow his rule. Therefore, he had a group of faithful slaves to protect him. This group was known as Amir-i-Chahalgani.



The group which is also called ‘The Forty’ had become a power on their own. After the death of Iltutmish, the successor kings were not able to take control of the state affairs. This group took the role of king-maker and king remover.


Historian Ziauddin Barani writes that since ‘The Forty’ were slaves of Iltutmish and were posted on high ranks at the same time, they considered themselves important and were not ready to recognize any of their colleagues as superior. The members also competed with other members of the group in control of the army, possessing property and wealth. As a result, there was strong rivalry and conflict among them too.

The number of nobles known as chihalgani has never been more than twenty five.

Later when Ghiyas ud din balban, one of former member of chihalgani, became king, he broke the power of these nobles. Ghiyas ud din balban recognized the fact that he could not become a real ruler in the presence of Chihalgani members; therefore he removed them one by one. Being the former member of the group he knew their modus operandi. Even he poisoned his cousin, who was a member of the group of Forty. The network of spies, established by him, helped him to remain aware of Chihalgani moves.

Sayyid brothers in era of Mughal

These were two powerful Generals in Mughal army. The brothers were from the community known as Sadaat-e-Barha. Names of two brothers were Syed Hassan Ali Khan Barha and Syed Hussain Ali Khan Barha.

Two brothers became influential after the death of Aurangzeb which was followed by anarchy. During the anarchy the brothers became king-makers. During the decade of 1710 the brothers were virtual ruler over the state and the king was reduced to the figurehead. When Muhammad shah ascended the throne, Sayyid brothers became his regents. Later on the King Muhammad Shah took back control of the state by arranging the killing of the two brothers. Hussain Ali khan was murdered while Hassan Ali khan was poisoned to death. In this way the rule of Sayyid Brothers came to an end. Hence Muhammad shah proved to be Balban for the Sayyid brothers.


Saturday, April 4, 2015

15 Ways to Finance Your Start-up

Not all small businesses need financing. Accurately gauge the need for financing because usually entrepreneurs make mistakes in assessing the need for financing.
There are number of ways in which small entrepreneurs can arrange financing. Some of them are listed below along with brief description.

1.       Bootstrapping is when you reinvest the profits of your business. Growth is slow, when you work your way up, but business decisions are under your control.

2.       Friend and family loans Arab Americans prefer to get loans from family rather than bank. Getting financed from family is easy in strong families as they are more willing to trust you. Regular meetings and communication is important in order to avoid misunderstanding with friends and family.

3.       Savings Utilizing your own saving is one of the most common methods to grow and simultaneously have control over the business decision.

4.       Home-equity Home equity may serve as collateral for a home equity loan or home equity line of credit (HELOC).

5.     Angel investors These are wealthy individuals who fulfill financing needs of start-ups against convertible securities or ownership equity.

6.       Venture capital Getting financed from venture capital is another option. Usually venture capital funds take ownership interest in young companies. They also take part in management of your business.

7.       Crowd funding Crowd funding is pooling funds from large number of people, often using internet. Many websites help you in arranging crowd funding for your venture. Some of the sites are Kickstarter, Indiegogo, etc. The highest amount raised from Crowdfunding is USD$70,000,000. This amount was raised by Star citizen, upcoming video game.

8.       Rotating saving and credit association In this arrangement members of the association meet and every member pay fixed amount. The total amount is than paid to one member. Same cycle is repeated to pay lump sum amount to every member of the society. When every member has received lump sum amount the association is disbanded.

9.       Factoring It is selling your account receivable to financer.

10.   Applying for small business loan Akuwat, and Grameen bank are some of the institutions in developing countries for aspiring entrepreneurs.

11.   Sale and leaseback transaction A company sells some of its equipment to a lessor, such as a bank or another financial institution, which leases the equipment back to the company. Thus the company is no longer the owner of the equipment but keeps the use of it. This commercial transaction allows to companies to have at their immediate disposal the cash to make investments in new business opportunities.

12.  Keep your financing requirement to minimum. Squandering your cash will play havoc with your business. Efficient management is most important thing in keeping your finances under control.

13.  Efficient management Keep your debtors’ collection day to minimum.

14.     Buying on credit. Buying on credit is another means of financing with added advantage that it is interest free. The down-side is that relationship with client can deteriorate if you fail to pay within stipulated time.

15.      Merchant cash advances. It is selling your future credit sales against a lump sum amount. For example if you get 10,000 Rupees lump sum than you have to sell 13000 rupees worth of future sale to the lender.  



Thursday, March 26, 2015

Family offices: managing the fortune of wealthy dynasties

Family office is a private investment arm of wealth families. When family office manages the wealth of single family it is known as Single Family Office (SFO) and when it manages the wealth of many families it is called multi-family office. Family office manages every task related to the wealth of family from accounting to succession planning, investing and philanthropy management
Establishing SFO is very expensive. In order to justify cost your family need to have at least half a billion dollars. The wealthier a family is the more cost effective it is to have a SFO.


If a family doesn’t own enormous wealth to justify having SFO than a family can have Multi-Family Office (MFO). MFOs can provide services to those families whose net worth is in the range of 100 million dollars to 500 million dollars. MFOs are charged with the same responsibilities, as taken over by SFO. The difference lies in the number of families, served by the family office. SFO serve single family while multifamily offices serve a number of families.

The rise in popularity of family offices against the alternatives can be attributed to a number of reasons. The triggering event of this rise was global meltdown in 2008. Wealthy families, heirs of wealthy dynasties, watched, helplessly, their fortunes being destroyed by the meltdown. The families felt cheated by asset managers, wealth managers and others large institutions for losing their fortune without going themselves into bankruptcy. Banks, for instance, were saved from bankruptcy during the crisis. Families who were invested in large funds and other big institutions watched their entire fortune being wiped away without being able to take out their investments owing to, for example, gates in case of hedge funds.


Feeling cheated, these wealthy families now wanted to take control of their wealth. In order to take control of their wealth they created another type of financial institution, Family office. The impact of rise of these institutions was felt by many in the industry of asset management. As their competitors, family offices invest in much different way than did the alternative institutions. Take for instance the time horizon considered in case of investments. As investors, they have far longer time frames than private equity houses or venture capitalists. Often the long range investment means that there is no exit strategy planned at the time of investment by FO.
Benefits from family office accrue to both parties, one owning the family office and the other receiving investment form these family investment’s arms.


The benefits accrued to wealthy families far outnumber than the benefits to the investees. These include control of wealth, flexibility in investing, and privacy.

The major benefit is control over your family wealth, has been discussed in preceding paragraphs.

The family office helps not only to take complete control of your wealth management but also provides flexibility in investing. The choice of investments can vary widely from real estate investments to investment in start-ups. The increased tolerance for risk taking, when the returns justify, is the edge over other institutions. Now families can invest in those areas where there is more return.
Another benefit to the families is privacy. The privacy afforded by Family Offices can’t be provided by conventional wealth management institutions.

The benefits to the investee firms and companies include the long time period of investment, and the increased risk tolerance.
Owning to long time period investments by family offices, they are given preference by nascent companies over private equity houses.
"With a family office you don't have a time horizon. We like the long-term focus. It's great to have an investor who doesn't view going public as an exit opportunity, but rather a chance to buy more stock," said Pere Valles, Chief Executive of Spanish electoraltechnology company Scytl.

The increased risk tolerance means much more to start ups than to other types of investee entities. The increased trend in investing in technology related companies has added another dimension to the investment.  Generally technology companies don’t have tangible assets, to use them as pledge for arranging loan from bank. Many Family offices are betting on technology, stepping in where venture capital and banks are reluctant to tread.

Another benefit is that those who successfully receive old wealth, for their start-up, need not spend their time searching for new investors hence finding more time to focus on their business.




Saturday, March 21, 2015

Tribes in the Arab world and politics


Tribe is social group based on kinship. Members are related to one another through blood relationship.

Tribal ‘asabiyya’
According to Ibn Khaldun ‘Asabiyya’ is the reason of royal authority. ‘Asabiyya’ is Ibn Khaldun’s terminology for ‘Group feeling’ or ‘Group cohesion’. According to his theory the more ‘assabiyya’ a group or tribe possesses the more they will be able to overpower others and thus acquire royal authority.

According to this theory tribes/ groups living in rural areas are more likely to acquire ‘assabiyya’ over the course of time while the city dwellers will lose ‘asabiyya’.

Tribal Rivalry
If inter-tribal tension is generated, it is very difficult to subdue it. This tribal rivalry can run for centuries. This inter-tribe rivalry helps promote ‘assabiyya’ within the tribe. The most important societies in today’s world that are tribal based are located in Arab countries.

The most important tribe in the Muslim world is the tribe of Quraish. Qusayy bin Kilab, member of Quraish tribe and ancestor of the Holy Prophet (upon whom be Allah's peace), founded a city state in Makah and made excellent arrangements for the welfare of the pilgrims coming from all over Arabia, with the result that the Quraish were able to gain great influence among the Arabian tribes and lands. Later on tribal rivalry between two branches, Banu Hashim and Banu Umayyad, of Quraish emerged.

The fierce sectarian schism among Muslims can be attributed to the tribal rivalry, between these two branches of Quraish. This rivalry has outlived many centuries. Later on this rivalry translated itself into sectarian tension.

Use of tribal kinship in acquiring and maintaining political power

The growth of tribe is independent of state. When tribal chief of one tribe marries lady from another tribe; it creates an alliance with that other tribe. In ancient tribal society when polygamy was common this was a perfect way to acquire political power.
The present Arab royals became kings through cementing ties with other tribes through marriages. King Abdul Aziz of Saudi Arabia, for instance, married many women in order to secure alliances with other tribes. As tribal chief these royals have political authority over whole tribe.

If the tribe is scattered in different countries then the chief can have tribal influence beyond his territory. Qatari emir, for example, has tried to grab the leadership of Banu Tamim tribe, as he is member of Al Thani family which is sub-tribe of Banu Tamim tribe. People of Banu Tamim tribe are scattered in many countries including Saudi Arabia, Iraq, and Qatar etc. In this way the emir tried to acquire influence beyond his territorial borders.

Another way of consolidating political power is to appoint tribal members and members of ally tribes to politically important posts. In the times of weak state authority tribal rivalry and tribal alliances, which are centuries old starts rising. As tribal institution is older than state in Arabian Peninsula, the state needs support from tribes for its structure. ‘Saudi Arabian National Guards’ is one example of dependence of state on tribal affiliations.

The ‘Saudi Arabian National guards’ are structured on tribal lines. Members from different tribes loyal to House of Saud have been recruited in ‘Saudi Arabian National Guards’. This institution helped ‘house of Saud’ to maintain its political power through uniting their tribal allies.

Some instances of tribal influence

Anazah tribe is the largest and most ancient tribe in the Arab world. The `Anazah’ have from an early date adamantly claimed the Al Saud family to be one of their own, probably because ‘Al Saud’ claimed ancestry from Wa'il, and many members of Al Saud claim descent from a branch of `Anazah’.

The ruling dynasties of Kuwait and Bahrain belong to Anazah tribe of central Arabia. Hence royal families of Kuwait, Saudi Arabia and Bahrain are distant cousins of each other. When Al Rashid ousted Al Saud family they took refuge in Kuwait. This was reciprocated by Saudi monarch a century later. When Saddam Hussain conquered Kuwait the ruling Al Sabah family was offered sanctuary in Saudi Arabia.

Although religion takes central place in life of many Arab people, as a result, shia-sunni divide is fierce in the region but tribal connections can often outweigh the importance of this divide. Common ancestry, geography and strict social code that demands allegiance between members, are the factors that binds the tribe.
Elections, when they take place, people cast votes for the candidates from their tribe. These people take pride in casting votes to their tribal chief, member from ally tribe or candidate supported by their clan chief rather than casting their votes on the basis of ideology.

Conclusion

Tribes are the most important social unit in the Arab world as tribes possesses ‘asabiyya’ more than any other social group. The sectarian and religious groups haven’t developed ‘asabiyya’ to the level at which they can counter the influence of tribes. Democracy is only successful in those areas where individuality is emphasized rather than collectivism. Unlike western society, the societies in the Arab countries are collectivistic as against individualistic, and this is the reason of failure of election, in many Arab countries, to bring meaningful democracy. The society needs to evolve in order to enjoy sustainable democracy. The urban life will help tribal ‘asabiyya’ to evaporate and only then election will be meaningful.



Sunday, March 15, 2015

Growing importance of Sovereign Wealth Funds (SWFs)

Surplus wealth of many oil rich countries is managed by SWFs

Sovereign Wealth Fund (SWF) is state owned pool of money invested in various financial assets.  This investment fund is established by current or capital balance of payment surplus and budget surplus. Sovereign wealth funds can be distinguished from foreign exchange reserves. Sovereign wealth funds aim to maximize long-term returns while foreign exchange reserves promote short term currency stability. Recent years has seen a rapid rise in number of sovereign wealth funds. Rise in oil and gas prices led this rapid surge.
The primary purpose of SWF is to diversify economy and generate wealth for future generations.


Sovereign wealth funds invest in various financial assets

SWFs can be categorized in two types depending upon their financing.

1.       Commodity
2.       Non commodity
Commodity funds are those financed by commodity exports, the most common of which is oil export. This type of fund is usually set up by those economies that are dependent on single commodity exports. When the price of commodity in international market rises the exporting nation will see greater surplus. Conversely when export driven economy sees the fall in commodity price it faces a huge current account deficit. Therefore a sovereign wealth fund is established to stabilize the economy by diversifying the country’s wealth in other industries.
Non commodity funds are those financed through surplus foreign currency reserves.
Political motives
Sovereign wealth fund may have political/strategic motives like gaining control of strategic industries for political reasons. Many politicians criticized the investment by SWFs as security risk. On January 15th, 2008 Hillary Clinton said: “We need to have a lot more control over what they [sovereign-wealth funds] do and how they do it.” The huge size of these funds can make an impact on global economy. Some experts claim that all these funds combined to hold 5 trillion dollars in assets in 2012.
Extension of state
These funds can be thought of as extension of state therefore they are not necessarily driven by profit and loss. Hence these funds can act as a tool of Government policy.
As Arab countries faced the problem of food inflation their Governments started to negotiate for land lease through these sovereign wealth funds. This land will be used to produce food which then will be exported back to the investing country. This investment is in fact resource seeking instead of market seeking. Land grabbing by these institutional investors in Africa and Asia has occurred often to the prejudice of local population. Investing in agribusiness helps investors take control of not only producing but also of distributing the produce.


Rice Duck farming

Japanese farmer Takao Furuno is architect of integrated rice duck farming. In this method the rice crop is grown along with duck farming. Duck farming helps control pests and other harmful insects in rice farm.

Duck is useful bird. Its eggs and meat are useful sources of protein. the bird can be used to provide supplemental income for farmers. Another benefit is to produce meat.

Duck’s meat is halal if slaughtered according to Islamic principles. Halal food market has grown to 1.1 trillion dollars in 2013.

 Duck fat contains 35.7% saturates, 50.5 monounsaturates,and 13.7% polyunsaturated fats (containing omega-6 and omega-3 essential oils). This resembles olive oil which contain 75% monounsaturated fats (oleic acid), 13 % saturated fats, and 10% omega-6 linoleic acid and 2% Omega-3 linoleic acid.

Duck meat is also a source of zinc and selenium. Zinc can also boost your immune system while selenium helps your thyroid function properly.

The droppings of ducks can act as a fertilizer. Ducks also churn up water with their feet hence providing oxygen to rice plant roots, thereby boosting growth of the plant. Using this method per acre yield of rice can be increased to two fold.  Furthermore the rice produced using organic method is more wholesome as compared to grown using pesticides. Organically grown rice also fetch high price in the market. 


Popularizing duck rice farming method can help solve food problem as rice provides carbohydrates to human population. Duck and rice farming when combined increase per acreage yield of rice. Using organic method of agriculture can also help reduce damage to ecosystem.