To be the First

Last updated: March 16, 2009

February 23, 2009

Yemen has long been a basket case. But with oil revenues and water resources fast evaporating and al Qaeda on the loose, Arabia's southern outpost could be headed for total collapse.

Yemen is invariably referred to as the "land of faith and wisdom" in jihadi journals and videos, echoing a famous saying of the prophet Mohammed. But what was true 1,400 years ago rings more than a little hollow today. Few in the West have much faith in the continued stability of the Yemeni state or see wisdom in investing in an opaque economy plagued by rampant and systematic corruption. These concerns, combined with the rapid depletion of Yemen's water table and its oil reserves, are causing the state's already limited power to recede further back into major urban areas.

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Yemen has long had a reputation among outside observers of stumbling from one crisis to the next without ever completely collapsing, but much of what appeared to be blind luck was calculated governance fueled by petrodollars. When the well runs dry, that luck may run out as well.

Source: Foreign Policy

The writer also says:

Of even greater concern, perhaps, is the fact that the country is rapidly running out of water. Groundwater used for agriculture and basic human needs is being consumed faster than it can be replaced, resulting in dramatically falling water tables -- up to several meters per year in some places. Sanaa might very well become the first capital in the world to run out of water.

Not so fast, boy. Our corner of the region has no less able candidates to get this title. Nobody should think that Yemen holds a monopoly on droughts and running out of water in this region. Neither it has one on collapsing oil revenues.


March 16, 2009

The situation may get difficult
IRIN says a record three year drought has decimated Syria's agriculture that accounts for about a quarter of the country's GDP, exacerbating the economic crisis.

“If the Syrian economy slows down while the drought of the past few years continues, then the situation will be difficult,” said Finance Minister Mohammed al-Hussein in January.

Nabil Sukkar, managing director of the Syrian Consulting Bureau for Development and Investment, said the drought could pose a bigger threat than the global financial crisis. “The drought adds to the misery of less income and less spending, and this affects economic growth.”

Source: IRIN

Syrian economy is struggling and not only because of the loss of orders from Europe and elsewhere due to the global crisis. With half of the population under the age of 18, the labor force is set for explosive growth over the next decade. Dozens of thousands of Syrians will lose their jobs according to IRIN in the next stage of jobs nationalization campaign in Saudi Arabia. To this should be probably added thousands of more Syrian expats in the Gulf region that experiences its own economic slowdown in the wake of the global crisis. The economic situation of Syria is now such that anything below 6%-7% growth should be considered an outright recession. In fact, according to IRIN, Syrian Prime Minister deems that the country needs $14 billion of investment to achieve these very 6%-7% and create enough jobs only for the next two years. It goes without saying that after the next two years there will be another two years, and $14 billion is an astronomic sum for a country like Syria that does not excel at attracting significant volumes of FDI on a good day.

Finally IRIN says that Syria has become a net importer of oil with the budget deficit ballooning to staggering 10% of the GDP (Somebody should check the site of the World Bank to see if this amazing figure is true). The fact is that Syrian government was cutting fuel and food subsidies throughout the last year, which makes one wonder how the country has so quickly turned into a net importer. Syria was reportedly losing up to 1/4 of its oil consumption to smuggling and removing subsidies should have stopped smuggling on the spot. On top of this the demand for oil products had to go down because of higher prices. In short, there appears to have happened a very sharp and unexplained deterioration of key economic indicators.

To be sure, Syrian demographic indicators are rapidly normalizing with the TFR of 2.73 reported for 2007 (this is lower than the current Jewish TFR in Israel) and it keeps declining, but the heavily distorted age structure of the population will continue generating elevated birth rates for years to come. The combination of these factors should mean that Syria's youth bulge is either at its peak or should peak out over the next few years which in my view means that the country is now facing one of the most dangerous periods in its recent history since my own private little theory is that youth bulges tend to set off when demographic indicators start actually improving. For example the chaos of 1968 and around this date in the West was not only produced by the generation of babyboomers coming of age, but also by the fact that the demographic explosion was basically over.

In the Arab world the first generation of babyboomers went on to babyboom in its turn and, as supporting extended families sapped the new generation's energies, the resulting destabilizing effect was limited in its scope. However, 20 years ago when the first signs of demographic normalization started appearing, the region exploded as hordes of radicalized unemployed and unmarried young people hit the streets. The demographic transition in Syria is trailing the rest of the region and this may explain why the country was until now spared more internal instability. But this also means that Syria is now moving into this stage and due both to the intensity of the demographic explosion (Syria's TFR used to be at 8-9 per woman) and its rapid undoing, the destabilizing effect of demography on the society will be severe.

In short, those scanning the region for signs of opening cracks should put Syria permanently on their watchlist.

California's 'Green Jobs' Experiment Isn't Going Well

Stephen Moore from the WSJ says California's green policies have not only failed to create more jobs but seem to have exacerbated the crisis.

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The Sacramento Bee, which has editorialized in support of the new regulations, was aghast at CARB's twisted science. We have to "be candid about the real costs of the transition," a cautionary editorial advised. "Energy prices will rise, and major capital investment will be needed in public transit and new transmission lines. Industries that are energy intensive will move elsewhere."

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Meanwhile, the state is losing jobs, a lot of them. California's unemployment rate hit 9.3% in December, up from 4.9% in December 2006. There are now 1.5 million Californians out of work. The state has the fourth-highest housing foreclosure rate in the nation, has lost more businesses than any state in recent years, and is facing a $40 billion deficit. With cap and trade firmly in place, the economic situation is only likely to get worse.

Other states are plundering the Golden State's industries by convincing businesses to pick up stakes and move out before the cap-and-trade earthquake hits. Governors and Washington politicians who want to reduce their "carbon footprint," but are worried about the more immediate crises of cascading unemployment, unbalanced budgets, and the housing-market collapse, would be wise not to follow California's lead. Green policies have a tendency to push states into the red.

Source: The Wall Street Journal

Given that so much of Obama's "stimulation" is about creating green jobs, the stimulus packages may fail to set the US on the path to recovery, though they are certainly helpful if America is serious about burying herself under a huge pile of debt. Of course, I was always arguing for a massive fuel tax to be introduced in the US (and actually everywhere), but we should distinguish between fuel taxes and such stuff as cap-and-trade schemes. Fuel tax makes a lot of economic sense for reasons I have explained here, but, still, this does not mean the desired effect will be produced immediately. We can only be reasonably sure that within two-three years after introduction of new taxes on gasoline and diesel, the rogue states and would-be empires would be sufficiently defunded for America to afford to cut its foreign policy and defense spending.

Another thing is that it appears that Latin American ethanol, which is claimed to be competitive at $40-50 for barrel, provides a cheap enough alternative for oil. There also exists a chance that the gas tax will break OPEC's grip on the market with an added benefit of having the retail price of gas much lower than the original price and the tax together. This means that even the purely economical costs of moving the market away from oil are not very high. Combined with the oil's massive geopolitical costs, fuel tax becomes a sure win-win though, as I said, this may require a couple of years.

The situation is rather different with coal and electricity. Of course coal has its own externalities if you believe in global warming. But the bulk of these externalities is yet to happen. And coal does not have any geopolitical costs, while its alternatives seem to be way away from being competitive. This fact casts a big doubt on this green New Deal. Right now America is spending and borrowing as if there is no tomorrow. But tomorrow will come. And even today is not over yet. At some stage Obama will have to tackle the banks and toxic assets and these bailouts may easily swell into trillions. Just attempting to either suck such sums off the markets by selling bonds or make them up by printing money is bound to disrupt the markets. It will hurt just about everybody else in the world. In fact, the spreads on US bonds seem to be already increasing.

Under such conditions, it's imperative that stimulus packages make sense, America just can't start throwing money around for nothing. If Obama is so serious about the green part of his program, he should concentrate on oil. And even here Obama should better proceed cautiously. A one time big increase in fuel taxes is unavoidable, but the rest can be achieved by piecemeal increases over years. It's important that such a plan is adopted and provided with a clear time frame. That's more than enough, the anticipations count just as much, if not more, as the actual tax. Otherwise, going too wildly after reducing carbonic emissions may easily become yet another step in bringing America to final bankruptcy.