A Blessing in Disguise, right?

These days almost on daily basis we read about the impending recession that will happen in the UK and the US which will affect many-many countries whose economies depend on the demands from these countries. Those, coupled with the increasing global food prices and the skyrocketing oil price, mean doom and gloom for the world economy.

Then I thought are we lucky or what? This is what I think, for some blessing-in-disguise sort of luckiness, all of the world events may probably have little effects on us. Thanks to oil, we have not been producing anything else which means we will not be affected by the fall in world demand of anything, well..except oil. As long as oil price goes up, then we haven’t got anything to complain. Our economy will continue its growth. Our inflation stays low (thanks also to oil money that have been used to subsidise our cost of living). And if there will be a recession, we will actually stand to gain. A world recession will push the prices of all goods (including food) downward. Since we import almost ALL of our needs, then we can continue not producing anything and buy from abroad, which in fact will become cheaper.

And then we all can continue growing… without development.

And of course, if only oil never runs dry.

Salaam.

Reality Bites....in Miri

Somebody sent me a link to a blog post by one of our Sarawakian friends. For the benefit of those who do not have a Multiply account, here it is:

MONEY WITH A DIMINISHING VALUE by Zaidil

There is a sudden change in atmosphere in Miri city after the fuel price hike. There are less cars on the road. The shopping centres are less crammed and worst of all... there are not that many happy faces around. From what I sensed, it is just the beginning. The experts predicted that the trend is likely to continue that way for quite some time. So what do we do?

Nothing much I am afraid. If you are an optimist, you will say - work harder so that you can earn more to compensate for the diminishing value of the currency. At the rate the price of goods is increasing you have to earn at least 2 times what you earned a month ago in order to maintain the same level of lifestyle.By the end of this year, you have to earn 4 times what you earned in April. This week Abdullah has just announced that if you work in the govt, you are allowed to do a part time business. Wonder how will that affect the already inefficent govt agencies?

On the other hand, if you are a pessimist, you will start looking for scapegoats and punchbags to put the blame on.

The situation is however not all gloom and doom. The bright side of it all is that there is a lot less road accidents ever since the price hike was annunced and people started to use the public transport more. Actually last sunday was the first time that I went to Boulevard supermarket without anyone ramming my butt with the trolley. I had the entire supermarket for myself.

Another positive development is that people started to think of growing their own vegetables and rice which I think is not a bad idea at all. Myself, I am thinking of digging the document bag to search for that land title which my grand father left more than a decade ago. With a bit of luck the cockroaches have not been so hungry to savour the land title and I might be able to harvest my own Bario rice. Oh do I have to fly to Bario to grow Bario rice!!

We should be grateful that Brunei still maintains the fuel subsidy (I don't know when will that last though, and I'm not sure whether it is the most sensible and rational policy). Nevertheless, I'm sure Brunei is also affected by the policy change in Malaysia. Perhaps this effect will probably even bigger than an effect of a reduction in Brunei's fuel subsidy.

Too bad for a country that depends on too much import.
But that's reality. And reality bites.

Salaam

Oil Price

I received an email today asking my view on the current issue of the current global oil price hike and the possible 'answer' to the crisis. It has been in my head the whole day today and I'd like to share you my reply to the email. I also believe that as an oil producing country ourselves (albeit small), this issue concerns us. I would also love to hear other views.

Below is the content of the email:

Dear Freakonomist,
I'm Raiza, an ordinary person who wonders alot on what on earth is gona happen to the world when the oil price hits US$200/ barrel which in turn would give a spiralling effect to the worlds economy wreaking havoc the global financial market. Understanding that you believe there is an economic explanation to everything intrigues me and leads me to email you on the following issues. I humbly request for your opinions and explanations.

What has been bothering me lately is the fact that inflations are occuring in most countries, Brunei is of no exception. I strongly believe that one contributing factor to this is the disturbing rise in oil price.

There are several excuses to the rise in oil price:
1) The global demand for oil is rising.
2) The dollar continues to fall to record lows.
3) And, OPEC refuses to raise production levels, insisting US recession will lower.

Today's newspaper mentions despite the Jeddah Summit where policy makers gathered to have emergency energy talks and that Saudi agreed to increase production by 200,000 barrels to 9.7 million per day, the oil price continues to rise. The rise in oil price this time is blamed on possible terrorist activities in Nigeria. If this is true then yes this would choke oil supplies hence demands on oil can not be answered fully.
Unless... more explorations are done which will mean more huge investments are needed. The story on the energy crisis seems to go on and on and no apparent favorable explanation to resolve the said crisis.

My question now is what are all the possible 'solutions' that can help the world to return to its stable state in the short-term and medium-term? Going green is one but this surely will cost us time! I hope to hear from you soon.

This is my reply:

Thanks so much for reading my blog. If I know the answer to your question then, I wouldn’t be sitting here at home and writing this :).

Nevertheless, this is what I think:

1. I don’t think there is an ‘easy’ solution to the current global crisis because as you clearly point out, there are several reasons to the rise in the oil price. Addressing one or trying to do so without solving the others, does not guarantee that the issue will be resolved, as is the case to the Saudi’s agreement to increase oil production (i.e. oil price remains high).

2. The US needs to strengthen its dollars but that would mean at the expense of the US economy, which as we speak, is ailing. A stronger dollar may worsen their Balance of Payment, which would not help their economic health. But a continuous weak dollar will surely be followed by a continuous increase in the oil price.

3. And then there is a problem of increasing global demand. Now, the ‘economically’ right thing to do is for all governments in the developing countries (where oil demand is high and growing) to remove any oil subsidy. If the domestic oil prices in these countries reflect the international price, then demand for oil will surely go down. But this is (as you can imagine) not without a great cost.

4. Another factor that’s causing the increase in price, if I may add, is the work of the commodity index buyers and speculators. Now, this needs to be stopped.

Without doing all of the above then sadly, it may be true that the only solution to the energy crisis is an actual global recession.

Big Salary, Enough Salary?

Today, thousands of teachers in the UK went on strike and as a result thousands of schools were closed, forcing millions of parents to look for alternative daycare for their children. Thankfully, my children's school didn't participate so school was normal for them.

Today was the teachers. Previously, the university lecturers, the postmen/women and the policemen/women also went on strike due to dispute over pay rise.

I'm thankful that no such incidence has ever happened in Brunei. I cannot imagine the reaction from our government :). But then the pay and perks in the government sector are higher compared to the private sector. Whether or not the current salary scales are appropriate (i.e. taking into account the inflation growth rates over the years) is however another question. I can see the dilemma our government would be facing if the current wage rates are found to be below the appropriate rates. If it raises the scale, it will further widen the public-private wage gap.

Don't take me wrong. I'm not asking for a pay rise. But I think it is unavoidable and equally necessary for some sort of study on the appropriateness of the current salary scale to be carried out especially in the light of poverty reduction. The results will not only be used to aid the poverty alleviation policy but will also be useful in other policies and most of all will be very, very interesting (at least to me!).

Salaam.

Money Can't Buy Me...Food

A few months ago I wrote a short post on the increasing world’s food price (see here). In the past few days however, a few readers have emailed and left comments in my tag-board, asking for my view.

Since I am not currently in Brunei, I really don’t know the extent to which the global food inflation is affecting Brunei. But I’m sure, like everywhere else in the world, Brunei consumers must have also feeling the heat. For the benefit of all (in case someone is not sure why food prices have gone up), there are a few contributing factors:

1. The increase in the world demand for food: Giant countries such as China and India, whose economies have grown tremendously now have put pressure on the world’s food demand. As a result of a higher standard of living (due to the increase in income), the people in these countries now can afford to buy a larger variety of food resulting in increasing prices of wheat, rice, milk etc.

2. Rising input price: The main problem is the oil price. The soaring oil price is affecting the food price mainly in 2 ways. One, it increases the cost of transportation (land and/or sea). Two, it increases the price of fertilizers. When oil price increases, gas price also increases. Gas is needed to produce food fertilizer. Hence, fertilizer’s price goes up, so does the food price.

3. Climate Change: Flood and draught in many parts of the world are affecting the supply of food. When the food supply cannot meet the increasing food demand, then of course prices of food will go up.

4. Other market distortion: If you have never heard of biofuel, then by now, you should. And apparently it is also causing the food price hike. Wheat and corn for example, are now being used to produce biofuel. As a result, their prices have gone up and thus affecting the prices of other food. This problem is further aggravated by the trade policy of the developed producing countries who refuse to allow free trade for these commodities.

So anyone reading this should now understand why suddenly they find food prices have gone up (and it is not solely because the retailers have gone super-greedy, although some may have taken an advantage). I would actually expect for the effect to be stronger in Brunei since Brunei highly depends on imported food and we don’t have any (many) local substitutes. It is worrying really, just a few weeks ago, the Philippines for instance failed to buy enough rice for its inventories as a result of sales restrictions of rice in Vietnam, India and Egypt. Indonesia, on the other hand, warns of an impending unrest due to the rise in the prices of meat and tofu. (A Soft WARNING of rice shortage in South East Asia has been issued! And there is also a danger of a shortage of powdered milk! SO Please BE WARNED).

What can the government do? I DO hope the relevant authorities in Brunei will not just sit and watch and see how it goes. Other government around the world have taken actions. UAE recently has announced its intention to build a six-month staple food reserves, subsidising food and price freeze. Russia and China, have also issued food price freeze.

A list of staple food in Brunei should, by now be constructed. While I don’t expect the government to subsidise ALL food but I do expect some food price subsidies/food security packages are being planned for Brunei’s staple food (in addition to rice and sugar) such as cooking oil, flour, milk, eggs, chicken(?) and other food (Anonymousfoe: I hardly think mayonnaise should be included hehe). And this would be THE time to impose some price ceilings. Otherwise, we may be in a BIG, BIG trouble.

My advise to anyone reading this (as my previous post) is DO NOT WASTE FOOD! And however small your backyard garden is, try to plant some vegetables. You just never know…

Anyway, the Financial Times is an excellent place to get further information and latest news on the soaring food price (click here).

Salaam.

Why Globalisation Isn't ALL Good After All.

I was reading the BB article on the rising food prices. First of all, it’s not only in Brunei (so please don’t blame the government). It’s a global effect. Everyone is feeling the heat especially those in poor developing countries. So we all in Brunei should be grateful.

Why the increase in prices? My answer is that it is very much related to the effect of globalization. Because of globalization, a number of giant economies emerge, in particular, China and India. Their economies grow, and so do their standards of living. As a result world demand for oil, gold and food soar. Any O level economics student would know that an increase in demand will surely lead to an increase in price. Besides the increase in global demand, there are also other factors that lead to the increase in the world’s food price such as floods and draughts (caused by the dramatic climate change) which reduce the world’s food supply.

What should we do? Well, if we can, we should increase food production. Seriously people, put some EXTRA effort in our agriculture production. Anything can happen in the future. There is (sometimes) an extent to what money can buy (from abroad). I believe, at the end of the day any country’s first priority would be the survival of its own people.

On the other hand, in the event that the hike in prices affects our local consumers and producers (which eventually will be inevitable) and as I think, as we speak, some have actually felt the effects (forgive me as I am not in Brunei, I don’t know whether food prices there have actually gone up), then there are 3 things the government can do (in our case 2 things actually):

1. This is when price control sets in. The government would typically set a price ceiling. This is already happening in Russia and Argentina.
2. Eliminate any import tariff on those products. I don’t think this applies to Brunei as I believe the food tariff is already at 0%.
3. Increase or introduce food subsidy, where the government would typically pays for the excess price. This is happening in Egypt as we speak.

Anyway, as I said we all should be grateful. The government has ensured that enough staple food supply is available. For how long, that I don’t know. My only advise for now is DON’T WASTE FOOD!

Salaam.