Tuesday, September 27, 2005

Cat gets tongue

“The media in this region — words fail me for the right description, since I might get into trouble.”

Richard Evans, PepsiCo’s commercial vice president for the Middle East and Africa

Courtesy of Campaign Middle East (registration required)

Sunday, September 25, 2005

Raging Bull

The new realities of regional finance - MATEIN KHAILD, MENAFN

Khalid gives a pretty good rundown of the systemic risks that make the bull market in the GCC so very worrying.

My opinion - there's too much cash chasing too few investment opportunities in the region; too little oversight, regulation or transparency; too much exuberance - bear in mind, as Japanese bank Nomura pointed out, that Saudi Telecom's market capitalisation of US$74bn is worth more than BT (US$35bn), AT&T
(US$15bn), SK Telecom (US$15bn), and Telekom SA (US$9bn) combined - and far too many unsophisticated investors who think that having the names of a couple of ruling family members in the IPO prospectus is a valid alternative to a business plan - or, for that matter, an existing business.

Anyway. here are his conclusions:

Market valuations are now extremely inflated across the AGCC, raising the risks of panic sell offs and protracted corrections. The high degree of retail participation on the bourses, the role of excessive bank leverage, the absence of viable bond markets that could act as shock absorbers or an alternative liquid asset class or hot money on the exchanges, no real hedging instruments like index derivatives or market makers mandated to use their capital to stabilise falling shares on the regional stock exchanges are all a potent combination of systemic risk if sentiment changes.


Unfortunately, leverage cuts both ways. Leveraged bear markets can wreck havoc because buyers literally disappear since every market correction causes a new wave of distress selling from long only investors trapped by margin calls.

This is the daisy chain of capital markets panic that has triggered recession, banking crises and even credit crunches more than once elsewhere in the Middle East. After all, in Kuwait's Souk Al Manakh and Oman, the AGCC witnessed the leveraged daisy chain dominoes in the capital markets collapse and take down entire banking systems in a pyramid of paper speculation.

Let us hope that central bankers and securities regulators in the AGCC remember Santayana's warning that those who refuse to heed the lessons of history are doomed to repeat them.

Read it. Read it all.

Tuesday, September 13, 2005

Business-friendly UAE

According to the wondrous periodical that is the Gulf News, ' UAE business procedures [are] 'highly streamlined'

It takes six documents, three signatures and 18 days in the UAE to move imported goods from ports to warehouse, which according to the latest World Bank report makes the country one of the most competitive in the Middle East


With a company start-up capital requirement that favours the rich - 416.9% of per cap. income (as opposed to 28.9% of per cap income in the OECD); with a credit information index of 2 out of 10; with a shareholder protection index of 4.7 out of 10; an average delay of 614 days to enforce contracts (232 in the OECD); and an average recovery rate of 5.5 cents on the dollar from bankrupts – yeah, it's incredibly 'streamlined'.Particularly if you're rich, you plan on going bankrupt and have no intention of paying your creditors. BCCI anyone?

See for yourself.

Sunday, September 11, 2005

me no know

This is interesting.

Theory-Driven Reasoning About Plausible Pasts and Probable Futures in World Politics: Are We Prisoners of Our Preconceptions?
(Word document)
Philip Tetlock, (American Journal of Political Science 43(2): 335-66).

Political analysts are wont to lapse into tautological thinking and most knowledge claims are inherently politicised. It's something that I've long thought, but this paper gives the observation some analytical rigour.

It's difficult to know what to do about it, though. There is an intractable epistemological conundrum at the heart of human consciousness that we have yet to solve. For the time being the best work-around we have developed is based on Descartes' privileging of concrete experience, but the simple fact of the matter is that the world has too many variables, all changing too quickly, for empiricism to much more than a valiant attempt to impose rigour on thought. When it comes to analysing fast-moving, stochastic datasets and trying to extrapolate future trends, empiricism is just too cumbersome for the job. So political analysis largely comes down to sophisticated heuristics.

There's a problem here, though, as well. As any (serious) political analyst will tell you, fortune-telling is a mug's game, but it's also what the readers really want you to do. There's little alternative but to draw vague, ephemeral conclusions that delimit the possible range of future outcomes, all hedged about with weasel words. And even then, as Nassim Nicholas Taleb points out in a fascinating paper (pdf) on prediction (it's in draft, so don't quote it), even when people limit themselves to delimiting a range, they get it very wrong - worse, experts get it even more wrong, largely because they find it more difficult to believe that they could be.

The thing is, though, that we're all in business, which means that we can't really just throw our hands up in the air and say "Well, how the hell would I know?". Tempting as it is. So what we end up doing is playing an elaborate confidence trick on - or perhaps more accurately, with - the readers.

The ranges of possible future outcomes are selected heuristically - that is to say, in a rough'n'ready 'kinda fits' way - and then hedged about with words like 'perhaps' and 'possible' so that there's a get-out clause if we get it completely wrong. What our heuristics come down to, though, is a whole bundle of unarticulated biases, assumptions and beliefs about what the world is and how it works - that essential epistemological conundrum to which I refered earlier.

The thing is that the reader doesn't have any alternative mechanism by which to assess the validity of our truth claims. All the reader is able to do is to deploy precisely the same sort of heuristic reasoning to see if the analysis 'kinda fits' their own interpretation of the world. If it does, then the material is deemed 'good' and they'll probably read it again.

Which brings us to the great danger of this process. It's become glaringly obvious over recent years that the popular press in most countries has abandoned the old ideal of journalism and has cynically embraced this feedback loop of heuristic reasoning. People buy newspapers these days not so much to read news, but to have their own views recycled back to them clad in the pscyhologically imposing (qua 'authoritative') form of the printed word. It's symbiotic: they like the reinforcement of their own personal paradigms, and the papers employ people who share the paradigm so that they can write copy that the readers will like. The way that I'm describing it makes it sound very transparent, but it's not - there are several layers of bluff and counter-bluff going on there to ensure the suspension of disbelief, most of them to do with the 'personality' attributed to the outlet's editorial line. 'Edginess' or being 'hard-hitting' or being 'salt of the earth' are some of the more obvious traits cultivated to maintain that underlying suspension of disbelief.

And it seems pretty obvious that exactly the same thing is going on in all analytical professions, whether it's political analysis, business analysis or financial analysis: most analysts end up producing analysis that looks remarkably like what their peers and competitors are producing (not least because they spend so much time looking at their peers' and competitors' analysis). And if they get it wrong, then just about everyone gets it wrong. They do this even if they know deep down that they're just telling people what they want to hear - just look at the tech bubble. And it's only in rare instances, like the tech bubble, that this symbiosis will break down and people will actually be taken to task for perpetuating the myth that we can see into the future.

It's a bit like the early priesthood, in a way. The people in the funny costumes who speak in a funny dialect full of arcanery are the people who don't have to go out into the fields to work, because they're the guardians of 'the knowledge'.

Anyway. The problem is: knowing this, what are we actually going to do? Should we give up prediction? Should we abandon analysis? No, actually, I don't think we should. There are two things that make me think that it is still worthwhile pushing on in this line of work. One of which is the fact that when people make decisions, most of the time, again, they will be relying on heuristics. Because heuristics are fuzzy, the best way to analyse them quickly is through fuzzy thinking. So when it comes to analysing decision-making, being imprecise isn't necessarily a flaw - so long as you recognise that the person you're analysing may be imprecise too.

Which is what this comes down to, for me. There has to be an element of intellectual humility involved here, and a degree of empathy. It is possible to understand decision-makers so long as you recognise that their decisions may be driven by emotion as much as by rationality, and that they often get it wrong. Far too much political analysis assumes an incredibly high level of rationality, cohesion and purpose in decision-making, when what you're looking is really only marginally more organised than pure chaos. The thing is that it's tempting for analysts to perpetuate the impression of complexity because it maintains their position as the guardians of 'the knowledge' - which is precisely what conspiracy theorists try to do at the lunatic fringe of the practice - when actually the analysis would be better if it were that much simpler and that much more sincere.

The most important part of that would be admitting making mistakes without trying to wriggle out of it. Playing with counterfactuals can indeed increase our understanding of the world, and if they are proven wrong, we can learn even more from why. To err, after all, is human. Unfortunately, we're generally too damned proud to admit it when we do screw up.

Tuesday, September 06, 2005

John Kay on 'heroic' executives

War and Peace - a business primer for our time

At the conclusion of the Drissa meeting, Andrei “lost his standing in court circles forever by not asking to remain attached to the sovereign’s person, but for permission to serve in the army”. The success of a military action, Andrei concludes, depends not on commanders, but on the man in the ranks: “only in the ranks can one serve with assurance of being useful.” How could a 19th century Russian have understood modern business realities so well?

John Kay is great. This article sums up my employers.

Monday, September 05, 2005

Judicial stand-off

Baheyya dissects the infiltration of the Egyptian judiciary by legal officers answering to the executive branch of government. Senior judges are clearly deeply committed to their constitutional role and to the doctrine of the separation of powers; the regime, through Supreme Constitutional Court Mamdouh Mare'i, is clearly determined to dilute their power, split their ranks, and limit their ability to grant legitimacy to, or withhold it from, the election.

On Friday, the judiciary took a strong stand against executive interference in their constitutionally mandated role to observe the elections. As Baheyya relates:

The majority of judges resolved to monitor the presidential poll next Wednesday, on the following terms: (1) judges will permit members of civil society watchdog groups to enter polling stations and observe the vote, (2) judges will hand over copies of voting figures to candidates' proxies, and (3) those judges who have been distanced from monitoring by fiat (approximately 1,700) will form their own fact-finding commissions and monitor the vote anyway, roving between polling stations much like the citizen watchdog groups.

Reinforcing the point, a court ruled Saturday in favour of a coalition of NGOs, saying that they could indeed observe the elections.

The Presidential Elections Commission responded almost immediately, re-iterating its ban on NGO participation in election monitoring, and also discounting a separate court decision to exclude a candidate who had lost the support of his party.

The implications should be obvious. A government body deriving its authority from the executive is arrogating the right to pick and choose which judicial decisions it considers binding. It will be interesting to see how this stand-off develops over the next two days.

Sunday, September 04, 2005

Celebrity departures

Secret Dubai diary: Book of the Dead

A monthly magazine celebrating the lives of famous dead celebrities is to be launched across the region by Corporate Publishing International, Campaign Middle East can reveal.

Called Goodbye, the "niche" publication is expected to hit the streets from the start of next month, priced around AED10 (US$2.70).
The idea came to de Sousa after he was reading a celebrity magazine that carried coverage of Pope John Paul II’s funeral. "I kept on seeing dead bodies of famous people being featured in magazines and thought about what these people had contributed during their lives."