Category Archives: Global Economy

The global economic crisis – the product of today’s buy now pay later culture

The last four years have witnessed a global economic crisis not seen since the great depression of the 1930’s. With the global economy as intertwined as ever, a brewing credit crisis in America swiftly sent shockwaves and a domino effect throughout the continents.

With export, import, currency valuation, national deficit and controlling inflation such interdependent components of any economy, significant changes or a crisis in one zone can quickly sprout crisis in other regions.

While the global economy limped to recovery from its lows of the 2009’s, a number of factors have recently pointed to a slowdown of the recovery and a possibility that has sent shivers down all investors  – a double dip recession or worse the onset of a depression.

Such fears and general anxiety is one of the main reasons for the extreme volatility experienced in the world stock markets in recent months, with commodity prices yo-yoing as sentiments has changed daily. While everyone has looked to governments for surety, to act swiftly and to maintain stability, in truth the hands of many government particularly that of Washington is tied.

The mechanisms employed that contributed to containment and gradual easing of the first economic crisis is clearly not a long term answer. For example, while many have hoped for another round of quantitative easing in the US, throwing more “money” into solving a money crisis is clearly not a sustainable solution. The US debt is increasing by trillions each year and it’s the children of the future that will be left to suffer from the economic short-sightedness of today.

The common denominator in the crisis of 2008 and the brewing crisis of the current time is credit. While it may be easy to borrow more money to pay off your debts or to ensure the economic cycle continues, at the same time this creates a dangerous long-term conundrum that can easily lead to the collapse of a country.

The theme underpinning discussions and initiatives to calm and contain the current economic crisis is the cutting of the national deficits. National debt is a natural reality and can be key to revitalising a country, however, when the deficit enlarges exponentially and at the same time the government income declines, as per instance the population become weary to spend or job growth declines leading to higher unemployment, the government is unable to contain its debts and becomes susceptible to an economic collapse and a defaulting of its debts.

While in the previous years it was large banks that were bailed out across Europe and America, the perils have increased as governments received bailouts.

In the past year Ireland, Portugal and more infamously Greece have received bailouts. In the case of Greece, the need for larger bailouts has become a growing necessity and a stark reality. The economy is struggling, unemployment is increasing and crucially the deficit austerity measures employed as a condition for receipt of bailout funds have not kept pace with the ever increasing funds needed to plug immediate debt gaps.

With the Eurozone and the Euro become a sacred icon of the European landscape, the idea of allowing Greece to exit the Eurozone or leaving it to default on its debts has become a red-line.

As a “smaller” economy, bailing out Greece is not such a big problem. However, many now fear the worst, that other countries will soon follow foot. The credit rating of many European powers and chillingly the first cut of credit for the US have only exasperated uncertainty.

Two countries staying above water for now are Italy and Spain, both with large deficits and ambitious austerity budgets. With the volatility experienced in bond markets, both countries could easily be sucked into a vicious cycle where only significant bailouts would prevent economic ruin.

With all the talk of bailouts and financial aid, the question of just who will pay for all this is constantly overlooked. With major economies in a fragile shape, government debts already at record levels, understandably no country has jumped at the prospect of contributing bullions more in bailout funds.

As the months have passed and Eurozone crisis in particular has gathered pace, it has become ever apparent that only an all-encompassing Eurozone bailout facility could contain the crisis. This has led to controversy in a number of more established economies particular that of Germany and also in countries such as France who are particularly exposed to the Greek crisis as main creditors.

Short-term solutions should not mask the wholesale changes needed across the global economy, including tighter regulatory control of the banking system, a deficit levels that matches the profile and economic growth of a country and also a need to avoid ignoring the fiscal failing of another country as “their problem”. Your neighbour’s problem could very soon be your problem.

The need to work together will become critical with the world population fast reaching 7 billion. The demand of oil, staple foods and general resources has already pushed up global prices with global poverty threatening to increase even further than the rates of today.

 A greedy mentality amongst bankers, uncontrolled capitalism and governments who refuse to look at long-term debt measures, only adds fuel to a growing fire.

Kurdistan as a flourishing economy is developing an economic foundation for a number of reasons. If the government controls debts and deficit levels at an early stage, this could safeguard Kurdistan economically for decades to come. Kurdistan has practically no debts and is self-sufficient – its spending could easily be facilitated by it growing clout as an oil power.

Much like the global crisis of the past few years, which has had minimal impact on Kurdistan with the exception of declining oil prices, the Kurdistan government must take heed before crisis strikes.

Although the Kurdish economy is in a stable shape, key deficiencies should also serve as long-term alarm bells. The lack of an effective tax system, social welfare and privatisation could undermine prosperity in the years to come.

Kurdistan should establish a solid private banking system, a facilitation of controlled loans to the general population, allow income taxes to create revenues and ensure the private sector is given firm backing.

The economy should be diversified to allow other sectors such as tourism and production to increase and to ensure that the import and export ratios are closely watched. Self-sufficiency is key and by allowing disproportionate import levels, a declining agriculture and over reliance on a single source of income, Kurdistan could become engulfed in regional and global economic crisis and more crucially become susceptible to policies of its neighbouring powers.

First Published On: Kurdish Globe

Other Republication Sources: Various Misc.

The missing ingredients in Kurdistan’s economy

From decades of repression and barbaric rule, the rise to prominence and political prosperity for the Kurdistan Region has been nothing short of remarkable.

As the Region has undergone significant transformation, the expectations of the population have exponentially grown.

Nowadays new airports, luxury malls, classy restaurants, highways and skyscrapers have become an accustomed part of the Kurdish horizon. Long perceived as an existential threat, the only invasion by neighboring countries was from Iranian and Turkish companies flocking to the region to strengthen their hand economically, culturally and politically.

However, whilst the Kurdistan Region has literally become “the other Iraq”, new lofty buildings and brand new cars do not always paint the most accurate picture of economic progression, social equilibrium and the path of development that needs to ensue.

Such rapid progress is unmistakable and has attracted the plaudits of many but in truth the establishment of the foundations of a healthy and vibrant economy goes much further than infrastructure that takes the eye.

Without the establishment and promotion of a number of key ingredients that underpin economic affluence, long-term growth and sustainability cannot be achieved.

There is great risk that the economic growth is faster than the current infrastructure or social apparatus is able to support. At the current time, the price of land and real estate has sky rocketed, with the price of rent been driven to new levels by those relocating across the more volatile south.

Generally, whist the cost of living has rapidly increased, the standard of living has not necessarily kept the same pace.

There are certain dangers that if the imbalances are not adequately addressed, it may not only derail economic progression but also the strategic goals of the Region.

The factors that underline a healthy economy is maintaining and protecting growth whilst controlling inflation. At the same time, ensuring that the economy is sustainable and safeguarded against a number of outside risks that come as a result of globalization.

As such self-preservation is crucial for Kurds to safeguard their current prosperity. After all, the Kurds need no reminders about their not so distant past. Only a few years ago, the Kurds enjoyed frosty relationships with its neighbors who frequently threatened to invade, while less than two decades ago, Kurdistan was subject to genocide and destruction.

Self-sufficiency is pinnacle to the survival and economic independence of a nation. In this regard, agriculture is the cornerstone of an effective and healthy economy and the bread-basket of its people.

Ironically, for a land and a people who established their existence over thousands of years on utilizing highly arable lands and agriculture, Kurdistan has a strong dependency on neighboring countries to feed it.

The government needs to introduce firm incentives for ordinary Kurds to return to agriculture and farming that most abandoned for the dependability of city life. Such people need access to modern tools, subsidies from the government but also the same level of education and public services as they would enjoy in the cities.

One of the reasons people flocked to the cities was partially due to scorched earth policies of Saddam but also due to the contrasting conditions across Kurdistan. While the main cities have witnessed marked progress, this is not necessarily reflected across the entire Region.

The Kurdish market is very much import driven with little exportation aside from oil. As a result, Kurdistan relies heavily on outside parties for everything from building materials to consumer items.

The Region may have an abundance of oil, meaning that it has tremendous purchasing potential but without economic diversity this leaves a fragile economy that is susceptible to outside market conditions. The Region has the potential to export many other items. With adequate infrastructure and production capabilities in the future, the Region can support its own growth and also ensure that money stays internally.

There are simply not enough Kurdish made items, factories or production lines to underpin the economy, and a private sector that is far too embryonic for people to stop relying on the government.

While there is a very weak banking system, no affective system of taxation, an infant IT infrastructure at best and a lack of self-sufficiency, the economy cannot be deemed strong.

There needs to be an economic cycle, whereby as the economy prospers, there is more money to spend and a higher budget for the government who in turn plough more money back into public infrastructure and society.

With the majority of people working directly for the government and essentially reliant upon the state, over 60% of the regional budget is consumed solely by salaries. Whereas in the majority of the Western world, not only is this typically less than 20% but the government has even more revenue through both ordinary and corporate taxation.

The rapid growth in Kurdistan needs new ways of thinking and close monitoring. Quality assurance and compliance to international building and management standards is imperative. Ever increasing construction is fine but can we be sure that they are of the highest standards?

This makes economic regulation of paramount importance. Investment and business must comply with law and be transparent in nature.

With a growing social infrastructure and roads packed with cars, there now needs to be environmental regulations to protect Kurdistan’s future. The environment and the future of the children simply cannot be traded off for more money and infrastructure projects on the ground.

One of the greatest dangers in today’s Kurdistan is the evident divide between the rich and the poor. New luxury foreign style villages may be iconic in our social heritage but ultimately this is confided to those able to purchase such expensive homes. New parts of Erbil aside, old parts still suffer from a lack of basic services.

The Region still has a shortage of electricity, an inadequate sewage system and medical care that is not all encompassing. As the economy advances, there needs to be a social welfare balance to narrow the rich-poor divide and ensure taxes are paid based on one’s capability.

While, the Kurdistan government has an investment law that rivals any of that in the Region, this should not be at the expense of encouraging a skilled local workforce which is currently lacking.

In this light, education and training should be the building blocks of the economy. The Region is overly reliant on foreign skills, which more training, qualifications and education can address.

Above any of the factors mentioned above, the mentalities of the people need to change for real progress to ensue. There is a lack of professionalism amongst the workforce and a lack of accountability in employment.

People often want to do the minimum to become as rich as quick as possible. Once the private sector really takes hold, this is when there can be more professionalism, competitiveness and a desire to improve skills sets.

In Western countries, economic conditions and business dealings are bound by tight regulations and a systemized way of working. Workers have clear contracts with employers that drive their terms and conditions, salary and working hours, with both sides afforded rights under legislation. In Kurdistan, such systemized working conditions are lacking and employers do not always drive the highest of returns.

This is because too many jobs in Kurdistan are provided by the government which become a safety net and are often around providing services such as security. In the West, which is based primarily on skilled professions and working for corporations, the fundamental aim is profitability. Every individual directly or indirectly works towards growing the company portfolio and its bottom line. As such, the employers are often under fierce pressure to deliver under a cut-throat environment.

In Kurdistan, there is not the same pressure on employees to deliver or meet certain obligations.

Once ordinary Kurds start to develop their own businesses and hire their workforce, competition will naturally increase which will put an undoubted onus on qualifications and the professionalism of candidates.

In addition, much of the basis of Western society is about forward planning, investment and notion of ensuring a better tomorrow. Too often in Kurdish society, it’s a case of live for today and worry about the future later. Kurds can start thinking about investing for the future and protecting what they have today.

This mentality of lack of forward thinking is not exclusive to finance, the same rule applies to the environment and attitude to healthy eating and fitness. Littering and the abuse of our landscape can be ignored today but will certainly bite even harder in the future.

Ultimately, it far easier to erect blocks and cement for plush buildings, than create an affective skilled and professional workforce that can underpin an efficient economy.

First Published On: Kurdish Globe

Other Publication Sources: eKurd, Various Misc.