A peek into the Eurozone does not bring a smile on an onlooker’s face. Despite its third bailout in five years, Greece’s economic problems remain largely prevalent. Within that period, its economy has shrunk by a quarter, and its unemployment rate currently sits above 25%. The problem, however, spans throughout the region. At present, 18 million people across the Eurozone are unemployed. This equates to 11.1% of the workforce. Additionally, government debt burdens are fairly high: 130% of GDP in Italy and Portugal, and above 100% in Belgium and Cyprus. To compound their misery, most of the European economies are predicted to grow by less than 2% for the coming year (IMF forecast). The Eurozone is in a crisis. The ongoing troubles in Europe point to the difficulty in creating and more importantly sustaining a common monetary union, and a common policy to adhere to the needs of individual countries (unless you are Germany). The failure of the Euro to live on its promise of a successful monetary union has threatened the implementation of monetary alignment in regions across the globe.

Despite the above warnings, South of Europe, the East African Community (EAC) is working towards a common monetary union with the notion of introducing a common currency for the entire region. While the challenges of macroeconomic convergence and loss of national sovereignty, not forgetting the failure of Euro, act as barriers, the EAC has taken positive steps towards this ambitious goal. While continuing to work towards fiscal convergence, the EAC has made progress through harmonization of financial, social and institutional laws and regulations. Although a monetary union is a work in process, the member states can definitely rejoice over the advantages that such a union will bring to the region in the future. With increased stability and investment being the primary positive outcomes. “Yes, the risks are evident, but the progress and benefits are even more apparent. The EAC’s decision to introduce the East African Monetary Union (EAMU) is certainly bound to be a successful endeavor,” Mr. Wayne Sandolhtz, Professor of International Relations, USC.

The Community’s Work

The EAC is a regional intergovernmental organization of five East African countries. Initiated in 1999 by Kenya, Tanzania and Uganda, the community welcomed two new members in 2007: Burundi and Rwanda. “The community was established with the intention of encouraging strong economic and political relationships within the economies in the region,” Mr. Sandolhtz. Since its induction, the EAC has worked towards this goal. Introduction of the Customs Union (2005) mitigated tariff and non-tariff barriers to trade, promoting intra-regional trade, and harmonizing standards for goods produced in East Africa. Moving a step further, the EAC initiated the Common Market (2010) to encourage free movement of capital and labor across the region. As a result, the region profited from economical development through increased investments, cross listing of stocks and joint infrastructure development projects, most notably the Arusha-Namanga-Athi River Road, which covers Tanzania, Kenya and Uganda. The countries have also joined hands to move towards social alignment. Standardization of university fees for citizens, implementation of cross-border disease control programs, and harmonization of procedures for granting work permits have encouraged movement of people to achieve labor efficiency in the region. Additionally, the countries share criminal intelligence and surveillance to combat cross-border crime.

The EAC functions as a community to work towards collective social and political progress. But more importantly, it is an economic union. In addition, the EAC hosts four of the emerging economies of Africa: Rwanda, Kenya, Uganda and Tanzania. Hence there is a collective need to work towards economic growth through regional integration and implementation of a common currency. Therefore, on November of 2013, the EAC announced its decision to introduce EAMU and the East African Shilling by the year 2024. “East African community is now fully embarked on enormous, ambitious and transformational initiatives for our people,” Uhuru Kenyatta, Kenya’s president.

Plausible Future Gains

Before delving into the feasibility of such an enterprising act, one must understand the reasoning behind the EAC’s decision to introduce a common currency. Surely, the future gains should be greater than the risks and costs associated with building a union.

For more than two decades, the currencies of the five individual economies have remained unstable. “Besides experiencing poor economic growth, the East African region remains a conflict zone; hence the exchange rate fluctuation,” Mr. Sandolhtz. “Introduction of a single currency will eliminate the volatility experienced by individual currencies, bringing in a more stable currency.” More importantly, for past 25 years the currencies have devalued against the dollar. Implementing a single stable currency will also mean a stronger currency. A single currency will serve to eliminate transaction cost and quicken cross-border payments. The reduced cost of operations will lead to a direct increase in businesses transacted in the region. Besides, a single currency will ensure that prices across the region are fairly represented.

Reduction in the cost of business supplants the Common Market incentive to increase flow of capital and people within the region. With movement across the region financially feasible and affordable, there will be increased mobility of people within the region. As a result people can move across the region in search for better job and educational opportunities. Consequently, people will have increased access to resources, and benefit from reduced costs of mobility. This will aid in the efficient allocation of labor throughout the region. Adding to the benefits from increased movement of capital in the region, the EAC will also attract foreign investors through reduced cost of business and currency stability. Besides representing the growing economies of Africa, the EAC boasts oil through Uganda and Kenya, with 250 trillion cubic feet of oil discovered in the Indian Ocean. Additionally, the realization of 30 trillion cubic feet of natural gas reserves in Tanzania will also guarantee influx of foreign capital.

Tourism is most likely going to experience a boom in the coming years. In addition to already initiated joint infrastructure projects, the EAC has introduced a single tourist visa for East Africa. This will supplant the policy to apply a common currency across the region to ease the movement and expenditure of tourists. Both, improved infrastructure through influx of capital and ease of operation will encourage greater international tourism for the region.

Towards Monetary And Fiscal Convergence

Understanding the advantages of a common currency does not make this a success story. It is just partial progress. The real challenge lies in implementing and maintaining policies that cater to the requirements for a establishing a successful monetary union.

A proposed move for the EAMU goes beyond a piece of paper. In theory, the idea seems to work. But executing the required policies to achieve fiscal and monetary alignments requires great commitment. That being said, the heads of state have already implemented a protocol towards attaining common policies, which is to be followed by 2021, three years before the introduction of the currency.

The heads of state have already begun introducing common laws and regulations to aid the implementation a common monetary policy. The EAC has achieved an integrated banking and financial system, and established an integrated payment system. This not only encourages business activities within the region, but also eases the introduction of a common currency. The protocol sets the target for fiscal deficit to be 3% of the GDP (including grant) in all the economies of the region. Although this target is set for 2021, all five economies, since 2004, have maintained the required criteria.

One barrier in the EAC’s progress towards monetary convergence is the required willingness of economies to loose unilateral control over instruments such as the exchange rate policy, which are crucial in dealing with specific macroeconomic shocks. Seceding this privilege to the EAMU will not only lead to loss of national sovereignty but will also mean that individual economies must surrender an important tool of economic adjustment. However, the perks of increased investment and job opportunities have garnered great public support and political will. Thus, it’s likely to eliminate the above-mentioned problems.

Achieving A Suitable Economic Structure

In addition to aligning their policies, members of the EAC must sustain an ideal economic structure, which is feasible for implementation for a common monetary union. The suitable structure entails macroeconomic convergence through common income and inflation targets, similarity in proportion of sectors as a percentage of GDP, and diversified products. These alignments are important, as a similar structure ensures that the countries have similar economic shocks, making a common policy an effective solution.

Real GDP growth averaged about 6 percent for the region during 2009–14, with individual country growth rates in the range of 4 % (Burundi) to 7 % (Rwanda and Tanzania). Currently, the economies inflation rates vary greatly, with the average price level ranging from 3.3% in Rwanda to 8.3% in Tanzania. Although there is a substantial gap, the protocol has set a common inflation rate of 5%, which must be achieved by 2021. Given that the economies are growing, it will be a difficult task to sustain an inflation rate as low as 5%. Hence, the protocol could renew its definition of inflation relative to the best performing member, which is Kenya. Although this may not be in the best interest of the other economies, it is a pill they musty swallow for a better health. Nevertheless, the countries’ alignment in terms with income and inflation remains a positive.

Each of the five economies has a similar sector allocation towards revenue. The agricultural sector accounts for 23 to 35 percent of the economy in all five countries. Coffee and tea are major exports for Burundi, Kenya, Rwanda, and Uganda. While Tanzania exports mostly gold, tobacco, and coffee, Kenya exports horticultural products as well. An almost similar revenue model points to the fact that these economies are most likely to be affected by similar economic shocks, be it internal or external. Hence a common monetary policy would serve as a universal solution.

Countries with a diverse set of products are more likely to survive economic shocks or hardships. Dependence on a range of products ensures that the country does not rely on a single product to generate its revenue, making it a stable economy. A similar ideology is followed in East Africa, where countries are working towards diversifying their revenue sources. The more stable the EAC is, the more likely it is to hold a monetary union. The implementation of the Common Market has gone a long way in encouraging this ideology. Free movement of goods, labor and capital, coupled with minimal barriers to trade has brought in variety of goods and labor in each region. This has spread each country’s horizon beyond agriculture, towards manufacturing, mining and construction. The discovery of oil in Uganda and Kenya, and natural reserves in Tanzania will further help the cause.

Progress So Far

 Potential Risk

Recent natural resource discoveries in Kenya, Tanzania, and Uganda will eventually lead to an increase in export of oil and natural gas from these regions, contributing to higher export values and lower external deficits in the future. Export concentration in these countries is also expected to rise, and the balance of trade dynamics would move in the opposite direction to their neighbours, Burundi and Rwanda, who are largely importers of oil. This may pose challenges on dealing with asymmetric shocks within the monetary union. For example, during periods of lower global oil and gas prices, Kenya, Tanzania, and Uganda would favour pushing for looser monetary policy and lower interest rates compared to Burundi and Rwanda.

 At Europe’s Expense

The EAC can certainly imbibe valuable knowledge from the EU, which is not to be like the EU. “The EU was considered as model for a monetary union, especially Africa, but the recent years have gone a long way in disproving that assumption,” Mr. Sandolhtz. Nevertheless, the EAC can implement the positives and discard the negatives at the EU’s expense.

The Werner Plan envisaged the creation of a European monetary union. This was to be achieved in stages, with each step encouraging member nations to establish patterns of coordination towards macroeconomic convergence in order to facilitate convergence of national currencies and reap other cooperative advantages (greater intra-regional trade). This plan served as a blueprint for the EAC in its establishment of the EAMU. “The ceiling conditions of 3% government budget deficit and public debt up to 60% of GDP mentioned in the EAMU protocol mimic those stated in the Werner Plan,” Mr. Sandolhtz.

Among the several problems responsible for the failure of the EU, the most significant one is that its economies are in different growth stages. This has been one of the problems

underlying the Euro from the beginning, with the core countries having quite different economic conditions and cycles to those peripheral countries such as Portugal, Ireland, Greece and Spain, which are now suffering the impact of a monetary policy, which was inappropriate for the prevailing conditions. The EAC, however, learning from the failure of the EU has decided to make the entire region function within a certain economic band. The protocols ensure that by 2021, the economies have achieved macroeconomic convergence, and are working in unison with one another. Besides all the economies are expected are in the development phase. Hence fast forward 10 years, the EAC will have been successful in achieving a similar growth cycle for all its members.

 Shilling’s Success Story

No doubt, the EAC has opted for a tough assignment. Currently, the entire region benefits from economic and social progress. The Customs Union and the Common Market continue to serve the goal of regional integration. With progress already taking place, the EAC’s decision to introduce a common currency comes as an added advantage, supplanting the existing growth potential within the region. Countries are likely to benefit from closer integration, increase in intra-regional trade, price harmonization, reduced cost of business, increase in foreign investment, and increased efficiency through improved allocation of labor and capital. The EAC, following the Werner Plan, has set an agenda to introduce the East African Shilling by 2024, but first it must bring the five economies at level with regards to fiscal and structural alignment. The signs of progress are already visible. Given its advantages and feasibility, the Shilling could turn out to be a success story replacing its predecessor, the Euro, as a successful model for a monetary union. Perhaps, the potential success can draw the economies of South Sudan and Somalia towards the EAC, resulting in increased benefits through further integration. Perhaps, this success can ignite Africa’s ultimate goal of a common currency for the entire continent.

Earlier this week Britain agreed to participate in bombing ISIS bases in Syria. This should come as good news to a majority of people around the world, especially after the terrorist attacks in Paris, but a significant number of people cannot look beyond the comforts of their home and think of the innocent Syrian lives affected; economically, socially and emotionally. As the world unites against terrorism, it is unknowingly playing the role of a terrorist. Sure, carrying out air strikes over ISIS bases will curb the expansion of the organisation, but at what cost? Since 2010, Syria has lost 230,000 of her own, witness 11 million displaced from their homes, and experienced a fall in GDP by 60%. This is no mere coincidence.

Damaged Economy

The cumulative economic loss since war broke out is equivalent to 229 percent of the country’s 2010 gross domestic product, according to research by the Syrian Center for Policy Research. Energy. Manufacturing and agriculture have suffered the most. Syria’s mining and construction workers have also been dealt a blow, with exports dropping from $12 billion to $2 billion.

Refugees On The Run

Four years of conflict has left about 11 million people as refugees or internally displaced. The impact has been particularly acute on Syria’s youngest generation. In a country where the pre-war literacy rate was about 90 percent, many children are now deprived of an education. Consequently a sizeable portion of the population, mainly the youth has left for a better life and opportunity. Syrian refugees expected to arrive in B.C. between now and the end of February are expected to generate $563 million in local economic activity over the next 20 years.

Crude Reduced

Before the European Union suspended crude imports in September 2011, Syria produced about 380,000 barrels a day, according to then Oil Minister Sufian Alao. Production has since collapsed, with Islamic State using the limited supplies for their own operations. A report by Syria’s General Establishment for Petroleum stated that first quarter oil production averaged 9,486 barrels a day.

Syria’s Growing Count

The war has left 230,000 Syrians dead. In the region’s modern history, it is only second to the Iran – Iraq war which left a million people dead on either side. As the ISIS continues to strengthen its hold the rest of the world will continue to spoil their expansion through air strikes. In the middle are the helpless Syrians whose numbers will keep rising.

I do not blame the US and its disciples for this. Although Syria’s fall is attributed to the presence of ISIS and the resulting war, the rest of the world cannot walk out without feeling guilty. They have worsened Syria in their attempt to save her. Do not get me wrong. I am not discouraging the air strikes on ISIS base, but I am pointing out the tragedy facing Syria, hoping that more people understand what the Syrians are suffering through.

Sources:

http://globalnews.ca/news/2374843/syrian-refugees-to-boost-b-c-economy-by-half-a-billion-dollars-report/

http://www.bbc.com/news/business-33244164

https://www.chathamhouse.org/sites/files/chathamhouse/field/field_document/20150623SyriaEconomyButter.pdf

The president of Catalonia, Artur Mas continues to fight for the region’s independence from Spain. Despite the Madrid based court voting against the independence movement, Catalonia has proceeded in its plans of break away. The regional parliament of Catalonia has already voted to begin the process of achieving independence from Spain. In a vote in the regional parliament, Catalan lawmakers voted 72 to 63 to a plan for independence from Spain by 2017. The Spanish Prime Minster, Mariano Rajoy, promised to halt the move for independence by appealing the decision in Spain’s Constitutional Court. “Catalonia is not going anywhere, nothing is going to break,” Rajoy said in a nationally televised address.

Inspite of opposition, the Catalonian region continues to proceed with its plans. This could spell trouble for both the parties, with Spain coming worse off. The Catalan region has long been the industrial heartland of Spain – first for its maritime power and trade in goods such as textiles, but recently for finance, services and hi-tech companies. It is one of the wealthiest regions of Spain – it accounts for 18.8% of Spanish GDP, compared to 17.6% contributed by Madrid. Secession would therefore cost Spain almost 20 per cent of its economic output, and trigger a row about how to carve up the sovereign’s 836 billion euros of debt. On the other hand, Catalonia would immediately become a prominent nation. It would have a gross domestic product of $314 billion (£195bn), according to calculations by the OECD, which would make it the 34th largest economy in the world. That would make it bigger than Portugal or Hong Kong.

Amidst all this, one of the big losses will come to the sporting world. Currently, football’s greatest and popular team Barcelona belongs to the Catalonia region. It competes in the Spanish Premier Division, with teams representing other cities from Spain. Barcelona won the division title last year. The partition of Spain, which will spell the end of this teams participation in the league will bring dissapointment to both factions, economically and socially. Barcelona generates $680 million from just the sale of tickets for the division’s games. Furthermore, the team would loose out on television streaming of the division games. Although Catalonia would have its own league, Barcelona and other teams present in the division would no longer be in the elite league. It would end up competing with weaker teams that would be added to the league, making the league less challenging. This would lead to great dissapointment amongst the fanatic supporters who are certainly less likely to be interested in the new division. This could spell further trouble for the Catalonia party. Towards the west, a new Spain would mourn the loss of one the prestigious football teams from its competition. It is less likely to be viewed as an elite competition itself. The exit of Barcelona leaves only two good teams, both from Madrid, making the competition predictable. Certainly viewership will decline in this region.

Lastly from global point of view, the departure of Barcelona will bring an end to the century old rivalry between two of the greatest ever teams: Barcelona and Real Madrid. Also called the El Classico, the game goes beyond football. It stretches back to cultural differences that orginated a century ago. The heat in this match is the reason why it has accumulated the most viewership for any game. With an audience of about 1 billion people, the absence of this game is what will hurt people and profits. Loss of intensity and passion will meet declining viewership and merchandise sale.

An avid follower of the sport, I understand the split of Catalonia only from a footballing point of view. The rivarly between these two teams is what defines football, and obviously brings the money. They play each other this weekend, so I will be enjoying the las few between them.

Links:

http://time.com/4102619/what-catalonias-vote-for-independence-means-for-europe/

http://www.telegraph.co.uk/news/worldnews/europe/spain/11179914/Why-does-Catalonia-want-independence-from-Spain.html

http://www.livesoccertv.com/news/13639/barcelona-vs-real-madrid-economics-how-much-el-clasico-2015-is-worth/

http://www.irishtimes.com/news/world/europe/standoff-puts-catalonia-s-independence-plans-in-jeopardy-1.2435341

http://worldsoccertalk.com/2015/09/22/what-would-catalan-independence-do-to-la-liga-barcelona/

http://time.com/4109615/catalonia-spain-independence-court/

After a three-week marathon in Vienna (July, 2015), the Islamic Republic of Iran signed a nuclear deal with six economic giants: Britain, US, France, Germany, Russia and China. The agreement was targeted towards controlling Iran’s nuclear enrichment program in return for lifting economic sanctions that have isolated the country and hobbled its economy. So what did the nuclear deal state? The deal requires Iran to reduce its current stockpile of low-enriched uranium by 98 percent, and limits it’s enrichment capacity and research and development for 15 years. Additionally, the nuclear watchdog, the International Atomic Energy Agency (IAEA) will take responsibility in monitoring the country’s nuclear facilities. Once initiated, the accord between the two parties will serve to revitalize Iran’s growth through access to foreign investment, technology and goods. Most importantly, the country will have the opportunity to renter into the global oil markets, attracting foreign interests that will increase production and exports of oil to drive the depressed Iranian economy.

Since the Iranian Revolution of 1979, Iran has been in a state of near constant unrest. The country’s political and economic instability has resulted in several accusations made against it. From entities accused of supporting terrorism, to nuclear proliferation, to officials in the government responsible for serious human rights abuse, Iran has consistently been considered a rogue nation. As a result of several violations, the US, in 1995, targeted the Iranian government through economic sanctions on companies dealing with Iran. Companies that violated the conditions were denied export licenses for exports and access to credit. In 2006, the UN levied further economic sanctions against resulting from the country’s refusal to suspend its uranium enrichment program. The new set of sanctions placed restrictions on the Bank of Iran and Iranian financial institutions, curbing access to foreign capital. However, the nail in the coffin was when the Congress issued the Accountability and Human Rights Act, 2012, targeting companies conducting business with Iran’s national oil company. “These sanctions have significantly hurt the exports of oil, which contribute to 80% of the country’s export revenue,” said Wayne Sandolhtz, Professor of International Relations at University of Southern California.

Economic sanctions have reduced Iran’s reach to products needed for the oil and energy sectors, prompting many oil companies to withdraw from the country. “Iran is annually losing $60 billion of energy investment, limiting its access to foreign technology”, said Wayene Sandolhtz. A fall in effeciency from reduced access to technology has significantly dropped production of oil by 23.08% from 2010 figures of 4.2 million barrels a day. Post 2012 sanctions, Iran’s oil exports reduced by almost half from 2.6 million barrels per day (2011) to 1.4 million barrels per day (2014). Fall in oil exports, which contribute to 80% of Iran’s export revenue, has severly damaged Iran’s flow of revenue. Additionally, sanctions levied against Iranian financial institutions have further reduced the flow of capital into the country. The fear of losing access to Western markets has also convinced international investors to avoid the Iranian economy. The resulting withdrawal from Iranian assets has devalued the rial (Iranian currency) by 80% since 2011. Consequently, Iranian’s have had to pay significantly more rials to purchase global consumer products. The cumulative impact has damaged the economy through reduced growth, increasing prices and rising levels of unemployment. Inflation is at 40%, with prices of basic food and fuel expected to further soar. Unemployment lurks at 10.3%, with unofficial figures rising to 35%. Recent sanctions (2012) have taken a heavy toll on Iran’s growth, with the GDP figures estimating a drop by 20% from 2012. However, with Iran agreeing to restrict its nuclear program, an opportunity for future economic growth has presented itself.

A recent conference in Tehran supplanted the nuclear deal agreed between Iran and the economic powers. New contracts were launched, with Iran expected to initiate 50 new oil projects in the coming year. These contracts, subject to the nuclear deal being passed (in the Congress), serve to provide a pathway for foreign investment in Iranian oil production. “The deal will increase production by 500,000 barrels per day,” said Syed Mehdi Hosseini, head of the country’s oil contracts. The deal and resulting contracts have major implications for Iran, as it opens the door for reentry into the global oil market. The country can now attract foreign investors who will supply capital to the economy. This will serve to bolster growth, primarily through rise in production and exports of oil.

According to the BP Statistical Review of World Energy, Iran leads the world in natural gas reserves and is fourth in oil. Influx of Western and European investment and technology could revive an industry that in a decade of sanctions has lost much ground to its rivals. “Since the sanctions in 2012, Iran’s oil production has dropped more than 20%. Meanwhile, Iraq has increased its production by 70%, where as Saudi Arabia has been pumping at near record levels,” said Mr. Gaurav Mukherjee, Professor of Applied Statistics at University of Southern California. “The country is currently producing 2.9 million barrels a day, and has a capacity to produce 4 million barrels a day. To fulfill this potential, Iran will require more investment than what the National Iranian Oil Company can muster. This opens the door to increased foreign investment.” The deal provides the perfect platform for influx of investment to aid Iran to step back into the oil markets, and challenge its competitors to gain back the lost share. The new contracts will increase daily production by 500,000 – 800,000 barrels per day (by end of 2016), significantly boosting the countries exports.

Iran will now become the largest country to rejoin the global marketplace since the breakup of the Soviet Union. Energy sector companies and business from other sectors have already travelled to Iran to seek market opportunities since the agreement to lift sanctions. “Iran holds potentially interesting promises and perspectives. We have to see how the market will develop,” said Shell Chief Executive Ben Van Beurden. Iran is already in contact with former oil buyers in the European Union – traders such as Vitol Group and big oil producers such as Royal Dutch Shell PLC, Total SA – as well as existing importers in Asia. Although Iran will welcome foreign capital, it will be careful on the manner of negotiations. Having just gained access to foreign markets, it will want to attract investment but not relinquish control of its assets. “Iranians are likely to seek deals in which they pay a fee per barrel for the output increases achieved by Western companies’ technology and investment,” Professor Sandolhtz. However, with the assured backing of foreign investors, Iran is likely to make a strong statement in the global oil market. In addition to increasing supply to 3.5 millions barrels per day, Iran will experience an influx of foreign technology and ideas. This combined effect is predicted to raise Iran’s economy by 2 percentage points, to more than 5 percent GDP growth within a year. After an additional 18 months, GDP growth could reach 8 percent. With new channels to trade, easier access to raw materials and technology will improve efficiency and reduce cost of operations. This will help combat rising prices. Additionally, investment and consequent growth will also provide more jobs in the economy, hence chipping off on the high levels of unemployment.

In the global oil markets, Iran will benefit from increasing leverage. The sanctions restricted Iran’s exports of oil to limited countries. Currently, Iran heavily relies on China as a consumer for its oil supply. More than 15% of Iran’s oil is shipped to China. Additionally, due to limited access to global markets, Iran imports 35% of its gasoline from China. Hence Iran is significantly dependent on China for the functioning of its economy. Entry into international trade will increase Iran’s export options for oil and the number of suppliers it has access to.

Apart from increased international leverage, Iran will benefit from domestic success. Scaling back sanctions will help Iran keep its best and brightest at home. From 2009 to 2013, more than 300,000 Iranians left the country in search for better job opportunities. Today, 25% of Iranians with postgraduate live in developed OECD countries outside Iran. This is a significantly high rate of “brain drain”. According to the World Bank, Iranian economy loses out on $50 billion annually as local talent look elsewhere for work. Iran’s GDP last year was US $368.9 billion. Hence, retaining its talented workforce will have a substantial impact on Iran’s growth. With access to high levels of investment and technology, the Iranians will regain confidence in their economy, willing to take their chances at home.

Although the Iranian economy will be brimming with optimism, lifting sanctions does not mean all players will invest in the economy. American oil companies, in particular, are subject to tighter restrictions than their European counterparts. They are likely to be far more cautious in their activities. Furthermore, oil experts predict that it may be some time before major oil and gas projects get underway. The lack of foreign investment has reduced Iran’s capacity to produce oil. Increase in investments will be directed towards facilitating improvements in capacity, which will eventually serve to raise production levels. “The level of interest in Iran will be high, but actual investment will be slow,” said Professor Mukherjee. Additionally, Iran cannot immediately increase its production to its predicted capacity of 3.5 million barrels per day. This will create an oversupply of oil in the market, dropping the price of oil, and hurting several economies in the Middle East. Hence, Iran must slowly work towards its target, which means realizing slow and steady growth.

The nuclear deal has raised interest elsewhere in the Middle East, with Iraq and Saudi Arabia keeping a watchful eye. The reentry of Iranian oil onto the global market could lower 2016 forecasts for world crude oil prices by $5-$15 per barrel. With the current price already as low as $49 per barrel, Iran’s activities will trouble its fellow members of the OPEC. “Iran, through its contracts and potential investment, will take away a major share of oil exports from Iraq,” said Professor Sandolhtz. Nearby, Saudi Arabia will also be dealt a significant blow. The leader of the OPEC has already increased the supply of oil, dropping the prices to where they are today. The country is heavily reliant on oil for its revenues, and will stand to lose market share to Iran. The tensed Saudis will have to look to diversify away from deep dependence on the US for markets for Saudi oil exports.

The Trans-Pacific Partnership (TPP) is a trade agreement signed by twelve Pacific Rim countries. The deal seeks to serve a path of entry of American goods into Asian markets, and is lately discussed in the context of President Obama’s administration’s “pivot to Asia.” Although the agreement primarily represents elimination of barriers between the United States and Asian countries the contract states 3 Latin American countries: Mexico, Peru and Chile.

An invitation into the TPP signifies these countries entrance to a large trading bloc, which makes up about 40 percent of the world GDP. The counties have decided that their path forward is to embrace he the growing practice of globalisation and free trade agreements. Membership within TPP would facilitate I created integration with one another and offer a more coordinated approach to expanding trade with Asia.

Post Iranian Revolution, the Islamic Republic of Iran has continued to be in a state of unrest. The country’s political and economic instability has resulted in several accusations made against it. From entities accused of supporting terrorism (2001), to nuclear proliferation (2005), to officials in the government responsible for serious human rights abuse (2010), Iran has been at the forefront of violation of international laws. Consequently, in 1995, the US implemented sanctions against Iran that extended to companies dealing with the Iranian Government. Additionally, in 2006, the UN levied economic sanctions against Iran as a result of the country’s refusal to suspend its uranium enrichment program. The nail in the coffin was when the Congress issued the Accountability and Human Rights Act, 2012, targeting companies conducting business with Iran’s national oil company. “These sanctions have significantly hurt the exports of oil, which contribute to 80% of the country’s revenue,” said Mr. Wayne Sandolhtz, Professor of International Relations at University of Southern California. Sanctions on Bank of Iran and Iranian financial institutions have curbed the flow of capital into the country. Reduced foreign investments have further contributed to the declining growth. Consequently, the sanctions have disrupted supply chains, contributing to higher operating costs. High costs and reduced investments have forced companies to lay off workers. As a result, the economy has been severely damaged. Inflation is at 40%, with prices of basic food and fuel expected to further soar. Unemployment lurks at 10.3%, with unofficial figures rising to 35%. Recent sanctions (2012) have taken a toll on Iran’s growth, with the GDP figures estimating a drop by 20% from 2012. However, with Iran agreeing to restrict its nuclear program, an opportunity for future economic success has presented itself.

The recent conference in Tehran concluded on a nuclear deal agreed between Iran and the six economic giants: Britain, US, France, Germany, Russia and China. Iran agreed to limit its uranium enrichment program in return for the sanctions being lifted. New contracts were launched at the conference, with Iran expected to initiate 50 new projects in the coming year. “The deal will increase production by 500,000 barrels per day,” said Syed Mehdi Hosseini, head of the country’s oil contracts. This deal has major implications for Iran as it opens a door for reentry into the global oil market. The country can now attract foreign investors who will supply capital to the economy. This will bolster growth, primarily through rise in production and exports of oil.

According to the BP Statistical Review of World Energy, Iran leads the world in natural gas reserves and is fourth in oil. Influx of Western and European investment and technology could revive an industry that in a decade of sanctions has lost much ground to its rivals. “Since the sanctions in 2012, Iran’s oil production has dropped more than 20%. Meanwhile, Iraq has increased its production by 70%, where as Saudi Arabia has been pumping at near record levels,” said Mr. Gaurav Mukherjee, Professor of Applied Statistics at University of Southern California. “The country is currently producing 2.9 million barrels a day, and has a capacity to produce 4 million barrels a day. To fulfill this potential, Iran will require more investment than what the National Iranian Oil Company can muster. This opens the door to increased foreign investment.” The deal provides the perfect platform for influx of investment to aid Iran to step back into the oil markets, and challenge its competitors to gain back the lost share. The new contracts will increase daily production by 500,000 – 800,000 barrels per day, which will significantly boost the countries exports.

Iran will now become the largest country to rejoin the global marketplace since the breakup of the Soviet Union. Energy sector companies and business from other sectors have already travelled to Iran to seek market opportunities since the agreement to lift sanctions. “Iran holds potentially interesting promises and perspectives. We have to see how the market will develop,” said Shell Chief Executive Ben Van Beurden. Iran is already in contact with former oil buyers in the European Union – traders such as Vitol Group and big oil producers such as Royal Dutch Shell PLC, Total SA – as well as existing importers in Asia. Although Iran will welcome foreign capital, it will be careful on the manner of negotiations. “Iranians are likely to seek deals in which they pay a fee per barrel for the output increases achieved by Western companies’ technology and investment,” Professor Sandolhtz. However, with the assured backing of foreign investors, Iran is likely to make a strong statement in the global oil market. In addition to increasing supply to 3.5 millions barrels per day, Iran will experience an influx of foreign technology and ideas. This combined effect is predicted to raise Iran’s economy by 2 percentage points, to more than 5 percent GDP growth within a year. After an additional 18 months, GDP growth could reach 8 percent. With new channels to trade, easy access to raw materials and technology will improve efficiency and reduce cost of operations. This will help combat rising prices. Additionally, investment and consequent growth will also provide more jobs in the economy, hence chipping off on the high levels of unemployment.

In the global oil markets, Iran will benefit from increasing leverage. The sanctions restricted Iran’s exports of oil to limited countries. Iran heavily relies on China as a consumer for its oil supply. More than 15% of Iran’s oil is shipped to China. Additionally, due to limited access to global markets, Iran imports 35% of its gasoline from China. Hence Iran is significantly dependent on China for the functioning of its economy. Consequently, this reduces it power to dictate terms. However, with increased consumers, Iran is likely to enjoy an improvement in its economic position allowing it to have leverage in negotiations.

Scaling back sanctions will help Iran keep its best and brightest at home. From 2009 to 2013, more than 300,000 Iranians left the country in search for better job opportunities. Today, 25% of Iranians with postgraduate live in developed OECD countries outside Iran. This is a significantly high rate of “brain drain”. According to the World Bank, Iranian economy loses out on $50 billion annually as local talent look elsewhere for work. Iran’s GDP last year was US $368.9 billion. Hence, retaining its talented workforce will have a substantial impact on Iran’s growth. With access to high levels of investment and technology, the Iranians will regain confidence in their economy, willing to take their chances at home.

Although the economy will be brimming with optimism, it is important to acknowledge that lifting sanctions does not mean all players will invest in the economy. American oil companies, in particular, are subject to tighter restrictions than their European counterparts. They are likely to be far more cautious in their activities. Furthermore, oil experts predict that it may be some time before major oil and gas projects get underway. “The level of interest in Iran will be high, but actual investment will be slow,” Professor Mukherjee. Additionally, Iran cannot immediately increase its production to its predicted capacity of 3.5 million barrels per day. This will create an oversupply of oil in the market, dropping the price of oil, and hurting several economies in the Middle East. Hence, Iran must slowly work towards its target, which means realizing slow and steady growth.

The nuclear deal has raised interest elsewhere in the Middle East, with Iraq and Saudi Arabia keeping a watchful eye. The reentry of Iranian oil to the global market could lower 2016 forecasts for world crude oil prices by $5-$15 per barrel. With the current price already as low as $49 per barrel, Iran’s activities will trouble members of the OPEC. “Iran, through its contracts and potential investment, will take away a major share of oil exports from Iraq,” Professor Sandolhtz. Nearby, Saudi Arabia will also be dealt a significant blow. The leader of the OPEC has already increased supply of oil, dropping the prices to where they are today. The country is heavily reliant on oil for its revenues, and will stand to lose market share to Iran. The tensed Saudis will have to look to diversify away from deep dependence on the US for markets for Saudi oil exports. And what about the political and economic implications for Israel?

15 years ago, Nitin Ashar backed his entrepreneurial skills to start his own company in the service sector. Now he is the CEO of Truevalue Marketing Services, a private company engaged in the commerce of ready to drink beverages and vending machines. Currently his business caters to the corporate sector on a local and national level.

Under Mr. Ashar, Truevalue has expanded its horizon in terms of competitiveness, quality and growth. He has carefully monitored movements in the sector to take advantage of changing customer needs to expand his business. For example a major secular shift in the sector would be a transition from premixes (powdered tea and coffee) to fresh milk, which is now widely consumed. Additionally, cyclical booms in the economy have also benefitted the company. Increasing growth within all companies has led to even small local offices demand for machines. As a result there are more customers to provide to. However, following growth there is dip, which hurts expansion. For example during the 2008 financial crisis, the company suffered with reduced demand and loss of existing customers. In on case, Infosys, a major tech company, closed down its contract leading to removal of 480 machines (leased) from their offices. Mr. Ashar also complained that several customers made late payments, which led to cost cutting within the company. Consequently, workers had to be laid off. However, being knowledgeable about the downturns of the economy, Mr. Ashar adapted. He spotted shifting consumer demands to make changes for the survival of his company. During a tough phase from 2008-2011, Mr. Ashar improved on his distribution channels, so that he could target small clients as well. Additionally, he was also willing to consolidate with large clients who would provide him a contract on a pan India basis. Lastly, ever since, Mr. Ashar believes in diversifying to minimize risk. This strategy helped his growth, as expanding into different cities would provide cash inflow when one channel would fail.

Given the importance of the two crops, tea and coffee, raw material prices have a major impact on business operations. An increase in prices of dairy products would lead to increase in business cost. Given that the firm cannot proportionately prices to remain competitive, the company would suffer from losses. “Despite the current raw material prices in India falling, the company must offer discounted prices to customers to remain in the market”, Mr. Ashar. Additionally, infrastructure also has a significant role in the business. Given governments investment in infrastructure, it is estimated that there will be an increase in the number of companies in the coming years, which would provide more customers to cater to. Summing up, high inflation and increase in infrastructure would both serve to reduce unemployment, thereby more mouths to feed, which would promote growth for the business.

By operating in the service sector, the major challenge faced by the company is manpower. This includes technical and operational activities. Besides, there is a great demand for customisation to satisfy customer demands. For example companies such as Vodafone and Cap Gemini had requested to obtain customised machines to suit the demands of their employees. Lastly Mr. Ashar complained about the unpredictable weather being an important challenge. He said, “The presence of drought in New Zealand couple of years ago had raised the prices.” Given certain varieties of tea and coffee are imported from New Zealand, an unpredictable change in weather affected his business negatively.

It seems that the previously mentioned factors were not the only challenge Mr. Ashar faced. An important component of the business was access to capital. Although interest rates played minimal role, capital dictated the operation of his business. He said that given the recent boom in the economy there is more access to capital which makes it easier to have more machines available for customers. However, on tracking back to 2011, where the economy was still recovering minimal capital access meant that Mr. Ashar could not execute orders from major companies such as Wipro and Deloitte for 500+ machines.

An hour into the interview with my uncle, I asked him about the competition existing in the segment. He mentioned that even though his company was one the top 10 companies operating in the western region of India, there was increased competition from local firms operating in each city. Major competitors included Nestle and Cafe Coffee Day. In terms of the competitive landscape, more companies are offering fresh milk, which is the preferred option over premxes. Given that it is the “healthier and fresher” option, there is increasing pressure on companies to provide high quality fresh milk. An increase in competition has hence led to the company providing reduced prices to maintain its competitive adavantage. Additioanlly, the company provides discount on larger volumes. For example, last year the compan secured a contract with Vodafone on an pan India level leading to reduction in the prices charged.

After having completed my interview I believe that I have gained enough knowledge about the company as well the industry. In order to gain more knowledge about the market it make sense to talk to customers since they set the trend. Knowing their perspective can help me understand what the future holds for this segment. Also speaking to competitors would also give me a better understanding their operations and outlook. However, my uncle being their competitor I doubt I will get a few minutes of their time. Lastly there is one macroeconomic data that I have observed. For example there has been an increase in demand for tea and coffee over aerated drinks. This goes back to argument of switching towards a healthier living. Hence demand for tea and coffee is definitely on the rise opening up great potential for this segment to grow with my uncle ready to take advantage of it.

The Big Mac index was invented as a lighthearted guide to whether currencies are at their “correct” level. Based on the theory of purchasing-power parity (PPP), the index follows the notion that in the long run exchange rates should move towards the rate that would equalise the prices of an identical basket of goods and services (in this case, a burger) in any two countries.

Drawing on the example from the The Economist, the average price of a Big Mac in America in July 2015 was $4.79; in China it was only $2.74 at market exchange rates. So the “raw” Big Mac index says that the yuan was undervalued by 43% at that time.

Never intended to be a precise gauge of currency misalignment, the Big Mac Index has announced itself as a global standard for countries to position themselves in the world through the value of their currency. This could bring some joy to the office of the new CEO of McDonald’s following the fall in revenue by 11% in the last quarter.

The figure above provides a detailed summary of the Big Mac Index. For example, South Korea, which lost its value against the dollar post 2000 has been on a downward trend and has been significantly devaluaed to 21%. So what does this mean? Well, devaluing the currency decreases the exchange rate of the South Korean Won against the dollar. Hence one dollar can now buy more of the Won. This has a direct impact on the both the economies. It would decrease the value of South Korean goods, making them competitive in the international market, increasing exports from the country and increasing imports in the United States, and worldwide. Simultaneously purchase of foreign goods is more expensive decreasing exports in South Korea. This directly sponsors growth in the economy through increase in net exports. This practice seems relevant to economies that are looking towards growth, for example developing countries. Hence through the chart we can confirm that Russia, India, China and South Africa, four of BRICS countries are focused on aggressive growth. Yes, from the looks of it even China.

For individuals like me, who come from India and other Asian countries to United States, we will have more of currency shock than culture shock. With 1$ woth Rs.66, I am having trouble managing my expenses, so good luck to those students coming to United States for studies. For now, I am considering on going back to India and saving on those precious dollars.

Sources:

http://www.economist.com/content/big-mac-index

http://bigmacindex.org/