December 01, 2005

01:30:38 pm Tuesday, November 29, 2005 - Cape Town, South Africa - Sunny to mid-day, cloudy in the afternoon, High 70s. Includes comment on Argentina, Japan.  

Took a walking tour of downtown Cape Town that was quite interesting. Cape Town has good colonial architecture and also Art Deco architecture from the 1930s and 1940s. Before I went to bed, I finally got all of the pictures on the web site up to date, adding over 100 pictures today. The web site is now back to normal after five weeks of being behind due to death of my old PC.

We leave South Africa tomorrow morning and I'm not sure what to conclude about it. We had a great time here, better than anticipated. I arrived expecting to be bearish on the country's future. Now I see reasons to be bullish, although I recognize that the short amount of time we spent here was entirely in one of the nicest parts of the country, so my perspective could be skewed. The reasons for my bearishness before arrival were that: 1) from afar, what little I had read on the country, indicated to me that government policy was from the two-wrongs-make-a-right school (I'll explain that) and 2) African countries have a poor record post-independence. Although South Africa's independence dates from 1910, you could consider 1994--the end of apartheid and the beginning of non-white rule--as a second independence. I wish the second fact were not the case, but you only have to look to the northern border with Zimbabwe to see a country that has been an absolute disaster since its independence in 1980. It used to be a significant food exporter, now--due to seizing of white farmland--Zimbabweans are starving. South Africa is no Zimbabwe, but with its elaborate quotas since 1994 as to what percentage of jobs and ownership each business must provide to blacks, I wonder if it has abolished one race-biased system for another. This is not to suggest that the present system has the mean-spiritedness of apartheid. It is well intentioned. But history is full of examples of good intentioned government policy with unintended consequences. I wonder about the consequences of South Africa's present policies when I hear of a 28-person business artificially divided into seven different companies--each with four employees--to avoid the quotas and rules that kick in once you have five employees.

So before my visit to South Africa, I thought this might be a chance to see the country before it deteriorates economically. Now I am not sure it will deteriorate at all. Its future could be bright. I hope it will be. But I am still not sure. Talk to a few people with knowledge of the country and you will get widely different views of its future. Opinions range from former citizens who have left the country permanently, disgusted with the new rules, vowing never to return, expecting it to sink slowly into the abyss that consumes much of Africa. Others I know who are familiar with the country, but not resident there are sadly pessimistic, against their desire to see it do well. On the opposite end of the spectrum though, we met people widely enthusiastic about South Africa's prospects. Many people are in the middle--hoping for the best, fearful of the worst, with at least a vague exit strategy in the back of their mind should their fears play out.

In assessing countries, I think it helps to have a long-term view and to consider the position contrarian to the common view. From afar, this calls for a negative view on South Africa as 1) the long-term view is that over the past several decades much of Africa has moved backwards and thus South Africa might slowly, imperceptibly, do the same even if things look good on the surface; and 2) the jubilation over the end of apartheid may be misplaced. If those with the technical abilities to run the country are no longer in power or even no longer in the country (e.g. as Zimbabwe has learned, expropriating farms and giving them to unskilled people who do not know how to farm increases hunger, not equality), the country could fall apart. However, this negative view from afar is common enough, especially in conservative circles, that it may have become the conventional wisdom. Thus, maybe the contrarian view ought to be that South Africa will actually prosper.

Visiting--again admittedly we were there only four days and only in nice parts--you can construct the case for optimism. Positive factors include cheap prices, good infrastructure, and great weather, attracting people for vacations or to live there. Also, labor is inexpensive, plentiful, and English-speaking, making the country a possible location for outsourcing (I do not understand why this has not occurred with greater frequency). The consistent friendliness of blacks to white outsiders was noticeable and commendable, and in stark contrast to the indifference displayed often throughout Caribbean countries. At first impression, everyone in this multi-racial, multi-ethnic society seems to get along remarkably well--far better than one would expect given the history.

Negative factors are high crime, concern that current infrastructure investment is inadequate (but relative to India the infrastructure is light years ahead), and fear that government policy may not protect property rights or may create onerous bureaucratic rules.

Cape Town is doing well. There is obvious investment in retail, restaurants, and housing. Tourists are plentiful. Real estate prices, according to what I read, have risen rapidly in recent years. But it still feels like a small city, known and cosmopolitan, but still undiscovered by most of the outside world. The local newspaper is running a series on traffic congestion, but the streets seem pretty empty to me. There are condos along the oceanfront, but compared to other world cities, the coast is less developed and the prices cheaper. What may seem like out-of-hand growth to locals appears to me to just as likely be the early stages of a prolonged boom. If the government does not screw it up.

Anecdotally, a person I was talking with in Botswana told me that many people who left the country after 1994 have returned because they found they could not have the same standard of living and quality of life in the UK or Australia. I was skeptical of this, but after visiting I understand it. A middle class person in South Africa could have big house on a big lot in a good location with several domestic helpers. In the UK, this person might be in a cramped apartment with a long commute and of course no domestic help and poor weather. Australia can match South Africa's weather and does have lower prices than the UK, but prices are still higher than South Africa and with low unemployment, domestic help is not common.

My conclusion is that I am less certain of which future South Africa will have--optimistic or pessimistic--than before I arrived. That is unusual. With most countries on this trip, I have a strong view of the country, good or bad, by the time I leave. Sometimes the view is the same as before I arrive, sometimes it is different, but I have a view. With South Africa, I'm not sure of my view. I am leaning toward optimism. Offhand, the other country that comes to mind where I was less certain about its future at the end of my visit than at the beginning is Argentina. Arriving in Argentina, I was down on the country because of its recent 2001/2002 debt default, the shameful way it has handled that default, and its long history of always screwing up just when things are going its way. Leaving, I thought Argentina might be--and I say might, without deep-seated conviction--continue to be a good investment for a few years (it certainly was in 2004 and so far in 2005 as it bounced off the bottom). But I still suspect the country will screw things up at some point down the road, as they did for at least the last century. Thinking more, maybe Japan is another example. My long-term bearishness on Japan remains because of their demographic crisis and their opposition to immigration, but I think they could be in an upswing in the short- to medium term that will put off their day of reckoning for a while. These short-term views on Argentina and Japan aren't put forth as unique insight; I largely am just pointing the recent positive results in their financial markets. Where I differ from the markets might be that I think those two countries are just having a positive interlude without the negative long-term picture having changed.

Finally, with most countries we visit, I don't see myself returning right away, as--even if I liked the country--our visit satiates my interest for the time being. With South Africa, our visit stimulated my interest and I would like to spend more time there. If only it was not so far away!

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November 27, 2005

12:14:10 am French Diary VI  

Tuesday, November 15, 2005 - Paris, France - 50, rainy.

Orsay Museum (art 1848-1914; begins where Louvre ends); World War II section of Invalids; Catacombs. Deanna continues to be sick with a sore throat and now no energy. She went back to hotel after Orsay Museum, but then ventured out later to Invalides by herself.

The Paris subway is among the best in the world. You are never much more than 500 meters from a station and the trains are frequent, the maps are plentiful, and the system is well maintained. It is similar to London in layout, but less prone to breakdown. I don't remember if it is physically uncomfortable in summer; London definitely can be, but Paris's warmer temperatures may mean they have addressed the cooling problem out of necessity. Probably Paris and Tokyo have the best systems overall, although each has a deficiency of escalators/elevators that are present in more newly built systems. Their absence is an inconvenience if you have luggage. Singapore is the sleekest system in the world, in my opinion, although it is not yet as comprehensive. Also, its stations verge on being too big, requiring you to walk long distances to get from the train to the street. Seoul's subway is excellent also, nearly as comprehensive as Paris and Tokyo, but occasionally suffering from the huge station syndrome like Singapore.

Saturday's International Herald Tribune had a great op-ed piece by Roger Cohen on the speech that French President Jacques Chirac has not given, but should, in response to the French riots. Before I discuss what Cohen said, I do have to say that Chirac's feeble response has been so invisible and lacking as to make George Bush's initial handling of Hurricane Katrina look like a model of crisis management. Also illuminating to me is that while in general the IHT has criticized Chirac, it has taken a rather mild tone, before dashing back to its comfort zone of haranguing Bush on everything he does, devoting far more column space to far less serious matters than the French riots. This unbalanced contrast, following the horribly biased Katrina coverage in Europe a few months ago, again shows me that Bush--a man who admittedly does provide much to criticize--is unlikely to get a fair evaluation by the European/US east coast media establishment for the remainder of his term. The sore loser phenomenon of 2000 has a long half-life, especially once the Iraq war re-stoked these passions.

Anyway, regarding France, Cohen providing a soaring speech that pinned the trouble assimilating immigrants to failed economic practice and a welfare state that "inhibits us, saps our creative energy, and extends a culture of dependency into suburbs of despair and vandalism." The answer Cohen says is not more government programs, but a break with past practices such as the 35-hour week and lifelong unemployment benefits that oddly have resulted in more than 60% of French citizens opposed to capitalism.

One thing I will have to commend France on is that they reject affirmative action out of hand, and have continued to do so after the riots, despite some calls to adopt this (most surprisingly by Nicolas Sarkozy, the leading conservative candidate for president in 2007). They also collect no census information on ethnic origin or religious practice, not wanting to put people in groups. Everyone is a French citizen of equal standing, with no distinctions made. Unfortunately, as the riots have revealed, in practice there has been discrimination and immigrant assimilation has not worked as well as in other countries, including the US, which falls all over itself to create ethnic and minority distinctions. I think the US success in immigrant assimilation is due to its economic model that gives hard-working people the opportunity for advancement, rather than its census taking procedures or quota systems, and I would hope if France were to adopt any of our practices it would look to the former and not the later. France's colonial past is full of historical mistakes, but this does not approach the magnitude of US slavery. Thus, I think any justification for affirmative action for France falls short. If they were to adopt any form of positive discrimination, I would hope they would base decisions on economic factors and not race or ethnicity. This might be a better method for the US to switch to as well.

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September 18, 2005

05:17:36 am News Roundup  

Tuesday, September 13, 2005 - Galway, Ireland

Mainly a day of to do's. I made forward travel bookings while Deanna did laundry. An experience we've had throughout this trip is that you begin to learn the current event of local culture, but just as you become tuned in to all that is happening--local sports, currency rate movements, interest rate trends, economic growth, politics, ongoing news stories--you leave for another country. Events in the countries we have traveled through continue after we leave, and we do follow them as best we can, but usually I don't have time to comment on them because I'm writing on the issues in our next location. So now, let's catch up some random things from countries we have left behind.

- England won The Ashes over Australia on Monday (that's cricket) in what was regarded as the most exciting Ashes series in history. Now that I understand the sport, I find it much more interesting than I would have ever imagined. Like baseball, it's rich with strategy and statistics. I find it superior to soccer, a sport I have tried my whole life to like, but which never really ignited a passion in me. While I can't deny that it is the world's most popular team sport, I find soccer to be too modest in terms of excitement, strategy, and statistics. It has all of things of course, but in quantities too small for my taste.

- The Australian Rules football season has ended and the playoffs are underway. This is a hard sport to follow outside of Australia and New Zealand. Since leaving, I have seen one match on TV in Indonesia (a popular Australian vacation spot), and I have seen scores printed in an Irish paper (since Aussie rules and Gaelic football are similar).

- I've been meaning to write for months that two Pacific economies--Japan and Australia--that appeared as if they were on the verge of recession early this year are performing much better than I expected. I did not get around to noting this after each released better-than-expected Q1 GDP numbers, so I'll say something now that the Q2 numbers are out. I don't have the number in front of me, but Japan's Q2 GDP growth, announced in the last two days, was much higher than expected, something in the 5% annualized range, similar to their strong Q1 showing. In Q4 of last year, they had a flattish or down (I don't remember which) quarter, leading me and others to think they were heading for recession yet again. Job growth there has been strong this year and it appears their 15-year slumber could be ending, although they have had many false starts before. Their prime minister Koizumi won a landslide election last week and appears to have a mandate for domestic reform. This includes privatizing the post office, which in addition to delivering the mail, also happens to be the world's largest financial institution. Whether he will tackle the country's demographic time bomb remains to be seen. I think Japan's near-term outlook is more promising than I thought at the beginning of this trip, but I think their long-term problems remain, and I am not sure that they will be addressed sufficiently. Again, I don't have the number with me, but Australia's Q2 GDP growth number was quite good, something like 4%-5% annualized. The Q1 number was in the 2%-3% range, so the flattish Q4 result appears to be just a blip. Their central bank has continued to keep rates at the 5.50% level. They last raised in February or March just before we arrived in the country.

- New Zealand's central bank has also kept rates steady at the 6.75% level (I think this is correct--New Zealand is small and remote enough that you don't get much news on it outside of the region) they increased to while we were in New Zealand.

- Germany has a key election on Sunday. If we had a vote, we'd cast it for opposition Christian Democratic Union leader Angela Merkel for prime minister. We wrote on Germany and France's economic woes in one of our New Zealand posts. She has styled herself as a Ronald Reagan agent for change after a decade and a half of economic stagnation. France's next presidential election is not until 2007, but already the leading opposition candidate is casting himself in a similar role, and openly urging German voters to elect Merkel. Notable for Americans, both leaders reject the anti-American tilt of their countries present leaders, Schroder and Chirac. Merkel plainly states that an anti-American Europe cannot remain vibrant and relevant to the world. Germany knows it needs to change, but they are fearful of what the change entails. How well Merkel's party does on Sunday will say a lot about whether the country is ready to take the tough medicine it needs.

- We've written how flat income tax rates have swept through Eastern Europe and Russia, and noted with irony that these former communist countries now have a tax regime that we would prefer to that of the US. Merkel's finance chief advocates a 25% flat income tax rate for Germany and now the Conservative Party in the UK is considering whether they should adopt a flat tax theme after being routed earlier this year in the last parliamentary election. (They need to do something--like the Democrat party in the US they seem completely devoid of ideas. Why, they have so little to offer, that I would have voted for the Tony Blair and the Labour party, and that's saying something.) The integration of the EU tends to encourage economic competition between countries, and that makes it possible that the flat tax will spread to Western Europe. If it does, look for it to receive more serious consideration in the US.

- In an election result I don't really understand, Norway voters, apparently not content with a booming economy, being rated the best place in the world to live, and having one of the world's highest standards of living, have ousted the tax-cutting incumbent party and elected a Red-Green alliance that has pledged to spend part of the country's oil trust fund on welfare. That's like eating the seed corn when you are already full. The kind of thing you might consider if you were in a recession, but not during a boom time. Don't underestimate the ability of foolish politicians to project blue sky and sunshine forever when times are good, as many US state governments did when they spent their windfall in the late 90s and faced huge deficits in the early 2000s. There must be some local issues at play in Norway that we don't understand, but on the surface, this seems quite a bad decision. I'm bearish on Norway until I learn more, although I acknowledge that high oil prices can cover a multitude of management errors.

- I've seen two conflicting stories on housing prices in the UK. One said that prices were down again in the most recent month, and have fallen every month this year. The other showed a slight increase from July to August, but the rate of increase is declining.

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September 01, 2005

02:51:04 pm Most Expensive Places  

Based on gut feel and memory, here is my list of the most expensive places we have been to this trip (some of these are not cities):

1. Bora Bora
2. Reykjavik, Iceland. Clearly to me it is more expensive than the cities listed below, but because of its small size it may not be listed in many of those most expensive cities in the world rankings.
3. Oslo, Norway
4. London, UK
5. Tokyo, Japan. Before this trip, Tokyo was the most expensive place I have been, but it's now not as expensive as it once was. It's hard to distinguish London and Tokyo as each city is clearly more expensive in some areas and less expensive in other areas--I'd have to examine this more systematically to confidently put one ahead of the other. I list London first if for no other reason than to draw attention to Tokyo's deflation.
6. Moscow, Russia. It's much less expensive for locals than for foreigners, but unless you speak Russian, you are going to pay for the foreigner experience.
7. Copenhagen, Denmark

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July 29, 2005

02:13:09 pm Dubai, United Arab Emirates  

Thursday, July 21, 2005 - Monday, July 25, 2005

The United Arab Emirates are just that--seven emirates (i.e., city-states ruled by a sheikh) on the Arabian Peninsula that united in 1971 to form a country when the UK pulled out of the Middle East. Dubai is the best-known emirate, due to its hugely ambitious development plans to become the top destination in the world in an economic race against time before its oil runs out. The capital of the UAE is the emirate/city of Abu Dhabi. The other five UAE emirates are not well known--Sharjah, Ajman, Fujairah, Umm al-Qaiwain, and Ras al-Khaimah. Two other emirates that contemplated joining the UAE, but instead formed their own countries are Bahrain and Qatar.

Country Background

Population: 2.5 million

Per capita GDP: $23,200 in purchasing power parity; absolute figure not available.

Size: slightly smaller than Maine

Currency: Emirian dirham, fixed at 3.67 per US dollar

Language: Arabic (official); English is widely spoken; other languages are common due to high numbers of foreign workers.

Emirians are a minority in their own country. Less than one-fifth of the population are citizens of the UAE, with most skilled and non-skilled work performed by foreign workers. The country is a melting pot of people from the Middle East, India, Southeast Asia, Africa, and Europe. However, with the melting pot concept not extending easily to citizenship, the workforce may be transitory--here for a few months or years and then back home.

Independence: 1971 from the United Kingdom

Trip Itinerary:
July 21: Cathay Pacific flight from Mumbai, India to Dubai, United Arab Emirates
Four nights at the Radisson SAS Resort, Sharjah
One overlapping night at the Burj al-Arab, Dubai

Our lodging takes some explaining. The Burj al-Arab bills itself as the most expensive hotel in the world. A discounted standard room starts around $850 per night. For this you get a two-floor suite (see image gallery) with a private butler and a seeming unlimited array of amenities. For everything you get, it is actually a better value than most resort hotels worldwide, which only provide a fraction of the offerings, but still cost $300 - $600 per night.

After much debate, we decided that a proper trip around the world should include such a stop. We stayed one night at the Burj al-Arab, and then slummed it back to our mid-range accommodation in the neighboring emirate of Sharjah.

Notable Activities:

Desert Safari: This consists of an occasionally heart-stopping 4-wheel drive through the desert, careening over sand dunes, followed by a camel ride, dinner, and belly dancing. Recommended.

Wild Wadi Water Park. A water park for couch potatoes. Rather unique in that their water jets propel your inner tube uphill on the water slides so you don't have to climb up stairs. Overall, though, with one exception, the slides are tamer than most parks. Wild Wadi is next to Burj al-Arab and its four other sister properties.

Burj Dubai Presentation Center. We saw an ad in the newspaper for the presentation center of the world's tallest building. Not knowing what to expect, we went to it and viewed a model of a two-bedroom condo. The building is slated to be mostly condos, with a hotel on the lower floors, but no office space. A one-bedroom condo starts at $550,000, a two-bedroom unit begins at just under $1 million, and a three-bedroom unit starts at just over $1.2 million. These are the base prices, the actual amount you could spend may be much higher. Overall, these are reasonable prices for large city condos, which is why Dubai is a popular second-home location, especially for people from expensive Europe.

Dubai Museum. Located in an old fort in the old part of the city.

Shopping is another prime attraction in Dubai--we did a limited amount of this.

City Background:

Dubai

Temperature high/low during our stay: 110/90. Yes, that's right, the overnight low is 90. But it's a dry heat! Temperatures are hottest in June, July, and August, and most comfortable in the winter months. It's like Phoenix.

Population 826,000 in 2000. Today the population is probably around 1 million.

Commentary:

The discovery of oil is a mixed blessing for a country. Oil wealth promises great things, but too many countries become addicted to this economic narcotic, enjoying booms, and suffering busts. Oil makes things too easy for unambitious countries who are content to let the good times roll, oblivious that the good times may also run out. Countries are probably no different from human beings who fall into a huge financial windfall. Some become overreliant on their newfound gain, ceasing all other forms of productive activity, and ultimately squandering their bounty in a shortsighted manner. Others are more balanced and never become addicted to wealth, and even use it to achieve a desirable outcome that otherwise would not be possible. The United Arab Emirates is a country that would seem at first to be of the former type. Oil is the primary thing it has going for it. (In fairness, it also has a decent location for trade.) But Dubai is trying to become the latter case. It knows its oil will run out some day, perhaps only 10-15 years from now. And it is trying to make something sustainable of itself before it does.

Dubai's goal is to be the top destination in the world. That goal is not qualified. It is not satisfied to be the top destination in the Middle East, or the top destination in the world for tourism, or the top destination for Muslims. It wants to be the top destination for everything for everyone. It's a long way off from that of course, but it has a lot in the works.

Dubai is a city of imagination, much like Las Vegas, but striving to make Las Vegas look unambitious, if that is possible. There's no gambling here, but already you will find a long list of world firsts and bests, many of which are presently under construction. Notable attractions are:

- Burj al-Arab, the self-proclaimed world's most expensive hotel and an iconic building to rival Sydney's Opera House.
- Burj Dubai, to be the world's tallest building upon completion in 2008. Its exact height is a secret but some estimates have it topping the present champion by 600 to 700 feet, a magnitude unprecedented in that new world's tallest buildings tend to surpass their predecessors by less than 100 feet.
- Dubai Mall. A shopping mall next to Burj Dubai. Naturally, it will be the largest in the world when it opens in 2008. Sorry Mall of America!
- Emirates Mall. Opening in September 2005, this underachieving mall will be only the third largest in the world. However, it makes up for this by having an indoor ski resort in the desert.
- The Palms. A high-end condo and housing development built on man-made islands in the ocean, with the entire development looking like a giant palm tree when viewed from above. Hype being all the rage these days in Dubai, the Palms has the audacious marketing claim that it can be seen from the moon, a point that everyone and every publication repeats as fact. Probably someone thought that if the Great Wall of China can be seen from the moon, then certainty the Palms should be observable. The problem is that--despite the urban legend--the Great Wall of China is not viewable from the moon, and we doubt the Palms are either. Nonetheless, it is an impressive design.
- The World. One-upping the Palms, the World is a collection of 300 man-made islands in the shape of the continents of the world.

There are many other developments in progress such as a hotel that's completely underwater, Dubailand, a Disneyland imitation, and many others. For every project that's complete, one or two more are in progress it seems.

For Americans, a long ways away from Dubai, and thus knowing little about it, this may all seem a bit unbelievable. But Dubai is already a significant tourist destination for Europeans. You can't watch a European sports event without seeing the ubiquitous "Fly Emirates" slogan for the national airline plastered throughout the stadium and on player jerseys.

It is an odd place. Definitely Muslim, but tolerant of all cultures, you see bikini-clad Europeans next to Arabian women clad from head to toe with only their eyes revealed in a full-length black burqa. In 110-degree heat. At the water park. An adventuresome burqa-clad female may hop onto one of the inner tubes--still wearing her burqa, of course.

For those inclined to work, the country features no corporate income tax for 15 years for companies locating here and no personal income tax for employees of those companies. The UAE is the only country we have flown into (other than inter-EU travel) where as a US citizen you do not need to fill out any paperwork. It is trying hard to get you here and keep you here.

Without doing any research, though, we have an impression that citizenship is hard to obtain. Assuming we are correct and this is by design, we wonder if this may be a shortsighted mistake in this otherwise visionary country. A mercenary workforce can pack up and leave rather easily if the going gets tougher, as may well happen. The government may want that, so that it does not have to stretch its social safety net in tough times. But this may also preclude building a heterogeneous multicultural country (as opposed to just a multicultural workforce), whose diversity is a source of strength. The government may not want that either, but we somehow think its future would be more secure, not less, if it maximized the incentive for people to feel connected to the place.

Dubai will be an interesting place to watch. The city they are building should be spectacular. What happens to it whenever the oil money runs out could be spectacular too. Will they win the race against time and create enough non-oil related critical mass to survive in a post oil-wealth era? Or is what they are creating uneconomic, not able to be maintained in the absence of oil money?

Jim Rogers wrote how cities like Las Vegas and Dubai built out of the desert from temporary wealth over a few decades can easily be reclaimed by the desert. Will our ancestors visit the Dubai ruins in few centuries and marvel at the abandoned Burj Dubai and wonder who had the audacity to build the world's tallest structure in a desert? Will they look at the crumbling marble facade of the Burj al-Arab jutting up through sand and water and try to imagine that it once looked like the sail on a ship, and was seen as one of the most iconic buildings of the 21st Century. Visiting the ruins of numerous great cities all over the world, we know this is a possibility. Other great cities have lasted for century after century, however, as they have rebuilt and reinvented themselves. Dubai's fate is not pre-ordained; it will be determined by whether its leaders have the same level of willpower in bad times as they now have during good times.

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