Editorial
Analysis
Will phones be the new banks?
Like predictions about the paperless office, forecasts about a cashless society
have been around for a while. For example, AC Nielsen research says that only 10
per cent of transactions in the US will be cash by the year 2020. Logically this
makes sense because electronic commerce is at it’s most powerful in information
processing industries like financial services.
The idea is essentially that notes, coins, and checks are all hugely inefficient
and will be replaced by digital money, which is easier to process. Governments
love the idea of getting rid of cash because up to 25 per cent of all cash in
circulation globally is used for illegal purposes (in the United States, a
staggering 25-30 per cent of people don’t have bank accounts). Companies also
love the idea because electronic payments are faster and much cheaper. And as
far as multinationals are concerned, the sooner there’s a single global currency
the better.
From a technological point of view, the cashless society is certainly getting
closer. In South Korea, four million banking transactions were carried out via
cell phone in June of last year, and 300,000 people have bought cell phones into
which you can plug a memory card securely encrypted with financial data. In
Finland and Japan, you can pay for train journeys and restaurant meals by simply
waving your phone in front of a payment terminal. And in Australia and Austria,
you can pay for a parking space using your phone. Hello mobile micro-payments.
Bye-bye cash.
Could the cashless society really happen? Yes. Early signs include the fact that
14 per cent of Britons regularly throw away coins because they can’t be bothered
to carry them around. And in the US, electronic payments (including debit and
credit cards) surpassed check payments in December 2004 for the first time in
history, while in Australia check usage has fallen from 50 per person in 1998 to
30 per person in 2003.
Then there’s the issue of trust. There are lots of trends that can be used to
support a scenario where banks become extinct — acceleration of technology,
product convergence, convenience, new channels, and brand promiscuity to name
just a few. But remember: Most people don’t just dislike banks. They hate them.
They hate waiting in line, the fees, and the lack of any meaningful choice.
So is this the beginning of the end for physical banks? Not necessarily. In the
US, branch expansion is a major trend. In Australia, local community banks (and,
conversely, private banks) are all the rage.100 years ago, the bigger a bank,
the better. Now the opposite is increasingly true. As globalization and virtual
worlds take hold, people are being drawn back to local businesses and physical
contact.
Nobody can be really sure what will happen in the future, but it’s a fair bet
that change will happen.
Not all firms can be privatised
The task and commitment to privatisation seem to have been taken lightly, and
privatising every firm has not had the desired effects.
Experts say that social services like those providing water, energy,
communications and some financial institutions cannot be diversified unless they
have become a burden to the nation and no other remedy is available.
When bidders came forward wanting to run the water utility firm in Dar es
Salaam, people’s hopes were raised as they expected that the lease company, City
Water Services, could improve the services.
City Water upon taking over DAWASA, made a lot of good promises that it would
make sure that the water woes in the city came to an end. However, the problems
increased.
Until the termination of the contract, it was expected that by the end of the
second year of their operation, City Water Services would have injected a
capital investment of US$ 8.5 million (Tsh. 9.3 billion). But City Water
Services has over the two years it has been in charge injected only US$ 4.1
million (Tsh. 4.5 billion).
The Tanzania Telecommunications Corporation Limited (TTCL) is another good
example of a privatised firm that has never delivered and is run amid problems
such as inefficiency, labour disputes and the like.
As more and more statutory corporations are privatized either by lease or
partnerships, Tanzanians should not place a 100 per cent hope that they are
going to deliver. Not all state-owned firms respond to privatization.
The government should now be more careful when privatizing the firms; that all
firms can be privatized has proved wrong.
Analysis
Direct coffee
export is the way forward
Tanzanian coffee exporters have long complained about
the inefficiencies in the coffee export system, noting specifically the
unnecessary delays caused by the government-run Moshi Coffee Auction (MCA).
Timothy Kitundu takes a closer look.
Although farmers and farmers’ organizations in many countries are permitted to
sell directly to foreign buyers, by government decree all coffee sales in
Tanzania have been required to pass through the Moshi auction.
This requirement has created a number of problems: auction prices not reflecting
the grade and quality of the coffee offered by farmers, the presence of
middlemen in the form of third party exporters.
The system has not fostered a long-term relationship between farmers and
roasters and, as a consequence, the marketing of Tanzanian specialty or gourmet
coffee has been constrained.
It was under this pretext that the Tanzania Coffee Board (TCB) established what
it termed as Direct Export (DE) starting from the 2003/04 season; the object
being to enable farmers to export coffee without it passing through auctions.
DE has two major benefits to farmers: it encourages them to produce high quality
coffee which in due course fetches better prices. The prices can also be
realized because auction fees are no longer there.
The second benefit is that top quality coffee producers and buyers meet without
passing through the process of local traders or the auction systems which
creates a direct link with overseas importers.
The direct meeting of the two parties creates a mechanism whereby price benefits
are direct and sellers tend to know the market. Also, the new marketing system
develops a relationship between different stakeholders of the commodity.
Farmers have already started reaping the fruits of DE. According to a press
release from TechnoServe, a non profit organization, the Association of
Kilimanjaro Specialty Coffee Growers (AKSCG) has assisted its 62 small
holder-group members to achieve a record US$ 1.05 million (Tsh.1.10 billion) in
sales for the 2003/04 season.
For the second year in a row, groups of small-scale growers have produced
extraordinarily high quality coffee and have now captured the attention of the
world’s premiere quality roasters and importers.
As at last month, the release reveals, a total of 184 metric tonnes of high
quality Arabica coffee beans grown by a total of 4,434 small holders countrywide
expected to be loaded onto ships in Tanzanian ports bound for gourmet markets
and consumers in the US, Europe and Japan.
AKSCG is shaking up Tanzania’s coffee market with the competitive prices it is
negotiating for its 4,500 small holder grower-members. In the three
coffee-growing areas where AKSCG operates – Kilimanjaro, Mbeya and Mbinga - the
Association has consistently obtained higher prices for its farmers’ coffee than
other sellers.
In Mbinga, for example, AKSCG farmers received between 39 and 49 US cents (Tsh.
429 and Tsh. 539) per kg. respectively, and for the second year in a row the
AKSCG has obtained over 65 per cent premiums above the average price paid in
Mbinga with other farmers receiving much higher premiums.
In Mbeya, AKSCG members earned between 68 and 88 US cents (Tsh. 748 and Tsh.
968) per kg. respectively while other coffee farmers received between 39 and 83
US cents (Tsh. 429 and Tsh. 913) respectively.
As coffee is Tanzania’s largest export crop contributing approximately US$ 115
million (Tsh. 126.5 billion) to export earnings and providing employment to some
400,000 families, if deliberate efforts of promoting DE are instituted, the
earnings could increase tremendously.
Seeing
vessels half empty?
The advance of globalisation and booming world trade have provided bumper
profits for the world’s container-ship companies. The biggest, Denmark’s AP
Möller-Maersk, is using some of the gains to snap up Anglo-Dutch rival P&O
Nedlloyd, thus extending its lead over rivals. But do rougher seas lie
ahead?
Along with a decline in trade barriers, the precipitous drop in the price of
getting exported goods to foreign markets around the world has had a huge
impact on world trade. And leading the field in container shipping is AP
Möller-Maersk, a Danish company that on May 11th announced its intention to
stay at the head of the fleet by paying €2.3 billion (US$3 billion) for P&O
Nedlloyd, an Anglo-Dutch rival and the world’s number three container firm.
The deal boosts Maersk’s global market share from around 12 per cent to
nearly 18 per cent, putting it well ahead of its nearest rival,
Mediterranean Shipping.
Buoyant world trade has provided bumper returns for the world’s leading
container-shipping firms. Between 1997 and 2006, global trade in goods will
grow by an average of 6.9 per cent a year, according to figures from the
World Trade Organisation. In 2004, trade in goods was a blistering 10.7 per
cent higher than the year before, at US $8.9 trillion.
This growth helped Maersk to make net profits of DKr18.4 billion (US $3.1
billion) last year. Of that, the container business contributed DKr8.4
billion, more than double its profits in 2003 (the rest came from oil
tankers, supermarkets, an airline and an oil and gas drilling business).
These bumper results gave the company the financial clout it needed to
stretch its lead through a big acquisition. However, they may also have
tempted Maersk to overpay: it is offering a premium of some 40 per cent over
P&O Nedlloyd’s pre-announcement share price.
The demand for container transport has exceeded supply of late, despite an
increase in the world’s container-fleet capacity by an average of 10.6 per
cent a year in 2000-04, largely as a result of China’s bumper
economic-growth rates and burgeoning exports. This has pushed up the rates
companies pay to ship their goods. To take advantage of the extra business
and higher rates, shipping companies have ordered lots of new vessels—hence
the 32.8 per cent growth in the order books of the world’s shipyards in the
year to January 2005. Of nearly 4,000 ships on order, almost one-third are
container ships (and nearly 40% are tankers, as shipping firms also seek to
take advantage of booming demand for oil).
With shipyards working flat out, Maersk may have decided that it was better
to get extra capacity through a takeover, albeit a pricey one, than by
ordering new ships of its own and having to wait for them—three years or
more for orders placed now. Maersk’s acquisition of P&O Nedlloyd immediately
adds 162 vessels to its existing fleet of 387, and raises its capacity by
some 44 per cent to around 1.5m twenty-foot equivalent units (TEUs—a
standard measure of container capacity). The deal also gives the Danish firm
access to P&O Nedlloyd’s order book of 42 ships. Maersk will, it would seem,
soon leave its closest rivals wallowing in its wake, unless they too can
forge mergers that propel them into the big league.
They may now try to do just that, for they have already shown that size is
important to them. Many of the world’s container companies (including P&O
Nedlloyd, though not Maersk) are members of capacity-pooling alliances that
provide scale and help to improve efficiency. In fact, Grand Alliance, which
includes P&O Nedlloyd (for now), currently outstrips Maersk in capacity, a
factor that may have pushed Maersk to topple it.
The big question is whether an enlarged Maersk will be better able to
withstand the choppy waters that would seem to lie ahead. According to
Drewry, a shipping consultancy, demand is likely to outstrip fleet growth
this year but could slip behind in 2006, when fleets are expected to grow by
a heady 14%. And this assumes that world trade continues to increase at the
current lively pace. China’s astonishing rate of growth cannot last
forever—indeed, the authorities themselves are trying to cool the
economy—and the slow-growing trade across the Atlantic is susceptible to any
slackening of growth in Europe or America. If world economic growth and
trade stumble while shipping lines are piling on extra capacity, shipping
rates could fall rapidly, leaving the world’s container firms with plenty of
empty vessels and a distinct sinking feeling.
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