Editorial
Analysis
Hotting up again
The verdict of experts at the Centre for Global Energy Studies, a London
think-tank, is pretty damning. “OPEC”, it declares, “has lost credibility as a
guarantor of stable oil prices.” Back in the spring, the influence of OPEC—the
Organisation of Petroleum Exporting Countries—looked plain, as Saudi Arabia, the
cartel’s kingpin, said that OECD countries’ stocks should be allowed to build
up. Supply increased, inventories swelled, and prices dropped—to US $48 a barrel
a month or so ago. Yet last week the price of West Texas Intermediate (WTI), a
benchmark crude, was at a new record, flirting with US $60.
Why, then, have prices shot up in the past few weeks? There is no shortage of
crude oil: the market seems well supplied for now. Look ahead a few years, say
optimists, and there is little cause to worry. A provocative new report by
Cambridge Energy Research Associates, a consulting firm, even says that there
could be a glut.
Today’s prices are probably explained by a combination of the cartel’s greed,
bottlenecks in the refining system and red-hot demand. OPEC’s members are all
pumping oil as fast as they can. Only Saudi Arabia has any spare capacity left.
This leaves the world market with no safety net, making oil traders jittery and
causing them to demand a risk premium.
At the cartel’s most recent meeting, in Vienna, ministers tried to soothe such
fears. They raised output quotas by 500,000 barrels per day immediately and
promised a further, similar increase if prices remained above recent levels. Far
from reassuring markets, this created more worries.
A second factor behind the recent price hikes is bottlenecks in the global
refining system. Those big inventories encouraged by the cartel have been
processed by refiners, who have been enjoying high profit margins. There are now
large stocks of refined products in OECD countries. However, the existence of
these stocks is not dragging crude prices down. The reason is that the types of
crude available from OPEC members tend to be heavy, sulphurous grades that are
complicated or costly to process.
Nevertheless, talk that refining bottlenecks will keep pushing oil prices higher
seems overdone. In time, market forces will spur refiners to make the necessary
investments to upgrade their equipment. Analysts at Goldman Sachs suspect that
many refiners used their spring maintenance cycle to upgrade their equipment in
order to handle heavier, dirtier crudes.
At some point, of course, high prices will clobber demand and encourage
efficiency, fuel switching and so on. Will that happen soon? Probably not. In a
new report, Douglas Terreson of Morgan Stanley estimates that the world economy
would need to see sustained prices of $85 a barrel before the current robust
trend in oil consumption is derailed—and with it, the world economy. And despite
the recent run-up, US $85 is still far off.
Not all technology is good
The issue of Genetically Modified Organisms (GMOs) or Genetic Engineering (GE)
which are components of biotechnology, has raised a hot debate among
governments, NGOs and other activists.
While most governments are proponents of the technology, most probably because
it is said to increase crop yields, activists are up in arms against such
technology.
On one hand, GMO technology is favoured because it increases crop yields which
in turn ensure food security in poor countries. This is its good side.
On the other hand, such technology is said to be too expensive for developing
countries to afford, needs large commercial farms and is not small-holder farmer
friendly.
Taking into consideration that Tanzania is dominated by small-holder farmers, it
is doubtful if GMOs are right for this country. The other side of the story is
that small-holder farmers, who are used to saving seeds for the next season,
won’t be able to do so.
This is because the seeds are ‘terminated’ to germinate in one season only. The
reason behind this is still a mystery and whoever cracks this mystery may be
able to establish further the dangers enshrined in this technology.
Recently during the ongoing parliamentary session, an MP raised the issue of
GMOs, appealing to Tanzanians to be prepared to embrace the technology. It is
too early for Tanzania to do this.
Tanzania is a country of small-holder farmers who cannot afford to buy seeds
from multinational companies every season; nor will the poor farmers secure
markets for the GM products. How many farmers are educated enough to know about
biotechnology?
While the EU, Japan and other countries are offering billions of dollars for
markets of organic products, Tanzania is contemplating the use of GMOs! Let
farmers get enough education in the technology before we can embrace it.
Analysis
GMOs:
Too complex a technology to curb food insecurity
The world today faces a tough
choice on the adoption and utilization of the emerging science of agricultural
biotechnology known as Genetic Engineering (GE), whose by-products are
Genetically Modified Organisms (GMOs). GE has brought in new challenges when
setting policies and establishing regulatory frameworks because of the growing
number of application for the introduction of GMOs. Timothy Kitundu
explains more.
The challenges come as a result of some of Tanzania’s neighbouring countries who
have already introduced the technology which could cross through trans-boundary
movements, and certain food donated in the region may contain GMOs.
However, embracing the technology or being prepared to embrace it is not
approved of by all stakeholders.
Despite the fact that eventually Tanzania will have to jump on the GMO
bandwagon, some of the stakeholders are still far from accepting the technology,
arguing it is too expensive and might eliminate the traditional crops.
A recent stakeholders’ workshop on the status of GE and seed security in
Tanzania, organised by Environmental, Human Rights Care and Gender Organisation
(Envirocare) portrayed the mixed feelings among the government and the other
stakeholders.
The government, through recognition of concerns raised against modern
biotechnology in the environmental, human health, biodiversity, socio-economic
and ethical areas, has seen the need for the putting in place of a National
Biosafety Framework (NBF), in accordance with the Cartagena Protocol on
Biosafety accepted by Tanzania in 2003.
The aim of the government in establishing the NBF could be two-fold. The
government has predicted that in some years to come, Tanzania will have no
choice but to embrace the technology. The other reason may be that the
government, without consent from other stakeholders, has conceded the necessity
of embracing the technology.
Basically, for the government, the framework will act as its ‘protection
mechanism’ to the coming generation, in case the newly acquired biotechnology of
GE turns out to be destructive of the environment, or antagonistic to
socio-economic, human health and ethical realities.
But other stakeholders were pessimistic about the technology of GE. Most of them
decided to be opponents of the technology, as few or no farmers are going to
benefit from it.
Instead, they argued, small-holder farmers would end up paying heavily for GE
seeds and their Intellectual Property Rights, a fact that will make them poorer,
contrary to the alleged aims of such technology that is supposed to fight hunger
and poverty.
Abdallah Mkindi and Yasin Mkwizu in their arguments ruled that the awareness of
GE in Tanzania was still limited to scientists, researchers and other
practitioners whose works are related to biotechnology. For small farmers, this
is like a witch’s cauldron whose contents are not yet known.
In Tanzania, they argue, the problems of food security and poverty eradication
could not be solved by the introduction of GMOs. Rather, the strengthening of
infrastructure (roads, rail) and full exploitation of other means of increasing
crop production, which have not yet been fully deployed, are of greater
importance.
Zachary Makanya of Participatory Ecological Land Use Management (PELUM), Kenya,
cited a comparative example of agriculture in western countries, compared with
African countries. Only 2-5 per cent of the population in the West are farmers
while in Africa they account for 80-85 per cent of the population.
In Africa, farmers own small farms of 0.5 to 5 hectares, while in western
countries farmers own large commercial farms of over 50 hectares and are highly
subsidized by their governments, while WTO policies prohibit subsidies to
African farmers.
Embracing GE in Tanzania and in other poor developing countries is a risky
project. The future of this technology seems cloudy and what really is in store
as far as its adverse effects are concerned, remains hidden.
Hence a moratorium on commercialization of GMOs is necessary until more research
has been carried out into the socio-economic, environmental and agronomic
aspects. Funding partners and governments of Africa, Tanzania inclusive, should
address the root causes of poverty and food insecurity.
The way of
the dragon
The state-controlled China National Offshore Oil Corporation has bid $18.5
billion for Unocal, an American energy company, in the latest sign that
China is looking overseas for natural resources and brands. Controversially,
acquisitive Chinese firms are getting a lot of help from their government.
Nowadays it is China’s economic might that has the world in a tizzy, and the
Chinese are coming armed with money to buy assets, not guns.
China’s biggest strike so far is an offer for Unocal, a California-based oil
and gas firm. On Thursday June 23rd, the state-controlled China National
Offshore Oil Corporation (CNOOC) made a cash bid of $18.5 billion for Unocal
($20.6 billion including assumed debt and a break-up fee), trumping a $18
billion share-and-cash offer (including the debt) from Chevron, America’s
second-largest oil company. Opponents in America have based their hostility
to CNOOC’s bid on national-security issues. The Chinese firm has promised to
preserve American jobs and keep Unocal’s products on sale in the country to
assuage nationalist sentiment. Unocal said it will evaluate the bid but that
its board’s recommendation of Chevron’s offer “remains in effect”.
China’s move for Unocal neatly sums up the two forces driving the country’s
ongoing bid to acquire foreign assets: the thirst for raw materials to feed
and maintain its booming economy, and the desire to obtain western brands to
help market Chinese exports.
Last year China’s economy grew by 9.5%, and the pace does not appear to be
slowing much. The economy is in the throes of a gradual transition from
state control to the free market. Much of Chinese industry is
government-controlled, and some years ago China’s authorities concluded that
to challenge the rest of the world they needed to build up to 50 of the
country’s better firms into globally competitive multinationals—helping them
along the way with tax breaks, free land and all-but-free financing through
state-owned banks.
To this end, Chinese firms have made deals to gain access to natural
resources. Buying Unocal would give CNOOC fresh oil and gas reserves (many
of which are located in Asia) at a time when energy prices are high and
China’s appetite is strong. But this quest for commodities has not always
proved successful. Last year China Minmetals, the country’s biggest
base-metals firm, failed in a $7 billion attempted takeover of Canada’s
Noranda, an ore producer. Fears that Minmetals still harbours ambitions
spurred Canada’s government to introduce a bill this week intended to block
foreign takeovers on national-security grounds.
As well as securing the natural resources necessary to keep output bubbling,
Chinese firms are looking around the world for struggling but globally
recognised brands. This is because Chinese companies, while enjoying cost
advantages thanks to a vast pool of cheap labour, have an image problem.
Foreign consumers think of Chinese goods as admirably cheap but lacking in
quality. As Chinese firms move up the “value chain”, they are keen to buy
foreign brands that they can attach to their more promising products.
Late last year Lenovo, China’s leading PC-maker, which is connected to the
government through its ownership by the Chinese Academy of Science, bought
the PC business of IBM for $1.75 billion. Under the terms of the deal,
Lenovo acquired the right to use the IBM name on its computers for five
years. And last week Haier, China’s leading appliance maker, teamed up with
two American buy-out firms to bid $1.3 billion for Maytag in an effort to
make a substantial move beyond China, where it has a market share of up to
70% for some products. The ailing American maker of Hoover vacuum cleaners
had previously agreed to a $1.1 billion offer from a domestic private-equity
firm. In early 2004, China’s TCL bought the television-making business of
France’s Thomson, making it the world’s leading volume manufacturer of TV
sets.
China’s favoured companies, with their access to cut-price funding, will
usually be at an advantage compared with overseas rivals when bidding for
assets, and may be prepared to pay over the odds. Critics suggest that CNOOC
is paying too high a price for Unocal and that the money is coming from
China’s government, which has let its desire to create global businesses
cloud commercial logic. CNOOC has said it will borrow $16 billion from its
government-owned parent and banks to finance the offer.
Shareholders of target firms like Unocal may well be pleased by this
readiness to splash out, but their workers might worry. Jobs often go as
Chinese buyers shift production to lower-cost plants at home. This fuels
opposition to such takeovers in the targets’ countries. But for now at
least, the spread of Chinese business around the world is set to continue.
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