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Indian Express
04-06-2025
- Business
- Indian Express
What Trump America needs to understand: A country is not a corporation
Several years ago, Nobel-Prize-winning economist Paul Krugman wrote an insightful article, 'A Country is not a Company', in which he argued that business leaders need to understand the difference between economic policy on the national and international scale and business strategy on the organisational scale. In other words, and to put it bluntly, CEOs who do not understand economic policy are ill-suited for the role. Little did many realise, including perhaps Krugman himself, that an article written in 1996 would command such resonance almost three decades on. After all, CEOs of firms that have enjoyed unbridled monopoly power — especially after the emergence of the modern corporation around the turn of the last century — have shown more than a passing tendency to use that market power to their advantage. Examples abound from Standard Oil, Exxon Corporation, IBM, Microsoft, and, more recently, big-tech companies to name a few. Firms engaged in market-based competition play a 'zero-sum game' — one gains at the expense of the other. Disciplining errant firms has been accomplished by a combination of market creativity and intervention of anti-trust authorities, but it has been a hard task. Do nations jostle for competitive advantage on the global stage the same way that firms do locally? Krugman thinks not. International trade, significantly, is not a zero-sum game. According to him, 'If the European economy does well, it need not be at US expense; indeed, if anything a successful European economy is likely to help the US economy by providing it with larger markets and selling it goods of superior quality at lower prices.' Historically, that has been the case for all economic development, and most recently in East Asia. Global interdependence and the emergence of deeply integrated value chains are proof that trade increases the size of the global economic pie. The whole point of modern trade is not to impoverish either partner(s), it is to enrich both; or else why trade at all? Colonists engaged in coercive trade; today's trade is entirely voluntary. A popular phrase attributed to George Mallory, a British mountaineer of the 1920s, captures the core motivation behind mountaineering. Why do people climb mountains? 'Because they are there,' he is famously believed to have retorted. Monopolies exploit their power because it's there; CEOs have the clout along with the capacity to get away with it. Doing the same as a country — that is, flexing muscles on the global economic stage because you have power — is entirely different. Because modern trade is a matter of choice, no one holds a gun to and forces nations to trade. Blaming 'unfair' foreign competition, therefore, for trade deficits as Donald Trump has been relentlessly doing, is politically expedient but economically disingenuous. Are trade deficits the right measure of a country's competitiveness? Krugman ponders that competitiveness cannot simply be measured by staring at trade balances and their changes. If you do that, the implications are quite dangerous — they lead to harmful steps like trade wars to promote so-called competitiveness. Trade wars often make the situation worse. Evidence of the recent madness emanating from the US in the form of tariff impositions on countries that it runs a deficit with shows that contrary to expectations, the tariffs actually weakened the US dollar. It lost nearly 10 per cent of its value since January, with over half the decline in April. The tariffs also disrupted the bond market by triggering a sell-off in the US treasuries, spiking yields and challenging its safe-haven status. This volatility forced a temporary tariff pause, highlighting the bond market's power. Interestingly, on May 28, the US Court of International Trade struck down Trump's 'Liberation Day' tariffs, ruling that they exceeded presidential authority under the International Emergency Economic Powers Act (IEEPA) of 1977. According to the verdict, these tariffs involved significant economic and political issues, requiring explicit congressional authorisation, which was absent. Poignantly, on the same day, Elon Musk officially quit his advisory role in the US administration, concluding his tenure at the Department of Government Efficiency. Even so, looming on the US horizon are inflation, recession and policy unpredictability. The Trump administration has already appealed the decision (it has been stayed by the appellate court) and the case may progress to the US Supreme Court, by which time data on the impact on the US trade deficit will be available. Economists refer to this lag as 'the J-curve effect', reflecting a nuance where financial markets adjust almost instantaneously to shocks, while goods markets adjust with a lag. In all likelihood, with the tariff retaliations we have witnessed from China, Canada, and Mexico among others, the US trade deficit could become worse. Own goal, anyone? Besides, the Triffin thesis suggests that the US must run trade deficits to provide the necessary dollars for global liquidity. So, if the US wishes to remain the hegemon and continue to enjoy the exorbitant privilege of printing dollars and importing goods and services for a song, it will need to run deficits. In fact, since 1971 when the US dollar was brusquely decoupled from gold by President Richard Nixon (the so-called 'Nixon shock'), effectively ending the gold standard and the Bretton Woods system, the US dollar has continued to meet the bulk of the global demand for liquidity. In only two years since 1973 has the US trade balance been positive. In this half-century, the US has been a most productive nation, innovation-intensive, 'competitive' and creative, enterprising and illustrious, all achieved in the presence of growing trade deficits. Blaming trade deficits for unemployment and low wages is therefore ineffective and, in many cases, unequivocally wrong, especially when they are caused by domestic factors. The US is a services-based economy — education, insurance, healthcare, banking, real estate, information technology, among other sectors contributing almost 80 per cent of GDP. Getting manufacturing back by erecting tariff walls is a futile scheme, destined to fail. The CEO of a country running economic policy must, therefore, distinguish between politically expedient rhetoric and the harms of making policy decisions based on careless arithmetic. The existence of trade deficits (or surpluses) reflects a complex interaction of many factors, especially for a country that provides global liquidity. These need to be understood clearly. Krugman's warning and the embedded advice, therefore, must be taken seriously, above all by the country that nurtured his clarity of thought. (The writer is dean, School of Humanities and Social Sciences at Shiv Nadar University, and professor of Economics. Views are personal)


Business Recorder
19-05-2025
- Business
- Business Recorder
The evolutionary arc of global oil and why Pakistan's needs to bend it
Pakistan stands at a pivotal energy crossroads. With global momentum pushing toward a post-oil world by 2050[1], as envisioned under the International Energy Agency's Net Zero 2050 mandate, the country has a narrowing window, of perhaps 25 years at most, to reduce its dependence on costly imports, responsibly exploit its hydrocarbon resources, and use these revenues to support a just and sustainable energy future. Petroleum will not be the future, but it remains the present. And unless urgent reforms are undertaken, Pakistan risks missing the last opportunity to extract strategic value from its own resources or attract investment to become energy independent. Despite vast reserves and strategic geography, Pakistan's oil sector, which spans exploration, refining, and retail, is chronically underdeveloped. The fiscal and regulatory environment is a key reason. The country's current petroleum framework is misaligned with investor expectations and global best practices. Front-loaded taxation, complex regulatory processes, policy inconsistency, and limited risk-sharing deter upstream exploration. Downstream, the outlook remains challenging. While domestic refineries continue to operate with obsolete technology and low throughput, OMCs are navigating regulated margins, circular debt exposure, and infrastructure bottlenecks; yet continue to invest in expanding retail footprints, upgrading storage, and modernizing distribution systems to ensure supply chain resilience. Historically, though it has been a journey of 166 years only, oil has single-handedly changed the globe. From the pulsating rockets being launched into darker realms of space, to the cell phone connecting us to the world, our dependency on petroleum is undeniably significant. From the first commercial oil well being drilled in Pennsylvania in 1859, and modest beginnings as a source of kerosene for lamps, petroleum evolved into the lifeblood of modern civilization, powering transportation, electricity generation, and serving as feedstock for countless industrial processes. The early 20th century saw the industry dominated by the 'Seven Sisters' — major Western oil companies that controlled approximately 85 percent of the world's petroleum reserves; Standard Oil of New Jersey (later Exxon, now ExxonMobil), Royal Dutch Shell (now Shell plc), Anglo-Persian Oil Company (later British Petroleum, now BP), Standard Oil of New York (later Mobil, now part of ExxonMobil), Standard Oil of California (later Chevron), Gulf Oil (later acquired by Chevron), and Texaco (later merged with Chevron) saw the period characterized by colonial-style concessions in resource-rich regions and limited sovereignty for host nations over their natural resources. The Middle East's ascendancy to dominating the global oil industry began with the 1908 discovery of oil at Masjid-i-Suleiman in Iran (then Persia) by the Anglo-Persian Oil Company (later British Petroleum/BP), changed the dynamics eventually consolidating with Saudi Arabia's Al-Ghawar field (discovered in 1948) emerging as the world's largest conventional oil field, and the formation of Organization of Petroleum Exporting Countries (OPEC) in 1960. Other resource-rich countries have adopted smarter approaches. Malaysia, Colombia, Ghana, and Indonesia have implemented progressive fiscal regimes that attract capital while ensuring long-term national benefit. These include lower initial government stake to offset exploration risk, production-based sharing formulas, and targeted incentives for complex fields. Pakistan, by contrast, places heavy tax burdens even before commercial production begins, effectively discouraging risk capital from entering the sector. The problem is not limited to upstream taxation. Downstream oil marketing companies and refineries are also squeezed by inconsistent application of the General Sales Tax (GST). The government's practice of charging GST on deemed prices, rather than actual ex-refinery or ex-depot prices, results in distorted cost structures and unpredictable tax liabilities. This pricing methodology not only violates the principle of fair taxation but also leaves companies exposed to volatile losses when international oil prices fluctuate. The issue has been raised repeatedly by industry stakeholders, including the Oil Companies Advisory Council (OCAC), but remains unresolved, eroding investor confidence and stalling much-needed capital upgrades in refining and retail infrastructure. Oil for now is a powerhouse, for it empowers the power generation. The connection is crucial: fluctuations in oil supply and pricing directly influence the cost and availability of electricity, making the GST issue surrounding oil a significant factor in power production stability and affordability. According to the Pakistan Economic Survey 2023–24, the country's installed electricity generation capacity reached 42,131 MW by March 2024, with fossil fuels, mostly oil and gas, accounting for nearly 59 percent of the energy generation mix. Yet, domestic crude oil production meets only 20 percent of national demand for petroleum products. Pakistan imports approximately 80 percent of its petroleum needs, costing over USD 15 billion annually, which is the major drain on foreign exchange reserves, fuelling inflation, and widening the current account deficit. The country operates five major oil refineries, with a combined capacity of about 19 million tons per year. But ageing equipment, low complexity, and limited scale have kept utilization rates often below 60 percent. Despite a clear need for modernization, recent investment plans have been put on hold, largely due to uncertain tax treatment, absence of long-term policy clarity, and lack of pricing transparency. The consequences are evident. Major international players like Shell plc and Total Energies have exited the Pakistani market. Their departure should serve as a wake-up call. With only 30 percent of the country's sedimentary basins explored, vast upstream potential remains untapped. Without reform, that potential will remain permanently lost. In today's world, unrecovered hydrocarbons are not just a missed economic opportunity; they represent lost energy security and forfeited development. New entrants like Wafi Energy, Aramco, and Gunvor Group offer a ray of hope. Their interest in Pakistan reflects the underlying potential of this market, but only if paired with the right investment environment. But this optimism must be matched with decisive policy action. The time for ad-hoc adjustments has passed. What is needed is a comprehensive petroleum policy overhaul including investor-friendly exploration incentives, tax rationalization across the value chain, simplified procedures, stable pricing formulas, and long-term guarantees for fiscal and regulatory stability. Energy transitions are never just technological shifts. They are socio-economic transformations, shaped by governance, capital flows, and market signals. While the world moves toward renewables, Pakistan's dependency on fossil fuels is not going to disappear overnight. Per capita electricity consumption remains low at around just 492 kWh per year when compared to global averages. This underscores a long journey ahead and validates the continued need for fossil fuels in bridging energy access and affordability. At the same time, the long-term direction is clear. By 2040–2050, global demand for oil will likely decline significantly. The International Energy Agency (IEA) projects peak oil demand before 2030, with renewable energy expected to dominate by mid-century. For Pakistan, this means that failure to utilize its hydrocarbon resources now could render them economically and environmentally stranded assets later. The clock is ticking. Pakistan must act now to unlock upstream exploration, upgrade refining capacity, modernize retail distribution, and align tax structures with international best practices. It must also create a clear roadmap to phase in cleaner fuels, develop hydrogen-compatible infrastructure, and expand its nuclear and renewable capacities; all while building fiscal resilience through responsible petroleum development. The oil era will not last forever. But it is still here, and for a country like Pakistan, with rising energy demand, fragile economic buffers, and a young, growing population, the petroleum sector can still play a transformative role. What is needed is not just technical fixes but bold policy leadership. Reforms undertaken today will determine whether the country uses its final petroleum decades to secure energy independence and finance a sustainable future, or continues to import energy it could have produced, at the cost of growth and sovereignty. Copyright Business Recorder, 2025


Arab News
17-05-2025
- Business
- Arab News
Riyadh forum marks new era of Saudi, US partnership
In a world increasingly defined by economic interdependence and cross-border collaboration, the recently held Saudi-US Investment Forum in Riyadh stands out as a key platform for strengthening ties between two major economies. Bringing together more than 2,000 senior government officials, Fortune 500 companies, and leading investors from both nations, the forum has opened new avenues of cooperation across energy, technology, healthcare, and infrastructure — resulting in $300 billion in formalized investments. This is a major step toward the $600 billion in commitments previously announced by Crown Prince Mohammed bin Salman to deepen the strategic partnership between the Kingdom and the US. In his address, the crown prince said that the next phase aims to build on the $600 billion, with plans to increase Saudi Arabia's investment commitment to $1 trillion. As Saudi Arabia advances its Vision 2030 goals and the US seeks stronger global alliances, the forum marks a milestone in shaping the future of bilateral economic cooperation. The deeply rooted Saudi-US relationship has played a vital strategic role in both nations' prosperity over the past 92 years, beginning in 1933 when the Kingdom granted an oil exploration concession to the Standard Oil Co. of California. The historic 1945 meeting between King Abdulaziz and US President Franklin D. Roosevelt aboard the USS Quincy laid the foundation for this enduring partnership. The Saudi and American private sectors have been instrumental in driving bilateral trade and investment growth. Between 2013 and 2024, trade between the two countries totaled $500 billion, with $32.5 billion recorded in 2024 alone. Saudi Arabia now hosts 1,266 US-registered investment companies — an 80 percent increase in 2023 over 2022. As of early 2025, 200 regional headquarters licenses have been granted to US firms. Among US-registered companies in the Kingdom, the top sectors include professional and technical services (289), ICT (253), manufacturing (220), construction (130), and wholesale and retail trade (80). American foreign direct investment in Saudi Arabia has grown significantly, making the US the Kingdom's largest FDI source. The US holds $54 billion in FDI stock — 25 percent of Saudi Arabia's total FDI. With Saudi investments in the US exceeding $770 billion, Saudi investors show strong confidence in the stability and appeal of the American market. These growing economic ties reflect the enduring strength of the US–Saudi partnership and signal continued opportunities for mutual growth. The forum has laid the groundwork for forward-looking collaboration, uniting key players to explore new opportunities in a rapidly changing global economy. By promoting innovation and strategic dialogue, it has reinforced the foundation for long-term partnerships and economic progress. The momentum from these discussions could lead to transformative investments and breakthroughs across sectors. The forum has also created unique business opportunities, strengthening existing partnerships between Saudi Arabia and the US. The high-level participation of Crown Prince Mohammed bin Salman and President Trump highlights its importance as a pivotal event where ideas turn into action and collaborations drive long-term impact across industries. Both governments have played a key role in ensuring stable bilateral trade, while the private sector continues to fuel economic growth through strategic investments. The US-Saudi Business Council remains vital in advancing trade and investment, offering practical support and strategic guidance to businesses navigating both markets. Over the past 30 years, it has facilitated billions in cross-border agreements, further deepening economic ties between the two nations. • Talat Zaki Hafiz is an economist and financial analyst. X: @TalatHafiz


Arab News
13-05-2025
- Business
- Arab News
US-Saudi trade is on the cusp of a transformative shift
US President Donald Trump's visit to Saudi Arabia, along with stops in other Gulf Cooperation Council nations, is poised to further strengthen economic ties with the region. With Saudi Arabia standing as the Middle East's largest economy, the visit underscores the Kingdom's central role in regional and global trade. Trump's decision to select Saudi Arabia as the destination for his first foreign trip as president in 2017 — and to return again now in his second term — highlights the Kingdom's continued political and economic importance. It also reaffirms the enduring partnership between Saudi Arabia and the US, rooted in decades of strategic cooperation. The bilateral trade and investment relationship between the two nations dates back to 1933, when Saudi Arabia signed a concession agreement with Standard Oil of California, granting exploration rights that led to the historic discovery of oil at Dammam Well No. 7 in 1938. That discovery marked the birth of the Saudi oil era and laid the foundation for a robust, long-term partnership. According to the Office of the United States Trade Representative, total US goods trade with Saudi Arabia reached an estimated $25.9 billion in 2024. US goods exports to the Kingdom amounted to $13.2 billion, down 4.8 percent ($670.1 million) from 2023, while imports totaled $12.7 billion, reflecting a 19.9 percent decline from the previous year. Nevertheless, the US trade surplus with Saudi Arabia rose to $443.3 million in 2024, a 121.6 percent increase over 2023. Crown Prince Mohammed bin Salman's recent announcement of a $600 billion investment in the US marks a transformative step toward deepening bilateral economic ties. Given President Trump's earlier tariff policies — imposed even on long-standing allies in pursuit of what he called liberating the American economy — Saudi Arabia's position as a neutral party in those global trade tensions has elevated its image as a stable and reliable trade partner for the US. Looking forward, Saudi Arabia's Vision 2030 will play a critical role in expanding trade and investment between the two nations. The initiative places emphasis on diversifying the Saudi economy, with a specific focus on renewable energy, digital innovation, and high-tech industries. This shared vision was highlighted by a joint announcement on Sept. 8, 2023, when both governments signed a memorandum of understanding to collaborate on the creation of intercontinental green corridors, leveraging Saudi Arabia's unique geographic position as a bridge between Asia and Europe. In addition, bilateral defense ties remain strong. The US State Department's approval of a $3.5 billion sale of medium-range air-to-air missiles to Saudi Arabia will reinforce military cooperation and contribute to regional security while expanding defense trade. Trade between the two nations reflects flexibility and breadth. Saudi Arabia continues to be a key global supplier of crude oil, fertilizers, and organic chemicals, while the United States exports a wide array of goods, including electrical and mechanical equipment, pharmaceuticals, agricultural products, and industrial machinery. The US-Saudi economic relationship continues to evolve, anchored in a legacy of shared strategic interests and mutual economic benefit. Talat Zaki Hafiz The automotive sector remains the top US export to Saudi Arabia, reaching $2.8 billion in 2023 — a 32 percent year-on-year increase. Machinery, nuclear reactors, and related components accounted for $2.5 billion (18 percent of all US exports), a 38 percent rise from 2022. Aircraft and aircraft parts followed at $1.7 billion. In summary, the US-Saudi economic relationship continues to evolve, anchored in a legacy of shared strategic interests and mutual economic benefit. As Saudi Arabia advances toward its Vision 2030 goals — centered on sustainability, diversification, and innovation — it is actively shaping a future of expanded cooperation with the US. For Washington, Saudi Arabia remains a crucial partner. The Kingdom supplies essential resources such as crude oil, steel, and aluminum, which contribute to US energy security and support major industries including manufacturing, aerospace, automotive, and defense. These exports bolster American productivity and supply chain resilience. At the same time, US companies gain valuable access to a rapidly growing Saudi market, enriched by megaprojects and investments in infrastructure, technology, renewable energy, and manufacturing. Moreover, Saudi Arabia's strategic location as a logistics hub between Asia, Europe, and Africa enhances global trade connectivity, creating new opportunities for US exports and foreign investment. Through continued collaboration, strategic investment, and shared innovation, the US-Saudi partnership stands well-positioned to navigate a changing global economic landscape and deliver long-term, mutually beneficial outcomes for both nations.
Business Times
12-05-2025
- Business
- Business Times
DEI may not survive. But shareholder activism will
BUSINESS corporations are, simultaneously, the world's most wonderful organisations and the most terrifying. Wonderful because they produce an unprecedented profusion of life's necessities and luxuries. Terrifying because they are so powerful and relentless. The 18th century British Lord Chancellor Edward Thurlow once remarked: 'Corporations have neither bodies to be punished, nor souls to be condemned, they therefore do as they like.' How can we bring out the best in these Janus-faced creatures? One answer is to create a responsible managerial cadre through a mixture of education and professional ethics. A second is to use the government to regulate companies, and otherwise to chivy them to do the right thing. A third is to empower all the 'stakeholders' in the capitalist enterprise (workers, suppliers and shareholders) to ensure social balance. Nobody's in charge All these ideas have produced problems. Managerialism suffers from the defect identified by Adam Smith back in 1776 that hired managers will fail to exercise the vigilance in managing other people's money they would accord to their own: 'Negligence and profusion, therefore, must always prevail…in the management of the affairs of such a company.' Government regulation favours insiders over outsiders and, in the hands of strongmen leaders who are so common in today's world, including America, can degenerate into cronyism. And stakeholder capitalism suffers from the problem that when everybody is in charge, nobody is in charge. Which leaves one final form of control: Adam Smith's 'vigilant owners'. The entrepreneurs who forged the great modern corporations such as Carnegie Steel and Standard Oil were almost always paragons of vigilance who planned every move and monitored every penny. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up Owner managers were eventually sidelined by their own success: companies grew so big that they needed a cadre of professional managers to run them and so hungry for capital that they had to turn to public markets. By the 1920s, most companies were 'owned' by millions of small investors who were too dispersed and deferential to exercise control. It looked as if the 'vigilance' of owners was gone forever, and managerial 'profusion' had won the day. But then two things happened as a consequence of mass affluence. Vast pools of capital began to accumulate as citizens ventured into the stock market and governments encouraged them to put some of their savings into shares. And institutional investors, particularly mutual funds and pension funds, began to flex their muscles. In The Unseen Revolution (1976), the management guru Peter Drucker described the new phase of capitalism as 'pension fund socialism' but it would have been better described as popular capitalism in which, for the first time ever, regular investors got a chance to act like owners. Some of the most interesting business figures of the 1970s recognised the possibilities of Drucker's 'unseen revolution'. T Boone Pickens and his fellow corporate raiders used these pools of capital to take over (and asset strip) underperforming companies. Warren Buffett turned Berkshire Hathaway into an investment goliath (and thousands of small investors into millionaires) by taking long-term positions in promising companies and helping them to perform better. Michael Jensen argued that managers would become more entrepreneurial if they were given stock in the companies they managed. But perhaps the most ambitious of all these prophets of ownership was Robert Monks, who died in his home state of Maine on Apr 29. Monks saw popular ownership as the key to creating nothing less than a new form of responsible capitalism: a form in which a mass of 'vigilant owners' obliged companies to improve their performance, starting with the way they ran themselves ('corporate governance') and extending to the wider society. Monks' campaign for responsible ownership was initially met with a combination of hostility from corporate managers (who were doing fabulously from the existing regime) and indifference from institutional investors (who believed that their job was to 'shuffle shares' regardless of the fact they were often the biggest shareholders in companies). But the naysayers reckoned without Monks' unique qualities. Monks' ceaseless activity eventually revolutionised the corporate landscape in America and beyond. Once decried as 'parsley on the fish', corporate governance became the main course. Both the New York Stock Exchange and Nasdaq now demand that a majority of directors are independent, and directors undergo professional training in business schools (including one that Monks endowed at Cambridge's Judge Business School). The list of CEOs who have fallen foul of their boards includes some of the most powerful people in business such as Philip Purcell of Morgan Stanley, Franklin Raines at Fannie Mae, Michael Eisner at Walt Disney, Hank Greenberg at American International Group. ISS now has more than 4,000 clients and is valued at US$2.3 billion. The shareholder activism revolution has arguably solidified into an orthodoxy in recent years. Institutional investors have taken on the characteristics of the incumbent managers that Monks decried. And routine box-ticking has taken the place of 'vigilant management'. Recent fads Institutional investors have leapt unthinkingly on recent fads such as diversity, equity and inclusion, even going so far as to blacklist investment in armaments. Monks once wrote a book called Watching the Watchers. The watchers that he created need to be watched more carefully lest they themselves turn into interest groups. But the ownership revolution that Monks foresaw is nevertheless here to stay, and rightly so. There is no better way of providing for people's retirements than investments in financial markets. And there is no greater duty for the guardians of the world's capital than to ensure that regular people's savings are properly invested and managed. Adam Smith was right: There is no 'vigilance' like the vigilance of ownership, and the more ownership we have, the better. BLOOMBERG