ProvPort

On Tuesday, January 22^nd, 2013, I had the chance of visiting the Moran Shipping Agency with my professor and classmates from Global Economic Environments class. I feel so thankful to our professor, Dr. Elizabeth Robson who gave us the opportunity of discovering an industry whose details are often ignored, and visiting the beautiful and (old) historic building of Moran Shipping Agencies, Inc.

During our visit, our host Mr. Jason E. Kelly made a remarkable presentation about Moran Shipping Agencies, and maritime industry. During his presentation, Mr. Jason mentioned the economic importance of ProvPort on the local economy. So, as an international student from JWU, I chose to write about ProvPort and its participation in the regional economic growth.

ProvPort is located at the convergence of Narragansett Bay and the Providence River, which makes from it is one of America’s most strategically located port facilities.

The ProvPort campus is more than 105 acres, and the facility offers in excess of 1 mile of linear berthing capable of working 6 vessels at any one time. The Port provides both domestic and international bulk, break bulk and project cargo clients. ProvPort is the only two deep-water ports in New England. It was created in 1994 as a non-profit, public-private partnership after it purchased the Port from the City of Providence. Cargo volume reached 750,000 tons annually by the year 2000. That year, Waterson Stevedoring was established and began operations. Investments were made in expansion of equipment including the operation of floating cranes. Since September 11, 2001, approximately $500,000 has been invested to expand port security.

In addition, ProvPort is one of the busiest ports in America’s northeast. As an example of ProvPort’s potential, Rhode Island exports grew 13 percent in May of 2010, reflecting a seasonally–adjusted foreign sales increase of 62.3 percent over May 2009.

As quoted in the Providence Business News, “Rhode Island’s exports are a key contributor to local production and jobs. Thus, it is expected to keep the state economy afloat from sinking again into a new recession,” said Evangelos Simos, chief economist of eforecasting.com, pointing to developing countries like China, Brazil and India to drive demand. The importance of exports for RI state explains the importance of ProvPort as well. Actually, ProvPort is a critical economic engine for New England, generating an estimated $200 million total economic impact on the region. The port is host to more than a dozen of America’s most respected companies. Combined, the activities at ProvPort provide more than $60 million in direct business revenues and $16 million in revenue to local and state government. ProvPort makes a substantial contribution to the area's local economy.  During the past decade the direct and indirect jobs created by ProvPort have grown by more than 300 percent according to a study 5 completed by the national maritime research firm, Martin Associates.  Jobs created by ProvPort activities now exceed 2,400 high paying jobs. The appendix briefly represents ProvPort Employment and Output Model Projections.

On the long term, the value and strength of ProvPort’s contribution to the local community and the region is very impressive, even on the simplest level of analysis. When in full operation, the Port will directly generate $29.8 million in output of services with employment of up to 630 at the facility. In Rhode Island alone, this will lead to more than 967 jobs and a total of over $33 million in new income. For the Northeastern Corridor Region this will multiply to nearly 1,100 jobs and more than $39 million in new income. Carrying this new annual activity to its national impact, the proposed ProvPort project, when it is up and in full production, will create more than 1,600 new jobs and advance income by approximately $63 million.

            On Monday, December 10, 2012, Governor Lincoln D. Chafee, the Rhode Island Congressional delegation, Providence Mayor Angel Taveras, and ProvPort officials today announced two new state-of-the art mobile harbor cranes for the Port of Providence have been ordered and are now being manufactured by Austria-based Liebherr Group. The two cranes are part of a $20-million enhancement project funded by a federal TIGER II grant secured by the Rhode Island Congressional delegation and private investment by the non-profit ProvPort. The new cranes will replace two leased cranes from New Jersey that are more than 30 years old. “These new cranes are a critical step toward protecting the existing jobs at ProvPort and allowing this key asset to enter its next phase of growth,” said Governor Chafee. “The Ports of Providence and Boston are the only two deep-water ports in New England, and the new cranes will enable ProvPort to expand both its services and its efficiency. Strengthening Rhode Island’s infrastructure is one of the wisest investments we can make for both near-term and long-term job creation and economic growth.”

Sources:

·                     Raymond W. Fogarty and Dr. Josheph A. Illacqua, ProvPort The Renewable Port, Benefit Cost Analysis. Available from: http://provport.com/tiger_docs/Bryant_BenefitCost082010FINAL.pdf

·                     Martin Associates, Rhode Island’s Ports: Opportunities for Growth. Available from: http://www.dem.ri.gov/bayteam/documents/riports.pdf

·                     http://www.golocalprov.com/news/new-edc-provport-bring-two-upgraded-mobile-cranes-to-port-of-providence/

Criticism of the General System of Preferences

On Monday, January 14^th, 2013, my group had a presentation about Generalized System of Preferences (GSP). So, the purpose of this article is to recall the definition of GSP, and then to bring to light some of the critics that have been done about this concept.

First, as stated in Resolution 21 taken at the UNCTAD Conference in New Delhi in 1968, "… the objectives of the generalized, non-reciprocal, non-discriminatory system of preferences in favour of the developing countries, including special measures in favour of the least advanced among the developing countries, should be:

(a) To increase their export earnings;

(b) To promote their industrialization; and

(c) To accelerate their rates of economic growth."

Thus, is the GSP the final solution to enhance the economy of poor countries? Many economists believe that GSP does not seem to be a suitable instrument to promote sustainable economic growth and development of low-income countries. Here are the major argument that they present to support their opinion.

First, GSP schemes are criticized for being not so much an instrument to promote the exports of developing countries but more the means to improve the trade position of industrialized countries (see e. g. Mattoo et al., 2003). An example for this so-called opportunistic behavior is the specific design of RoO criteria. As a commonly used condition, local content rules require a minimum value-added within the exporting country. GSP schemes typically allow so-called partial cumulation of local content which means that intermediate input factors imported from the GSP granting country can also be included in the local value-added required by RoO. As a result, GSP receiving countries are likely to import intermediate inputs from the GSP granting country which thereby also benefits from GSP.

Additionally, to be eligible for GSP, companies have to comply with complex rules of origin (RoO) which induce costs for administrative procedures and specific technical requirements. Since the various GSP granting countries demand different RoO, the corresponding costs for the exporters can be prohibitively high. For instance, Anson et al. (2005) estimate the costs of compliance with RoO in the North American Free Trade Agreement (NAFTA) at 6%. UNCTAD (2003) argues that compliance costs may generally be higher in developing countries than in developed economies due to the lack of administrative and industrial capacities.

Second, Criticism has been leveled noting that most GSP programs are not completely generalized with respect to products, and this is by design. That is, they don't cover products of greatest export interest to low-income developing countries lacking natural resources. In the United States and many other rich countries, domestic producers of "simple" manufactured goods, such as textiles, leather goods, ceramics, glass and steel, have long claimed that they could not compete with large quantities of imports. Thus, such products have been categorically excluded from GSP coverage under the U.S. and many other GSP programs. Critics assert that these excluded products are precisely the kinds of manufactures that most developing countries are able to export, the argument being that developing countries may not be able to efficiently produce things like locomotives or telecommunications satellites, but they can make shirts.

Furthermore, not all developing countries have the same needs: the last twenty to thirty years have seen the emergence of more advanced developing countries, which are mow globally competitive. On the other hand, many poorer countries are lagging behind. They are affected by competition from more advanced emerging countries and have suffered during the global economic crisis. Despite this, most advanced emerging economies are the biggest beneficiaries of GSP, accounting for around 40% of preferential imports under GSP. There is significant competition between GSP beneficiaries. Hence the need to concentrate preferences on those that most need them: low and lower middle income countries.

To conclude, there are many arguments that support that the effects of GSP have been found to be controversial to the expected results. However, some of these gaps have been closed by the U.S. through creation of supplemental preference programs like the African Growth and Opportunity Act. Also, EU is proposing to reform the GSP in order to achieve a better focus on those countries in need, promote care principles of sustainable development and good governance, and enhance legal certainty and stability.

Sources:

·                     Bernhard Herz and Marco Wagner, The Dark Side of the GSP. [Online]: German Council of Economic Experts, February 26, 2010. Available from: http://www.sachverstaendigenrat-wirtschaft.de/fileadmin/dateiablage/Arbeitspapiere/The_Dark_Side_of_the_Generalized_System_of_Preferences.pdf

·                     William H. Cooper, CRS Report for Congress, GSP. [Online]: Congressional Research Service, The Library of Congress, Updated July 10, 2007. Available from: http://fpc.state.gov/documents/organization/89919.pdf

·         http://en.wikipedia.org/wiki/Generalized_System_of_Preferences

·         http://eubusiness.com/topics/trade/gsp-reform-1

The risks of applying a higher import tariff

Now a days, it is more evident than ever that protectionist policies can not know other path than failure. Nevertheless, many people, including economists, still believe that protectionism can be the solution to many national problems. Recently, I have read an article about how higher import tariff can pay for medicare and get the U.S.A. out of debt. How can this be possible?

Here is the reasoning of the author: ''you'd like to hike tariffs back up to 15 percent. Let's see...that's roughly 8 times the current rate. Right now, the government raises something like $30 billion a year from tariffs, basically. So multiply by 8 and you'd get an additional $240 billion or so, assuming that imports didn't decline drastically if they went up in price by 15 percent, a cheeky assumption.'' 

In other words, the author assumes that the fortune of the U.S.A will rise 8 times if the import tariff is  increased to 15%. However, can this be realistic, and what are the consequences of rising import tariff?

First, from a global standpoint, despite of increasing the GDP by 8, rising import tariff will lead to a great economic drop. In point of fact, rising import tariffs to other countries will cause the anger of the affected countries who will in their turn rise their import tariffs (retaliatory action). Consequently, the consumption of American products in these countries will go down. Later, the total of goods and services exported in these countries will go down, which will directly lead to a decrease in the American GDP.

Let's suppose that retaliatory action won't take place, is it possible that the economy of the U.S.A. remain safe?

Actually, the trading partners of the U.S.A. depend on their exports to increase their wealth. if the U.S.A. limits these imports, then the purchasing power of the trading partners will go down. As a result, these countries won't be able to purchase American products, which will lead to a decrease in the American exports, and then the American GDP. 

Therefore , it is clear that decreasing imports leads to a decrease in exports, and thus a decrease in GDP.

Second, the import tariff increase will have a great effect on the poor classes. Generally, the import tariff affects low cost products, that are mainly purchased by the poor classes. If the import tariff goes up, the price of these products will go up as well, and the poor classes won't be able to purchase the products. Clearly, then the level of consumption will go down, and so will the productivity. An other undesired result of the price increases can be strikes and manifestations.

Finally, history has proven that protectionism is a failing system and one of the major causes of war. The failure of Smooth-Hawley Tariff Act of 1930 is the best example of how protectionism can lead to crushing economic downturns. This dynamic remains valid, and is supported by the most up-to-date economic evidence. In fact, the static economy of North Korea is a great example of this failed economic ideology. An example of how protectionism lead to war is the European countries in 17th and 18th. In this period of time, European governments were predominantly mercantilist and protectionist. These protective policies were preceding both World War I and World War II. According to a slogan of Frédéric Bastiat (1801-1850), "When goods cannot cross borders, armies will."* 

In conclusion, rising import tariff will lead to a wide economic crash and have a great effect on the poor classes. Thus, it is important to consider these two "side effects" before initiating such a decision. Yet, how can U.S.A. pay for its tremendous debt? This is a good subject for an other blog.

*DiLorenzo, T. J. (), ‘Frederic Bastiat (1801 - 1850): Between the French and Marginalist Revolutions’.

Sources:

http://www.pbs.org/newshour/rundown/2012/01/could-a-higher-import-tariff-pay-for-medicare-and-get-the-us-out-of-debt.html

http://news.cnet.com/2010-7353-6225014.html

http://www.economist.com/node/21557766

http://en.wikipedia.org/wiki/Protectionism#Arguments_against_protectionism

http://www.econlib.org/library/Enc/Protectionism.html

New sources of comparative advantage for the post-revolutionary Egypt

In the previous article, I explained how “the revolution” formed a trading barrier to Egypt. In this article, I will try to highlight what the economic strengths and potentialities of Egypt are, and how the new Egyptian government can take advantage of these potentialities and make from them sources of comparative advantages capable of building a strong economy and equitable social system.

In the first place, I’d like to emphasize the natural and cultural potentialities of Egypt:

·         First, the geographic situation of Egypt is so strategic. The country borders Libya to the west, the Gaza Strip and Israel to the east, and Sudan to the south. In addition, Egypt has coastlines on the Mediterranean Sea, the Gulf of Suez, the Gulf of Aqaba and the Red Sea.

·         Second, though Egypt is predominantly desert and only 3.5% of the total land area is cultivated, Egypt disposes of the Nile Valley and Nile Delta that are the country's only cultivable regions and supporting about 99% of the population.

·         Third, Egypt's mineral and energy resources include petroleum, natural gas, phosphates, gold and iron ore. Oil and gas accounted for approximately 7% of GDP in fiscal year 2000/01. Export of petroleum and related products amounted to $2.6 billion in the year 2000.

·         Fourth, the culture of Egypt has thousands of years of recorded history. Ancient Egypt was among the earliest civilizations. Ancient Egypt was among the earliest civilizations. For millennia, Egypt maintained a strikingly complex and stable culture that influenced later cultures of Europe, the Middle East and Africa.

In the second place, here are the demographic characteristics of Egypt:

·         Population: 82,079,636 (July 2012 est.)

·         Population growth rate: 1.96% (2011 est.)

·         Median Age: 24.3 (2011 est.)

·         Literacy rate: 70% (2010 est.)

According to the data above, I can state that Egypt already has these resources of comparative advantages:

·         Government subsidies

·         Unskilled workforce

·         Availability of natural resources

·         Topography of the region

·         Access to waterways

·         Existing infrastructure

However, if the new Egyptian government really intends to build a strong economy, these are the main areas that they should focus on.

First, it is true that the high population of Egyptian is a source of comparative advantage, but what the government should really think about is how many poor countries have this advantage? And did these countries create a valuable added value by exploiting their people?

Therefore, I suggest that the Egyptian government revise and create a new education system that is constructive and oriented toward international labor market that is increasingly looking for skilled labor. For instance, a great focus should be conducted in the subjects and the academic subjects that are taught in universities.

It is obvious that such a project requires much effort from the government; still, education remains fundamental for rehabilitation of the economy and re-establishment of the social system of the country.

Second, seeing that Egypt is a rich in natural energy and gas, it is important to take advantage of this raw material not by exporting it raw, but by developing and attracting investments in industries that require oil as raw material. Namely, Egypt can develop economy of scale in industries like chemical products, construction materials, and pharmaceutical products. Nevertheless, it is impossible for Egypt to develop such industries if it doesn't have qualified and skilled labor.

Finally, I have a recommendation to make concerning tourism. According to the data that I gathered and mentioned above, Egypt has a long history, rich culture and outstanding nature; three elements that have strengthened tourist industry in Egypt. However, I think that it is time for Egypt to orient its tourist industry towards new concepts, such as niche tourism and sustainable tourism. By developing these two concepts, Egypt will not only succeed in diversifying its tourist products and attracting new segment, but also in developing a responsible tourism toward environment and society.

In conclusion, Egypt has great and promising potential, yet, in order to have competitive sources of comparative advantage, it is necessary that the new government develops the following areas: education, and openness to international market and new markets.

Revolutions in Arabic world as an example of unintentional trade barrier

A man sells bread near the Interior Ministry in Cairo February 7, 2012. (photo by REUTERS/Mohammed Salem)

With all the political and social change that is happening in the Arab world (War, Revolutions, Ben Ghazi affair...etc.), it is highly probable that the trading relationships between Arab countries and the rest of the world will get disrupted for many years. Thus, how can such events have an effect on the trading relationships of Arab countries?

At first glance, the Arabic countries are split to countries located in North Africa (Tunisia, Libya, and Egypt are the countries in concern with the new events), and countries located in Middle East (Iraq, Syria and Jordan are the countries in concern in this case). Why is it important to make the difference between the countries in the two zones? Because the geographic location not only represents cultural differences between the Arab countries, but also economic dissimilarities, mainly in the economic base, trading partners, and dependency on trading. On the one hand, the economy of the Arab countries located in North Africa is based on services and agriculture, and the main partner of the Maghreb is European Union. On the other hand, the economy of the Arab countries of Middle-East is based on oil and services, and the main partners of these countries are Asian countries and the U.S.A.

In this way, distinct events in several Arab countries can have different economic effects in these entities.

So, in order to be more precise, I chose the case of the January 25 Revolution in Egypt and its important economic implications.

On the one side, the revolution caused a deterioration of Egyptian economic indicators. In fact, whereas the economic growth rate in 2010 was at 5.7%, it dropped to 1.8% in 2011. Moreover, the massive public debt, that represents 84.3% of the GDP has been continually increasing. In addition, according to a French bank, the daily economic losses during demonstrations was of 300 million dollars. 

On the other side, the events that took place in 2011 affected most economic sectors, especially tourism (10% of Egypt's GDP), exports and remittances from abroad. In fact, the overall estimated losses in Manufacturing, construction and tourism sectors was of 1.62 Billion dollars. Furthermore, the local currency came under unforeseen pressure because of the monetary transfers to foreign countries and the flight of certain foreign and Arab investments, which negatively affected Egypt's balance of payments.

In conclusion, the January 25 Revolution had a great negative effect on the economy of Egypt, which caused the escape of foreign and Arab investment, and the decrease in tourist visits. Thus, as the example of the Egyptian revolution attested, revolutions are serious unintentional trading barriers facing the Arab countries.

Sources in English:

http://www.al-monitor.com/pulse/business/2012/03/future-plan-of-Egyptian-economy.html

http://english.ahram.org.eg/NewsContent/3/12/55177/Business/Economy/IMF-revises-upward-Egypt-growth-for-.aspx

Sources in Arabic:

http://aljadidah.com/2011/02/آثار-الثورة-على-الإقتصاد-المصري

http://shorouknews.com/columns/view.aspx?cdate=03022012&id=cc3d1bbb-e904-462d-abde-f7ce268e7d83