Dr. Doom
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Let’s hear what Dr. Doom, aka Dr. Nouriel Roubini has to say {again} about this economic crisis. It’s amazing how his predictions keep coming true.
His next prediction? deflation (someone please feel free to explain that).
Sad that he is right, he seems to be reading straight out of the Japanese playbook though.
Deflation – When stuff becomes cheaper… Conventional Wisdom claims a little inflation is good.
Deflation creates a situation where it is preferable to hold cash (i.e. NOT invest) to other assets e.g. stocks, (maybe) bonds, property, factories/plants, etc
The USA is facing deflation as regards to houses, cars, etc…
BTW, all the effects of deflation are not bad… For those who are ‘conservative’ or on fixed incomes it allows them to live better!
CT,
maybe they live better, but for how long? and how can they feather their nests?
Inflation: prices going up
Deflation: prices going down
Coldtusker:
Isn’t deflation bad for businesses because it essentially means that they have to drastically reduce their prices, which will inevitably lead to much lower profit margins.
What is the consequence of lower profit margins? more layoff’s — since with lower profit margins, they won’t have the money to employ as many people.
So, yes, to the average consumer, deflation may seem like a good thing, but it’s actually a bad thing for wage earners and this is what is beginning to happen to the U.S. retail market — stores are being forced to keep lowering their prices in order to entice people who are wary of spending, but the more they do that, the more money they’ll lose, especially because many of these stores have already paid for those items.
The prices of goods are still too high and I predict that in January, when many stores realize that they haven’t sold much of their winter inventory, they are going to be drastic cuts in prices. How else do you get rid of excess inventory?
Now, can someone talk about this in relation to kenya where people are demanding that the government cut prices on basic commodities, especially food. Are the prices in Kenya artificial or do they reflect world traded commodity prices?
PO: Fixed Income folks are OK in a deflationary economy. Remember it gets CHEAPER for them to buy goods later… so they get more.
KE: Yes, deflation means ‘lower’ profits though they can buy more with the same amounts e.g. they need a new pick-up which cost them $15,000 in 2007 but only $14,000 in 2009. Kenya has never experienced deflation thus I am not using KES in my examples!
Lower profit margins? Maybe but this depends on the business e.g. traders with little stock can replace the stock asap… FIFO & LIFO are almost the same.
Industries that bulked up will hurt coz they have ‘expensive’ equipment/plants/factories… thus a new entrant can out-price the older firms…
In a typical deflationary economy, the salaries are stagnant. So there is money to employ them… as long as they can maintain similar profits. Of course, salaries are sticky BUT employees get more bang for their buck.
Retail firms will hurt if they stocked up at higher prices. On the other hand, many firms buy on credit & thus will ask for refunds… if they have the power…
BTW… the problem with deflation is that it can lead to STAGFLATION… which is what will really hurt!!!
Kenya: Prices are artificial coz of subsidies and duties… Kenyan politicians should keep off the economy as much as possible… see my blog…
Coldtusker:
I read your piece and as I’ve said before, I think you do have a lot of knowledge about the kenyan economy. Others should read the piece by clicking on this link. It’s quite informative:
http://coldtusker.blogspot.com.....aster.html
Do you honestly think the kenyan economy is headed for collapse?
Not collapse but tough times… I think ‘shock therapy’ would be better BUT that means a possible resurgence of violence…
Kenyans should diversify their sources of food(s) especially the traditional crops like millet, sorghum & cassava (though this might be an import)…
Lets see if the global crisis will benefit the BPO sector in Kenya as companies in western economies cut costs
I think India would benefit far more than Kenya’s BPO firms…
Coldtusker:
What do you mean? do you mean that since India already has the infrastructure in place, it will be ready to go on day one?
You need to have dealt with those Indian customer service agents to know just how bad they are. I said previously that many American companies are now bringing those jobs back.
The Indian accents are thick and incomprehensible. The agents are rude and impatient. It’s a nightmare. I think Dell computers has to have the worst customer service ever (they outsource to India) and you can be on the phone for 4 hours before you get anything accomplished.
There is huge opportunity here, but the kenyans will have to do what the indians did initially and that i, set-up offices in America where these companies are headquartered and start cold calling them for business.
American companies will not just flock to kenya on their way — someone has to tell them what they can do for them.
Well… the Indian BPO industry was suffering from ‘shortages’ of good/reliable/qualified staff due to the rapid growth. The current ‘slowdown’ will allow them to regain lost marketshare (even though the cake will decrease for 1-2 years).
Yes, the Indians have the infrastructure (e.g. Kenya expects TEAMS in 2009 while India has had (real) broadband for a decade), experience and expertise. We need to team up with them to jump-start our own BPO industry.
Kenya needs to develop an alternate language base (e.g. French, German or Italian) but this this is easier said than done.
If I had to do it… I would build broadband capacity to Uganda, Rwanda and Tanzania (if they allowed it). In 2010 to S. Sudan. Why? These countries have Kenyan firms that need the capacity so they can center the backoffices in Kenya. These backoffices will give Kenya credibility & heft to take on other business from Europe & N.America.
Furthermore, access to Rwanda will give Kenyan BPO firms access to French speakers… perhaps DRC can provide Belgian speakers…
CT
Damn! There is no such thing as a Belgian language.
Belgians speak three main languages – French, Dutch and German. The dominant languages are Dutch (Flanders) and French (Wollonia).
Its a poor country. I have visited several times. I would never ever live in Belgium – over my dead body.
I doubt they would have any companies looking to outsource.
As for the French, they are too patrotic to outsource jobs.
Germans – maybe. But then again, they are so efficient they would find ways of having the job done locally.
NB: I have lived and worked in both France & Germany. So I know the mentality.
Coldtusker:
Let me ask you a question: Have you ever dealt with an Indian customer service rep?
If you haven’t, consider yourself lucky.
Josh:
Belgium is poor? I’m assuming your comparing it to other European countries. I’m curious which European countries you are comparing it to?
The French are too lazy. They’ll outsource everything. Remember the classic tom friedman remark? “french workers are trying to preserve a 35-hour work week in a world where Indian engineers are ready to work a 35-hour day”.
am trying to post a link but i think its being blocked as a spam
try to google pingdom outsourcing-kenya-gunning-for-india’s-crown and there is an article by interesting article by “pingdom” of how this year the interest for Kenya BOP has surpased that of india. Infact Kenya is no.1 and India no. 2
noni;
I think I’ve found the link: http://royal.pingdom.com/2008/.....99s-crown/
That is a very good article and thanks for pointing it out.
I’m not surprised. I’ve been complaining about Indian customer service reps for years here.
However, let’s all remember, that you can have the best infrastructure in the world, but if you can’t get the clients, you won’t make any money. So, how, if you are thinking about starting a call center in Kenya, would you work to get the American companies to switch over? i.e to move from India to Kenya?
KE
I am of course comparing Belgium to its Northern European neighbours i.e Germany, Netherlands, France, Luxemborg, Switzerland, Austria, Norway, Denmark & Sweden.
Some neighbourboods in Belgiun are so rundown they look like river road in Nairobi. There is litter on the streets etc.
Southern Europe is generally poor as well i.e. Spain, Portugal, Greece and Italy.
You are wrong about the French. They would not outsource jobs because the government would immediately be thrown out. There would be riots on the streets. The French are the most socialist of all western European economies. They have been opposing the abolition of subsidies for EU farmers for decades (all the other countries have agreed). Their farmers would immediately go bankrupt if they were to face competition. The French run one of the most protected economies in Europe.
As for the Germans – they are really good at everything. They even clean their own streets, drive their buses and taxis, man their train stations etc. these are jobs that are normally done immigrants in other countries. They are not about to outsource any jobs.
@josh
When it comes to outsourcing, its a strategy that is employed by small, medium or larger enterprises. It makes sense to hire a software developer at 1/4 the price in Kenya than hire someone who is much more expensive in your home country. Technology has removed barriers of physical & geographical distances. Even some startups company outsource some of their works. One of my buddy in the UK has been outsourcing work to India and Russia to cut costs. It makes sense to him because he owns a startup company and hiring someone equally good at 1/4 the price makes good business sense
With the current global financial crisis, many large companies may be forced to cut costs to remain afloat and may take the option of outsourcing some of their jobs. Even governments will not stand in the way.
By the way France has been outsourcing a lot of their work to Morocco and Morocco is one the major hubs for outsourcing in Africa. In fact Morocco economy has been doing so well and mind you they don’t have those minerals such as oil for them its just services(BPOs, Tourism, Financials) and agriculture just like us. They also get alot of FDI from france.
@KE
Kenya ICT board has been working had to market Kenya as an ICT hub. I believe they are making inroads but still more work needs to be done. Also government and provate sector seem to investing in this area. There are plans to build a BPO park in Athi River. Also along Mombasa road, sameer business park is already being constructed and will be finished by end of next year. I also know 2 software companies in Kenya that are hiring many developers and their clients are based in Europe.
Have you guys heard of Odesk?
I saw it on BBC the other day and I was impressed.
You can basically bid for IT projects from home and also work from home. I was on their website too.
Are there Kenyans working from home who could bid for jobs on these kind of websites?
Josh:
Why is Belgium so “poor”? do they have an immigration problem?
I suppose the French are going to have to change given the dynamics of this global economy. I mean, what’s the unemployment rate in France? 15%? What are they going to do with all those Arab and african immigrants who keep getting angrier and angrier?
I have a senagalese friend who grew up in france, but moved to america and immediately began working on getting her U.S. citizenship. She basically said that france is the worst place to be if you are either african or arab. She said there’s no chance of upward mobility if you are not “white”.
Odesk sounds like elance and numerous other companies that allow you to hire freelance programmers. I’ve been using elance for 3 years now and they’ve been getting better and better in terms of making it easier for you (the customer) to outsource a variety of work to different programmers from around the world.
Noni:
Is it upto the government to market it or should the individual companies be going after these clients? I think this was the key to the success of the indian companies: they didn’t wait for the government. they instead went out and sought these american companies.
And at the end of the day, isn’t that the real job of any owner of a company? to go out and get the clients? the government can’t do that for you.
@KE
Ofcourse this companies also do it for themselves and have been doing it even before Kenya ICT Board was set up last year. But i guess KICTB does the same thing like KTB does for tourism. KTB markets kenya as a destination but you cant discount that various tour operators also market for themselves.
KE
Belgium is just poor. Its poverty has nothing to do with immigrants. I have now learnt that there is a lot of propaganda that all European countries are rich. This is a myth. Some Eastern European countries (in the EU) are basically dirt poor e.g. Romania and Bulgaria.
But to come back to Belgium, I guess they did not steal enough during the days of colonialism. This is the period when countries like Britain, France, Portugal and Spain became rich. Belgium had only Congo, Rwanda and Burundi (I stand to b corrected). And so now its too late for poor Belgium to catch up. There are no more colonies to steal from.
You are right about France. Ther immigrants just wait to get a French passport and then they travel to the UK, Germany and Scandinavia to work under the EU rules.