Archive for May, 2012

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NATO Summit follow-up

Thursday 24 May, 2012

As the 50+ heads of state have left Chicago following the recent NATO Summit, I guess it’s safe to comment on it now.  Here’s what I picked up from McCormick Place, site of the summit.  Obviously, the principal topic & challenge was how quickly to pull out of Afghanistan.  Budgets are declining slowly & the EU isn’t yet spending it’s goal of 2% of GDP on military (1.6%), which can be done by pulling up the Baltic state members to get them interoperable with other members.  The Afghans need to learn that the level of corruption there is unacceptable & they need to solve the problem by themselves.   The people I heard from were cautiously optimistic.  Kabul is now relatively safe with only 6 violent crimes/100K people/year.  While it’s not as good as Europe’s 1/100k/year or the US @ 5/100K/year, it’s far better than 50/100K/year in Latin America or 150/100K/year in Caracas, VZ.  As I understand it, NATO has 4 goals over the next 2 years:

  1. protect the local Afghan civilians & bring their number of casualties down
  2. figure out what’s the right balance between diplomatic & military action.  I understand 8M students are now in school in Afghanistan, vs. only tens of thousands under the Taliban.  Infrastructure needs to be established.  Medical care has increased from 10% coverage under the Taliban to 60% now & needs to continue to improve.
  3. communications with local Afghans needs to improve
  4. obviously, train Afghan security forces, in great quantities, (up to 350K, I heard), & with quality as well.  Supposedly the military has an 80% approval rating & police a 70% approval rating.

As I understand it, the US will wind down from 90K troops there now, (& 40K other foreign troops), to 4K in 2014.  This also will have spillover effects, i.e. on how to deal with Pakistan & other neighbors.  We need roads to the sea get our stuff out of Afghanistan, so we need to repair our relationship with Pakistan.

On other fronts, Iran has missiles that can reach European capitals, so they are a threat.  NATO is implementing @ 1st a sea-based defense system that will expand to a land-based system in Poland & Romania with Turkey hosting the radar component.  The Balkans could still be an issue.  Those countries are now members of NATO, but tensions still exist.  There’s a little nervousness about Russia, but they are no longer hunkered down behind a wall.  NATO has been successful in Libya & against pirates, but cybercrime is a growing concern, to the tune of $2TR/year.  The threat is high & preparedness is low, & that’s a bad combination.  NATO wants to work with the private sector on this 1.

Increasing education in Afghanistan is a priority, especially given the 25% literacy rate for 25-30 year olds.  NATO needs more innovation to enhance it’s missile & defense systems.  They are now moving from joint operations with other military services (Army, Navy, Air Force, Marines) & developing inter-agency relationships with Dept. of State & Agency for International Development, to creating public-private partnerships.  Smart power, rather than swinging around our military might will be the key to success.  The bedrock of NATO is article 5, which states that an attack on 1 member is an attack on all members.  This has only been invoked once, following 9/11.  Read it sometime.  It’s a short, simple document that says a lot.

My surprise is that no one is talking about China as a rising military power.  The Chinese are building up their naval forces in the South China Sea & even claiming territories in the Indian Ocean, mostly to secure trade routes & gain access to resources.  The Chinese are also gathering more troops near a disputed border area with India.  I understand that the countries a little bit west are the most immediate concern, but at some point, they’ll have to sit down with the Chinese & work out a hopefully amicable agreement on how to defend the world peacefully.

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7th annual silk road conference

Friday 18 May, 2012

Harry Lepinske, of the Central Asian Productivity Research Center, hosted the 7th annual Silk Road Conference earlier this week at various locations in Chicago.  I was only able to attend the 1st day & moderated the panel discussion on Corporate Governance.

The focus of the morning’s presentations was on global entrepreneurship, a topic dear to my heart.  Michael Hennessy, President Coleman Foundation, Inc., led off.  He 1st explained that his foundation grew out of the Fanny May Candy Company, which led to their support of entrepreneurship education.  They issued their 1st RFP for $25K grants in 1995 & have issued $2.8M since then.  Since individual giving drives philanthropy, foundations only account for 7% of annual giving.  When working with colleges, high schools, & community colleges, they found there are lots of silos which are difficult to bridge.  Little research has been done on entrepreneurship education, but it is driven by students, not faculty.  Entrepreneurship education is no longer a stand-alone subject, rather it’s being integrated into other programs.  Venture capitalists benefit from this education on the back end, so the difficulty is figuring out who should pay for it.  There are many $3-5M foundations which need to be more effective & more checks & balances.  Their biggest issue is how to bring in alumni & collaborators.

Rol Dix of IIT was up next.  He noted that 30-50% of business is conducted in the underground economies in Poland, Italy, Russia, etc. & other countries which comprise 1/2 of the world’s workforce, which can be sources of ideas for entrepreneurs.  Strategic partners help define capabilities in finance, production, marketing, etc. so that entrepreneurs can hit up FFF (family, friends, & fools) for financing.  Think fast rather than slowly, but consider decisions overnight, not impulsively or immediately.

Joe Roberts of Webster University talked about financial components of global entrepreneurship, who simply made a comparison between traditional & entrepreneurial finance & global differences.  For example, some US models don’t work outside of the US, i.e. students doing market research or simply talking to business owners is considered espionage in some countries.  However, while all bankers are risk averse, non-traditional sources of funding like crowdfunding site Kickstarter are available.  Cash mobs can be a challenge in both finance & accounting.

Entrepreneurship in Tajikistan was next from Pulod Amirbekov.  Tajikistan has a 99% literacy rate for it’s 7.6M population which earns $629-716/ per capita.  Tajikistan now better protects foreign investors & the FDI is flowing in, making it the world’s 10th fastest growing economy, with GDP growth of 6.5%

Prof. Mehmet Baha Karan of Hacettepe University in Turkey discussed entrepreneurship there by essentially just presenting Turkey’s economic position.  It’s the 16th largest economy in the world according to purchasing power parity, & #6 in Europe.  GDP/per capita is ~$10K/person & the population is expected to reach 90M by 2030.  Despite a GDP growth rate of 7.5% last year, only 6% of Turks are entrepreneurs.  Bureaucracy, monopolies, intellectual property protection, & difficulties hiring & firing employees are impediments.  2.42 times as many men are entrepreneurs compared to women.  Many are 25-34 years old & 6% have post-graduate degrees.

The last presentation I caught was by Professor Ozlem  Ozkanli, Ankara University on energy in Turkey.  Liberalization & privatization are up, especially in the production & distribution of electricity.  It’s regulated by EMRA.  There is great potential for renewables, hydro, wind, & solar.  Electricity demand is increasing rapidly & constantly.  They have ambitious targets with high investment requirements, to there are investment opportunities there.

I asked my panelists on corporate governance for their presentations, but have not yet received them.   While I was moderating, I wasn’t able to take notes, but the highlights I can remember from the gist of each presentation was:

A. Crossin-Turkey is following the US model generally for corporate governance

D. Rinke-Chinese reverse mergers used to get around foreign investment restrictions are creating corporate governance issues there

T. Myers-believes that the Fed is complicit in protecting investment bankers by protecting their investments while others aren’t protected in the recent bailouts & financial crisis