Monday, September 26, 2011

Saudi Arabia gives women the right to vote

I have to say, I was taken aback when I read the front cover of the Arab News today - but in a good way.

Only a short update here; I felt it was necessary to write a post on the major breakthrough in Saudi society that has happened recently. Yesterday, King Abdullah announced that women will be given the right to vote and run in municipal elections come 2015, and this is most definitely a step in the right direction.

Many criticise Saudi Arabia for its treatment of women and their role in society, but forget that the country was only formed 79 years ago (an anniversary recently celebrated on Saudi National Day on Friday). Since then, it has undergone rapid development and modernisation to form one of the most stable economies in the world today. For countries such as the USA and UK, industrialisation has taken 200-300 years, and, for the UK, it wasn't until 1928 that all women above the age of 21 were allowed to vote.

So when you put it into this context, Saudi's progress to reach this stage in just 79 years from the country's formation seems quite remarkable. Hopefully the right to drive and a reduced need for male guardianship will follow.

Read more about this story: Independent, Arab News (Saudi newspaper)

Just to note, there won't be any posts up for a week or so. I'll be writing new content soon!

Saturday, September 24, 2011

Tesco makes more cuts than a slasher film

It's easy to roll your eyes when you hear a supermarket firm is cutting its prices. The claims of "smoke and mirrors" carry a warning, and as one analyst mentioned, "The devil is in the detail." (Source)

So why is Tesco's plan of £500m of price cuts being considered as a good strategic move then? First, for those who haven't heard of Tesco (there aren't any stores here in Saudi), or any of its subsidiary firms such as Fresh & Easy, it's the second-largest retailer in the world by profits, and it's a firm known for taking strategic risks. It is perhaps slightly misleading to call this new strategy as simply a series of price cuts; it's more of a pricing revamp across their stores, with the aim of reducing the complexity of their pricing system to make necessities more affordable. But why is this necessary?

Supermarket "savings"

Tesco's plan seems to be partly in response to the growing outcry that supermarket offers and deals, such as buy-one-get-one-free, are encouraging consumers to buy more than they need, which increases wastage and voids the savings they made in the first place.

This problem is particularly apparent for fresh goods. For instance, one day I might buy 12 yoghurt pots at 50p each if there's an offer that says, "Buy 10 yoghurt pots and get 2 free." At first, I think I've made a saving; I've spent £5 instead of what 12 pots would usually cost (£6), so I've "saved" £1. However, it's only a saving if I would have had the incentive to buy 12 pots had the offer not been there. It's very unlikely that I would eat this many pots within the expiry date, so any pots that I don't eat are wastage, and I've lost out. But even if I did eat all that yoghurt in that particular week, I would still have lost out because of the opportunity costs of my usual buying habits - I never buy yoghurt!  (Although an utilitarianist might ask if I enjoyed eating all that yoghurt before coming to such a rash conclusion...)

Anyway, that was slightly off the beaten track, but I hope that that example shows whether all these supermarket offers do actually save consumers money, as well as the complexity of calculating these savings out. Considering the amount of deals that consumers are bombarded by in these stores, in some ways these offers can be seen as too manipulative by supermarket firms (I say too because it's extremely na├»ve to think that firms should stop manipulating consumers altogether - they need to make money!).

The Big Price Drop

Now half-price.
Tesco's plan is to reduce their offers and instead simply cut prices, in the hope that it will reduce families' wastage and halve the rate of food inflation (source). The prices of necessities such as milk, bread, cheddar, vegetables, etc. of Tesco's own-label goods will be reduced from between 15 to 20%. Surely this will help those suffering from the recession to buy the goods they need, and shop in places less saturated with offers for goods that they don't need?

Well yes, it will. (Did you think I was being sarcastic?) To simplify, one analyst described Tesco's move like this:

"Price cutting is usually a smoke and mirrors affair. But I think this will cut through the fog of promotions and concentrate on very low pricing. Most consumers don't want four for the price of three, because they don't want four packets of whatever. They just want it cheaply. This should put Tesco on the front foot." (Source)

Nevertheless, there are two downsides to this. First is the Clubcard scheme - customers will no longer receive double Clubcard points, but instead one point for every pound spent. Cynics/rivals are claiming that this is where Tesco will save £350m, but so what if they are?

Loyalty cards and reward schemes have devalued over the past few years with so many companies offering some form of their own; while I imagine many price-savvy consumers save money with them, it doesn't instil the same brand loyalty like it used to. I, a person who rarely goes shopping and doesn't buy the food for the house, have 13 loyalty cards in my wallet. Of course, some Tesco shoppers will be annoyed by this at first, but people dependent on the Clubcard may end up saving more anyway with the price cuts. And like the buy-one-get-one-free offers, Clubcard isn't disappearing, it's simply being reduced.

The second problem is far more serious. What happens when a major oligopolistic firm lowers its prices?

"1, 2, 3, 4, I declare a price war"

Here's some theory for you: the UK supermarket industry is an oligopoly - there are a few large firms that dominate the industry. Interdependence between the firms exists as they are large enough to influence the market, and so each firm needs to take notice of their competitor's actions.

Oligopolies tend to compete through non-price competition. Advertising, brand names, sales promotions - these are the kinds of competition that exist between oligopolistic firms. Prices changes far less in oligopolies as firms are usually unwilling to engage in this type of competition. If a firm raises its price above the current market price, other firms will not follow. Their demand will fall as consumers flock to the other firms, causing the firm to lose trade, sales and most likely profit.

If a firm lowers its price below the current market price, this can also spell trouble - but for the entire industry. Since other firms are afraid that their demand will fall as consumers go to buy from the firm with the lower prices, they too will lower their prices. But they won't just equal out their prices, these firms will undercut the original firm to stay ahead of the game.

This can repeat itself numerous times as the industry heads into a downwards spiral until one firm simply cannot keep up with losses it is making at such a low price, causing it to go bankrupt. Firms like Tesco, on the other hand, are so massive that they are able to absorb sustained losses in a price war from elsewhere (if you want to know how well they are doing globally, have a look at their impressive expansion in Thailand at the moment).

What makes the supermarket industry particularly interesting at the mention of a price war are companies' price guarantee schemes. It seems that Ocado will suffer the worst from Tesco's price cuts, with its promised price-match on Tesco for most brands. Sainsbury's also might be in trouble with its recent testing of a price-match scheme in Northern Ireland.

So is it all doom and gloom for UK's supermarkets? The Guardian's article about supermarket shares plunging might suggest so. My opinion: this price war threat does seem more substantial than previous times when Tesco has announced to drop prices, but my real worry is whether Tesco's suppliers are going to be affected by all this. It's difficult to debate how much each supermarket firm is going to be affected at this point in time; obviously firms will be reluctant to reveal if they are struggling or not, so only time will tell how this will all pan out. For now, we might be better off asking this question:

What could this all mean for the UK's economy?

Any way you look at it, consumers are going to benefit in the short-run. With reduced prices on basic foodstuffs, consumers, especially those who have been suffering from the recession, will effectively increase disposable income. This could all lead to an increase in expenditure in the economy.

But on what? Time will play a big factor in this, because if the prices stay low (or become even lower as a result of a price war) for a sustained amount of time, then people will not only have more money but greater confidence to buy luxury items, which would have previously been used for essential goods.

However, if these luxury items are all exports, such as a new Sony TV, or a Honda car, then the economy is not better off at all. Tesco looks like it's striving to cut back the price of necessities, not luxuries. Given that many necessities are fresh products, of which a large proportion are British fresh products, British farmers and food suppliers could actually be worse off with the price cuts. So in effect, Tesco could be harming the economy if their supply chains are squeezed in this potential price war.

Conclusion: the devil is most definitely in the detail

There are a lot of "ifs" throughout this post, predominantly because I have no first-hand evidence on prices of actual goods being cut. As for this price war that's been featured in the newspapers recently, it's only really supermarket shares that have indicated what's about to come. If you want my advice to see whether The Big Price Drop has affected the supermarket industry, see what savings you make over the next few months with your normal buying habits. And keep an eye on the development of this price war, especially with slightly smaller firms like Ocado which are more at risk.

Friday, September 23, 2011

Saudi National Day

Today marks the 81st anniversary (according to the Islamic Hijri calendar, 79th anniversary according to the Julian calendar) of Saudi Arabia's formation and unification in 1932 by King Abdul Aziz. Driving around Jeddah today and you will see the country's national flag up everywhere as Saudi prepares for its only non-religious official holiday of the year.

Saudi Arabia's national flag

A Very Brief History

Before 1932, Saudi Arabia was split into two main kingdoms: Nejd and Hejaz. Abdul-Aziz bin Saud of the Al Saud family (House of Saud) seized Riyadh, the capital of Saudi, in 1902. That was the start of a series of conquests which eventually led to the union of Nejd and Hejaz in 1932, and the established state was named the Kingdom of Saudi Arabia. The name Saudi Arabia comes from the region - Arabia, or the Arabian Peninsula - and the family that ruled it (Al Saud).

Map of Saudi Arabia before formation - shows split between Hejaz and Nejd
Saudi Arabia in its current form

Saudi National Day as a public holiday

While people in Saudi may have celebrated the anniversary of the country's formation before, it wasn't until King Abdullah bin Abdul Aziz came to power in 2005 that it was celebrated as a public holiday.

However, while many private institutions close on both of the Eid holidays after Ramadam and Hajj (which are the other public holidays that exist in Saudi), fewer observe Saudi National Day considering it is only celebrated by Saudi nationals. Although you could argue that the expats and students appreciate the day off as well!

As a note, September 23rd is a Friday this year, which is a part of the Saudi weekend (Thursdays and Fridays). When this is the case, the ensuing Saturday is treated similar to a bank holiday. (Think how Christmas and Boxing Day fell on a weekend in the UK last year causing the Monday and Tuesday afterwards to be bank holidays.) 

Celebrating Saudi National Day

Due to the conservatism that exists in the country, you are more likely to see celebrations in the more cosmopolitan places in Saudi, such as Jeddah, which is perhaps the most tolerant and diverse of all of Saudi Arabia's cities.

Here in Jeddah Saudis celebrate by going out; many will visit the Jeddah Corniche, a seaside promenade, where there will be fireworks and a parade. Some families might go out for dinner at one of many restaurants in Jeddah, since eating out is a popular pastime with the lack of entertainment but considerable wealth that exists here in the country. Younger Saudi guys will party out on the streets, painting their faces and cars and in general will enjoy one of the few times that they can let their hair down out in public.

The Jeddah Corniche
Some Saudi youths celebrating in traditional and not-so-traditional garbs

I've been advised by many Saudis not to go out this evening, and I suspect it's because the celebrations can end up quite rowdy and wild during the night. Moreover, Jeddah's already busy traffic at night can become horrendous throughout the celebrations in the evening due to the huge amount of people wanting to go out, particularly those heading towards the Jeddah Corniche. An otherwise 15-minute journey can take up to 3-4 hours! celebrates Saudi National Day...
...but personally I prefer their 2009 design

Many thanks to my friend for providing me information on this public holiday and sharing some of her experiences with me. I wish you and every Saudi a happy Saudi National Day!

Some more information:

Thursday, September 22, 2011

TEPCO and the Japanese Energy Crisis

A few days ago, The Economist posted an interesting article on the energy crisis in Japan. The earthquake and following tsunami in Japan was terrible, made worse by the nuclear accident at Fukushima. The nuclear power plant that was damaged and went into meltdown was maintained by what seems to be the universally hated Tokyo Electric Power Company (TEPCO), an electric utility servicing areas of Japan including the areas affected by the earthquake.

Now the mistakes that TEPCO made in failing to cool the reactor cores was one thing, but deliberately withholding information was another. However, as the article points out, the problems are rooted deeper than what happened during the nuclear meltdown. The main problem with Japan's energy is that there are 10 regional monopolies, including TEPCO, with their profit margins each fixed by the government. Increasing their costs increases their income, therefore prices remain high, almost double what residents of the United States pay for.

So TEPCO is not only involved in the current energy crisis in Japan, but also represents the structural issues of Japan's energy business. Despite the shout-out for change, some people want TEPCO to remain as they are for now so that they are able give out compensation. Earlier today it was reported that TEPCO has started to send full compensation request forms for businesses, a process that started with evacuees on September 12th. Details are sketchy, and considering the forms for individuals are 60 pages long, I assume this will be a long procedure. The problems for service and tourist businesses include the fact that the rate of income decrease won't be equalised by the compensation because "Tokyo Electric said it would exclude a portion believed to have been caused by reasons other than the crisis". How large this portion will be is worrying.

And that's not to mention that Japan, as a whole, is suffering. 15 799 people died in the earthquake and ensuing tsunami. To have survived this, but lose your home and business by a meltdown that could have either been prevented or handled far better during the disaster is adding insult to injury.

So yes, it's hard to sympathise with TEPCO, even though they too have been joining the Japanese people in their drive to conserve energy (the statistics of which are outstanding, by the way). TEPCO are planning to costs, and are considering cuts to pensions and workforce. I'm also hearing reports of a loan-waiver call, contrasting to what Japanese officials denied to do back in May.

Understandably, confidence in nuclear energy has plummeted. Reformers want the break-up of these energy monopolies that are stagnating the development of innovation for green-energy technologies, which are right on their doorstep. A split between energy transmission and generation would allow new firms to enter with new ideas on how to handle Japan's energy, as The Economist explains. I don't know enough about the energy business, let alone what Japan's is like, however it seems that long-term, sustainable changes need to be taken as soon as the victims of both natural disaster and company ineptitude are compensated accordingly.

Saturday, September 17, 2011

Beginning New Ends

I have one more year left of living in the Kingdom of Saudi Arabia.

All going well, in a year's time I'll be at university, studying for a degree that will hopefully lead on to a career in journalism. My ideal degree (though not necessarily the one I will end up in) is Philosophy, Politics and Economics. I feel its principles are in almost all areas of the media today, and as I look further it seems that the decisions we and those around us make are governed by the social, political and economic aspects of society.

Whether we like this or not is immaterial. But having an awareness of how these principles affect our lives means we have the ability to change them. We are not made to be cogs in a machine. We have our rights and our responsibilities, and as members of our local communities and citizens of our countries we should adhere to both. For a long time, my parents have been emphasising the need for the recognition of both rights and responsibilities; freedom does not lie in the Land of Do-As-You-Please. People (and when I say people, of course I am making a generalisation) are quick to spout the phrase "It's my right!" but very rarely do I hear the words "It's my responsibility!".

So yes, I've started to take an active interest in freedom. Political freedom, economic freedom, freedom of speech, freedom of press, freedom of thought. This issue of freedom first struck me whilst reading George Orwell's Nineteen Eighty-Four, and has stayed at the back of my mind ever since. I consider myself to be 'free' and not in spite of the laws, rules and codes of practice that I have to abide to, but in part because of them. If freedom is made up of rights and responsibilities, then following these regulations whilst retaining my rights grants me freedom.

Of course, it is never as simple as that. Read anything about the DR Congo in the past twenty years and you'll see personal liberties stripped away like confetti. Do they have freedom?

Then there's the issue of religion and spiritual freedom, a matter which is so large in itself that I have no plan in the immediate future to venture into!

Finally we have Saudi, a country which I have so much to learn from, and so much to learn about. There are many misconceptions about Saudi, but as the spotlight draws ever closer to the country in this age of oil, what is fact and what is fiction needs be cleared up. Western misconceptions here are popular thought in the States, or in the UK.

So I hope you find this blog interesting. Intriguing. Entertaining. Or, at the very least, not a waste of your time.