Emerging Nanotech in the Arab World

Arab nations are emerging as both suppliers of outsourced services and developers of new technologies.  From Tunisia’s bid to use nanotechnologies as a means to purify water in the Medjerda River, to the call for a greater focus on knowledge based processes at the recent Arab International Industrial Forum, the Arab world is seeking ways to take a leadership role in advanced technologies, particularly nanotech.

Germany has emerged as an important partner in Arab nanotech and green technology ventures, most recently in an alliance between Masdar PV GmbH and biomo GmbH.  This alliance is particularly significant as it demonstrates the growing depth and complexity of the relationships between German and Arab businesses.  Masdar PV GmbH is owned by Masdar Power Division, which in turn is owned by Mubadala, the national investment arm of Abu Dhabi.  Biomo GmbH, a developer of solar parks will be using thin-film solar modules from Masdar in a number of upcoming projects.  Though Masdar PV is an Abu Dhabi owned enterprise, it is able to produce solar modules with a “Made in Germany” stamp.

Other examples of German-Arab alliances include a partnership between Bayer MaterialScience and Masdar City, Abu Dhabi's renewable/green technology hub, and the International Storage Battery Company.  The International Storage Battery Company was started in 1994 to build high quality batteries locally in Jordan.

Egypt is another country to watch as an emerging player in nanotechnology.  In 2008, Egypt’s Information Technology Industry Development Agency (ITIDA) and IBM teamed up to create Egypt’s first national research lab.  The lab will focus on creating nanotechnology applications for a range of international and local clients, with renewable energy, water desalination and manufacturing being key areas of focus.  The lab is expected to be fully operational in 2011.  Egypt additionally obtained two loans to build solar power plants in Giza and Kom Ombo.  It would be reasonable to assume that Egypt’s national research lab will play a role in the construction of these plants.  One interesting side-note is that in 2008 the Saudis approached IBM to discuss nanotech based solutions for water desalination, solar energy and petrochemical processes.

In addition to meeting their own water and energy needs, developing nanomanufacturing capabilities will help Arab nations that are close to Europe become clean energy providers to the EU, one day providing as much of 15% of the region's electricity.  We should expect nanotechnology and associated renewable energy technologies to continue to emerge in the Arab world along with an increasingly deep and complex web of alliances with western partners.  The likely result is growing westernization in the Middle East and for the more conservative nations, a greater need to reconcile the cultural differences between Islamic and western ways of doing business.

China IPOs: A Look Ahead

An important dynamic that is fueling China’s growing middle class is an increasing access to global capital, not just for large state-run enterprises, but for small entrepreneurial businesses that continue to draw more people from the countryside, driving urbanization. The first half of 2010 saw over 200 Chinese business go public. Despite a slower pace of new offerings in the second quarter of 2010, the number of Chinese IPOs still could hit 400 for 2010.

Although big IPOs such as that of China Agricultural Bank dominate the headlines, many of the offerings that are driving China’s growth occur on the Shenzhen Stock Exchange (SZSE) rather than the better known Hong Kong and Shanghai markets. In May of 2004, the Small and Medium Enterprise Board (SMEB) was launched in the SZSE to provide small and medium sized enterprises greater access to capital and liquidity. In October of 2009, the ChiNext board was launched, for the purpose of meeting the capital needs of independent innovation and growth enterprises. As of June 2010, over half the companies listed on the SZSE are either on the SMEB or ChiNext board.

In 2009 and so far in 2010, the majority of the IPOs occurred in the manufacturing sector (although the most money was in financial due mostly to the $22B raised by China Agricultural Bank) however this is likely to change as the government plans to place greater emphasis on new areas that include alternative energy, biotech, IT/Internet and advanced materials. Alternative fuel automobiles is another likely area of focus for the government’s next five year plan.

Although the IT/Internet industry in China has received substantial attention, surveys by the China Venture Capital Association indicate that foreign investors have put more money recently into alternative energy, consumer goods and services and healthcare. Success stories in the Internet sector, such as Tencent and Baidu are tempered by not just by the stringent regulations that govern Internet use in China, but the complexity of complying with them. Internet companies in China must comply with laws set by multiple agencies, and failing to comply with any one agency can result in penalties. One well-publicized example was the shutdown of the popular World of Warcraft game, in which Netease was accused by China’s General Administration of Press and Publication (GAPP) of charging users without proper approval despite a blessing its Ministry of Culture.

Looking ahead, we can expect to see a growing level of IPO activity in China with a continued short-term focus on materials, finance and manufacturing, and a gradual transition towards alternative energy, consumer goods and healthcare. Internet IPOs also will grow, but unless there is some reform of how Internet regulations are enforced the pace could be slower than in other sectors. Some companies to watch in 2011 include:

• China Huadian Corporation one of China’s largest energy state-owned energy firms that should debut on the Hong Kong exchange
• Jinchuan Group, Ltd., a nickel and ferrous metal mining and chemical company that produces close to 90% of the nickel and platinum produced in China
• China Huarong Financial Leasing Co., a state-owned asset management firm initially set up to manage non-performing loans
• Jiang Tai Insurance Brokers, Ltd., China’s first comprehensive insurance broker
• Spring Airlines, an independent budget air carrier that could become the first independent Chinese LCC to list in Shanghai
• Oak Pacific Interactive, an Internet conglomerate that produces social games and networks, and consumer oriented network services

Latin America is Booming, Costa Rica is Sustainable

China’s huge investment in Latin America has been well-documented, but the region’s export and foreign investment growth also has been bolstered quietly by another source: the Middle East. Trade between Latin America and the Middle East hit nearly $19B in 2008, a threefold increase since 2000. Approximately $12B of the $19B is composed of imports by Middle Eastern nations such as Iran, the United Arab Emirates (UAE), Syria and Kuwait. Trade between Brazil and Middle East alone is expected to reach $6.6B in 2010.

Although some Middle Eastern investment in Latin America is driven by a need for arable land and food to support a growing population, some is speculative. Arab real estate investors are seeking new havens for cash, after the recent economic downturn left numerous construction projects either unfinished or cancelled. Most of the investment is in Brazil, but other areas including Guatamala and the Caribbean coast have seen money from the Middle East.

It is true that Latin America has experienced an economic recovery as a result of its deepening ties with China and the Middle East and expected 40% to 50% increase in direct foreign investment, but concerns that the long-term benefits will be limited are discussed in the report "Latin America and the Caribbean in the World Economy 2009-2010: A crisis generated in the center and a recovery driven by the emerging economies”, published by ECLAC (Economic Commission for Latin America and the Caribbean).

According to the report, “Natural resources have been the region’s most dynamic exports over the past decade, especially in South America. This pattern of growth has created the conditions for a recommodification of the regional export structure. After falling from some 52% of total exports in the early 1980s to a low of 26.7% in the late 1990s, the share of raw materials has risen over the past decade to reach almost 40% of the total in the last two-year period (2008-2009).” This recommodification is being driven by the growing influence of emerging markets such as China and the Middle East, who seek to purchase land, raw materials and food versus manufactured goods, particularly those with a high added value. The figure below from the report shows the decreasing proportion of high and medium tech manufactured exports.

Mikio Kuwayama, in his paper, “Quality of Latin American and Caribbean industrialization and integration into the global economy”, points out that “Irrespective of growing manufactured exports, the Latin American economies have not experienced the kind of dynamic restructuring of domestic production and export patterns that would allow investment to become an engine of growth.” This is true for many Latin American countries, but there are exceptions. Costa Rica provides an example of how economic policy can create a basis for increasing manufacturing value added.

Two important steps that Costa Rica took to become a manufacturing leader in Latin America were to invest in education and develop free trade zones that provide substantial tax breaks to foreign investors. Since the 1970’s, Costa Rica has invested more than 28% of its national budget on elementary and secondary education. As a result Costa Rica, has one of Latin America’s highest literacy rates.

Costa Rica’s free trade zones have attracted many high tech and medical device manufacturers who know they will enjoy long-term economic benefits while having access to a skilled and trainable workforce. Businesses that have leveraged Costa Rica’s educated population and business friendly policies include Intel, Boston Scientific and Baxter Healthcare.

Costa Rica’s neighbors would be well-advised to look for ways to invest their current influx of foreign money on their best source of long-term economic growth, their populous. If they take the additional step of emulating the economic policies that have made Costa Rica one of Latin America’s leaders in manufacturing value added, then the region overall can reduce its dependence on commodity exports and increase its chances for sustained economic growth.

Compulsory Licensing in India Can Change Pharmaceutical Markets

Regulations in India, one of the world’s largest pharmaceutical producers and consumers are changing the industry’s market landscape in ways that are likely to result in greater competition and potentially more choice for patients in Africa and Asia. The impact will be felt globally as multinational companies such as Pfizer and Abbott seek to strengthen their positions in these countries.

Since India passed the Patent (Amendments) Act in 2005, MNLs have increasingly sought out Indian pharmaceutical firms for low-cost manufacturing expertise, and as a way to mitigate some of the risks associated with bringing new drugs to market. This is resulted in a combination of acquisitions and alliances between MNLs and Indian drug and API (active pharmaceutical ingredient) manufacturers such as Dr Reddys, Aurobindo, Strides Arcolab and Claris Life Sciences.

The cornerstone of the Act is the recognition of product (or composition of matter) patents for chemicals (including drugs), and provision of a 20-year term from the filing date of such applications. Previously, patents were only issued for methods of producing products (also referred to as compositions of matter), but not for the products themselves (i.e., pharmaceuticals). This allowed one to commercialize a drug that was a proprietary product of another as long as one’s own method of producing that product was used. Furthermore, the term of an Indian patent for chemicals, food, and drugs was seven years. While patent abuse in India still exists, the Act reduced the risk enough to attract substantial new investments from MNLs.

MNLs are now facing a growing risk in India that could slow future foreign investment in pharmaceuticals, and create new opportunities for emerging Indian drug manufacturers. The Indian government is considering the use of Compulsory Licensing (CL) as a way of ensuring that its growing population of AIDS and cancer victims has access to low cost treatments. CL essentially allows a government to choose one or more companies to manufacture and supply a drug whose patent is owned by another party, if it believes that the patent holder is not providing the drug cost-effectively, or to those who need it.


The use of CL is sanctioned by the WTO, and governed by a number of agreements including TRIPS (Trade-Related Aspects of Intellectual Property Rights) and the Doha Declaration of 2001. These agreements provide for royalties to be paid to patent holders in the event of a CL, however the rules are fairly broad and subject to interpretation by each participating country.

The increasing potential for CL use in India poses the threat of substantially decreased revenue for MNLs that are seeking to market their drugs in India.  It will not stop new alliances between MNLs and Indian drug manufacturers, but could slow them down until it becomes clearer how and when the Indian government will apply CLs. 

New opportunities for smaller businesses that are able to manufacture a patented substance under CL may also emerge. Should enough such opportunities be created, companies that take advantage of CL could become strong competitors inside of India while generating cash to increase their export capabilities, resulting in a larger number of global competitors and greater market fragmentation. It is likely that the external focus of Indian companies who benefit from CL would be on emerging Asian and African markets, resulting in lower drug prices and greater choice in those regions.


Some established competitors already are looking for ways to use CL to their advantage. Cipla, who has been accused of patent violations by a number of MNLs, currently provides its versions of patented drugs domestically at a low cost and is ready to “share the technology with the government to meet local demand.” Tapan Ray, director-general of Pharmaceutical Producers of India (OPPI), an industry body representing foreign drug maker present including Roche and Bayer said, “As patent itself means sharing detailed information about the innovation and the technology for producing any new chemical/ molecular entity with the government, irrespective of the seriousness of any disease, I am afraid I could not make out what is really new in this approach.”

Investors in pharmaceutical companies everywhere would be well-advised to keep an eye on India's CL policies , as they are large and influential enough to set the tone for other emerging pharmaceutical markets. Investors also would be well-advised to watch smaller Indian companies like Healthy Life and evaluate how they may fit into India’s CL strategy.

Genetically Modified Foods: A Growing Market and Cultural Divide

For most people, the word “biotech” conjures up images of companies like Genentech developing the next great diabetes, HIV or cancer treatment. For some, however “biotech” may be considered either a socially conscious business opportunity that can help eradicate famine or the scourge of “frankenfood”.  The long-running debate over genetically modified (“GM”) foods has been rekindled after the recent food riots in Mozambique and discontent about rising prices for staples in other areas of Africa.  Participants in the battle over GM foods and crop production include commercial producers including Monsanto, Mahyco, and Syngenta, environmental groups such as Greenpeace, scientists and advocates like the ISAAA.

Although GM foods are not uncommon and the genetic sequences for crops such as corn and rice have been decoded over the past ten years, there is still substantial resistance to adoption in areas where food supplies are most likely to be at risk. Governments and environmentalists are concerned not only about the potential impact on future crop growth, but the economic implications and business models behind GM seeds.  Additionally, governments in developing regions have suffered an inability to fully develop the legislative and financial infrastructures needed to test and commercialize GM crops. According to Dr. Simon Gichuki, head of biotechnology research at the Kenya Agricultural Research Institute, "What we do not have are regulations to take the technology from confinement to farmers' fields, commercialize it." Dr. Gichuki added, “There is government funding but it is not enough," and went on to point out that most biotechnology activities across the world are private sector led and are motivated by profits.

One way that GM seed producers have sought to protect their intellectual property and maximize profits is by developing seeds with sterile offspring, or whose offspring lack the same genetic traits as their predecessors. Supporters say they these “terminator seeds” or “suicide seeds” stop farmers using seeds they haven't paid for and that their genes cannot spread to conventional crops, unlike other GM seeds. But critics say that terminator seeds will make poor farmers dependent on big companies for seeds. Anti-GM activists further complain about selling practices used by GM seed producers, claiming that programs such as AfriCan, an alliance between Syngenta and U.S. based company Pannar, incorporates farmers into a contract-farming scheme linking them to credit, GM seeds and chemical inputs, leaving them with unaffordable debts.

Despite the beliefs of many anti-GM activists the gap between GM seed producers and farmers in developing countries is primarily cultural, and both must overcome this divide if they are to leverage scientific advances to solve the food crisis and create business opportunities in emerging economies. Professor Seyoum Gelaye, a native of Ethiopia points out that, “GM seeds require heavy input of chemical fertilizers, pesticides, and complete modification of our cultural practices.” Seed providers do need to find ways to integrate new farming practices into diverse cultures in order to maximize the chances of successful harvests and profitability for their smaller rural clients. This means that strong local alliances with community leaders are just as important, if not more so, than relationships with national governments. Careful change management that fits within the local culture is needed as much as product education. GM seed providers are starting to recognize this, but the process of change will take time.

The controversy over GM seed planting and intellectual property rights will continue for years to come and barring an unforeseen disaster, the use of new seed strains that are resistant to drought, salt, pesticides and bugs will continue to expand, particularly since China is now likely to enter the fray. Governments are still figuring out how to best regulate GM seed usage, but in the face of global food shortages, resistance will eventually wear away. What is needed now is to better integrate old cultures with new science, continue to develop more repeatable testing processes and improved metrics, and to remove the emotion from the discussion.

China and Mercosur: Latin America's Global Emergence and Influence

A frequently discussed topic in global emerging markets is the “new Silk Road”, a complex economic web that links Latin America, Africa, the Middle East and Asia.  Although the BRIC (Brazil, Russia, India, and China) nations still dominate this web, more players have been emerging. particularly in Latin America. As an example, trade between China and Chile, China’s second largest trading partner in Latin America, reached a record $17.7 billion dollars in 2009, while China's trade volume with Venezeula grew to $7.2 billion.
Trade between Latin America and China is expected to expand.  According to a recent report by the Economic Commission for Latin America and the Caribbean (ECLAC), “China may be the second world destination of the region's exports, buying 19.3% of its total exports in 2020, up from 7.6% in 2009.” The report also predicts that “China could surpass the European Union and the United States by 2020 as origin of the region's imports.”

The relationship between the Chinese and Latin America has not been without its share of tension. One extreme example is that of the Shougang iron ore mine in Peru, one of China’s earliest forays into Latin America. Upon arriving in 1992, the Chinese were viewed favorably by local workers, but this quickly changed, as the workers began to believe “they were being exploited to help build the new China, but without seeing any of the rewards for doing so.” Although tensions between workers and their Chinese managers at the mine continue to run high, Shougang plans to increase its investment in Peru by $1 billion in the next five years.

China’s investments in Latin America have had ripple effects in other parts of the world. Brazil’s Vale SA, helped by growing commodities demand from China and a currency that has doubled against the dollar since 2003, made natural resource investments in Africa that include a $1.3 billion coal mine in Mozambique, and copper projects in both Zambia and the Democratic Republic of Congo. Additionally, the company agreed to pay $2.5 billion for iron ore deposits in Guinea, including assets the country confiscated from the Rio Tinto Group.

Although the BRIC nations, especially China, are primary catalysts in the creation of the “new Silk Road”, other less visible alliances also are shaping global emerging markets.  Consider Mercosur, South America’s largest trading bloc and the world’s fourth-largest behind NAFTA, the EU, and ASEAN. Mercosur recently signed a free trade agreement with Egypt and is currently negotiating pacts with Jordan, Morocco and the Gulf Cooperation Council (GCC), which includes gulf states such as Saudi Arabia and Qatar. Mercosur also is working to ratify a “south-south” trade agreement with the South African Customs Union (SACU), whose members include Namibia, Botswana, Lesotho, South Africa and Swaziland. Mercosur’s members include Argentina, Brazil, Paraguay, and Uruguay, while its associate members include Chile, Bolivia, Colombia, Ecuador, and Peru.

There is no question as to the significance of the “new Silk Road”, but the importance of less publicized trading blocs and alliances cannot be discounted. Should cases like the Shougang mine and concerns over product dumping turn Latin American public opinion against China, Mercosur members may decide to place more focus on the alliances they have negotiated in Africa and the Middle East.

How China is Establishing Biofuel Leadership

China, the world's second-largest oil consumer, is expected by some analysts to import over 65% of its crude oil by the year 2020.  Although its crude oil importation has slowed recently, China continues to drive towards building a biofuel manufacturing infrastructure that could supply as much as 15% of its fuel by the year 2020, from 2% today. 

China’s focus on developing second-generation biofuels, while helping to alleviate its thirst for fossil fuels, is also creating business opportunities for a variety of companies globally. One such example is Denmark-based Novozyme’s partnership with Chinese companies COFCO and Sinopec. Novozyme is providing its partners with enzymes that facilitate the conversion agricultural waste into ethanol-based biofuels. It is believed that the use of ethanol-based fuels in cars reduce China’s reliance on imported petroleum by as much as 10% by the year 2020.  A demonstration conversion facility is expected to be online by 2011.  COFCO is a leading grain, oils and foodstuffs import and export group in China, while SinoPec is the world's third largest oil refiner.

Another example is the CNOOC Biolux Project, a joint venture between CNOOC New Energy Investment Co., Ltd. and Austria-based Biolux for the purpose of developing biodiesel fuel using oil producing seeds. Funded at a cost of $118.5M USD in 2008, the plant began its trial production in March 2010.  In addition to building global biofuel partnerships, China has developed its own in-country initiatives that include the Integrated Renewable Biomass Energy Development Sector Project, which recently received a $66M loan from the Asian Development Bank.

Although China’s primary purpose for developing its biofuel infrastructure is to reduce its reliance on foreign oil, it could stand to benefit in other ways. According to Al Bryant, Boeing’s VP of Research and Technology in China, Boeing has started to shift its focus on biofuel based aircraft research from the United States to China because "they (China) have made the decision to move faster.” The speed at which China is driving its biofuel agenda combined with the potential for arrested growth in the EU due to environmentalists’ concerns over re-purposing land from food production to fuel production is likely to provide China with a competitive advantage in the world biofuel market as it matures.  A recent International Energy Agency (IEA) report states that “current IEA analysis sees a shortfall in domestic production in both the US and EU that would need to be met with imports” by 2020.  Should this analysis hold true, China will become a net exporter in a new category (biofuels) sometime during the next decade.

Despite China’s potential to become the world’s biofuel leader and largest exporter within the next decade, it still faces challenges that include uncertainty of oil prices, feed stock supply, and government policies. As oil prices fall, biofuels become a less attractive alternative and the government becomes more likely to slow the development of biofuel infrastructure. The Chinese, given their large population also have a natural tendency to reserve land for food production, rather than fuel production. However China is more likely to find new options for biofuel creation than to slow its programs or change its targets. One such example is ZTE Agribusiness Company Ltd’s lease of 6.91 million acres in Africa to develop the world’s largest palm oil plantation. While there has not been any announcement as to whether the palm oil will be used to develop biofuels or for food, it appears that the Chinese have a plan that eventually will establish them as the leader in the biofuel space.  It is not too late for the U.S. or the E.U. to catch up, but they must work quickly to create a business environment that allows entrepreneurs to develop this emerging market with speed and effectiveness.

HVDC is Emerging in Asia, Africa and Europe as a Renewable Energy Enabler

During the “War of the Currents” of the late 1800’s, Alternating Current (AC) and Direct Current (DC) were competing to become the standard for electricity distribution. During that time AC, which was promoted by Nikola Tesla and George Westinghouse turned out to be more practical and safer than the DC solution that was proposed by Thomas Edison. Edison, if he were alive today, may feel some sense of vindication with the emergence of High Voltage Direct Current (HVDC) as a way of implementing “Super Smart Grids” that are able to integrate different types of renewable energy sources and deliver energy over longer distances.


The use of HVDC systems for transmission of renewable energy is growing rapidly in both Africa and Asia, with Siemans and The ABB Group leading the way. Recently, the China Southern Power Grid in conjunction with Siemans Energy put into operation the first 800-kV High-Voltage Direct-Current Link in China, to deliver energy from the remote Yunnan Province to the rapidly growing industrial region in the Pearl River delta in Guangdong Province with its megacities Guangzhou and Shenzhen. Covering nearly 1,500 km (932 miles), this is expected to reduce annual CO2 emissions by more than 30 megatons compared with equivalent fossil-fueled power plants in the power grid of Guangdong Province.

ABB completed its own HVDC project in conjunction with State Grid Corporation of China (SGCC) to create an Xiangjiaba to Shanghai transmission link. This link has the capacity to transmit up to 7,200 megawatts (MW) of power from the Xiangjiaba hydropower plant in southwest China to Shanghai, the country's leading industrial and commercial center about 2,000 kilometers away. The new link is able to meet the electricity needs of about 24 million people.

An even more ambitious project in Africa, spearheaded by the DESERTEC Foundation, proposes to deliver energy generated by a set of solar and wind-based power generation plants to Europe. This project has brought together a variety of green energy companies that include U.K. based Nur Energie and recent addition Prysmian, based in Italy. Another company that could play a key role is the Italian solar thermal company Enel that has developed a technology that uses molten salt to store energy. A key player from the United States is First Solar a producer of thin-film solar panel technologies. It is anticipated that North Africa eventually could produce as much as 15% of Europe’s electricity.

HVDC represents an enabling technology that can lead to the emergence of new businesses that can provide low-cost components for long-haul energy transportation systems. It further represents opportunities for local businesses in emerging regions to provide low-cost manufacturing services that can support the development of projects such as the one proposed by DESERTEC.

The World Bets on Mobile Payments in Africa

While they have been “business as usual in Asia and South America” for some time, mobile payment (mCommerce) systems are considered to be an emerging technology in the United States. However, their impact is more likely to be felt in Africa and Asia than across America.

Chinese and Indian investments in Africa’s mobile infrastructure and payment systems will provide rural areas greater access to communications and cash, both of which are critical to market development and commerce growth. Bharti Airtel Limited recently acquired Zain Group’s mobile operations in fifteen countries across Africa. Bharti’s intent is to “increase the teledensity from the present 20% to 50% in the next six years” and to “serve the interest of the rural population with affordable but qualitative telephony service in the years ahead.” China Mobile, Ltd. also has stated its intent to increase its presence in Africa, and develop mobile infrastructure in rural areas, according to a recent interview with its Chairman Wang Jianzhou.

Banks have seen mCommerce in Africa as a large emerging opportunity for some time, and are seeking to capitalize on it. Through a partnership with Zain, banks such as National Bank of Malawi (NBM), EcoBank of Niger, Zenith Bank of Sierra Leone and Citibank are facilitating mobile payments in Africa, while European financial services company Societe Generale recently began deploying its mobile payment services.

The African mCommerce market becomes even more complex as payment methods and technologies battle for acceptance. NFC (near field communications) is an emerging technology that allows the user to make a payment via contactless communication with another device. This however requires chipsets that reside within the mobile device. Since users in rural areas are unlikely to own NFC enabled phones, SMS (text messaging) will be the prevalent technology for at least the next several years. This creates a window of opportunity for companies like Obopay, based in Redwood City California. Obopay has partnered with Societe Generale as their payment technology provider in Africa.

If the Chinese are able to gain a strong enough foothold in Africa, part of the continent could be using a payment method that is similar to China Unicom’s “All-In-One-Mobile-Card”, which consists of a phone with an integrated SIMpass™ antenna. SIMpass™, a technology developed by Beijing-based Watchdata, allows a device to be detected when passed over a contactless reader.

Mobile commerce and payment technologies represent economic hope for Africa, which has been struggling to escape its colonial history. The one lingering question is whether Africa’s emerging middle class will expand fast enough to drive a high and sustainable level of mCommerce growth. The good news for those who are building Africa’s mCommerce infrastructure is that they can help answer this question positively by working proactively with African businesses and governments to help create jobs locally.

Bubble or Not: Why China's Economic Programs are Working

After the Chinese government announced its Beijing-London railway project, the global discussion around its ambitious economic stimulus and infrastructure programs heated up. People have been asking if these represent a recessionary bubble in the making, or whether there is a method to the apparent madness of the Chinese.

Although China’s policies potentially could create a bubble on the long term, a near-term recession is not likely and a number of factors are working in China’s favor, despite recent GDP growth deceleration. These can provide insight into the conditions under which large-scale government projects and economic stimulus programs can succeed.

The first factor is that China is a net exporter, with average monthly trade surpluses of $10B to $15B. This allows the government to keep corporate income tax rates relatively low while generating enough revenue to finance projects without having to print more cash.

China also has adopted business and entrepreneur friendly policies. Under its Unified Corporate Income Tax Law (“New CIT Law”) which took effect from January 1, 2008, foreign owned enterprises and domestic businesses are subject to a unified tax rate of 25%. Additionally according to Rule 28 of New CIT Law, income tax of small low-profit enterprises is subject to a reduced rate of 20%. In some cases businesses that are classified as a “resource multipurpose utilization enterprise” can receive an income tax holiday of a year or more. Compare this to average U.S. corporate tax rates that often exceed 40% when state and local income taxes are factored in.

Innovation also is encouraged by aspects of the government’s five year planning cycle, particularly in its modernization policies. In a recent interview, top policy advisor Hu Angang said, “The 12th five-year plan will not only be China’s first national plan for ‘green development’, but a historical starting point of the nation’s path towards a ‘green modernization’.”

Chinese entrepreneurs and their investors are seeing a greater number of exit strategies, due to both favorable policies and trends towards industry consolidation in infrastructure verticals. China Infrastructure Construction Company (CHNC:OTCBB) is an example of a small company that was able to offer its stock publicly in the United States. As one of the few producers of ready-mix concrete that is “green” (i.e., made in part from recycled materials), its prospects are bolstered by the government’s green modernization efforts.

These factors have been important contributors to the expansion of China’s expanding middle class that continues to demand more domestic products and services. Some estimates show a Chinese middle class of 700 million people by the year 2020.

Could China’s “growth bubble” burst? It could over time, but not in the near term. The emerging middle class will increase its demand for foreign goods, but barring an internal economic shock or banking meltdown, it will be many years before the balance between cash in and cash out shrinks to the point that the country’s ambition drives an economic contraction.

Emerging Afghanistan: Spotting the Opportunity

Although not highly publicized until recently, Afghanistan’s rich mineral reserves have been known about since the 1980’s, when the occupying Soviets began collecting geological data. Although some believe that the data was “forgotten”, it is hard to believe that U.S. intelligence knew nothing about it prior to our occupation of a country best known for its rugged terrain and opium production.


Now that the proverbial cat is out of the bag, what are some of the economic implications for the region, the United States and investors? The potential for Chinese business to capitalize on Afghanistan’s “newfound” wealth is tremendous for several reasons. The first is that India’s need for natural resources will increase, due to the growth of their manufacturing sector, particularly that of Lithium batteries.

Second, half of India's workforce is employed by agriculture, leaving ample room for continued growth of infrastructure, industries and urban areas. Although India has substantial mineral reserves of its own, it currently lacks infrastructure to exploit them to the degree required for high sustained growth.

Lastly, India has a barrier to obtaining raw materials from Afghanistan, namely Pakistan. India conceivably could transport these through Iran, but this would create severe tensions that could damage their relationship with the United States. Although India has made some progress building ties to Afghanistan, implementation will be a challenge, leaving China as one of India’s best possible sources of Afghani raw materials. 

Another factor that will allow Chinese businesses to profitably exploit Afghanistan’s mineral wealth is their model of allowing other nations to locate deposits and provide the Afghans with administrative support, while buying the deposits themselves. An excellent example of this model at work was their winning bid for rights to the Aynak Copper Mine. Although China has been accused of bribing Afghan officials to win the mine’s mineral rights, Colorado-based Gustavson Associates LLC was, at least for a time, a retained transaction advisor to the Afghani Ministry of Mines. Interestingly, Gustavson’s relationship with Afghanistan’s Ministry of Mines, dates back as early as 2004.

How might one identify a profitable investment in this convoluted situation? First, keep an eye on the Chinese supply chain to India, and second watch the mineral rights contract flow in Afghanistan. If you see a series of deals that can potentially link India and Afghanistan via China then there likely is an embedded investment opportunity.

Mongolia: A New Frontier For Energy & Natural Resources

An important dynamic in China’s expansion is the role of Mongolia. Mongolia is one of the world’s most mineral-rich areas and provides many of the raw materials that China needs in order to build up the second and third tier metropolitan areas required its growing middle class. In addition to its abundance of natural resources, there is a well-established transportation infrastructure that links Mongolia’s mining areas to distribution hubs inside the Chinese border. These factors have made Mongolia into an important emerging market and are driving its economic evolution.

As its economy matures, Mongolia is transforming from what some would call the “wild west” into a natural resource power. Prior to 2000, as a result of years of strict Communist rule, Mongolia’s economy was driven primarily by agriculture. As China grew into an economic power, the demand for Mongolian natural resources increased and created opportunities for companies including Ivanhoe Mines, Ltd. and Monseka Mining Company. Businesses such as these built sound public and private sector relationships that have helped increase Mongolia’s GDP to over $5B with an 8% annual growth rate.

The Mongolian government’s relationships with foreign mineral and mining companies, combined with its industry privatization policies are creating a hotbed for IPOs in Hong Kong, Tokyo, and Seoul. Given the capital that is flowing into this market and the time required for Mongolia to develop home-grown mineral and mining businesses, one can expect that that the foreign companies in Mongolia today will dominate the mineral and mining industry there for some time to come.

China's Innovation Growth Strategy

Although the Chinese have caught up to the U.S. in low-value manufacturing, they still lag behind the United States in high-value manufacturing, technology and home-grown management expertise. This however is changing. China is walking the thin line of acting as a consumer of manufacturing and technical expertise, while leveraging this consumption to develop its next generation of innovators and entrepreneurs.


Last year when China authorized its first solar energy plant, it required at least 80% of the equipment to be made domestically. On the other hand, the Chinese government is highly willing to welcome companies like Applied Materials that are building large research and development facilities; so welcoming, that Applied Materials CTO Mark Pinto is now located there.

If China continues to successfully maintain its strategy of balancing consumption and development of technical and manufacturing expertise, it eventually will lead the United States in both low and high-value manufacturing, and one day will rival the United States as a global innovator. As the wave of Chinese innovation builds, it would not be surprising to see an IPO market revival start in Asia.

Solar Thermal Could Drive the Next Real Estate Bubble

Solar Thermal or Concentrated Solar Power (CSP) is one of the oldest methods of generating solar energy, with the first Solar Thermal patent having been granted in 1891. The idea is simple: concentrate enough solar energy onto a fluid such that the fluid can either store heat or be converted to a gas form that drives a turbine. The ability to store energy as heat for future power generation is one advantage the CSP has over simple photovoltaic (PV) cells.


CSP technology has been used extensively in Israel and in the United States for heating water however the question is whether it can be used effectively to generate electricity on a large scale. The U.S. Department of Energy (DOE) is betting that CSP technologies can be scaled to the tune of $62 million, and thirteen companies ranging from Pratt & Whitney to SkyFuel, Inc. are the beneficiaries.

One interesting side-effect of the move towards CSP is the impact on land values in places that have never experienced a real estate bubble. Large-scale CSP has two important requirements: lots of sun and lots of space to place solar collection and heat conversion devices. The Mojave Desert is fast becoming a mecca for CSP generation facilities. In the last six years, the cost of private land in the Mojave Desert has increased twenty-fold, from around $500 an acre to $10,000 an acre.

Should CSP prove to be a big hit, we will see land booms and bubbles that could well exceed that of recent housing markets. This actually could benefit economies in Africa where investors will be less concerned with whether the land is arable, than how much sun shines on it.

Back To The Future: Social Networking Consultancies

Technologies that build on the notion of organizing cyber-tribes and communities have emerged over the past ten years. Social networks are commonplace and product-centric communities have taken hold in both business and consumer marketplaces. “Community Manager” is a key role in many newer businesses, and is becoming prevalent in more mature industries.

Startups that provide technology to identify tribes (e.g., Quantcast, RapLeaf), and analytics that can identify tribal trends (Jaspersoft) are growing. New companies such as Sense Networks build technology that segments individuals based on their physical movements.

Consumer segmentation that traditionally has been based on demographics and highly specific buying habits has changed and now includes fluid location data and social links. This shift in what constitutes a consumer segment will lead to large opportunities for new types of systems integrators and technology strategy businesses.

The primary reason is that large corporations will be inundated with tribal data, dashboards and analytics but will be unsure how to craft and execute business strategies that derive revenue from those tribes they identify. They will need a guide who can help sort through the glut of segmentation and analysis tools, and implement tribal marketing and technology initiatives that are aligned with their business strategy.

It is interesting how few tribal identification and analysis technology companies have started professional services teams. JitterJam has a marketing strategy offering, while Omniture and Jaspersoft have consultants for hire, but many businesses in the space either are extremely technically driven or simply lack the resources or expertise to take advantage of this emerging opportunity.

It would not be surprising to see entities that look like some of the old dot-com strategy businesses emerge. Remember marchFirst, Scient and Viant? We could end up seeing social network oriented versions of these companies in the not so distant future.

Spotting The Next Google: A Big Winner in Solar

There are many solar energy collection methods that are competing for supremacy that include thin films, nano inks and particles, and crystalline silicon based materials. This is similar to the market for search engines during the dot-com era when Infoseek, Yahoo, Alta Vista and many others were vying for the largest audience.

So how does one spot the next “Google of solar”? While challenging, it may not be as mysterious as it seems. There are two things to consider about Google as they grew. First they did have a good technology. However whether Google’s technology was really that much better than Yahoo’s is not as important as the business model they brought to a sector that was entering maturity.

The key to finding the next Google of solar is to let today’s technologies battle and gain efficiency until one begins emerging as a standard, then find a company with a comparable or slightly better technology, whose business model is truly innovative.

If you are thinking in terms of timelines, business model maturity in an emerging market typically lags behind technology maturity, until a new entrant drives it a step forward. For example, Yahoo emerged as the winning “Search Engine 2.0”, but still relied on “Search Engine Business Model 1.0”, whereas Google entered the market as “Search Engine 2.5” while introducing “Search Engine Business Model 2.0”.

We are starting to see advances in solar energy business models, but they are still in the 1.x phase. One interesting example is the distributed power model used by companies like Recurrent Energy. Other solar business models range from financially focused (SunRun) to utility scale wholesaling (GreenVolts).

If we look further into the future, electricity itself may be traded as a consumer commodity, subject to auctions and reverse auctions. Consider the possibility that consumers one day may be able to ask different energy providers for their lowest price on 1,000 kilowatt-hours. The next Google in the solar space likely will have a business model that is a clear step in this direction.

Today's Pain, Tomorrow's Value

In their recent paper, Market structure is causing the IPO crisis — and more, David Weild and Edward Kim state that the “market for underwritten IPOs, given its current structure is closed to 80 percent of the companies that need it.” They go on to point out that “companies are unable to expand and grow” because they “can no longer rely on the U.S. capital markets for an infusion of capital, nor can they turn to credit-strapped banks.”

It is true that capital has become less accessible to both large and small businesses, and is likely to drive several trends:

1. Greater innovation in how partnerships are sought out and structured.  Businesses that lack access to capital will have to find other ways to obtain the resources they require for growth. They are likely to expand their definition of “synergistic” and seek partnerships outside of their traditional space that can provide resources they normally may purchase with cash.   
2. Increased need for services that can be shared or pooled across different types of businesses, including administrative functions, general HR and office space. Entrepreneurs with their own cash sources who can provide such shared services to a broad range of businesses will find that today's low access to capital works to their benefit.  
3. Demand for angel capital will increase, driving up returns demanded by the earliest investors. Angel investment networks will be able to gain greater ownership of new ventures for less cash. This will leave less for entrepreneurs, particularly after VC rounds. The benefit is that entrepreneurs will treat investor cash more carefully from the start, leading to better financial management as the company grows larger.

The good news is that today's painful trends eventually will help businesses grow with less reliance on external capital, and will lead to a finacially healthier companies in the future.

It's "Search Wars" in the Solar World

Solyndra is in a risky financial position after trading its much anticipated IPO for mountain of debt, citing market conditions.  However, one has to ask whether market conditions were the only factor.

There is a battle of solar technologies reminiscent of the search engine wars during the dot-com era, that will sort itself out over the next few years.  Solar panels may rely on a variety of materials that include crystalline silicon, thin films and nano inks.  At some point the tradeoff between manufacturing costs and power generation capability per unit area will determine which technology prevails. 

The wildcard will be some of the emerging companies that build technologies to monitor and enhance the performance of solar panels, such as Enphase Energy and Solar Edge.  Their enabling technologies will help determine whether the best, most efficient solar panels are necessary to generate large volumes of electricity, or whether less efficient panels with lower materials and manufacturing costs can win.

Is Solyndra really ready to engage in this battle?   One has to wonder whether their cost structure will allow them to succeed and what role it played in their decision to pull their IPO.  Regardless, they are in for a tough go.

Entrepreneurial Leadership: The Courage to Act

A number of years ago I was on a consulting engagement at a large and well-known financial services company. They were experiencing some painful symptoms of a problem that was baffling to the Executive Vice President (EVP) we were working with. She ran an organization consisting of both client-facing and back-office personnel.

Over time, the level of customer service had degraded and problems were taking progressively longer to resolve. Customer attrition and complaints had increased and the EVP wanted to know why. As we talked to people in the organization we learned of serious animosity between the client-facing and back-office teams.

The client-facing and back-office teams were led by two Senior Vice Presidents (SVPs), with whom the EVP was close. All three had risen up through the organization together and had at one time been friends, but now the SVPs were barely on speaking terms due a personal falling out.  During our research we learned that the animosity between the SVPs had permeated their respective organizations, leading to dysfunctional behaviors that resulted in poor customer service and slow responses to problems.

Our advice to the EVP was to break down the two silos, remove both SVPs and restructure the organization to create integrated teams of client-facing and back-office personnnel. Her response was that the SVPs were professionals and just because they no longer socialized did not mean they were unable to manage their groups effectively. She insisted that removing her friends was not the answer and instead chose provide her organization with soft skills training. Within six months, the EVP and SVPs were gone.

Choosing not to act and hoping a problem will go away is more common amongst business leaders than one may expect.  Although denial is easier than making a decision that could be perceived as politically incorrect or disruptive to the organization, the consequences of not acting almost always are worse. The is especially true in entrepreneurial organizations that are on a fast growth curve.

New companies often have only one chance to build their reputation and brand. When one failure can mean the end, having the courage to take an uncomfortable action is one of the most important traits of a successful entrepreneurial leader.