How Will ‘America First’ Policies Impact Water Security on the Colorado River?

Water security on the Colorado River faces an ambiguous future, with the Minute 319 agreement set to expire.

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By:  Meghan Curran, Lynx Global Intelligence

 

Tensions between the United States and its southern neighbor have risen steadily over the last few months. In January, a diplomatic standoff ensued as President Donald Trump announced his decision to move ahead with the construction of a border wall preceding Mexican President Pena Nieto’s White House visit, which was thereafter canceled.  The implications of President Donald Trump’s proposal to fund the building of a wall along the U.S-Mexico border by applying a 20% tax on Mexican imports disproportionately effects certain U.S. states. Colorado is one of these states.

Mexico is Colorado’s second largest market for export goods, besides Canada. In 2015, Colorado exported $1.08 billion in goods to Mexico, an 83% rise from 2010 levels, according to Commerce Department data (Denver Business Journal, 2017). Additionally, Colorado imported $1.72 billion in goods from Mexico in 2015 (a 164 % increase from 2010 levels). While there are numerous negative implications regarding trade between Colorado and Mexico under ‘America First’ policies, there are also human security concerns relevant to the increasing tension between the United States and Mexico.

One potential human security concern is water security, and the future of agreements between the U.S. and Mexico regarding the Colorado River. In 2012 the U.S. signed an agreement with Mexico establishing rules for managing water from the river, which runs from the Colorado Rockies to the Gulf of California. The river passes through seven states, and provided water for 33 million in the United States and Mexico. Under the 2012 arrangement, called Minute 319, the United States and Mexico agreed to share surpluses and shortages from the river.

In times of drought in the United States, Mexico agreed to accept less water in exchange for being able to store water in the United States during times of surplus, reducing the potential for harmful flooding. Prior to the 2012 agreement, the United States had sent the same amount of water to Mexico every year, despite the river’s waning levels and increasing concerns over drought in the U.S. southwest. Mexico, which has limited capacity for water storage, in return could store surplus water in Lake Mead, of great benefit to the U.S. since the lake is crucial to supplying water to the Las Vegas area. The United States also agreed as part of the arrangement, to support improvements to Mexico’s water infrastructure. Additionally, both the United States and Mexico agreed to provision a specific amount of water annually to the Colorado River delta area, which has become desert-like in recent years, endangering native plant, fish, and animal species. (New York Times, 2012)

Water security on the Colorado River faces an ambiguous future today, with the Minute 319 agreement set to expire at the end of 2017. With tenuous relations between the United States and Mexico persisting, and a water shortage on the river projected to be declared as early as 2018, the future of Colorado River, a lifeline for tens of millions of people on both sides of the border, is uncertain. It is still unclear how President Trump’s ‘America First’ policies might impact resolutions regarding future management of the river, but the delivery of water to 3 million Mexican households could potentially be at stake. Additionally, in 2016 Lake Mead recorded its lowest water levels since the construction of the Hoover Dam in the 1930s. Mexico’s willingness to continue to store water in Lake Mead in accordance with Minute 319 has the potential to significantly impact over 1 million people in the Las Vegas Valley, as well as the area’s massive tourism industry. (San Diego Union Tribune, 2016)

With water levels expected to continue to drop in the coming years, a renewed emphasis on binational cooperation between the United States and Mexico on the issue of water security is essential. Colorado, as both the source of this crucial waterway, and a key trading partner for Mexico, will no doubt have an essential role to play in helping to broker this future cooperation.

 

 

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Mexico is Colorado’s second-largest market for export goods, after Canada. Colorado exported $1.08 billion in goods to Mexico in 2015, up 83 percent from 2010 levels, according to Commerce Department data.

Manufactured food products represented about 25 percent of Colorado’s exports to Mexico in 2015, valued at $269.6 million. That was followed by chemicals (18 percent, $192.9 million), non-electrical machinery (10 percent, $112.1 million), and fabricated metal products (9 percent, $100.2 million).

And Colorado imported $1.72 billion in goods from Mexico in 2015, up 164 percent from 2010. Roughly half of those Mexico-to-Colorado imports were classified as computer and electronics products, valued at $856.3 million.

No. 2 was plastics and rubber products (9 percent, $150.8 million), followed by non-electrical machinery (8 percent, $135.6 million) and electrical equipment, appliances and components (5.5 percent, $95.3 million).

Russia’s Northern Sea Route: The Superior Course for Maritime Trade in the Arctic

Lynx Global (AI)ssisted-Data-Science™ Dashboard facilitates public and private risk strategy

ABy:  Anthony J. Riddle,  Lynx Global Intelligence

 

The Chinese government intends to redraw the lines of power in maritime trade. In a Chinese-language only report distributed by the Chinese Communist Party (CCP), they signaled their intent to encourage Chinese shipping companies to utilize trade routes in the arctic circle. This will catalyze a paradigm shift in global maritime trade because China is the first major power committed to utilizing the Arctic Circle; setting a new precedent in naval history. Specifically, the CCP prioritizes the increasingly navigable Northwest Passage which crosses through Canadian and American territorial claims. Shortening transit times for maritime shipments is the primary motivation for using emerging Arctic sea routes to link China to European markets. The Chinese Maritime Silk Road ends at the Port of Piraeus, Greece, and leads through the Indian Ocean and Suez Canal. The current route cuts 10 days off the journey to Central or Eastern Europe when compared to routes which lead around the Horn of Africa. [1] Because of this accelerated transit speed “most of China’s $1 billion in daily exports to Europe [now] traverse the Gulf of Aden and the Suez Canal.” [2] The CCP now looks to the Arctic to further expedite shipments to European consumers at a time when China’s “online revenue [is] projected to double to $1.1 trillion by 2020.” [3]

China currently controls fourteen of the top twenty high volume sea ports and has launched the One Belt, One Road Initiative with the intent of establishing new trade routes to bolster its economy and expand its international influence. The maritime component of this initiative initially used a shipping route that ran through the Indian Ocean, the Straits of Malacca, and the Suez Canal. [4] This route, however, forces shipping vessels to transit through three high risk piracy zones which increases shipping costs resulting from the combination of higher insurance premiums and augmented security measures. Costs to shipping companies are increased by $726.1 million a year when transiting just the East African piracy zone because of the additional security merchant vessels require to do so safely. [5] By shifting priority to the increasingly navigable arctic, Chinese shipping companies can effectively bypass these costly and dangerous areas when shipping goods to European markets. China’s Maritime Safety Administration spokesman Liu Pengfei was quoted as saying “Once this [arctic] route is commonly used, it will directly change global maritime transport and have a profound influence on international trade, the world economy, capital flow and resource exploitation.” [6]

The Russian controlled Northern Sea Route will become navigable far sooner than the Northwest Passage according to climate change models; additionally it will have the largest ice free area comparatively to other routes. [7] The Northern Sea Route is also approximately 40% shorter than using the Suez Canal trade route [8] and shortens voyages from Shanghai to Hamburg by 2,800 nautical miles. [9] Such a significant input cost reduction for delivering goods to European markets will be irresistible for shipping companies participating in Chinese trade. An example of how arctic transits create significant savings is “the Nordic Orion, a Danish bulk carrier, [which] saved $200,000 and four days’ transit time by shipping 15,000 metric tons of coal from Vancouver to Finland via the Northwest Passage in 2013.” The Arctic Ocean therefore represents an approximate savings of $50,000 a day in transit costs while simultaneously removing the necessity for Maritime Security teams that are required to safely transit piracy zones. This will drive Arctic and non-Arctic states to compete for access to these lucrative routes that are partly claimed by the United States, Russia, Canada, Denmark and Norway. [10]

122333The Russian government has heavily invested in making the Northern Sea Route navigable for trade to compete with the Northwest Passage. China stated in their 2015 military white paper that they place great importance on “managing the seas and oceans and protecting maritime rights and interests” [11] and, as a result, they made history in 2014 by having the first unescorted commercial vessel transit the Northwest passage which delivered a shipment of nickel ore. [12] This same year China and Russia signed a 30 year and $400 billion dollar deal for GAZPROM to supply China with Russian oil in an attempt to further link Russian and Chinese economies. This deal ultimately was crippled by plunging price of oil from the $100/barrel at the time of the deal and the global supply of Liquid Natural Gas (LNG) which has become more attractive because of the Paris Agreement on climate change. [13] Russia intends to manage their Northern Passage to circumvent western sanctions by taking advantage of Chinese economic growth to repair their own economy and improve Sino-Russo relations. The Chinese decision on which arctic route to rely on will rebalance global relations between the three superpowers.

To successfully attract Chinese shipments, Russia maintains forty icebreakers and has another eleven icebreakers on order to improve the viability of this emerging shipping lane. Additional signs of Russian commitment to controlling arctic trade are found in their four active Arctic combat battalions, recently established dedicated Arctic command, and creation of sixteen ports in the arctic circle. [14] Russia’s State Commission on Development of the Arctic Regions also founded a single company to boost the development of these new shipping routes and will oversee all logistical operations in the area. [15] The Northern Passage has already experienced a 30% increase in commercial traffic from 2008 to 2010. [16] Companies interested in participating in a region that is quickly becoming viable for trade, a first in recorded history, require both familiarity with the agreements between states in the region and to establish a dialogue with new partners already established there.

We are experiencing a paradigm shift in global trade. One that can be capitalized on if effectively managed through careful analysis of real-time competitive intelligence. Companies wishing to take advantage of this development require a dedicated team of subject matter experts who are familiar with the political forces affecting global supply chains. They will also require a network of professional partners who are firmly established in these expanding markets. Without a carefully constructed strategy to mitigate potential risks created by the geopolitical pressures between states, the subsequent volatility could cause irreparable damage to a company’s supply chain.

By introducing an Artificial Intelligence (AI) driven analytical dashboard to assist a diverse team of experts, Lynx Global Intelligence is uniquely positioned to provide the services necessary to successfully emerge from this transition ahead of the competition.

 

 

[1] http://unctad.org/en/PublicationsLibrary/rmt2016_en.pdf

[2] http://www.huffingtonpost.com/joseph-braude/why-china-and-saudi-arabi_b_12194702.html

[3] http://unctad.org/en/PublicationsLibrary/rmt2016_en.pdf

[4] http://unctad.org/en/PublicationsLibrary/rmt2016_en.pdf xi, 21

[5] http://oceansbeyondpiracy.org/reports/sop/summary

[6] http://af.reuters.com/article/commoditiesNews/idAFL3N17N1JK

[7] Scott Stephenson, University of Connecticut, https://www.newsdeeply.com/arctic/community/2016/02/10/scott-stephenson-the-future-of-arctic-shipping

[8] http://www.gallois.be/ggmagazine_2013/gg_02_03_2013_90.pdf

[9] http://www.scmp.com/news/china/society/article/1937327/china-wants-its-shipping-use-faster-arctic-route-europe-opened

[10] http://www.maritime-executive.com/article/rival-claims-to-the-changing-arctic

[11] http://thediplomat.com/2016/04/going-blue-the-transformation-of-chinas-navy/

[12] http://www.latimes.com/world/asia/la-fg-china-ships-alaska-20150902-story.html

[13] http://www.reuters.com/article/us-russia-china-gas-exclusive-idUSKCN0UT1LG

[14] SEN PERDUE (R-GA): Senate Armed Services Committee Holds Hearing on U.S. Southern Command and U.S. Northern Command Witnesses: Gen Lori Robinson (CDR USNORTHCOM) PG 25

[15] http://e360.yale.edu/features/cargo_shipping_in_the_arctic_declining_sea_ice

[16] https://www.afsc.noaa.gov/publications/misc_pdf/iamreport.pdf PG 16-17

Latin America is Leading the Charge in Renewable Energy

While the U.S. leaves the Paris Climate Agreement, Latin America is leading the charge in renewables

By:  Tyson Guajardo, Lynx Global Intelligence

 

Following President Donald Trump’s withdrawal from the Paris climate agreement, many citizens of the world were left furious and in a state of uncertainty about our planet’s future.  Despite the universal outrage which surfaced from a large magnitude of individuals and organizations alike within the United States, this largely symbolic retreat does not at all indicate the end of the green future narrative.  In fact, it is possible Mr. Trump’s withdrawal has actually incentivized climate activists more than ever before to push businesses towards committing to renewables and clean energy.  The alliance of mayors from 292 cities across the United States (1), as well as the partnership of 10 states including New York, Washington and California are a beacon of hope for many who are at odds with POTUS.  Hundreds of businesses in America led by giants such as Google, Apple and Facebook (2), are also dedicated to tackling the threat of climate change, with or without the federal government’s blessing.  Opportunities for American firms to invest in renewables can be found all over the world, with most other nations willing to lend a helping a hand in some capacity.

For example, Latin America, where there is a combined population of more than 600 million, has great potential for investors looking for the current hot spot in alternative energy.  The region as a whole has one of the highest rates of renewable energy consumption in the world (3).  In 2016, both Costa Rica and Uruguay ran almost entirely on renewables for several months, while in 2014 Latin America collectively generated 53% of its electricity from renewable sources (in comparison to a world average of 22%) (4).  In Brazil and Paraguay, most electricity is hydro powered (5) and Chile has recently become a leader in solar energy.   In Latin America, mergers and acquisitions in the sector have doubled over the last 12 months (5).  There is no other area on the planet that can claim to be as successful in this regard.  Moreover, an intergovernmental organization known as the International Renewable Energy Agency has stated that close to every Latin American nation has created goals supporting a greener future (5).  These nations are willing to collaborate with private investors for the benefit of their economies, which will become more dependent on renewables in the future as most of the world shifts its focus in this direction.

Lynx Global Intelligence is currently engaged in a solar power project in Peru and can also help your organization lead the charge (pun intended) in the alternative energy revolution while simultaneously generating (oops, there’s another one) more revenues.  We partner with South American businesses to help preserve the future of our planet for our children and grandchildren.  For more information, contact us to see how we can help.     http://www.lynxglobalintelligence.com

 

 

 

 

  1. https://www.curbed.com/2017/6/1/15726376/paris-accord-climate-change-mayors-trump
  2. http://money.cnn.com/2017/06/05/technology/business/businesses-paris-climate-agreement/index.html
  3. http://www.iadb.org/en/topics/energy/se4allamericas/renewable-energy,17688.html
  4. http://www.economist.com/news/americas/21711307-power-andean-sun-latin-america-set-become-leader-alternative-energy
  5. http://knowledge.wharton.upenn.edu/article/bright-outlook-renewable-energy-latin-america/
  6. http://www.renewableenergyworld.com/articles/2015/08/why-renewable-energy-in-latin-america-is-a-winner.html

The Big Piracy Threat isn’t in Somalia, it’s in Indonesia

International focus on African piracy rather than South East Asian piracy comes from increased insurance assessments

By:  Anthony J. Riddle,  Lynx Global Intelligence

 

Somali piracy is back in the media after a five-year hiatus. Some may quickly assume that the Gulf of Aden along the Somali coast is once again the hotspot of piracy. This assumption is not the case. Somalian piracy is likely to remain the least prolific of all the piracy danger zones.[1] Conversely, South East Asia maintains the highest numbers of attacks, the most dollar amount of cargo seized, and nearly three times more seafarers affected as the next closest zone.[2] Despite the data, it has received the least amount of attention by the international media, shipping companies, and great navies. South East Asia should be, based on the likelihood of attacks to shipping vessels, the focus of piracy operations rather than the African continent. The United Nations’ International Maritime Bureau’s (IMB) figures demonstrate that South East Asia accountedfor 55 percent of the world’s 54 piracy and armed robbery incidents since the start of 2015.”[3]

Terrorism and piracy near the African continent lead to increased insurance premiums and create the perception that Africa is the greatest center of piracy attacks. The West Africa based terrorist group Boko Haram operates out of Nigeria and increases the insurance assessments for the Gulf of Guinea. All the while the East African terror group, Al-Shabaab, is currently in Somalia, which inflates insurance premiums for East Africa. These terrorist organizations have a history of using vessel born improvised explosive devices (VBIEDs), which justifies their inclusion in the insurance assessments for maritime shipping companies.

These increased premiums in turn motivate shipping companies to invest heavily in fixed counter measures, additional fuel expenditures to expedite transit through high premium zones, and hiring Maritime Security (MarSec) teams to safeguard their vessels. MarSec teams represent the largest cost to companies in the fight against piracy. The international focus on African piracy rather than South East Asian piracy comes from the increased insurance assessments of a combined threat instead of the sole probability of piracy attacks in Africa.

Both the United States and United Nations use a legal definition for piracy that does not include acts within state controlled waters which complicates response efforts. The United Nations Convention on the Law of the Sea (UNCLOS) defines piracy as acts conducted only “on the high seas”[4] as does the United States.[5] The boundary for the high seas begins after 200 nautical miles from shore which legally excludes piracy attacks conducted within this range. The Strait of Malacca is only 1.5 nautical miles wide at its narrowest point which means it does not meet this definition.[6] Shipping vessels are therefore alone in defending themselves against pirate attacks there unless the companies can negotiate for regional assistance. It is the responsibility of the private shipping companies to coordinate the legal ability to use deadly force from each of the various South East Asian states that control portions of this trade route.[1] The IMO, however, does not officially support the use of force by private MarSec teams responding to pirate attacks.[2]

Piracy attacks generally center on three major types: hijacking for ransom, hijacking for cargo theft, and crew robbery. Robbery is an attack of convenience and has a relatively low monetary payoff compared to the other attack types. Hijacking for kidnapping and cargo theft promise the highest returns on investment but require greater initial capital and some level of sophistication in planning to execute. For example, the long range off shore piracy attacks from Somalia require an initial investment in the operation of nearly $30,000 USD.[3]

The Strait of Malacca, on the other hand, is the both target rich and is a geographically enclosed area which creates a strategic chokepoint for piracy and therefore does not require similar up front costs.[4] The Strait of Malacca on average has 120,000 ships transit through this route a year, one third of the world’s commercial ships,[5] and “between 70% and 80% of all the oil imported by China and Japan…”[6] Approximately 15.2 million of the total 87 million barrels of oil produced in 2011 passed through the Strait of Malacca which is “nearly 19 times the amount that passed through the Panama Canal and four times more than the volume through the Suez Canal over the same period.”[7] Additionally, Singapore is the largest hub for “bunkering” stolen oil, or mixing the stolen goods with legitimate oil cargo, and is closely located to the South East Asian piracy area of operations (AOR) for swift cargo offload. China’s “go out” policy is a fundamental component of the country’s ability to secure the energy from abroad and it is projected that 51% of all oil coming from the Middle East while transit through South East Asia giving pirate teams sustained and varied targets to choose from.[8]

The South East Asia piracy presents an increasingly complex threat to transiting vessels because Indonesia’s prolific cyber crime. In 2013 Indonesia surpassed China as the leading source of malicious traffic and the Indonesian President Joko “Jokowi” Widodo stated that the number of cases of cyber attacks increased by 389 percent from 2014 to 2015.[9] It is predicated that the capabilities of Indonesian cyber criminals will become increasingly sophisticated as the country continue to become fully modernized by 2025; as stated in their current master plan MP3EI.[10]

In light of the fact that Indonesia is already a center for both cyber crime and piracy, it is likely that this combined threat will become a greater issue for international commerce as shipping vessels continue to modernize. The IMO, for example, will require all crews from large ships to integrate an electronic control system that reads electronic charts, gives piracy updates, and is remotely accessible through satellite link.[1] This electronic integration makes the vessels vulnerable to cyber attack. The electronic control systems control critical systems of the vessel such as steering and engine functions.

Rear Admiral Thomas of the United States Coast Guard speaking during an open forum in 2015 said, “Every ship built has software that manages its engines; and that software is [now] updated while the vessel is underway from the beach, and the Master doesn’t even know that the software is being updated.”[2] This critical vulnerability will allow Indonesian pirates to utilize cyber attacks to prepare a targeted vessel for a physical attack. Pirates are now not only be able to infiltrate shipboard systems to locate and track targets but also can completely shut down the vessel’s navigation and communications prior to engagement. The remotely accessible upgrades to these supervisory control and data acquisition (SCADA) navigation systems are vulnerable to Distributed Denial of Services (DDOS) or scripted malware like the recently discovered BrickBot, which renders a computer system inoperable.[3] Further compounding this issue is the public dissemination of the NSA’s cache of windows exploits and ready to use malware scripts allowing technologically modest piracy groups to use the same advanced intrusion methods of a developed country’s premiere intelligence agency.[4] In this regard, Southeast Asia is emerging as the most advanced threat to maritime trade in a way that the African continent will be unable to match for years to come.

 

 

[1] https://www.icc-ccs.org/piracy-reporting-centre

[2] http://oceansbeyondpiracy.org/reports/sop2015/se-asia

[3] https://www.icc-ccs.org/piracy-reporting-centre

[4] http://www.un.org/depts/los/convention_agreements/texts/unclos/part7.htm

[5] https://www.law.cornell.edu/uscode/text/18/1651

[6] http://cs.mcgill.ca/~rwest/wikispeedia/wpcd/wp/s/Strait_of_Malacca.htm

[7] http://oceansbeyondpiracy.org/sites/default/files/attachments/March_2017_Working_Group.pdf

[8] http://www.imo.org/en/MediaCentre/HotTopics/piracy/Documents/21 July 2011 – Piracy Briefing Powerpoint presentation Final.ppt

[9] http://oceansbeyondpiracy.org/reports/sop2015/east-africa

[10] http://oceansbeyondpiracy.org/reports/sop2015/west-africa#humancostwa.

[11] https://www.vice.com/en_id/article/piracy-is-still-a-huge-problem-in-indonesia.

[12] http://time.com/piracy-southeast-asia-malacca-strait/.

China’s Craft Beer Revolution is Under Way

The time is ripe to invest in China’s growing market.

By:  Conner Murphy, Lynx Global Intelligence

 

Background

The craft beer market is going to get a lot bigger as small and medium sized competitors gain traction across China. The time is ripe for China’s craft beer revolution.

According to a recently released report from Drink Sector[2], a beverage industry research organization, China’s beer market is set to become the world’s largest in value by 2018. This shouldn’t come as much of a surprise – China is, after all, a very big country, and has long been the world’s largest consumer of alcoholic beverages (China surpassed the United States in 2011).  However, tastes have been shifting across the country. Traditional liquors such as baijiu, a sorghum based liquor, have dwindled in popularity, while red wine and beer are becoming increasingly popular alternatives. Though beer has always been readily available in China, traditional options such as Tsingtao and Budweiser do not quite appeal to the young, internationally minded, growing middle-class. For a generation raised on designer brands and the newest iPhone, domestic beer just doesn’t make the cut. Drinking cultures and tastes are changing. As put by a local beer representative in a recent CCTV report[3], younger generations prefer to drink until you are satisfied, not drink until you are full (ie. drunk). Enter craft beer.

China’s Beer Market at a Glance

Beer is not new to China – domestic names such as Tsingtao (青岛啤酒), Harbin 哈尔滨啤酒, and Snow雪花啤酒) have long dominated the market, and remain favorites from restaurant goers to the bar crowd. Large international breweries also have a strong presence in the country, with Budweiser and Heineken readily available from Shanghai to Chongqing.  However, while beer production is at an all-time high, revenues have been on the decline since 2013[4]. The market is changing, and consumers are demanding something different from the watered–down lagers of the past century. Small breweries in Beijing and Shanghai that were once exclusively frequented by expats are now full of locals looking to experience the craft beer craze that has exploded across the US and Europe.

Big breweries, wary of the competition they are facing abroad, are hoping to take advantage of the changing demands as quickly as possible. Tsingtao has been rebranding itself across wealthier cities, spreading its Tsingtao 1903 brand as a premium alternative to its typical party-go happy image. Small taprooms have sprung up in Beijing and Shanghai, serving beers such as Tsingtao IPA and Tsingtao Stout.

china 1

[5] Tap options at Beijing’s Tsingtao 1903 SoHo Taproom.  The Beijinger

china 2

[5] Tsingtao Standard with Tsingtao Stout. The Beijinger

Meanwhile, AB-InBev has increased imports of it’s The High End line of beers into China. Beers such as Goose Island IPA and Elysian Jasmine IPA are readily available across Beijing taprooms, and continue to increase their foothold as premium beer staples. Meanwhile, AB has begun targeting local operations, and in March acquired Boxing Cat Brewery[6], one of Shanghai’s most well-known craft breweries.  These trends signal two things: First, opportunities in China’s craft beer market are readily available. Second, it is crucial to enter the craft beer market before large brewing companies gain a stronger foothold.

china 3

At Beijing’s Home Plate BBQ, AB InBev’s Goose Island now tops the draft beer list. Photograph by Mark Leong, Fortune[7]

Opportunities

Partnering With a Local Craft Brewery

This is by far the most direct method of entering China’s craft beer market. Partnering with a local startup is a great way to make your brand known, develop a robust local market, distribute directly to the customer, and maintain a strong understanding of your business operations. Small craft breweries are popping up across China, and while capital is readily available, know-how is in short supply. Entrepreneurs are seeking foreign partnerships and brew masters to assist in creating strong competitors, premium internationally supported brands, and sound business strategies.

china 4

The Next Generation of Chinese Brew masters – Graduates from the China National Research Institute of Food & Fermentation Industries. Photo provided by Jeff Li, Graduate

Collaboration Projects

Less direct than a direct partnership, opportunities exist for collaboration projects in beer production. For example, a brew master guest-training program could be arranged between US and China partners; a US brewery provides the knowhow and helps to create a collaborative collection of beers. While this option provides less control over ground operations, it does represent a chance to make strong connections on the ground, gain a better understanding of the market, and help make your brand known in specific locales. This would also open the door for future opportunities, and provide an opportunity to test the waters of a future partnership with local breweries.

Import

Finally, exporting to China remains an option. The current trade climate appears positive, with the government steadily removing trade barriers on everything from agricultural goods to natural resources[8].This means the cost of exporting to China will go down. However, while this represents an easy inroad, it is also the least likely to bring future success. The trick is not to sell beer in China, it is to spread brand awareness and become a leading presence in the future beer market. This is both incredibly difficult and risky without a local presence.

Risks and Hurdles

As with any business practice, risks exist. Foreign and domestic competition will only continue to grow, highlighting the importance of early entry into the market. Marketing and branding strategies need to be adjusted on a locality-by-locality basis – what works in Shanghai may not work in Beijing. Open and frequent communication with local partnerships will help to ease the localization of your brand. Government regulations concerning the production and distribution of alcohol are constantly changing, and differ from city to city. Local partnerships again represent the best method for overcoming regulatory hurdles, as partners have the know-how necessary for meeting local compliance standards. Finally, intellectual property rights infringement represents a leading risk across China. Recipes and trade secrets should be kept secret unless absolutely necessary, and an on-the-ground presence is essential.  Distribution channels and retailers must also be monitored, and supply chain disruptions cannot go unnoticed. These risks, while prevalent, represent hurdles, not barriers. With an on-the-ground presence and a strong understanding of Chinese business practices, success in China’s craft beer revolution is possible.

 

 

[1] China’s taste for craft offers fizz for global brewers. Reuters. March 7, 2017. http://www.reuters.com/article/us-china-beer-idUSKCN0W813B

[2] China Craft Beer Market Report 2017. Drink Sector. January 2017. http://www.drinksector.com/reports/china-craft-beer-market-report-2017

[3]央视关注精酿啤酒啦!好消息?坏消息?。 爱啤酒。September 17, 2015. http://mp.weixin.qq.com/s/rFk4C6dCn–fxMy6JpdFYw

[4]Annual Report, 2016. Tsingtao Brewing CO., LTD. December 2016.  http://quote.morningstar.com/stock-filing/Annual-Report/2016/12/31/t.aspx?t=:TSGTF&ft=&d=475f0936590f75fc5557807a2271822e

[5] Tsingtao Opens Its Own Bar in Galaxy Soho With IPA (Occasionally) on Tap and Export Quality Bottles. The Beijinger.  https://www.thebeijinger.com/blog/2016/07/20/tsingtao-opens-its-own-bar-galaxy-soho

[6] China’s taste for craft offers fizz for global brewers. Reuters. March 7, 2017. http://www.reuters.com/article/us-china-beer-idUSKCN0W813B

[7] China’s New Craft-Beer Bully. Fortune. Mar 16, 2017.  http://fortune.com/2017/03/16/china-craft-beer-ab-inbev/

[8] Cheniere Circles China After Trade Deal Portends Gas Export Boost. The Wall Street Journal. May 12, 2017. https://www.wsj.com/articles/cheneire-circles-china-after-trade-deal-portends-gas-export-boost-1494619903?mod=e2fb

Accessing Cuban Medical Technology

Cuba’s medical technology could be enormously beneficial to American businesses

By Tyson Guajardo, Lynx Global Intelligence

 

It’s no secret that the United States would considerably benefit from open trade with Cuba.  Access to the country’s medical technology could be enormously beneficial to both American businesses and the general population alike.

Although Cuba may be struggling in many measures of development, healthcare is one area where the communist nation vastly excels.  In 2015, there were an estimated 37,000 Cuban nationals working abroad in 77 countries (1).  Remarkably, Cuba boasts more doctors per capita than any other country in the world (Vice News), features a life expectancy almost identical to the United States (2), and has a lower infant mortality rate than its northern neighbor (3).  How is this possible for a nation that has been economically crippled for the past several decades?  The isolation endured by Cuba due to the U.S. trade embargo and the collapse of its largest financial lifeline, the Soviet Union, have led to a necessity to design its own medical innovations.  Furthermore, the Cuban government treats healthcare as a basic human right and invests heavily into the development of new medicines.  In recent years, the country has achieved great success with a few major medical advancements:

  1. A lung cancer vaccine called CimaVax developed by Cuba’s Center of Molecular Immunology is already in the process of approval for use in the United States. In fact, it has already been cleared for testing by the Food & Drug Administration (4).  This vaccine was designed not as a preventative measure, but as a method to freeze growth and reduce the likelihood of recurring non-small cell lung cancer (5).  The treatment has been available in Cuba since 2011 and in its most recent trial on the island, patients who received CimaVax lived between three to five months longer than those who did not.  Moreover, individuals with high concentrations of E.G.F., or Epidermal Growth Factor in their blood survived much longer (5).  Outside of Cuba, the vaccine is also available in Peru, Paraguay, Colombia and Bosnia.
  2. Heberprot-P is a drug used to treat diabetic foot ulcers that was invented by scientists at the Center for Genetic Engineering and Biotechnology in Havana in 2006. This treatment prevents the need for amputations in individuals with the condition, in turn extending their overall life expectancy.  So far, Heberprot-P has been used to aid over 165,000 patients in 26 different countries worldwide since its launch into the global market (6).  The medication is injected near the affected area to speed up the process of skin restoration and can heal a wound in about three months.    Current treatment options for diabetic foot ulcers remain scarce in the United States where approximately 73,000 American adults with diabetes underwent amputation of their lower limbs in 2010 (7).
  3. The Center of Molecular Immunology in Havana has also developed Nimotuzumab, an anti-cancer drug used against advanced tumors in areas such as the head, neck and brain (8). Monoclonal antibodies in this medicine connect to epidermal growth factor receptors on the surface of the cancer cell and stop it from spreading.  As of 2014, the treatment is recognized under orphan drug status in the United States for the treatment of glioma.

While most Cuban goods are still restricted from importation under the long-standing trade embargo, the US Treasury Department can grant exemptions for certain medicines and healthcare products.  Lynx Global Intelligence is leading a trade delegation to Cuba on July 23-27, presenting a great opportunity for firms in the healthcare industry to learn more about prospective medications and technologies on the island, as well as access to top Cuban business and ministry resources that can facilitate commercial activities with the United States.  Visit us at  http://www.lynxglobalintelligence.com/ for more information.

 

 

[1] https://www.forbes.com/sites/billfrist/2015/06/08/cubas-most-valuable-export-its-healthcare-expertise/#d238fe5195eb

[2] https://www.theatlantic.com/health/archive/2016/11/cuba-health/508859/https://play.hbogo.com/episode/urn:hbo:episode:GWKN9LQatN4m4wwEAAAAR

[3] http://abcnews.go.com/Health/cubas-major-medical-achievements/story?id=43844344

[4] https://www.nytimes.com/2016/11/15/health/cancer-vaccine-cuba-medical-tourism.html?_r=0

[5] http://www.huffingtonpost.com/gail-reed/renewed-uscuba-relations-_b_6537518.html

[6] http://www.huffingtonpost.com/entry/cuba-medical-innovations_us_56ddfacfe4b03a4056799015

[7] http://www.who.int/features/2013/cuba_biotechnology/en/

…And This is Your Company on Socialism: A Cautionary Tale of Nationalization in Venezuela

The Venezuelan economy is in free fall and its currency is hemorrhaging value

By Jon Vreede, Lynx Global Intelligence

 

For those with an interest in business and Latin America, one question has dominated recent discussion: what has gone wrong in Venezuela? For years, Venezuela’s economy appeared to be booming, and that economic boom was allowing its government to combat social ills and build “socialism for the 21st century”. Yet that boom has turned to bust in dramatic fashion, and the Venezuelan economy is in free fall and its currency is hemorrhaging value. Economic hardship has in turn sparked political unrest, as opposition to President Nicholas Maduro and the ruling chavista government has taken to the streets— sometimes with bloody results. As companies doing business in Venezuela scramble to respond, they are threatened by a crisis of their own: the seizure of their increasingly-worthless assets by the government. The threat of nationalization was most recently brought home by the seizure of General Motors’ facilities by the Venezuelan government. Yet Venezuela’s renewed nationalization should not come as a bolt from the blue; there have been warning signs present for years, and the trend is likely to continue.

The nationalization trend predates the current political crisis in Venezuela, and indeed the broader economic crisis as well. The origins of this problem lie in 2003, when then President Hugo Chavez imposed strict controls on currency exchange and capped the prices on basic consumer products like food, medicine and raw materials[i]. The stated goal was to reduce inflation and combat speculation, as well as ensure that basic products were accessible to poor Venezuelans. In the same vein, Chavez began expropriating farmland which was lying idle or was of unclear ownership in 2005 and redistributing it to increase productivity and combat persistent food shortages. For the following two years, the government set its sights on the petroleum industry: the backbone of the Venezuelan economy. Historically the Venezuelan petroleum industry had been under state control, but previous governments had allowed private firms to enter the market in the 1990s, mostly in the oil-rich Orinoco Oil Belt. But a 2006 law allowed the government to unilaterally abrogate agreements signed during the previous decade, and laws the following mandated that companies must give the state-owned oil company a majority stake in their Orinoco Belt projects or else forfeit their rights. A few oil companies decided to soldier on under these new conditions, but the majority—including ExxonMobil, ConocoPhillips and Total—left the market in 2007. Other companies swept up by the state in that year included Venezuela’s largest telecommunications company, its largest privately-owned electric company, and the nation’s largest iron mines[ii].

At this point, businesses could be forgiven for not worrying about the Venezuelan market. After all, there was historic precedent for the state having a dominate role in the oil and gas sector as well as the iron business, and land redistribution has been the common plank in the platforms of left-leaning Latin-American political leaders for decades. As for telecoms and electricity? In the developed world, many of these services are provided by state-owned utilities. But business owners and investors should have been wary. The Venezuelan government had already displayed a worrying habit of solving problems by taking over businesses. Those land and utility seizures meant cheaper prices for goods, and these subsidies and other social programs were being paid for with that new state-owned oil money. And more trouble was clearly on the horizon. That same year, Chavez threatened to nationalize everything from hospital to steel mills and banks to farms if they did not play ball with his government.

True to his word, Chavez and his government went on a spree of nationalization between 2009 and 2011. This campaign touched all parts of the economy including banks, agribusiness, steel, cement and any company providing supplies and services to the nationalized oil industry[iii]. This campaign of increasing state-control occurred against a backdrop of economic uncertainty and calls for political change. During these three years, oil prices declined significantly while growth rates plummeted and inflation shot back up to around 30% per year[iv]. What is more elections for both the National Assembly and presidency were due to take place in 2011 and 2012 respectively; elections in which the opposition planned to mount a serious challenge to the ruling party. The government’s nationalization campaign can thus be seen as an attempt to right the economic ship and curry favor with the populace. Nationalization allowed the government to guarantee jobs while allowing them to lower the cost of consumer goods; both of which help secure the loyalty of the working-class Venezuelans who make up the core of chavismo support.

For businesses operating in Venezuela, this nationalization campaign should have been the signal to exit this market. The problem was not just that the government was expropriating industry; unsettling though that seemed. Instead, the dangerous development was the it appeared to be working. Slowly, inflation began to creep back down, and GDP began to grow again. From the government’s perspective then, the nationalization program would appear to be recipe for economic recovery. That oil prices rebounded during that same period, thus allowing the government to continue funding its programs was left unsaid. For those who realized the dangerous precedent this set, it was clear that Venezuela was no longer a welcoming market. But many others ignored the trends and decided that things were getting better. Initially at least, that seemed to be true.

That is until 2014, when the price of oil fell dramatically, and with it the Venezuelan economy. To continue providing jobs and services, the Venezuelan government kept printing money, resulting in out-of-control inflation. By 2016, inflation was estimated to be over 700%  (the exact figure is unknown since the government stopped reporting the number) and consumer prices rose by an astounding 2200%[v]. The result has been mass shortages of everything from food to medicine and the shuttering of factories for lack of raw materials. President Nicholas Maduro (who succeeded Hugo Chavez after the latter’s death in 2013) has responded with thundering denunciations of wealthy Venezuelans and shadowy foreign forces; and of course, nationalization, with Maduro pledging to seize any shuttered factory and restarting production[vi]. This process has already begun with the seizure of a Kimberly Clark plant in 2006 and most recently of GM’s Venezuelan plant. The fact that this response will likely not solve the underlying problems will be of cold comfort to those businesses still operating in Venezuela.

venezuala

Facing twin economic and political crisis, the government has returned to its favorite response, although they maintain that these “asset freeze” and not expropriations[vii]. For those still doing business in Venezuela, this is a no-win situation. With the aid of experts like Lynx Global Intelligence, their losses might have been avoided. Our analytical tools and techniques could have helped identify the warning signs, and allowed our clients to close down their Venezuelan operations before the economy imploded. Instead, they are left with factories they cannot operate, funds that— thanks to currency controls— are worth less and less every day, and a government willing and able to confiscate whatever maybe left.

 

[i] “Venezuela Announces Currency, Price Controls”. Sydney Morning Herald. February 7, 2003. http://www.smh.com.au/articles/2003/02/06/1044498917650.html.

[ii] Mrquez, Humberto. “Venezuela: Chavez Announces Broad Nationalization Drive”. GIN/IPS. May 14, 2007.

[iii] “Venezuela’s Nationalizations Under Chavez”. Reuters. October 7, 2012. http://reut.rs/2pXAgZI.

[iv] International Monetary Fund. http://www.imf.org/external/datamapper/PCPIPCH@WEO/WEOWORLD/VEN.

[v] “Let Them Eat Chavismo: As Venezuela Crumbles, the Regime Digs in”. The Economist. January 28, 2017.  http://econ.st/2peaP7e.

[vi] “Venezuela Seizes Kimberly Clark as New Plan to Tackle Shortages Launched” TeleSUR. July 12, 2016. http://bit.ly/2pVk5vA.

[vii] “Venezuela Freezes GM Assets After Managers Ask Government to Kick Workers Out of Factory”. TeleSUR. April 21, 2017. http://bit.ly/2qTNfc2.

photo: Oil workers hang a Venezuelan flag at the Jose Complex during celebrations in Barcelona, Venezuela, May 1, 2007. (Photo: Reuters/Jorge Silva)