Sunday, May 29, 2016

Middle East IoT spend to reach $3.2bn in three years; UAE hikes fuel prices; The case against negative interest rates

1 Middle East IoT spend to reach $3.2bn in three years (Issac John in Khaleej Times) With the GCC governments encouraging industries and businesses to get ready for the Internet of Things (IoT) and leverage its uses towards energy management, the total IoT spend in the Middle East is set to double by 2019.

Schneider Electric, a global specialist in energy management and automation, said IoT would trigger the next wave of enterprise digital transformation, unifying the worlds of OT and IT and fuelling a mobile and digitally enabled workforce.

According to the International Data Corporation (IDC), the total IoT spending in the Middle East will reach $1.8 billion in 2016 and then increase to $3.2 billion by 2019, with manufacturing, transportation and utilities accounting for up to 50 per cent of this total. Vendors and solution providers must be quick to adapt their offerings to be compatible with the IoT.

2 UAE hikes fuel prices (Gulf News) The United Arab Emirates’ Ministry of Energy hiked fuel prices further for the month of June. The new prices were announced as global oil prices recover due to rise in demand and disruptions in supplies specially from Nigeria.

Brent, the global benchmark, was trading at around $50 per barrel, the highest since November. In a land mark decision in July last year, the Ministry of Energy liberalised fuel prices and new pricing policy linked to global prices was implemented.

A fuel price committee headed by the Under Secretary of the Ministry of Energy was constituted to determine fuel prices every month. The prices are based on the average global prices for diesel and petrol with the addition of operating costs and profit margins of the distributing companies. The new fuel prices will come into effect from June 1.

3 The case against negative interest rates (Robert Skidelsky in The Guardian) Negative interest rates are simply the latest fruitless effort since the 2008 global financial crisis to revive economies by monetary measures.

When cutting interest rates to historically low levels failed to revive growth, central banks took to so-called quantitative easing: injecting liquidity into economies by buying long-term government and other bonds. It did some good, but mostly the sellers sat on the cash instead of spending or investing it.

Enter negative interest rate policy. The central banks of Denmark, Sweden, Switzerland, Japan, and the eurozone have all indulged. The US Federal Reserve and the Bank of England are being tempted.

The policy is supposed to work by aligning the market rate of interest with the expected rate of profit, an idea derived from the Swedish economist Knut Wicksell. The problem is that whereas until now it had been believed that nominal interest rates cannot fall below zero, an investor’s expected rate of return on a new investment may easily fall to zero or lower when aggregate demand is depressed.

The World Bank has pointed out that negative rates can have undesirable effects. They can erode bank profitability by narrowing interest-rate margins. They can also encourage banks to take excessive risks, leading to asset bubbles. Lower interest rates on deposits may cause large sections of the economy to become cash-based, while pension and insurance companies may struggle to meet long-term liabilities at a fixed nominal rate.

But, quite apart from these problems, the real case against negative interest rates is the folly of relying on monetary policy alone to rescue economies from depressed conditions. Keynes put it in a nutshell: “If we are tempted to assert that money is the drink which stimulates the system into activity, we must remind ourselves that there may be several slips between the cup and the drink.”

Events following the crash of 2008 clearly show that monetary policy on its own cannot achieve a level of economic activity close to its potential. The state must be involved. Whether the capital spending appears on the books of the central government or on the balance sheet of an independent investment bank is secondary. Negative interest rates are simply a distraction from a deeper analysis of what went wrong – and what continues to go wrong.

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