In 1995, the Japanese city of Kobe was struck by a 6.9 magnitude earthquake. More than 6,000 people lost their lives. Damage was estimated at more than $100 billion (Dh367.3 billion), or 2.5 per cent of Japanese national income. Yet, within 18 months, economic activity in the Kobe region re-attained its pre-quake level. A state-of-the-art offshore port facility was constructed, the housing stock was modernised and a grimy port city was turned into a showpiece.
Last week's earthquake in the Tohoku region of northern Japan exceeded the Kobe earthquake in magnitude, and is likely when the final toll is counted, in deaths and destruction as well. Yet even as authorities struggle to contain the damage done to nuclear reactors, the world has been impressed by how the Japanese people have pulled together in the face of adversity, and the Kobe experience stands as a useful reminder of the capacity of Japan's resilient populace to overcome terrible tragedies.
At this juncture, the Japanese economy faces several fundamental uncertainties. One is the ongoing difficulties in resolving the problems at the nuclear facilities. A second is the possibility that aftershocks could either further damage the reactors or strike major population centres south and west of the affected region such as Tokyo. Either event would deal a terrible blow to confidence. The third is that if disruptions to the power grid remain unpredictable and propagate economic problems beyond the immediately affected region for a sustained period of time, impeding the resumption of economic activity and damaging morale.
These possibilities should not be minimised. But if, as is reasonable to expect, the nuclear reactor containment chambers hold, and the event is closer in outcome to the 1979 mishap at Three Mile Island than the 1986 disaster in Chernobyl, then what the country faces is the task of rebuilding from a conventional natural disaster.
Admittedly the starting point for this rebuilding effort is poor. Decades of wasteful spending, driven by cozy relationships between rural politicians, constructions companies and government bureaucrats, have left Japan saddled with debts more than twice national income. But the government holds a few cards.
Some of the rebuilding can be financed by simply redirecting spending from white elephants to the higher priority of rebuilding the Tohoku region. It should not be difficult for Prime Minister Naoto Kan to call for national belt-tightening and a redirection of spending after such a disaster. The quality of public investment will improve, perhaps permanently, if the episode contributes to a fundamental re-balancing of Japanese politics.
Even with such expenditure switching, it is likely that the government will need to issue additional debt. The ownership of Japan's debt is not footloose, however. Much of it is owned by government entities and is backed by assets, such as toll roads, that generate considerable revenue streams.
The more relevant net debt figure is about half as big as the gross figure, still not good, but not double national income. Ninety-five per cent is owned by Japanese citizens, not foreign hedge funds. It is highly unlikely that Japanese citizens will dump their government bonds if more are issued to rebuild the city of Sendai. From a financial standpoint, the government of Japan has greater room for manoeuvre than might be immediately apparent. The statement by the ratings agency Moody's that it did not anticipate any need to downgrade Japanese government debt in light of the likely issuance of rebuilding bonds amounts to a welcome vote of confidence in this regard.
For the last 10 to 20 years Japan has experienced an extraordinary concentration of economic activity in Tokyo. Hundreds of Japanese corporations have moved their headquarters from cities like Osaka. Rebuilding Sendai will not reverse this process, but at the margin it could contribute to a greater dispersion of economic activity across the country. If pursued creatively, rebuilding could contribute to the formation of a growth pole in northern Japan.
Ultimately, what is at stake is the very structure of Japanese politics. A single party, the Liberal Democratic Party (LDP), has ruled more or less continuously since the re-establishment of self-rule in 1952 with the end of the United States military occupation that followed the Second World War. The LDP was turned out of office in 2009, but the inexperienced Democratic Party of Japan (DPJ) has struggled to govern successfully. If the incumbent DPJ effectively manages this crisis, their performance could go a long way to reassure voters and cement a two-party system of truly contestable political power. However, if the government does a poor job in the crisis, a Japanese version of the Bush administration's inept performance during Hurricane Katrina, it could send voters flocking back to the LDP, closing the window on this most recent episode of political opening and re-establishing the single party-dominant system.
The humanitarian, economic and political dimensions of the challenges that Japan confronts are huge.
Marcus Noland is the deputy director at the Peterson Institute for International Economics in Washington and a senior fellow at the East-West Center
Formula Middle East Calendar (Formula Regional and Formula 4)
Round 1: January 17-19, Yas Marina Circuit – Abu Dhabi
Round 2: January 22-23, Yas Marina Circuit – Abu Dhabi
Round 3: February 7-9, Dubai Autodrome – Dubai
Round 4: February 14-16, Yas Marina Circuit – Abu Dhabi
Round 5: February 25-27, Jeddah Corniche Circuit – Saudi Arabia
'The Batman'
Stars:Robert Pattinson
Director:Matt Reeves
Rating: 5/5
Guide to intelligent investing
Investing success often hinges on discipline and perspective. As markets fluctuate, remember these guiding principles:
- Stay invested: Time in the market, not timing the market, is critical to long-term gains.
- Rational thinking: Breathe and avoid emotional decision-making; let logic and planning guide your actions.
- Strategic patience: Understand why you’re investing and allow time for your strategies to unfold.
The lowdown
Bohemian Rhapsody
Director: Bryan Singer
Starring: Rami Malek, Lucy Boynton, Gwilym Lee
Rating: 3/5
Our family matters legal consultant
Name: Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
The advice provided in our columns does not constitute legal advice and is provided for information only. Readers are encouraged to seek independent legal advice.
Schedule for Asia Cup
Sept 15: Bangladesh v Sri Lanka (Dubai)
Sept 16: Pakistan v Qualifier (Dubai)
Sept 17: Sri Lanka v Afghanistan (Abu Dhabi)
Sept 18: India v Qualifier (Dubai)
Sept 19: India v Pakistan (Dubai)
Sept 20: Bangladesh v Afghanistan (Abu Dhabi) Super Four
Sept 21: Group A Winner v Group B Runner-up (Dubai)
Sept 21: Group B Winner v Group A Runner-up (Abu Dhabi)
Sept 23: Group A Winner v Group A Runner-up (Dubai)
Sept 23: Group B Winner v Group B Runner-up (Abu Dhabi)
Sept 25: Group A Winner v Group B Winner (Dubai)
Sept 26: Group A Runner-up v Group B Runner-up (Abu Dhabi)
Sept 28: Final (Dubai)
The Sand Castle
Director: Matty Brown
Stars: Nadine Labaki, Ziad Bakri, Zain Al Rafeea, Riman Al Rafeea
Rating: 2.5/5
The bio
Favourite vegetable: Broccoli
Favourite food: Seafood
Favourite thing to cook: Duck l'orange
Favourite book: Give and Take by Adam Grant, one of his professors at University of Pennsylvania
Favourite place to travel: Home in Kuwait.
Favourite place in the UAE: Al Qudra lakes
If you go
Where to stay: Courtyard by Marriott Titusville Kennedy Space Centre has unparalleled views of the Indian River. Alligators can be spotted from hotel room balconies, as can several rocket launch sites. The hotel also boasts cool space-themed decor.
When to go: Florida is best experienced during the winter months, from November to May, before the humidity kicks in.
How to get there: Emirates currently flies from Dubai to Orlando five times a week.
COMPANY PROFILE
Founders: Alhaan Ahmed, Alyina Ahmed and Maximo Tettamanzi
Total funding: Self funded
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
The biog
Hobby: Playing piano and drawing patterns
Best book: Awaken the Giant Within by Tony Robbins
Food of choice: Sushi
Favourite colour: Orange
THE SPECS
Engine: 6.75-litre twin-turbocharged V12 petrol engine
Power: 420kW
Torque: 780Nm
Transmission: 8-speed automatic
Price: From Dh1,350,000
On sale: Available for preorder now
Paatal Lok season two
Directors: Avinash Arun, Prosit Roy
Stars: Jaideep Ahlawat, Ishwak Singh, Lc Sekhose, Merenla Imsong
Rating: 4.5/5
COMPANY%20PROFILE
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Director: Shady Ali
Cast: Boumi Fouad , Mohamed Tharout and Hisham Ismael
Rating: 3/5
A Bad Moms Christmas
Dir: John Lucas and Scott Moore
Starring: Mila Kunis, Kathryn Hahn, Kristen Bell, Susan Sarandon, Christine Baranski, Cheryl Hines
Two stars
How to protect yourself when air quality drops
Install an air filter in your home.
Close your windows and turn on the AC.
Shower or bath after being outside.
Wear a face mask.
Stay indoors when conditions are particularly poor.
If driving, turn your engine off when stationary.
Emergency
Director: Kangana Ranaut
Stars: Kangana Ranaut, Anupam Kher, Shreyas Talpade, Milind Soman, Mahima Chaudhry
Rating: 2/5
Game Changer
Director: Shankar
Stars: Ram Charan, Kiara Advani, Anjali, S J Suryah, Jayaram
Rating: 2/5
Cryopreservation: A timeline
- Keyhole surgery under general anaesthetic
- Ovarian tissue surgically removed
- Tissue processed in a high-tech facility
- Tissue re-implanted at a time of the patient’s choosing
- Full hormone production regained within 4-6 months