Prerna Mankad's blog

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Tulsi Tanti, one India's most inspiring "green" entrepreneurs and now one of the world's richest people (worth $3 billion), is facing stiff challenges with his wind power company that could either lead to its massive failure, or its unbridled success. Tanti is hailed as one of India's most globally successful businessmen in the vein of Ratan Tata and Lakshmi Mittal -- but his company is one of the few that has given India the potential to be a worldwide leader in alternative energy.

But now Suzlon Energy, which Tanti founded and now serves as chairman and managing director for, confronts two main challenges, according to Friday's Wall Street Journal. First, the 144-foot-long windmill blades the company has sold to energy firms including California's Edison Mission Energy have begun to split in some locations, and Suzlon has had to recall 1,251 blades. That represents the majority of blades the company has sold in the United States, and a cost of at least $30 million to the company to repair the cracked blades and reinforce the rest.

The second major challenge for Suzlon is gaining access to the wind industry's most advanced technology. Suzlon is actually in a prime position to do so through its 33.6 percent ownership stake in the innovative German turbine manufacturer, REpower. The problem for Suzlon, however, is that under  German law, REpower can consider Suzlon a "competitor" since it does not own a majority of the company. It is therefore not obliged to transfer its blueprints to Suzlon; Suzlon would need to buy out the minority shareholders. And REpower is refusing to share the technology at present in order to protect the interests of those minority shareholders.

Nonetheless, it's unlikely that these setbacks spell major trouble for Suzlon. As of late last year, the firm had a $3.5 billion order backlog, and wind power demand in general has been growing significantly. With its green credentials and the fact that oil is continuing to hit record highs, wind power is set to remain popular. Moreover, Suzlon has withstood plenty of other challenges since its founding in 1995: the withdrawal of tax breaks in India, competition with major Western companies to acquire other foreign firms, and overseas expansion -- including cracking into the U.S. and Chinese energy markets. Suzlon's annual sales amount to $1.8 billion, and its profits are growing. The WSJ reports that it probably won't be able to make a tender offer for REpower until 2009. Even so, given Suzlon's history I'm expecting the deal to go through, and for Tanti to look back on these problems as minor glitches. And if you live in the United States, don't be surprised if part of your electricity payments soon end up in Suzlon's coffers.

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They've been criticized for their lack of transparency. Many politicians and commentators have raised fears about their potential to "buy up" important assets outside their home countries. And now, sovereign wealth funds (SWFs) -- government-controlled funds that are investing in stocks, bonds, and commodities everywhere from Australia to the United States -- are being hailed as the next great hope for Africa.

Last week, World Bank President Robert Zoellick urged such funds to invest at least 1 percent of their proceeds in Africa -- a step that would immediately raise investment in Africa by $30 billion. The International Financial Corporation, the private-sector lending arm of the Bank, is considering creating a "fund of funds" designed to encourage SWFs to invest in African businesses.

Sounds great, right? Most people seem to think SWF investment in Africa is a positive idea and a smart move both financially and politically (in terms of bolstering the image of SWFs). But Zoellick's idea could end up doing more harm than good, for two main reasons.

First, SWFs are obligated to make the best investments for the citizens of their home countries. They are not in the business of aid or charity work; nor should they be. Norwegian or Kuwaiti pensioners would have every reason to rebel if their governments' surpluses went toward either speculative investments or aid projects. (This echoes Anders Åslund's argument that if anyone should fear SWFs, it's citizens of the countries that have them.) If African governments are not even willing to invest in their own continent, why should others do so?

Second, SWFs must pursue investments that deliver a strong bottom line, but many of the best opportunities in Africa are in the natural-resource sector. China has already invested heavily in Sudanese oil -- not exactly a great way to underwrite healthy development in the country.

More broadly, there are good reasons why many private companies are unwilling to invest and set up operations in Africa. Why else would Zoellick and others be pushing SWFs to fill the equity void in the first place? Corruption, lack of security, and failure to protect property rights are just a few of the reasons countries in Africa have failed to create a positive investment climate. If SWFs step in with billions of dollars, they may well undermine efforts to promote good governance. In the long run, it is those efforts -- not easy cash from Abu Dhabi or Beijing -- that will attract private investment and generate sustainable economic development. So, although an extra $30 billion for Africa should be welcomed, SWFs may not be the best way to deliver it.

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Back in November, Passport noted that urban Indian hospitals were developing their telemedicine capabilities in order to cater to the country's rural citizens. Now, that expertise is set to benefit patients all across Africa. As the first India-Africa summit kicks off in Delhi, India's efforts build and expand its ties across the African continent are already underway.

Last July, the Indian government -- working with the African Union -- launched the 542 crore ($135.6 million) Pan-African E-network project. The initiative has been called Africa's largest infrastructure project in history, and is designed to develop Africa's information and satellite communications technologies. It aims to connect 53 African countries to a satellite and fiber-optic network. Telemedicine is just one component of this broader scheme, and African countries are already seeing the results. The Black Lion Hospital in Addis Ababa, Ethiopia, for instance, is connected to the Care Group of Hospitals (cardiac specialists) in Hyderabad, where Indian doctors can advise Ethiopian doctors on X-ray and laboratory test result interpretation via a high-speed internet connection. During its year-long pilot run, Black Lion doctors have used the link more than 50 times, and Indian officials estimate the E-network project has helped 100 patients. Telemedicine programs are set to expand across the continent.

The Indian government hopes to increase its sales in information and communication technologies to Africa, and gain a foothold in this sector before China can dominate. In addition to helping patients and developing African countries' ICT infrastructure, projects such as the telemedicine venture will also create goodwill between India and the continent -- a sentiment often lacking in China-Africa relations.

With India also hungry for resources that Africa can provide, developing these types of mutually-beneficial linkages could favor India in the long run. And through its relatively long history with Africa, India has been able to take advantage of existing cultural and commercial affinities to expand the relationship. As a result, trade between India and Africa has ballooned to $20 billion (2006/2007) from $967 million in 1991 (when India began its economic reforms). But whether these efforts, and India's attempts at creating goodwill, can compete with China's cash and favors remains to be seen.

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George Soros, speaking in a conference call hosted by the New America Foundation today, had some interesting remarks about the state of the world economy. Given that the first sentence of his new book, The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means, reads: "We are in the midst of a financial crisis the likes of which has not been seen since the Great Depression of the 1930s," I was prepared to hear some dire predictions about the road ahead.

Instead, on a number of occasions throughout the call, Soros stated that he believes the "most acute phase of the crisis is now over," and that the markets are breathing a sigh of relief following the Bear Stearns bailout. Of course, that's not to say that the fallout is over just yet, or that the boom-bust cycle that has recurred consistently since markets began to become unregulated will cease.

Soros was keen to note that the "scariest unregulated market" now is the credit default swap market, with outstanding contracts amounting to $45 trillion today. (Credit default swaps are a form of contract insurance that has been widely sold by hedge funds.) Writing in the Financial Times yesterday and repeating the warning today, Soros says, "The [CDS] market is totally unregulated and those who hold the contracts do not know whether their counterparties have adequately protected themselves. If and when defaults occur, some of the counterparties are likely to prove unable to fulfil their obligations. This prospect hangs over the financial markets like a sword of Damocles that is bound to fall." It will cause what will essentially amount to banks running on banks. The solution, Soros argues, is to urgently set up a clearinghouse or exchange where the the deals can be registered and settled. Without this type of step, the "entire banking system [will remain] weighed down with bad assets" and stay paralyzed. Even then, there is still little hope that this fallout can play out without significant effects on the real economy.

Soros's concerns extend well beyond the current financial crisis -- although he did mention that it was this crisis that forced him out of retirement. His argument is philosophical and is explained thoroughly in his fascinating new book. But the crux of it is that the idea that markets fall into equilibrium like events in the natural world is a complete myth; humans can't know "truth" and thus expectations and human actions inevitably change how the system functions, which can -- and does (hence boom-bust cycles) -- lead to non-equilibrium outcomes. The solution is finding a balance between regulation and unfettered markets. Soros is highly critical of market fundamentalism, and condemned regulators for failing to do their jobs. They have the tools, he said, but didn't use them. He believes the two Democratic presidential hopefuls are on the right track with dealing with the financial mess and re-regulation, but was careful to highlight the dangers of going to extremes either way.

One of the most interesting points Soros made was his take on the the coming fuel for the global economy:

We've had the American consumer acting as the motor of the world economy and that is what is coming to an end... [We] need a new motor. And I believe we have a tremenous challenge with global warming, where you need to make tremendous investment to reduce carbon emissions... The investments necessary to avoid global warming could replace the excess consumption by the U.S. consumer as the motor of the world economy.

Although Soros certainly didn't try to downplay the seriousness of the current crisis, I'm still left feeling slightly hopeful that the economy will improve and things could get better soon(ish). And I'm now certainly keen to buy those stocks in renewable energy companies.

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India's Tata Motors has just recieved a $3 billion loan from Citigroup and JP Morgan that will likely to be used to purchase luxury British auto brands Jaguar and Landrover. Tata has been in acquisition talks with Ford about the two brands since at least the beginning of the year, and the deal is now expected to be finalized around the Mar. 26.

If Tata's bid succeeds, the company would become the producer of the world's cheapest car, the $2,500 Nano, and some of its most expensive. The paradox raises the question -- will Tata be able to cut costs for its new luxury brands, whose troubles are well-known? Tata's chairman has already ruled out shifting the production of Jaguar and Land Rover vehicles from Britain to cheaper locations, though Wharton's John Paul MacDuffie believes Tata could restore the brands to profitability through other means.

For an India that was ruled by Britain for nearly ninety years, Tata's purchase will starkly reinforce the arrival of the "post-colonial" moment. As MacDuffie explains, "there might be a certain sense of pride in acquiring the 'Jewel in the Crown'." Like Tata's previous acquisition of British steelmaker Corus and teamaker Tetley, and India's United Breweries Group's purchase of Scottish whisky distiller Whyte & Mackay, Tata's acquisition of Jaguar and Land Rover would symbolize yet another "post-colonial table turn."

Tata is well aware of the potential blow to British pride. "These brands will continue to belong to Britain," Chairman Ratan Tata has assured. Except that now, they will be owned by an Indian company.