Get Summer 2014 Right First Time with tutor2u Exam Coaching & Revision Workshops
The recovery in the British economy is now firmly established. Output in the services sector, the largest part of the economy, is above the previous peak level prior to the crash in 2008. There is a widespread myth that the recovery is fuelled by debt-financed personal spending. Yet since the trough of the recession in 2009 the economy as a whole has grown faster than spending by consumers.read more...»
Energy prices are in the news. The recent actions of some of the energy companies can plausibly be described as provocative, no matter how well founded their decisions might be. They run the risk of provoking the ire of both the Opposition and the Government.
One interesting aspect of the debate is that it has become even clearer that decisions taken by Ed Miliband himself in the Brown government are partly to blame for our high energy bills. The plethora of green taxes and subsidies has become very expensive for consumers.
But how effective have such policies been? Not very much, seems to be the answer.read more...»
The market for retail gas supplies is mired in controversy and threats of direct government intervention to freeze prices should a new Labour government be elected in 2015. This week we have seen a classic example of the type of price leadership we expect to see in an oligopoly.
On the World Bank twitter account, President Jim Kim is quoted as saying that "Properly managed, new minerals wealth could transform Africa’s development." Back in June 2013, a new report from the African Progress Panel looked at this important issue and set out an agenda for maximising Africa’s natural resource wealth and using it to improve well-being.
My own students have been researching the economics of natural resources and whether they can be a blessing and/or a curse to countries seeking sustained growth and development. I just wanted to share one or two of these essays with you because I was delighted with the depth of the independent research on show and the quality of evaluation in their arguments.read more...»
Here is an updated presentation on aspects of the natural resource trap or natural resource curse issue facing low (and also high) income countriesread more...»
The UK Energy and Climate Change Committee has stated that shale gas will not be a "game changer" in the future of UK energy, but they are wrong; it will be. The recent British Geological Survey report pointed to 1,300 trillion cubic feet of reserves, twice previous estimates. A recent study by the Institute of Directors found that the shale gas industry could generate 74,000 jobs and could supply up to half the country’s gas needs by 2030. Furthermore it could also trigger an investment boom worth £3.7 billion a year. Given the location of most of the reserves, it could also be hugely beneficial in reducing the north-south economic divide.read more...»
On the morning that news of the death of Margaret Thatcher came through on the news wires, I was visiting Woodhorn Colliery Museum near Ashington in Northumberland. It was an eagerly anticipated journey having seen the Pitmen Painters (now on a national tour) a few weeks earlier.
The play celebrates the work of the Ashington Group of painters who began studying art as part of an Workers' Educational Association course in the mid 1930s and eventually found themselves on a life-changing pathway as they drew inspiration from their life and work in the pit communities of the North East.
If you are in the North East please pay a visit to the Woodhorn Colliery Museum. First of all, it is free save for the £3 car parking charge. Second there is a stimulating, evocative and often moving exhibition on the rise and eventual fall of the coal mining industry in the UK. Just a few weeks back Maltby Colliery one of the last deep mines in England, was closed as owners Hargreaves Services said it was no longer viable. And the Daw Mill colliery in north Warwickshire recently shut down with 650 jobs being cut, after a big fire at the facility which made future use of the mine impossible. Despite a plethora of open cast mines, there are now only two deep mines left in the UK at Kellingley Colliery in Yorkshire and Thoresbury Colliery, Nottinghamshire both run by UK Coal.read more...»
Here is another film to add to our collection of films with an economic dimension. Promised Land from Oscar-nominated director Gus Van Sant stars Matt Damon and is an anti-corporate thriller that centers on the controversial natural gas process of fracking.read more...»
A brief overview of economic developments in Angola, one of the fastest growing countries in the world - contains updated links to study resources on Angola.
Robert Peston has an interesting piece on his BBC blog, considering what the UK's GDP growth would look like if it was possible to extract what he calls the 'bad bits' - financial services and North Sea oil and gas extraction - both of which are in serious decline. He suggests that we have been too dependent on these two sectors, and that both are now in serious decline. In particular, that the global financial services industry is now protecting itself by becoming much more national and less internationally interconnected, so that the City - as the world's most open and global financial centre - has therefore suffered.
Aggregate Demand may be stimulated by an increase in exports. Ha-Joon Chang, Author of the best seller, 23 Things They Don’t Tell You About Capitalism considers reasons in a short article for The Guardian why this hasn't happened after Sterling had fallen against other major trading economies. " Compared with ...2007, the pound has been devalued about 30% against the dollar, 50% against the yen, and 20% against the struggling euro. Yet despite the huge incentive to export created by such devaluation, Britain is still running trade deficits because it has lost the productive capacity to respond."
It may help students consider plausible policies to reduce its trade deficit, a macroeconomic goal overlooked in arguments over fiscal and monetary policies to control inflation or output. Finally it may aid evaluation, how different are the most pressing short and long term macroeconomic challengers facing UK governments.
Link to most trade figures.
Land Grabs have become an important and controversial issue in development economics in recent years.read more...»
Brazil's growth rate is slowing down, their currency is depreciating (good for exports) but investment remains low and the country is not achieving the minimum growth needed for another step change in extreme poverty levels. There is good background here in this news article from the BBC for students who like to keep up to date with what is happening in the BRIC economies.
This article from the Telegraph adds context to the Brazilian slowdown story. The economy is suffering from structural competitiveness problems - accentuated in recent times by their very strong exchange rate. This article from Forbes also looks at the causes of the growth slowdown in Brazil. High labour costs, weak productivity growth and protectionist tendencies are cited as some of the factors behind a possible slow-growth trap. Will Brazil suffer from the middle-income trap in years ahead or can the government engineer another step change in their growth prospects?
Brazil held back by education trap (BBC, Sept 2012)
In many countries, resource nationalism has become more frequent in recent years, indeed it has been one of the key stories in 2012 as several countries have introduced new resource taxes, natural resource licence reviews and expropriation of assets from private sector companies. This Financial Times news video looks at the trends including resource nationalism within countries as provinces and regions look to exert great control on the revenues from oil, gas and mining projects.
See also: Economist: Foreigners beware - oil and mining in Indonesia
Resource insecurity: New report from Chatham House
Interactive resource: New political economy of natural resourcesread more...»
A selection of visualisations from the MIT Media Lab Observatory of Economic Complexity - these cover changes in export patterns for a small cluster of developing and developed countries. What are the most notable and perhaps significant changes that students can identify?read more...»
Many lower-income developing nations still relying on specializing in and exporting low value added primary commodities. The prices of these goods can be volatile on world markets. When prices fall, an economy will see a sharp reduction in export incomes, an adverse movement in their terms of trade, risks of a higher trade deficit and a danger that a nation will not be able to finance investment in education, healthcare and core infrastructure.
The Office of Fair Trading (OFT) has announced that it is launching an investigation into prices at the pumps amidst fears that the retail market for petrol and diesel is not operating properly and causing damage to the welfare of fuel buyers including millions of motorists and businesses.
For a long time motorists have complained that the prices they pay are quick to rise when the world price of crude increases, but the cost of filling up the tank falls much less quickly when crude oil is available on international markets at lower prices. This BBC news video report provides some background.
Our chart below tracks the weekly average price of petrol and diesel against a benchmark international price for crude oil - is there any evidence here for the wrath of customers?
Here is an example of a fast-growing developing country in Africa making important investment to help meet ambitious targets for supplying energy from renewable sources. Katrina Manson films and reports for the Financial Times from the Great Rift Valley on Kenya’s latest plans to exploit geothermal energy to produce electricity.
The fixed costs of finding geo-thermal sources, build the turbines and then connect to Keyna’s energy grid are huge. But a move towards smaller geo-thermal energy plants provide a more cost efficient approach. Successful investment will help to reduce energy imports, provide a viable alternative to uncertain hydro-electric power, create new jobs and contribute to Kenya’s search for sustainable growth.read more...»
This news video report from the Wall Street Journal is superb in highlighting the economic consequences of the chronic shortages of energy and fuel in the fast-growing Indian economy. The focus is on a newly opened coal-fired power station (note the investment in it from Hong Kong and China) which has already had to close dow production twice because it has run out of coal supplies.read more...»
Dambisa Moyo was on great form when she spoke to the Economics Teacher National Conference in London last week. Her new book Winner Take All investigates the causes and consquences of rising global demand for commodities. In particular Dambisa Moyo predicts increasing geo-political tensions and conflicts as countries scramble to secure ownership and supplies of land, water, energy and minerals. In this blog I have linked to some of Dambisa’s recent media appearances as Winner Take All was launched in the USA and here in the UK.read more...»
Russia is one of the world’s biggest producers of crude oil and gas and the price that these energy supplies fetch on world markets have a disproportionate effect on Russian GDP growth, their balance and payments and the Russian government fiscal position. In the summer of 2012 oil prices in particular have been falling quite sharply - a concern for the Russian Finance Ministryread more...»
World crude oil prices are falling back from their recent highs and this will bring blessed relief to hard-pressed consumers and many businesses in the UK. High oil and gas prices effectively act like a tax on consumption because they increase the prices of many goods and services for which demand is price inelastic. Yea we can try to switch to more energy-efficient products over time - and many people are doing this albeit at a short term cost - but essentially when petrol and home energy costs rise, it causes a direct hit on the real purchasing power of millions of households, many of whom have barely seen any rise in their wages over the last couple of years.
Sir Terry Leahy, formerly CEO of Tesco makes this point in this interview on Channel 4 newsread more...»
Many people take as given a pressing need to increase capital investment in the infrastructure of our energy sectors - but how strong are the economic and social impacts of such investment? The LSE Growth Commission met this week to discuss this and I have brought together some of the arguments drawing on a number of various twitter feedsread more...»
Yesterday I spent a fascinating evening in the company of Aidan Heavey, Founder and CEO of Tullow Oil plc, Africa’s leading independent oil exploration business and the top performer among FTSE-100 listed businesses on the UK stock exchange. It has approximately 100 production and exploration licenses in 22 countries.read more...»
High gas prices impact on millions of households whose energy bills have soared in recent years and have led to a steep increase in fuel poverty among lower-income families. Studying the market for gas is interesting from a micro-economic perspective and a recent article in the Times (covered by a paywall) provided an overview of the breakdown of the cost structure of a typical energy bill from suppliers such as British Gasread more...»
The international price of crude oil has been rising strongly in recent weeks and threatens to be an external factor driving an already weak Euro Zone and UK economy back into recession.read more...»
In the last twelve months two huge discoveries of natural gas have been made in the East African country of Mozambique. The latest - a deepwater discovery - is said to hold over 210 billion cubic metres of natural gas and investment in exploiting the field could be the major cataylst for a rapid phase of growth and development for one of the world’s poorest countries. The country has large untapped oil, coal and titanium reserves in addition to the gas. According to the UK Trade and Investment body, within 15 years Mozambique could be Africa’s second largest coal producer (after South Africa) and one of the largest coal exporters in the world.
Can it benefit in a sustainable way from exporting these resources or will they prove to be a curse on development?
For many years Mozambique has been afflicted by a brutal civil war which ended in 1992 and then a series of natural disasters including floods in 2001 and 2001 which destroyed much of its infrastructure.Floods were replaced by a calamitous drought in 2002 but more recently the economy has achieved strong growth and progress in lifting people out of absolute poverty. That said, 50% of Mozambicans living on less than $1 a day, foreign aid accounts for nearly half of government spending and there remain severe doubts about whether the dividends of an export-boom in natural resources will feed through the the majority of the population.
The Mozambique government has a 10% stake in the newly-discovered gas fields, it sold a licence to the Italian company Eni to explore for new gas reserves and Eni has committed to building a multibillion-dollar liquefied natural gas terminal in the country as a distribution platform to export mainly to fast-growing Asian economies.
Other transnational companies are investing in Mozambique. Vale, a Brazilian multinational is spending over $3 billion to rebuild and extend the 425 mile Nacala railway and connect it to a deep water port so that Mozambiquan coal can be exported.
Putting the infrastructure in place will take several years and gas production on a huge scale may not start before 2016. Although new industries brings risks as well as opportunities, the potential for a step change in development in the country is enormous.read more...»
KAL, The Economist’s cartoonist, has produced an excellent cartoon in the latest issue perfect for a discussion of a very topical externalities issue in North America. And one that has also been ‘causing tremors’ in the news over here too!read more...»
I am using Russia’s entry to the World Trade Organisation in my teaching on international trade and development this term. It appear to be a significant moment for the global economy. Russia is the last member of the Group of 20 major economies to join, after China gained membership in 2001. Progress towards membership has been delayed by numerous geo-political issues not least the disputes with neighbouring Georgia.
Joining the WTO involves making a commitment to the rules of the international trade system - for Russia as with other new members, this will mean reduced import tariffs, the staged elimination of industrial domestic and export subsidies, and better greater access to foreign companies. Russia will also have to improve adherence to international accounting standards.read more...»
OPEC continues to be in the news in an age of high and volatile crude oil prices. Here is a ten question quiz on OPEC created using Zondle designed to test student knowledge of this important international group.
The Boston Globe’s Big Picture has just published a set of remarkable photos. Collectively they are a stunning set of images that reminds one of the economic and social costs of the disaster and the nature of externalities - and colleagues may want to return to this resource to stimulate discussion and support visual learners. Here is the link.
Few commodity prices are watched as closely as the international price of crude oil. Brent crude is currently trading at over $122 a barrel - the highest price for over two years. Our Timetric chart is constantly updated and will always show the latest price. We have included below links to many of our recent blogs on the economics of oil prices and some of their micro and macro economic effects.read more...»
A combination of higher prices and higher oil production means that Opec’s oil revenues may exceed $1 trillion in 2011 for the first time. The International Energy Agency has published some new data on Opec production - the revenue forecast includes exports of natural gas liquids and is not adjusted for the effects of inflation. But if you are a Finance Minister of an oil exporting country the price of crude trading at $115 is welcome news especially given the stimulus spending that some countries have introduced as a response to social and political unrest. On some estimates, Saudi Arabia (the world’s largest oil producer and exporter) needs oil to be priced at $83 for its national budget to balance.read more...»
It’s not always easy to navigate your way through the budget, with its mass of technical detail and complexity. Not all of it is terribly interesting either (nor the manner of presentation).read more...»
The UK economy is now a net importer of oil - a change from the many years of trade surpluses in oil seen from the late 1970s onwards as north sea production and exporting gained scale and momentum. The Timetric chart below tracks the monthly trade balance in oil and the one below it tracks the monthly value of oil exports and imports.read more...»
Could the extraction of crude oil in Ghana be enough on its own to double their growth rate and provide a funding platform for enormous infrastructure spending? That is the optimistic hope of the government on the day that oil started to flow from an oil field that may have upwards of two billion barrels available.
Oil has the potential to provide new riches for a country that has won plaudits for improved governance and macroeconomic stability. The state plans to allocate some of the revenue from the oil to fund extra spending in education, health care, industry, and infrastructure. But there are many risks too - economic, environment, social and political. Especially if the new wealth from black gold in their oceans flows only to a small minority.
Nigeria and Angola are Africa’s largest oil producers - see this background article from Reuters
Here is a selection of news articles on the arrival of Ghana as an oil producer. Oil is an opportunity and a challenge.read more...»
Are crude oil prices set to rise above $100 a barrel and stay there as we head into 2011? As our chart shows, there has been a steady increase in world oil prices over the last two years and a barrel of oil is now comfortably above $90. World economic growth is picking up - the main driver is strong activity in fast-growing emerging nations - and the oil producer cartel OPEC has announced that it sees no need to increase their output quotas in a way to stabilise the price below $90.
The industry regulator Ofgem has announced a fresh investigation into the pricing policies of the oligopolistic electricity and gas market - for consumer lobbying groups the wait has been too long but many analysts point to data that shows that many gas supply businesses for example have been operating at a loss for much of the last decade. And that net profit margins are pretty thin compared to the total fuel bill for household customers. More details here Everyone gets hot under the collar about energy prices but the reality is that gas and electricity is no longer cheap and too little progress has been made in ways to reduce our energy consumption.
Stephen King, Chief Global Economist of HSBC is a good friend of Tutor2u having appeared at several of our recent teacher conferences. He has a terrific grasp and feel for some of the salient global shifts in economic power and influence and he speaks in this video to The Economist about the growing demand for scarce resources from fast growing emerging markets and the challenges this poses for the West.
Not an example you would find in a standard textbook - but a fun one to use nonetheless!
This week we have heard news that the price of petrol and diesel at the pumps has reached a record high.
The data chart above provides another opportunity for students to familiarise themselves with changes in price information over time and perhaps try this question
“Using the extract, identify two points of comparison between UK diesel and petrol prices and the world price of crude oil over the period shown by the data” (8 marks)read more...»
The forces of supply and demand in the global oil market feature frequently in economics exams. So here is a revision update on what has happened to the world oil market in the last 12 months. It was a year when crude oil prices recovered quite strongly from their lows at the start of 2009. As we head into 2010, the price of a barrel of crude is rising above $80 and strong economic growth in emerging market countries together with the lagged effects of reduced investment in oil exploration and drilling may take prices closer to $100 in the year ahead.
We have been studying oligopoly in our A2 micro and the issue of electricity and gas prices has been headline news for some time. Last week the Conservatives announced plans to break up the highly concentrated domestic energy supply market and inject fresh competition. This is reported here in the Guardian. There is a super paragraph that explains the oligopolistic nature of the industry:
“The industry has since consolidated into EDF, E.ON, RWE npower, Centrica, Scottish Power (owned by Iberdrola) and Scottish and Southern Energy, which control the production and supply of electricity and gas to almost all UK households and businesses. Only a handful of small independent power plant operators and tiny suppliers survive. Energy analysts say the market dominance by the Big Six makes it impossible for anyone else to gain a foothold.”
Market dominance is reinforced by the highly vertically integrated nature of these energy giants.
“they own power plants and source the gas themselves to supply their own customers. This means they will always be profitable at a group level because their retail businesses subsidise their power plant arms when generating costs are high and vice-versa”
The energy companies have been accused of engaging in implicit price collusion - tor the main product they most actively sell - direct debit for dual fuel, gas and electricity - the price difference between the cheapest and most expensive is £30 a year or around 60 pence per week. The consumer watchdog EnergyWatch has complained that British consumers are being ripped off by a “comfortable oligopoly” of bloated electricity and gas supply companies.
Edward Burtynsky photographs the landscape of oil from extraction to refinement and to the end of oil - cars, tyres, planes, and the environmental impact. His manufactured landscapes DVD is a tremendous resource.
A good video to use here when teaching the economics of the oil market/
There is a highly relevant article on the depletion of global oil reserves and how this might affect UK energy policy in the Telegraph. The article links to concepts such as the marginal cost of extraction of different oil fields and the viability of exploring for oil at different prices.
“The timing of the global peak remains uncertain but the window is rapidly narrowing. Since 1993, the world has produced half as much oil as was produced in the preceding century and now uses as much oil as the UK has ever produced in only 10 months. On current estimates, we have used between 28pc and 56pc of recoverable conventional oil – with much of what remains being located in smaller fields in less accessible locations, or requiring “enhanced recovery” techniques to extract.”
The Big Question feature in the Independent asks whether the recent discovery of a giant new oil field by BP undermines peak oil theory? There is a nifty oil supply and demand graphic focusing on known oil reserves. The article also places emphasis on the importance of current and expected oil prices in driving oil exploration and extraction.
“We simply do not know how much oil is left on the planet. What we do know is that the ratio of reserves to production has remained relatively constant for many years. This isn’t because of new discoveries; rather it is because as prices rise it becomes easier to extract more oil from existing fields; as companies drill, they realise there is more there than they thought. So yields in-crease. Raising recovery rates from 35 per cent to 50 per cent would double world reserves to more than 2,400 billion barrels.”
The sharp drop in the world price of crude oil last year was good news for motorists although it takes some time for lower oil prices to feed through to the retail price of diesel and petrol. But for countries highly dependent on oil exports, the decline in world crude prices is having a significant effect on their balance of payments, GDP growth and fiscal balances.
As this excellent BBC article points out, oil accounts for more than 90% of Saudi Arabia’s exports, and nearly 75% of the government’s revenues. Taken as a whole, oil exporting nations could face a 53% fall in revenues this year as oil prices remain low. Little wonder that finance ministers of oil exporters are hoping that crude prices head higher in 2010 on the back of a broader global economic recovery.
More here on price volatility in the world oil market
Hedging is a way of reducing uncertainty over the future path of volatile commodity prices such as the cost of fuel. One the most important decisions that an airline can take is the extent to which it uses hedging to lock in the price of a barrel of kerosene for a period of six or twelve months.
Ryanair provides a good example of how this can have a decisive effect on profitability. Late in 2008 Ryanair was hedged into paying the equivalent of $125 a barrel for kerosene just as the world price price of oil was collapsing to below $40 a barrel - the result was higher operating costs and a Euro 150 million hit on profits. For 2009 around four-fifths of Ryanair’s fuel requirements are locked in at $62 a barrel which with oil prices nudging up towards $70 a barrel will give the airline much needed breathing space as the recession affects demand for seats and forces many airlines to cut prices still further to maintain a profitable level of load-factor (the percentage of seats on each flight that are filled).
*Ryanair is now Europe’s largest airline having overtaken Lufthansa and British Airways
*In the last twelve months nearly 60 million passengers have flown with the airline
*With a market capitalisation of £4.6 billion, Ryanair is larger than the German flag carrier and easily more than twice the size of BA.
*Ryanair has a 28% stake in rival Irish airline Aer Lingus and has tried several times to take it over - so far without success!