Sunday, 14 February 2016

Can High Speed Railways Put The North Back On Track?

The proposed new rail service (named HS2) has got some people in Britain as frustrated as the current service it intends to replace- that is, very frustrated. Yet the government continues to claim that it will ultimately benefit people of the North, by bringing them on a more level playing field with the South and London. So, who is right?

What is HS2?
In a nutshell, HS2 is a planned new rail system that will connect the Northern cities of Leeds, Manchester and Birmingham and the capital, London, with high speed trains. Going up to expected speeds of 250mph, these trains will drastically cut travel times between the North and the South- for example, reducing the length of the Birmingham to London train journey from 1h21m to just 49 minutes.

How HS2 could bridge the regional gap...
This diagram highlights the impact of the North-South divide
in Britain. [The Sunday Times]
If you visit London, it can seem at times a country of its own, separate from the rest of England- with not just its own transport system, but crucially its own thriving economy. In 2014, Office of National Statistics data shows London's GVA (Gross Value Added, a measure of economic productivity) per capita was 42,666. This is a figure well over the national average of just over 25,000 and the North East and North West figures of 18,000 and 21,000 respectively.

There are numerous reasons for London's extraordinary economic performance, such as the presence of some of the world's biggest financial and insurance institutions in the City, but that's a whole other article. What is relevant here is that one of HS2's primary objectives is to redistribute some of this economic activity to the rest of England, especially the North. "HSR can rebalance the economy", according to the taskforce behind the project.

While London has thrived since the 1980s thanks to its blooming services sector, the North has suffered massively as a result of the outsourcing of the majority of the industrial employment that it had relied upon for the past century. Since the 1960s, industrial employment has consistently been falling in the UK- almost a third of jobs in industry were lost between 1983 and 2010 alone.

It is hoped that HS2, in connecting cities of the North with each other and London, will enable businesses to relocate or expand their activity from London to the North. With its extremely high property prices and costs of living, some businesses may seek to relocate to the cheaper but rapidly developing cities of the North if the quick, convenient transport links are in place.

According to consultancy firm KPMG, HS2 could also boost national productivity- creating an "additional output of £15bn per year for the British economy" by 2037.

...and how it could expand the gap....
While there is little debate over whether the North will economically benefit or not from HS2, there is a sizeable question mark over whether the project will effectively realise its target of reducing the regional economic inequality between North and South.

A report from the World Conference on Transport Research analysing the implementations of High Speed Railways in China and throughout Europe, concluded that the profit-orientated nature of the companies running the railway service may be to the detriment of the smaller economies currently along the railway lines from London to the North. According to Vickerman, Loo and Cheng, "the creation of profit-oriented subsidiaries to run high speed rail services may be incompatible with providing a level of service to all potential stations which can impact on their economic development". The idea is that to achieve the quick journey times, between London and Birmingham for example, the railway operators are likely to rule out smaller stations as economically unviable- thus having a negative impact on these smaller economies.

Research suggests that France's high speed rail system
has not significantly reduced regional inequality- in fact,
it may have benefit Paris disproportionately.
Furthermore, some argue that the development of high speed rail and other improved transport links between cities can further imbalance the economic growth in the country towards the city that is most economically developed- in our case, London. Evidence from France has suggested this may well be the case. The HSR rail between Paris, Lille and Lyon contributed to flight and train journeys to Paris increasing by 144%, and those in the opposite direction increasing by just 54%. This study by Daniel Albalate and Germà Bel concluded that HSR has not "promoted... economic decentralization from Paris".

Considering that costs of living are far less up North than in London, it seems reasonable that London would benefit more from an increase in workers. People who want to work in Manchester or Birmingham would be far more likely to live there already, than people who want to work in London. HS2 could open the doors to people wishing to work in London, commuting from the North, but there are very few people who would be willing to live in London and deal with the high costs of living, to commute to work in the North.

In Conclusion...
There is no academic consensus as to whether HSR can reduce regional inequalities. The Government's Sustainable Development Commission argues that "Ultimately, the fairness impacts of a HSR network will depend on the detail of implementation plans", almost acknowledging the argument that HS2 will not effectively rebalance regional inequality, but entertaining the possibility that it can succeed in doing so. However, evidence from implementations of HSR in other countries, such as in France, and the reasoning behind some of the World Conference on Transport Research's arguments suggest that while nothing is certain, in reality, High Speed Rail 2 would be more likely to tilt the game towards London and increase regional disparities within the UK. 
Mohammad M Lone Editor

Wednesday, 10 February 2016

What Tesla Motors Must Do To Make The Model 3 The American Car Of The Next Decade

If Tesla Motors play their cards right, their upcoming Model 3 could be the defining car of the next decade.

The Model 3 could define the future of automobiles- a fully electric, tech-packed compact executive car from the Californian firm that is expected to go head to head with established models from Mercedes, Audi, BMW and Jaguar.

Its older, bigger, more expensive sibling the Model S is already doing a fantastic job of taking on Germany and Britain's finest- but it could be the Model 3 that brings Tesla Motors to the mass market. Especially because, as Elon Musk announced yesterday, it will start at just $35k. To make the Model 3 into potentially the best-selling car in the USA, however, Tesla will need to keep in mind the following things...

Of course, the most crucial factor. If the car is terrible, no one will want it. The car, of course, must be comfortable, spacious (for its class) and be practical- easy to use on a daily basis to ferry the family around, or go on business trips.

Design-wise, the Tesla Model 3 has some tough competition. The interiors of the Mercedes C-Class and Audi A4, two of its major rivals, are setting the benchmarks for the compact executive class of car, and in order to match these, Tesla will have to take into account some criticisms of the current Model S' interior quality.
The Model S has excellently capitalised on current
technology trends.
Technology is key, too. Tesla have already set a great example with the Model S- they have effectively capitalised on our modern habits, of spending time looking at screens (it has the biggest infotainment display of any car on sale today), and basically doing nothing (as well as driving itself on the highway, the Model S can now park itself and be 'summoned' back to you when you return). This autonomous aspect of cars is a massive trend right now, and with companies like Mercedes and BMW beginning to get in on the action in their more premium cars, Tesla needs to push on and implement these on the Model 3 to stay ahead in the compact executive class.

The most crucial factor, however, in the Model 3's sales may well be pricing. At a price of $35k (including incentives, potentially $25k), the Model 3 is set to be a bargain compared to its premium competitors. The Model 3 will be even cheaper than some of its non-electric rivals (see image), let alone its few electric/hybrid class competitors in the USA. So if the quality is right, Tesla can expect to cause some disruption to its competitors' sales.

The Model 3 will be cheaper than even the non-electric cars from its competitors BMW and Mercedes.
Given that the expensive Model S and new, even more expensive Model X have established Tesla as a premium carmaker, one could question whether such a drastically cheaper new model could tarnish this image. However, take a company like the phonemaker OnePlus- their phones are substantially cheaper than the competition, though the quality of the product and their branding and marketing is on par, if not better, than other phonemakers. Consequently, its image is not tarnished by the price of its phones, perhaps the contrary- they are in fact admired by many. It is possible that Tesla, if they maintain their marketing and branding efforts, could be in the same position.

The overall quality of the Model 3 will be crucial. If the quality is too poor, the Model 3 will not be seen as a viable competitor to the cars from Germany and Britain. And if the quality is too high, at such a low price, Tesla Motors runs the risk of cannibalising sales of its more expensive Model S. So, balance is key.

2) Infrastructure
Tesla has a sufficient number of Supercharging stations, but
will require a larger network if the Model 3 is to succeed
in capturing the mass market.
One of the biggest gripes about electric cars right now is that they are inconvenient to live with on a daily basis, primarily due to the (lack of) charging facilities. Of course, by the time the Model 3 comes out there will not be as many Tesla Supercharger stations as gas stations, but Tesla needs to prepare in advance for the potential growth of their customer base. Few customers will be persuaded to put down a deposit for a Model 3 with a promise of a Supercharger somewhere near them coming in the next few years. They want it to be there, ready for when they get the car. So Tesla needs to expand its Charging network sooner, even if for a short while there may be too many chargers. Because if the Model 3 succeeds, there won't be too many chargers for long.

Tesla Motors needs to prepare their production facilities, too. Production delays caused by a lack of preparation left some customers of the Tesla Model X waiting 3 years after having paid a $40k deposit for their car to be delivered. This had terrible implications for the company, contributing to Tesla Motors stock falling by 38% ($12bn) in market value so far in 2016 alone. With a far cheaper car like the Model 3, Tesla needs to anticipate the volume of demand and ramp up its production facilities far in advance of orders. People purchasing cars as expensive as the Model X are arguably more used to lengthy waiting times for their cars- the more mass market potential consumers of the Model 3, not so much.

3) Incentives
Tesla, unlike many other car companies, have established incentivising referral programmes for its cars in the past. For example, anyone who used a referral link from a Tesla owner last year would get $1000 off the price of their new Model S. The people who gave out the most referrals in each continent would receive a top of the range, 'Ludicrous' Tesla P90D Model S and VIP access to the unveiling of the Model 3. If you were the first person to convince 10 others to buy a Model S, you'd get a free Model X. And so on.

Tesla is developing its family of cars with the addition of the
Model X (right) and Model 3 to the Model S (left).
Perhaps with the Model 3, however, Tesla could introduce a more long term incentives program. Something I was pondering over was the idea of a 'Tesla Upgrade Program'. Here's the idea: you buy your Tesla Model 3 on a contract (giving monthly payments for 3-5 years), before you're offered the opportunity to give back the Model 3 and go up the ladder to purchase/lease a Model S, at a discounted price. Keep that for 3-5 years, paying monthly, before being offered the chance to get a Model X at a discounted price.

If you think about the typical expected buyer of a Model 3, this program could make sense for Tesla. Young professionals will no doubt be big buyers of the Model 3, people aged 27-35: lawyers, consultants, doctors, financiers. These people probably wouldn't be able to afford a Model S or X, but they could get into the Tesla brand through the Model 3. Then, as they get older, their salaries are likely to increase. They may also develop their own families, and thus the need for a bigger car- and they may well be able to afford it. So they upgrade to a Model S, then after another few years they could even need space for 7- so they upgrade to Model X. This incentive upgrade program would keep buyers of the Model 3 in the Tesla family, and adapt to the developing lives of these loyal customers. This loyalty will become incredibly important for Tesla in the coming future, as other carmakers catch up and begin releasing electric cars of their own.

To conclude, the Tesla Model 3 definitely has the potential to be a key player in electric cars truly becoming the norm in the US mass market. As long as Tesla makes sure the car is of a good enough quality, puts the pricing just right, develops the right infrastructure for the production and maintenance of the car, and perhaps establishes a good incentive program for buyers, it could become a, or even the, best-selling car of the next decade.

Please Note: All images of the Tesla Model 3 are purely speculative illustrations. The car is expected to be unveiled next month in March 2016.
Mohammad M Lone Editor

Saturday, 6 February 2016

Where Does ISIL Get Money From?

Being one of the world's most nefarious organisations doesn't come cheap, not least for ISIL (or ISIS, Daesh, or whichever of their various names you choose). So where do they find money to carry out their operations? 

This is an important question to consider, not just for the sake of interest, but in the fight against this group that has plagued the Middle East and other parts of the world in the past few years. Of course, a typical response to the group's growing presence would be for other countries such as the US to become involved militarily- but, as Iraq showed just a decade ago, this may not be the best idea. Crippling the group financially is the next best strategy- and knowing where ISIL's income comes from guides us in this aim.

1. Drugs
According to the Russian Federal Drug Control Service, ISIL are making as much as $1bn every year through sales of drugs. This is not a new tactic for military groups in the region- Al Qaeda, for example, are known to take advantage of Afghanistan's many poppy fields. And despite the fact that Afghanistan remains the most profitable source of drugs such as opium in the region, ISIL is challenging this as they use their conquered lands to increase production.

Furthermore, the group is taking advantage of the fact that many locations under its control are between Afghanistan and Europe, by charging for use of established drug trafficking routes.

The consequence of this, according to the Russian report, is that as much as half of the heroin in Europe has been produced or trafficked to the financial benefit of ISIL.

2. Booty
No, not that type. Perhaps 'loot' would be a better word.

ISIL has taken full advantage of its expanding presence in the Middle East to make itself wealthier. The group have looted items of enormous value, most notably historical artefacts from Iraq and Syria. A US raid of an ISIL commander's house found 400 valuable artefacts dating back to as far as 879 BC, ready to be sold on the black market. The head of UNESCO claimed ISIL's "looting of archeological sites and museums... has reached an industrial scale of destruction".

One of the more spectacular lootings carried out by ISIL however was the heist of Iraqi city Mosul's central bank in June 2014- this no doubt helped to accelerate the group's growth, bagging them an estimated half a billion dollars in cash.

3. Natural Resources
Iraq holds 40% of the world's oil reserves- 10% of which is
controlled by ISIL.
It is no secret that the Middle East has a wealth of natural resources, notably oil and gas, and ISIL have indeed milked this proverbial cow. Iraq alone is the world's 4th largest exporter of oil, home to 40% of the world's reserves. As well as controlling 10% of Iraq's oil reserves, according to Jean Charles Brichard and Damien Martinez of Reuters, ISIL has control over as much as 60% of Syria's oil production, together enabling a production capacity of 80-120 thousand barrels of oil a day. Though this is not an especially significant amount on the global scale (the US, for example, produces about 9.3 million barrels of crude oil alone daily), it gives ISIL a huge financial boost- according to Brichard and Martinez it brings them a profit of as much as $1.46bn a year. Not much for a country like the US, but for an organisation like ISIL, plenty.

According to the same report, ISIL's control of natural gas plants in the region could generate as much as $979m a year.

4. Taxes
Benjamin Franklin's iconic quote of nothing being certain "except death and taxes" even applies to ISIL- who have a rather comprehensive tax system over its controlled territories. These taxes don't just apply to goods traded, or social welfare and public services- they are implemented on cash withdrawals from bank accounts, and even on looting of archaeological sites.

Linking back to our first point on drugs, travel through ISIL controlled territories is also taxed- for example, entering Iraq from Jordan or Syria comes at a cost of $800 per truck. Brichard and Martinez's research finds that in Mosul alone, taxes raise $8m for ISIL each month, and in Iraq and Syria together an estimated $30m.

5. Governments
Finally, governments of local nations have been a source of income for ISIL. Though in recent times this has not been a major portion of ISIL's income, local governments such as those of Saudi Arabia and Qatar played massive roles in funding ISIL's rise. The political reasons behind such support are numerous and complex in nature; however, one significant reason for support of ISIL finds its roots in the Shia-Sunni divide in the Middle East.

ISIL is a Sunni group that follows the 'Wahhabi' doctrine- the same strand followed officially by Saudi Arabia. With tensions rising between Sunni Saudi Arabia and Shia Iran, a number of proxy wars have been brewing in the Middle East, the most notable of which was between Iran and Shia-allied Syrian President Bashar Al Assad and the Syrian rebel group the Free Syria Army, many of whose members soon became what we know as ISIL. So, in supporting the FSA with weapons and funding, Saudi and its allies such as Qatar were battling Assad, and thus Iran.

Support from local Sunni governments has become lower in scale and profile recently, as they begin to realise the monster they helped create.

Of course, there are many more sources of income for ISIL, but here we have covered just a few. It is interesting to identify some parallels between ISIL's funding and that of North Korea, as we explored earlier- notably the black market drug activity and utilisation of natural resources.

Read James Rosanwo's opinion piece on what to do about ISIL: Is The Military Invasion of Syria A Viable Option?

and find our article on North Korea here: How Does North Korea Make Money?

What is your opinion on ISIL and its funding? What do you think the most effective way of battling ISIL is? Leave a comment and your opinion below!  

Mohammad M Lone Editor