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E-mobility in Public Transportation – In the Not-Too-Distant Future

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As various countries across the globe are aiming to reduce their dependency on petroleum and tap into comparatively cheaper sources of energy, policy makers are looking at electro-mobility as a way to address energy supply issue in the future. Electro-mobility or e-mobility refers to the concept of using electricity-driven vehicles (also known as electric vehicles) and hybrid vehicles, in order to reduce the dependency on fuel-driven automobiles, while also reducing carbon emissions. Policy makers are focusing on de-carbonization of public transport which is expected to tackle environmental issues such as air pollution, particularly in densely populated regions. Even though consumers remain skeptical about passenger electric vehicles, electrification of public transport adoption rate is stirring at a much faster pace. Being on the fringe for so long, emission-free electric buses and taxis are finally gaining popularity and are being considered the epitome of sustainable transportation. In addition, the infrastructure to support e-mobility, such as battery-operated vehicles and charging stations, is becoming affordable and easier to adopt across the globe.

The electrification and hybridization of transit buses is anticipated to become a global phenomenon by 2020, backed by lower operation costs, tax subsidiaries, strict emission laws, and cash incentives. Hybrid buses are expected to attain a global penetration rate of 9.7% by 2020, while electric buses are likely to reach 5.7% penetration. Leading global manufacturers of hybrid and electric buses (such as Zhengzhou Yutong Group, BYD, Volvo, Zhongtong Bus, Proterra, etc.) have been working on making these buses more attractive with regards to both capital and operational costs. Constant efforts are being made to lower battery cost and increasing battery life.

Various developed as well as developing countries across the globe have already initiated the adoption of hybrid and electric buses and other public transportation, in order to cut down on fuel consumption and carbon emissions.

CHINA

The electrification of public transport has been gaining popularity in China. The Chinese government has initiated several programs, pilot projects, and R&D activities to replace conventional public transportation vehicles with electric vehicles. In 2015, cars, which had been registered before 2005 and were considered to emit excessive pollutants, were removed from the Chinese roads. The owners of such vehicles received subsidies for the purchase of more environmentally friendly cars. The government has allocated approximately USD 1 trillion for electric buses during 2015-2030, in hopes that this will help in lessening the monetary impact from air pollution by more than USD 22.5 trillion in the same period. Such an investment is likely to make electric buses account for 70% of total buses in China by 2020, marking a huge step forward in government-led electric vehicles market.

With a view to encourage the development of electric taxis, the government announced its Electric Taxi Project in 2010 which aimed at introducing 500,000 electric taxis in Shenzhen by 2015. Despite being a promising initiative, the project showed little success due to the lack of charging stations and vehicles’ long charging time. On the other hand, a similar model introduced in Beijing in 2014 was more successful and fueled the addition of a host of electric taxis in the city, along with the development of EV parking lots and fast charging points. With the effective implementation of this venture, the government decided to kick start the Electric Taxi Project in Shenzhen again in 2015, under which taxi operators were offered cash subsidies, along with a 10-year operating license to replace petrol-driven taxis with electric vehicles.

Despite these initiatives, weak electric vehicle infrastructure is one of the key hurdles the country needs to overcome. The government has noticed this issue and steps are being taken to create a sound charging network across the country. The number of public charging piles in the country grew from around 1,100 units in 2010 to 49,000 units in 2015, representing a CAGR of 113.68%. To meet the charging demand of 5 million electric vehicles by 2020, the government has introduced incentive policies with an aim to build 4.8 million charging piles across China.

UK

UK has shown a fair share of commitment to freeing its cities from the harmful effects of fuel-driven vehicles. Efforts are being made by the island nation to promote sustainable public transportation. Transport for London (TfL) has announced its Ultra Low Emission Zone program to introduce 300 single electric/hydrogen deck buses and 3,000 double deck hybrid buses by 2020. The pilot phase of this project will be initiated in 2016 with the introduction of 51 electric buses across two routes in the city. China-based company Build Your Dreams (BYD), the largest manufacturer of pure electric buses, and UK-based Alexander Dennis Limited (ADL), the fastest growing bus builder, together, will be supplying these 51 buses for GBP19 million (USD 26.86 million).

Further, under the new plans by the London government, all hybrid taxis and buses will be able to switch to electric mode when entering certain polluted zones in the city. A ‘geo-fencing’ technology will be used for this purpose, which will allow vehicles to recognize a highly polluted area and switch to a ‘zero emission’ mode. By 2018, it will be mandatory for all new cabs to be electric/hybrid. Additionally, feasibility studies are being carried out as part of another GBP20 million (USD 28.28 million) government scheme for the introduction of plug-in taxis in various cities. The study focuses on finding solutions to reduce the upfront vehicle cost and develop charging infrastructure for taxis.

The UK’s innovative approach with emphasis on R&D for the promotion of sustainable transportation could potentially be a game-changing movement in its fight for an emission-free country.

INDIA

India is one of the few developing countries that has been paying attention to reducing carbon emission and tackling air pollution caused majorly by transportation. In 2013, the Indian government introduced The National Electric Mobility Plan 2020. The ambitious plan aims to create a paradigm shift in the country’s transportation industry, through a combination of policies intended at introducing 6-7 million electric/hybrid vehicles in the country by 2020. With a total outlay of INR 140 billion (USD 2.1 billion), the plan includes the acquisition of vehicles, development of infrastructure, R&D, etc. Under Phase I of the scheme, pilot projects have been initiated in metro cities, state capitals, and cities of the north eastern states. For instance, in Delhi, the plan intends to convert 150,000 diesel buses into electric buses in the first phase. In 2016, BMC (the Municipal Corporation of Greater Mumbai) announced its plans to convert 25-30 existing diesel buses into electric buses having received a grant of INR 1 billion (USD 1.5 million) for the project. In another project, the central government has sanctioned INR 5 billion (USD 7.5 million) to purchase 25 electric buses to operate in Himachal Pradesh state, especially to be operated between Manali and Rohtang Pass.

The plan also encouraged the promotion of electric three wheelers (e-auto rickshaw or e-tuktuk). Despite having proved to be a successful model in countries such as the UK, the Netherlands, and Italy, this type of vehicle was initially met with skepticism in India. However, over the past six years, it gained popularity and soon the roads in the capital witnessed a surge in the number of e-rickshaws (about 100,000 e-rickshaws by 2014). Various companies such as Bosch India, OK Play, and Kinetic Group have developed indigenous e-rickshaw prototypes with a view to tap into this INR 500 billion (USD 7.49 billion) industry. The Indian government has also shown support and is considering offering motor-vehicle tax exemption and credit on the purchase of e-rickshaws.

Despite the high initial cost of procuring these vehicles and implementing the plan, the absence of carbon emissions, reduction in idle motor energy loss at bus stops, and silent running of the vehicles are some of the strong arguments that could help pave the way in creating a sustainable public transportation system based on e-mobility in urban India.

Penetration of E-Mobility

E-Mobility in Public Transportation Faces a Set of Own Issues
Despite its numerous benefits, e-mobility in the public transportation sector comes with its own share of challenges. While lack of charging infrastructure and high cost of electric buses are the two key roadblocks to the smooth adoption of EVs, the industry faces several other challenges, such as limited funding availability (from states), service levels of EVs not matching up to those of conventional buses, demand charges levied by electricity providers resulting in higher operation cost, and significant impact on electricity grids.

Inadequate charging stations infrastructure is the key problem faced by various countries which are in the process of rolling out electric buses and taxis system that needs to rely on a solid charging infrastructure network to support public electric vehicles. A weak charging infrastructure not only limits the vehicle to short range commutes, but might also postpone the transformational shift to electric vehicles. For instance, Car2Go, Daimler’s electric car sharing rental launched in San Diego, USA in 2011, might switch its fleet from electric to gas due to a weak charging infrastructure available in the region. On an average, about 20% of the fleet remains unavailable due to the lack of electricity required for the car to be driven.

Another aspect that impacts the availability of a robust charging infrastructure especially for e-buses is the unavailability of adequate power source close to existing bus yards. Bringing power to the current yards/parking stations may require additional efforts and costs with regards to excavation, cabling, etc.

In addition, the cost of electric vehicles in the public transportation segment, particularly of electric buses, is considered very high. These buses cost almost 2-3 times more than conventional buses. The initial investment in electric buses seems massive vis-à-vis their diesel counterparts. This could prove to be a major hindrance as countries aiming for a sustainable public transportation system could easily switch from diesel buses to low emission gas buses, which are comparatively cheaper when compared with electric buses. For instance, Australian Tasmania’s public bus company considers the technology behind electric buses ‘too expensive and experimental’. An electric bus costs around USD 1 million, almost twice as much as the diesel-fueled bus. Thus, in order to reduce the environmental impact of diesel-fueled buses, the state is focusing on introducing gas-fueled buses whose prices range between USD 500,000 and USD 670,000 making them much less expensive than electric buses.

The problem of high purchase cost is paired by the issue of financing of electric vehicles, which is another hurdle to the widespread adoption of such buses. While the reduction of transportation CO2 emissions features as an important target for most governments and municipalities, stringent budgets and lack of funding often make these plans harder to achieve. For instance, in January 2016, Ireland-based Dublin Bus was refused funding for the lease of three trial hybrid buses costing EUR 900,000 by the National Transport Authority (NTA), due to lack of availability of funds. The rationale stated by the NTA for the refusal was that adding fewer hybrid buses in place of diesel buses (which are relatively cheaper) will result in lower number of public buses on the street, which in turn will translate into a significant rise in the number of car journeys, consequently leading to greater environmental damage. This Irish example might indicate that the adoptability of electric vehicles can only be successful in countries where the government is willing to make vast long-term commitment towards the purchase of electric vehicles for public use.

The challenges do not end there. While electric buses are considered to be more cost efficient with regards to operations, pure electric buses, in most cases as of now, are not capable of delivering a non-stop 18-hour service cycle that is achievable by most conventional buses, without stepping out of service for recharging their batteries. Moreover, most electric buses are currently not suitable for challenging environments (such as rural or hilly regions), which in turn limits their adoptability, while traditional buses have long been used in a great variety of terrains.

The operating cost advantage of electric buses is further impacted by the frequent application of ‘demand charges’ by electric utilities, especially in case of pilot/trial projects. For instance, in California, the application of demand charges increases the operation cost (which stands at about USD 0.25/mile without any demand charges for electric buses) by about USD 0.24/mile for one electric bus charging overnight and by USD 0.90/mile for one electric bus charging on-route. This significantly impacts the operating cost benefits that make electric buses attractive (the fuel cost per mile for diesel bus is approximately USD 1/mile). However, with the rise in number of electric buses, the demand charges can be spread over a larger number of buses making on-route charging more economically viable. For instance, if the number of electric buses rises to four or eight, the operation cost increase is reduced from USD 0.90 to a mere USD 0.42 per bus or USD 0.29 per bus (respectively) for an on-route recharge. Thus the greater number of buses, the lower the demand charges per bus. To support the deployment of electric buses, it is essential that electric utilities pardon demand charges for plying electric buses till the time the bus operators manage to increase the electric bus numbers to make them economically feasible.

EOS Perspective

While electrification of public transportation is not easy to achieve considering the vast set of challenges faced by the industry, the global market for electric and hybrid buses offers huge growth potential as several leading economies such as the USA, Canada, UK, Germany, France, China, and India are making a conscious effort to switch to electric and hybrid fuel systems for public transportation. Electric buses not only help address rising pollution and environmental concerns but also offer lower operational costs, which is a key driving factor for their growing acceptability. According to experts, all of these advantages of electric buses are likely to spur the industry to grow at a forecast CAGR of 20-27% during the next five years (2016-2020). This is also supported by an ongoing effort by the leading hybrid and electric bus manufacturers, who are working to expand their product portfolio with innovative and cost-effective solutions that suit different countries’ requirements and road conditions. While currently, in real terms, the number of electric buses across the globe seems very limited, the industry is sure to have a bright future.

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Zika Virus Outbreak: How Is It Dampening the LATAM and Caribbean Economies?

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In February 2016, World Health Organization declared Zika virus outbreak as an international public health emergency across 21 countries in the LATAM and Caribbean region, as Zika is believed to pose a serious threat to human health and life, and to adversely impact businesses and economies. The virus is slowly becoming a great contributor to the financial turmoil by severely affecting tourism industry, one of the key sources of revenue in the region. Zika has recently also become a major hindrance for Brazil Olympics scheduled for August 2016, as athletes and spectators are skeptical of visiting the country due to fears over the virus.

Latin American and Caribbean countries are likely to suffer an estimated economic loss of about US$ 3.5 billion in 2016 due to the Zika outbreak with countries such as Mexico, Argentina, and Brazil blown by the highest fiscal revenue losses in the region. Further, Zika is posing a significant threat to the tourism industry leading to drop in airline bookings to Latin America and Caribbean by 3.4% y-o-y (bookings between January 15 and February 10) in 2016 over 2015. The Caribbean region is hit the worst – airline bookings declined 27% y-o-y in the US Virgin Island and 24% y-o-y in Martinique. Also, shares of travel companies plummeted and several cruise lines, airlines, and hotels are offering fee waivers and options to reschedule travel.

1-economic impact


2-impact on tourism


3-impact travel industry


4-affected Brazil


EOS Perspective

Zika has taken a financial toll on the LATAM and Caribbean countries and might continue to weigh them down till it is adequately curbed or vaccinations are introduced. Zika has also become a major threat to the forthcoming Rio Olympics with a few athletes already starting to back out of the games and health experts across the world discussing to cancel/postpone Olympics over public health concerns. However, Brazil is making relentless efforts to ensure safety of athletes and spectators, and the government has given assurance that the virus will not affect visitors. The country is continuously wrestling against the virus by taking measures such as daily inspection of the Olympic site, spraying mosquito repellents, and eliminating mosquito breeding sites and stagnant water. Also, Brazilian government will temporarily waive visa requirements for citizens of the USA, Japan, Australia, and Canada for travel in 2016 (between June 1 and September 18) to entice visitors. All these efforts by the Brazilian authorities are a vivid illustration that amidst the dwindling economy and political instability, Olympics is the much needed lift for Brazil. Tourism is likely to account 10% of Brazil’s GDP in 2016 due to the Olympics, as compared with an average of 9% in previous years.

Regardless of efforts made by countries to curb the virus, travel alerts for LATAM and Caribbean region have already damaged the travel market and put the US$ 64 billion worth tourism industry at risk.

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Online Grocery Retailing In India: Will Clicks Replace Bricks?

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India is the sixth largest grocery market worldwide buzzing with plethora of opportunities for the development of online grocery retailing. Gone are the days when Indian consumers were reluctant to shop online – studies have revealed that Indian consumers are overcoming biases against purchasing products without the touch and feel factor and are widely accepting online shopping. However, shopping for grocery online is at a very nascent stage and is still overcoming operational and economical hurdles. Over the years, multiple online grocery sites have shutdown, though there are a few survivors and presently the market is bustling with new entrants including e-commerce giants such as Amazon, Snapdeal, Flipkart, etc. Players are constantly implementing innovative marketing strategies, expanding operations, and experimenting with business models to find the best fit for e-grocery market.

Online grocery retailing is a tough segment to crack largely due to the perishable nature of products it offers, coupled with several operational impediments such as logistics, supply chain management, and low margins. Also, players face major challenges in training and retaining employees as well as attracting investment to grow operations.

1-Challenges

Despite the challenges, online grocery retail is witnessing rapid growth driven by increasing internet connectivity, use of smartphones, and changing lifestyles with increasing number of working women demanding convenience. Consumers pressed for time are continuously looking for less cumbersome options in their fast-paced lives and online grocery shopping is increasingly the best solution for them.

Out of the 40 online sites that initially ventured into the grocery retailing market, only a few have survived and BigBasket has emerged as the most successful e-retailer. Other survivors include ZopNow and Localbanya, while there are several new entrants such as Grofers, Jugnoo, etc. Traditional brick and mortar retailers have also realized potential of the market and have slowly started selling groceries digitally – for example, Reliance launched ‘fresh direct’ while Tata sells through ‘My247market’.

2-BigBasket

Successful e-grocers such as BigBasket, ZopNow, Nature’s Basket, and Reliance Fresh Direct, among others started formulating strategies to succeed in the e-grocery market. For instance, BigBasket started selling private label brands to improve margins while ZopNow offers cashbacks, discount coupons, and grocery deals to attract customers. Other strategies include implementing quality assurance programs and offering niche products, among others.

3-Success4-Success

EOS Perspective

E-grocers face various obstacles, hence a robust strategy is the need of the hour to survive and succeed in the market. It is imperative for any player to first understand the local nuances of the market – this includes establishing local relationships, developing local logistics, and building business according to unique scenarios in different cities. India is an extremely diverse country and a complex market to survive, hence effectiveness and efficiency of players to adapt to the market defines how any company will succeed in the industry. Factors such as target segment, operating costs, competitive landscape, and consumer preferences vary greatly across India, therefore, aligning business with domestic market and following ‘localization’ of operations is the key to success.

For long-term sustainability in the market, it is essential for players to differentiate through innovation and to improve business scalability. Innovation can be achieved in the form of targeting specific customer segment, selling niche products, or offering tailored services. Attracting investment can help players to expand and scale up their businesses.

Further, it is crucial for e-retailers to prioritize customer experience — across technology, delivery, and service platforms — as convenience is the primary factor that influences people to buy digitally.

Nevertheless, the question still remains if clicks can replace bricks. Online grocery market has potential and is expected to grow but it is unlikely that it will dominate or replace the brick and mortar stores in the near future. Online retailing definitely have the potential to grab a substantial portion of grocery sales in a long-term horizon, however, physical stores will long continue to have an edge, particularly in case of FMCG goods.

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New Wings to Fly – Post-Sanction Scenario of Iran’s Aviation Industry

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The Nuclear Deal between Iran and the six super powers is seen as a boon for the aging Iran aviation industry. Iran now plans to add 300 new aircraft in the next five years and 500 in the next 10 years by growing the national fleet as well as additional airports and facilities to the country’s existing infrastructure. Although many view this as a tremendous opportunity, there are many hurdles along the way – how does the country plan to tackle them?

On July 14, 2015, Iran and the six super powers (the USA, UK, France, Russia, China, and Germany — collectively known as the P5+1) finalized a Joint Comprehensive Plan of Action (JCPOA). This agreement is meant to ensure that Iran’s nuclear program can only be used for peaceful purposes in return for lifting the sanctions from P5+1 countries. On January 16, 2016, International Atomic Energy Agency (IAEA) announced that Iran met the requirements of the JCPOA and the sanctions were immediately lifted. One of the reliefs for Iran was the ability to conduct business with the EU and US companies across a range of sectors, including aviation-related industries.

The lifting of the sanctions was a relief for the aviation industry of Iran, as the entire in-service fleet of 225 airplanes is in a dire need for repairs and maintenance. Due to import sanctions, much needed machinery and parts have not been available for the airlines to repair and maintain their fleet, while the access to new airplanes was very limited. The average age of Iran’s fleet is 25 years, which is among the oldest in the world. This is also one of the reasons why Iran’s civil aviation has had one of the world’s worst safety records – more than 500 people dead in the past few years in air crashes of various Iranian airlines.

Slide1

The lack of access to new machinery and aircraft has affected the growth of the domestic airlines – this includes the flagship carrier, Iran Airways, as well as other top airlines such as Aseman Airlines and Mahan Air. These three airlines hold the maximum in-service fleet and they are likely to also be the first to benefit from any deals made in the aviation sector in the country. And the deals are expected to start pouring in soon. The lifting of sanctions has enabled Iran to seek the possibility of doing businesses with companies such as General Electric (GE), a US-based equipment manufacturer, which has shown interest in investing in Iran to provide commercial aircraft engines, parts, and services, which is likely to be a boon for the local airlines in working towards improving their safety record over time.

Iran has already initiated talks with two leading aerospace equipment manufacturers, US-based Boeing and France-based Airbus, to buy equal amount of airplanes from both companies. As of January 2016, a deal was signed between Airbus and Iran to deliver (although the delivery timeline is still unclear) 118 jetliners worth US$27 billion. Boeing is working out the details with the US Treasury and a contract will go under negotiation once these details are clear. Both companies are motivated to convert the talks into a deal – even though both companies are giants, selling to most airlines around the world, the number of airplanes ordered by a Iran is still going to be a large contract for them.

Iran plans to re-vamp the entire aviation industry, including the purchase of new airplanes and construction of new airports along with refurbishing the existing infrastructure. The new planes are planned to slowly replace the older ones with the ambitious objective for the airlines to have brand new in-service fleet, which would reduce the repairs and maintenance costs over time. Apart from investment in airplanes, Iran also plans to develop five new airports with a total investment of US$8 billion. Iran’s Civil Aviation Organization (CAO) has already outlined two airport projects to be developed with an investment of US$1 billion expected to be completed by 2022, while the rest of the projects are yet to be announced.

The idea is to develop these airports as international corridor and transit hubs by reviving the historical trade route advantage, which Iran had through the Silk Route in ancient times. Iran, back then known as Persia, connected the Western countries to the Eastern ones – it was one of the transit hubs for trade. In current attempts to revive that route, Iran considers two airports, Dubai, UAE and Doha, Qatar, as competitors, due to these airports’ advantage of the same central geographical location connecting the West and the East. Dubai and Qatar have already leveraged their location and facilities by offering transit hubs to many international carriers, which brought good volumes of international traffic into these two countries. This has also led to the development of hospitality and tourism industry in the areas along with business and job opportunities to the local and expat population of UAE and Qatar. These countries have also worked on establishing their flagship airlines – Emirates and Qatar Airways, and both of these airlines are among the top airlines in the world now.

According to Iran officials, both these airports (Dubai and Doha) and their flagship airlines (Emirates and Qatar Airways, respectively) are direct competitors to Iran’s airports and its key airline – Iran Air. Iran can also learn from these two airports’ history in its quest to restore growth in aviation and several associated industries. The development of Dubai airport has been attributed as one of the major turning points to the development of the city, Dubai – the airport was earlier used for transit flights, repairs and/or refueling of the airplanes, gradually increasing the international flights and footfall in the city. This spurred interest of international players in hospitality industry to expand their existing infrastructure in the city, which in turn lead to the development of hospitality and tourism industry in UAE, which was a relevant step UAE took in diversifying its oil-based economy. Currently, Dubai handles passenger traffic of more than 75 million on a yearly basis. Recently it was announced that Dubai will be expanding its airport to accommodate the increasing traffic on its terminals.

Iran would like to draw a similar story for itself and follow Dubai’s footsteps by putting its flagship airline in the global picture and using its airports as transit hubs. The major challenge in Iran’s case is that it has missed out on this opportunity by at least a decade, if not more. Dubai and Doha already have the infrastructure, policies and rules in place to accommodate growing traffic, along with businesses looking to invest or expand in the city or the country. Iran still needs to develop or update the basic infrastructure it has so it can start to match its competitors. For this development, it needs heavy investment and planning to execute the vision it has for the aviation industry and developing other industries such as tourism and hospitality.

The Realistic View

Iran used its natural resources to attain economic development, a similar scenario as in other oil-based countries such as Saudi Arabia. Iran and Saudi Arabia are two countries, which can leverage on the onshore oil reserves available at a low cost. According to the Organization of Petroleum Exporting Countries (OPEC) data, Saudi Arabia accounted for 22.1% (266.56 billion barrels) while Iran accounted for 13.1% (157.53 billion barrels) of world’s total crude oil reserves in 2014. Over the years, Saudi Arabia has built its financial strength from oil revenues, but Iran was not able to achieve the same due to the economic sanctions imposed on it by USA, originally in 1979, strengthened in 1995 and then again in 2012.

Recent developments finally gave hope for Iran to catch up, though the process is expected to be slow. While the agreement with P5+1 has allowed Iran to stabilize its oil exports at about 1 million barrels per day, it is still 50% less than what Iran used to export before 2012. Another challenge are the declining oil prices, which have reached a level below US$30 per barrel in January 2016 from US$105 per barrel in 2012. Iran’s oil revenue accounted for about 12.5% of its GDP in 2012, a share that declined to 6.25% in 2014. The infrastructure spending share in GDP also declined by 3% points since 2012, as Iran has limited access to financing and the Oil Stabilization Fund (OSF), a fund to stabilize the economy against fluctuating oil revenues, was no longer operational.

In a scenario where majority of the economic development of the country is dependent on the natural resources such as oil and gas, once the oil and gas market slows down, the economic growth slowdown soon follows. Market fluctuations for oil and gas industry have led oil-based economies to diversify into other industries or build up financial reserves to sustain economic fluctuations. For Iran, aviation might be a tool to achieve that – the country plans to re-build aviation industry to make way for the tourism industry, which the country hopes to develop as part of the shift from being an oil-based economy.

The first step in this shift for Iran is to gather investment to develop and support the growth of aviation industry. However, Iran is in dire need of investments from external sources since it has no funds, assets, or resources to re-build or stabilize the economy. Iran was able to gain access to some funds worth US$32 billion from unfrozen assets abroad, which were available to the country once the sanctions were lifted – however, these frozen assets are not unlimited, and the Airbus deal worth US$27 billion was made from those unfrozen assets. At the same time, the investments cannot come from the growth of other industries such as manufacturing or agriculture, as any growth achieved from these industries will have to attribute to fiscal spending on developing human resources such as education and health of the population. Iran also needs trained staff personnel to support the development of non-oil based industries such as aviation and transportation. To do this, the country has to invest in training institutes and infrastructure to sustain the economic development Iran is hoping to achieve in the next few years.

The country is trading its natural resources to lure international companies to start or increase their businesses with Iran. For example, Total, a France-based oil and gas company, has signed a Memorandum of Understanding (MoU) to buy crude oil from Iran and promised research to look for other opportunities so it can invest in Iran. Such a deal brings in investment, which will help Iran to stabilize the economy or build financial reserve to later on invest in other industries such as aviation.

Currently, Iran needs close to US$220 billion in investment to uplift its aviation industry. The country cannot afford to sponsor this investment from its own reserves or funds from any other industry growth. These funds will need to be used to help maintain the economic stability as Iran is struggling with high unemployment and inflation. One of the best options for Iran is to leverage the natural resources such as oil and gas to other countries; in the pre-sanction period Iran could only do that with Asian countries such as China, India, or South Korea. Since the sanctions are lifted, Iran is open to expand its business options to European regions and USA as well.

EOS Perspective

The World Bank has forecast an optimistic growth of 5.8% for Iranian GDP in 2016, owing to the fact that Iran’s economy will benefit from the lifting of the sanctions from six super powers. In spite of the promise of industry growth, Iran has a lot on its plate to deal with before it can be considered a stable economy.

For starters, Iran has to gain the market share it once had in the pre-sanction period in the global oil industry, which means that it is going to adopt an aggressive strategy to gain back its lost clients especially European clients such as France, Italy, and Greece (in the pre-sanction period, these European countries were its major clients for oil trade). These countries used to do business with Iran but shifted to Saudi Arabia, Russia, and Iraq once the sanctions were imposed. Iran’s oil minister, Mr. Bijan Namdar Zanganeh, in an interview on November 5, 2015 was clear on Iran’s next steps when he said “Our only responsibility here is attaining our lost share of the market, not protecting prices”. Iran plans to sell oil at rates cheaper than its counterparts to gain the European clients back, which may result into an oil surplus in the market pushing the oil prices lower than US$30 per barrel. This also means that Iran would have short and medium term issues building up investments it needs to develop the aviation industry or even stabilize the economy to reduce unemployment and inflation. Apart from investments, Iran has to make changes to its existing policies to incorporate the growth of aviation industry. The country also has to gain access to trained and skilled staff who can handle the organizational and operational change the aviation industry will undergo in the next few years.

One major challenge for the aviation industry is that Iran still has not finalized a contractor for the repairs and maintenance of its already aging fleet. Lufthansa, the German-based aviation company, is in talks with Iran to set up a maintenance unit in Iran but nothing has been set it stone yet. With new airplanes in the pipeline and no immediate maintenance support for Iranian airlines, the industry growth might continue to be hampered more than before.

Iran needs to give priority to keep the in-service fleet in service. It might take years for aviation companies such as Airbus to complete the orders and during that time it is imperative that the older planes have access to machinery and repairs to stay in business.

by EOS Intelligence EOS Intelligence No Comments

CPG Companies – Facing the Load

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For companies operating in the consumer packaged goods (CPG) industry, 2014 marked the start of a difficult time, especially with growing supply chain challenges that have been augmented by greater uncertainty around the state of OTR transportation. Due to this, the industry has witnessed several hard-earned supply chain gains being washed away by external factors. Moreover, rising expectations and demand from consumers are translating into SKU proliferation as well as growing number of retail channels. This has further lead to operational complexity. While these issues are real and should be dealt with now, only very few companies have managed to overcome these supply chain pressures and emerge with solutions that balance supply chain costs as well as service levels. Some of the measures adopted by companies managing to successfully handle these supply chain issues include consolidating shipments and shifting towards drop trailers. Moreover, companies are also making more strategic shifts, such as adopting intermodal transportation at a greater rate and cutting down on distribution centers (to ship directly from plants) to improve supply chain efficiencies.

CPG companies are witnessing intense pressure throughout their supply chain, from raw-material supply to shipping finished products to distribution centers, wholesalers, as well as retailers. While some of these pressures accrue from the customer end, others arise from intensified inorganic growth in the industry, as well as the ongoing transportation shortage (especially in case of ‘over the road’ (OTR) transportation). This has further resulted in higher freight costs for shipments and is also forcing companies to maintain higher inventory levels (especially to outweigh the transportation crunch).

1-CPG Industry – Supply Chain Challenges

2-Challenges

3-Challenges

4-Overcoming Supply Chain Challenges

5-Overcoming Supply Chain Challenges

Case Studies

EOS Perspective

As the CPG supply chains have been shedding many of their gains owing to ongoing complexities, companies must come up with long-term strategic solutions to handle supply chain pressures. While short-term solutions may help companies overcome cost pressures temporarily, they may not provide companies with a holistic solution that helps balance supply chain costs and service levels. Therefore, companies may need to commit to long-term strategic solutions such as collaborative supply-chain approach and network redesign to unlock supply chain efficiencies.

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Solar Rises in the East

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The international solar arena which was once dominated by the developed countries in the West is now flaring in the emerging markets of Asia. We are looking at a holistic view of solar PV market across selected Asian countries – the finale of our series focusing on solar photovoltaic market landscape across selected Asian countries.

Our previous articles of the series took a detailed look into current scenario and future prospects of solar PV market in China (China’s Solar Power Boom), India (Solarizing India – Fad or Future?), Thailand (Utility-scale Projects to Boost Thai Solar Market), as well as Malaysia (Uncertainty Looms over Future of Solar PV Market in Malaysia).

 

Solar Rises in the East - Markets Overview - EOS IntelligenceSolar Rises in the East - Markets Are Moving Towards Solar Power - EOS IntelligenceSolar Rises in the East - Growth Drivers - EOS IntelligenceSolar Rises in the East - Growth Challenges (1) - EOS IntelligenceSolar Rises in the East - Growth Challenges (2) - EOS IntelligenceSolar Rises in the East - Opportunities - EOS IntelligenceSolar Rises in the East - Our Perspective - EOS Intelligence

by EOS Intelligence EOS Intelligence No Comments

Driving Growth in Kazakh and Uzbek Passenger Vehicles Markets

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The past two years have brought a mixed bag of experience for both Kazakh and Uzbek automotive industries. Passenger vehicles sales volumes witnessed growth, however at a varied rate, affected by internal as well as external macroeconomic disruptions and regional developments. Amid these conditions, 2016 is likely to be an uncertain year for the automotive industries in both countries. Although growth is likely to be challenging, by re-thinking its current focus along with the help of the right government policies, growth prospects over the long term are promising.

While the Kazakh and Uzbek economic and automotive industries scenarios differ to quite an extent, and both countries have witnessed a varied growth in recent years, their macroeconomic and sector dynamics have continued to remain under a strong impact of the global slump in oil prices, volatile economic and political environment in neighboring regions, as well as currency devaluations. While Kazakhstan automotive industry, with sales volume CAGR of 67.8% during 2010-2014, was one of the fastest growing auto markets worldwide, the country’s GDP was witnessing a fluctuating y-o-y growth ranging from 7.5% in 2011 to 4.4% in 2014. At the same time, while Uzbek’s economy posted strong and steady GDP growth at around 8% annually between 2011 and 2014, its car sales volume grew at a mere CAGR of 1.4% during 2010-2014.

1-Fluctuating Economic & Automotive Industry Growth

Uzbekistan’s automotive industry is currently around twice the size of the industry in Kazakhstan, however its sales volume growth has recently stalled putting a question mark on Uzbek industry future growth dynamics. Kazakhstan might soon be seen to be catching up, with more than healthy sales volume growth rate, much of it supported by recent government reforms to boost local production and sales.

2-Automotive Industry Landscape

3-Industry Challenges & Opportunities

4-Industry Challenges & Opportunities


EOS Perspective

With Russia’s economy still struggling to recover amid Western sanctions, banking on vehicle exports is unlikely to take Kazakhstan and Uzbekistan any further. Passenger vehicles sales and production figures in most likelihood will continue to be impacted by internal as well as external macro-economic factors in 2016. In order to grow in the current environment, OEMs will have to look beyond their status-quo. Automakers will have to start focusing on domestic markets, which are still underserved with rapidly increasing demand for new cars.

The governments will have to work together with industry participants to create consistent as well as comprehensive industry policies that can attract more investments and stimulate growth. Measures such as financial incentives, special land allotment, creating SEZs, and various other schemes can significantly boost investor (both local and foreign) confidence. At the same time, reforms such as increasing local content requirement will drive more local producers to enter the industry. This might be a great help to the overall vehicle manufacturing and auto components industry in its development and growth trajectory.

5-What Can Drive Growth

With automakers trying to scale down their operations in Russia and Ukraine, growth opportunities are ripe for region’s manufacturers to capture and fill the market gaps in neighboring regions such as EEU and CIS. By leveraging their strategic location and proximity to European, CIS, and Asian markets, Uzbekistan and Kazakhstan could potentially attempt to reinvent themselves as the region’s next automotive export hub.

by EOS Intelligence EOS Intelligence No Comments

Anatomy of a Bubble – Case Study: China

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For years, China has been seen as a shining beacon amidst the global crisis, growing at a stunning pace while other countries reeled under the pressure of the global economic downturn of 2008-2009. However, Chinese stock market crashes, first in August 2015, and now at the start of 2016 have let people to question whether China is as immune to crisis as initially thought.

As per estimates by the Economist, Chinese equity market only impacts 15% of households. Therefore, the possibility of a widespread depression was quickly ruled out. However, there are other forces which are likely to be a greater cause of concern for the Chinese government, and possibly everyone around – the most prominent of them being the huge government and corporate debt bubble.

Looking at recent developments, there seems to be a striking resemblance between the increasingly swollen and inflated Chinese debt bubble and a simple spherical bubble, one that is impacted, shaped, and molded by a range of forces, as studied in school science books.

Slide1 - Forces Driving the Chinese Debt Bubble

Slide2 - Surface Tension

Slide3 - Government Measures

Slide4 - External Factors

EOS Perspective

China is under pressure in the face of rising labor costs, industrial overcapacity, falling prices, and weak global demand. Combination of economic slowdown, excess production in manufacturing, and rising debts at the macroeconomic level may cause a massive wave of firm closures and bad loans.

While China has expressed its intentions to reform its debt situation, internal and external market factors have forced the government to plunge more money into the market to finance economic growth and sustain the entire economy. These initiatives may diffuse the situation getting out of hand on a short-term basis. But the repercussion of a future debt crisis could be more severe. The scenario would not only be severe for China, but several other economies in the region, which are key sources of raw materials to China.

From a procurement point of view, while increasing price competition could make China still feature as an attractive proposition, buyers must consider the suppliers’ debt situation before making any decision. No one knows when, or if, the Chinese debt bubble will burst. With the situation still unclear, short-term contracts could be the way forward.

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