Category Archives: Business Opportunities

Surfing the Desert

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How about a beach resort in the Sahara? It’s not quite what you think. The western Sahara extends to the Atlantic coast of Morocco and offers interesting possibilities for development of beach resorts. The King of Morocco is pushing hard to develop some of these areas, especially near a town called Dakhla in the extreme south. I heard about it this week at a special briefing here in Hawaii.

What are the Moroccans doing in Hawaii, you might reasonably ask? There have been increasing ties for both culture and business going back for about fifteen years, culminating in a sister state agreement in 2012 between Hawaii and the Moroccan province around the capitol, Rabat. Business between the two is not large, but could easily grow. A Honolulu architecture firm is currently working on a 200-room seaside hotel near Rabat. And Morocco wants to draw on Hawaii’s demonstrated expertise in resort development. One facet of the sister state agreement is a memorandum of agreement with the hospitality and culinary schools at Honolulu’s Kapiolani Community College (KCC). Initial tourism development trips have focused on the Dakhla area.

See the hotels? (photo: Nomadz)

See the hotels? (photo: Nomadz)

Dakhla already has some tourism, but is very early days. Word is out in the surfing community that Dakhla is a jewel for both board surfing on the Atlantic coast, and for kite surfing in a large protected inlet. Accommodations, however, are bungalows and so-called surfers camps that don’t generate a whole lot of revenue. There are no modern hotels, just bungalows. Dakhla does have the advantage of a new modern airport terminal and a long runway. Flights are currently limited, but the infrastructure is there for considerable expansion. Visitors currently tend to come from Europe, given proximity, but Morocco has hopes of attracting Asian visitors once hotel infrastructure is in place.

The king of Morocco is personally putting millions into projects – and there are strong hopes for attracting foreign investors, especially from the Middle East. Algeria has staked a claim to the part of Morocco that contains Dakhla, but Morocco is clearly in possession and says that action by the Algerians is unlikely. Hope so.

KCC has provided detailed recommendations for Dakhla, but the short version is that Dakhla needs to keep its current surfing and kite surfing image, but expand beyond that into water sports more suitable for entire families, so-called “soft adventure” water-sports. KCC, of course, noted the need for family-oriented hotels and resorts, and the imperative of getting more air service into the area. It seems likely that KCC will participate in developing a water-sports school to teach Dakhla residents and entrepreneurs about offering and managing modern water-sports, such as diving, boating and more. Morocco has asked that one emphasis of the school be on water safety training.

Morocco has huge plans for Dakhla, currently proposing to build several resorts with all the amenities, including nearly 9,000 beds, marinas, conference centers, restaurants and everything else. Plans, of course, include infrastructure projects like wastewater treatment plants, desalinization for fresh water, and large-scale solar farms for electricity. Assuming sufficient investment is found, all this development is going to take years. In the meantime, Hawaii’s architects, engineers, water-sports companies, zip-line operators and more are lining up for possible contracts.

China’s Amazing E-Commerce Buyers

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This seemed an appropriate follow-up to yesterday’s post about using eBay for export. Alibaba published a wonderful infographic about the amazing growth of Internet purchases by Chinese consumers. In fact, Chinese buying through e-commerce is likely to eclipse our spendthrift Americans sometime this year, probably reaching $265 billion. Alibaba concludes that Chinese view the Internet as a “giant shopping mall“. Here’s their infographic:

china_online_consumer

What’s Selling In China?

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We’ll be upbeat about China today, having gotten the negative views out yesterday. No matter how tough the China market may be, it is still one hot market if your company has the commitment and the products to supply it. What are some of the hot products right now? According to the U.S. Commercial Service at the American Embassy in Beijing:

best prospectsHealthcare will be a $500 billion market by 2016. Constructiion of private hospitals is booming and the aging of China’s population means that the market will grow for a long time to come. Foreign suppliers already fill 60% of demand.

Travel and tourism has virtually unlimited potential. Despite issuance of 1.34 million visitor visas last year, China is still a largely untapped market for the United States. Not only is the Chinese visitor Hawaii’s highest-spending tourist, in spending per day, that holds true virtually everywhere else they go. Chinese spending on travel grew 594% between 2004 and 2011.

China’s appetite for power generation knows no bounds. By 2020, the country will have added 1935 GW of generating capacity in ten years. More and more of that will be in “green energy” technologies. Renewable energies will contribute 160 GW to the national grid by 2015. Wind energy should hit 200 GW by 2020, and nuclear is expected to grow 12.5 GW to 80 GW, also by 2020.

There is growing interest in “green buildings“, creating a market for architecture and engineering services, as well as for environmentally friendly materials. There are significant subsidies available to builders of 3-Star LEEDS buildings.

Environmental technologies are moving from being “nice to have” to “must have”. China has at least 298 million people without access to safe drinking water. The country is expected to spend about $80 billion on water purification projects by 2015, along with another $30 billion on air and water pollution monitoring equipment. The market for environmental engineers should rise along with the equipment sales.

Transportation will be huge. Commerce expects total investment in railways and metro systems to reach $500 billion. China is already the world’s biggest automobile market, which means the market for auto parts and aftermarket products is growing, too. The aviation market is hot. China has 82 new airports under construction and is expected to need 5,260 new aircraft by 2030.

Total retail and franchise sales reached $21 trillion in 2012 – and is still growing. China already has 242 million online shoppers. And Chinese will consume 44% of the world’s luxury goods by 2020. (Careful here. Due to brazen counterfeiting, Chinese luxury consumers often prefer to do their shopping outside China.) Domestic consumption is expected to hit more than 50% of China’s GDP by 2015.

Education is a growing market, whether for providing educational services inside China, or attracting Chinese students overseas. A half million Chinese are studying abroad this year, about a third of them in the United States. This is a great market for our colleges and universities, but also for secondary schools. More U.S. schools are also opening facilities in China. An emerging market is to help satisfy China’s demand for kindergartens and pre-schools. Online education is likely to grow in importance.

What can you say about telecommunications? China has 930 million mobile phone users. China also swallowed 47% of the world’s production of semiconductors in 2011. The United States alone sold China $14.7 billion worth of semiconductors.

America’s strongest sector for selling to China? Agriculture. The Chinese show an unquenchable appetite for things like U.S. pecans and soybeans. One trend is that more and more Chinese are adopting American-style breakfasts.

In almost any product area, American exporters have an edge when going into the Chinese market. Chinese consumers tend to view American goods as safe, reliable and durable – especially when compared with domestic production. That’s a marvelous reputation to have in any market.

A useful hint from Mark Lewis, commercial officer at the American Embassy in Beijing, if you are in any sort of infrastructure business: take a look at China’s 5-Year plans and do a word search for your industry. It may give you a good idea of what the technocrats in Beijing expect to happen in your field.

Out Of (East) Africa

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The Bush and Obama Administrations have done a good job of talking up business prospects in Africa, and press reports the past year appear to bear them out. Some African countries boast very strong growth rates, albeit from low levels. The continent is benefitting from new technologies that allow people to become as modern and linked as anywhere else while skipping the costly technologies that came first for the rest of us.

While American business, as a whole, may be dimly aware of the advances in Africa’s markets, there is still a tendency to think of Africa as a single monolithic organism. Ridiculous, I know, but few executives pause to think about the incredible differences between markets within Africa, tending to equate a South Africa with, for instance, a Sudan. Stereotypes die hard: I have been asked by executives preparing for a trip to countries in central Africa if they should take flashlights or underwear as business gifts. I look them in the eye and tell them that the people they are likely to see probably went to Oxford or the Sorbonne. You can see the lights go on. If you want a new impression of Africa, take a look at the map in this post I put up last summer.

The World Trade Organization recently did a trade policy review of the East African Community. The EAC has quite literally come back from the dead. Founded in 1967 by Kenya, Tanzania and Uganda, the three countries made a fist of it and the organization died meekly a decade later. Those were not good years in East Africa. To their credit, as development potential improved, they decided to give it another try and re-established the East African Community in 2000. They made enough of a success of the project that Burundi and Rwanda signed on in 2007. The EAC still has a long way to go to harmonize trade policies and build trade within its region, but they should be congratulated on what has been done.

EAC countries have taken steps towards mainstreaming trade into their national development strategies. They have individually and collectively benefited from aid for trade. Nonetheless, they need more assistance to address the bottlenecks that hinder their efforts to make trade contribute significantly to their economic development.

Let’s set the scene. The five countries are highly dependent on agriculture and only Tanzania has an appreciable mining industry. Uganda is finding some petroleum deposits with potential. Otherwise, the prevailing foreign exchange earner is tourism, which as been badly hurt by the global recession and by travelers’ fears engendered by events elsewhere in Africa. (Amazing how gunshots can hurt tourism 500 miles away. I saw tourism drop for a while in Austria while fighting was going on in Bosnia.) The EAC countries benefit from preferential treatment in Europe (less so for Kenya than the others) and, notably, in the United States under the African Growth and Opportunity Act (AGOA).

Modern Dar es Salaam (photo: Chen Hualin)

Modern Dar es Salaam (photo: Chen Hualin)

While their markets are growing, an exporter is still going to find considerable variation from country to country. The EAC is by no means a customs union yet in the practical sense, though it has the potential to become one. Kenya, Tanzania and Uganda share a common external tariff, but Rwanda and Burundi are still in the process of implementing it, so their customs duties and other requirements may surprise you. The EAC’s secretariat has identified 35 non-tariff barriers that need to be fixed, some of which are addressed in the WTO’s trade policy review. Import documentation, frankly, sounds to be a mess, with each of the five countries using documents that are hangovers from previous trade groupings or just inventing their own. That said, the secretariat and the five national governments are working hard to harmonize documentation and customs clearance procedures. But Kenya and Tanzania still require pre-shipment inspections for some products, and Kenya uses a different customs processing system than the others. Related, but different.

Customs duties have dropped since the last review in 2006, but not by much. The average tariff in the EAC was 12.9% then versus 12.7% now, so not much to brag about. For most goods, tariffs are set at zero, 10% and 25%, but there are exceptions that climb as high as 100%. And Burundi and Rwanda appear to still have some applied duties that are higher than their legally bound tariffs under the WTO. I assume nobody has gotten bent out of shape enough to challenge these in Geneva. It doesn’t look good to beat up on poor countries.

Product standards and related technical requirements can be a problem as each of the five member states has its own standards system. Still, the WTO notes that some 1,200 product standards have been harmonized. None of the EAC countries can afford a large standards bureaucracy, so it can be tough for them to keep up with new developments. Kenya, for instance, has developed a standards regime for genetically-modified organisms, but the others have not.

All five countries, of course, want to earn more foreign exchange through exporting. They have harmonized export promotion programs through manufacturing under bond, in export processing zones, and through duty remission programs to attract investment in export industries. Watch out, though, because taking advantage of these programs requires you to export 80% of your output. The search for viable exports has not prevented imposition of some export taxes. Kenya and Tanzania assess a 40% export duty on the f.o.b. value of exported hides and skins. Tanzania hits raw cashew nuts for 15%. Uganda applies a notional 1% export duty to coffee and 2% to cotton.

Surprisingly, to me at least, each of the EAC countries employs open tendering in their government procurement systems. A regional protocol was adopted in 2011 to ease requirements on manufacturing or importing essential medicines. There has been a general improvement in intellectual property rules and enforcement.

Opening Doors To Students – & Their Money

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Moving students around the world is one the globe’s key industries. I don’t just mean physically moving them, though that enters into it, but simply making it possible for students to study in different countries. Aside from the benefits from having more people cognizant of other cultures and spreading the benefits of diversity, attracting or sending out students can have a huge positive impact on world economies. Education is, in short, an industry whose products (educated students) can be imported and exported. We need to dismantle trade barriers for students just as much as we do for any other product.

The scale of this trade is immense. The 2011/2012 academic year saw the United States alone greet more than three-quarters of a million foreign students to its shores. 764,495, to be exact. Most of these students pay full tuition, unlike many of their domestic counterparts, and they also pump up the economy with apartment rentals, car purchases, travel, food and restaurant spending, relatives coming to visit, and much more. I am not sure what the multiplier is for foreign students, but it is high. The Institute of International Education, working with the U.S. Department of State, details foreign student flows to the United States and U.S, students going overseas in its 2012 Open Doors report. This is an annual report with a data trail going back to 1919!

Open Doors 2012 reports that more than 70 percent of all international students receive the majority of their funds from sources outside of the United States, including personal and family sources as well as assistance from their home country governments or universities. Students from around the world who study in the United States also contribute to America’s scientific and technical research and bring international perspectives into U.S. classrooms, helping prepare American undergraduates for global careers, and often lead to longer-term business relationships and economic benefits.

You might assume this is simply a rehash of State’s visa data, but the report is built on surveys of 569 colleges, universities and other academic institutions all over the United States. Foreign student enrollment in U.S. institutions has risen for six years now and, while you might expect a drop-off during the recession, the opposite has occurred. Indeed, the 2011/2012 enrollment represents 6% growth over the previous year. Since inbound students are equivalent to an export, this is an export industry showing healthy growth at what would intuitively seem a bad time for foreign customers. Impressive.

And this is an industry in which the United States has a large positive trade balance. The IIE report found only 273,996 outbound U.S. students abroad for academic credit. That is an all-time high, but it is growing at only 1% a year. The most popular destinations for U.S. outbound students are the United Kingdom, Italy (up 9% in one year), Spain, France and China (up 5%), but it is India that is showing the fastest growth (12%). Other hotspots for outbound students – U.S. imports, as it were – include Austria, Germany, Costa Rica, Ireland, South Korea, Brazil and Spain. There were huge declines in the number of U.S. students bound for Japan (down 33% due to the triple disaster at Fukushima) and Mexico (down 42%). IIE didn’t hazard a guess for the Mexican decline; I assume it was all the publicity about drug wars.

Will this attract Brazilians?

And how is the export side doing? The U.S. Department of Commerce estimates that foreign students coming to the United States spend nearly $23 billion a year, so it is doing just fine, thank you. We are seeing rising numbers of students (rising sales) from Brazil, China, France, Indonesia, Iran, Mexico, Russia, Saudi Arabia, Spain, the United Kingdom, Venezuela, and Vietnam. Numbers have fallen during the last year from India (down 4%), South Korea (down 1%), and Japan (down 6%). I assume the latter decline must be disaster-related. The Brazilian government’s new Scientific Mobility Program is attracting a lot of excitement. The program subsidizes Brazilian undergraduates in science majors in foreign universities. Thus far, the United States is the prime recipient with nearly 2,000 Brazilian students spread through 238 colleges in 46 states.

Foreign students do not spread evenly across the United States, just as our colleges and universities are not uniform across the country.

California hosted more than 100,000 international students for the first time this year, followed by New York, Texas, Massachusetts and Illinois. Among the top 10 destinations, Pennsylvania, Florida and Indiana had the largest percent increases, with the international student population in each state growing by close to 10 percent. At the institutional level, the University of Southern California has the greatest number of international students, followed by University of Illinois at Urbana-Champaign, New York University, Purdue University and Columbia University. New York City remains the top metropolitan area for international students.

Attitudes towards foreign students vary, too. While the states mentioned above clearly welcome this business, others may not. I was dismayed (though not surprised) to hear a University of Hawaii administrator react that UH Manoa must first serve any local student who wants in, as if attracting foreign students takes seats away in a zero-sum game. Luckily, wiser heads – who realize that foreign students bring in experience and new money for the university – may prevail. IIE says that 68% of the 569 schools that responded to their survey (I suspect UH didn’t respond) remarked that the chief driving force to their increased foreign student enrollment was their active overseas recruitment campaigns to attract new students.

Institutions that have devoted more resources for international student recruitment trips say they have concentrated mainly on Asia, with China by far the most popular recruitment destination. Institutions also reported increased recruitment in Southeast Asia, the Middle East, and in countries such as Vietnam, Brazil, Korea, India, Indonesia, and Canada.

That isn’t to say that their efforts stop once the foreign students walks in the door. Many schools find Chinese students a particular challenge, requiring additional time for learning to speak English well enough to navigate the classroom and the campus, and to acclimate to living in American communities.

HiSTEP Into Exporting

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I confess. I am stealing shamelessly from a press release, but it is one issued by an organization that I currently chair: the Hawaii Pacific Export Council (HPEC). This is one outcome of stimulus money that the U.S. Small Business Administration (SBA) was given to promote small business exporting. SBA got to divvy up $30 million around the country, responding to bids from most of the states and U.S. territories. SBA calls it the State Trade & Export Program (STEP), so Hawaii’s version of it – naturally – has to be HiSTEP.

HPEC is implementing the export education parts of HiSTEP, tapping into our expertise from doing Export University programs with the U.S. Commercial Service. We also advise the state on the overseas trade events under HiSTEP. For those of you in Hawaii, take advantage of all the programs and activities coming up. Here’s what to expect:

November 21, 2012: “Buy Hawaii, Give Aloha!” Governor Abercrombie asks residents to “buy local” for the holiday season. ATTENTION: Companies may have the opportunity to have their products featured at this event.

December 2012: 5th Annual International Conference and Exhibition on Nutraceuticals and Functional Foods. This conference features the latest developments in nutraceuticals, functional foods, and the health aspects of antioxidants and herbal extracts and provides an unparalleled opportunity to bring together executives, leaders and outstanding researchers in the field. Some of the world’s leaders in microalgae-based nutraceuticals and functional waters are based in Hawaii.

January 2013: JFW International Fashion Fair. The JFW International Fashion Fair is the largest international apparel/garment show in Japan. Occurring in January and July each year, it has been held in Japan since 2000, and is a venue to promote the apparel industry. It is strictly a buyers, distributors, and retailers show attended by 27,000 buyers.

Spring 2013: Hawaii-Korea Trade Mission. This mission will follow through on the KORUS, which became effective on March 15, 2012, and is intended to increase export opportunities for Hawaii agricultural products, processed food, renewable energy, and other clean tech industries such as astronomy, biotechnology and marine engineering.

August 2013: Natural Products Expo: Natural Products Expo Asia is the leading natural & organic trade show in Asia-Pacific. Throughout the three-day show, buyers can meet with over 250 exhibiting companies from around the globe, exploring the latest spectrum of natural and organic products from raw ingredients to finished products, supply-related services and equipment.

September 2013: Tokyo International Gift Show. The largest international trade show in Japan featuring exhibits promoting personal gifts, consumer goods and decorative accessories. It is supported by the U.S. Commercial Service and draws around 2,400 companies in 4,100 booths. The Autumn 2011 show drew 192,800 buyers! This year show organizers anticipate 200,000 buyers!

Ongoing: Export University 101: Will be available ONLINE by mid-December!

Ongoing: Export University 300: Upper-level training built on the foundational courses, designed to leverage your participation in the above STEP activities.

Contact points for each activity are below:

‘Olelo, by the way, is a local cable TV channel that is broadcasting some of our export education courses. Just getting the word out!

280 Fathoms Deep

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280 fathoms. That’s about how deep the pipes will go. They are longer than that, but the intake will be at roughly 1,700 feet below sea level. What do you get from putting a pipe down that deep in the ocean?: Pure (or nearly pure) cold ocean water. The water comes to the surface with a temperature of about 44℉. Think for a minute about the things you can do with that cold. The seawater is unimportant. Your kid can get that with a bucket at the surface. It is the cold that counts.

People in the business usually refer to them simply as “deep pipes”. They are conceptually simple, plumbing on a very large scale. You put a pipe down deep enough in the ocean (or other body of water) and you get back water colder than what you have at the surface. That cold differential is a form of energy, energy that is essentially free once you have built the deep pipe. The problem is in putting the pipe down and maintaining it in a harsh, corrosive environment. Most deep pipes are high density polyethylene, but they have a large diameter (say 72″) and they are long (perhaps over a mile to reach a good depth). So the up-front cost can be a shock. That means you need some killer apps to justify putting that much pipe in the ocean.

There are two killer apps: sea water air conditioning (SWAC) and ocean thermal energy conversion (OTEC). SWAC’s concept is that you bring cold water to the surface and run it through a conventional air conditioning system, replacing all the fancy equipment (and electricity) we usually need to cool air. Simple and cold, and SWAC has a track record. A deep pipe was installed in 1980 off Keahole Point on Hawaii’s Big Island and has been cooling the buildings at an intensely hot industrial park ever since, costing practically nothing outside of wear and tear. Cornell University installed a SWAC system in 1999, using cold water from the depths of Lake Cayuga, to cool down its campus. The city of Halifax in Nova Scotia uses SWAC to cool its downtown, and Toronto is doing the same thing with water from Lake Ontario. I have heard there is a city in the Netherlands using cold lake water and was peripherally involved with projects in French Polynesia that provided SWAC to a resort and cut their energy costs by over 90%.

Honolulu Seawater Air Conditioning announced last week that it is ready to begin drilling tunnels and laying pipe for a $250 million project to provide affordable, environmentally-friendly cooling for downtown Honolulu. The cold will begin to flow through Honolulu in 2014 and the savings will begin. Honolulu SWAC expects that clients will cut their electricity costs by 75%, saving 77 million kilowatt-hours of electricity every year. That will cut Hawaii’s petroleum imports by 178,000 barrels annually. SWAC in Honolulu will save 260 million gallons of annual fresh water consumption and eliminate 84,000 tons of CO2 emissions.

The hotels of Waikiki would be a natural application for SWAC. SWAC, too, has potential as a cooling source for the immense server farms being built by Google and tech companies.

OTEC has been slower to develop, bogged down with greater technical issues. The concept works, proven by experiments at Keahole Point and elsewhere, and the technology seems just about ready for prime time. The concept is simple. You use the difference between the cold sea water (42-44 degrees) and ambient air temperature to turn turbines, thus generating electricity. The hotter the air temperature, the more efficient OTEC becomes. It hasn’t proven quite that easy, but Lockheed and others seem ready to go now. Like with SWAC, we are talking significant up-front costs, but then near limitless production of electricity at very low cost.

Once you have a deep pipe in place, there are all sorts of apps you can add on. Each application uses the sea water at a different temperature, so you can do them serially or in parallel. That resort I mentioned on Bora Bora had one complaint from people staying at the hotel: the SWAC was chilling their rooms too much! The solution was two-fold, siphon off part of the water to use for cold hydrotherapy in the resort’s spa and use it for cold agriculture before it goes into the air conditioning system. ColdAg is patented by Common Heritage Corporation (I once served on CHC’s board) and, like SWAC, is simply plumbing. You run the cold water through what amounts to a plastic pipe grid a few inches under your farm’s soil. The depth varies with the crop. The pipe has no holes, so you are merely transferring cold (not salt) to your plants. Crops love it. The cold helps attract both moisture and nutrients to their roots, plus the plants think it is eternal springtime and grow like crazy. What it means is that a farm in a tropical area can grow temperate zone crops, as CHC proved in tests on hot, arid Saipan. Resort owners can grow their own strawberries, for instance, instead of flying them thousands of miles.

The deep ocean water is close to pure, some of it tens of thousands of years old, so mankind’s pollution hasn’t reached it. A natural application is aquaculture. Perfect water to raise fish, shellfish or other marine products. Algae has become a major production item at Keahole Point, pioneered by Cyanotech. That purity has also attracted water companies who desalinize the pure ocean water and sell it in upscale markets around the world. This has become Hawaii’s top physical export, serving a seemingly endless market in Japan. On the horizon is the ability to use the cold salt water to condense fresh water from the atmosphere. Proven in tests, the technology still has to be scaled up if it is to challenge your local water utility.

Will your next business involve cold from beyond the reef?