Energy and Democracy: an Economic Perspective

The problem is that the good Lord didn’t see fit to put oil and gas reserves where there are democratic governments.
Dick Cheney, Interview to the "Washington Post", 30th of July, 2000.

17 October 2007, by Paolo Figini | 1 document

Introduction

The relationship between energy reserves and democracy, or in more general terms, between natural resources and political institutions is one of the most debated topics in social sciences. Such issue lies at the junction of two communities of researchers which often use different assumptions, interpretative models and methodologies: the economists and the political scientists. However, neither economists nor political scientists would agree with the US vice-president citation reported above. The supposed incompatibility between energy resources and democratic institutions, if supported by data, can not stem from divine obscure will, nor be a pure coincidence. There must be political and economic reasons.

In this brief survey, we want to summarise the main theoretical and empirical evidence stemming from the literature [1], highlighting the limits and discussing a few paths that could be taken to improve the robustness of the findings. In the next section we will briefly review the so-called natural resource curse argument, with its supporting evidence and the models suggested to explain it. Since one of the main channels through which the resource curse is supposed to work is the quality of institutions, in section three we will finally focus on the relationship between energy resources and democracy.

The Natural Resource Curse

Sachs and Warner (1995 and 2001) inquire into the relationship between a country’s natural resources and its economic performance. Counter to the intuition, in post world-war II, they find evidence of a negative relationship: resource abundant countries have grown on average less than resource poor countries. Resources, they argue, are not a blessing which helps economic development, but rather a curse, limiting growth and socio-economic progress. Since their 1995 seminal paper, those results have been discussing by a flourishing literature. According to Cabrales and Hauk (2007), the empirical evidence, somehow weak and with many caveats, can be summarised in these five stylised facts:

• Fact 1 – Countries rich in natural resources grow slower on average than natural resource poor countries (the natural resource curse argument).
  However there are some resource rich countries that have grown very fast and for which natural resources are indeed a blessing: this leads to:
• Fact 2 – The evidence is inconsistent with a monotonic effect of resources on development/growth (see Robinson et al. 2006).
  The theoretical and empirical analysis has since been focussing on the reasons why natural resources are somewhere a blessing and somewhere else a curse. Policy failures have been identified as the main cause:
• Fact 3 – The quality of institutions is a decisive factor in determining whether natural resources are a blessing or a curse (see Mehlum, Moene and Torvik, 2006).
  Empirical findings also suggest a reverse causality:
• Fact 4 – Natural resources have antidemocratic properties: oil and mineral wealth tends to make countries less democratic (see Ross, 2001) and
• Fact 5 – Many revolutions are linked to rents derived from natural resources (see Collier and Hoeffler, 1998 and 2005).

What explains the curse? As Sachs and Warner (2001, p. 833) clearly state “[m]ost current explanations for the curse have a crowding out logic. Natural resources crowd-out activity x. Activity x drives growth. Therefore natural resources harm growth”. Gylfason (2001) lists four different channels of transmission “x” that have been used to explain the way in which resource abundance leads to the under-performance of the economy. First, a natural resource boom (i.e., the discovery of a new oil-field), with its strong effect on exports leads to an over-evaluation of the national currency. At the same time, the great inflow of income into the country boosts domestic demand and starts inflationary pressures, particularly on non-traded goods. Both phenomena crowd out traded sectors, in which profits shrink because they sell at international given prices, thus hurting the overall development of the country. Such a negative stagflationary spiral is the so-called Dutch disease.

Second, countries which rely on their natural resources may, inadvertently or deliberately, neglect to invest in human resources. Those are, in contemporary economies, the most important fuel of sustained growth, thus natural resource rich countries being caught in a poverty trap. Third, as a generalisation of the previous rationale, natural resource abundance may give citizens and governments a false sense of security, leading to the non-implementation of efficient and growth-enhancing economic policies [2]. As Gylfason (2001, p. 85) puts it “rich parents sometimes spoil their kids. Mother Nature is no exception”.

These three theories highlight the lack or the ineffectiveness of economic policy. However, there is a fourth explanation which considers the interplay between natural resources and the “quality of institutions”. According to Robinson et al. (2006) and to Mehlum et al. (2006) the impact of resources on growth crucially depends on the quality of the political institutions and, in particular, on the degree of corruption in the public sector. Mehlum et al. show that the variance of economic growth among resource rich countries is due to how rents are distributed. Some countries have institutions that favour producers and re-investment of those rents, while others have “grabber friendly” institutions that divert scarce entrepreneurial and human resources into unproductive rent-seeking. Therefore, the quality of institutions is the factor which determines whether abundance in natural resources is a curse or a blessing for a country.

However, in this fourth model an endogeneity problem appears, and the reverse causality has also to be considered: resource wealth can lead governments and producers to implement rent-seeking activities, thereby leading to corruption and “grabber friendly institutions”. In extreme cases, to avoid the redistribution of generated wealth, rent-seeking can take the form of authoritarian governments. This causal link from resources to democracy, which could be called the natural resource political curse, will be tackled in the next section.

As the theory, also the empirical analysis joins the results of two different strands of research. First, the huge literature on endogenous growth of the last twenty years has been identifying the main engines of economic growth. It is well known that the level of human capital (and therefore the extent of investment in education) and the quality of institutions are two of the most important variables at play (on this last point see Persson and Tabellini, 2006, for a survey). There is no reason, hence, to doubt about the “’x’-to-growth” link described above.

The second, more specific, strand of literature attempts to assess the validity of the link between natural resources and the “x” proposed channel of transmission. Among others, Stijns (2003), Hausmann and Rigobon (2003), and Sachs and Warner (2001) find (weak) evidence for the Dutch disease effect [3]. Gylfason (2001) shows that natural capital crowds out human capital, thereby slowing down the pace of economic development. However, Bravo-Ortega and De Gregorio (2006) find the link not to be linear: the negative effect of resources on growth can be offset by high education levels, thereby making natural resource abundance a blessing for countries with high human capital. This last result can explain the performance of countries like Norway.

Recently, more emphasis has been put on the “quality of institutions” effect. The seminal paper by Sachs and Warner (1995) considers the specific mechanism which leads resource abundance to a deterioration of institutional quality, but dismisses it as empirically unimportant. On the contrary, Torvik (2002) finds evidence that natural resources increase rent-seeking activities, thereby lowering growth. This channel of transmission introduces to a more political field of research which relates to the (suggested) causal effect of natural resources abundance on democracy. Is there a natural resources political curse? This is the question to be tackled in the next section.

Does Oil Hinder Democracy?

Does Oil Hinder Democracy? This is the title of an influential paper by Michael Ross (2001). Ross perspective differs from the literature analysed in the previous section for at least two reasons. First, being a political scientist, not an economist, Ross perspective is somehow different: he does not look at the interplay between resources and institutions in determining the economic performance of a country, but focuses on the causal relationship between natural (primarily energy) resources and democracy. He then attempts to find evidence supporting the different theories brought forward to explain this link. According to Ross and coherently with what stated in the previous section, such theories can be sorted into two categories: those suggesting that oil-generated wealth causes governments to do a poorer job in promoting economic development (through ineffective education policies, corruption, etc.) and those suggesting that oil-generated wealth makes countries less democratic; with Ross, our survey now follows this second line of research.

Second, he unfolds the analysis around two different dimensions: the geographic dimension, attempting to test whether any causal link is due to the (non) democratic performance of particular groups of countries with some cultural and historical characteristics (i.e., the Middle East and its own Islamic culture); the sectoral dimension, with the estimate of the effect generated by different types of primary resources.

Ross introduces the three main causal mechanisms that can explain the link between energy rich countries and authoritarian rule: the rentier effect, the repression effect, the modernization effect, which now we briefly explain.

• The rentier effect. Countries rich of gas, oil, or other natural resources gain much of their revenues from stamps, royalties, or export taxes. Such rent-seeking activities can be used to relieve social pressure that might otherwise lead to demand of greater accountability. This may occur in three ways. The first is through a taxation effect. Since governments get sufficient revenues from oil or other resources, they do not have to impose tight budgets and / or heavy tax burdens on citizens, thus relaxing their control over government activity and making fiscal pacification much more effective. Second, through a spending effect, oil revenues can be (at least partially) used for general spending and for patronage, thus dampening latent pressures for democratization. Third, through a group formation effect: governments can use their money to corrupt or prevent the formation of independent social groups that may be inclined to demand political rights.

• The repression effect. This (much more political) story unfolds as follows: oil-generated wealth may induce governments to spend more on internal security, halting the population’s democratic aspirations. Since the government has more money available, it is less costly to be authoritarian in order to avoid the sharing of its rent with the population. This effect is consistent with Collier and Hoeffler (1998) findings that natural resource abundance tends to make civil war more likely, since the expected benefit of winning the war is much higher for the different stakeholders at play (governments, oppositions, political parties, ethnic groups, oligarchies).

• The modernization effect. Democracy stems from a collection of social and cultural changes, including occupational specialisation, urbanisation and high levels of education. None of these changes are likely to occur in a resource abundant country: the labour force is trapped in the energy sector and does not shift to the manufacturing and to the service sector, citizens are not forced to move to the cities and the lack of economic need diminishes the effort of investing in human capital. As a side effect, it is known than democratic pressure is low when there are less educated citizens, thereby reinforcing the effect.

Ross empirical findings are consistent with the theory and can be summoned as follows: first, oil and other mineral fuels (gas, coal) do hurt democracy. Second, energy resources inhibit democracy in poor countries while in rich countries such link is not statistically significant. Third, the link is not specific to the Middle East but valid at the global level. Fourth, all resources, included non-fuel mineral wealth, hinder democracy. Fifth, there is weak evidence to support all three channels presented above, the rentier, the repression and the modernisation effect.

Discussion

To conclude this brief survey, does not only resource wealth reduce economic growth, but also curses through hindering democratic institutions: thus, the trap of natural resources has both an economic and a political dimension.

Still, results provided by this strand of literature are not particularly robust and many roads remain to be explored. With respect to theory, the high number of variables at play and their complex interactions call for deeper analysis. Cabrales and Hauk paper (2007) is a firm move in this direction. Empirically, there are many caveats, both methodological and data related, as Brunnschweiler (2007) argues.

As regards data, it has been claimed that natural resources are not properly measured: most of the papers use the export share of primary exports in GDP as an index of resource abundance. There are several limitations in this measure: first, a measurement error appears, since GDP is modified by a change in the export performance; second, exports measure the flow of resources outside the country. They do not measure neither the stock of available resources (the abundance) nor the present value of such stock (the wealth). Empirical analysis should take care of this discrepancy with the theory; third, many papers identify natural resources with the whole primary sector, others select the mineral sector, others the mineral-fuel sector. Although it is claimed that the results are robust to the selection of any of these measures (Sachs and Warner, 2001), the literature should focus more on the energy sector, since most of the theoretical work is concerned with fuel-related rent-seeking or, more in general, with abundance of those minerals that are important inputs in contemporary production, such as copper and silicon [4].

A second critique is about the econometric methodology used: most of the works on the natural resource curse use cross-country regressions. However, since theoretical models describe mechanisms involving dynamic effects within the country, panel techniques (i.e., fixed effects, random effects, the Arellano-Bond estimator) should be used. The dynamic process is particularly important in the story relating energy and democracy, for which the discovery of natural resources should lead, with a lag, to the detriment of democracy and to the worsening of the quality of institutions. Ross (2001) goes in this direction by using pooled cross-section time-series data; however, more could be done on this aspect.

A final word should be said on democracy, such a blunt concept to be measured. Although this is a general critique to all the empirical research on the quality of institutions, the many indicators used for proxying democracy, corruption or the quality of institutions have many caveats, and do not address properly the multi-dimensional characteristics of such concepts.

These limitations are also the strength of this research field: the link between energy resources, growth and democracy has still so many aspects, peculiarities, and perhaps surprises that have to be discovered and correctly tackled by the scholars.

P.S.

References

• Bravo-Ortega, C., De Gregorio, J., The Relative Richness of the Poor. Natural Resources, Human Capital and Economic Growth, in Lederman, D., Maloney, W. (eds.), Neither Curse Nor Destiny: Natural Resources and Development, Stanford University Press, 2006.
• Brunnschweiler, C.N., Cursing the Blessings? Natural Resource Abundance, Institutions, and Economic Growth, "World Development" (forthcoming).
• Cabrales, A., Hauk, E., Democracy and the Curse of Natural Resources, Mimeo, 2007.
• Collier, P., Hoeffler, A., On the Economic Causes of Civil War, "Oxford Economic Papers", 1998, 50:563-73.
• Collier, P., Hoeffler, A., Resource Rents, Governance, and Conflict, "Journal of Conflict Resolution", 2005, 49:625-33.
• Gylfason, T., Natural Resources, Education, and Economic Development, "European Economic Review", 2001, 45:847-59.
• Hausmann, R., Rigobon, R., An Alternative Interpretation of the Resource Curse: Theory and Policy Implications, "NBER Working Paper", 2003, No. 9424.
• Lal, D., The Poverty of Development Economics, Harvard University Press, Cambridge, MA., 1985.
• Mehlum, H., Moene, K.O., Torvik, R., Institutions and the Resource Curse, "Economic Journal", 2006, 116:1-20.
• Persson, T., Tabellini, G., Development and Democracy. The Devil in the Details, "American Economic Review", 2006, 96:319-24.
• Robinson, J.A., Torvik, R., Verdier, T., The Political Foundations of the Resource Curse, "Journal of Development Economics", 2006, 79:447-68.
• Ross, M., Does Oil Hinder Democracy?, "World Politics", 2001, 53:325-61.
• Sachs, J.D., Warner, A.M., Natural Resource Abundance and Economic Growth, Harvard Institute for International Development Discussion Paper, 1995, n. 517.
• Sachs, J.D., Warner, A.M., Natural Resource and Economic Development: the Curse of Natural Resources, "European Economic Review", 2001, 45:827-38.
• Stijns, J.P., An Empirical Test of the Dutch Disease Hypothesis Using a Gravity Model of Trade, Mimeo, 2003.
• Stijns, J.P., Natural Resource Abundance and Growth Revisited, "Resources Policy", 2005, 30:107-30.
• Torvik, R., Natural Resources, Rent Seeking and Welfare, "Journal of Development Economics", 2002, 67:455-70.

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Getting A 'REAL' ONE-YEAR 'VISA'PART II

In our April issue, we looked at Thailand's one-year Temporary Extension of Stay for foreign nationals and took you through what is involved in obtaining a Non-Immigrant (Non-IM) visa-without which you can’t apply for the one-year extension.

Readers picking up the story this month should note that we are NOT talking about the so-called one-year multiple-entry visa, which requires you to leave the country every three months. 'Permission to stay in the Kingdom of Thailand on a temporary basis' means you do not have to leave Thailand at all. If you would like to refer to our April feature, please visit www.windowonlifestyle.com and look in the features archive.

The information below is based on documentation provided by the Immigration Bureau (IB) in April 2008. Readers should note that these documents are described by Immigration as 'guidelines for the IB to follow', not fixed rules. In every case, the Immigration Officer authorised to deal with your case has discretion to grant or refuse your application. The over-riding consideration applied to all applications is whether granting the stay is 'in the country's best interests'.

Some general points

• If your passport expiry date is less than one year after the date of your intended application, you may want to consider applying for a new passport. You will not be granted a stay that extends beyond the validity of your passport.
  
  
• If your Non-IM visa expires after your application has been accepted, you may be given an extension stamp several times as necessary. However, according to the IB documentation, the extensions while your application is under review cannot exceed a total of 30 days from the day after your visa expired.
  
  
• If your application is refused, you are entitled to know the reasons for the refusal. You may then resubmit your application for another review, citing the reasons for resubmission to a Competent Official holding the rank of Police Inspector or higher. This procedure will secure a decision in writing, whether the re-application is successful or not. This decision is final.

Do you fit the one-year bill?
The table below lists the categories that are eligible to apply for a Temporary Stay in Thailand, together with brief notes on the 'basis for consideration' of the application and documents required. For the purpose of this feature, some details may have been omitted. For full information, contact the IB or a competent legal practitioner. [NOTE: we have not included any category where less than one year is the maximum stay granted.] In all cases, the requirements include a valid passport, Non-IM Visa, application form and fee.

• Business / commercial employment
  Suitable income (see below), paid up capital 2m THB, audited accounts, proof of '‘sound financial condition', 4 Thai employees, work permit, full company documentation, including tax payment receipts (personal, staff and company)
  
  
• Employment by goverment agency / state enterprise
  Certified written request from relevant agency, work permit
  
  
• Investment of 3m Baht+ (eg buy a condo)
  Proof of money transfer, proof of approved investment [note: if you were granted a temporary stay earlier on the basis of a lesser amount, and have stayed continuously, the 3m Baht sum may be waived]
  
  
• Employment as qualified teacher (state or private)
  [State school] Certified written request, work permit; [private school] as for State school + school licence, qualifications / teacher’s licence
  
  
• Teaching apprentice or researcher at university
  State institution] Certified written request by dean of university; [private institution] as for state + confirmation letter from relevant goverment agency
  
  
• Enrolment in state or private educational institution
  Certified written request with details and length of proposed study [State school];. [private school]
  
  
• Parent, spouse or child of alien at educational institution
  Proof of family relationship. In case of parents, 500,000 THB in local bank account
  
  
• Employment by foreign media as correspondent
  Certified written request from Public Relations Department or Information Department of Ministry of Foreign Affairs, work permit.
  
  
• Studying Buddhism or 'performing religious function'
  Certified written request by National Buddhism Office or Prime Minister's Office or Mahachulalongkorn University, confirmation letter from abbot at relevant temple
  
  
• Working as a missionary
  Certified written request by Religious Affairs Dept or National Buddhism Office and from applicant’s own religious organisation
  
  
• Parent, spouse or child of a Thai national
  Proof of Thai nationality, proof of relationship (marriage must be de jure and de facto); child younger than 20, parent over 50; if alien married to Thai woman, total joint income not less than 40,000 THB per month
  
  
• Parent, spouse or child of a Residence Permit holder
  Same as above but + copy of Residence Permit and Alien Book
  
  
• Working for a charity
  Charity's operation licence, certified written request, list of other aliens employed
  Same as above but + copy of Residence Permit and Alien Book
  
  
• Retirement
  50 or over, income 65,000 THB p/month or bank deposit 800,000 THB or annual income 800,000 THB, relevant documents to prove above. [note: if you entered before 21 Oct 98 and have stayed continuously, the requirements are different/less stringent]
  
  
• Parent, spouse or child of a person permitted Temporary Stay under any of the above
  Proof of relationship, proof of status; child younger than 20; parent over 50

Income requirements-application based on employment

Nationality	Minimum income
Europe, Australia, Canada, Japan, USA	50,000 THB/month
South Korea, Singapore, Taiwan, Hong Kong,Other Asia, Mexico, South America, Central America, Eastern Europe	40,000 THB/month
Turkey, Russia, South Africa	35,000 THB/month
Africa, Cambodia, Myanmar, Laos, Vietnam	25,000 THB/month

Get it right or go home?

• If you don't meet the requirements, you’ll be given a 7-day extension to get ready to leave.
  
  
• Even if you meet all the requirements, but for some other reason the IB officer believes you are unsuitable, your application will be referred to a higher authority for a rejection order.
  
  
• If your application appeared to be OK at the time and were granted permission to stay, but later are found to be lacking in qualifications, your case can be referred to a higher authority for a revocation order.

Check your facts
The information given here is intended only as a guide and should not be used to form the basis of any decision whatsoever regarding your legal status in Thailand or the likelihood of being granted right to stay in the Kingdom. Before taking any action, making any application, or submitting any information to the authorities, you should seek the advice of a competent legal practitioner or other experienced/qualified consultant.

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Getting A 'REAL' ONE-YEAR 'VISA'

In love with Thailand? Want to stay here forever? Bored with visa runs?

Obtaining permission to stay in Thailand beyond the duration of your visa can be a fairly lengthy and complicated procedure; there are no shortcuts. The government has begun (quite rightly) to crack down on (a) people working in Thailand without permission - a criminal offence - and (b) people staying for long periods on an indefinite succession of 30 day 'visa-on-arrival' stamps. However, there are legal ways to extend your stay in Thailand. Not surprisingly, they involve more scrutiny of who you are and why you want to be here.

There are all kinds of esoteric and practical reasons that are accepted by the authorities as a reason to stay on longer-anything from being a film star to a missionary and much in between. For the purpose of this brief guide, we will confine ourselves to the circumstances which most commonly arise i.e. you come to Thailand, fall in love with the place and decide to settle here and get a job, start a business or retire. The first step to fulfillment of your dream is to get a visa.

Some definitions
A VISA is permission to enter Thailand for a stated number of days, granted by a Thai embassy or consulate outside the Kingdom. You cannot obtain a visa while in Thailand. Your visa may be single entry or multiple entry, the latter meaning you may leave and re-enter the country a stated number of times without applying for a new visa. This is often referred to, incorrectly, as a one-year visa; in fact, the maximum continuous stay in Thailand most kinds of visa is 90 days (Non-IM 'O-A' Long Stay is an exception).

A TEMPORARY EXTENSION OF STAY is granted by the Immigration Bureau under Section 35 of the Immigration Act B.E. 2522 and allows you to remain in Thailand for one year without leaving; in fact, with yearly renewals (subject to acceptance of your application) the holder of a Temporary Extension need never leave Thailand! Note however that, even if you fulfill all the criteria embodied in the Act and the current rules applicable, granting of permission is at the discretion of the relevant Immigration Officer. So, as always, it pays to be nice. There is no automatic right for a foreign national to be granted 'temporary stay'.

The right visa – get yourself a Non-IM
The most common kinds of visa are (a) Tourist, (b) Non-Immigrant (Non-IM – several classes) and (c) visa-on-arrival; the latter is not really a visa but a permission to enter the Kingdom for 30 days without a visa.

Neither a tourist visa, nor a 30-day 'no-visa' stamp in your passport, will enable you to apply for an extension of stay. You must have a Non-IM visa of some sort. This cannot be obtained within Thailand. Ideally, you should apply in your country of origin, but you can obtain one from most Thai Embassies or Consulates. The nearest to Thailand are: [embassies] Singapore, Kuala Lumpur (Malaysia), Phnom Penh (Cambodia), Vientiane (Laos), [consulates] Savannakhet (Laos), Penang & Kota Bahru (Malaysia).

If you are making a special journey to one of these places to apply for your visa, check that (a) the consular office where you are headed is currently issuing Non-IM visas and (b) you have all the correct documents. If your application is incomplete in any way, you will be turned away and obliged to re-enter Thailand on a 30-day stamp – or go home!

Which Non-IM is the right one?
There are currently 10 different categories of Non-IM visa, the most-commonly held being 'B' (working) and 'O' (loosely referred to as a retirement visa), the most peculiarly named the Non-IM'IM' (government-type investment) and the one least people know about is the Non-IM'IB' (regular investment); this one means you can apply for a Non-IM visa (and therefore the rolling one-year temporary stay) if you buy a condominium worth 3m Baht or more.

However, note that voluntary (unpaid) work also requires a Non-IM visa, as does missionary work, study, journalism, film producing etc. Even superstars need a Non-IM, unless they’re simply here on vacation, although I doubt they find the process as arduous as most of us.

The documents required to get a Non-IM visa vary depending on the visa type, the most onerous being the 'working' visa. These include: [the obvious-applicable to all Non-IM applications] the visa fee, a passport with at least six months validity, 2 photos (hair is allowed but hats are not), adequate finance (around 20,000 Baht per body usually does the trick-but not for the 'retirement' visa ), a perfectly filled-out application form and [the more obscure] a massive stack of documents relating to the company that plans to employ you. The company will do this bit for you, but beware that nobody's perfect and many a 'straightforward' Non-IM visa run to Penang or similar has come to grief because of one missing bit of paper. It pays to make sure (politely) that your prospective employer's harassed clerical officer has double-and triple-checked everything before you head for the airport.

We don't have space here to list all the requirements for each category, but an excellent source of concise information is the Thai Embassy in UK's website: www.thaiembassyuk.org.uk Another source of information is www.thaivisa.com, although take note that the ‘information’ tends to be forum-based and anecdotal; a useful top-up on current practices, but no replacement for sound knowledge of the rules and procedures.

The next step
So, you've got your Non-IM visa and that’s it, right? Not quite. You've completed step one. You now need to start getting ready to apply for your Temporary Extension of Stay, which should be applied for about at least one week before your Non-IM visa expires. The documentation provided by the Immigration Bureau identifies the "Basis for Consideration" for each and every case. The first ‘basis’ in each case is: "The alien has obtained a temporary visa (Non-IM) and…"

More next month…
Check out the next (May) issue of Shop WINDOW on Lifestyle for exhaustive details of who is eligible to apply for a Temporary Extension of Stay, what other bases of consideration are applicable and the documentary support you will need for a successful application.

We have taken every pain to research this article and ensure its accuracy. However, the rules change frequently and different sources do sometimes give different answers. You should verify details independently before making any earth-shattering decisions.

http://www.windowonlifestyle.com/features_useful_info/one_year_visa.htm

Vietnam - News and Regulations

ECONOMIC GROWTH - Citigroup praises outstanding Vietnamese growth figures

HA NOI — In the shadow of the global economic meltdown, Viet Nam’s GDP growth in 2009 outpaced regional economies with the exception of China, Citigroup said this week.

Viet Nam achieved 6.9 per cent growth in the fourth quarter, bringing the overall growth rate to 5.32 per cent for 2009, a stark contrast to Citi’s earlier forecast of 4.7 per cent.

The higher-than-expected 2009 growth rate has been attributed to statistical revision in previous quarters: the third quarter growth was upgraded to 6.04 per cent from a previously reported 5.2 per cent.

The biggest annual rebound was in construction sector, which expanded by 11.4 per cent in 2009 from almost zero growth in 2008. The rebound has been linked to strong monetary and fiscal stimulus, also evident from the acceleration of credit growth to 37.7 per cent in 2009, up from 25.4 per cent last year.

Year-end inflation touched 6.52 per cent (year on year) in December, with a full year average of 6.88 per cent, a touch below the 7 per cent forecast by Citi.

A mismatch between supply and demand is predicted to remain in the foreign exchange market even though the gap between market and official rates narrowed after some corrective measures were announced in November: a depreciation of the dong by 5.4 per cent and a narrowing of the daily trading band to 3 per cent from 5. One US dollar now buys VND18,600. Over the past two weeks, trading has remained above the official ceiling rate of VND18,479 to one US dollar.

The market is now waiting for rise in the dollar supply after the Prime Minister ordered major corporations to sell dollars back to the banks to shore up the dong.

With growth remaining strong, the dong will likely remain under pressure in the shadow of the 2009 trade deficit which burst out to US$12.2billion, Citi economist Johanna Chua wrote in the report.

Over the last decade, Viet Nam with a population of 86 million has recorded an average economic growth of 7.3 per cent, bringing the per capita income to $1,000.

Viet Nam is widely expected to have a high growth rate this year at 7 per cent, and continue to be one of the fastest growing economies in the region.

The country had recovered remarkably fast from the global economic crisis although Bloomberg said Viet Nam’s excessively overheated growth and a return to inflation next year were causes for concern. — VNS

Average GDP growth in 2006-2010 expected at 6.9pct

Ministry of Planning and Investment stated that the average GDP growth rate in the past five years from 2006 to 2010 was expected to achieve about 6.9 percent per year, compared to the proposed target of 7.5-8 percent.

The GDP growth rate calculated on criteria of price in 2010 was expected to increase twice as much as that of 2000, in comparison with the targeted growth rate of 2.1 times higher. The GDP par capita in US dollar to be calculated on the basic of 2008 exchange rate reached over $1 billion, equal to the expected target in 2010.

In the three major sectors, only the industrial and construction sector failed to reach the targeted average economic growth rate, the two remaining sectors of agriculture, forestry, aquaculture and services fulfilled the targeted annual growth rate. The ministry of Planning and Investment predicted that the export turnover in 2009 and 2010 would be lower than the expected annual growth rate in 2006-2010. The ratio of social investment capital over GDP in five years of 2006-2010 was expected to surpass the predicted one by 40 percent. TBKT

BANKING PROFITS - Caution with 2010 profit plan

Banks have started revealing profit targets for 2010 which are quite impressive but in a way cautious too due to predictions about difficulties in 2010.

Although facing with many hardships from the global financial crisis, banks have harvested many successes in 2009. Most banks reported profit exceeding their plans. However, banks are now quite cautious when setting profit targets for 2010.

Tran Phuong Binh, Eastern Asia Commercial Joint Stock Bank (EAB)'s general director said that his bank's pre tax profit target is set at 1.1 trillion dong for 2010, higher 350 billion dong than 2009's plan.

Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank)'s chair, Dang Van Thanh, said that his bank targets to reach 2.6 trillion dong of profit this year, higher one trillion dong against last year's plan and 700 billion dong of last year's actualised figure (in 2009, Sacombank earned 1.9 trillion dong of pre tax profit, higher 300 billion dong than the bank's approved plan).

With higher profit target for 2010, Thanh said there will be pressures, especially the market still remains difficulties, the difference between deposit rate and lending rate is being narrowed and the capital mobilisation sources are more difficult.

Therefore, in order to gain profit target in 2010, Thanh said that Sacombank will restructure capital sources and develop services to increase capital sources.

According to Nguyen Hoa Binh, Vietnam Joint Stock Bank for Foreign Trade (Vietcombank)'s chair of director board, the aim of controlling credit growth at 25 percent in 2010, lower than 2009's figure, does not mean that credit operation would not have opportunity to develop. Binh added, the current difficulty is seeking saving sources when other investment channels are being recovered.

Vietcombank's profit in 2009 was 4.4 trillion dong, higher than last year's target at 3.4 trillion dong. But, Binh said, his bank's profit target this year is not much higher than last year's actualised figure.

Representative from Asia Commercial Joint Stock Bank (ACB) said that the bank's profit in 2009 was not much higher than the approved plan of 2.7 trillion dong. At the same time, ACB set a modest profit target for 2010 because according to ACB, profit must go with stable development. Additionally, both lending and deposit activities this year will face more difficulties.

Banks set modest profit targets in 2010 mainly due to earning from credit activity is predicted not to be high like previous year's figure because the government's short term lending rate subsidisation policy ended.

In fact, earning from credit activities accounts for large part in total earnings of banks' profit (about 65-70 percent in big banks and 80-85 percent in small-scaled banks).

Meanwhile, competition on saving rate is becoming tenser and banks are tending to offer allowable maximum saving rate whereas the lending rate is still being controlled. In addition, earning from other services is predicted to be narrowed this year. DT

MONEY MARKET POLICY - SBV pumps $789m into market to ease inter-bank rate

The State Bank of Vietnam has pumped 15 trillion dong (US$789.47 million) through open market operations to cool down an over-heated interest rate on the inter-bank markets where some banks are struggling to accumulate capital.

Commenting on the move, head of Monetary Policy Department of the central bank Nguyen Ngoc Bao said: "Injecting capital through open market operation is a very normal activity for a central bank to balance supply and demand."

I Some banks report that after the initiative, the inter-bank rate was lowered to below 12 percent for short capital, 11 percent for week capital, and 8.5 percent for overnight loans.

The central bank aims to bring the inter-bank interest rate down to around 9%.

I have been said to illegally rise to 16-17 percent per year for two-week to three-month terms. Normally, inter-bank rates were equal to or slightly higher than the refinance interest rate, which currently stands at 8 percent.

"The pumping of the central bank helps ease off a lack of liquidity in many banks," said Nguyen Thanh Toai, deputy general director of Asia Commercial Bank.

Last month, rumours had it that the central bank had injected about 30 trillion dong ($1.5 billion) to support banking liquidity but the central bank denied the bank bailout.

Associate Professor Tran Hoang Ngan at the HCM City Economics University assumed that the lack of liquidity was because banks used up their financial capacity in 2009, especially on the economic stimulus package, and because the speed capital circulating back to banks remained slow.

The Vietnam Bank Association (VNBA) general secretary Duong Thu Huong noted that capital always became scarcer in the latter part of the year, when many firms borrow to payoff loans and settle contracts. "We call1his capital tension a seasonal capital shortage"

In an attempt to attract capital to balance liquidity, some banks are said to have negotiated deposit interest rates with customers bC10nd the 10.49 percent cap set by the central bank and the VNBA.

"We have measures to rationalise financial sheets for these cases," said a bank official who asked to be unnamed, adding: "However, the lack of liquidity at this time is just temporary. After Lunar New Year, everything will be ok."

While banks and customers under the table push deposit rates beyond recommended levels, lending rates now are officially frozen at 12%. That means banks are being squeezed for profits at the very least, with some even posting losses if they entirely comply with the cap.

Commenting on the issue, Le Xuan Nghia, deputy head of the national financial supervisory commission, said: "The market always acts based on its rules. If the market operates normally, interest rates will reflect true capital costs. If there is something unusual, the market itself will adjust. VNS

POWER - Thermo power JSC estimates gaining pre-tax profit of 830b dong

Southern bourse-listed Pha Lai Thermo Power Joint Stock Co (coded PPC) announced earning 2009 revenue of 4.797 trillion dong, exceeding 14 percent of the year plan, in which the total costs were estimated at 3.976 trillion dong and pre-tax profit of 830 billion dong.

The above-mentioned costs also included the foreign debt in yen to be calculated up to the 31 December forex rate.

The company revealed that the two turbines No 2 and 5 continued being put into operation and delayed their general maintenance services in 2010, resulting in the total electricity output in 2009 of 7.357 billion KWh in 2009 and total electricity output sold to Electricity of Vietnam Group (EVN) of 6.62 billion KWh. VNS

ENERGY EFFICIENT BUILDING - Viglacera Land builds 55 ecological villas in North

Viglacera Land Co today January 8 is to start construction on project of building Hoan Son ecological villa area in Tien Du Dist in the northern province of Bac Ninh, about 20 kilometres from Hanoi on Northeast.

The project covering a site of 20.3 hectares with a total investment of 170 billion dong will include 55 garden house villas with 32 villas Grade A, eight villas Grade B and 15 villas Grade C.

Along with ecological garden houses in Bac Ninh province, Viglacera Land also invested in building many industrial zones and office and housing zones, trade centres in Hanoi.

The company's high-ranking project of apartment, office and trade centre in Tay Mo, Tu Liem, Hanoi has recently been started work. DTK

HIGHWAY/TRANSPORTATION PROJECTS - Ministry of transport prepares for investing in Mai Dich-Noi Bai highway project

Ngo Thinh Duc, deputy minister of transport has lately released final decision about preparing to invest in Mai Dich-Noi Bai highway project.

The project of upgrading Mai Dich-Noi Bai route into the highway one will be conducted by Vietnam Expressway Development Co (VEC) and China Bridge and Road Corp.

The investors plan to build a new bridge in accordance with the research proposed by China Bridge and Road Corp with construction scale of four lanes and two lanes for urgent stopping of vehicles.

As for the project's implementation process, after Chinese party finishes its research works, ministry of transport will take responsibility for making report to ministry of planning and investment and ministry of finance before submitting to the prime minister for final approval.CAFEF

Vietnam - News and Regulations

FINANCING - Vietnam, Indonesia and Philippines plan January global debt sales

Indonesia, the Philippines and Vietnam are competing to be among the first Asian governments to sell foreign-currency bonds in 2010, as a global economic recovery supports investor appetite for emerging-market debt.

Indonesia plans to sell as much as $4 billion of US dollar bonds with 10- and 30-year maturities, a person familiar with the matter said today. The Philippines is preparing to sell as much as $1.5 billion of debt denominated in dollars or euros, while Vietnam plans to raise as much as $1 billion in dollar bonds this month, according to people aware of the plans.

"There's appetite for high-yielders," said Michael Pisler, an emerging-market debt trader at SJS Markets Ltd in Hong Kong. "The biggest determining factor will be fund inflows into the region as the economies improve."

The difference in yield to own bonds in developing countries instead of Treasuries dropped 4.16 percentage points last year to 2.74 percentage points, according to an index compiled by JPMorgan Chase & Co. Global funds bought more than $8 billion of emerging-market debt in 2009, after pulling out $18 billion in 2008, according to data published by EPFR Global.

The government may sell global bonds through a placement "when the time is right," Finance minister Sri Mulyani Indrawati said in Jakarta today, without giving details. Indonesia hired Barclays Capital Plc, Citigroup Inc. and Credit Suisse Group AG for a sale, a ministry official said last month.

Time is Right

Indonesia, Southeast Asia's biggest economy, last sold $3 billion of bonds in overseas markets in February, and raised $650 million from the sale of Islamic dollar bonds in April. The government plans to raise $11 billion from local and overseas bond sales in 2010 to finance a budget deficit forecast at 98 trillion rupiah ($10.4 billion), or 1.6 percent of gross domestic product

Indonesia's budget deficit totalled 87.2 trillion rupiah last year, less than a forecast 129.8 trillion rupiah, the finance ministry said on January 1. The economy probably grew 4.3 percent to 4.4 percent last year, the ministry said.

Moody's Investors Service lifted Indonesia's foreign- currency debt ratings one level to Ba2 on September 16, citing the economy's resilience. The Moody's rating is two levels below investment grade.

Investors demand a 2.08 percentage points yield premium over US Treasuries to buy Indonesian debt, according to the JPMorgan EMBI+ spread. The gap narrowed 70 basis points in 2009, compared with a 167 basis points widening in 2008. The cost to protect the bonds against default also fell in 2009, according to credit-default swap prices compiled by CMA DataVision.

Philippines, Vietnam

Yields on Indonesian 30-year debt and Philippine 25-year dollar debt rose today, ING Groep prices showed.

The Philippines has sold dollar-denominated bonds every January since 2005, according to data compiled by Bloomberg. It plans to raise $2 billion from the sale of overseas debt in 2010 to fund a budget deficit that Finance Secretary Gary Teves said may climb to a record 293 billion pesos ($6.4 billion) this year.

The Philippines is "opportunistic" in its borrowing and will sell overseas bonds when it's the "right time," central bank Governor Amando Tetangco told reporters today in Manila.

The central bank allowed the government "in principle" to sell up to $1.5 billion of global bonds, a person familiar said on December 29. Separate approval was given to a plan to sell about $500 million in yen-denominated bonds, the person said.

"The government would want to put its finances in a solid footing by borrowing abroad early and at good levels," said Roland Avante, treasurer at Manila-based Sterling Bank of Asia. "That, and the huge liquidity in the local market, would help ease pressure on domestic debt."

Vietnam may sell notes with 10-year maturities, according to a person who declined to be identified before a public announcement. Vietnam hired Barclays Capital, Citigroup Inc. and Deutsche Bank AG to manage the sale, the person said.bloomberg

INSURANCE - Number of new insurance contracts up 13pct in first 9mths of 2009

In the first nine months of 2009, the number of new insurance contracts grew by 13 percent year-on-year. In which, that of investment insurance deals (including universal insurance and unit link) posted the highest growth of 78 percent, followed by term assurance about 20 percent, endowment insurance moderately up 2 percent, reported Vietnam Insurance Association.

Endowment insurance products still continue leading market in terms of number of valid contracts, but the volume of new contracts accounted for 61.2 percent only, showing that investment insurance products (especially universal insurance) are attracting the attention of customers and life insurance agents.

Takashi Fujii, general director of Dai-ichi Life Vietnam said that in the upcoming time, the universal insurance products along with traditional insurance products will become key units of insurers. According to Pham Truong Khanh, Marketing director of Korea Life, in US, the individual life insurance and permanent life insurance are taking first with the market share of 40 percent, and then investment insurance with 37.2 percent and endowment insurance 22.8 percent.

In Vietnam, in parallel with the development of life insurance segment, some products such as endowment insurance will be dominated by other products with high protective and flexibility. Thus, life insurers now are paying special attention to the development of new products to bring various options for customers, Khanh said.

The number of new investment insurance contracts in Vietnam only accounts for 16.5 percent of total new deals. Meanwhile, in China, the ratio is 31 percent and in Hong Kong 39 percent. Many specialists assessed that the volume of new investment contracts of local insurers still cannot surpass traditional insurance field. Depending on demand, income and awareness of customers, insurance counsellors will offer suitable products.

Factually, in Vietnam's life insurance market, the products are designed based on term life, endowment and universal insurance. Endowment is a type of life insurance that is payable to the insured if he/she is still living on the policy's maturity date, or to a beneficiary otherwise. But the product has no refund value and leans to the saving value through paying fixed fees in short time (commonly 10-15 years). Universal insurance allows flexible fee payment. Life insurance companies all design products based on these insurance lines and call it by different names.

Vietnam's insurance market is more developed than many countries with the quick update on new insurance products. But, the market has no annuity insurance (that aims to help insurance buyers more secured on old age).

Senior official of a life insurer shared that his firm remains hesitant in fields of annuity insurance because of without particular guidance circular of the finance ministry.DTCHK

Infrastructure - Vietnam sets minimum size for refineries

The chair of National Oil and Gas Group (PetroVietnam) said at a press conference in Hanoi yesterday that it would be inefficient to invest in small oil refineries with a capacity of just 6.5 million tonnes of crude oil per year.

"This is the lesson drawn from Dung Quat. The group has set an annual capacity of 10 million tonnes of oil for the Nghi Son and Long Son refineries," Binh La Thang said.

The investment capital for Dung Quat in central Quang Ngai Province, was around $3 billion. Thang said PetroVietnam planned to raise the capacity of Dung Quat to1 0 million tonnes of oil in the future.

To ensure that Dung Quat had enough oil to refine, Thang said oil would be sourced from a number of fields and imports; not just Bach Ho.

The plant refined nearly 2.3 million tonnes of crude oil from Bach Ho last year and processed 1.49 million tonnes of petroleum products.

The Nghi Son refinery, in central Thanh Hoa Province, has an investment capital of$6.2 billion. Phung Dich Thuc, PetroVietnam CEO, said: "We are preparing to invite tenders who have enough capacity and are suitably qualified to carry out the project. We hope a joint venture can be established in the second or third quarter of this year. "

Long Son refinery will have an expected investment capital of more than $8 billion.

"The group is talking with partners from the Middle East, Malaysia and South Korea. We hope to sign a contract with them to undertake the project this year but negotiations are rather complicated," Thang said.

At the press conference, the group reported that it expected to earn a record revenue of 329 trillion dong (US$18.3 billion) this year, up 24 percent against 2009.

Of that total, about $7 billion is expected from crude oil exports, with the price of a barrel of oil estimated to average $65. The remainder will come from oil and gas services, fertiliser and power generation. The company expects to pay 96 trillion dong ($5.3 billion) to the State budget.

Thang said PetroVietnam expected to pump up about 15 million tonnes of crude oil and 8 billion cubic metres of gas this year.

Thang said the figure was less than last year's because recently discovered oil fields were small. To raise its total output, the group plans to pump up 500,000 tonnes of crude oil abroad this year.

The group now has 60 overseas projects in 14 countries, including Russia, Venezuela and Malaysia.

"Last year, PetroVietnam signed a record 13 oil and gas exploration and exploitation contracts in the country. It also exploited a record 8 billion cubic metre of gas, a year-on-year increase of 7%, "Thuc said.

"The company also churned out a record 755,000 tonnes of fertiliser and generated 8.47 billion kWh of electricity last year," he said.

"Four other records were set in oil and gas output, revenue from services, the number of new projects implemented [14] and social welfare 940 billion dong ($52 million).

However, the group's total turnover fell 8 percent to 265 trillion dong ($14.7 billion), mainly owing to the lower price of crude oil on the world market, said Le Minh H6ng, the group's deputy director general.

"The fall was only slight thanks to great efforts to raise crude-oil output and improve services," Hong said.

PetroVietnam produced 16.3 million tonnes of crude oil last year, up 9 percent from a year earlier. It paid 91 trillion dong to the State budget.vns

PRIVATISATION - Petrolimex to equitise

Prime minister Nguyen Tan Dung has approved the privatisation plan of Vietnam Steel Corp (VNSTEEL) and Petrolimex.

As for the holding company VNSTEEL, the state will keep over 65 percent of chartered capital; appraise the corporate value (excluding corporate value of Thai Nguyen Metal Refining Vocational College.

In the equitisation plan of Petrolimex, the state's minimum holding size will be 75 percent of charter capital to shape multi-ownership group. Members of Petrolimex Group will be organised under the corporation model.

As for the training facilities of both corporations, after being equitised, VNSTEEL will continue managing Thai Nguyen Metal Refining Vocational College. Ministry of Finance ordered State Capital Investment Corp (SCIC) to separate the value of Viettronic Technological College from the corporate value of equitised VNSTEEL and transfer management on Viettronic College to Vietnam Electronic and Informatics Joint Stock Corp.

Petec Trading and Investment Corp under Petrolimex will be taken over by PetroVietnam.gov website

INFRASTRUCTURE/POWER-“BUILD OPERATE TRANSFER NEWS- HIGHLIGHTS OF THE NEW BOT DECREE ON INVESTING IN INFRASTRUCTURE”

The Government of Vietnam issued Decree 108 regulating investment on the basis of BOT, BTO and BT contracts on 27 November 2009. It will take effect on 15 January 2010 and completely replace previous regulations on BOT, BTO and BT investment in Vietnam.

Decree 108 provides regulations on sectors, conditions, order and procedures for investment, investment incentives applicable to, and the rights and obligations of parties to BOT, BTO and BT contracts. Decree 108 shall apply to investors, to State bodies authorized to enter into and implement project contracts, and to other bodies, organizations, individuals and enterprises involved in implementation of projects.

Pursuant to Decree 108, the Government encourages the implementation of projects for building, operating and managing new infrastructure facilities or projects for renovating, expanding, modernizing, operating and managing existing works of the following sectors:

- Roads, bridges, tunnels and road ferry landings;

- Railways, rail bridges and tunnels;

- Airports, seaports and river-ports;

- Water supply systems; drainage systems; and waste and sewage collection and treatment systems;

- Power plans and power transmission lines; and

- Other infrastructure facilities as decided by the Prime Minister.

The selection of investors can be accomplished in two ways:

Where there are two or more investors register the project with the Authorized State Body within 30 working days from the last publication date of the relevant published list of projects, the selection of investor for the project must be through tender process.

There are two cases where direct appointment may be applied, namely: (i) where there is only one investor registers the project with the Authorized State Body within 30 working days from the last publication date of the relevant published list of projects; and (ii) the project is required to be implemented in order to satisfy an urgent need to use infrastructure facilities as permitted by the Prime Minister.

An investor who is selected through tender process or direct appointment must agree with the Authorized State Body on the terms and conditions of the BOT, BTO and BT project contracts and other related contracts (if any). Upon agreement, the investor and the Authorized State Body will sign off the BOT, BTO or BT project contracts and related contracts (if any). Then the investor must apply for issuance of investment certificate to the project company. Regarding foreign invested project company, the investment certificate is also considered as the business registration certificate of the project company. After the project has been issued with an investment certificate, the investor and the State Authorized Body will officially sign the project contracts.

Rights and obligations of project companies must be agreed in one of the following ways, (i) the project company shall sign the project contract and become, jointly with the investor, one party of the project contract, or (ii) the Authorized State Body, the investor and the project company shall sign a document permitting the project company to assume and exercise the rights and obligations of the investor.

Security for the obligation to perform the project contract may be provided in the form of a bank guarantee or other security for obligations as prescribed in the Civil Law.

Under the old Decree 78, the security ratio for the contract obligation must not be lower than 3%, 2% and 1% of the total investment capital of the project, subject to the level of total investment capital of the project. Decree 108 has adjusted the security ratio and the capital level, e.g. for projects with total investment capital up to VND 1,500 billion, the security ratio must not be lower than 2% of total investment capital.

From 15 January 2010 (the effective date of Decree 108), not only the Ministry of Planning and

Investment but also provincial people’s committees shall have power to issue investment certificates for BOT, BTO and BT contract projects in certain cases. Regarding tax incentives, Decree 108 only provides general statement whereby tax incentives applicable to BOT, BTO and BT project contracts shall be in accordance with the applicable tax laws and regulations. BOT and BTO companies shall be exempt from land rent for the whole duration of implementation of the projects and BT companies shall be exempt from land rent and land use fees for the area of land used to construct the BT project works for the duration of construction of the works.

Decree 108 contains the following transitional regulations:

Investors implementing BOT, BTO and BT contract projects for which an investment certificate was issued prior to 15 January 2010 shall continue to implement in accordance with their current project contracts and investment certificates.

BOT, BTO and BT contract projects which already had a decision on selection of investor prior to 15 January 2010 shall not be required to apply the procedures on tendering in Decree 108.

Unless otherwise decided by the Prime Minister, any investor who entered into a BOT, BTO or BT project contract prior to 15 January 2010 and who has not yet been granted an Investment Certificate must amend the current project contract and carry out procedures for issuance of investment certificate as required by Decree 108.

CRM sustainability in a post-recession economy

By Denis Pombriant, Founder and managing principal, Beagle Research Group, LLC

17 Dec 2009 | SearchCRM.com

Sustainability is the next big issue for CRM. Coming out of a self-induced recession caused by overleveraging and other forms of overconsumption, we can expect people and companies to be more cautious about their spending. We really have no choice -- liquidity, or credit availability, is low, and those who have cash are inclined to hoard it.

But even assuming easy credit, there are other drivers, such as the escalating cost of energy, which will serve to keep the economic brakes on. In this revised landscape, economic drivers will cause business to rethink some processes, with the result that demand for new software should be just around the corner.

None of this is bad news, and it smacks of economic opportunity. The trick, as always, is to discover the drivers and the processes early enough to position ourselves and our companies to take advantage.

The economic drivers that I see include tight and expensive energy supplies, a cautious economy, satiated customers and a demographic shift. Other than that, it’s smooth sailing. Let's explore these individually.

Energy

As the economy was tanking last year, gas peaked above $4 per gallon and jet fuel was even more expensive. In a very short period, the cost of transportation doubled for many people, and that’s more than most can handle. From November 2007 to November 2008, Americans drove 122 billion fewer miles than during the prior period, according to the U.S. Transportation Department. That may have been good for the environment, but our economy thrives on business travel, and a big chunk of that decline was travel for business.

I haven’t seen comparable numbers for airlines, but we know they are in a seemingly perpetual cycle of losing money. High fuel costs didn’t help them. The opportunity I see here is the need to travel less while increasing our economic output. That will give an advantage to any software company that can help us maintain face-to-face contact with customers without travel.

Obvious candidates include the Web meeting vendors, but also consider companies that sponsor Web conferences for hundreds or thousands of people. While we’re at it, this could be a boon for desktop video development and production software. You don’t need lights, cameras and all that to produce influential short videos. I am already seeing some leading companies produce video -- Oracle, SAP and Sage come to mind. Look for more of this.

Economy

Before you throw your hands up and say the problem is too big for us to solve and we need a government solution, take a deep breath. The software trend over the last 10 years has been to reduce costs and pay as you go, and it’s been successful. Pay as you go has legs in this economy. Remember that K-mart, and later Wal-Mart, reintroduced layaway in time for last year’s holiday shopping. At the time, I said that software companies ought to be developing applications that enable other companies to do the same thing. A newish business model that enables more vendor financing would do a lot to sidestep the wreckage in the financial sector and help get the economy moving at a more robust pace. The opportunity here is obviously the software that makes small, short-term financing possible.

Customers

Thomas Friedman’s book “Hot, Flat, and Crowded” goes into great and disturbing detail about our overconsumption in the last couple of decades. At this point, many people are tapped out and have garages full of things they thought they needed. Many companies find themselves overleveraged too. Each of these ideas is reason enough to buy less, so vendors will need better tactics and strategies for uncovering real customer need. All this suggests a fundamental rethink of sales force automation (SFA). If you are an SFA vendor and can think outside the box -- with an eye to social media -- there’s opportunity awaiting you.

Demographics

An article in the Harvard Business Review by professor John Quelch last year uncovered an interesting truth about customer loyalty. People of a certain age -- think of them as post-tuition-paying baby-boomers -- are less interested in new things than in new experiences. We’re not talking about the garden-variety experience of someone having a pleasant time using your gizmo; this is about eating out at that Afghani place I like in Cambridge rather than remodeling the kitchen. It’s also about selling the McMansion and moving closer to the city so that it becomes realistic to take the commuter rail to a play in the evening. Quelch calls these people middle-aged simplifiers.

If you’re in CRM, this spells opportunity to rethink some business processes and use social networking to carefully listen to customers as they describe the next important things in their lives. Your customers will need to support new business processes to address the demographic shift.

So there it is. Out of adversity comes opportunity, and this piece only scratches the surface. There’s more out there if you look and apply ingenuity and innovation. Good luck with that.

The five dimensions of a social media persona

By Allen Bonde

14 Dec 2009 | SearchCRM.com

As a sequel to my last column, now that we have presented some definitions and direction for how social media fits with CRM, let’s tackle one of the most common questions I get these days: How should we be using Facebook/Twitter/Communities/etc.?

To set the stage, keep in mind that I think of social models as an evolution rather than a revolution. So from a multi-channel CRM or marketing perspective, it’s really useful to think of social media sites and options as “channels,” in the same way those in the service and support space think of email or chat as a channel.

Second, if you buy this channel analogy, it’s important to recognize that the roles a company and its employees (and customers and other affiliates) play on various social channels can be quite different, just as the tone we use, and format, and even expectations are different when using the phone vs. self-service or email vs. SMS. As an aside, this is why my firm has been adamant about suggesting to our clients that while, yes, they should create one overall corporate social business strategy, they should also assign separate owners for each of their target social channels.

Whether you are in support or marketing, your programs need to target the audience and leverage the unique characteristics of each channel. No, this is not rocket science, but with all the excitement around social media these days, it seems that common sense sometimes takes a back seat! What is (kind of) rocket science is characterizing the top channels, future channels and their interactions, and looking at all the dimensions that are in play. Fortunately, taking a “persona” view is a way to simplify all of this; and in the process, it provides a helpful view of how the top channels compare so we can “tune in” to the right approach.

Social channel personas

In marketing, a user persona is a representation of the goals and behavior of a real group of users, and it may include behavior patterns, goals, skills, attitudes and environment, and perhaps a few fictional personal details to make the persona a realistic character. For our purposes, I’ve taken a looser definition, although it’s fun to think of character traits that fit each channel.

For our social channel persona model, I’ve focused on five dimensions: Age, Relationships (the nature of connections), Activity, Tone and Persistence (of content). These are a mix of demographic and “usage” traits, but most importantly they cover two key characteristics of any successful community site, campaign or support effort: good content and good connections. With this framework, it’s interesting to look at some of the top social channels and see how they differ.

Facebook is perhaps the “hottest” channel today, and if you look at its profile using this model, it’s clear that marketers and members see a unique role -- which is good in terms of longevity and defining business value. Specifically using the dimensions of our framework, for Facebook, Age = young/adult, with 60% of members now over 35, and more females than males. Relationships = (highly) friends, Activity = fun, and Tone = casual. Finally, Persistence = days, with many members making daily updates, but not necessarily at the frequency of Twitter.

Compare this with LinkedIn -- where Age = mature, Relationships = friends/colleagues, Activity = work, Tone = business, and Persistence = months -- and we can see how these channels are distinct, require very different messaging and in fact can easily co-exist. We can do similar mappings for blogs, Twitter, private forums, video sharing, etc., not only to see how one channel may complement another but in some cases (think Facebook vs. MySpace) how one may be so similar that users can and do move from one community to the other!

Turn the channel

We can also use our persona model in planning social marketing campaigns or even online customer service strategies. One basic way is looking at demographics. Everyone with teens knows that they are all over Facebook. But so are a growing number of people over 35 and Moms, who are a fast growing user segment. Meanwhile, blogs (as a group) and LinkedIn remain older and more male-dominated, and Twitter is the youngest major social channel.

As a former CMO, aligning tone is also critical to me. And each social channel certainly has its own “style guide” that must be considered. Looking at the personas again, corporate messages play well “as-is” on LinkedIn, and that channel is emerging as a key information (e.g., white paper, presentations) portal via groups; but a much more casual, and even promotional tone may be needed for Facebook and Twitter.

Finally, the question of how often to post and monitor social channels, whether for marketing or customer service (think new product news, upgrades, patches, etc.), continues to be half art and half science. The “Persistence” dimension aims to provide some direction and can be used to help set and follow a publication schedule. For example, blogging once a week is a good goal for most corporate bloggers, but Facebook and Twitter content has a much shorter shelf life, requiring more frequent updates.

Of course, since I started to define our persona model, we have seen more focus on real-time search in the marketplace and Google’s announcement that they will feature live updates from Twitter, Facebook, et al. While this is still playing out, these developments certainly may change the game when it comes to the persistence -- and distribution -- of social content!

For this and other reasons, social media and how it relates to CRM is and will remain a moving target. That’s why a practical approach, a flexible plan and lots of market tests and user involvement are essential to make social media work for your customers and your business. The essential ingredients for creating such a social business strategy will be the topic of my next column. Stay tuned and Happy Holidays!

About Allen Bonde

Allen Bonde was recently CMO of eVergance and is a well-known analyst, entrepreneur and management consultant. He has 20 years of experience at McKinsey, Extraprise, the Yankee Group, and GTE (now Verizon); he has written for CIO.com and SearchCRM.com and has appeared on CNBC and Fox News. Bonde is the founder and currently managing director of Evoke CRM Partners (www.EvokeCRM.com), a consultancy focused on multi-channel customer strategies and the convergence of social media, self-service and CRM.