June 2001

June 2001

A note on the Fundamentals and Principels of Business Strategy

Introduction

Strategy, a much used word in the world, politicians, government officials, the military and business people use it and often abuse it. The usage of the word strategy should give their statements an additional impact and make it look more serious.

Strategy is an important element in life and could deliver a better return on investments or policy for that matter only it is used all to often incorrectly. At least to our understanding of strategy.

Strategy is an element of a hierarchical system which can make the creation and the execution of decisions better, easier and more logical. The role of strategy is a really important one as it is the first or highest one which includes the first steps to the execution. And everything has in the end to be measured against the efficacy. A brilliant strategy without a proper excution is as valuable to a company as a car without an engine. It might look good but not really helpful in going from A tot B.

We will try to bring some understanding into the idea of strategy. We will describe strategy, place it in a system and give some principels how to use and execute it.

Strategy

The definition of strategy is that it is the calculation of relationships among means, end and will or as the management, allocation, of resources, in anticipation on developments, towards a goal. The strategy is therefore mostly dictated by the availability of means than by the nature of the ends. Strategy is about what and when to do what in general terms to reach your objectives or what has to be achieved.

The strategy level is the first, highest, level which has to turn an idea into a feasible plan. Strategy is at the cross roads between, in the case of a company, the owners, read share holders, and the actual management of the company.

Strategy is responsible for the masterplan, the direction in which the entity has to work. It should give a layout of the main direction, clear, understandable and acceptable to all parties. This would make the execution of the strategy very much likely and the most important succesful.

The exact policy/execution, who is doing what, when and how, is something to be worked out at lower levels. The close involvement of the lower levels is therefore necessary to promote the proper execution. The lower levels are in the end effect responsible for the execution and they know what is possible.

All levels in the entity should to achieve this communicate with eachother regularly and without the impediment of hierarchical barriers. The hierarchical system is just a formal system and should not limit the flow of information. Without proper communcation between all levels, independent islands could be created who will start to work according their own ideas without taking care of the big picture. As long as their little thing will look good and works correctly everything will be allright. But in this system the achievements and quality will deteriorate rather quickly as the responsibility will automatically be inflated. As if there is none accountability and method to measure the achievements everything which is reached will be looking good.

A proper strategy connected with a management system should guide the whole process and make it succesful. But it should be remembered that a good strategy alone is not enough as strategy as such is equal to al other levels as it is dependent on their functioning to be succesful or not.

The System of Strategy

Strategy is only one part in a kind of hierarchical system which forms the entity or in this situation the company. The company has several levels and each part is responsible for one part of the operation or company.

The highest level are the owners of the company, the shareholders. The shareholders approve or disapprove the vision of the company and ofcourse the achievements of the company.

Just below that is the Board, in which the board members create and explain what the company is doing and what has to be achieved. They decide about what could be called the grand strategy. They design the vision of the company or what the company should be like. They translate the company achievements into the numbers. And finally they represent the owners of the company.

Just below the board are the CEO, CFO, COO and the CIO. At this level the company is managed on a daily basis, they are the ones responsible for the strategy which strategy is to be chosen and implemented. They create the main direction of the company and explain it to the next level.

The next level are the business units, if a company has several main products. On the next level are the divisions, these are the factories or offices of a company around the world. The next level are the departments, these are for example the sales, marketing and production departments of the factories or offices. And finally the lowest level are the people who do the actual work. The last four levels do the actual job and give an implementation of what actually has to be done.

The comunication between all levels has to be structured and has to be rather intensive to assure that the understanding is correct and that all have a strong commitment towards the company. A kind of responsebility has to be created towards the central management so that all parts are forced to pay attention to the company as a whole and not only to the interests of their own division. It should be avoided that one of the parts of the company start view themselve as an island.

Principels of Strategy

The management has to consider the following 6 principels in the creation and execution of strategy. These 6 points will deliver a guide to make the chosen strategy more succesful. The 6 principels for the creation of strategy are:

The right goal has to be chosen, it should always deliver superior long term return on investments.

It should deliver a value proposition or set of benefits, which should be different for what the competitors have to offer.

The strategy should be reflected in a distinctive value chain, to establish a sustainable competitive advantage. The activities should be different or have to be executed in a different way.

The strategy should include trade offs in the product and value chain. In other words some products, services and/or features should be abandoned or foregone in order to be unique.

The strategy should define in general terms how all elements of what company, business unit or division does fit together, A synergy has to be created and promoted in the company as a whole. All effects and side effects should be maximalised and used to the benefit of the company.

And finally the strategy has to assure a continuity of the direction, a good strategy is a long term plan which should not be changed every couple of years. This would only be a sign of weakness in the creation of the strategy and the execution would be consequently equally worse.

Conclusion

Strategy is in short the management, allocation, of resources, in anticipation of developments, towards an objective. Strategy is a delicate process which can be very beneficial to the development of a company. It will deliver a direction in which the company has to go.

A good strategy will be beneficially, internally and externally. Internally it will focus the company the reach the common objective with all levels, people, behind it. The chosen strategy is a translation how to reach the goals/vision set out by the management, board and indirectly the shareholders.

And externally it will make it easier to attract foreign capital And most importantly it will create the image of a strong company which knows what it is doing. Which will become visible at last if the quarterly results have to be made public.

May 2001

May 2001

A Financial Reassesment

Sell in May and go away

An old saying in the stock market is sell in May and go away, this indicated that the summer months historically did not deliver high returns on the stocks. The period from September/October until May were historically the best months to get a nice return on your investments. Is it still valid, should we consider to sell our portfolio and return after the summer break. The last couple of years did not support the old saying, on the contrary the summer delivered a nice return. The bull market and the holiday investors did give a boost to the market.

The year 2001 has not been a good year for the stock markets. The slow down of the economy and some lesser than expected numbers, profits, revenue and growth, of a number of companies made the market fall. Especially the Nasdaq and other technology heavy indexes experienced a near free fall in value. Companies have lost over 50 % in value compared to the unnatural prices of 2000 and before. The commuication and technology and especially the dot com companies, in short the ICT sector, had become very expensive in a very short time span. The ratios of those companies were staggering 80 to 120 times to even zero as profits were not yet realised but everybody wanted to be in. The demand was enormous and the price moved up accordingly. A bubble was created and what seemed necessary the bubble bursted as expectations could not be met and the economy started to grow slower.

The first quarter of 2001 saw a big sell off in ICT stocks and even other big and small cap stocks were hit by the sell off.

What will the year deliver to the stock market, as with stocks there is no certainty, and everything might be possible. But we could eventually make a forecast over investing in the stock market.

The economy

The value of the stock market is essentially a reflection of the expected development of the economy in general and the businesses operating in it specifically. The value of the companies is based on the future expectations of a company of what they are most likely to return on the investments, in short the sales, revenues and profits generated by the companies.

After several years of growth, the US economy and several other western economies have achieved growth rates of 3 % to 5 % annually for a couple of years in a row. Even the Asian economies could recover somewhat after the Asian financial and economic crisis of 1997. This growth translated into very positive balance sheets of the majority of the companies in the world, especially in the US and Europe. The ICT boom did its part to the growth.

The economic slow down in the US did lead to a negative trend throughout the world. Economic growth figures had to be adjusted downwards and instead of the nice 3% to 5 % growth, growth will be limited to a meager 2% to 3 % growth annually. The companies in turn could deliver growth rates of 15 % to 20+ % annually, and now they will only be able to deliver a growth of 5% to 10% annually. The spoiled investors have become somewhat dissatisfied with those limited growth figures. The earnings warnings of a number of bigcap and especially the ICT sector created a feeling of dissatisfaction in the stock trading community.

The insecurity in the stock trading community did become more pervasive by the big interest rate cut of the US Federal Reserve this led to speculations that the US economy was in a much worser state then anticipated. But the cut led to a rally on the stock markets of the world as it did give a positive signal.

The quarter results of the big caps were on the other hand better then expected or in line with expectations only a minority did not meet the expectations.

The US and the European economies are not growing that fast as in the previous period, there is a slow down. But it is still uncertain of the level of slower growth. This uncertainty of the economic growth is suppressing the growth of the stock market.

The slow down will most likely be smaller and shorter than anticipated, we expect a turnaround in the stock market in about 6 months. The economies of especially Europe will also show a good improvement in about 9 to 12 months. The US economy will return to a stable growth of 3-3,5% within 12 to 18 months. There is still a lot of potential in the western world which will be used on the medium term. The US economy may show some better figures than expected as the consumer demand might pick up. The durable goods orders and the homesales proved to be much better than expected.

Europe might have a slight advantage over the US as they have been lesser touched by the fall of the ICT stocks and have not experienced the boom which happened in the US in the nineties. There is still a large demand in Europe which will need to be satisfied. Thus an opportunity for growth in Europe, especially if the US slow down is lesser and shorter as first has been anticipated.

Asia and the emerging markets are of no big help for the stock markets or the US or European economies. They have still problems of their own and are highly dependqent on the growth of their economies on the well being of the western world.

The stock markets

In this assessment we will limit ourselve to the US and European stock markets as they are the most important and essentially the most secure to invest and have the best chance to deliver the best returns.

The stock markets are because of the slower growth of the economy very volatile and without any clear direction. The US slowdown even as it was expected hitted the market harder then was anticipated. The market expected a gradual slow down but when the first signs were worser than they anticipated they sold off large parts of their investments. Even if the signs were largely incorrect with the exception of some ICT stocks. These bad stocks took the whole market with them in their fall.

The market is thereby a victim of the wide difference in the expectations of the majority of the analysts on many companies. This does not give the market any direction, or the companies are performing good to very good or they are listed as bad performers and a candidate for the sell list. The largest disadvantage is that the companies are not belonging to one or two sectors but all kind of sectors and all kind of scales are involved. Small ICT start ups are in the same group as multinational multi-billion corporations. The ICT companies take the lead but as all sectors are present are in the group there is no direction, what so kind, in which sector to invest or to avoid.

The US interest cut of the Federal Reserve, Fed, should have been a support to the market, as it did in the beginning. But the analysts started to doubt the decision as they now suspected that the US economy was in a much worser shape than was anticipated by them.

The availability of cheaper money should support the market as it will probably do but on the short term it increased the insecurity in the market. The suspicious minds of the analysts might suppress the market with their doubts.

These three conditions made the market go up and down without any clear direction. This will continue for some time as the market will have to find itself and the strength to come back from the negative information. The market needs to bottom and need to find the strength to bounce back and show growth for some consecutive days or even weeks before the trust in the market will return.

The strenght of the markets is further undermined by the increased poitical tensions in the world. The relations between China and the US have deteriorated by the spy plane incident and the planned weapon deliveries to Taiwan. The Middle East has also become less reliable for the US and the world in general. The tensions between Israel en its neighbors and especially the Palestinian people have increased. Peace, stability and economic progress seem farther away than before in the Middle East.

These tensions and several other smaller and bigger and close by and remote conflicts have a bad influence on the strength of the stock markets in the world.

A volatile stock market will be around for some time. It will take at least a quarter to a half year before the market will find some direction. And up to six to nine months before the market can gain a positive direction upwards. The exception, as always, are the unexpected good consumer numbers which could create a summer rally. And amking the transition towards a positive direction faster and smoother.

In the mean time the stock markets will show a relatively sharp upward and downward movements with in the end possibly remaining flat. But the market will not have a big decline in value. The markets will have a more side way direction because of the lack of direction, indecisiveness, and the suspicious minds..

This year is therefore partly an example of sell in May and go away. The market will most likely not show any big growth this summer, with the exception of the above mentioned summer rally, but on the other hand it will present some opportunities to buy stocks at a very cheap price. This summer will most likely see the bottom of the prices of stock. An opportunity of one’s in lifetime.

Investment strategy

The best course for the future will be to hold on to the majority of the existing portfolio and prepare to enter the market on the low. This period will deliver an unique opportunity to buy some stocks at very competitive prices. There are still a large number of technology, ICT, stocks which hold much for the future. And there are a numer of other companies which were simply pulled down with the ICT sell off and are also at available at very attractive prices.

The market will not grow as quick as in the previous years but within a time frame of one to two years the ICT sector will belong again to the most promising stocks of the market. And long before that time the other stocks will have made good much of the losses incurred in the prevous months.

The division of a model portfolio, always dependent on your time horizon and your acceptance of risk, for a long time stock investor should consist out 75% stocks, 10% bonds and 10% property and 5% cash. The stock allocation should for example be balanced between the European and US stock markets with a bit more attention to the European markets. A small percentage should be allocated to the Asian tiger markets and the emerging markets. We could envisage the following allocation 35% in the European markets, 30% in the US market, 5% in the Asian tiger markets and another 5% in the emerging markets.

This stock allocation will benefit from the increases of the western markets after the recent decline and at the same time position yourself for the promising developments of the much talked about Asian century.

There are two ways to invest your money, the easiest way is to invest in mutual funds with a region or sector allocation. This is a safe way to invest without having the need to follow the markets every day. It is also possible with smaller amounts of money to enjoy the advantages of a wide spread portfolio.

Secondly, is to invest into stocks directly, which will need a better understanding of the market and a larger amount of money to make it feasible and worthwhile.

The US portfolio

The US stock market offers numerous opportunities, even as the market analysts are suspicious and does therefore not look that promising on the short term. Especially the ICT sector will face a rather difficult year. On the medium term the US economy will stabilise and the slow down will most probably will be a soft landing. The markets will react positively on this and the prospects for the future look good.

We continue to expect a good performance from the oil and energy sector. We like companies like Exxon, Royal Dutch/Shell, British Petroleum but also the oil service/offshore companies like Schlumberger, Halliburton, Baker/Hughes and Diamond Offshore.

The pharmaceutical sector also will remain an above average player, we like in this sector Pfizer, Merck, Johnson&Johnson, Bristol-Myers-Squib and Schering Plough. Beside the pharmaceuticals we like the HMO sector as they will get better returns every year. Here we like Caremark, Community Health, Health Management, Trigon Healthcare, Omnicare, United Health Group and Universal Health Services.

The closely related Biotechnology sector will make a return to the better performing stocks. Here we like companies like, Biogen, Biomet, Curagen and InvitroGen.

The financial/insurance sector will remain one of the better performers on the stock market. Companies like Citigroup, American Express, J.P. Morgan, State Street, AIG, Providian Financial, American General, Fleet/Boston financial, Freddie Mac, Fannie Mae and Allstate will most probably belong to the winners in this sector. But also large trading houses like Merril Lynch and Goldman Sachs will do allright.

The defense sector is finally coming out of the problems from the restructuring and the lower expenditures. The large companies with big stakes in the digitization and advanced technologies will deliver the best performance. Companies like Boeing, Lockeed, Northrop Grumman and General Dynamics will do very well.

Other companies we like are General Electric. Ford and Ballard Power Systems.

In the more defensive kind of companies we like the food and beverage sector with Heinz, Sara Lee and Pepsico, in the utlities sector we like Colonial Gas, Duke energy, AES and Eastern Utilities. But also consumer companies like Procter and Gamble and Gilette. And finally companies like Safeway and Walmart.

The ICT sector is another ball game were the first group promise a better performance within 6 months, the ICT sector will need 9 to 18 months to recover from the slump in sales, revenues and profits. On the long term ICT is one of the most promising sectors as the product package on offer and in the pipiline is very promising.

The following companies are likely to recover from the current situation and regain the strength they used to have. We like companies like Dell, Sun, Palm, HP, Texas Instruments, Intel, AMD, Applied Materials, Xilink, Microsoft, Oracle, Peoplesoft, Adobe, Red Hat, Linux VA, Cisco Systems, CSC, CA, Wind River Systems, Juniper, Sycamore, IBM, Ebay and Amazon.

In the telecomunication sector we like companies like Nokia, Qwest, BellAtlantic, Vodafone and SBC.

The European portfolio

The European market is much more fragmented than the US market. Every country has its own exchange and even wit the increased cooperation between the exchanges it is much more difficult to trade on all.

The economy and stock markets of Europe have not been through the same kind of booming period. The European bourses were thus also less hit by the sell off of the last months. But to be fair the economies of the European countries were also less succesfull. This will probably change on the short to medium term. The European economies should be able to increase their growth to a stable and enduring 3% a year,

In the financial sector we like BBV Argentaria, Deutsche Bank, Commerz Bank, Society Generale, BNP, Fortis, ABN-AMRO, ING, Royal Bank of Scotland, HSBC, Lloyds TSB, Banca Intesa, Banca di Roma and Mediobanca.

In the insurance group we like Allianz, Muencher Ruck, Zurich Group, Generali Ass. and Prudential.

The oil/energy group will also continue to perform very well, here we like companies like Royal Dutch/Shell, BP Amoco, Enterpise oil, TotalFina/Elf, and E.on.

The ICT sector also has some companies which could deliver some nice returns on the medium to long term. Here we like companies like Alcatel, Cap Gemini, Siemens, Infineon, SAP, Nokia, Logica, Sage and Invensys.

In the communication sector we like British Telecom, France Telecom, Deutsche Telekom, KPN/Qwest and Tiscali.

The pharmaceutical sector remains a growth sector with companies like Bayer, Roche, Astra-Zeneca and Glaxo-SmithKline.

In the defensive sector we like the food and beverage sector, with companies like Nestle, Numico, Danone, Diageo, Cadbury Schweppes and Unilever.

In the automotive industrial sector we like Daimler-Chrysler, BMW, Buderus, MAN, Mannesman, Peugeot, ABB, Sulzer and Rolls Royce.

And finally companies like Sanofi-Synthelabo and LMVH and Vivendi.

April 2001

April 2001

Emerging flashpoints Q1 2001

Conflicts anno 2001

The world is still ridden with several conflicts, conflicts which continue since a number of years. Or conflicts which seemed to have diminished but flared up again. The world has not become any more secure since the end of the super power stand off. On the contrary the world has become less stable and prone to new and enduring conflicts which are out of control. International diplomatic pressure can not end or even mediate in these conflicts. Any mediation is all to often simply used to improve the situation of all parties involved. It is a tactical decision to join any mediation or negotiations and not a decision to end the conflict.

Nearly all continents on the earth are victim to one or more conflicts. And the poorer the area the more likely a conflict will be present or about to start. Conflicts are not about politics anymore, they are about power, money, ethniticity and/or religion. This makes the majority of the conflicts even more brutal and long lasting.

To name a number of conflicts, on the Indian sub-continent, the fight between the Tamil minority, the LTTE, and the government in Sri Lanka. The fight between the Kasmiri independence movements against the Indian government. The fight in Afghanistan between the Pushtun Taliban and the coalition of movements in the northern alliance. And the communist insurgency in Nepal, which is getting worser every month.

In South America, in general there are problems with the drugs/criminal organisations which undermine the countries in the northern part of South America. And the more serious problem, namely, the fight between two leftist organisations, the FARC and the ELN, againt the government in Columbia.

The former territory of the Soviet Union. The fight between the Chechnian minority against the Russian government in Chechnya. The fight in Uzbekistan, Kyrgyzstan and Tajikistan against the IMU, an islamic movement fighting for the establishment of an Islamic state in Uzbekistan.

The problems in South-East Asia and Pacific Asia. The fight between the Karen and Shan minorities in Myanmar against the government. And the regular clashes at the border with Thailand between the Myanmar army and the armed forces of Thailand if the Myanmar security forces cross the border in pursuit of the Karen and/or Shan resistance movements The fight in the Philippines between the government and the Islamic/Moro movements in the south of the country. And the Philippines are facing a resurgent communist party, NPA, who are gaining strength and are increasing the actions against the government, often in cooperation with the Moro movements.

The African continent is facing probably the most intensive and deadliest conflicts.

The fight in Guinea between the Guinean armed forces and rebel movements out of neighboring Sierra Leone. The fight in Sierra Leone between the government with support of the ECOMOG and the forces of the RUF. The socalled first Great War of Africa in the Democratic Republic of Congo, DRC. The DRC is deeply divided by several movements with external support who fight eachother for the control of the country and its wealthy resources. The fight in Uganda between the several opposition movements and the government who want to eliminate the current government. The struggle between the Tutsi dominated government and the surpressed Hutu majority in Burundi. And finally the decade long fight in Angola between the government controlled MPLA and the rebellious UNITA.

These are the largest and intensive conflicts in the world and the world seems to get a couple of new conflicts added to the already to long list. Beside the here mentioned conflicts there a number of conflcts which are relatively small and are therefore not listed . Never the less these conflicts are dangerous and deadly but will probably be contained, remain small of scale and probably have a chance to be ended on the short term

The new or better intensified conflicts are on the Balkan, in the Middle East and in Indonesia. And these might if Murphy’s Law has a part in it become really dangerous and involve more countries.

Balkan

The last decade has not been a peaceful decade on the Balkan. The fragmentation of Yugoslavia did not happen without any problems. With the exception of Slovenia, all other new countries experienced problems in becoming an independent country. At first the problems with the Serbian dominated government in the former Yugoslavia about the establishment of an independent country. And secondly, there after the worsest of both, the internal struggles between the several ethnic groups in the societies of Croatia and Bosnia.

The last victim of this kind of conflict is Macedonia. The Albanian minority in the country with rather large support from Albanians out of Kosovo, and probably even on their instigation demand to be equally treated by the Macedonian government.

Another UCK kind of army/movement has become active in Macedonia. This organisation came out nothing. It was established within about two weeks. They call themselves, National Liberation Army, NLA. The NLA is probably led by Albanians out of Kosovo but is recruited mainly in Macedonia.

The first operation of the NLA was at the same time the birth of the organisation. The NLA occupied some hills in Macedonia and started to attack a couple of towns, Tetevo and surroundings, with long range ineffectual shootings. The NLA is hoping to receive massive support from the Macedonian-Albanians in their fight against the Macedonian government. The Macedonian-Albanians have until now an attitude of wait and see what is going to happen. Even if they support the idea behind the actions of the NLA. At the moment they are not certain about what to do, they support them because they are Albanians but do not yet accept the violence they use.

The reaction of the Macedonian government has been gradual. At first the Macedonian government reacted with police forces to end the problem but later they sended army units with heavy equipment to defeat the NLA. In the beginning the police and army forces returned fire from the build up areas and did not enter the mountains where the NLA was firing from. Attempts to seal the area were made but they were not be very succesful to defeat the NLA. Later on the Macedonian forces were moving into the mountains where they trapped the NLA. The strength of the NLA force which is fighting the governement is estimated from as low as 50 fighters to as many as 300 NLA fighters. As the Macedonian army moved into the area the majority of the NLA fled the area but a part remained and digged themselves in. This will be however a matter of time until they will be removed. The use of the heavy weapons have been limited until now for the danger of civilian casualties and not to receive any comments of the media and the west that they were using excessive and indiscriminatory violence to force out the NLA.

The KFOR in Kosovo is at the same time busy to seal of the border between Kosovo en Macedonia to make any support out of Kosovo difficult if not impossible.

The danger of this new action of the NLA in Macedonia is the idea behind these new operations. They are not fighting for equal rights, the Macedonian-Albanians are supposedly treated as second class civilians which they are certainly not, they have been treated different in the past but since then the situation has improved and will continue to improve.

The NLA is essentially having a hidden agenda. They want to create a great Albania, consisting out of the Albania, Kosovo, the territories with a large number of Albanians in Macedonia and the Presevo-Medevo area in Serbia which is also inhabited by a majority of Albanians.

These ideas were already visible in the Kosovo conflict but was downplayed by all involved parties. The NLA is planning a replay of the Kosovo conflict, first start a civil war, which includes the help of the whole population and there after create large number of fugitives and stories of massacres to force the international community, read NATO, to intervene and create a defacto independent new country.

The family/clan structure of the Albanian society, with the vendetta thinking, will promote the support of the NLA but the price paid could proof to be to high.

It will be not that easy this time to get the support they had in the Kosovo conflict. The Albanians had in Kosovo the advantage of being the victim of the bad Serbians, a long time of suppression and a number of years of peaceful resistance.

The cards in Macedonia are totally different, it is true the Albanians were suppressed in the use of their own language and culture just after the beginning of Macedonia as an independent country. But at the moment there had been made progress to the improvement of the conditions of the Albanians in Macedonia. They can use their own language, have their own schools, even an university, can live according their own customs, have a large political freedom in their own region and are represented in the national government. So they are hardly the second class civilians the NLA claim them to be. They have received everything short of an independent Albanian state from the Macedonian government.

The NLA can and will start a new guerilla war in Macedonia, get even some support out of the local population and inflict damage to the government and the relations between the moderate Albanians and the government but they will not be as succesful as in Kosovo. Militarily and politically they will be much weaker and need to fight on their own, with the only supporters in Kosovo and Albania proper. They might have large stocks of weapons and ammunition in Kosovo but fighting a long conflict is an expensive business and the resources are limited.

They certainly will not receive international support and even large number of refugees will not impress that much anymore, as they can only go to Kosovo and Albania and live over there in poverty. And most importantly the refugees, Albanians will be blamed for their own miserable position. But considering the policy and objective of the NLA movement they will not care to much about the well beingof the local population as they consider their objective as the higher value, and much more important to achieve.

The problem of this conflict is that if the impossible should happen, the desintegration of Macedonia, then you would get an area wide conflict. Several countries would want to claim a part of Macedonia, and there would be several overlapping claims. The following countries would be willing to claim a part; Albania, Greece, Bulgaria and Serbia. Greece is the strongest of the four, but alliances could make the conflict really nasty and long. This is the large scale scenario.

The small scale scenario is that the NLA will continue their war against the Macedonian government, involve it in a longer guerilla war and some how achieve to gain their own nation or a greater Albanian nation with parts of Macedonia. This will leave a crippled Macedonia behind with the neighboring countries aspiring also some territorial changes. In the end leaving an economic unviable nation behind. Or ofcourse that the NLA can get support from other Albanians and even Albania proper and pull these two countries in a low to mid intensity long drawn conflict. With both sides getting as much support as possible from other countries. And eventually drawing them into the conflict.

The only policy to implement for Macedonia is to defeat the NLA rebel forces and to win the hearts and minds of the Albanians. The defeat should be intelligent as a scorched earth policy and to much killing of civilians will only increase the strength of the NLA. The hearts and minds policy should give the Albanians the same rights and an equal treatment in Macedonia. In this case it is benificial to do so as a generous attitude is te only way to built a lasting peace. But the NLA or violence in general is unacceptable as any negotiation on the basis of the threat of violence will only increase the demands of Albanians, and they will never get enough whatever they are offered.

Middle East: Israel and the Palestinian question

The much promising peace process in the Middle East collapsed after the Al Aqsa intifadah got on his way and the majority of the cooperation between the Israeli government and the Palestinians ended. The mutual cause, the achievement of peace in the region, ended as the insecurity in Israel and the frustration in Palestine took over control.

The peace process which was already slowed down because of the lack of progress in the implementation of the accords which were agreed upon on during previous negotiations. The socalled big offer of former prime minister Barak to the Palestinians was an unacceptable offer for the Palestinians, Arafat. They could have never agreed to that as East-Jerusalem, the return of the Palestinian fugitives from the neighboring contries and the return of 90 % + of the West Bank without conditions are an absolute minimum which should be fulfilled.

The visit of Ariel Sjaron to the Temple Mount, Al Aqsa, was the sign for the Palestinians to show their frustrations with Israel and the peace process. The escalation of violence in the time following the incident destroyed all further hope on a fast and easy end of the Israeli-Palestinian conflict.

The Palestinians first escalated the violence by attacking several kibbutz and Jewish settlements on the West Bank. They fired with assault rifles/machine guns at those places and the Israelis reacted harshly at the attacks but by now the Palestinians are preparing another kind of intifadah. The Palestinians want to end the attacks for the moment and change their tactics and have another peaceful, if you can call it that way, resistance. The Palestinian people should be involved again to make life very hard for the Israeli security forces. A popular revolt without using violence is always very difficult to control. It will take a higher toll on the Palestinians but the security forces will get all the blame if there are any casualties.

From a media viewpoint this strategy will bring them a good press and put Israel in the corner of the ruthless and suppressive occupation power. The effectiveness of the attacks of the Palestinians, or better of the Tanzim and the Hamas, was not very high. It has not been very damaging for Israel only irritating and it gave them an excuse to close down the Palestinian territories, destroy the local economy and suppress all resistance with all means available. This means the use of armoured forces and rocket launching helicopters. Not very appropriate to defeat the Tanzim and the Hamas but very impressive. The Palestinian case was however not be promoted by the agression of the Tanzim and the Hamas and it even did not bring to much international support. Even no widescale Arab support, only words that the Arab nations supported the Palestinian claim and position but no real support.

That is probably the main reason why the Palestinians, the Tanzim, decided to change directory of their actions. Peaceful resistance is less impressive but much more beneficial to the cause.

Any public statements that the Palestinians will return to violence on the very short term as a reaction to any Israeli attack on Palestinian people and property is mere a public relation play to garner more support in the population and to satisfy the hardliners in the PA.

At a later stage the Palestinians can always return to a more aggressive position towards the Israeli security forces, especially if they were to use the succesful tactics which were used by the Hizbollah in Lebanon. But at this stage it would be to early as the Israeli position is still to strong and would first need to be softened up.

This will deliver international support and progress for the Palestinian cause. And it will put Israel in a worse position militarily and politically, undermine the moral of the security forces and the Israeli society as an end to the Palestinian uprrise would not be feasible and this would improve the position during any negotiations. As peacefull resistance is not really violence, it is just very uncomfortable and difficult to deal with. The Palestinians would to be protrayed as the good guys, and civil disobedience and peaceful demonstrations make this possible. The Israeli security forces will inevitably overreact and use excessive violence and will be portrayed as the bully and occupier.

To really reach this the Palestinians, Palestinian Authority, have to create a bigger difference between the Palestinians, PA and the Tanzim and the Hamas. The Hamas is having a different ideology and will continue to use violence, bomb assaults, against the Israelis. This would be bad for the PA in any possible negotiations but on the other hand beneficial to keep the pressure on Israel. A twin track policy, uncoordinated and without any relations between eachother what so ever, could be the best for the Palestinians on the medium to long term and not considering the costs in human life. The Hamas as the uncontrollable religious fanatics and the PA as the moderate and reasonable opposite.

The continuation of the violence, shootings, and even possible incursions of the Hizbollah would be on the other hand undermining the Palestinian position. It would deliver the security forces an excuse to use all means available and could even lead to the involvement of Syria in the conflict. A widening of the conflict to the neighboring countries would be just as useless as the continuation of the violence. It will bring no international support to the Palestinian cause, it will only be beneficial to the Israeli position.

A new conflict in the Middle East is always possible but this should not be overestimated. An Israeli attack in response to an act of terror of the Hizbollah on Syrian targets might call for a Syrian reaction. The military potential of Syria is at the moment however limited and certainly not capable of fighting against the much superior IDF. So an escalation is not very likely. And in the first place Israel will only attack Syrian targets in Lebanon if they might pose a direct danger to Israel or the IDF and not out of retaliation. The political consequences of an attack might be worser that the military consequences.

That is why the target selection in Lebanon has to be very careful and only aimed at the Hizbolllah and Lebanese targets more or less connected to the Hizbollah.

Indonesia

The problems in Indonesia are not only limited to troubles in the outer provinces/islands were independence and autonomy movements are putting heavy demands on the Indonesian government. They are willing to use, as they do, violence to support their demands.

Ethnic and religious differences are also playing a major role in the problems in the outer provinces/islands. The local population is ventilating their problems with the migration policy of Jakarta. The large number of migrated people, who very often live in better circumstances, are being targeted by the local population. This is further aggrevated by the fact that the migrants are supported in return by socalled Jihad fighters from Java to protect and support the migrants in the troubled areas. This is fuelling the conflicts in these areas to a large extent.

There is another probably even larger threat to the stability in Indonesia. The government of Indonesia is at the moment relatively weak. The current president, Abdurrahmann Wahid, is under pressure because of several scandals and his rather indecisive style of government. There are demands that he should withdraw. This situation is further worsened by the fact that the economy of Indonesia is still very weak and dependent on foreign aid, loans, to survive.

The greatest danger in Indonesia is however that all political organisations have their own kind of militias and these are more than willing to fight other parties if they consider that their man has been treated unfairly. And it is rather simple to make them feel unfair treated as only not to agree with them is enough to get their attention and to feel their displeasure. This displeasure will be felt by the agression which they are more then willing to use.

Indonesia received last month an impression of what could happen if the differences between the parties would come into existence. The militia of Wahid, or to be correct of the organisation, Nahdlatur Ulama, NU, of which he is chairman, went on to the streets and destroyed party offices of political opponents in the East and the center of Java. If Wahid woud be removed from office, it could be likely that there would be an explosion of violence.

There are 4 major parties in Indonesia which could create chaos and ofcourse a fifth group, the armed forces, which also could play a decisive role. Some kind of civil war is certainly possible. Even if the security forces, the armed forces and the police, should be able to restore order on the short term with the use of excessive violence. But it could turn out different if the disorder could spread and the security forces would be slow in their reaction. And there would always be the question of loyalty in the security forces. It could happen that parts of the armed forces join of the fighting parties. Civil war could be much more close than is anticipated.

The four parties are the NU, 40 million members, with its Banser militia. The Banser militia also played a major role in the past, in 1965/66, as about half a million alleged communists were killed in the socalled left coup d’etat. There is also a considerable threat from the NU with the Banser militia. The militia is very loyal to the NU and have no doubts about the justness of the NU. The Banser militia is mainly recruited out of the Pesantren Islamic schools. So this could even deliver a religious quantity to the possible struggle. And the NU is willing to use the Banser militia to reach their goals. As have been proven in history.

The second, the old Golkar party with its old structures. Not as strong anymore as it used to be but still an important party in any possible struggle for power.

The third is the party of the Muhamadiyah led by the chairman of the Peoples Congress Amien Rais. The Muhamadiyah is an like the NU an Islamic organisation with 28 million members. The relations between the two are not very good as they fight for about the same people and goals. The Muhamadiyah is only sometimes claimed to be a little more fundamentalistic than the NU.

The fourth party is the PDI-P of vice-president Megawati Soekarnoputri with the Satgas militia. The militia is already used for all kind of guard and support jobs but Megawati has until now not made any use of the Satgas in political problems. At least until now, this might change in an all out conflict between the major political parties if Wahid would be forced to leave office.

As long as Wahid is president the situation will remain relatively calm. There might be demonstrations but not an all out conflict for power. But if Wahid would be forced to go, things could change overnight. A kind of civil war could erupt between the four major parties about who would succeed Wahid. Megawati would try to get power with support of the political system but none of the others might be willing to accept Megawati as president. Or will try to achieve control by the use of their militia. Or the likeliest the Banser militia will out of frustration start to revolt and this could put the whole country into jeopardy.

A civil war is the most likely result of the ejection of Wahid, if he is not prepared to go by himself. The security forces should be able to restore order but it is uncertain if the officers corps cannot agree to a new leader. And even more important, if the NCO’s and soldiers do not agree with the decision of their commanders. There is also a chance that the security forces will be split in several factions each supporting one of the parties involved. This would severely undermine Indonesia as the movements in the outer provinces/islands would be more than willing to use this internal weakness of the central government to draw more control from the government.

The highly dangerous combination of unrest in a number of provinces in the country and the fragmented leadership in the center might destroy the country. The problems with the several seperatist movements in the countryside is putting enough tensions on the integrity of Indonesia. A conflict in the center of government between the major parties would mean the end of Indonesia as we know it.

The armed forces could use this troubled sitiation as a last bid to recover the power they have lost in the recent years but this is a really dangerous attempt as they are not the same as before the changes. Command structures have changed, alliances broken, there is certainly not the old used to be loyalty present. And more importantly the economic situation will not leave much room for dangerous experiments which are sort of mixed with suppression and military rule.

The problem in Indonesia is, can they solve their problems politically or face a civil war. The civil war scenario is very much likely as all involved parties are ready to start and fight a civil war. The political system and the parties participating in it have the key to the future of Indonesia. But somehow they are to busy with promoting their own position and cause, which will make a conflict about power more likely.

March 2001

March 2001

South America, assesssed

Introduction

The South American continent has experienced many ups and downs in its history and big political changes in its recent history. Internal struggle, coup d’etats by the militaries, subsequent political suppression and a return to democracy have been the common history in South America. The northern part of South America have been thereby, after the political struggles, confronted with criminal organisations combined with leftist guerilla organisations who undermine the society. These countries have experienced a new kind of intra-state conflict. Guerilla movements who have become relatively independent from outside support through the involvement in criminal activities. Beside kidnappings and tax extortions in the territories they control they have found a new and very profitable source of revenue. The protection of criminal organisations who grow, process and transport illegal substances, read cocaine, heroine and marihuana, in the territories they control.

The drugs producing, processing and transporting criminal organisations have corrupted many societies, governments, in these regions and these organisations have been more than willing to use violence to reach their goals. The free flow of narcotics and free access to the profits of their trade.

The leftist guerilla organisations have become a great problem in some countries. Especially if they could connect their political case with the financial possibilities of the drugs trade. This have made those guerilla groups very powerful as they can buy the weapons they want and they can even take care of their soldiers and administer the territories they control.

The country most under threat by leftist guerillas and narco-organisations is Columbia. The country is facing incredible problems which will continue in the foreseeable future as they are essentially independent in their policy and financing.

A diplomatic solution will be very difficult as the concerning parties do not trust eachother and maybe more importantly, they both want to have their maximum demands fulfilled, e.g. the take over of power.

The activities of the Columbian based guerilla organisation even start to cross the borders with neighboring countries to increase their revenues and fighting power.

Other countries are also experiencing problems with the combination of criminal organisations and guerilla movements. But not on the scale as in Columbia.

The South America continent is facing other tensions on a different level. At least three countries have differences about the exact demarcation of the border. These problems have been kept under control but any unexpected action or even an increase of internal political problems could lead to an increase in external tensions to take the pressure of the internal problem.

The border differences are in the northern part of the continent which also face the biggest problems with the economy and problems with leftist guerilla organisations.

The countries further to the south are more stable internally and externally. They do not have problems with guerilla organisations nor other organisations which want to change the political landscape by the use of violence. They have like the majority of the countries on the continent some problems with the economic development, national account and monetary / currency problems but they are still more or less controllable.

Argentina

After the military junta in Argentina had been replaced by an elected government, the political internal problems have disappeared. All political parties are in the position to be part of the system and operate in it.

The problems of Argentina are of another dimension, they are of an economical nature. The economy of Argentina has been improved but remains weak. The government has problems to keep the cost under control, the currency is under pressure, even if it is, and partly because of it, connected to the US dollar and the economy is to one sided directed at agriculture.

Argentina failed to create a significant middle class with the the accompanied industrial base. The modernisation of Argentina is lagging behind.

Chile

Chile is the economical bell weather of South America. The economy has shown a admirable development in the last decade. The change to an elected government has also increased the political stability in the country. There are therefore no movements who want to change the government by the use of violence.

The government is stable and the military is not showing any will to become involved again in the running of the country. Chile is the most stable country on the South American continent.

Paraquay

The situation in Paraquay is also pretty stable, but the economic development is slow and is more or less undermined by smuggle activities into Brazil and Argentina. The government is however able to keep the situation under control.

The government of Paraquay is however facing some problems with former generals who have some support in the armed forces and the population who disagree with the current government. They are however not yet strong enough and bold enough to try to replace the government by force.

Uruguay

Uruguay has become a stable country after the military dictatorship had been replaced.

The political situation is very stable and seems not be under threat by any vilent opposition movement. The military is also showing none what so ever ambition to become involved again in the running of the country.

An additional advantage is that the current president, Jorge Battle Ibenez, is very popular and is largely responsible for the current positive political and economical development of the country.

Brazil

The largest country of the continent, Brazil, is a very diversified country. It is very rich in natural resources and has a large population. The country is more or less stable, there are no political opposition movements which could challenge the government with violence.

The economic situation is however more concerning, there is a very large gap between the rich and poor part of the population. The economy is also very much based on agriculture and lacks any large scale modernisation policy.

There is also, like in Argentina, a lack of growth in the middle class with an industrial base. The better off, the elite, is to much focussed on the agriculture. The elite controls vast tracts of the countryside which is very often not cultivated but only in their possession out of culture, inheritance, and as a collateral to finance an abundance lifestyle or business activities. The business activities are then mostly trade or some other kind of relatively quick money kind of business activities.

The economic development is further hampered by government regulations and problems with the national currency.

The only bigger problem in Brazil are the criminal organisations which control the slums in the big cities of the country. They use the slums as a safe haven to run their criminal activities, especially drugs trade. But these organisations are to small and not interested in government affairs and pose no threat to the political stability a such.

Bolivia

The landlocked Bolivia is politically relatively stable, there are no political organisations which are undermining the government with the use of violence.

The problems of Bolivia are also of economical nature. The development is slow and seems to be unable to get an impetus from the government or from abroad.

Bolivia is only facing some problems with the increased activities of criminal organisations and guerilla organisations out of Columbia who are increasing their working territory to the neighboring countries.

The incursions out of Columbia are at the moment of small scale but if they get any hold they will quickly increase. This will undermine the government as corruption will increase and will be bad for the stability in the country.

Peru

Peru is a typical South American country with a history of suppression and a return to democracy. The Peruan society is like many of its neighbors divided into a small elite, of wealthy people, and a large group of poor people with little to none possesions. The elite is living from the natural resources the country can deliver, the poor are living to support the elite. There has been none to little modernisation in the country. A middle class has not been given the chance to develop therefore no creation of a small to medium scale industrial structure. The country lacks any substantial modernisation policy which will damage any bigger development.

The recent abdication of former president Alberto Fujimori, which had to leave office after a dubious running of the presidency and more importantly black mail attempts by his former SIN intelligence chief, Vladimori Montesinos, of parliament members left the country in a weak position. The new interim president Valentin Paniagua, is doing his best to consolidate his position against possible coup d’etat attempts by the armed forces and the Montesinos clan.

The weak economy and new president is a problem but Peru has three other problems. One external, one in and external and one internal. Peru has a territorial conflict with Ecuador, and both even had a small fight about the disputed territory. This dispute is at the moment under control with support of the United Nations but it remains to be seen if both are satisfied with the current arrangement on the longer term.

The internal and external problem of Peru are the increased activities of criminal organisations which are engaged in the production and processing of illegal substances, read cocaine. These organisations are supported and sometimes even controlled by the Columbian FARC, guerilla movement. The FARC is increasingly using Peru as a new territory to increase its revenues and as a support base for its activities in Columbia. These activities undermine the security in Peru and more important it will create an uncertain situation in Peru. The drugs business will create more corruption and will damage the stability in the country.

The internal problem of Peru has become less in recent years through the successes of the armed forces againt the Sendero Luminoso, Shining Path, left wing guerillas and the MRTA, the left wing city guerilla. The activities of both are severly contained but they still exist and their threat could increase in the future.

Ecuador

Ecaudor the relatively small country is facing a difficult future. The oil wealth with which Ecuador has been blessed has not delivered the development and wealth it promised. The economy in Ecuador is in a bad shape, there has been also none to little modernisation and no creation of a middle class. The country is divided into a wealthy elite and a large poor group.

Ecuador has been further undermined by an internal and a external problem. The internal problem is about new subservice / terrorist groups in Ecuador which became visible by a number of bombings in the country against foreign countries, especially the U.S.A. and installations of foreign companies. These small groups do not now and on the short term pose a threat to the government. But they are highly irritating and might hinder the econoic developmet of the country.

The external problem, the territorial disaagreement with Peru, is at the moment under control, but there is still a problem with the exact demarcation of the border with Peru. This will need extensive negotiations to solve the problem forever.

Columbia

Columbia is facing the biggest problems of all , the country is being undermined by several criminal organisations and even more threatening leftist guerilla organisations who already control substantial parts of the country. The situation in Columbia is further complicated by the AUC, a rightwing militant organisation. The AUC is an answer to the leftist guerillas at first supported by the wealthy elite and the government but at the moment more or less independent.

Columbia as a country is severly limited in its actions, souvereinity, the country is effectivily under siege. And it does not have the abilities to change this situation on the short term. At best they can stabilise the situation. The armed forces of Columbia are not able to defeat the guerilla movements. The armed forces are to occupied with protecting important installations and persons and the absolute bare minimum of training. This leaves only a relatively small part of the armed forces free to be used effectively against the guerilla movements.

The main opponents to the Columbian government are two leftist guerilla movements. The largest is the FARC, Fuerzas Armadas Revolucionaries de Colombia, or in English the Revolutionary Armed Forces of Colombia. The FARC has occupied large parts of the country and has been given a refuge by the government in exchange to join negotiations of 40.000 square kilometers. The FARC is financed by taxes they collect in the territory they control, smuggling of narcotics and protection money from narcotic growers and organsations. The steady flow of revenue from own resources has made the FARC very independent. They cannot be influenced by outside parties and forced into a deal.

The second opponent is the ELN, National Liberation Army, the second strongest opposition party / force in Columbia. The ELN is smaller than the FARC and is also funded by tax collection, smuggling, protection money and by kidnappings. The ELN have established their name by these kidnappings and by the destruction of oil pipelines and electricity masts. The ELN also requested a refuge from the government of about 20.000 square kilometers, but the government declined to accept that demand in exchange for negotiations. Because the ELN is a lesser threat and the bad experiences they made with the FARC territory.

It is estimated that the FARC and ELN control approximately 40 % of the territory of Columbia but operate in an even larger area, at least the double of that.

To make the situation even worser, Columbia is also undermined by right wing paramilitary organisations. There are several right-wing paramilitaries which are leaded and funded by rich landowners and also narco organisations to combat the leftist guerillas and the narco organisations which operate without their permission. With extreme violence they suppress the rural population and the guerillas and the competing narco organisations. One of them, AUC, Autodefensas Unidos de Columbia, or in English the United Self Defence Forces of Columbia, has grown larger and became more independent.

As the left wing guerillas they quickly found out that they can earn enough to have their own business and do not need the funding of the elite and/or government. There are still some covered contacts with some government officials, read military officers, but they have none to little influence over the AUC.

The AUC has become something of a unwanted organisaton to the government at first they came in handy but as they became uncontrollable and even an important opponent of the FARC and the ELN all want to get rid of the AUC. The cruelty with which the AUC operates and the threat they pose to the FARC and ELN make them unwanted.

All calls of the AUC to be involved in any negotiations was therefore refused by all parties. The FARC even occasionally demanded of the government to eliminate the AUC before to continue negotiations.

The much publicised and many negotiations between the government and FARC have until now led to nothing. It were mere exchanges of demands, especially the FARC uses the negotiations to ventilate their wishes but do not really negotiate with the government. The FARC still has the impression that they can get what they want, e.g. a change of government, with the use of violence.

The continued fighting in the country between the different sides has devasted the Columbian economy. The small business sector has been undermined by the activities of the guerilla movments, which levy taxes and make doing business extremely difficult. Columbia relies on its revenues on the export of oil and other raw materials. The most succesful commodity, export product, of Columbia still remains cocaine and other illegal substances. The narco organisations even produce at the moment their own heroine and slowly move into designer drugs.

Columbia will remain in the foreseeable future very unstable as none of the parties involved is able to change the situation to their advantage. All are simply not strong enough to defeat eachother nor are they willing to cooperate to defeat one or two opponents.

Venezuela

The situation Venezuela is different from the one in Columbia. It is largely an economic problem. Many years of government mismanagement has created a very bad economical situation. Another problem is that Venezuela is, like Brazil and Peru, targeted by the Columbian FARC as a new area for revenues, read drugs, and as a support base. This will bring all problems related to the drugs problem to Venezuela. Government corruption and the destruction of the local farm business and country structures will become more common. The production, processing and transport of cocaine is much more profitable thus easily accepted by the poor farmers in the outback of Venezuela.

Venezuela has however a much more threatening problem which could destabilise the region. Venezuela has a claim on large parts of neighboring Guyana.

The election of Hugo Chavez as president, which promised to bring economic progress and an end to the governmental mismanagement and corruption has not brought prosperity until now. Chavez introduced some regulations, popular with the population and promised to do more things like those but all he did and promisses to do in the future has not been really beneficial for the country, and he changed the law and constitution rather illegally. This all has not brought any larger improvement. The rise of the oil price was more benefiacial than anything Chavez has done until now.

To worsen the situation even further Chavez called on an old claim on territory of Guyana. This to rally support in the population and as a kind of scape goat to draw attention away from the worsening economy.

The increase in the oil price improved the economic situation of Venezuela and the position of Chavez but this increase in revenues will only have temporary effects.The price of oil might fall and you get used to easily to the increased revenues and expenditures.

The claim on Guyana will be on the table again on the short term. Worsening the regional stability and consequently the economy of the whole region. Venezuela remains an uncertain place to invest. To many threats to any investment., from a legal, economical and from a security perspective.

Guyana

Guyana is experiencing a lot of economical problems, the economic development is stagnating and to make things even worser it has been threatened by Venezuela. Years of governmental mismanagement has caused a lot of problems and will have effects in the years to come.

If the threat out of Venezuela could be eliminated Guyana could have chance of getting into better and safer waters but until then it will remain an uncertainty for Guyana and the attractiveness for investments.

Surinam

Surinam is also experiencing an economical crisis, the growth has been very slow, non existent to negative, the inflation has risen and the currency in a free fall. The political stability has been under threat by a possible coup d’etat by former president Desi Delano Bouterse. A threat which has been lessened after the recent elections and rumors of financial difficulties of Bouterse but it remains uncertain at which level the relations with the military and his political party are.

There are sign of improvements in Surinam but the economy is still having difficulties to restart and show some bigger growth figures. The new government has a chance to change the situation but will need support from abroad. An improved relation with the former colonial master, the Netherlands, and if the last tranche of the money set aside after the liberation is set free, there are some possibilities. Especially with a prudent policy and restrained spending.

Conclusion

The South American continent is a very differentiated continent, from wealthy and stable to relatively poor and unstable. The countries in the south of the continent, Chile, Argentina, Uruguay and Brazil are more or less politically stable countries. Argentina and Brazil face some problems with the expenditures, high debts, modernisation and currecny stability, but they can be brought under control if all efforts are put to it. Chile is economically the most succesful with Uruguay on a good second.

Then there is a large group of countries in between, countries like Paraquay, Bolivia, Ecuador and Surinam. These countries are more or less politically stable, the chances on a change of power through the use of violence, or even that there will be any violent actions of one or more groups will be negligible or on a very small scale. The problems with these countries are about the lack of economic development and pressing problems with the country’s finances and currencies.

Then there is a group of countries on the edge, which are at the moment politically stable but this just happened or a new development could change the current situation. The economy of these countries is troubled which could easily lead to political instabilty. Countries in this group are Peru and Venezuela.

Finally the last group of countries is the smallest and consists out of one country, Columbia. Columbia is politically and economically unstable. The country is under threat, it needs to fight for its existence, by three dangerous movements which want to change the current government. Criminal organisations involved in narcotics are worsening the climate in the country. The economy is undermined as rebel movements are weakening the infrastructure and businesses. The export of raw materials and illegal substances are the only means of income for Columbia.

In general it can be stated that South America, with the exception of Chile and possibly Uruguay, is having a number of problems. The majority of the countries are politically stable, the governments are elected and the democracies are functioning more or less. The problems of South America are of an economic nature.

The societies in South America are divided in a very wealthy elite and a large group of poor people. In most countries the middle class is very small. The economy is still to much dependent on agriculture and raw materials. There has not been any, or just a little, modernisation of the economy.

The industrial development has been neglected and the middle class has not been given an opportunity to develop and grow. The majority of the countries lack any dynamic development of an industrial and service sector. Everything has been limited to agriculture and raw materials. The elite could live very well on those two sources but this has not created any progress for the people or the country for that matter. All institutions, including the government and legal system, were aimed at maintaining the current situation. Any new development especially in the business sector has been very difficult in this situation.

The continent has to do a lot to change this situation of slow development. The governments should stimulate the development of the economy, read the modernisation of the industry and the society. The government should start with the creation of a balanced budget, restructuring of the debts, have a stable currency and a clear development policy.

The development policy should include new legislation, including property rights, education and housing for the population. The new legislation is necessary to make it easier to start new businesses and property rights to make sure that the new ventures belong to the people who started it. This will make it also easier to get financing if it would be necessary. Another advantage would be that the poor people will be finally be able to get, build, houses on their own property. At the moment it will take over 20 to 30 permits in some South American countries to get a property title.

The government should also have a housing policy to eliminate the often very bad circumstances in the slums. Which are very unhealthy and are often the headquarters of criminal organisations and in the slums they are nearly untouchable for the police forces.

Probably the most important factor will be the education of the population. A large group of youths need to be educated in the new sciences to stimulate the creation of new companies and attract foreign companies and investments.

This potential large pool of workers and the entrepeneurs could become the new middle class. Economic growth could be attained by this policy. All this can be done at relatively low costs, especially if compared by the cost of an insurgency. Which might happen if the current structures in the society will last and hinder any economic development. The unemployed youths will become dissatisfied and become targets of small groups who want to change the society by the use of violence.

February 2001

February 2001

The future of the Democratic Republic of Congo, DRC

The Democratic Republic of Congo

The Democratic Republic of Congo, DRC, the former Zaire, has been a very turbulent country in the previous years. The country, one of the largest in Africa, with an abundance of potential with large reserves of several kind of minerals and an even larger agricultural potential, has been thrown into a war with many facets. It is an internal conflict but can be as good described, because of the foreign involvement in the conflict, as an war between several African countries. Nearly all neighboring countries are involved in the conflict and support one of the many sides in the conflict. The war in the DRC has been called by some as the first African Great War, and they are right with this statement.

The conflict started rather small as Ugandan and Rwandan forces moved into the DRC, at that time still Zaire, with the objective the eliminate violent opposition groups which used the DRC as a homebase. Several Congolese opposition groups used these actions to start an insurgency to get rid of the much disliked dictator Sese Seko Mobuto.

The much fractioned opposition could be united with rather dubious methods, many leaders disappeared, by Laurent Desire Kabila, Kabila became the new leader of the opposition which had become much more effective through the unification. With support of the Rwandan and Ugandan government and military the opposition movement was now able to take over power and dispose Mobuto.

Kabila became president with high expectations of the Congolese population, who expected an end to the decayed and rotten Mobuto government and the economic misery. Unfortunately Kabila was however not the salvation he promised to be. Kabila simply replaced the people but not the system and on the shortest possible of time span he could alineate his former allies, Rwanda and Uganda, by allowing and even supporting the Ugandan and Rwandan opposition movements in the DRC and by discriminating the Banyamulenge and other Tutsi descendants in the east of the country.

The ones united opposition quickly found refuge in the east of the country and started to fight the new regime in Kinshasa with support of Uganda and Rwanda. Essentially three major opposition movements and many more tribal groups came into existence since the second rebellion started.The three major organisations are the Mouvement pour la Liberation du Congo, MLC, the Rassemblement Congolais pour la Democratique-Mouvement Liberation, RCD-ML and the Rassemblement Congolais pour la Democratique-Goma, RCD-Goma The MLC is supported by Uganda and the RCD’s are supported by Rwanda.

The situation worsened even further as Burundi which is involved in a some kind of civil war also has some opposition movements operating out of the DRC became involved in the conflict. Another enemy for Kabila and an supporter for the rebel movements.

The combined opposition, rebel movements, against Kabila could conquer large parts of the DRC and nearly the whole eastern side of the country is under their control. The opposition is however not united and the contradictions increased in time. The divisions are not only limited to the MLC, RCD-M and the RCD-Goma which occassionally combat eachother but also local Ugandan and Rwandan forces are involved and even fight with eachother. The problems in the rebel movements increased as all have a stake in the DRC cake and all want to profit from its mineral wealth.

The oppostion in the east is a collection of groups with three large groups the MLC, RCD-M and the RCD-Goma and many other tribal groups like the Banyamulenge and small local groups with each a rather independent warlord. Sometimes they cooperate but mostly they are outright hostile towards eachother. As mentioned before they are all primarily interested in getting their share of the wealth in the country.

Kabila could withstand the opposition only by the large support it received from its supporters, Angola, Namibia, Zimbabwe and the Sudan. These countries support Kabila out of their own interests and certainly not for the good of the DRC.

Angola and Namibia want to limit the operations of the UNITA, which is combatting the Angolan government in a two decade long civil war and are creating havoc in Namibia. Zimbabwe is supporting Kabila out of pure commercial interests as the Zimbabwan political and military elite received generous exploitation contracts of minerals in the DRC and they need to be protected. Sudan is supporting Kabila because Uganda is supporting the Sudanese opposition, the SPLA.

As the war continued with this strange collection of enemies and supporters, the intense fighting has decreased. The territory hold by each side has been more or less stabilised. But this does not mean an end to the fighting which became clear as all peace initiatives collapsed and no site was really willing to concede and cooperate.

The future of the DRC

The year 2001 started surprisingly, or not, with the succesful assassination of the president of the DRC, Laurent Desire Kabila. The strongman in the DRC government who could get together an alliance of supporters which were willing to support him in the struggle against the opposition, rebel movements, in the east of the country.

Laurent Desire Kabila was killed, shot, by a bodyguard. It is still uncertain which organisation is behind the person who killed him. There are several rumors, conspiracy theories, which are blaming the rebel forces in the east of the country, or the former political allies like the CNRD, or see an involvement of Rwanda, Angola and even the CIA or Belgium as the former colonial ruler. So there is no certainty at the moment.

The death of Kabila could have large implications for the country. His death could start a fundamental change in the country as no man in his government will most likely not be able to control the government forces and keep the alliance together. The alliance of supporters are getting more and more problems at home and might be tempted to witdraw their support. And this would quickly mean the end of the current government.

The successor of Kabila is at the moment his son Joseph Kabila, which was already the Chief of Staff of the armed forces. Joseph Kabila will be the next president but it is uncertain if he will remain very long president. He has the support of the other cabinet members, all close friends and appointees of Laurent Desire Kabila, and the armed forces. But the support is not certain as some stronger cabinet members and some military commanders do not fully support Joseph Kabila. Some of them have ambitions of their own for a higher position, read the presidency.

The opposition parties in Kinshasa like the Democratic Opposition for Congo, who still believe in a peaceful change to a democratic Congo and the opposition, rebel, groups in the east do however oppose Joseph Kabila and are not willing to accept him as the new president. They will at the moment not use the current situation to actively fight Joseph Kabila but in the future they certainly will.

The survival of Joseph Kabila depends on the support he can get from within the government and if the foreign supporters are willing to continue the support they have been given in the recent years. The Angolan, Namibian and Zimbabwan support is of the utmost importance to survive against the political and rebel opposition in the country. If one or more end their support, withdraw their forces, the chance of survival of the Kabila government is as good as non-existent.

Momentarily, Angola and Zimbabwe are committed to the alliance and the artificial stability in the areas they control. They do not have another option on the very short term. Angola and Zimbawe even increased the number of forces in the DRC to avoid any resistance, uprising, in the DRC during the transistion of power and ofcourse to secure their position.

The Kabila alliance

The three most important supporters as Angola, Zimbabwe and Namibia. The Kabila government could probably survive the withdrawal of Namibia but if one of the other two would end the support the end of the Kabila government is just a matter of time.

The Kabila government is highly dependent on the support of Angola, considerable Angolan armed forces are deployed in the DRC. Geographical conditions and the activities of the Angolan forces stabilised the expansion of the rebel forces, stopped them from moving further to the west.

The Angolan government was/is however not very satisfied with the Kabila government as they did not, could not, curtail the activities of the UNITA in the DRC. The Angolan armed forces do their best to control the UNITA in the DRC but they are in a sense overstretched. Operating on two battlefields in the DRC, first, against the rebels in the east and second, against the UNITA in the west, is to much for the quantity of forces deployed in Angola. Especially as it gets ever more difficult to send and maintain the forces in the DRC and at the same time keep the pressure on the UNITA in Angola proper.

The Angolan government is therefore at the moment busy to reassess the current situation. It might be more effective to withdraw their forces from the DRC and instead use them to increase the pressure on the UNITA in country and to improve the control on the border, e.g. closing the border.

The Zimbabwan support for the Kabila government is equally important as they stopped the rebel advance to the south-west. The number of Zimbabwan armed forces in the DRC is about as large as the Angolan contribution. Around 14.000 men, including a small number of light attack aircraft, are deployed in the DRC. These forces are necessary to protect the Zimbabwan commercial interests in the DRC. The Zimbabwan involvement is absolutely necessary as if they would withdraw the rebel movements could win and the Zimbabwan interests would be lost.

Zimbabwe has however a number of internal problems which could mean the end of the support towards the DRC. The economy of Zimabawe is close to bankruptcy and the dissatisfaction in the country is growing by the day. The people are dissatisfied because of the bad economic situation and because of the high cost of the involvement, in money and casualties, in the DRC. The anger is increased because the Zimbabwan involvement is largely to protect the interests of the political and military elite of the country, so there are not really national interests at stake.

The Namibian support for the Kabila government is the smallest of the three, approximately 2.000 men are deployed in the DRC. The Namibian armed forces are essentially in support of the Angolan forces. Their importance is therefore, militarily, small but politically significant as it is another voice, vote, in favor of the Kabila government. The Namibian deployment is also less certain as Namibia is facing some internal problems with UNITA forces crossing into Namibia and an independent movement, at the moment more or less under control, in the Caprivi strip.

On the short term all the countries in the Kabila alliance are willing to continue their support not withstanding de internal difficulties in these countries. They do so as the other options look to be less secure and /or profitable.

The Kabila government is pressured to maintain the Angolan and Zimbabwan support and they will do the utmost to keep that support. The death of Laurent Desire Kabila will not make it any easier and the increasing internal problems of all three make the continuation of the support uncertain and out of control of the Kabila government. They can do very little than to wait, hope and promiss that the Kabila government will do everything possible to fulfil the wishes of Angola and Zimbabwe. The only advantage of the Kabila government is that Angola and Zimbabwe have already invested so much in the DRC adventure and have none viable other option on the short term.

The opposition

The oppostion to the Kabila government can be divided in two groups, the democrats who mostly use peacefull means to introduce change in the DRC and the more dangerous oppostion, rebel, groups in the east of the country who are fighting to receive a better position in the DRC.

The political opposition can be controlled as long as they are unable to rally massive support in the population. The death of Laurent Desire Kabila, which was seen at the start as the hero, liberator, of the Congolese people but turned out to be just like his predecessor Mobuto with just another name was able to keep the dissatisfied populaton under control but his son Joseph does not has his father’s fame to do the same and he will be much more busy in keeping his enemies in the cabinet, army and party under control. There are to many ambitious people looking at the presidency. The only advantage of Joseph Kabila is that none of them has the personality to quickly take over control in the country. It will take some diplomacy and time for a candidate to get enough support to take over power.

The rumor, true or not true is not important, that Joseph has a Tutsi mother could be equally damaging for the presidency of Joseph Kabila as the Tutsis are far from being popular in the DRC. This fact could be especially benificial for the political opposition to gain support in the population.

The rebel groups in the east pose however a bigger threat to the Kabila government as they have the potential to eliminate the Kabila government. The advantage of the Kabila alliance is that the internal problems within the rebel groups will weaken the rebel’s case and the strong presence of Angolan and Zimbabwan armed forces will make any advance of the rebel groups very unlikely but they are still to strong to be defeated by the Kabila government even with the support of Angola and Zimbabwe.

A change in the current situation, a defeat of the rebel movements, is unlikely as Angola and Zimbabwe are not really inclined to support a large offensive operation in the east as their objectives, controlling the UNITA and protecting the commercial interests can be done from the territory they already control.

Future prospects for the DRC

The future of the DRC is very uncertain and everything seems to be possible. The rebellion in the east of the country, the large presence of foreign forces on DRC soil, Ugandan, Rwandan, Burundi, Zimbabwan, Angolan and Namibian armed forces, the political organisations in Kinshasa, the former allies of Kabila which have been in one or the other way treated unfair by Kabila in the quest for power and the power struggle for the position of the presidency make the country very unstable.

This instability could result in four possible scenarios but this is dependent on the transition of power in Kinshasa and are highly dependent on the level of support from Angola and Zimbabwe. These two countries are the linchpin to the future of the DRC. If they decide the involvement has become to expensive or it is not viable anymore it will mean the end as the DRC as we know it today.

Firstly, the situation will remain the same with Joseph Kabila as president with the support of Angola and Zimbabwe. This will demand that Joseph Kabila is able to subdue the internal opposition in the government and the political opposition organisations.

Secondly, Joseph Kabila will be removed from the presidency and another minister or general is able to receive enough support, including Angola and Zimbabwe, to continue the battle against the rebellious east.

Thirdly, the power struggle for the presidency is taking longer, the infighting increases and the political opposition in Kinshasa can rally support of the masses.

This will mean the end of the current government, a weakening of the fight in the east and a reassesment of the support of Angola and Zimbabwe. Angola and Zimbabwe, considering the internal situation in Angola and Zimbabwe, would then probably witdraw or they might lessen the support to the level just enough to protect their own interests. To continue a fight without any Congolese partners could be very dangerous and unproductive for Angola and Zimbabwe. The attitude of the rebel movements in the east and the new president will then be decisive in the DRC. A military advance from the east or a diplomatic solution is than possible.

And fourthly, there could be a longer struggle for power in Kinshasa, Angola and Zimbabwe might withdraw or lessen their support, out of internal and external considerations, and the rebel movements in the east start creating three new countries in the territory they control. This scenario is likely if the rebel organisations in the east are not able because of the troubles between eachother to exploit the weakness in Kinshasa, e.g. to advance further to the west and if the supporters of the rebel movements, Uganda and Rwanda, are satisfied with their current sphere of influence in the DRC and limit their support to the rebel organisations.

Which scenario will come through is dependent on the skills of Joseph Kabila to consolidate his position or on his successor to quickly take over control and stabilise the situation and for both to acertain the support of Angola and Zimbabwe.

January 2001

January 2001

Portfolio management in the new century

The new century

After we have entered the new millennium with the year 2000, the year 2001 signals that we enter the twenty first century. A new century which hopefully delivers the good things of the previous century but without the large number of conflicts including two world wars of the last century. The year 2001 will be a new chance to the world, might that be the political, economical or the personal dimension, to achieve great things which would make a difference.

The last two decades of the prevous century proved to be very beneficial for the investor. The U.S. economy experienced a booming market lasting longer then ever before, Asia had their incredible development in the nineties which unfortunately ended in the Asian crisis of 1997 but it showed the economic potential of the Asian region and finally Europe started slowly to recover after the slowdown since the end of the cold war. This positive economic environment has been very beneficial to the growth on the stock markets around the world. Year after year new highs were reached and records broken. The Asian crisis and especially the fall of the tech stocks in 2000 and the slower growing U.S. economy ended the fairy tale for the moment.

This correction of the stock markets punched the bubble of the ever improving, growing, stock market. The values returned to more acceptable levels at which a purchase would make sense. The year 2001 will be most likely flat and volatile with just a small number of stocks able to show an above average growth. It is an emotional market were small incidents can result in sell offs and heavy buying on other moments but not as relentless as in the heydays of the IT fever. The slowing world economy will suppress abundance growth but nevertheless there are some hopes for improvement.

The market in general

The stock markets of the world have shown a very differentiated view. The U.S. and European stock markets were sligthy negative, the big tech sell out, but a number of overseas markets, the Asian Tigers and the emerging markets, did deliver some better results. The recovery of the Asia crisis of 1997/98 could continue despite the worser results in the western world and some equity problems in some emerging markets.

The stock markets in Europe and especially in the U.S. have seen a dramatic fall in value because of the flight out of the tech stocks and the waiting attitude of the institutional investors to re-invest the available money. The difficulties in selecting a new president in the U.S. and the increased oil price had also a part in the depressed market situation.

The year 2001 could however deliver a turn around to the fortunes of the U.S. and European stock markets. The U.S. stock markets will most likely be positively influenced by the election of the new president, especially George W. Bush seems to have the trust of the investors to be good for business. But especially the next conditions will be beneficial for the stock market. The probability that the Federal Reserve, Fed, will cut the interest rates, the economy seems to manage a softlanding, a large number of the businesses seems to be confident that the earnngs in the first quarter of 2001 will increase by at least 10 % and finally the market has most likely bottomed as it is oversold.

The election of George W. Bush as the new president of the U.S. will be, according the election program, beneficial to the financials, drugs, tech, HMO and defence sectors. The Fed will very likely be certain that the inflation is under control, the recent decreases in sales and the slow down of the economy will probably allow the Fed to lower the rates. The expectations of positive earnings figures and the oversold market will encourage the institutional and private investors to re-invest and invest new money in the stock market.

The European stock markets will also see somegrowth in 2001 as the economies are improving, unemployment is coming down, the common European currency, the Euro, will most likely improve in value and the goverments are busy to improve the business climate in Europe. The further integration of Europe will be a boost for the economy of Europe and will be equally positive for the stock market.

The Asian Tigers and emerging markets will also continue their recovery as the demand and earnings will increase, the companies are more or less restructured and the governments are doing their best to improve the business environment, e.g. less corruption and nepotism, better tax and corporate legislation and lesser direct government involvement in business affairs.

Problems and consequences

There are however a number of emerging markets like South Korea, Indonesia, Turkey and Argentina which have equity problems and need support from the IMF. This might damage the growth of the stock market as the currencies will be under pressure and a decreased demand in those countries. The profits of the stocks will be surpressed by the lower demand and will be eliminated by the currency devaluations.

Parts of the emerging markets call for caution and the slowing world economy could make it for these countries more difficult to solve their problems.

The world is however delivering a very diverse picture with good, mediocre and bad countries and companies. We therefore expect in the end a small positive development The small improvement of the western stock markets and a continued improvement of a number of emerging markets could lead to an improvement of the majority of stock markets.

The future growth will be most likely spread along a larger group of sectors and will be smaller than before. But one thing is certain it will not be an easy ride. Uncertainty, conflicts and pre-announcements/warnings will create some volatility in the market.

The future might be positive but there are some negative influences which could play a larger role as they should. The inflation is more or less under control in the west but this could get out of control as the oil prices remain high, the costs are increasing, demand is getting lower and the economic growth is becoming much more less than anticipated. The negative possible developments are present but they do not need to become real. What road will be taken will depend on many factors, at the moment we are the cross roads. But we are inclined to believe the positive scenario.

The Portfolio

The year 2001 could be a very turbulent, the market will show some ups and downs, will move sidewards and probably move up. All is dependent on the company, sector, country and region. Some of these developments have a larger repercussions and have an effect on the whole market.

In this market you should spread your investments over different regions and sectors/industries to minimise any negative developments on your portfolio. The best way to play the stock market of 2001 is to invest in mutual funds which are spread by region and sector. Individual stocks are more risky as just the happy few will be in a position to acquire such a diverse portfolio and get the necessary attention to react on possible developments which require quick changes to the portfolio. The average investor is better serviced with a number of mutual funds.

The portfolio is of course dependent on the time horizon of every investor, e.g. how many years you want to invest. But the rule of the thumb is that you increase your number of stocks as longer you invest and you lower the number of stocks and increase cash and bonds if your investment horizon is short. (See for a full account of investing models and region allocation our January 2000 report which is still valid for 2001)

You can invest into stocks or into mutual funds. Mutual funds are the preferred road if your amount of money to invest is relatively modest and if you want to invest in Asia and other emerging markets. In the U.S.A. and Europe you can invest in stocks as the choice, information, trading companies and the legal system are clear and well secured. Asia and the emerging markets are another ball game where you need more knowledge and especially reliable trading houses and legal systems to be safe with your investments. And ofcourse survive the currency changes which might destroy all gains overnight.

The U.S. portfolio

The portfolio should, as a direct investor or mutual fund investor, include the following sectors/companies. These will have a big chance to show an above average growth and secure your investments against any possible deveopment.. Our selection is based on long term growth potential of the companies.

The sectors we prefer are technology, oil/energy, medical/drugs, financials, insurance, airlines and some defensive stocks like food and utilities.

We still like technology as it still has a lot of potential on the product and on the earnings side. The tech sell off was justified considering its Earning Per Share ratio and its value in general. The tech/ICT sector remains one of the most promising sectors especially after the sell off. If the tech market bottoms it will be a golden chance to get involved in a sector which has a lot of potential for the future.

There is however a big difference between the several tech companies. Just a few have the potential to survive in a smaller and more competitive market. The internet industry, market, will change dot com is not a guarantee for success, instead the companies need something to offer and show results. The internet should be looked at as an enabler, a system to do business, to improve the process, as a part of the business. The internet should strictly viewed as a support instrument in operations, sales, marketing, communications and research. And not as the subject, the raison d’etre, of business. With the exception of an internetprovider but they will have a number of difficulties of their own with gaining enough business, earnings, to be attractive for investors

In the processorgroup we like Texas Instruments, Intel, AMD, Xilink and Applied Materials. They should be able to regain their good performance of the last years. In the hardware we like Dell, Sun and Palm. In the software group we like Microsoft, Adobe, Red Hat, Linux VA and Oracle. In the integrator/consultant group we like CSC, Cisco Systems, Juniper, Sycamore, IBM and Nortel. In the communication group we like Nokia, US West, Qwest, BellAtlantic and Qualcomm. The tech group will not bring results in the first half year but in the second part of 2001 they could regain their strength.

The tech group will further introduce a new very big opportunity for the future. The internet has brought new technologies but they are not yet mature enough to deliver the big profits. The future will belong to the companies who are able to deliver a real time connection/exchange between the producer, seller and customer triangle without the interference of data storage and warehouses. In short, an extension of chain management and Enterprise Resource Planning into the full product cycle. Only more flexible in applications and inter and intra company in structure. A company like Cisco should be able to play an important role in this development.

Oil and energy and the supporting companies will probably also continue to grow in 2001. The big integrated oil companies like Exxon, Royal Dutch/Shell and British Pertroleum but also the offshore/service companies like Diamond Offshore, Halliburton, Baker-Hughes and Schlumberger could belong to the winners. As the oil price will be levelling at around 25 U.S. dollar the earnings will remain buoyant.

The medical/drugs sector will also see an improvement in 2001. The pharmaceuticals will finally return to the winning side after two disappointing years. Companies like Pfizer, Merck, Johnson&Johnson, Schering Plough and Bristol Myers Squibb could be among the winners. The shares of the HMO’s will also show better results as the restructurings are finally over, the value bottomed and the investor is regaining trust in the hospital sector.

The financial sector is also on its return as it is behind the market for the last one and a half year, the Fed will most likely ease the interest rates and a number of financial companies have delivered a nice return in the last year. The large global integrated financial institutions like Chase, Citigroup, J.P. Morgan and State Street will be very promising. But also the large trade houses like Merril Lynch, Morgan Stanley DW and Goldman Sachs.

The insurance sector is also becoming a profitable sector.with companies like AIG, Allstate and American Express.

The airline group is also increasing its position as the passenger and freight levels are improving and the price of the tickets could be brought in line with an oilprice of 28 to 30 U.S. dollar. Companies like AMR, United and Southwestern could belong to the best performers of the group.

And finally we like a number of defensive stocks like Heinz, Sara Lee, Pepsico, Colonial Gas and Eastern Utilities. You could also consider to ad companies like Procter & Gamble and Safeway in the defensive play. They offer very likely a good return and offer an opportunity to survive another sell off.

In this volatile and uncertain market it is important to be involved in the defensive stocks but be aware of a shift if the economy gathers pace. By then it will be time to shift into more more offensive stocks in the ICT sector.

The European portfolio

The European market is much more fragmented as each country has its own stock market and companies. The market is coming together but some companies are still to much focussed on the home market instead on the European and world market.

The majority of the companies and the governments are improving their policy and we expect a lot of this development but the changes are slow and could be interrupted by a number of causes.

In all Europe will be a promising market with a steady growth for the next couple of years. It will most likely be more profitable than the U.S. stockmarket.

The sectors we like in Europe are financial, oil/energy, tech/coomunications, food and drugs. We prefer the big caps as they can offer the stability to survive the ups and downs of the volatile stock market.

The financial sector will profit from the European integration as it will increase the business, it opens up new opportunities, the general improvement of the European economy and the consolidation in the sector. In Europe we like firms like BBV Argentaria, Deutsche Bank, Societe Generale, Fortis, ABN-AMRO, ING, Royal Bank of Scotland and Banca di Roma.

In the insurance group we like Allianz, Muencher Ruck, and Generali Ass.

The oil/energy group will also be very promising with companies like Royal Dutch/Shell British Petroleum, TotalFina-Elf and E.ON.

The tech group is also offering some good companies in Europe although smaller in number and with the need of some patience. Companies which will probably offer good results are Alcatel, Cap Gemini, Siemens, SAP, Infineon, CMG, Nokia, Logica, Sage and Invensys.

Closely related to the tech are the communication companies. After a really disappointing year for the telecom sector we expect some improvement. British Telecom, C&W, and Deutsche Telekom could offer some growth potential. The same is valid for VNU who is ever more becoming an internet enabler/service company with above average prospects.

The more defensive stocks we like in Europe are Nestle, Numico, Danone, Diageo, Cadbury Schweppes and Unilever. Despite the growing market we expect these food stocks to be able to follow the growth of the market and more importantly keep or even increase in value if the worst case scenario might come through.

Finally the drug companies will also benefit from the improving market and the increased opportunities in the world. Companies with good prospects are Bayer, Glaxo-Welcome, SmithKline Beecham, Roche and Astra-Zeneca.

December 2000

December 2000

Mergers, Fusions and Take Overs

Consolidation of companies

The business world has been since many years experiencing a virtual wave of mergers, fusions and take overs, friendly or hostile. Companies are consolidating into a few large players to get the assumed necessary mass to survive in an ever more hostile environment of high quality, lower prices and foreign competition..

Consolidation should deliver more room and opportunities to survive. New and more advanced products from increased research capabilities, lower costs through cheaper production methods and a larger and more efficient capacity, a larger market share, e.g. more customers, and because of the combined sales power. The consolidation should deliver many advantages which would benefit everybody, except the people who lost their positions because of the inevitable duplication of functions and the excess capacity.

Increasing shareholders value and market share are the main movers of the merger mania. The wizard word synergy also played an important role in every decision to take over or merge with another company.

All reasons how good they might have sounded before the merger did not deliver what they promised to do. On the short term some of the desired results could be met but on the longer term the vast majority looked worser after the merger.

Mergers and take overs are delicate processes which easily can go wrong as different corporate cultures clash. The two employees of each company are mostly suspicious towards eachother and sometimes even hostile. How good a proposal might have looked on paper if the people working in the company frustrate it,the new endeavor has only a small chance to succeed. The merging or fusion process has therefore to be clearly guided to reach at least some of the results which were so much desired. If a merger is succesful is largely dependent on the people management in the new company.

Guiding the process

To have all people positively supporting the new developments in a corporation they should be informed as much as possible. Only clarity will build trust in and support for the management team which is necessary to do such a demanding job.

A merger, fusion or take over will demand much from every company. It will mean big changes to the company, not only financially but also the structure will change as two have to become one. The people working for the company are likely to be most affected by the changes.

It is therefore very important to define an approach to inform the people and create some stability in the workforce. Dissatisfied employees full of rumors, working below their normal capabilities or even want to go on strike is the last thing needed in a fusion/merging process.

Divisions and units who will continue to operate in the new company in the same manner as before the fusion/merger will not be directly affected but the parts of the company which are to be fysically merged are the ones who need extra attention.

Merging and fusing is for a large part a peoples case, the size of the companies involved does not matter that much, but a new co-operation in the company will have to be created. The rules of conduct of one company can become dominant but there is always the question how the rules are used and this should be of premium concern. An environment in which the best of both is integrated and which is acceptable to the employees is what is needed. A good working environment is after all a condition to keep your best employees at the company

The fusion/merger has been started after the management, after several financial, economical and market analysis, decided what would be the new direction of the company. The new merged company should according the management deliver the best opporunities for the company. If the judicial and financial fusion/merger is completed, the actual merger of the companies will begin.

This is mostly the most difficult part as two entities will have to be melted into one.

The foundation of the restructuring is the strategy, the desired structure, defined by the management based on the analysis before and during the fusion/merging process.

To do this with as little as friction and problems as possible the following approach could be helpful to manage your employees and keep them happy.

The approach is build on the principles of doing what is necessary and on a healthy and productive co-operation between all concerned parties.

To proceed there are three steps necessary. Firstly, all existng and future positions in the company have to be identified and described in a job list. Secondly, a social contract has to be created with support of the management and the employees, e.g. their representatives. And thirdly, a placement, replacement, list has to be created about which function would be the most preferable to every person.

The job list should include all positions in the two old companies and all future positions in the new company. This to have a clear look at the old and new organisation structures and to make all positions visible to all employees. The old and new position descriptions should be made to a common standard but should include the tasks, competences, responsibilities and an indication of the wages.

The social contract should be created with the help of the management and the employees to make clear that the merger/fusion is for the good of the company and all will be responsible for the success. Another advantage is that all concerning groups can influence the structure of the new company. The main function of the social contract is to arrange who will get what position, The social contract should therefore include the goals, policies and the arbitration of the matching of employees with their new position in the company. All staff in the company should be involved in the creation of the new company. The people will not feel betrayed or left alone with a social contract. On the contrary they will feel part of the company and will do their utmost to make the merger/fusion succeed.

And finally, the placement, replacement, list. The placement list should be made by an independent commission with members from the management and employees and under the guidance of an independent chairman.

To improve the acceptance of the placement list it should work according the following four conditions. The placement list should not use the merger/fusion as an assesment instrument. As many as possible positions should be done by people who did the same thing in the old structure/company. And to be certain about a fair treatment the placement should be completed in a siuation where all assesment criteria are all known in advance. The criteria should be about suitability, quality and the wage group of each position. As many as possible employees should be placed following this procedure. One of the most important elements of the merger/fusion is to be certain that all are treatened honestly.And finally the placement, replacement, list should after completion be circled around ones or twice and evaluate to reactions and possible remarks on what could be done better of diffferent. This to put the right people at the right place and to make the people feel involved.

If the people believe in a merger/fusion and support it whole hearthely the chances for success are much larger than if they would be hesitant or even worser against the new direction. It should always be remembered a merger/fusion is more then just numbers, opportunites and capabilities, it is also about managing people and motivate them to do, to reach, just a little bit more. In the end the people are responsible for the good numbers and those great inventions and products.

November 2000

The Israeli – Palestinian dilemma

A short history

The recent explosion of violence in Gaza, on the West Bank and in some parts of Israel proper after the somewhat disputable visit of Ariel Sjaron the leader of the oppositional Likud party with an armada of police officers to the Temple mount, Al Aqsa, surprised many people in the world. The people, the world, had become used to some kind of agression and violent demonstrations in this rather volatile region but not of the intensity and scale as is and was happening this time around. On the contrary, the world still believed the peace process was more or less on track and the violence would be ended.

The eruption of violence after the visit of Sjaron, which was considered as an insult to the whole muslim community in the world, was in the first place an expression of the frustrations of the Palestinian community in the region.

The Palestinians have been promised a lot in the slowly developing peace process. A process which promised so much after decades of violence between Israel and the many Palestinian organisations. The peace process was however caught by the inertia of time and the political process of the Middle East. After a good head start the majority of the positive developments were slowed down if not nullified by the events around them. The Palestinians were granted some land and the right to establish the Palestinian Authority, PA, to administer the land under their control, Gaza and some parts of the West Bank. Events like the changes of the Israeli government after the elections, twice, and some terrorist attacks put everything to a temporary halt. These delays became more frequent and all social and economical progress was made impossible by the existing regulations like that everything had to be transported through Israel. This led to several new negotiations and a new interpretation and even re-writing of existing treaties.

In every new agreement the PA have been promised with more of the same transfer of land. This transfer of land and the sovereignity belonging to it has been in short delayed by two consecutive Israeli governments after radical elements of one of both sides tried to frustrate the peace process by an useless and senseless act of terrorist agression.

The peace process had been delayed by the above mentioned security problems and by four more contentional questions; the final status of Jerusalem, the return of the Palestinians living in the diaspora, the position of the Jewish settlements and the division of water in this water starved region.

The policy of delay, the seemingly immobile position of the Israeli government to adress the contentional questions to the satisfaction of the Palestinians and the problems with the economy of the areas under control of the PA created a lot of dissatisfaction in the population. There has been none to little progress in the last years and this made the people willing to use violence to warn and attent Israel and the world about their dissatisfaction.

The visit of Sjaron to the Temple mount was just an excuse to launch the violence against everything what was considered Israeli. The demonstrations quickly turned violent to express the dissatisfaction and this is the only way to receive the attention of the Israeli government and the world community.

As usual Israel closed, isolated, the territories under PA control and other Palestinian inhabited regions.

The conflict became even more serious as some soldiers lost the road and accidentally entered Ramallah they got victims of the dissatisfied mob. The mob simply lynched the sodiers without to much, interference, from the Palestinian police force.

The Israelis decided to react with determination against this kind of violence and called in the armed forces, the IDF. With the encirclement of the Palestinian villages with IDF armoured and infantry forces and the missile strikes of helicopters against Palestinian targets, police stations, infra-structure and other suspected buildings, the Israeli government tried to make a point that Israel would not accept the continuation of the violence.

Nevertheless, the violence, the demonstrations and the stone throwing continued without much care about the demands out of Israel to stop the violence. Which could be expected, as such a demand would be absolutely unacceptable for the Palestinians. The would not obey Israeli orders, who are in the view of many Palestinians the occupier of Palestinian land, land which 50-55 years ago belonged to them.

The renewed violence reached very quickly a status quo, as no party would be able to win. The Palestinians can not defeat the much superior Israeli army and the Israeli security forces can not pacify the region without the use of excessive force which would be politically suicidal. The former status quo, was beneficial for Israel, a slow moving peace process in which they did not need to sacrafice to much and without to much violence against Israeli interests.

In the new situation Israel was under fire, a public uprise of the Palestinians in the occupied territories Gaza and the West Bank but also problems with the Palestinians living in Israel proper. This was the first time that the socalled Arab-Israelians moved against the government and took part in the violence.

An international conference of the two belligrents with the U.S.A., Russia, Jordan and Egypt in the Egyptian city of Sharm el-Sheikh should end the unrest between the two sides. What seemed to be impossible became possible, Israel and the PA came to the agreement to end the violence and they would try to restart the peace process.

They agreed that Israel would end the isolation and Jassir Arafart would call upon his people to end the violence.

The agreement to end the hostilities, the violence, will be difficult to fulfil as it will become difficult to persuade the Palestinians to end the resistance. The majority of the Palestinians are frustrated and dissatisfied about the current situations. They feel that their situation has not improved that much and if they resist, operate, against the hated Israeli occupiers, At least they will try to make the live of Israel a little more difficult. The stone throwing and even small scale attacks against Jewish people and property will therefore continue.

There will be some differences in the intensity of the violence but it will be very difficult to put the anger back in the box. In some respects it will increase as Palestinian groups, probably of the Tanzi organisation, the Fatah military wing, started to attack Jewish settlements with gunfire. The attacks took and take not only place in the occupied territories but also in Israel, especially the suburban of Jerusalem. Especially villages which were build after the 1967 war and are thus build on confiscated Palestinian property were targeted. This fact will also complicate the negotiations in all future peace negotiations, a lot of Palestinian land has been confiscated on a rather dubious legal base, according to international standards, and Jerusalem as been enlarged through the annexation of Palestinian counties. On the other hand the violence will remain the same, stone throwing and making the movement for the Israelis difficult.

The situation have got its own dynamic as the Israeli government is compelled to react on the Palestinian violence which will encourage the Palestinians even more and as the Palestinians suffer the most casualties and because there is an increasing understanding for the Palestinian situation, they are prepared to accept casaualties. The international community will condemn the Jewish use of violence and this will put Israel in the corner of the bad boy. Every action like the closure of the Palestinian areas to starve them into submission or the cancellation of the peace talks will back fire as this will only make Israel even look worser.

The use of violence in therfore advantageous for the Palestinian case of an independent Palestinian homeland and it simply feels good. They finally can do something against the Israeli occupation. Even if they have no change to win a military conflict with Israel, the violence permits them to win politically.

To put it bluntly every stone thrown by the Palestinians is an act of legitimate resistance, if they use firearms and somebody would get hurt it is seen as a cosmetic mistake. As long as they do not use bombs, missiles, explosives, limit the number of casualties in each attack and do not attack civilian targets in Israel proper they are on the save side. Any Jewish victims on the West Bank and in Gaza are ever more considered internationally as that it should not have happened but that it is their own fault. The Palestinians are ever more portrayed as the victims in an unequal and unfair fight. The Palestinians are fighting for a right cause against the mighty Israeli army with insuffucient and less capable equipment. And this is clearly an advantage to receive international political support.

But if Israel uses force, teargas and riot police, or even worser rubber-bullets, it will be considered as the brutal suppression of the poor Palestinians. If they hurt or even kill a Palestinian it is considered as the use of excessive, unlegitimate, force, not to speak about the use of missiles and the isolation of the PA territories which is ever more seen as absolutely out of bound.

As long as the Palestinians do not use heavy weapons and large scale operations with large number of casualties against light defended Israeli targets, like Kibbutzm the Israeli security forces are very limited in their actions. All Israeli actions will be thoroughly scrutinized by the international community on their merits, and excessive violence will be immediately become public knowledge so deteriorating the Israeli international position.

The dilemma

Israel and the Palestinians are, if they like it or not, sentenced to live with eachother. Some kind of co-habitation agreement has to be created that both groups can live together in this relatively small region. Both have a legitimate claim on living over there but to find a mutual acceptable agreement about where and how to live with eachother will remain difficult. The religious claim on Jerusalem will further complicate a solution.

Israel and the Palestinians have to divide the territory to allow both people to live in the area, allow the Palestinian fugitives in the neighboring countries to return and divide Jerusalem according the border of before 1967. If the muslims are not able to control their holy places, it will always remain a potential bone of contention. These are necessities for every Palestinian leader to achieve if he or she wants to remain in power.

The Israeli government has the same kind of set of demands and worries in regard of the Palestinian question. The loss of the occupied territories and eastern Jerusalem will be considered by Israel as, first, a security problem and second a religious-politically unwanted development.

The Israeli society has a problem with security. They are constantly looking to maintain the highest standard of security for their people and a former foe living so close to the population centres of Israel seems to be unacceptable. The divison of Jerusalem will be difficult if not impossible to sell to the population as a large part of the Israeli population regards Jerusalem as their political and religious capital, which is indivisable in their understanding. Another complicating factor is the annexation of several communities around Jerusalem by which Jerusalem have become much larger than ever before. Originally Jerusalem was much more smaller, the enlargement is therefore considered as a way to confiscate more land to the advantage of the Jewish population.

The land question is very important and without some kind of fair division of the territory and the division of Jerusalem any peace is simply impossible. Maybe one could exclude Jerusalem form the negotiations if Jerusalem would become some kind of separate entity, with no relations with what ever country. A religious city governed by the communities who live in the city.

However as long as the Palestinians are considered as a threat to Israel and need to be controlled and if possible kept on distance good neighborship will be impossible and a peaceful co-habitation will remain an illusion.

The Future

As stated before the current situation is rather complicated any violence of the Palestinians is being retributed by the Israeli security forces. The Palestinians throw stones, Israel responds with tear gas and rubber-bullets, the Palestinians have a shoot out with some radical religious Kibbutz inhabitants or the Tanzi attacks some towns in Israel, the Israeli response is to close the occupied territories and to fire some missiles at police stations and other governmental institutions. Israel will most likely try to regain the initiative in the battle in the occupied territories by trying to go after the Tanzi and mind-like militias but they will be most likely be unsuccesful as these organisations do not really reprensent a clear target. The heavy handed approach with armour, infantry, artilley and air power will be unuseful against a mobile, small and light adversary who will disappear quickly after every strike.

The harder appraoch might limit the violence and clashes somewhat but they will continue and will get harder as the Palestinians have nothing to loose and can only gain something in resisting the Israeli security forces. Israel will be punished internationally by the harder treatment of the Palestinian population.

This cycle of violence can continue forever, the Israelis can not be defeated in the field but the political costs to Israel will become very high. The relations with nearly all other countries will deteriorate which in the end could be much more harmful for the Israeli society and security.

The international reactions will be limited to the freezing or elimination of the diplomatic and trade relations with Israel. The western world, with the exception of the U.S.A., will convict Israel and will reduce the relations to the absolute minimum. The Arab world, of which some countries entered for the first time diplomatic relations with Israel will end these relations, the others will increase their negative attitude against Israel.

The chance for a war will be limited as no country in the region is able, even if they would co-operate, to militarily defeat Israel. The military superiority is simply to large and a war would only damage the Arab and Palestinian political position in the current situation. The goodwill will quickly be lost. As beside the inferior military capabilities, the Arab countries, with a few radical exceptions, are also not willing to start a war because it would bring to little but will be very expensive.

A small and short military stand off is more likely between Israel and Syria about some actions in or out of Lebanon than about the Palestinian question. In this case Israel will be the most likely aggressor because they would want to punish Syria for the involvement in the Lebanese/Hizbullah activities against Israeli targets.

The Arab oil producing countries wil also not use the oil supply as a weapon to support the Palestinian case, as is demanded by some radical elements in the Palestinian and Arab world. The current high oil prices are just what the Arab countries needed after a long term of very cheap oil. They will not destroy the big revenues they now get and desparately need. And it would be a big gamble if the use of oil as a weapon would get the desired results. It would be more likely to be unproductive. The Western world does not like to be black mailed, other oil resources could be tapped, substitute products could be invented or introduced and the Arab oil producing countries need the oil income to stay in power.

Conclusion

Israel can not be defeated or to put it differently, can not be forced to accept a solution which it does not want. Militarily and internally Israel is simply to strong to be forcefully subjected to an agreement. The military superiority is organisational, technological and morally. With other words the battle order, the doctrine-strategy-tactics and the training are superior, the equipment is much more capable and finally the Iraelis are fighting in their understanding for a just cause and if they would loose Israel, they would have no other place to go. These three factors have made them much better then everything around in the region.

The Palestinians, or for that matter, the Arabs are no match for the Israelis militarily.

The Palestinians are badly armed, trained and led and lack any clear organisational and combat structure. There are many different kind of organisations in the PA with different strengths, even if all are working to reach the same goal, the different masters and policies will make a coherent attack impossible. But this weakness can be used to reach more than could be expected from such a diversified force. They could slowly undermine Israeli capabilities and create a political advantage.

Israel has proved to be not very good at assymmetrical warfare as became clear during the intifadah and during their presence in the self proclaimed secuirty zone in southern Lebanon. The unrest, demonstrations and the guerilla style of warfare, in short low intensty conflict, proved to be difficult to handle for the high intensity conflict trained Israeli defence forces. Israel could retaliate against supposed headquarters of the Hizbullah and of the PA and they can destroy the infra-structure but they were and are unable to control the activities of the Hizbullah, the Hamas, the Islamic Jihad, the Tanzim and many other small and relatively weak Arab and Palestinian organisations. Not to speak about the stone throwing youths on the streets of the occupied territories who make the live of the security apparatus very difficult.

The Hizbullah, the Hamas and now the PA make use of the weakness of Israel to combat low intensity warfare. The Israeli security forces cannot suppress this elusive enemy which take the brunt of the casualties but also wound and kill Israelis, and slowly undermine the Israeli fighting power and moral in a drawn out conflict.

Israel is politically not able to accept to many casualties and the retaliation of Israel always looks and seems to be overdone, to excessive. Thus after being internally demoralized, the international community will cause the largest damage to Israel.

The Israeli weaknesses are the political perception of Israel in the world and the difficlties to accept casualties.

The position is especially undermined by the conduct of the armed forces in the field. The Israeli weakness is fully understood by the Palestinians, they play the resistance game to get as much as political support as possible and to demoralize the IDF that much that they will overreact and make mistakes.

On the short term the Palestinian and Arab activities, low intensity warfare, will not change to much but on the longer term Israel wil be forced to find a solution to the Palestinian problem, if they do not wat to become a pariah nation and loose to much of the desparately needed international support.

October 2000

Islamic Fundamentalism

The increase of Islamic fundamentalism in South-East Asia

Islamic fundamentalism, a radical and strict implementation of the the Islamic faith and its holy book, the Koran, has become a very popular religion and has been able to attract ever more followers in the Islamic world. What started in Iran, as the religious caste under the leadership of Ayatollah Khomeini, could take over power, developed into a dynamic in which the Islamic case could spread all out over the Islamic world. With Iran as a lightning example and with active support of Iran all countries in the Arab and Islamic world saw the emergence of Islamic fundamentalistic organisations as the Islamic Brotherhood, the Jihad, Hamas and Hezbollah.

The Islamic fundamentalist organisations have in general a three tiered policy. Firstly, to attract the people for their case by providing free education, medical services, food and sometimes even employment. They give the people hope and a goal in a world, a country, which does not care about and provide to much to the people. The majority of the countries with a large number of Islamic inhabitants are run by autocratic governments which are very often incapable, corrupt, suppressive and are only very generous to their own group or clan. The Islamic fundamentalistic organisations have become that popular because they are the only charity organisation in the country who do actually something for the people, even if they have a hidden agenda, e.g. a clear political objective.

Secondly, to undermine the government by the infiltration of fundamentalistic personalities in the government hierarchy and then especially in the security apperatus, state department, treasury and regonial and local entities.

And thirdly, by which they are so much feared all around the world, by the application of violence to all kind of perceived national and international enemies. The attacks of the fundamentalistic organisations are not only aimed at the security and other kind of controlling government services but also at economic targets and all kind of persons, including foreign tourists, which might be perceived as enemies of the Islam or the achievement of their objectives.

Islamic fundamentalism has found inroads into various countries in the Middle East, Africa and in Asia. Their influence, role, differs from suppressed oppositon and often terrorist movement, influential interest group, political party to dominant ruling party. Iran and Afghanistan are examples of the last group and the Islamic Brotherhood in Egypt an example of the first.

All fundamentalistic movements have some kind of relation with eachother. There are regular meetings and they support eachother with advice, material, money, armement and men. The level of support will vary but if possible it is very intensive and large. The only exception might be the relations between Afghanistan and Iran which can be called as bad if not outright hostile. The countries are neighbors which have some differences in the interpretation and execution of the religion, call their case the right one and are after the same group of clientele.

A new and relatively underdeveloped area of interest of the Islamic movement is South-East Asia. Large groups of Islamic people live in this region who have become dissatisfied with the government and feel unfair treated by those governments. The right circumstances to promote the fundamentalistic case.

Islamic fundamentalism in South-East Asia

The Islamic religion has established itself a long time ago in South-East Asia, it has become in some countries or regions the dominating religion. The religion did not play a very important role in the live of the average South-East Asian civilian but this changed very quickly. As the economies of the South-East Asian countries deteriorated and political and social instability increased the peoples of the region remembered, re-discovered, the religion which might offer an escape from the misery which encountered them. The attraction became even stronger as the western world could be blamed for everything bad and worse happening in their region or in the world for that matter. A concept invented by and very often used by Islamic fundamentalistic organisations. The west as the evil and decadent aimed to destroy the right and good Islamic faith and people.

The Islamic people of Malaysia, Indonesia and the Philippines became more religious in the time of hardship and according the fundamentalistic conviction they could blame the world for their misery. Islamic fundamentalism offered a chance for improvement of the political, economical and social situation of the people. The return to the old rules and values has been especially beneficial for the self-esteem of the people. It could be improved and the association in a group provided a platform to receive comfort and support and to operate against the ruling government. In short it offered alternatives, leadership, support and hope for a better future.

Islamic fundamentalism have and will change Malaysia, Indonesia and the Philippines. The way it will change and what will be the implications of more fundamentalistic rule in those countries will be dependent on the level of true Islamic government, the duration of the economic hardships and the hostility between the different religions and ethnic groups in the region.

If the Islamic government is like that of Iran or Afghanistan the changes will be very large and will fuel the hostilities between the different groups. If the hostilities take to long and have caused to much hatred among the population any peaceful co-existence will become very difficult. Not to talk about the international reactions to the atrocities. It will destroy any investments into the region. Those countries would be considered as to insecure and to unreliable on the short to medium term as an investment opportunity. The consequences of Islamic fundamentalism should not be underestimated, in a worst case scenario it will destroy any chance of progress.

The Philippines

Since many years the Philippines suffer from an insurgency in the south of the country. The Islamic majority in the south of the country, Mindanao and the surrounding islands, demand more autonomy or even independence from the Philippines which is a Christian country. After an agreement was reached with at that time largest muslim organisation, the Moro National Liberation Front, another smaller but more radical muslim organisation, Moro Islamic Liberation Front, refused to join the agreement. The MILF continued to fight the government and could for some time, with the acceptance of the government during the extensive negotiations period, built their own infra-structure with several training camps in the area.

The struggle however continued during the negotiations only the intensity varied somewhat. In a near equal development the negotiations collapsed, and the fighting between the two sides increased. The government was succesful in the fight as the majority of the MILF camps could be taken over by government forces, thus severely hurting the fighting capability of the MILF. The return to the jungle was the only option for the MILF after the recent defeats. But never the less the MILF remains a force to be reckoned with. They are still capable to launch small scale operations and subsequently keep large number of forces occupied and damaging the economy of the region.

Beside the MILF there are several other organisations fighting the Philippine government. They all demand an independent Islamic home land for the muslim population and they are not willing to settle for anything less. These organisations like the Abu Sayyaf Group, most are less succesful ASG copies, are rather extreme in their conviction but they are also very criminal. The majority of their time is used by criminal activities like kidnapping. The ASG became recently very well known because of the kidnapping of several tourist from a Malysian holiday island and the large ransoms paid by Libya to liberate the hostages. One might question the Libyan sincerity as Libya has a record of supporting all kind of terrorist organisations especially if they fight the west and are of Islamic origin.

The Philippines will have a lot of problems with the dissatisfied muslim minority in the country. The majority of the muslims will feel comfortable with the autonomy they have received on Mindanao but a minority will continue fighting the government. The MILF can be controlled at some level but the ASG kind of organisations are much more difficult to defeat as the criminal activities make them very attractive to the youths in the region and their organisation structure and scale make them difficult to destroy. For every one destroyed a new one will emerge just as fast. The criminal activities of the ASG kind of organisations are much to tempting in the economical underdeveloped region of the southern Philippines were poverty and unemployment are all around.

Malaysia

The Malaysian federation is a country with an Islamic majority. The Islam is the largest religion which is having an increasing impact on the society. Elements of the Islamic law, the Sharia, have been introduced in the Malaysian legal code. This to satisfy some conservative elements in the Malaysian society but also to control the population and to limit the influence of fundamentalistic organisations.

The Asian economic crisis and the subsequent political instability of the government of dr. Mahatir bin Mohamad caused a lot of discontent in the population. The opposition in the country had been virtually suppressed by many years and Islamic fundamentalism offered in this stiuation not really an opportunity, as its major political objectives had been fulfilled by the government. The government policy of introducing Islamic rules and traditions in the society and the economic progress destroyed any real organised opposition.

The opposition could only find a home in cult like organisations like the Al-Ma’unah, the Brotherhood of Inner Power. The Al-Ma’unah is originally an organisation associated with martial arts and traditional medicine who only later and by a small group started to embrace the idea of an islamic state. The followers of the Al-Ma’unah, about 1.000 people, are from the whole Malaysian society with a majority coming from the middle class and former military people. The group is not really a political organisation and hardly a terrorist organisation. Only a small group within the Al-Ma’unah are belonging to the group who demand a political change.

This small group who demand an Islamic state are the most active oppostion in Malaysia and are suspected of doing more than just political opposition. They are certainly willing to use force to reach their goals.

These members are suspected of robbing weapons, ammunition and explosives from the Malaysian armed forces and they are allegedly willing to use them. The people who staged the largest robbery of arms in Malaysia could be apprehended very quickly after the theft but the radicalisation and the intensity of the battle at the arrest of the criminals made the government very worrisome about the threat of the Al-Ma’unah.

The activities of the majority of the opposition movements could be controlled until now but the dissatisfaction about the policy of the government increases in the society. The level of organisation is still rather rudimentary but this could change on the short term if no changes in the government are made.

The opposition and the dissatisfaction in the population is increasing and will have to be channeled otherwise it will explode right in the face of the government without that they have the opportunity to end it. The opposition organised in the Al-Ma’unah have a clear political objective and they are willing to use every method available for them. The Islamicification of the society is just part of their strategy, the organisation of the opposition and to force the current government out of power are equally important, if not more important.

The violence, instability, will most likely increase in Malaysia on the short term as the population will probably get more disappointed by the government and the opposition will become larger and more aggressive. Islamic fundamentalistic ideas will play a role in it to attract people and keep them in line. This will however automatically mean more power to the fundamentalists and a closed and intolerant society.

Indonesia

Indonesia, the most populous Islamic country in the world is experiencing several problems in the large and divided country. The Asian economic crisis has had the worst effects in Indonesia. Not only its economy, financial system and currency collapsed but also the integrity of the country has been severly undermined. Ever more ethnic groups and some regions of the country want to have more autonomy or even independence from Indonesia. The centralised state which used to run the country out of Jakarta is having ever more difficulties to control, satisfy, the peoples living outside Java.

Groups in the country, with overt and covert support of the government, are rallying against the ethnic groups in the country who demand autonomy or independence. With the use of violence, beating, raping, killing, burning and looting, the groups operate against the ethnic groups. This has been and is happening on the Moluka island group, West-Papua, Borneo, Sumatra and on Celebes.

It has become a normal procedure in Indonesia to react on problems with violence against ethnic/religious minorities. As the Asian crisis started, the ethnic Chinese were blamed and proscecuted by groups of Javanese. Soon after the Christian people from the Molukas who were living in Jakarta and on Java were targeted.

As the problems in the outer regions, Molukas, Celebes, Sumatra, Borneo, West-Papua and on East-Timor, became more present and active, the reaction was the same. The Javanese, Muslims, who migrated to the outer regions, or for that matter neighboring islands, started to terrorise the regions in an effort to stop the autonomy/independence ideas. These groups were later reinfoced with people from Java to increase the strength and fighting power of the groups in defeating the autonomy/independence movements.

The Islam was and is increasingly used as a weapon against the ethnic minorities in the regions who demand autonomy or independence. This support for these groups became only possible as the Indonesian society could become more fundamentalistic.

The crisis caused a lot of poverty in Indonesia which offered a fertile ground for the fundamentalistic Islamic organisations who became ever more radical. By putting the blame for the crisis at foreign organisations and countries, like the financial institutions and the U.S.A., the Indonesian Islamic organisations quickly found friends with other fundamentalistic organisations in the world.

The Indonesian politics and society, at least the Javanese and the muslim communities throughout the country, could become ever more fundamentalistic. The Islam will provide a bound between the muslims and an instrument to maintain as much power as possible for the current political hierarchy and system.

The Indonesian fundamentalists are not the fundamentalists as we know them out of the Middle East or Afghanistan, they are dressed and behave like the average Indonesian, Javanese. But their retoric and policies are just like that of the Islamic Brotherhod or the Iranian mullahs.

Other ethnic and religious groups will most likely have not a bright future on the short to medium term in Indonesia. They pose a to big threat the current power structure in Indonesia. The larger groups/islands could eventually get their way as they are to far away, geographically, or are to large as a group. But the smaller groups and islands will not stand a chance against the agression of the fundamentalistic organisations.

Indonesia still believes it can control the Islamic fundementalistic organisations, who are doing the dirty work for them, but they will proof to be wrong. The power, influence and stamina of the Islamic organisations will be stronger and more effective then anticipated. They will demand a reward and they will most likely get it as the popular support for these organisations will most likely increase. They deliver hope and an opportunity to improve the lives of the ordinary citizens and they actually did something, something the politicians could not do.

The Islamic fundamentalistic organisations slowly undermine the government structure of Indonesia which is very complicated and dependent on personal relations. This complicated structure gives the fundamentalists a perfect opportunity to manipulate all people of influence and execute their policy. The Islamification of the country with all territories of Indonesia firmly under central control, e.g. the rule of Islamic Jakarta.

If the current politicians do not act immediately to end the violence with all means available, if they do not pacify the outer regions with acceptable agreements to all concerning parties, if they do not initiate programs to stimulate the economy to create some progress for all groups in all parts of Indonesia and if they do not put the country’s interest above party politics the Islamic fundamentalist organisations will get ever more influence and a take over of power will then be inevitable.

September 2000

Internet Strategy

The Internet

The internet, a new medium to use and to improve the efficacy and communication in a company. The internet can further be beneficial to reach customers and new prospects. The internet is a relatively new technology which gained in the last three years considerable attention and is predicted as the new revolution in the world, on par with the invention of the steammachine, the electric light and the combustion engine. The internet is and will do a lot of things and if it is of the same importance as other great inventions will have to be seen. The internet is a new technology with the ability to greatly improve the communication in the world. This is the major advantage of the internet. The internet will give everybody the opportunity to reach other parties with an unprecedented speed and if done right with great accuracy.

The difficulty with the internet, as with all new technologies / inventions, is what can the internet do actually for the world. This has to be discovered before any larger investments have been made in internet activities. As using the internet is certainly not cheap, larger investments in technology, people and marketing wil be necessary before the intenet will behave as expected.

For every new application a new vision and strategy will have to be developed. To develop the right internet strategy the next questions have to be answered. What do you want to reach and who are the customers / users of your internet site. These two answers decide which and what kind of technology and design is necessary to make a venture into the world of internet a success.

Strategy

The right strategy of your operation determines the success of your operation. Every move in the virtual world has to be focussed on the target group otherways the message you want to spread with your site will be lost in the ocean of information now available on the internet.

The strategy will determine what, when, how and how to implement the advantages of the internet. Strategy is essentially how to manage the resources in a company and how to anticipate on future developments and demands.

The internet strategy is dependent on what is your objective and who is targeted. The objective might be to inform your customers or your staff about the products and ventures of your company. Something like a brochure of your products or to inform your staff about company policies and new projects and/or targets which have to be reached. The internet will be in this situation like an information channel which can be active or passive. Just what is demanded by the management. Or finally the internet as a division / part of the company. The company will in this case offer the internet related services to the market and earn something through the services delivered and the value of the internet as a business and investment opportunity

The internet as information site for customers

The most commonly used way of the internet is like a medium to inform people about the company. The internet was originally designed as a communication system to improve the communication between actors. The internet was therefore at first mostly used by a company as a kind of product brochure. Companies gave and give a presentation of the company, the products and how to reach the company, e.g. the sales department. As the internet is available to large groups of people it is an efficient and relatively cheap marketing instrument.

The target of this kind of site are the existing customers, to give them an up to date view of the company, and to attract new customers who are looking for products offered by the company. The potential customers can be directed to the company’s site by conventional marketing campains or by a premium treatment of the search machines who can direct people to particular sites.

An internet site can also be used to publish financial, sales and product information of a company. This will give all investors the equal opportunity to get informed about the company and avoid of being accused of treating some groups of investors better as the general public.

The internet as comunication channel within a company

The second and increasingly used method of the internet is like a LAN or WAN, respectively a Local Area Network or Wide Area Network. Especially larger companies can use the internet as a communication medium to improve the communication within a company. All employees in a company can create new relationships with people in a different divison in another town or continent for that matter through the use of a LAN of WAN. The quality of such a realtionship can be equal if they would be working door to door.

The LAN or WAN can be used to transfer information/data to all people working in a company or there can be an active exchange of information and ideas between several departments. It is possible to have several Research and Development departments on different continents to work together. New and better products can be developed by the combined power of the R+D departments of a company.

Who is receiving what information and who is allowed into what databank can be perfectly be controlled and arranged. Protocols and passwords can be used allow people into a file or allow them to look into the computer, hard disk, of fellow project members.

The internet as buying and selling instrument

The internet as mentioned before can be perfectly used as an instrument to improve the efficacy of the procurement and sales departments. The procurement of products can be handled by the internet, it will give suppliers the opportunity to know what is wanted when and at what price. This will give them the opportunity to offer the right product at the right price and at a predictable delivery schedule. Another advantage of internet procurement or sales is that the suppliers and buyers can combine the supply and demand therefore they will be able to generate a larger order andthey will be able to get a better price.

The sales department can also achieve big improvements by an internet sales channel. The service to customers can be improved and potential new customers can be reached more freely and more open by the use of the internet.

But again your objective should be clear, what do you want to sell and what are your objectives about selling the product. What place do you want to occupy in the market. There are roughly three types, the seller’s market, the buyer’s market and the neutral market.

The seller’s market is dominated by the seller, the company can use its advantages it normally enjoys in the real market to his benefit. Product information, price, quality and delivery can be decided by the seller. The internet site has only to be practical and beneficial to the seller. The information on the site is written and edited by the producer/seller. The real story might be somewhat different from what can be seen on the site. The site is an extension of the company and very often found by companies who have a direct seals channnel.

The buyer’s market is different as the buyer is like in the real world having an advantage over the seller. The buyer can choose between several products. Product information, price, quality, service and quick delivery will become important. The internet site has to be practical for the buyer, easy to use and inviting to come again.

This will mean an advanced very good looking site. The site has to be interactive to fulfil all needs and wishes of the buyer and it has to remember preferences of the buyer. Most buyers like it to be treated specially and be taken immediately to the part of the site which interests them most. The information on the site is much closer to the truth as the buyer is able to influence the site, he can even write his own recommendation about a product without any interference of the seller/producer. This site is closer to the customer as he needs to be treated with care. This kind of site is often found at a reseller’s site, this site just wants to sell a product and as he has more products on sale it is not that important what product is sold as long as a product is sold.

The neutral market is the most difficult. Nor buyers nor sellers are able to dominate the market. This will mean that the site has to be convincing and practical but with not the same level of service as the buyer’s market. The site will however be very fair about the products as it is not allied to a certain producer nor a customer. The disadvantage of a neutral site is that not always the best products and prices are available nor will they become available on the short term as it is not seen as the task of the site to improve the product. This kind of site will be mostly found at sites of government, consumer advisory organisations or at the sites of large multi-product sales companies.

The internet operation in a company

The internet is not only beneficial to a company to exchange information or to sell products but it can also generate additional capital for a company. The question here is what to do with the new internet division. Essentially the internet operation is a new part of the company which will most likely have outgrown its origin, just as an addition to the sales and marketing departments, and will need very often more capital than the company is able or willing to finance with company resources.

There are three options to play the internet. The internet operation as an independent company, as a joint venture or as a consolidated division.

The parts of the company responsible for the internet operations, design, management, sales and procurement, will be taken together, in sofar they are not already belonging to the same department, and will be set up as an entity of its own. The indepence of the entity will have to be decided considering the position of the company in general.

As mentioned before the new entity can be constructed as an independent company with only a minority ownership wich will be rendering services to the former holding company. As a joint venture, the new entity is only partly owned and managed by the holding company. It will be very often merged with another internetcompany which has some services/skills on offer which previously were not present in the company. The joint venture will remain a big supplier to the former holding company. Or finally the internet entity remains a part of the holding company as a consolidated division. The consolidated division will be under direct control of the company’s management and directly delivering a share to the company’s balance sheet. Where as the other two options wil only be listed as a participation and only become visible if there are any profits.

All have their advantages, an independent company is the less risky and will if the IPO, Initial Public Offering, is done properly the most beneficial as it will generate a lot of immediate available capital and value for the holding company.

The joint venture has its own advantages as the risks will be controllable as any losses will not drain the profits of the former holding company, if a service can not be delivered you are free to look somewhere else, new technologies can be incorporated and finally it is still able to deliver a nice return.

The consolidated division is the most controllable, the activities can be focussed on the holding company but it can be the most expensive in regard of the investments and will deliver a lower return on investments as it is closely connected to the holding company, it willhave however lesser sales opportunities and there will not be any high return as the entity will remain part of the holding company.

All have their advantages and disadvantages, it will depend on the holding company which alternative to choose. The most important factor to the decision is in what business you are and what are the immediate needs and expectations of the holding company. For example if the internet activities have become an important part of your sales system, it is profitable, or will be on the short term, and if the company is not in a desparate need for capital, the internet activities can be best kept as a consolidated division. But if certain technologies are needed and the company does not have the skills to develop it in house and/or the financial position is weak, a joint venture would be the best choice. And finally if the internet activities are considered as a nice to have and are not an important part, or better non-replacable part, of the company and the holding company is in need of capital or wants to improve its figures and the internet activities are large enough the spin off of the internet activities in an independent company would be the best choice.

The decision about how and when to use the internet is of strategic importance for a company. It is necessary to have some kind of internet application for every company but every company does not need an advanced internet site or a fully utilized internet department, this all will depend on the specific situation of every individual company. It is however necessary to be aware of the situation and what is possible as some kind of internet stragegy, game plan, is unavoidable.

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The Israeli – Palestinian dilemma

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Islamic Fundamentalism

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Internet Strategy

The Internet

Strategy

The internet as buying and selling instrument