Archive for July 14th, 2021

What can development practice learn from AK47?

July 14, 2021

Superb interview of Prof Lant Pritchett (HT: Econforeverybody blog, a must read blog). In the short interview, Pritchett discusses several problems in development sector from education to copying success stories blindly only to fail.

In one q, he speaks about what development sector can learn from AK47:

Ann Bernstein: ….. I often say that we South Africans like to introduce Rolls Royce policies and laws when as a country we drive Toyotas. You have thought about this issue a lot and you have written that development practice can learn a lot from the AK47. Can you explain this controversial remark?

Pritchett: The AK47 is the world’s most popular weapon. The M16, which is the standard weapon in the US army, is far and away a more accurate weapon than the AK47, which beyond a few hundred yards, cannot hit a thing. The AK47 emerged from the Soviet Union, where they designed their weapons for the soldiers they had, low capability with little training. They also designed the AK47 to be unbelievably robust; no matter what you do to it, when you pull the trigger, it fires. You can basically hand anybody an AK47 and it will be a reasonably effective weapon. The United States took the opposite approach of designing the best possible weapon and training soldiers to match the weapon. It is an excellent weapon, but if you do not keep it clean and in good functioning order, it will misfire.

The problem is when you give the M16 with its perfect design to a poor soldier it won’t work. This mirrors a lot of what has happened in development – the desire to adopt best practice, leads to a gap between practice design and the capability for implementation. Rather than organically building designs that work in a low implementation environment, policymakers have tried to borrow designs and fit them into countries, and it just does not work. When well-designed programmes are poorly implemented the reason is obvious, but the problem repeats itself, because no one ever admits that what they need is an AK47. You need to design the programme for the soldiers you have.

Interestingly said…

 

Will Navi’s index fund shake up the passive fund industry?

July 14, 2021

I had blogged about how Sachin Bansal of Flipkart has decided to improve state of financial services in India. His new venture is aptly named Navi meaning new.

The first fund offered by Navi Nifty 50, an index fund which tracks Nifty50 index. The fund was just launched recently and its new fund offer period got over and subscriptions will open on 19 July.

The USP of Navi Nifty50 is a Total Expense Ratio (TER) of 0.06% which is much lower than other index funds which charge in the range of 0.1% –  0.3%.  The lower TER means the savings go back to investors. So if there is another fund which generates identical returns as Navi Nifty50, one save Rs 1 lakh extra in Navi due to a lower TER for a 10 year investment.

Will Navi shakeup the highly passive ‘passive fund industry’ in India? This BS article says index funds likely to avoid price war. They deem lower TER as a marketing ploy and is financially unsustainable. Time will tell.

Interesting time to apply concepts of microeconomics to the mutual fund industry.

Reserve Bank of New Zealand lowers monetary stimulus

July 14, 2021

RBNZ lowered the monetary stimulus in its mon policy today:

The Monetary Policy Committee agreed to reduce the current stimulatory level of monetary settings in order to meet its consumer price and employment objectives over the medium-term. 

The Reserve Bank will halt additional asset purchases under the Large Scale Asset Purchase (LSAP) programme by 23 July 2021. The Committee will keep the Official Cash Rate (OCR) at 0.25 percent and the Funding for Lending Programme unchanged.

The global economic outlook continues to improve, providing ongoing price support for New Zealand’s export commodities. Global monetary and fiscal settings remain at accommodative levels supporting the recovery in economic activity. Rising vaccination rates across many countries are providing further economic impetus. However, the need to reinstate COVID-19 containment measures in some regions highlights the ongoing global health and economic risks posed by the virus.

 


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