Author: Ben Debski

The American computer scientist John McCarthy – who coined the phrase “artificial intelligence” – predicted in 1961 that computing power may someday become a public utility, much like electricity or water. The idea that you could flick a switch for data-crunching was as futuristic at the time as humanoid robots or flying cars.

But 50 years on, a robot has won the US quiz show Jeopardy, multiple jet-propelled skycars are under development and McCarthy’s computing vision is slowly taking shape. The idea of siphoning computing power from afar – cloud computing – has been in active development for much of the past decade, with companies such as Google, IBM and Amazon playing a central role.

Clouds all around
Now the EU is rapidly adopting the idea, hoping that it can help streamline businesses, rid the 27-country union of overlapping infrastructure and ultimately save both time and money.

But it’s also causing intense headaches for EU regulators, who are troubled by issues of privacy and jurisdiction, including tough questions about who owns information and who bears the responsibility for how European laws are applied.

Anyone who uses Gmail, Flickr or other similar services where the data is not saved on their computers is already taking advantage of cloud computing. Businesses are increasingly switching their entire networks to such internet-based systems.

Although, while it saves money, it also means that personal data can essentially be stored anywhere in the world and that the ability to reach it depends solely on the cloud provider working properly. It’s a potential privacy and logistical nightmare.

Still, the economic argument is striking: The Centre for Economics and Business Research predicts that Europe’s five largest economies could save as much as ¤177bn – roughly the output of Ireland – each year for the next five years if all their businesses were to switch over at the expected rate.

In response to the new business possibilities and in an effort to head off the impending privacy concerns, the EU executive is putting together its first cloud-computing strategy. The target for completion is next year, and there’s a sense of urgency to get ground rules in place.
“Normally I prefer clearly defined concepts,” Neelie Kroes, the EU’s top official responsible for information technology and the digital agenda, said as she announced the unveiling of the EU’s cloud strategy in January. “But when it comes to cloud computing I have understood that we cannot wait for a universally agreed definition. We have to act.”

Legal storm
Compared to the US, Europe has been a slow adapter to the new technology. Last year, western Europe accounted for less than a quarter of the $68bn spent globally on cloud-computing services, according to technology research consultancy Gartner. The US occupied nearly 60 percent of the market. That leaves plenty of room for the technology to expand in Europe, but it will inevitably be the privacy issue that will prove the biggest hurdle to a rapid and successful expansion.

One significant problem is that there’s no way for a user to verify where their data is sitting, whether on a server in Sao Paolo, Siena, Singapore or Seoul. This raises a particular problem for EU member states, who under EU law can only send personal data outside EU borders if the receiving country meets “adequate” privacy standards.

It’s also unclear under EU regulations whose privacy laws would apply in any dispute where the end-user, the cloud-provider and the actual data servers are all located in different countries. For that reason, the EU’s 27 member states are first trying to align their privacy laws.
“This is a necessary condition for cloud computing to be effective in the near future,” said Daniele Catteddu, a communication security expert working on the EU’s cloud computing strategy. “The major obstacles are legal barriers, the enormous levels of bureaucracy, the difficulties of being compliant with 27 different sets of rules,” he said.

Darkening forecast
One Sunday last February, tens of thousands of unsuspecting Gmail users opened their email accounts only to find them completely and inexplicably empty – data stored in the cloud had temporarily disappeared.

“In some rare instances, software bugs can affect several copies of the data. That’s what happened here,” Google’s vice president of engineering explained on the company’s blog. Although the data was safely recovered, it was a jolting reminder that using the cloud system means giving up control and that the technology is only as good as its stability and reliability.

Similar incidents have happened to businesses. In 2006, the British-Swedish gaming services company GameSwitch lost access to its software and data following a police raid on a different company that happened to use the same data centre. “It basically comes down to the degree to which you trust the cloud-provider,” said Giles Hogben, a communication security expert for ENISA, the EU’s internet security agency.

Customers also do not have much bargaining room with cloud providers, according to a study conducted at Queen Mary, University of London. As with electrical companies or other utilities, it’s “take it or leave it”. EU regulators have taken note of the potential issues.

Gloomy outlook?
However once the regulation eventually shakes out, big computing companies like Microsoft say cloud computing will be the next big thing for Europe and indeed for the rest of the world.

“It really is the future. All of our products will run on the cloud,” Microsoft associate general counsel, Ron Zink, told reporters. Zink said 70 percent of Microsoft’s research and development funds were already devoted to cloud computing, with the figure expected to rise to 90 percent in the near future.

Kroes is also pushing for more of Europe’s public sector to eventually switch to cloud computing, following the US, which is planning to close 800 of its 2,100 data centres, almost 40 percent, by 2015 as part of a new “cloud-first” policy. “I want to make Europe not only ‘cloud-friendly’ but ‘cloud-active’,” said Kroes. The aim and the ambition are there, but negotiating the legal and privacy maze may take some time.

A study commissioned by the OECD last year estimated that global private sector investment in agriculture hit $14bn in 2010. That figure could triple in the next five years. The World Bank estimates that 45 million hectares worth of large-scale farmland deals were announced in 2009, more than 10 times the annual average expansion of agricultural land in the decade to 2008. “Demand for land acquisition continues and may even be increasing,” the World Bank said in its report, which asked whether the rush for land can “yield sustainable and equitable benefits.”

When fast-growing countries in the Middle East and  Asia began buying land in Africa four years ago, there were cries of land grab and exploitation. Now hedge funds, pension funds, multinational corporations, farmer cooperatives and other investors are piling in as well, bringing new ideas and more professional management.

But the land rush still poses plenty of dangers: for both the countries targeted for their rich, under-exploited land and for anyone sinking money into a farm halfway around the world. The World Bank calls the new risks “immense…at the same time, these risks correspond to equally large opportunities.”

Brazil is a case in point. Tens of thousands of investors poured $26bn in FDI into the country in 2010. But anyone interested in buying up Brazilian land may find it tough. In August last year, with pragmatic leftist Luiz Inacio Lula da Silva still president, the office of Brazil’s Attorney General issued a new interpretation of a 1971 law on foreign control of Brazilian land. The effect has been to cap at 12,350 acres the amount of land that can be bought by a foreigner or a company that’s more than 50 percent foreign-owned.

Rolando Viera Jr, a Special Advisor in the Brazilian Attorney General’s office, says the change was triggered by 2008’s global food shortage, the need to secure land to produce biofuels and the growing realisation that foreigners were buying up “significant parts of the national territory”. Just as other countries define certain industries or assets – ports and airports,communication systems – as strategic, Brazil has decided its land is “a fundamental strategic asset,” Viera told reporters. 

Land grab?
Uncertainty in Brazil could push more investors towards its neighbour or to Africa. Philippe de Laperouse, managing director of global food, agribusiness and biofuels at consulting firm HighQuest Partners, estimates that until the foreign ownership decision, as much as 45 percent of investment capital targeting opportunities in farmland had been focused on Brazil. Now that interest “has abated and may be shifting to other regions.”

If it does, there are plenty of potential problems – for both investors and for the countries they’re moving into.

Many experts worry that the rush for land will hurt locals. Africa’s vast lands are already the focus of intense attention. From private Western investment funds wanting to farm organic beans in southern Africa to Qatar, which is looking at projects in Sudan, Ethiopia and Eritrea, an eclectic array of investors are lining up to sink hundreds of millions of dollars into the continent.

But the World Bank says countries in Africa with weak governance, including many with the most sought-after land, are unable to cope with the land rush. “As a result, land acquisition often deprived local people, in particular the vulnerable, of their rights without providing appropriate compensation”. Environmental group Friends of the Earth says the rising demand for biofuel is driving a new “land grab” in Africa.

Such concerns flared in 2008 when a lease by South Korea’s Daewoo for nearly half of the arable land in Madagascar triggered a wave of protests that eventually ousted President Marc Ravalomanana. Last October, a code of principles for “responsible agricultural investment” proposed by the World Bank and UN agencies failed to win backing. As corporations and private funds sink billions into land, the risk of exploitation remains, activists say. “We are demanding… a moratorium on large transactions (over 50,000ha) which involve foreign investments in farmland in developing countries until there’s adequate, legally binding regulation,” says Soren Ambrose, international policy manager for ActionAid, a charity.

But some in the industry say things are already improving. “Corporate agriculture is lifting management standards on governance and sustainability in agricultural investments,” says  Tim Hornibrook, division director at Macquarie Agricultural Funds Management, which manages 3.2 million hectares of Australian farmland on behalf of investors and is considering expanding into other regions. “Corporates cannot afford to do the wrong thing from an environmental and community perspective because of the greater headline risk they carry.”

Reputational risk, says HighQuest Partners’ de Laperouse, “is very important to funds investing due to their investor base. They’re sensitive to being viewed as investors who are transparent and whose activity is a positive development, not a negative one.” That’s one reason why some land investment funds sign up to existing sustainability schemes and certification codes including EUREGAP certification, FAO practices and International Finance Corporation environmental and social standards.

Industry players say better transparency will help local communities and investors alike. Africa is a large, fragmented market and it’s difficult for many investors to grasp what’s happening. We believe the more transparency you can get in these markets the more investors will understand the opportunities,” says Neil Crowder, managing partner of private equity firm Chayton Capital, which has recently acquired farmland in  Zambia.

Done right, the opportunities are huge. Susan Payne, CEO of  Emergent Asset Management, a UK-based private equity and hedge fund, runs the largest agricultural fund focused on  Africa. The fund targets annual returns of 25 percent from its farmland yields and land appreciation. The continent, Payne says, “will be the most strategic territory on the planet in the near future.”

Emergent owns or leases some 100,000ha of farmland in five countries – Mozambique, South Africa, Swaziland, Zambia and Zimbabwe – across southern Africa. It farms more than 20 commodities – grains, livestock, fruits, vegetables, tea, nuts and biofuels – and sells more than 90 percent of the  food it grows locally. By modernising farm methods, it says it can treble crop yields on its farms. It also says it tries to make sure locals benefit. On one project in Mozambique, it sponsors an orphanage, has built two boreholes, connected a town to  electricity and cleared land so local people can ultimately produce their own food. “Our projects are always in partnership with local communities and consensual,” says Payne. “If you’re on the ground locally where there are  food scarcity issues and you can alleviate these directly and empower local communities in so doing, it is a win-win situation for all involved.”

Barcodes on trees
That’s a mantra that is heard more and more in Africa. James Howard, manager of the Futuregrowth Agri-Fund, is a recent convert. “We realised that good agricultural land, with water rights and everything else, wherever in the world you look, has – over time – outperformed CPI inflation,” he says. “It’s a far better return. All of a sudden the world is waking up and saying, wow, emerging markets,  food security… this asset class is going to really perform in the medium term – the next 8-20 years.”

Howard’s fund, run by Cape Town-based Futuregrowth Asset Management, itself owned by Anglo-South African insurer Old Mutual, was launched late last year and plans to spend about $900m – the cash has already been committed by international investors in Britain, China,  the Netherlands, and the US – on land split evenly between South Africa and the rest of the continent. The South Africa part of the fund completed its first deal on Christmas Eve – a large farm 150km northeast of Johannesburg that will be run by an established agri-business firm looking to sell oranges internationally.

It’s an increasingly common setup. An investor buys land which is then leased to a  large operator – typically a public or private food/agri-business firm – who runs it, processes the produce, and exports it. Part of the reason the model works is that agri-operators are under consumer pressure to account for the provenance of all their fruit, meat and other produce, but don’t want the hassle of land assets clogging up their balance sheets.

Howard says his fund will maintain tight oversight via a proprietary IT system that monitors every aspect of how the farm is run. “We’ve got agronomers and guys on the ground, and they look at the budgets and see what is spent and when it is spent,” he explains.

The farm has computerised irrigation, and every section of every row is bar-coded so that each orange can be traced from the moment it is picked to the moment it goes on sale in China a couple of weeks later.

“You can buy an orange in Beijing, and as long as you can see the box, you can trace it right back to this row of trees here,” says  Nelus Potgieter, manager of the farm as he walks through the lush aisles of his citrus plantation. “That’s pretty impressive.” •

Japan’s 20-something generation – those born during a heady ‘bubble economy’ they can’t recall – are coming of age in an era of sliding national status and eyeing retirement when, many predict, the country’s economic sun will have set.

Fracturing of the post-World War II system that propelled Japan’s economy to the number two global spot – a status now lost to China – has pushed many to seek security by trying to cling to what remains. But for others, the uncertainty itself is giving birth to a do-it-yourself mindset that could generate welcome dynamism. “If we expect the country to take care of us, we may end up not being able to make a living,” says Megumi Kawashima, 27, a  web designer. “We should be sensible enough to know we need to take care of ourselves.”

For now, these DIY youths appear to be a minority, whose voice has been drowned out by a drumbeat of reports about Japanese youth’s generally passive response to a dismal future. But experts say their ranks will grow as traditional corporate and social systems crumble further. “On the one hand, you have young people who are taking matters into their own hands in the face of companies and a government who have little to offer them in return,” said Yasuo Suwa, a professor at Hosei University’s graduate school. “But on the other hand, you have young people who are looking for an easy way out, seeking shelters that are fast disappearing,” Suwa said. “It will be slow, but I think there will be more gutsy young people going forward.”

Daunting demographics
The macro-economic and demographic trends confronting Japan’s youth are indeed daunting. Japan’s public debt has risen to about twice the size of its $5trn economy from about half of GDP in 1980, and is forecast to be nearer 250 percent by 2015. Credit rating agency Standard and Poor’s in January downgraded its rating on Japan’s sovereign debt to AA minus from AA, warning that Japan’s government debt would keep rising and citing political deadlock as a concern.

Nearly one in four Japanese are now aged 65 or over, with the figure expected to reach 40 percent by 2050. The economy has been mired in mild deflation for most of the past decade.

The ageing of Japan is forcing politicians to face up to the need to raise a five percent sales tax to finance bulging pension and healthcare costs, breaking a long-time political taboo. Social-security spending could reach more than 28.7trn yen ($351bn) in the next fiscal year, accounting for a third of the overall budget. But while many lawmakers on both sides of the aisle agree higher taxes are unavoidable, struggling Prime Minister Naoto Kan is having little success luring feisty opposition parties to the table to discuss specific reforms.

Time bomb
Twenty-something Japanese know they now face a less secure future in a system in which fewer than two workers will be supporting one retiree by 2030, from three now.

“Japan’s fiscal state is like a ticking bomb,” says Hiromi, 26, who joined the elite finance ministry after watching a banking crisis unfold in the 1990s when he was a student. “As I think about having a child in the future and wonder what his or her future will be like, I want to do something to fix the situation,” added Hiromi, who asked to be identified only by his first name so he could speak more freely.

But few 20-somethings expect the government to do much to fix  Japan’s problems or secure their future. A survey of college students conducted last year by fund manager Fidelity International showed that 65 percent were pessimistic about  Japan’s future – and an equal percentage believed they would have to rely on their own assets and savings in their old age, more than pensions.

Youth are keenly aware of China’s lengthening shadow as their giant neighbour bumps Japan out of its number two global economic ranking, though many seem little phased by Tokyo’s relative decline. China had long been leading Japan in national might except for the past 100 years or so,” says Tsunehira Furuya, 28; “China getting ahead of Japan economically is sort of a return to the historical norm, and that does not bother me.”

Japan’s relative loss of global status may be inevitable given demographics and the maturity of its economy. But a growing self-reliance and willingness to take risks could translate into a less gloomy future than many have predicted. “If you know that the best and the brightest only go to GM or Ford, all the other places that could innovate don’t,” said Brian Heywood, CEO of Taiyo Pacific Partners, which has about $2bn invested in Japanese shares. “If it is no longer the case that they only go to Toyota or Sony … you could have real dynamism in the economy,” he said. “It doesn’t happen overnight.”

For now, many young people seem to be seeking an elusive security, an attitude scoffed at by members of the DIY tribe. “Japanese in general these days are really spoiled and not ambitious, and just happy enough with what they are or what they have,” says Juri Imamura, 28, who got a graduate degree in New York before taking a job at a Japanese e-commerce firm with aggressive overseas plans. “They aren’t hungry.”

Surveys of university students by publishing and human resources firm Recruit show a steady increase since 2005 in the percentage of those wanting to spend their entire career at the first company that hires them, rising to around 80 percent as the economy faltered.

But with Japan’s famed lifetime employment system crumbling to be replaced by a labour force where one-third of workers have unstable jobs with uncertain benefits, chances today’s youth can live out their lives in a secure corporate cocoon are shrinking. “I think of a company as a place that provides me with challenges and where I can build networks and develop my skills,” Imamura said. “So if my ideas and the corporate direction don’t match, naturally I would consider leaving.”  Youth unemployment is stuck near record highs at around 10 percent.

That’s low compared to many other advanced countries, but alarming for students faced with strict hiring practices that mean they may get only one shot at a full-time job after graduating. Firms seeking more vibrant hires are turning to Chinese and other foreigners as they target profits from growing overseas markets. But Jiang Yue, who left China at 19 to study in Japan, says she still confronts institutional discrimination in a country where many choose to associate foreigners with crime and social friction.

“Both my boyfriend and I work for firms listed on the first section of the Tokyo Stock Exchange. But when realtors call apartment owners, 70 percent of the time they say no,” said the 27-year-old Jiang, who graduated from a Japanese national university and now works for an IT network firm in Tokyo. “We are working hard and receiving salaries. Why is it that we can’t rent a place?”

Experts say that with a population forecast to shrink 30 percent by 2055, Japan has to look seriously at opening up to immigrants, a sensitive subject in a country where many worry more foreigners mean more crime and less social cohesion. Lawmakers in both major parties have proposed more liberal immigration policy, but neither side wants to air the topic these days for fear of alienating voters.

Opening the doors to more immigrants would require sorting out thorny issues such as who should pay for language education and other assimilation costs, and how to guard against friction between newcomers and local residents.

Equality
The  World Economic Forum’s Global Gender Gap Index, measuring equality between men and women, ranked Japan 94 out of 134 countries. A study by Japan’s Gender Equality Bureau of the Cabinet Office found that women accounted for only 4.1 percent of department managers in 2008 – a modest increase from 2.1 percent in 1999. “Women are treated as a minority,” says a 20-something female banker who is looking for a different job. “Men’s attitudes get cold and harsh when women try to play on the same level,” added the banker, who declined to be identified for fear of repercussions at work while she seeks another job.