61–70 of 115 posts
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If you are interested in this, I highly recommend 'The Great Rebalancing' by Michael Pettit. He explains the causes and implications of China's high savings rate, and the relationship with other countries' savings rates. His explanation of the causality is contrary to most of what you will have read in the popular press.
Surely you mean Michael Pettis?
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GDP is per year while debt is spread over time, like 30 years. Assuming 5%/yr for the amount of interest and principle repayment, 5% x 60% = 3% of GDP for debt service per year. Not too bad. Assuming the project adds 1% to GDP growth, it would boost the GDP by 35% at the end. Adding 2% would boost by 81%. And the effect will continue after the debt has been paid off. That's a good investment.
Good solid World Bank math
> For Djibouti, the debt is especially daunting, amounting to 60 percent of its gross domestic product. This seems absolutely insane to me.
Let's say you make a $100k per year and take out a $60k mortgage, that seems very reasonable. If the railway is going to make their economy more productive and efficient then it seems like a really good idea.
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I'd be curious to see the back-of-the-napkin math behind this.
Hard to say exactly, but it's not crazy. But I doubt the difference is that large. Diesel engines for locomotives are likely 40% efficient before accounting for the motor-generator section. A modern a coal fired power plant might be 40-45% efficient. So probably the same based on raw thermal numbers. I suspect economically the electrification is a win. Also over the future it's possible to run the electrified trains…
> For Djibouti, the debt is especially daunting, amounting to 60 percent of its gross domestic product. This seems absolutely insane to me.
GDP is per year while debt is spread over time, like 30 years. Assuming 5%/yr for the amount of interest and principle repayment, 5% x 60% = 3% of GDP for debt service per year. Not too bad. Assuming the project adds 1% to GDP growth, it would boost the GDP by 35% at the end. Adding 2% would boost by 81%. And the effect will continue after the debt has been paid off. That's a good investment.
That is also ignoring the fact that you can't just take the entire GDP growth and use it to pay the loan, you have to collect fares and taxes which can only be a proportion of that growth. If you collect more in fares than the increase in GDP, you're leaving the country poorer than they would be without the railway.
Djibouti is going to need to see some pretty big additional growth from the railway to make the project worthwhile. Not to say they won't, be it's easy to underestimate just how big of a debt burden it is for a small country.
Great news for fans of rail and Africans alike. Also: environment is happier. I'm just amazed at how China is moving forward where other countries (looking at you, USA) simply cannot. What's their secret?
– They can finance stuff like this on credit unchecked by ny public opposition to growing national debt – Having started later than western countries, their public debt (41% GDP) is much lower – High GDP growth rates further lower the effective burden of their debt – They can act largely unencumbered by the historic debt of colonialism, while western countries face opposition both internally as well as locally in the…
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> Lot of LatAm countries like Ecuador have taken Chinese credit when Commodity markets are hot, are now regretting their mistake. Ten years ago, the same was said about those same countries, except it was WMF loans, not Chinese loans.
Sure. Two things were true then, are true now and will be true ten years later (when India is making the loans?): First, the loans are not charity. Second, Argentina will end up defaulting on them.
GDP per capita Argentina: $14715 (2013)
The impact of a railroad (and therefore ROI whether measured financially or just socially) is bound to be higher for Ethiopia, esp since it is the first and only to connect the landlocked country to a major sea port.
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Sure. Two things were true then, are true now and will be true ten years later (when India is making the loans?): First, the loans are not charity. Second, Argentina will end up defaulting on them.
GDP per capita Ethiopia: $505 (2013) GDP per capita Argentina: $14715 (2013) The impact of a railroad (and therefore ROI whether measured financially or just socially) is bound to be higher for Ethiopia, esp since it is the first and only to connect the landlocked country to a major sea port.
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Hard to say exactly, but it's not crazy. But I doubt the difference is that large. Diesel engines for locomotives are likely 40% efficient before accounting for the motor-generator section. A modern a coal fired power plant might be 40-45% efficient. So probably the same based on raw thermal numbers. I suspect economically the electrification is a win. Also over the future it's possible to run the electrified trains…
An electric train may require less energy because it doesn't need to move the engine along the track.