RSS

Archive for the ‘economy’ Category

12 Reasons to Invest in Africa

28 Aug

Over the past decade, South Africa outperformed the MSCI Emerging Markets Index

Forget the BRIC countries of Brazil, Russia, India, and China. Larry Seruma, chief investment officer of Nile Capital Management, says many retail investors are missing a tremendous opportunity for growth in Africa. Seruma manages the Nile Pan Africa fund, the first actively managed, U.S.-based mutual fund to focus exclusively on Africa. He recently released a report, which can be seen here, that explains his investment firm’s reasons for investing in the continent.

Seruma says more investors will begin to look outside of developed markets like the United States for growth, because those markets aren’t expected to grow as fast as they have in the past. “It’s only much more recently you’re beginning to see these huge disparities coalesce,” he says. “The U.S. is going to have very low investment opportunities going forward.”

[See U.S. News's Mutual Fund Score to find the best investments for you.]

Investing in Africa involves plenty of risks. The biggest, Seruma says, is liquidity. “Liquidity is really the ability to trade frequently,” he says. “When you want to get out of a position, it’s not easy to get out of a position.” Executing trades can be difficult because some African stock markets aren’t as transparent and not as much trading takes place compared with, say, the S&P 500. There are other concerns, including the threat of government and corporate corruption. Many African countries have become functioning democracies, however, according to Seruma.

There are a number of other funds that give investors access to Africa and other “frontier” markets, which are also sometimes called pre-emerging markets. Templeton Frontier Markets and iShares MSCI South Africa Index ETF are two examples. Out of the 53 countries in Africa, Seruma’s fund currently invests in 14, which together account for about 90 percent of Africa’s overall market capitalization. Here are Seruma’s reasons for investing in Africa.

‘Ground-floor opportunity.’ Seruma says many investors have already missed what he calls a “ground-floor opportunity” in Africa. For the decade ending Dec. 31, 2009, an African composite index made up of eight countries, including South Africa, Nigeria, and Egypt, returned about 14 percent annualized. South Africa alone returned an average of 13 percent per year over that period. Compare that with the MSCI Emerging Markets Index, which returned about 7 percent annualized, or the S&P 500, which lost about 3 percent over the same time period. He compares the risk versus return ratio in Africa today with emerging markets like China, India, and Brazil in the late 1900s—meaning that investors who enter a new high-growth market first reap the highest returns over time because they’re willing to take on more risk.

[See The Opportunity in Africa.]

Low correlation. Correlation is a measure of how investments perform in relation to each other. A low correlation, for example, means that two securities will frequently move in opposite directions. According to Seruma’s research, from January 2002 through June 2009, an African composite index of eight countries had a correlation of 0.59 with the S&P 500, 0.66 with the MSCI EAFE Index (which measures developed markets outside of North America), and 0.60 with the MSCI Emerging Markets Index. That means that 59 percent of the time, the returns of the African index differed from those of the S&P 500. Investors can use correlation statistics to find out how to better diversify their portfolios. “The African markets have a very low correlation with domestic or other emerging markets, so [you have a] good opportunity to actually reduce risk in the overall portfolio,” he says. Diversifying your portfolio among uncorrelated assets can help offset big losses.

[See Why Emerging Markets Belong in Your Portfolio.]

Strong growth expected. According to projections from the World Bank, nine of the 15 countries in the world with the highest rate of five-year economic growth are in Africa. Seruma estimates that Africa is likely to grow by 4.7 percent over the next five years. Economists expect much slower growth in places like the United States and U.K. over the next few years. “It’s a pretty huge growth differential,” he says.

Profitable companies. There are a number of well-known companies that are based in Africa, including South African Breweries (a subsidiary of SABMiller) and telecom company MTN. Africa’s total stock market capitalization now exceeds $1 trillion. A recent study by two economists, Paul Collier and Jean-Louis Warnholz, found that from 2002 to 2007, the average annual return on capital of African companies was 65 percent to 70 percent higher than that of comparable companies in China, India, Indonesia, and Vietnam. That means the African companies were more profitable.

[See 7 Great Dividend Funds.]

Demand for commodities. “It’s mainly driven by [the] BRICs,” Seruma says. “As they industrialize, they’re going to be demanding more and more of these commodities.” For instance, 10 percent of the world’s oil reserves and 40 percent of the world’s proven gold reserves are found in Africa, according to Seruma.

Increasingly less violent. According to Freedom House, 63 percent of Africa’s population now lives in countries designated “free or partially free.” Compare that with Asia, which has a score of 66 percent. Seruma says most African countries now have functioning democracies. “It’s a very different picture from what it was 20 years ago, and that has increased investment,” he says.

China’s involvement in the region. Seruma singles out China because many Chinese companies—some of which are backed by the government—have made significant investments in Africa. “They are really taking a long-term view about investing in Africa,” he says. The governments of countries like China have realized that they’re going to need resources from the African continent to fund their growth and consumption in the future, Seruma says.

[See 3 Ways to Invest in China's Powerhouse Economy.]

Infrastructure spending. Countries are no longer coming to Africa solely to extract resources. They’re beginning to stay and help make important infrastructure improvements in the country, Seruma says. “The old story of investment in Africa was ‘let us get the natural resources out of the ground and immediately ship it out,’” Seruma says. “Now it’s changing. Not only do they go to Africa and make an investment in Africa, but they’re also making the additional development projects.” For instance, diamond giant De Beers recently signed a deal to mine diamonds in Botswana, including a commitment to build a diamond sorting facility.

Low debt. Concerns about sovereign debt—the debt that governments owe—has made headlines in Europe. Countries like Greece, Portugal, and most recently, Ireland have seen their debt downgraded by ratings agencies like Standard & Poor’s. The United States also faces a huge budget deficit. Seruma says he believes that the United States will see five or six more years of low interest rates, which will lead many investors to look to different regions of the world for higher yield. “The capital being pushed out of the developed markets is going to benefit Africa,” he says. “We believe this time around, there is some sustainability in terms of capital flows.” Many African countries don’t have the same worries. Seruma cites Nigeria, which has a debt-to-GDP ratio of only 18 percent, compared with countries like Greece and Japan whose debt-to-GDP ratio is more than 100 percent.

[See 10 Ways the European Debt Crisis Affects Your Investments.]

Growing investment from abroad. Seruma also cites a United Nations Conference on Trade and Development report, which shows that capital flows to Africa are higher than three of the four BRIC countries. Africa is ahead of Brazil, India, and Russia. It’s second only to China.

Attractive valuations. Seruma believes that many African countries are currently trading at attractive valuations. He says the average price-to-earnings ratio for African companies is about 8 to 9 percent compared with the S&P 500, which has an average P/E ratio of about 15 or 16 percent. “There’s a huge valuation differential that is not explained by the risk,” he says.

Young demographics. Compared with other regions of the world, Africa has a much younger median age, which means African governments aren’t as burdened by elderly populations and pension plans. It also means that Africa has a young, vibrant workforce, Seruma says. Africa’s most populous nation is Nigeria, which Seruma accounts for about a quarter of Africa’s total population. Nigeria’s median age is 19 years old. Compare that with 37 in the United States, 40 in the U.K., and 45 in Japan.

Source
US News Money

12 Reasons to Invest in Africa

No Comments

Posted in economy, investment, trends

Africa prospects lure investors, but is it ready?

26 Aug

Africa offers among the world’s best investment prospects as emerging markets grow ever more important, although its economies risk being destabilized by the slew of capital they stand to attract in coming years.

Energy-producing continental giant Nigeria was identified as a top pick by some of the most influential figures in emerging markets finance who spoke to the Reuters Emerging Markets Summit in Sao Paulo last week.

Africa withstood the financial crisis better than many predicted, and the region’s economic growth is forecast at 4.75 percent in 2010. Next year, half of the world’s 10 fastest growing economies are expected to be in Africa, and it is now attracting more than just the most intrepid investors.

“The latent interest in Africa is enormous,” said Stephen Jennings, chief executive of Russian investment bank Renaissance Capital, speaking to the Reuters meeting by video link from Moscow.

“Before the crisis there were probably 40 people or groups establishing Africa funds. In 3-4 years you’ll have 100 Africa funds and the biggest one won’t be $2 billion, it’ll be $20 billion.”

Fund tracker EPFR reports 43 consecutive weeks of net inflows to Africa equities funds, reaching $484 million in the first half of 2010 — nearly double those to India over the same period.

Africa’s advocates say the inflows stand to accelerate rapidly as a dearth of attractive returns in the developed world pulls investors in while a more stable political and economic environment indicates diminishing risks.

MSCI’s index of Africa countries outside South Africa .dMI8600000P, though well off its year highs, is still up nearly 8 percent in 2010. The S&P 500 .SPX is more than 8 percent down.

BRIC LINKS

A shift of global economic power to emerging giants such as Brazil, Russia, India and China — known collectively as the BRICs — benefits Africa as surging economies seek its resources and push up commodity prices and investment.

Brazil, Russia and India still trail China, which last year became Africa’s biggest trade partner, but they have been rapidly expanding trade and putting more money into Africa.

“What’s absolutely striking is how much change there’s been between the BRIC countries and Africa,” said Jacko Maree, chief executive of South Africa’s Standard Bank, which is Africa’s biggest. “We like to think that the whole story has only just begun.”

Brazilian firms with a large African presence may soon issue bonds in South African rand to seize on growing interest, said Standard Bank’s chief executive in the Americas, Eduardo Centola.

NIGERIA TOP PICK

Nigeria’s market of about 140 million people — nearly three times bigger than South Africa’s — as well as its energy resources and bigger, more liquid markets, makes it the top choice for many eyeing Africa.

On the Goldman Sachs’ growth-environment index, which measures a mixture of economic and social development indicators, Nigeria’s score has nearly doubled over the past decade.

“If it were to show the same increase in its growth-environment score over the next decade, many investors will look back and say why the hell didn’t I invest in Nigeria,” said Goldman Sachs’ global head of economic research Jim O’Neill, who coined the term BRICs.

Ethiopia and Rwanda are among the smaller African economies seen as promising. They show how previously ignored countries scarred by war are emerging as possible investment magnets alongside those such as Ghana, a relatively stable democracy which is soon to become an oil producer.

There are risks, though, with concerns over political stability even in bigger economies such as Nigeria and Kenya.

Africa experts underline the fact that new mineral riches have rarely been shared widely, and suggest reliance on such income for national coffers could discourage establishing tax bases that would put states on a sounder footing.

“Where I think the real caution has to come in is the quality of the growth,” said Patrick Smith of the Africa Confidential newsletter. “It would be pretty silly to say success is certain.”

A big influx of investment funds could in itself pose a problem for African countries less prepared to cope than those in other rapidly growing regions that have felt the pain of such flows in the past.

“Africa has no experience of huge capital inflows,” said Renaissance’s Jennings. “Under the scenario I’m painting, the capital inflows will be way above and beyond the ability of those countries to absorb them.”

Most African countries have small, illiquid markets and little financial infrastructure, raising the chances of economic distortions and asset bubbles that could lead to currency crises and long-term damage.

“People look at how certain African economies have been getting their act together and there is a risk you will get significant capital inflows,” said Mohamed El-Erian, chief executive of PIMCO, the world’s largest bond investor.

“That will provide quite a challenge to policy makers.”

Source:
Reuters

No Comments

Posted in business talk, economy, perspectives, trends

African Monetary Policies

19 Aug

Until fairly recently, most African monetary policies focused on targeting monetary aggregates along with holding real effective exchange rates reasonably constant. As the shortcomings of the system have become more apparent, many of the more reformist African central banks have started a journey towards formal inflation targeting frameworks following the example of South Africa. we speak to Ridle Markus Africa Strategist from ABSA Capital.

Source:
CNBC Africa

No Comments

Posted in economy, perspectives, trends

Chinese economy eclipses Japan’s

16 Aug

The Chinese economy eclipsed the Japanese economy in size in the second quarter after Japan posted poor economic growth figures for the period, increasing the chances that China will officially overtake Japan as the world’s second-largest economy for the year.

The Japanese economy grew at an annualised, seasonally-adjusted pace of 0.4 per cent in the three months ended June. That was much lower than the revised 4.4 per cent growth rate recorded for the first quarter, and well below the 2.3 per cent expected by economists.

“The symbolism of this moment is far greater than its actual significance,” according to Eswar Prasad, a professor at Cornell University and former head of the IMF’s China division. “In terms of both influence and dynamism, China outstripped Japan a long time ago.”

The nominal size of the Japanese economy in the second quarter was $1,288bn, compared with $1,337bn for China, according to a Japanese government official. But the official cautioned that the comparison was inappropriate because China, unlike Japan, does not produce seasonally adjusted data.

China’s quarterly output actually overtook Japan’s in nominal terms in the fourth quarter of last year and since then China has continued to grow rapidly while Japan’s recovery has stalled. Over the first half of 2010, however, Japan maintained its position as the world’s number two economy.

The head of China’s foreign exchange reserve administration last month said China had already overtaken Japan as the world’s second-largest economy. Economists in China point out that while Japan reports detailed and generally accurate economic data, China potentially under-reports its economy by as much as a fifth.

In terms of purchasing power, a more meaningful measure of economic strength, China overtook Japan as the world’s second-largest economy nearly a decade ago. If the European Union is counted as a single economy, then China remains at number three and will stay at that position for some time.

“Using measures such as PPP [purchasing power parity], Japan’s economy is already smaller than China’s,” said Chiwoong Lee, an economist at Goldman Sachs. “Given its potential growth rate going forward it would be just a matter of time before it overtakes Japan anyway.”

While China has made great strides towards replacing Japan as the second biggest economy, on a per capita basis it lags far behind other large economies because of its huge population and is still regarded as a relatively poor country. Japan’s per capita gross domestic product is still more than ten times larger than China’s $3,600.

Meagre Japanese growth in the second quarter also raises questions about the strength of its economic recovery. By comparison, the US economy expanded at an annualised rate of 2.4 per cent in the second quarter, while Germany grew at 9.1 per cent, its fastest pace since reunification.

The Japanese economy grew more slowly in the second quarter on the back of stalling consumer spending, falling public investment and slower exports. Net export growth slowed but remained solid and was the main contributor to growth for the period.

“Japan is an export driven country and [these figures show that] without fiscal stimulus, there’s no real domestic demand,” said Goldman Sach’s Mr Lee. “Strong exports for Germany is not helpful for Japan, as it suggests that global demand is OK.”

Slower export growth is a challenge for Japanese companies at a time when the yen is trading close to a 15-year high against the dollar as risk averse investors pile into the currency. Although authorities have stepped up verbal intervention, analysts are sceptical that direct intervention from the finance ministry is likely.

Monday’s economic growth figures could add to pressure on policymakers to find other ways to deal with slowing growth and the impact of the stronger yen on the recovery. Last week, the central bank kept its economic assessment unchanged and did not announce any further easing measures.

Investors were spooked by the GDP numbers and the Nikkei index fell 0.6 per cent to 9,197, closing in on the psychologically important 9,000 level.

Source:
FT

No Comments

Posted in economy, trends

Continuity for Brazil-Africa relations after “Lula”?

09 Aug

Having presided over an era of unprecedented political and economic engagement between Brazil and Africa since he assumed office in 2003, Brazilian president Luiz Inácio Lula da Silva will step down in December, following general elections in early October.

Seen as a driving force behind Brazil- Africa relations, the end of his tenure raises questions about how Brazil’s Africa policy will fare under a new government. However, while his departure may lead to a change of tone in Brazil’s engagement with Africa, hard nosed commercial interest is likely to ensure continuity.

Mr Lula da Silva, popularly referred to simply as “Lula”, did much to lend visibility to Brazil’s relations with Africa. He visited the continent on 11 occasions during his presidency, covering 25 individual countries. His last visit as president in July alone took in six countries.

In that time Brazil has doubled its number of embassies on the continent to 34, with exports more than tripling to $8.7bn in 2009. Estimated annual trade volumes of $25bn are a quarter of China’s, Africa’s biggest trading partner.

All of this has been done under the banner of “South-South” cooperation, with a strong emphasis on cultural similarity and political solidarity. As much as 50 percent of Brazil’s population traces its heritage to Africa, and some parts of the country are said to bearcloser resemblance to sub-Saharan Africa than Latin America.

While Mr Lula da Silva has publicly spoken about the possibility of continued engagement with Africa after leaving office, it is not clear in what capacity this would be.

Neither is it certain that his chosen successor in the ruling Worker’s Party, Dilma Rousseff, will win October’s election. Despite “Lula” enjoying approval ratings of up to 80 percent the election is expected to be a close one. The main opposition candidate, Josef Serra of the Brazilian Social Democratic Party, is just 5 points behind Rousseff, according to recent polls, with almost two months remaining until polling day.

But will a change of government, and a potential change party, significantly alter the character of Brazil’s “South-South” agenda in Africa?

Mauricio Cárdenas, director of the Latin American Initiative at the Washington-based Brookings Institution, believes this is unlikely.

“This is more the drive of a nation and more specifically the interest of the new Brazilian multinationals,” he says, arguing that Brazil’s interest in Africa is as much about economics as it is about cultural and political solidarity.

“Brazil has adopted a development model in the past few years that really puts a lot of emphasis on the growth of a few corporations that have a multinational scope.”

Mr Cárdenas points to companies such as Petrobras, the part state-owned oil giant, and Vale, the world’s largest iron ore miner, which are becoming increasingly recognisable international brands. Both have growing portfolios in Africa, with Vale recently completing a $2.5bn acquisition of a majority stake in a division of mining company BSG Resources in Guinea.

While President Lula da Silva’s visits to Africa routinely emphasized political cooperation between the two regions, his trips also included high level representatives from Brazil’s business community, including Petrobras and Vale.

“This is a long-term strategy with investments in oil and mining, and also by corporations that are important in areas like agriculture and steel,” says Mr Cárdenas.

“No president or political party is going to ignore that. So the engagement with Africa will remain after Lula, regardless of who wins the elections.”

Ostensibly this fits a perceived trend amongst some observers that foreign investment into Africa by other emerging economies is predominantly motivated by demand for natural resources; often at the expense of political and social considerations. China’s booming trade with the region for example is often subjected to criticism for its alleged disregard of human rights abuses and political opression in some of the resource rich countries in which it invests.

Brazilian officials, however, insist that their country’s approach is quite different.

“Of course we also have some commercial considerations,” concedes Ambassador Piragibe Tarragô, Brazil’s under-secretary general for political affairs, covering Africa and the Middle East. But he is adamant that “this is not at the forefront of our consideration…it is really “South-South” cooperation that we have in our mind.”

He cites the work of organisations such as Embrapa, the Brazilian Agricultural Research Corporation, which is providing technical assistance and training to a number of African countries in the field of agriculture. Such initiatives, Mr Tarragô believes, mean that Brazil’s relationship with Africa cannot be reduced simply to commercial interests in extractive industries.

Nevertheless, he too acknowledges that the business community has an important role to play in ensuring continuity in Brazil’s engagement with Africa.

“Even if the next government might play down the debate of foreign policy towards Africa, I am sure that the business community will not let that go. They will see the opportunities already being explored in Africa, and they would not like that to go just like that.”

At Brookings, Mr Cárdenas believes that, while important, the pull of Brazil’s multinationals does not negate the significance of genuine political good will between the two regions. African countries, he says “see no threat in Brazil.”

“Brazil is coming with the idea of mutual engagement in the development of projects, by a country that just wants to have a good relationship,” he adds, noting the cultural similarities between Brazil and many African countries.

Ultimately, Mr Mr Cárdenas argues that the combination of political goodwill and more hard nosed commercial incentives results in a mutually beneficial blend for Brazil and its African partners.

“It is good business, but at the same time it is also politically savvy for Africa and Brazil to be closer because I think that they have more commonalities and more common interests than other parties may have.”

Source
TIA Online

No Comments

Posted in agriculture, economy, infrastructure, investment, mining & energy, perspectives, trends

New Silk Road by China Binds Asia to Latin America

03 Aug

The high-speed rail link China Railway Construction Corp. is building in Saudi Arabia doesn’t just connect the holy cities of Mecca and Medina. It shows how Asia, the Middle East, Africa and Latin America are holding the world economy together.

Ties between emerging markets form what economists at HSBC Holdings Plc and Royal Bank of Scotland Group Plc call the “new Silk Road” — a $2.8-trillion version of the Asian-focused network of trade routes along which commerce prospered starting in about the second century.

Today’s world-spanning web is insulating markets such as China from the drag of weak recoveries in the advanced world and providing global growth with a new power source. Stephen King, HSBC’s chief economist, predicts the relationships will strengthen and lists them as a reason for his forecast that emerging markets will grow about three times faster than rich nations this year and next on average.

“The potential for inter-emerging market trade is ginormous,” said Jim O’Neill, chief economist at Goldman Sachs Group Inc. in London, who coined the term BRIC in 2001 to describe the rising role of Brazil, Russia, India and China. “That makes it quite difficult to see how you get a sustained global recession because of what’s going on in the west.”

Share of Trade

The BRIC economies hold a 13 percent share of world trade and have been responsible for about half of global growth since the start of the financial crisis in 2007, according to O’Neill. He predicted the BRICs will grow about 9 percent this year and next compared with 2.6 percent in advanced nations.

Investors are tuning in. Research by Kieran Curtis, who helps oversee $2 billion at Aviva Investors in London, found growing trade between emerging markets helps explain why they now account for about 30 percent of global final consumption, about the same as the U.S. and up from 10 percent in 1990.

That should increase demand for the Chinese yuan if the government continues to loosen restrictions on settling trade transactions with its currency, he said.

“Go to a market in Nairobi and you’ll see Chinese goods on sale,” Curtis said. “If emerging market fundamentals continue to be superior, there is the potential for serious currency appreciation against old-guard currencies.”

Currency Policy

China’s government signaled June 19 that it will allow a more flexible exchange rate. So far, it’s limited the yuan’s rise to less than 1 percent against the dollar after allowing a 21 percent appreciation in the three years to July 2008.

Jerome Booth, who helps oversee $33 billion of emerging- market assets as head of research at Ashmore Investment Management Ltd. in London, said emerging markets are increasingly starting to denominate trade contracts in currencies other than dollars as commerce between them rises.

Commodity prices that may have been dropped in the past when advanced nations grew less are now cushioned by trade between emerging markets, said Dariusz Sliwinski, head of emerging markets at Martin Currie Investment Management in Edinburgh.

“Commodity prices would have been much lower without the support, which is good for the likes of Russia and Brazil,” said Sliwinski, who helps manage about $15 billion.

Royal Bank of Scotland Chief China Economist Ben Simpfendorfer in Hong Kong says emerging Asian and Middle Eastern economies will account for 75 percent of every extra barrel of oil consumed or produced in the next decade, while copper should gain because it’s a key input in infrastructure and nickel may benefit because of its use in steel.

Impact on Commodities

The Standard & Poor’s GSCI Total Return Index, tracking the net amount investors received from 24 raw materials, climbed 13 percent last year. While the price of oil fell as low as $32.40 a barrel during the recession it has since rebounded, ending last week at $78.95 a barrel. The cost of nickel and copper more than doubled over the same period.

Chu Moon Sung, a fund manager at Shinhan BNP Paribas Asset Management Co. in Seoul, which manages $26 billion, says investors will increase their holdings of emerging-market equities.

“The populations in emerging markets, especially in Asia, are large,” he said. “They are getting more educated and income levels are rising, which make these countries very attractive for companies. China is a favorite for stock investors but we’re seeing more interest in Indian, Brazilian and Russian markets.”

Gains in Trade

The Geneva-based World Trade Organization estimates intra- emerging market trade rose on average by 18 percent per year from 2000 to 2008, faster than commerce between emerging and advanced nations. It totaled $2.8 trillion in 2008, about half of emerging-market trade with all nations.

That performance is especially welcome now given the sluggish recovery in the rich economies, said HSBC’s King, author of “Losing Control: The Emerging Threats to Western Prosperity” and a former U.K. Treasury official.

Chinese exports to the emerging world accounted for about 9.5 percent of gross domestic product in 2008, compared with 2 percent in 1985, he calculated. India’s jumped to 7.3 percent from 1.5 percent and Brazil’s almost doubled to 6.3 percent.

Emerging-market economies will grow 6.9 percent this year and 6.2 percent in 2011, King said, outpacing the 2.4 percent and 1.9 percent projected expansions of developed economies.

Providing Protection

“There are now massive trade connections within the emerging markets and they’re becoming increasingly important,” said King in a telephone interview. “It means in one sense the emerging world is protected from the worst ravages of the developed world.”

Those ravages were born in the global recession of 2008-09 from which the advanced world is proving slow to recover, even after policy makers cut interest rates to record lows. That’s prompting businesses and investors to seek other sources of growth.

Of the foreign direct investment flowing into south, east and southeast Asia alone, China was a source of 13.3 percent in 2008, compared with the U.S.’s 7.9 percent and up from 0.4 percent in 1991, according to a report last month from the Geneva-based United Nations Conference on Trade and Development.

China, the world’s fastest-growing major economy, dominates the push into fellow emerging markets, passing the U.S. as the biggest exporter to the Middle East in 2008.

Huawei in India

Shenzen-based Huawei Technologies Co., its biggest maker of phone equipment, had orders of $1.7 billion from India in 2008 and said in January that it will invest $500 million in its research center in Bangalore.

China Mobile Ltd. of Hong Kong, the world’s biggest phone carrier, is “interested in doing business in Africa,” where it can boost services in rural areas, Chairman Wang Jianzhou said in a June 26 interview.

Elsewhere in Asia, a group led by Korea Electric Power Corp., South Korea’s largest utility, beat off competition from General Electric Co. and France’s Areva SA to win a $20 billion UAE nuclear contract. The Saudi Railways Organization last month awarded a contract to China South Locomotive and Rolling Stock Corp. to supply 10 cargo locomotives. The Mecca-Medina rail contract went to Beijing-based China Railway as part of a Saudi- Chinese consortium.

Brazil in Africa

In Latin America, Brazil’s Vale SA has been on an international spending spree, helped by booming commodities demand from China and a currency that has doubled against the dollar since 2003. The company estimates that its $1.3-billion coal mine in Mozambique will have a capacity of 11 million tons per year three to four years after it enters production in the first half of 2011.

Vale in 2009 acquired stakes in three copper projects, in Zambia, Africa’s largest producer of the metal, and the Democratic Republic of Congo. In April this year, the company agreed to pay $2.5 billion for iron ore deposits in Guinea, including assets the country confiscated from the Rio Tinto Group.

“We saw the same phenomenon with American and European companies 50 to 100 years ago as they went global,” said Shane Oliver, head of investment strategy at AMP Capital Investors, which manages about $95 billion in Sydney. “Emerging-market companies are now big enough and they have the choice of going to developed countries where they may be more constrained or to the emerging world where the growth potential is.”

Competition Rises

They are also jostling with each other. Brazil’s Empresa Brasileira de Aeronautica SA, or Embraer, is braced for increased competition from new Chinese and Russian rivals.

In December 2009, 32 percent of the backlog of orders for Embraer’s medium-range E-Jet airliners was from emerging markets, up from 1 percent in 2005. Over the same period the company’s backlog of orders from North America and Europe fell to 53 percent of the total, down from 91 percent.

“We are selling less, on a proportional basis, to the U.S. and Western Europe, and we have a growth in sales in Latin America, Asia and Asia-Pacific,” said Paulo Cesar, Embraer’s executive vice president-airline market, in a telephone interview.

Embraer is braced for new competition from Russia’s Sukhoi Co. and the Commercial Aircraft Corporation of China, or Comac, particularly in their home markets, Cesar said. Both companies are developing civilian airliners.

Middle East Link

Royal Bank of Scotland’s Simpfendorfer, whose book “The New Silk Road: How a Rising Arab World is Turning Away from The West and Rediscovering China” was published last year, says the trade ties between China and the Middle East alone make for a modern Silk Road.

The original was more than 4,000 miles (10,200 kilometers) of trade routes crossing Asia and into southern Europe and north Africa. Based around China’s silk industry and once traveled by Marco Polo, the commerce it enabled also helped power the growth of civilizations from Egypt to Rome.

Governments are seeking to take advantage of the modern version. India said in May that it will open an economic division at its embassy in China’s capital as the two countries seek to increase bilateral trade to $60 billion this year from $43 billion last year. Since taking office in 2003, Brazilian President Luiz Inacio Lula da Silva has visited about 68 developing nations, more than any of his predecessors.

With trade nevertheless comes tension. Developing economies in Asia and the Middle East accounted for about 45 percent of new anti-dumping investigations reported to the WTO in 2009, up from 22 percent in 1998.

Trade Tensions

China said in May that India shouldn’t discriminate against Chinese telecommunication products, a month after people with knowledge of the matter said contracts for products from Huawei Technologies and ZTE Corp. were vetoed by India’s government on national security grounds.

MTN Group Ltd., Africa’s largest mobile-phone company, in June halted talks to purchase $10 billion of assets from Orascom Telecom Holding SAE after Algeria’s government blocked a sale of the company’s local unit, the most profitable in the portfolio. Orascom, the biggest mobile-phone company by subscribers in the Middle East, also operates in Bangladesh, Pakistan and Egypt.

There is still scope for ties to strengthen. In a study released last week, the Washington-based Inter-American Development Bank concluded “massive bilateral trade” could develop between Latin America and India if tariffs are cut.

Gene Grossman, who succeeded Federal Reserve Chairman Ben S. Bernanke as head of Princeton University’s economics department, sees a repeating pattern of what he called the “home market effect,” in which countries at similar income levels increasingly trade because their consumers have similar tastes and spending power.

India’s Tata Group was the second-largest investor in sub- Saharan Africa in the six years through 2009, according to the Organization for Economic Cooperation and Development.

“Once an Indian firm enters and develops expertise based on its sales to its local market it now sees profit opportunities in serving markets elsewhere,” said Grossman.

Source:
BusinessWeek

No Comments

Posted in business talk, economy, infrastructure, investment, perspectives, technology, trends

“South Africa: Will the Cup Runneth Over?”

16 Jun

Our analysis leads us to believe that short-term economic gains from the World Cup have been limited, with the main positive effects seen over the past four years. The most important of these effects was the fact that preparing for the tournament helped boost economic activity in South Africa and muted the effects of the recession in other parts of the world. In aggregate, the preparations for the World Cup helped offset some of the weakness in the South African economy and provided an infrastructure boost that will remain in place long after the event. However, as with many such events, the economic benefit is relatively limited.

Infrastructure received a huge boost in the run up to the World Cup. Domestic public transport was beefed up, roads were repaired and host cities received generous face lifts. Moreover, Africa’s first high-speed rail link, the “Gautrain,” running between Johannesburg’s financial center Sandton and the OR Tambo International Airport, was put in place. Work on the railway was approved even before the World Cup was awarded to South Africa and its construction was brought forward to help the country cope with the hordes of tourists during the month-long event. The train is expected to provide efficient and affordable transport for the general population for many years after the World Cup and help to alleviate road traffic problems.

Preliminary estimates suggest that initial hopes for up to 500,000 tourist arrivals were over-optimistic, with the global economic slowdown contributing to lower ticket sales and travel bookings. The initial phases of ticketing saw a very poor response, but the global football federation, FIFA, expects to sell 98% of the total of 2.88 million purchasable tickets by the end of the final phase. The U.S. tops the number of foreign ticket holders, with 20,000 to 40,000 expected to attend the tournament. However, tickets were prohibitively expensive for potential visitors from neighboring African countries. Additionally, regional demand was adversely affected by Africa’s low Internet usage, with tickets mainly sold through online vendors.

Although the short-term gains from the event are rather limited, should the World Cup go well, and labor strikes and other destabilizing events are avoided, it could provide a chance to showcase South Africa’s institutional development and help cement its longer-term recovery. Yet there are several structural challenges to overcome, such as limited access to services, transportation bottlenecks, worsening demographics and extensive inequality, which could hamper the country’s potential output growth.

As noted in our most recent outlook, South Africa’s weak labor market conditions are one of the main headwinds against domestic demand and overall economic growth. According to official statistics, one in every four South Africans is unemployed; however, taking those who have exited the labor pool into consideration, the number is much higher. The global recession exacerbated the country’s chronically high unemployment rate (which has remained near 20% since Apartheid ended in the early 1990s) and, as a result, the jobs created in the lead up to the World Cup only partly offset the labor market weakness. Most of these jobs were only temporary in nature, and many workers found themselves unable to find new employment, either in the public or private sectors, after construction projects ended.

It is also worth noting that the private sector in South Africa remains weak, and thus is unlikely to invest much in non-residential construction after the World Cup wraps up. Government investment, a part of the fiscal stimulus, will partly offset this gap, however, and the construction of state-owned energy utility Eskom’s solar and wind plants will help assuage issues relating to the abrupt decline in construction projects following the completion of World Cup preparations. Additionally, Finance Minister Pravin Gordhan targeted over US$100 billion in infrastructure spending over the next three years in his 2010 maiden budget, potentially providing a boost to jobs moving forward.

Source:
RGE Monitor

No Comments

Posted in business talk, economy, investment, perspectives, trends

Europe Recession Next Year ‘Almost Inevitable’: Soros

16 Jun

Europe faces almost inevitable recession next year and years of stagnation as policymakers’ response to the euro zone crisis causes a downward spiral, billionaire U.S. investor George Soros said on Tuesday.

Source: World Economic Forum

George Soros

Flaws built into the euro from the start had become acute, Soros told a seminar, warning that the euro crisis could have the potential to destroy the 27-nation European Union.

The euro’s lack of a correction mechanism or of a provision for countries to leave it could be a fatal weakness, he said.

Germany had imposed its criteria on how a 750 billion euro ($1 trillion) euro zone rescue mechanism should be used and was imposing its own standards — a trade surplus and a high savings rate — on the rest of Europe, Soros said.

“But you can’t be a creditor country, a surplus country, without somebody being in deficit,” he said.

“That’s the real danger of the present situation — that by imposing fiscal discipline at a time of insufficient demand and a weak banking system, by wanting to have a balanced budget you are actually … setting in motion a downward spiral,” he said.

Germany would do relatively well because the decline in the euro had boosted its economy, he told the seminar on the euro zone crisis organized by two thinktanks, the European Council on Foreign Relations and the Center for European Reform.

“Germany is going to smell like roses but (the rest of) Europe is going to be pushed into a downward spiral, stagnation lasting many years and possibly worse than that,” he said.

“In other words, I think a recession next year is almost inevitable given the current policies,” Soros said, later clarifying that he meant a recession in Europe as a whole.

Warns of Social Unrest

“If there is no exit, (it) is liable to give rise to social unrest and, if you follow the line, social unrest can give rise to demand for law and order and (sow the) seeds of what happened in the inter-war period,” he said.

Political will to forge a common fiscal policy in Europe was absent and since Europe was liable to move backwards if it did not advance, “the crisis of the euro could actually have the potential of destroying the European Union,” he said.

European banks had bought large amounts of the sovereign bonds of weaker euro zone countries for a tiny interest rate differential, Soros said.

“That’s one of the reasons why the banks are so over-leveraged and why the German and the French banks own Spanish bonds,” he said.

“Now … they have a loss on their balance sheets which is not recognized and it reduces the credibility of those banks so the banking system is in serious trouble,” he said.

“The commercial paper market, for instance, in America is now refusing to lend to European banks so there is even a funding crisis and the ECB (European Central Bank) has to step in and the banks are unwilling to lend to each other,” he said.

Source:
CNBC Europe

No Comments

Posted in business talk, economy, perspectives

Now May Be the Time to Buy the Euro: Jim Rogers

14 Jun

Everybody is so bearish about the euro that it looks like now is a good time to buy the single European currency, famous investor Jim Rogers told CNBC Thursday.

Rogers’ long-term bet is on commodities, as he predicts that governments will keep printing money to get out of their debt problems and this will flare up inflation.

Getty Images

Jim Rogers

“I’m as confused as anybody else… I’m basically short stocks and long commodities and trying to figure out whether to add to the euro yet,” Rogers told CNBC.

“Everybody is terribly negative on the euro right now, it’s unbelievable how many bears there are and usually that indicates a rally,” he said.

Other contrarian traders are considering buying the single European currency.

“The euro is failing to rally on good news — whether of an economic or a political nature,” wrote Audrey Childe-Freeman, senior currency strategist for Brown Brothers Harriman, in a note to clients.

“In this context, it is rather controversial to be anything but a euro bear, but this may be the time to identify a few constructive developments and to get prepared for a potential correction” to the upside, Childe-Freeman wrote.

The euro [EUR=X 1.2262 0.0137 (+1.13%) ] was trading higher versus the dollar Thursday, ahead of the European Central Bank’s monthly meeting on monetary policy.

But Rogers said his decision to buy the euro would not be based on the soundness of euro zone policies to contain debt.

“Basically it’s a technical rally,” he said. “Once a technical rally starts, who knows where it can go from that.”

But the only big bull market he sees over the next decade will be in commodities.

Shorting One American Bank?

Central banks will start printing money again “because that’s all they know to do, they don’t have more sense than that” and inflation will rise, so owning any hard assets will be good, he predicted.

But investing in commodities is not a safe game and those who are thinking about getting into debt to take advantage of a bull market should always know very well the market they are buying into, Rogers warned.

“If you cannot spell commodities I wouldn’t suggest buying commodities. Please, you’d better know what you’re doing if you’re going to use a lot of leverage,” he said.

He does not own stocks of companies linked to commodities, because there are lots of risks associated with stocks.

- Watch the full interview with Jim Rogers above.

“I actually own some Australian mining shares but I own them for 10-12 years and I’m not buying them now,” he said. “Unless you’re very, very good at stock picking, you should own the commodities themselves.”

Rogers said he is shorting the technology sector, emerging markets and the US stock market.

In the financial sector, he said he was short “one major Western financial institution” with headquarters in North America. He was not short other banks, because their prices had not risen enough, he said.

His views on the financial sector are not optimistic and he believes Wall Street and the City are going to lose their appeal in the coming years as the economy turns more towards tangible goods.

“You should become a farmer, you should become a miner, go into the production of real goods,” Rogers said.

70.71 Group

Archive for the ‘economy’ Category