Global Investing

For years the four mighty BRIC nations have grabbed increasing shares of world investment flows. But the coming years may not be so kind.  These countries bring up the bottom of the Economic Freedom Index (EFI) for 2012. Compiled by Washington D.C.-based think-tank The Heritage Foundation the EFI measures 10 freedoms —  from property rights to entrepreneurship – and according to a note out today from RBS economists, there is a strong positive link between a country’s EFI score and the amount of FDI (foreign direct investment) it can secure. So the more “free” a country, the more FDI inflows it can expect to receive — that’s what an RBS analysis of 2002-2008 investment flows shows.

So back to the BRICs. Or BRICS if you add in South Africa (part of the political grouping though not yet included in the BRIC investment concept used by fund managers). The following graphic shows Russia languishing at the bottom of the EFI, China just above Russia and India third from bottom.  Brazil is sixth from bottom while South Africa ranks two places higher.

At the other end of the spectrum is tiny Singapore. Its EFI score is double that of Russia and between 2002-2008 it attracted FDI equivalent to 50 percent of its economy. Russia in contrast saw negative net FDI (outflows exceeded inflows)

What comes next will be interesting. China grabbed the most FDI in absolute terms in the past decade (around $1.3 trillion or almost half the $2.1 trillion flows to the 21 leading EMs) but RBS notes this is slowing. That’s because China’s low-value manufacturing base is becoming less competitive relative to the rest of Asia and stringent restrictions remain in place in many sectors. Corruption, red tape and general business-unfriendliness prevail. ”The decreasing allure of China from a manufacturing perspective means the country is at risk of suffering a decrease in FDI inflows in coming years,” RBS writes. The bank also notes the nature of FDI into China is changing: half the 2011 flows went to real estate.

On the other BRICS:

India: RBS sees the FDI outlook clouded by a poor business backdrop, restrictions on foreign participation in many sectors, slow reform and  the lack of commodities.

Just when you thought it was all over, Iceland looks like it’s in trouble again.  The cost of insuring Iceland’s debt against restructuring or default has risen this week to 720 basis points in the five-year credit default swap market, its highest since mid-2009.  That means it costs 720,000 euros a year for five years to insure 10 million euros of Icelandic debt against default.

Icelanders are to vote by March 6 on a deal to repay $5 billion lost in online Icesave bank accounts in Britain and the Netherlands. Those governments compensated savers when the bank collapsed and now want their money back from Reykjavik, but opinion polls show voters are likely to reject what are seen as the harsh terms of the agreement.

The uncertainty has driven debt insurance costs back up towards the levels seen just before the country’s banking system and government collapsed in Oct 2008.

If Nigerian banks appear to have suffered disproportionately in the global financial crisis, maybe they have Heathrow Terminal 5 to blame.

Nigerian banks were advertising their services on billboards in Terminal 5 last year, and travelling investors felt it showed the banks were rashly trying to keep up with international investment banks in aiming for a global profile, causing many to sell, a banker specialising in Africa told journalists this morning over breakfast.

“Those adverts were a sign to sell Nigerian banks,” Luca del Conte, executive director in treasury and capital markets at Medicapital Bank said.