Nigeria’s mighty economy
In a world of slowing growth (China), minimal growth (United States) and outright recession (Britain), it is startling to hear that Nigeria’s economy is likely to shoot up by 40 percent in the second quarter this year. Yep. Forty percent. Four – O.
An investigation by Reuters Lagos correspondent Chijioke Ohuocha came up with this staggering figure — which if borne out will lift Nigeria close to continental rival South Africa and raise it about 10 places on the IMF’s global list to around 3oth.
This mighty rise, however, is not actually because Nigeria has had a sudden spurt of growth. You can read Chijioke’s exclusive story here, but the gist is that the country is changing the base year for its GDP calculation to 2009 from its current 1990. One big reason is that data is better; another that it is more modern, taking in things like mobile phones and the internet, for example. It is the latter, and things like it, that have built up growth over thr years.
Nigeria’s current annual growth is around 7 percent, which puts it on track to overtake slower growing South Africa as Africa’s Number 1 economy. That, in itself, should make the country more of a target for investment over the longer term. It is currently considered “frontier”, which is a small pool when it comes to investment flows.
For now, though, it is as Chijioke writes: “The makeover may give the country financial bragging rights, but will change little for the millions trapped in poverty.”
The percentage of Nigerians living in absolute poverty, unable to afford only the bare essentials of food, shelter and clothing,- has risen to around 60 percent even as growth — rebased or not — has risen.
from Global Investing:
Retail volte face confirms India as BRIC that disappoints
Jim O'Neill, the Goldman Sachs banker who coined the term BRICs to capture the fast-growing emerging-markets quartet of Brazil, Russia, India and China, has fingered India as the BRIC that has disappointed the most over the past decade in terms of reforms, FDI and productivity. New Delhi's latest decision to put on hold a landmark reform of its retail sector will only confirm this view.
The government's backtracking on plans to allow foreign investment in supermarkets will not surprise those accustomed to New Delhi's record on key economic reforms. But it means India's weak performance on FDI receipts will continue and that's bad news for the worsening balance of payments deficit. Speaking of the retail volte face, O'Neill said: "They shouldn’t raise people's hopes of FDI and then in a week, say, 'we’re only joking'".
Various Indian lobby groups that oppose the reforms contend that foreign giants such as Wal-Mart and Tesco will kill off the livelihoods of millions of small traders.
Not so, according to a study by the Vale Columbia Centre for Sustainable Economic Development, a think-tank that studies FDI trends. The Centre's Nandita Dasgupta notes that many emerging economies that have allowed 100-percent foreign participation in retail since the early 1990s have seen encouraging results. These include Argentina, Brazil, Chile, Russia, China, Indonesia, Malaysia and Thailand. In China, FDI in retail was permitted 20 years ago. But there is no evidence the huge investments have hurt mom-and-pop operations or domestic retail chains, Dasgupta says. In fact, since 2004 the number of small Chinese outlets has increased to around 2.5 million from 1.9 million. Between 1992 and 2001, employment in retail and wholesale almost doubled to 54 million.
In Indonesia, where FDI to retail was liberalised 10 years ago, 90 percent of the business remains with small traders, Dasgupta points out.
At present, insufficient cold storage, poor transportation and distribution infrastructure allows half of India's fresh produce to rot. An organised retail sector can create a proper farm-to-fork infrastructure through direct purchase from farmers. India's 700 million poor are the ones bearing the brunt of double-digit food price inflation -- the status quo is the worst option for them.
from Jeremy Gaunt:
Why is the euro still strong?
One of the more bizarre aspects of the euro zone crisis is that the currency in question -- the euro -- has actually not had that bad a year, certainly against the dollar. Even with Greece on the brink and Italy sending ripples of fear across financial markets, the single currency is still up 1.4 percent against the greenback for the year to date.
There are lots of reasons for this. The dollar is subject to its country's own debt crisis, negligible interest rates and various forms of quantitative easing money printing -- all of which weaken FX demand. There is also some evidence that euro investors are bring their money home, as the super-low yields on 10-year German bonds attest.
Finally -- and this is a bit of a stretch -- some investors reckon that if a hard core euro emerges from the current debacle, it could be a buy. Thanos Papasavvas, head of currency management at Investec Asset Management, says:
Let's assume there is some sort of breakup ... if the euro is the currency of a potentially core set of economies, then it would be an incredibly strong currency
Of course, there is the question of whether $1.36 or thereabouts represents a strong euro against the dollar. Lots of people, for example, tend to judge it by the $1.17 rate at which the euro was introduced. But the following graph suggests that if you give the euro a longer historical life, it is not all that much above its average value. Still higher than some might have expected give the crisis that is threatening it entire survival.
from Global Investing:
Phew! Emerging from euro fog
Holding your breath for instant and comprehensive European Union policies solutions has never been terribly wise. And, as the past three months of summit-ology around the euro sovereign debt crisis attests, you'd be just a little blue in the face waiting for the 'big bazooka'. And, no doubt, there will still be elements of this latest plan knocking around a year or more from now. Yet, the history of euro decision making also shows that Europe tends to deliver some sort of solution eventually and it typically has the firepower if not the automatic will to prevent systemic collapse. And here's where most global investors stand following the "framework" euro stabilisation agreement reached late on Wednesday. It had the basic ingredients, even if the precise recipe still needs to be nailed down. The headline, box-ticking numbers -- a 50% Greek debt writedown, agreement to leverage the euro rescue fund to more than a trillion euros and provisions for bank recapitalisation of more than 100 billion euros -- were broadly what was called for, if not the "shock and awe" some demanded. Financial markets, who had fretted about the "tail risk" of a dysfunctional euro zone meltdown by yearend, have breathed a sigh of relief and equity and risk markets rose on Thursday. European bank stocks gained almost 6%, world equity indices and euro climbed to their highest in almost two months in an audible "Phew!".
Credit Suisse economists gave a qualified but positive spin to the deal in a note to clients this morning:
It would be clearly premature to declare the euro crisis as fully resolved. Nevertheless, it is our impression that EU leaders have made significant progress on all fronts. This suggests that the rebound in risk assets that has been underway in recent days may well continue for some time.
So what exactly have investors and been doing while waiting for the fog to clear in Brussels? The truth on most benchmark prices and indices is "not very much" -- at least not since world markets got the collywobbles in early August about US downgrades and debt ceilings, euro sovereign debt angst and double dip recession. Yet, since the European stocks nadir in late September prodded the Franco-German alliance into more serious action, there has been some impressive market gains of between 10 and 20% across most equity sectors and national indices. More broadly, after a year of intense political and financial turmoil across the globe, developed market equities are only down about 4% year-to-date -- a 10 point outperformance on emerging markets, for example.
And the clearing of the euro fog now allows investors to start looking beyond the Brussels cauldron and review how the rest of the world is shaping up. What they find, surprisingly for those drowning in disaster commentaries, is‘not all that bad – especially, but not exclusively in the United States. There's been a string of more positive economic data releases throughout October and these have continued through the back end of last week and early this week. The bellwether Philadelphia Fed industrial index rose to its highest in six months; U.S. durable goods orders (excluding volatile aircraft orders) rose at their fastest pace in six months in September; U.S. new home sales rose at their fastest in five months; business surveys show Chinese manufacturing is back expanding again in October for the first time in three months; U.S. power firms are reporting a pickup in industrial activity in H2, Ford has increased fourth quarter forecast for North American vehicle production. The U.S. Q3 earnings season hasn’t been half bad either – with a third of the S&P500 reported, some 70 percent beat forecasts and the main strength was in the industrial world. What’s more for markets, seasonal equity flows are typically in an updraft for the rest of the year, all things being equal. Fund managers already started rebuilding equity positions in September.
European business and consumer sentiment surveys have continued to push lower through the policy logjam, unsurprisingly, even if real data contradicts some of that anecdotal ‘evidence’. And this may well translate into the wider investment theme as the euro crisis ebbs. Europe may agree to adapt grudgingly to solve its immediate problem but tyhen pay the price in economic growth because it’s less worse than the alternative of financial chaos.
On the more immediate horizon, there may be groans from those hoping to escape summit mania as G20 leaders are set to meet in Cannes next Thursday and Friday -- with a hoped-for endorsement of the euro plan and a specific interest in the EFSF/IMF/SPV idea that seems to be courting sovereign wealth funds from China and other emerging giants from the BRICs to use a special conduit to buy euro sovereign bonds. ECB rate cuts too may be firmly back in the frame on Thursday as Mario Draghi takes the helm of the central bank for the first time. The Federal Reserve's Open Market Committee gives us its latest decision on Wednesday. US payrolls looms large on Friday, with a heavy European earnings sked including Barclays, BMW, ING, BNPP, Unilever, CS, ArcelorMittal, RBS, Commerzbank, and many more.
from Jeremy Gaunt:
Getting there from here
Depending on how you look at it, August may not have been as bad a month for stocks as advertised. For the month as a whole, the MSCI all-country world stock index lost more than 7.5 percent. This was the worst performance since May last year, and the worst August since 1998.
But if you had bought in at the low on August 9, you would have gained healthy 8.5 percent or so.
In a similar vein, much is made of the fact that the S&P 500 index ended 2009 below the level it started 2000, in other words, took a loss in the decade.
That completely ignores, however, a more than doubling of the index between 2002 and 2007.
There is a danger sometimes in allowing the calendar to dictate your interpretation of financial market behaviour.
The thin line between love and hate
The opinion on Turkey’s unorthodox monetary policy mix is turning as rapidly as global growth forecasts are being revised down.
Earlier this month, its central bank was the object of much finger-wagging after it defied market fears over an overheating economy by cutting its policy rate. It defended the move, arguing that weaker global demand posed a greater risk than inflationary pressures.
Investors were not persuaded. When I told one analyst about the Turkish rate move, he practically sputtered down the phone: “You’re not kidding?!”
The lira sold off, dropping to 2-1/2 year lows against the dollar.
But the central bank could yet be vindicated. With fears intensifying over weakening global demand, its decision to cut rates looks increasingly prescient. As my colleague Sujata Rao has pointed out, other emerging-market central banks have followed the Turks.
Witness Societe Generale’s head of emerging markets strategy Benoit Anne‘s mea cupla in a note issued just two weeks after Turkey’s controversial rate decision:
“I guess I need to apologize to the Central Bank of Turkey which on many occasions had been the object of my sarcasm over the past few months: the Central Bank of the Republic of Turkey is actually at the forefront of policy-making in the emerging-markets universe. And I bet some other central banks will follow suit with rate cuts in the pipeline.”
APEC Summit looms as US trade pacts lag
The White House could face the embarrassing possibility of President Barack Obama hosting the annual APEC leaders summit in November without managing to win approval of free trade pacts with South Korea, Colombia and Panama.
Administration officials say there is every reason to expect the long-delayed trade deals can still be passed in September, a good two months before Obama welcomes South Korean President Lee Myung-bak and 19 other APEC leaders to Honolulu.
But as yet, Obama has not even submitted the agreements to Congress, saying he first needs an iron-clad guarantee from Republicans in the Senate and House of Representatives that a worker retraining program known as Trade Adjustment Assistance will be passed along with the trade pacts.
Although still immersed in tough negotiations on raising the U.S. debt ceiling, the White House has not given up hope on reaching a procedural deal with Republicans on the free trade agreements and Trade Adjustment Assistance before lawmakers begin their month-long break in August.
But if that agreement still has to be struck in September, that will eat up precious legislative days in the run-up to the Nov 12-13 APEC summit meeting.
In addition, both the House and Senate are scheduled to be off the last week of September and each chamber has other weeks scheduled off in October.
Congress can move quickly when leaders of both parties work together. Whether that will be the case for the trade bills this fall remains to be seen. It was not the case this summer.
Give me liberty and give me cash!
Come back Mr Fukuyama, all is forgiven.
In his 1992 book “The End of History and the Last Man”, American political scientist Francis Fukuyama famously argued that all states were moving inexorably towards liberal democracy. His thesis that democracy is the pinnacle of political evolution has since been challenged by the violent eruption of radical Islam as well as the economic success of authoritarian countries such as China and Russia.
Now a study by Russian investment bank Renaissance Capital into the link between economic wealth and democracy seems to back Fukuyama.
Looking at 150 countries and over 60 years of history, RenCap found that countries are likely to become more democratic as they enjoyed rising levels of income with democracy virtually ‘immortal’ in countries with a GDP per capita above $10,000.
” Only five democracies above the $6,000 income level have died. Even democracies above the $6,000 level have a 99 percent chance of sustaining their political system each year. The only exceptions were the military coups in Greece in 1967 ($9,800), Argentina in 1976 ($8,180) and Thailand in 2006 ($7,440), and the events in Venezuela in 2009 ($9,115), as well as Iran in 2004 ($8,475),” RenCap global chief economist Charles Robertson writes.
The $6,000 per capita GDP seems to be a crucial level, marking the point where a country is likely to shift to democracy. Tunisia, which early this year triggered the wave of uprisings against autocracy across the Arab world, recently crossed that threshold.
Conversely, democracy is most fragile at the lowest income levels and when incomes are shrinking. The world’s populous democracy, India, is a notable exception as its per capita income was under $800 from 1950-1967, and only exceeded $2,000 in 2003.
from Davos Notebook:
Will Goldman’s new BRICwork stand up?
Jim O'Neill, the Goldman Sachs economist who coined the term BRICs back in 2001, is adding four new countries to the elite club of emerging market economies. But does his new edifice have the same solid foundations?
In future, the BRIC economies of Brazil, Russia, China and India will be merged with those of Mexico, Indonesia, Turkey and South Korea under the banner “growth markets,” O'Neill told the Financial Times.
Hmmm. Doesn't quite grab you like BRICs, does it? The Guardian helpfully offers an amended branding banner of "Bric 'n Mitsk" (geddit?). But which ever way you cut it, it's hard to see a flood of investment conferences and funds floating off under the new moniker.
Ten years ago, Goldman had this field to itself. Now more and more acronyms are being bandied around by banks seeking to pique investors' appetite for higher returns.
Goldman has already launched the N-11, or Next Eleven countries, and other contenders include the VISTA economies (Vietnam, Indonesia, South Africa, Turkey and Argentina), the CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa) and the EAGLES (Emerging and Growth-Leading Economies).
So far, none of them have really caught on. One thing you can bank on: the term BRIC will still score highly in any tally of the millions of words that will issue forth from Davos next week.
from Global Investing:
Solar activities and market cycles
Can nature's cycles enrich our finance and market theories?
Market predictions based on the alignment of the sun, moon and the earth and other cycles could help investors stay disciplined and profit in economic storms, says Daniel Shaffer, CEO of Shaffer Asset Management.
Shaffer writes that sunspot activities show that the sun has an approximate 11-year cycle and as of March 31, 2009, sunspot activity has reached a 100-year low (this, interestingly, coincides with a cycle low in equity markets, reached sometime mid-March in 2009).
But a low in solar activity seems to be followed by a high. Scientists are predicting a solar maximum of activity in sunspots in 2012 that could e the strongest in modern times, according to Shaffer.
"The concern is that something weird is going on and that the current extreme low in the sunspot cycle, similar to the stock market, can be followed by an unusually high sunspot cycle leading to a solar maximum, or in other words, a peak in sunspot activity," he writes in his latest book.
"Our analysis is currently indicating a stock market low in the United States in approximately year 2012, which coincides with either a sunspot low or high depending on the cycle. "
