- Diverging Markets Focusing on Financial Media Strategy
- An Update – May 2014
- Twas the Night Before Taper: A Wall Street Holiday Poem
- Markets irrational longer than you remain solvent, exhibit #274
- An Apples-to-Apples Comparison of African Sovereign Debt
- Mexican congressman to colleagues: “Privatize This”
- Irrational exuberance continues plaguing Bitcoin
- The ongoing challenge of assessing Frontier Markets political risk
- TCX Chooses Diligence on Myanmar
- The Ties That Bind Russia
- More evidence of a Bitcoin bubble
- Ode to Janet Yellen: A Fed Prayer
- Frontier Markets Opportunities and Risks, Bloomberg Edition
- The press as a lagging indicator, continued
- Fed tapering, Emerging Markets, Banxico
- Chart of the Day : Triple Threat for Emerging Markets
- Chart of the Day: Remittances from the US to Mexico
- Chart of the Day: The World as 100 People
- Chart of the Day: China Mobile Users Surpass US
- Chart of the Day: World Population Growth vs History of Technology
Tag Archives: Infrastructure
This was just sent in from an unidentified reader. I do believe there is such a thing as being “too meta” but when shifts are so visibly pronounced, as they are here, it’s worth taking a moment to stop and think about.
Thanks to CNI Group for this:
I guess what strikes me the most about this map is the huge blank spaces among the world’s global shipping routes: the Bay of Bengal, southern Australia, the west coast of South America, and pretty much all of sub-Saharan Africa that isn’t connected to either South Africa or the Gulf of Guinea. Of these, Australia at least has a viable road network. Relative to the entirety of the world, these don’t look like large spaces, but the increased costs for closing these gaps via land are not insignificant.
Another thing that comes to mind here is imagining how the shifts in shipping patterns may have happened over the centuries. Never mind the obvious growth in gross number of journeys; what I’m thinking of here is the opening up of new routes.
I’m not a shipping person, but I try to be as much of a history person as I can. Off the top of my head, I would venture that China’s periodic bouts with isolationism over the centuries have had material effects on the Asia routes, the most recent probably being a massive dropoff during the 1950s through sometime in the 1970s as China re-opened and Japan started coming online. And transatlantic development from the Industrial Revolution forward has kind of been done to death.
There’s also this book, which I’ve yet to read but has been on my to-do list since it came out. I suppose where this all leads is, what’s the future of this map? More specifically, how much of south-south trade development will any of us live to see?
Dani Rodrik has this in Project Syndicate today:
It can be cause only for celebration that the world’s largest developing economies are regularly talking to each other and establishing common initiatives. Nonetheless, it is disappointing that they have chosen to focus on infrastructure finance as their first major area of collaboration.
This approach represents a 1950’s view of economic development, which has long been superseded by a more variegated perspective that recognizes a multiplicity of constraints – everything from poor governance to market failures – of varying importance in different countries. One might even say that today’s global economy suffers from too much, rather than too little, cross-border finance.
What the world needs from the BRICS is not another development bank, but greater leadership on today’s great global issues. The BRICS countries are home to around half of the world’s population and the bulk of unexploited economic potential. If the international community fails to confront its most serious challenges – from the need for a sound global economic architecture to addressing climate change – they are the ones that will pay the highest price.
Yet these countries have so far played a rather unimaginative and timid role in international forums such as the G-20 or the World Trade Organization. When they have asserted themselves, it has been largely in pursuit of narrow national interests. Do they really have nothing new to offer?
Read the rest here.
Huge kudos are in order for the FT’s Adam Thomson for finally coming around to spelling out the all-uphill battle Pemex faces. Kudos so huge, in fact, that I’m willing to forget all about this pandering portrayal of Mexico as “Aztec Tiger” at the beginning of the year. Some numbers from “Rusty wheels of Pemex require much oiling” that should give any go-go-pro-Mexico cheerleader pause:
- Although Pemex reported sales last year of about 1.6 trillion pesos ($130bn), only exploration and production, one of its four subsidiaries, regularly turns a profit: 95.5bn pesos last year. Its other three subsidiaries racked up a combined net loss of 111.6bn pesos – about the same as the entire government budget of Bolivia.
- Of the three lossmaking subsidiaries, the worst offender is Pemex Refining, which last year posted net losses of 100.5bn pesos. That helped increase the company’s net debt, which in December stood at $51.4bn, about 29 per cent higher than in 2008, though it has fallen as a percentage of revenues over the past three years.
- Pemex pays the fourth-highest tax rate in a sample of 15 oil-producing nations, including the UK, Iraq, Venezuela and Norway. Little wonder the company provides more than one-third of the federal government’s revenue.
- Mexico’s state oil company is woefully inefficient. The refining subsidiary accounts for about 40,000 of the company’s roughly 150,000 employees and the average workforce at a Pemex refinery is three times that of one with comparable output abroad. Refining capacity has not increased in years and Mexico today imports almost half of its gasoline needs.
- Pension liabilities were a staggering $52.3bn at the end of 2011, only 8 per cent of which are funded, and with total contractual obligations standing at $141bn.
- Contractual rigidities leave about 11,000 Pemex workers receiving salaries without actually having any work to do.
- As the headcount swells – it has increased more than 10 per cent since 2001 – Pemex’s production figures have crumbled and today stand at less than 2.6m barrels a day compared with about 3.4m in 2004.
If the Peña Nieto Administration comes up with a way to fix this — and that’s HUGE if — you can be sure it will not happen without some well-positioned person behind some closed door to take a little extra for himself.
Related reading: I never thought I’d find myself in so much agreement with Counterpunch, but those looking for current run-down of all the other, non-Pemex reasons to be skeptical of the Aztec Tiger are strongly advised to read in full Paul Imison’s latest here.
What this screams is the urgency of leveraging Africa’s arable land potential. I wonder how Africa would stack up against the righthand chart:
I can’t get this article from the FT’s William Wallis out of my head. The headline is “Currencies pressed by trade imbalances” but this really only captures a small slice of the picture. Check it out:
With import demand outstripping export growth in some of the continent’s fastest expanding economies, rising trade imbalances are putting pressure on currencies. African and international investors hedge against this by spreading risk – one factor that is driving African banks and businesses across borders.
But even an expansive footprint is not always enough. MTN, the continent’s leading telecoms provider with a presence in 21 African countries, announced that currency swings had weighed heavily on its earnings.
More broadly says Razia Khan, head of Africa research at Standard Chartered Bank, widening current account deficits are the result of an investment and consumption boom, new resource exploration activity and “the scaling up of output”. Ghana fits into this category. It is also on the risk radar this year as heavy investment in oil and gas infrastructure continues, with only modest increases forecast for oil output.
A weak currency does not help those African countries with limited capacity to ramp up exports in response. Kenya cannot for example suddenly double tea production. So, it is forced to defend its currency to avert importing inflation.
Loose monetary policy in major developed economies has driven a rush of short-term funds into African markets. David Cowan, Africa economist at Citibank, says the way in which central banks defend their currencies and the margins that foreign investors earn will be one determining factor in how long the appetite endures.
I don’t disagree with any of this but would point out that this is all just the tip of the iceberg and there are a lot of ways to slice this.
One is that just six of Africa’s 53 countries account for two-thirds of the entirety of Africa’s $2.0 trillion economy. In descending order of nominal GDP: South Africa, Nigeria, Egypt, Algeria, Angola and Morocco. I think a pie chart best demonstrates this relationship:
Another is to think about how much of Africa’s total economy is driven by oil exports. Let’s try the following table to demonstrate this:
This is really impressive and makes me really rethink my previous notions of a political risk framework, particularly in the context of Africa. No more preface necessary:
Sourced from Africa-Asia Confidential.
This has been building for a long time. The latest is this CNN interview with Dambisa Moyo, she of “Dead Aid” fame, entitled, “China Can Transform Africa“. A couple of comments caught my eye:
“Ultimately, the responsibility of how China engages in Africa is really at the domain of the African governments. We would not be worried about the risks of neo-colonialism or abuse, environmental abuse and labor issues, if we trusted the African governments to do the right thing.”
“I’m an eternal optimist. I’m probably the wrong person to ask, because I do believe that the structural and fundamental structures of Africa right now are poised for a very good few decades. If you look at an economy through the lens of capital, which is basically money; labor, which is basically how many people do you have and what skills do they have; and productivity, which is just, how efficiently they use capital and labor, the trend is very clearly in favor of Africa.”
I don’t disagree with anything in this statement or really anything else Moyo says in the interview. What occurs to me though is the big “IF” that is buried in there: “…if we trusted the African governments to do the right thing.” Moyo objects to the broad characterization of Africa as a giant war zone replete with disease and hopelessness and corrupt dictators, and I object to that too. But the bottom line remains that so much of forward development, not just in Africa, but Latin America too, hinges on trusting governments to do the right thing. Maybe this is a glass half-empty/half-full debate, but I personally don’t think we need any more evidence of governments being unable to do the right thing, whether in Africa, Latin America, the US, Europe or really anywhere.
Actually, elsewhere on the CNN website, this is a pretty realistic breakdown of the continent.
Related to this, Bill Clinton was apparently in Nigeria recently to give a speech about the challenges Nigeria faces. Some quotes from that story:
Why does it not surprise me that a map showing commodities reserves of emerging and frontier markets would have come from a Glencore report?
Looking at it in these terms kind of raises an obvious question: how is it that these countries aren’t in more dominant positions of setting the global agenda, policymaking, or development? Chalking it up to corruption is a bit too easy, and I’m honestly coming around to the opinion that nobody is totally free from corruption. It’s partly corruption, sure, but it’s also just simple logistics.
Leave it to the World Bank to come up with this one:
In typically unwieldy fashion, this comes from the recently released, “eTransform Africa: The Transformational Use of Information and Communication Technologies in Africa.” The biggest news here seems to be that Africa’s mobile phone market, at 650 million subscribers, makes it bigger than either the United States or European Union. Put another way, the total number of mobile phones in Africa is estimated to have grown 40-fold since 2000.
Access the report here.
Siep Hiemstra, Heineken’s President for Africa & Middle East, discusses Africa strategy for the brewer’s 57 plants in 20 countries across the continent and similarities between Africa today and Southeast Asia in the early 1990s (CNBC Africa):
I’ve just spent way too much time playing with Ernst & Young’s interactive spider graph thingy that allows you to compare their 25 “rapid-growth” markets across a range of macroeconomic indicators. According to E&Y, these 25 countries possess the most promising “long-term potential to generate strong business opportunities.”
Okay! Is everybody ready to go out and make some money?
So since a picture is worth a thousand words, here’s how all 25 of these economies will change from 2011 to 2016 from the meta-macro view, compared against each other:
Okay! Is everybody ready to go out and make some money?
BEWARE: the less sexy something sounds, the more important it probably is. And so it is with the practical realities of what could easily pass as another of my Street Markets columns had I gotten to a certain Gerardo Mendoza first. In any event, Frontier Strategy Group reminds us of a reality that is sometimes easy to forget, and though the context here is the pharmaceutical industry, this could be anything really:
“Many pharmaceutical companies in Brazil have relied too heavily on distributors. The distributors have grown up to become indispensable partners. And as the market has grown, distributors have undergone a flurry of M&A activity amongst themselves. Now some pharmaceutical companies have to reach their end customers through distributors that have larger annual revenues than their clients, and they gain that revenue from a more diversified set of partnerships. This has led, and is continuing to lead, to a significant imbalance of power in the producer-distributor relationship. Continue reading
From a couple of University of Amsterdam researchers, an interesting visual expression of the relationship between global financial centers and global arts centers:
Here’s the abstract of the research paper:
In this article, we explore the relationship between contemporary Global Financial Centers or GFC and Global Arts Centers or GAC. Are financial entrepôts still places for cultural encounters? Does the symbiotic relationship between international financial prowess and ditto prominence in arts in cities still hold in an era of intensified globalization? Are Asian cities which have become prominent financial centers in recent years also global arts centers? Continue reading
The mobile revolution is just getting started. That’s the big meta-takeaway to me from “Maximizing Mobile”, a World Bank report out today. There are many other headline-worthy revelations: global mobile penetration is at 75%, more individuals have multiple subscriptions, the developing world is more mobile than the developed world, and other big statements about how mobile technology is changing government, health care, the Arab Spring and a range of other things. But as someone who has been caught in the vortex of spotty connectivity more times than I care to count, the following chart ranking countries by connectivity speed has particularly significant meaning for me:
This is a chart I refashioned from the data in the report’s appendices, ranked in order of connectivity speed. Obviously one’s own experiences inform whatever you take away from this chart but I think it’s safe to say that if we believe that connectivity speed has anything to do with economic growth or prosperity, then it looks like the Ukraine and Slovenia are the places to be. And at the other end of the spectrum, someone clearly needs to figure out something for Indonesians since it looks like they’re using mobile phones for just about everything besides the kitchen washing.
During a project a few years ago in Ghana, a government official there told me that one of the unofficial ways his agency attempted to measure informal economic activity was by tracking electricity usage. At the time, I had previously heard that such–no pun intended–off-the-grid methods were on the rise for certain frontier markets as a supplement to more textbook approaches for tracking economic activity, but that was the first time I had actually met someone who was an active practitioner (Dr. Friedrich Schneider of Johannes Kepler University in Linz, Austria, whom I have never personally met, has a sizeable body of work in this niche, this presentation being one example; Hernando de Soto’s work of course goes without saying).
Two recent items have reminded me of that conversation. One is Continue reading
Brazil, Mexico, Peru and Colombia account for two-thirds of the top 100 infrastructure finance projects in Latin America this year, which collectively will total nearly US$200 billion, according to a report by CG/LA Infrastructure, Inc. By sector, the favorite is transportation, accounting for US$90 billion, half of it in Brazil. The obvious indication here is that this is Olympics and World Cup preparation. I’ve refashioned the data in the following graphs to give a more (to me, at least) comprehensive visualization of these numbers: