So far all I’ve only watched the introductory four-minute video and I can tell you that it’s worth noting first that this is eminently more watchable than the video attempts I’ve seen from certain other outfits in this space who shall remain nameless.
I’m all for the DIY revolution, but sometimes paid professionals are paid professionals for a reason.
Anyway, the point here being that if you understand and trust TCX’s general outlook and approach to new markets (which I do) and if you bear this in mind as you watch how TCX has chosen to chronicle its impressions of last month’s Myanmar gathering, this is worth your time.
In particular, I would like to draw attention to the emphasis on regulatory concerns voiced by some of the participants interviewed and encourage a lot of reading between the lines here. Maybe I’m reflecting my own bias, but the way I’m interpreting these answers is that nothing is happening overnight and that if your inclination is to ask a question like, “When will this begin to pay dividends?”, well…I think you may have taken a wrong turn somewhere.
Enter this very enlightening piece from Peter Pomerantsev in the London Review of Books. The premise is what Russians refer to as the “Sistema”:
There are any number of paths and initiations into sistema, the liquid mass of networks, corruptions and evasions – elusive yet instantly recognisable to members – which has ordered the politics and social psychology of Russian civilisation since tsarist times.
And here’s the super gut punch:
This is the genius of sistema: even if you manage to avoid the draft, you, your mother and your family have become part of the network of bribery, fear, simulation and dissimulation. You have learned to become an actor playing different roles in relation to the state, the great intruder you wish to avoid or outwit or simply buy off. You are already semi-legal, a transgressor, but that’s fine for sistema: as long as you only simulate, you will never do anything real, you will always look for compromise and you will feel just the right amount of discomfort. You are now part of the system. If a year in the army is the overt process that binds young Russians to the nation, a far more powerful induction comes with the rituals of avoiding military service.
Posted onMay 22, 2013|Comments Off on The First Rule Of Fighting Narcos: You Do Not Talk About Fighting Narcos
Regular readers know it isn’t very often that I re-publish in full something from elsewhere, but this is too important and I have no doubt that the majority of you are not in the habit of reading the Dallas Morning News with any regularity.
Alejandro Hope, who blogs here, tweets here, and works here, had the following op-ed in the Dallas Morning News at the end of last week which should not be missed and which would not be fair to simply excerpt here since every sentence matters. The long and short of it, which David Agren first touched on here, is built on the premise of not talking about drug war-related murders as part of a multi-prong public relations strategy.
If that sounds vaguely familiar, allow me to refresh your memory with this:
You think I’m joking? Read on:
Alejandro Hope: In Mexico, obfuscating crime numbers
Two months ago, a gunbattle erupted between rival drug gangs in Reynosa, Mexico, right across the border from McAllen. The shootout lasted several hours, killing as many as 40 people, according to a newspaper on the U.S. side of the border. Even in Mexico, scarred by seven years of relentless violence, this was big news.
But not big enough to make headlines in Mexican media. With some exceptions, coverage of the Reynosa firefight was scanty. Mostly, newspapers buried it in the police section, while TV and radio news shows virtually ignored it. Social networks were abuzz with information, but almost none was picked up by media outlets. This was not an isolated shutdown. As a result of threats and violence from criminal gangs, many local news organizations in Mexico have long limited their reporting on the drug war. Now the practice has extended to the national media.
According to a recent report from the Observatory of Violence in the Media, an independent watchdog group, coverage of organized crime and violence in the Mexico City press took a dive during the first three months in office of President Enrique Peña Nieto: The use of the words homicide, narcotrafficking and cartel declined by half from the year before. Similar results were found for TV and radio.
The national media pullback is not the product of intimidation by criminal gangs; it is a response to government policy. Since Peña Nieto took office in December, his administration has made every effort to keep violence out of the limelight. This has not been a heavy-handed operation. Some journalists and outlets may have been pressured; most have not. Rather, the government has tried, successfully, to shroud the issue in silence and confusion.
Some of the administration’s new policies have been positive: For instance, alleged drug gang members are no longer paraded in front of the media, which had been an almost daily ritual while Felipe Calderón was president, one long condemned by human rights groups.
However, other practices are more questionable. According to official sources, 52 top or midlevel operatives of the various drug gangs have been arrested or taken down since December. No one outside government knows their names or any details about their so-called neutralization. All information flows are tightly controlled by a greatly empowered Interior Ministry. The fog of war has thickened.
Most troubling, there is a policy of deliberate obfuscation on crime data. A number of government agencies jointly produce a monthly report on the security situation. According to the latest release, homicides declined from December through April by 14 percent from the same period a year earlier, and by 18 percent compared with the final months of the previous government.
Those numbers are highly problematic. First, they do not refer to total homicides, but to so-called organized-crime-related homicides. The practice of singling out drug gang hits from run-of-the-mill murders — begun by, and later suspended for public consumption under, Calderón — is deeply flawed. Including or excluding an incident is an inferential process, not the result of sound police investigation. If a homicide meets a set of arbitrary criteria, it is counted as organized-crime-related, no further questions asked.
Nor do the data meet consistency standards. Total homicides, as reported by state law enforcement agencies, have declined at a much slower pace. If the government’s numbers are correct, then, by implication, other types of murder must be increasing. Has there been a rise in domestic violence or bar fights? Unlikely. A far better explanation is a change in the criteria for defining a homicide as organized-crime-related.
Second, homicides have indeed gone down from the 2011 peak. But the drop happened before Peña Nieto took office Dec. 1. After 18 months of decline, the curve flattened in late 2012. Last month, Mexico recorded an average of 50 homicides a day — the same number as in October and every month since, plus or minus 4 percent. The rapid decline reported by Mexican authorities is a statistical artifice.
Mexico still faces serious security challenges. The situation has improved somewhat since 2011, but the amount of violence remains staggering. With one-third the population of the U.S., Mexico has 50 percent more homicides. A meaningful reduction in crime will take many years and many reforms. But the task is made even more difficult when public debate and oversight are inhibited by the absence of reliable information.
The Peña Nieto administration wants, legitimately, to change the narrative about Mexico, both at home and abroad. But the best way to improve the country’s image is by changing its reality, not shutting down information flows, fudging numbers and pretending that violence can be willed out of existence.
Alejandro Hope is director of security policy at IMCO, a Mexico City-based think tank. His email address is email@example.com. Follow him on Twitter at @ahope71.
Posted onApril 8, 2013|Comments Off on A Brief Review Of The Biggest Obstacles Facing Mexico’s Moment
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.
May seem obvious, but sometimes we need to be reminded of the blindingly obvious. I challenge you to find a more worthy way to spend the next three minutes of your time. Here we have Nasir El-Rufai, former Minister of the Federal Capital Territory under Obasanjo, who has just published a memoir, “The Accidental Public Servant.” For those of you in London, here’s a schedule of his appearances there this week. For those of you more accustomed to the American political format, imagine that the mayor of Washington, DC was appointed by the president and that it was a cabinet-level position and you have an idea of El-Rufai’s role in the Obasanjo Administration.
Huge kudos to Andrew Henderson of Nomad Capitalist and Chris Tell of Capitalist Exploits for this discussion of investment prospects primarily in frontier markets. The focus is mainly on Mongolia, but they also cover Fiji, Myanmar and Cambodia. The podcast is worth listening to in its entirety, but the discussion of risk and corruption in particular grabbed my attention for its rare candor. I don’t think Henderson consulted any of the things I’ve previously said about due diligence and liquidity risk, but some of his questions may as well have been lifted directly from some of my thoughts on these themes, most recently here and here.
Since I can’t find any transcription of the interview anywhere, I thought I’d transcribe the salient points directly since this is definitely something I’ll be referring back to: Continue reading →
Posted onFebruary 13, 2013|Comments Off on Street Markets 101: Che Misterio Navigates Argentina’s Black Market for Dollars
I am humbled, honored, grateful and excited to once again present Che Misterio in Argentina, who continues endangering his life for the purpose of shining a light on one of the blindest of economic blind spots in the world today: Argentina’s black market in foreign exchange. Che previously enlightened us in this space on the topics of Big Mac inflation and street level economics. The following was first published on Seeking Alpha under my name in a version suited to that publication’s editorial format, entitled, “How to Navigate Argentina’s Black Market in Foreign Exchange”. Below is the original as submitted by Che Misterio.
Ladies and gentlemen, Che Misterio:
Where Next for Argentina?
By Che Misterio
It is no secret that Argentina is now a two-tiered society. There are those with hard currency for whom the standard of living is quite cheap, and who are therefore immune to chronic inflation as their dollars and euros appreciate even quicker than prices. And then there are those without hard currency, and they live a precarious existence, to say the least: they cannot save their pesos, and even if they could it would be pointless as inflation rages on despite government insistence to the contrary; flagging confidence in the national currency and ever tighter regulations on foreign exchange means the only way to acquire a meaningful amount of hard currency is to pay an expensive premium on the black market.
I am grateful to belong in the first tier. I exchanged some euros recently on the black market, despite the terms being rather nebulous. For those unfamiliar with the street level workings of Argentina’s informal economy, this does not involve some suspicious character in dark sunglasses manning a backstreet stall flanked by security guards with black ear pieces protecting the stash. This was in an otherwise regulated bureau de change on a busy street, staffed by a man of average height, weight, complexion—what those in show business refer to as “the everyman look.”
The opening conversation went something like this:
“Hi, I’d like to change euros please”
“Where are you from?”
“We don’t change euros.”
“But Roberto changes euros, no?”
“Please wait here.”
“Roberto” was the code word a friend of mine had given me for signaling to this bureau de change that I wanted to transact at the black market rate. The man turned his back to me and knocked on the tinted glass of the door behind him. The door made a slight clicking sound as the magnetic lock loosened and the door opened. The man disappeared through the doorway and the door closed and locked, leaving me alone to wait. Two minutes later, the door re-opened, and he beckoned me to enter.
Posted onFebruary 7, 2013|Comments Off on Hype, Truth and Something In Between, Nigeria Edition
Discussing the prospects of investing in Africa seems to invite a rising level of dissonance between people with something to sell—be it product or ideology—and people with some perspective still stuck in the colonial era.
So when I saw that US News published something entitled, “Why Africa Is Essential to America’s Future,” I came into it expecting the former, but was surprised at how much space the author took to remind everyone of all the reasons to be scared:
There are wars and rumors of wars every day. Sudan and South Sudan not only have difficulty accepting one another, they both have internal schisms to bridge. Somalia is still a divided and dangerous land. The Eastern Congo is plagued by marauding and competing armies and bands that call themselves armies, though they are little more than semi-organized thugs, robbers, rapists, and murderers, often sponsored by governments, local or national. Madagascar continues to be run by a coup-inspired government that has allowed its country to be open to international pilferage leading to the obliteration of their green environment and unique wildlife. Continue reading →
Posted onJanuary 28, 2013|Comments Off on Hype, Truth And Something In Between For Mexico
Since pictures are worth thousands of words, we’re starting with pictures. Here’s what the front page online for Mexico’s El Universal looks like as I write this on Sunday evening, January 27, 2013:
I’m not sure what the $100 bill in the form of a paper airplane is supposed to communicate, but there you have it. And when you click on that paper airplane, here’s what eventually comes up: Continue reading →
Anyone who shares the opinion that New York Times coverage of an investment trend augurs its peak should be thinking twice about frontier markets allocation this year after its December 27 profile of Leopard Capital’s Doug Clayton. You can have at the full profile here, but many of the flashy numbers won’t surprise anyone accustomed to dealing in these sorts of markets. More notable to me is how upbeat the overall picture is being painted. As far as I’m concerned, this is the most important statement from the entire piece:
“He will have to tread cautiously. Mr. Clayton is moving into treacherous investment territory, plagued by infrastructure problems, corruption, political instability and weak or nonexistent regulatory leadership. For example, Mongolia’s economy is on shaky ground after a series of political maneuvers left foreign investors nervous.”
And that’s about as close as the NYT comes to addressing downside risks. Continue reading →
Posted onDecember 20, 2012|Comments Off on Mexico’s last locally-owned bank, democracy today and PRI 2.0
When was the last time you heard a bank openly and unabashedly praise an incoming political leader or party? I’m not talking about some vast conspiracy thing here; I mean this quite literally. Imagine it: a new political leader is “democratically” elected and one of the largest banks in the country publicly praises the incoming political leadership, telling all its customers and investors and anyone else who will listen that a new day has begun and good times are here to stay. Sounds sort of…propagandistic, doesn’t it? Sounds like…
Well, Banorte, which happens to be the last remaining fully Mexican-owned bank, has of late been sending out research notes with a level of subservience and puerility really unbecoming itself. In chronological order:
While increasing attention is being given to the less than scrupulous elements of the microfinance industry, I thought it curious that the Economist Intelligence Unit’s annual “Global microscope on the microfinance business environment”, released last month, seems to go a bit in the opposite direction. Not that it ignores the ethical challenges facing microfinance—indeed, the very point is made rather clear in the categories the EIU uses to describe the business environment: supporting institutional framework, stability and regulatory framework. I realize that these sorts of qualitative measures do have an effect on profitability, but investors looking for some discreet idea of the sorts of returns to expect from the 55 countries covered in this index will be left wanting. Perhaps it’s still too early to draw any conclusions on that front, but if the industry ever wants a critical mass of foreign capital, it still has to figure out how to be more quantitative in the way it expresses itself.
In any event, here’s a snapshot of the latest ranking:
Latin America clearly dominates the top of this index. From the report’s key findings: Continue reading →
Posted onOctober 26, 2012|Comments Off on How Emerging Markets Private Equity due diligence is different
Kroll Advisory Solutions recently released a survey of 50 emerging markets private equity firms in the UK focusing on due diligence procedures. There’s a lot of fun stuff in here, but to me these two Venn diagrams offer the most pronounced difference between investing in developed markets versus the rest of the world:
I know Bloomberg TV doesn’t care what I think about its coverage, but its increasing ooh-aah-gee-whiz approach to frontier markets really drags it ever more lowbrow and any honest broadcast journalist by definition should have a hard time denying this. But despite the deluge of tired platitudes (emerging middle class, Africa’s $1.8 trillion economy, small business empowerment), it does manage to pull out one telling quote from American entrepreneur Alden Edmonds in his quest to bring the Subway franchise to East Africa at 1:30 into this segment:
“There’s an informalness to the way you do business there, where someone might expect a gratuity. As an expat, you’re sort of marked as someone who might be willing to do give a little extra to help get the transaction done.”
It’s a brief segment that no doubt is going to be lost among the far more influential breaking news in frontier markets today, but this doesn’t make it any less important. Continue reading →
Posted onAugust 13, 2012|Comments Off on What Silk Road’s narcotics trading says about the FX market and capital controls
If you haven’t heard of Silk Road, the anonymous eBay-style marketplace that has quickly become a hub for controlled substances, read up on it here, here or here first. Otherwise, Nicholas Christin’s recent working paper, “Traveling the Silk Road: A measurement analysis of a large anonymous online marketplace”, opens no end of questions for just about any discipline under the sun. My concern is more foreign exchange related, so let’s get right to it. The table to the right shows the top 20 best-selling items available. I’m not too surprised that weed is the top seller here, but I am surprised that it doesn’t constitute a greater share of trade. Next up, still bird’s eye view, the top shipping origins and destinations:
Given what a complete exercise in brain cell annihilation U.S. politics becomes every four years, I’m trying my best to keep it out of this blog. But given my stated aim here of tracking which countries are advancing and which are falling back, the recent kerfuffle Mitt Romney raised in mischaracterizing Jared Diamond’s Guns, Germs and Steel while “campaigning” in Israel warrants at least a comment.
It’s been years since I read that book so I’ve just spent some time reviewing who said what, when, in what context. Obviously this is potentially a very big topic that there is no way I’m going to adequately cover inside of 1,000 words here and now. But that aside, I’m reviewing the Silk Invest Frontier Markets report from last month, and particularly the notion that population, GDP and FDI help to better understand a country’s “true macro-economic identity.” Continue reading →
Posted onAugust 3, 2012|Comments Off on Cocaine Cowboys and the Modern Banking System
Jonathan Weil issues perhaps the strongest wake-up call so far in Bloomberg. Excerpting it really doesn’t do it justice, but here you go:
Let’s try out a novel idea: Banks that help drug cartels launder money and give cover to those tied to terrorism should be put out of business. Is that really so hard for everyone to agree on? Free markets have worked in the U.S. because we have the rule of law. It’s why so many investors from other countries want to do business here. When contracts are breached, courts can be accessed to enforce them. When individuals or companies commit crimes, they’re supposed to be prosecuted and punished. Continue reading →