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Thursday, April 21, 2016

"1.2 billion opportunities" #Africa

But slow growth, ballooning deficits and #debt that has increased 18x in 7 years, will make the path to prosperity fraught with pitfalls. 

1.2 billion opportunities

Apr 21
FOR A LOOK at the African boom at its peak, do as a multitude of foreign investors have done and fly into Abidjan, the capital of Ivory Coast. Visitors arrive in an air-conditioned hall where a French-style café sells beers, snacks and magazines. There is advertising everywhere, for mobile-phone companies, first-class airline tickets and a new Burger King. The taxi into the city smoothly crosses over a six-lane toll bridge. On the way to the Plateau, the city's commercial core, cranes, new buildings and billboards jostle for space on the skyline. In the lagoon, red earth piles up where yet another new bridge is under construction. 
Just five years ago, Ivory Coast seemed like a lost cause. Having been defeated in an election at the end of 2010, the then president, Laurent Gbagbo, refused to leave office. The victorious opposition leader and now president, Alassane Ouattara, mounted a military offensive to force Mr Gbagbo out. French troops seized the airport to evacuate their citizens (the country used to be a French colony). Protesters were gunned down by troops, foreign businesses were looted and human-rights activists gave warning about mass graves being dug.
Ivory Coast still has problems, as shown by a terrorist attack in March that killed 22 people. But its economy is the second-fastest-growing in Africa (after Ethiopia, which is much poorer), expanding by almost 9% per year. Foreign investment is pouring in. As well as the Burger King, Abidjan now has a Carrefour supermarket, a new Heineken brewery, a Paul bakery and plenty of new infrastructure. Sharp-suited, French-educated ministers explain in perfect English what they are doing to "open up", "improve the ease of doing business" and "sustainably grow the middle class". Expensive hotels, such as the reopened $300-a-night Ivoire, are booked up; their bars are full of affluent people striking deals. The country's three port terminals, the biggest of which is being expanded by Bolloré, a French industrial firm, are working at full capacity, importing cars and electronics and exporting cocoa, coffee and cashew nuts.
This is the Africa of business magazines and bank ads: a continent that is rising at a prodigious pace and creating profitable new markets for multinational firms. But Abidjan also has plenty of reminders that it has been here before. For all of the new buildings springing up, its impressive skyline is still dominated by crumbling 1960s and 1970s concrete modernism. The roads may be new, but the orange taxis that ply them are still ancient fume-spewing Toyota Corollas, remnants of an earlier boom. For the two decades after independence from France in 1960, Ivory Coast enjoyed an economic miracle. Then, quite suddenly, the price of cocoa and coffee plunged and the boom faded as quickly as it had begun.
Reasons to worry
The deepest fear of today's investors in Africa is that it may be happening again. In Ivory Coast's neighbour, Ghana, thousands of government workers have been marching in the streets in the past few months to protest against their rising cost of living. Ghana relies on oil and gold, both of which have fallen in price, as well as cocoa. That, plus prodigious government borrowing, has caused a crisis. One US dollar now buys 4 cedi, the local currency; in 2012, it bought not quite two. Growth has halved since 2014, and Ghana is running a budget deficit of 9% of GDP and a current-account deficit of 13%.
According to the World Bank, in the year to April last year the terms of trade deteriorated in 36 out of 48 sub-Saharan African countries as the price of their commodity exports fell relative to the cost of their imports, mostly manufactured goods. Those 36 countries account for 80% of the continent's population and 70% of its GDP. Eight countries, including two giants, Angola and Nigeria, derive more than 90% of their export revenues from oil, which has recently plummeted far below the price needed to draw in new investors. Growth across sub-Saharan Africa dropped to 3.7% in 2015, far below East Asia's 6.4% and nowhere near enough to create enough jobs for the continent with the world's youngest and fastest-growing population. The World Bank expects it to tick up again, but only to 4.8% in 2017.
Countries that happily borrowed from international investors over the past few years have now found themselves shut out of the markets. The stock of outstanding sovereign bonds in the region had risen from less than $1 billion in 2009 to over $18 billion in 2014. If growth continues at a decent clip, that should be manageable. But if it stops, interest rates of 10% or more on dollar-denominated bonds will make refinancing difficult.
The continent's two biggest economies, Nigeria and South Africa, are already in deep distress. The reasons are different, but both have suffered from commodity-price falls as well as from atrocious economic management. The IMF, although loathed in much of Africa, is back, providing a $ 1billion loan to Ghana and preparing another for Zambia. Some fear a return to 2000, when this newspaper described Africa as the "hopeless continent".
Yet despite that, Nairobi's thriving malls and Abidjan's humming ports show that there are plenty of reasons to stay optimistic. The economic conditions have got worse, but this is a very different continent from two decades ago, when troops from eight African countries were fighting in Congo alone. Wars still rage in South Sudan, Somalia, Mali and northern Nigeria, and violence bubbles in places like eastern Congo, the Central African Republic and Burundi. But broadly speaking, most of sub-Saharan Africa is now peaceful. Elections seem increasingly less likely to result in strife, even if they still generally return incumbents, and more and more often for unconstitutional third terms. The governments that come to power are still often corrupt and inefficient, but far less brazenly so than those of cold war despots such as Mobutu Sese Seko of Congo or Jean-Bedel Bokassa of the Central African Republic.
Africa's 1.2 billion people also hold plenty of promise. They are young: south of the Sahara, their median age is below 25 everywhere except in South Africa. They are better educated than ever before: literacy rates among the young now exceed 70% everywhere other than in a band of desert countries across the Sahara. They are richer: in sub-Saharan Africa, the proportion of people living on less than $1.90 a day fell from 56% in 1990 to 35% in 2015, according to the World Bank. And diseases that have ravaged life expectancy and productivity are being defeated—gradually for HIV and AIDS, but spectacularly for malaria. Some of the gains may seem modest, but given that living standards across Africa declined during the 30 years after independence they are sufficiently established to prove lasting.
And for all that oil and metals have come to dominate economies such as Nigeria's and Congo's, the boom broadened beyond natural resources. Mobile telephones have transformed commerce across Africa, and now smartphones and feature phones (which are halfway between dumb and smart) are taking hold. In 2014, the latest year for which figures are available, 27% of Nigerians owned a smartphone. In many African countries 4G mobile-phone infrastructure is the only thing that works well, but it works at least as well as in much richer countries, and a lot can be built on it. What began with mobile-money systems such as Kenya's M-Pesa is now branching into bank accounts, savings accounts, loans and insurance. That in turn is helping people rise out of poverty and invest in their future.
This special report will argue that despite some deep and entrenched problems, African businesses offer hope too. It is clearly risky to make sweeping judgments about an entire continent with 54 countries and 2,000 languages. This report draws on visits to various countries in sub-Saharan Africa, but four in particular: South Africa, Nigeria, Kenya and Ivory Coast, all coastal, urbanised and relatively rich. They certainly do not represent the whole of Africa, but your correspondent picked them because they each illustrate a different aspect of business across Africa as a whole. The businesses covered have not yet transformed the continent, but they show that African firms are capable of extraordinary innovation—if only they can be set free.
See the article on The Economist here:
Economist – Apr 14, 09:00
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Thursday, April 14, 2016

#Mexico has world's 11th-highest GDP based on PPP. As Europe weakens, it will be in the top 10 @johnfmauldin

Mexico as a Major Power

March 14, 2016

This from Mauldin Economics

Mexico has the 11th-highest GDP in the world based
on purchasing power parity, according to the International Monetary
Fund. As Europe weakens, it will be in the top 10 in the not-too-distant
future. Yet, this country is regarded by many Americans as a Third
World nation, dominated by drug cartels and impoverished people
desperate to get into the United States.

While it is true that organized crime exists in Mexico and
that many Mexicans want to immigrate to the US, a roughly equal number
are leaving the US and returning to Mexico… drawn by economic
opportunities in their home country. The largest auto plant in the
Western Hemisphere is in Mexico, and Bombardier builds major components
for aircraft there. Mexico has many problems, of course, but so does the
U.K. (the 10th-largest economy) and Italy (12th).

No one would be surprised by the U.K. or Italy rankings, but many
people would be stunned to find that Mexico is ranked right up with
them. Obviously, Mexico is not as developed as Britain is. Like most
nations transitioning from underdevelopment to greater development,
Mexico suffers from substantial class and regional inequality, and the
emergence of a dominant middle class is still unfolding.

At the same time, Italy also has substantial regional inequality.
Mexico can't aspire to British standards, but Italy is a reasonable
model. Inequality diminishes the significance of being 11th in some
ways, but it doesn't change the basic reality of Mexico’s relative

Mexico is commonly perceived, far too simplistically, as a Third
World country with a general breakdown of law and a population seeking
to flee north. That perception is also common among many Mexicans, who
seem to have internalized the contempt in which they are held.

Mexicans know that their country’s economy grew 2.5 percent last year
and is forecast to grow between 2 percent and 3 percent in 2016—roughly
equal to the growth projection for the US economy.  But, oddly, they
tend to discount the significance of Mexico’s competitive growth numbers
in a sluggish global economy.

Here, therefore, we have an interesting phenomenon. Mexico is, in
fact, one of the leading economies of the world, yet most people don’t
recognize it as such and tend to dismiss its importance.

Read the rest of the article here: Mexico as a Major Power


Wednesday, February 17, 2016

Mark Zuckerberg chose some pretty interesting books for the first year of Facebook's Book Club

Zuckerberg's reading list is pretty good! Although the birth of his daughter kept him from hitting his goal of a book every two weeks, he ended the year with 23 selections.

Here is the article from Business Insider: 23 books Mark Zuckerberg thinks everyone should read


Friday, December 18, 2015

A Missed Opportunity of Ultra-Cheap Money - #ZIRP @NYTimes

From 2009 through September of this year, United States companies issuing such bonds spent a mere 2 percent of the proceeds of those bonds on capital expenditures, or "capex"

Public investment spending as a share of overall economic activity has fallen to lows not seen since the 1940s

A Missed Opportunity of Ultra-Cheap Money

The Portal Bridge over the Hackensack River in New Jersey, built in 1910, is overdue for replacement. Fred R. Conrad for The New York Times
Years of ultralow interest rates engineered by the Federal Reserve may have breathed life back into the economy and buoyed Wall Street. But they have not managed to solve problems like the aging Portal Bridge.
The 105-year-old railway bridge in northern New Jersey has for decades caused delays for commuters in and out of New York. "We have long desired the bridge's replacement," said Stephen Gardner, an executive vice president for Amtrak, whose trains use the bridge. "It's time for it to retire."
A replacement bridge would cost an estimated $1 billion, the sort of sum that financial markets can raise for a private corporation in the blink of an eye. Yet even though the federal government and the state of New Jersey can borrow at rock-bottom rates, the overhaul remains unfunded.
There are many such infrastructure projects needed around the country, providing a stark reminder of the deeper problems in the economy that the Fed's easy-money policies have not been able to fix.
"We are not where we should be when it comes to investment, public or private," said William A. Galston, a former adviser to President Bill Clinton and now a senior fellow at the Brookings Institution.


Why the Fed Raised Interest Rates

Officials said the economy was strong enough to keep growing with a little less help from the central bank. They said rates would rise slowly, but borrowing costs already have started to climb.
OPEN Graphic

Mr. Galston in particular lamented the failure to set up a government-backed infrastructure bank in recent years. "This will go down as one of the great missed opportunities," he said.
Public investment spending as a share of overall economic activity has fallen to lows not seen since the 1940s, according to an analysis by James W. Paulsen of Wells Capital Management.
Political impasses have, of course, restricted the flow of money into government projects aimed at improving aging roads, bridges and mass transit. But even in the private sector, many of the hoped-for benefits of low-cost borrowing have not occurred.
Corporations have tapped the markets for trillions of dollars in recent years, yet they plowed relatively little of the money into new operations. Such investments might have bolstered hiring and made American business more efficient and globally competitive.
In some ways, these are the wasted opportunities of the cheap-money years — and they may well remain squandered now that the cost of borrowing appears to be heading higher, even if the initial increases after the Fed's decision Wednesday to move its benchmark up from close to zero will remain modest.
The Fed's stimulus policies worked in many ways. They prompted banks and investors to lend, lifted stock prices and bolstered the confidence of consumers and chief executives. The economy eventually regained strength, causing unemployment to fall, auto sales to take off and house prices to rise somewhat.
But important indicators suggest that the money did not flow where some economists and analysts say it is needed to improve the long-term potential of the economy.
Corporations may not have made the most of the Fed's largess. In theory, low interest rates should spur companies to borrow money that they then invest in new machines and technology that will make their operations more efficient. These investments can improve profitability and make firms more competitive in global markets.
But business investment as a percentage of gross domestic product has remained below historical levels since the Great Recession. A surprising lack of investment also shows up in the recent borrowing habits of companies that issue junk bonds, a market that ballooned after the Fed cut interest rates.
From 2009 through September of this year, United States companies issuing such bonds spent a mere 2 percent of the proceeds of those bonds on capital expenditures, or "capex," according to an analysis of data provided by Bank of America Merrill Lynch. The capital expenditures figures may not capture all investment, the bank's analysts noted. Even so, the data shows that the lion's share of bond proceeds went to pay off other debt owed by the companies and to finance acquisitions and leveraged buyouts.
"Very little of it has been used for capex," said Michael Contopoulos, head of United States high-yield and leveraged loan strategy at Bank of America Merrill Lynch. "We think that's a big problem."
The lack of corporate investment may hold back the United States' growth rate in the future. Higher capital expenditures might have bolstered productivity, a crucial economic yardstick that measures how much an economy produces with resources like labor and capital. Growth in productivity has slowed in recent years, disturbing economists.

A History of Fed Leaders and Interest Rates

The chairwoman of the Federal Reserve is about to begin the process of raising interest rates, a move that her predecessors have taken in recent decades as they put their own distinctive stamp on the economy.

Paradoxically, it is possible that the low interest rates have held back forces that would have made companies more efficient. In an influential speech in 2014, Lawrence H. Summers, a former Treasury Secretary and now a professor at Harvard, cited the experience of Japan, where interest rates have been low for a long time.
"In a period of zero interest rates or very low interest rates, it is very easy to roll over loans," he said. "And therefore there is very little pressure to restructure inefficient or even zombie enterprises."
The Fed's higher interest rates may now usher in a period of upheaval in corporate America. Recent turmoil in the junk bond market suggests that investors expect bankruptcies, particularly in the energy sector. And the pain today may create the sort of longer-term changes that would make the economy stronger. Conversely, if banks and bond investors cut back too much on lending, the economy could suffer.
But even as interest rates appear to be heading higher, some economists say there is an optimistic, alternative possibility.
Under this theory, productivity was weak in the years after the crisis because high unemployment kept labor costs depressed, giving companies an easy way to maintain margins. "Employers can be pretty sloppy in terms of efficiency," said Jared Bernstein, a former member of President Obama's economic team and now a senior fellow at the Center on Budget and Policy Priorities. "It's not hard to squeeze the heck out of labor costs."
Now, as unemployment has fallen, companies may compete more for workers, potentially pushing up wages. Confronted with higher labor costs, companies will have no choice but to invest to become more efficient, the theory goes. "You want an economy and labor market where firms can't afford to be inefficient," Mr. Bernstein said.
Question marks, however, will most likely continue to hang over the country's roads and railways as interest rates rise.
If the economy continues to grow and fiscal pressures ease, the federal government, state and cities may find more to spend on infrastructure even if they face higher borrowing costs.
But the substantial investment that some Democrats are hoping for seems improbable. Many Republicans assert that the infrastructure needs are overstated and that the private sector, rather than the taxpayer, needs to play a much greater role.
Congress overcame ideological differences this month to pass a roughly $300 billion transportation bill that provides funding for roads and bridges.
The bill happens to contain measures that could make it easier to secure funding for replacing the Portal Bridge, as well as building new tunnels under the Hudson. The existing tunnels, damaged by Hurricane Sandy, were the cause of long delays in July that caused an outcry among commuters.
Any rebuilding will take longer and cost much more than earlier plans. But advocates for public works, while saying the transportation bill falls short of the overall needs, nonetheless see reason to be encouraged.
"I'm optimistic; there's been big strides made," Mr. Gardner, the Amtrak official, said. "Infrastructure is starting to creep back into people's minds as an issue."

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