Creative Accounting Changes Nigeria’s Stature in Africa

If you don’t like the numbers, change the calculator.

Based on International Monetary Fund (IMF) data, Nigeria, which is Africa’s most populous nation had a GDP in 2010 that was less than two thirds that of South Africa, the continent’s richest country.

But this is being changed. This year, Nigeria will change the base year for its GDP calculations from 1990 to 2008. This recalculation will greatly revise upward the size of the country’s economy. With this creative accounting, Nigeria is expected to pass South Africa as the continent’s largest economy, probably during 2014.

So, also in the creative accounting department, when Ghana’s economy was “rebased” in 2010, it was found that the size of its economy was about 60 percent larger than previously determined, $31 billion compared to $18 billion.

But even if Nigeria overtakes South Africa as the continent’s largest economy, the country has big problems.  With the revisions, per capita GDP is expected to increase from around US$1,600 to somewhere in the range of $1,900 to $2,600, a huge increase.   But, South Africa’s projected per capita GDP for 2012 is anticipated to approximate $8,700, more than three times as much.

Inflation has also been an issue in Nigeria. Inflation this year is anticipated to be close to 13%.  And, unemployment is high, almost reaching 24 percent.

 

The Gain of the Yuan Against the U.S. Dollar Expected to Slow

The appreciation of the Chinese Yuan against the dollar is expected to slow to 3% in 2012, from 4.7% in 2011.  This statement was made by Wang Shouyang, the director of China’s Center for Forecasting Science.

The conclusion was made by the Center due to what it sees as a growing demand for U.S. dollars at a time of economic uncertainty, a slowdown in China’s economic growth and political pressure from Washington.

The Center is an arm of the Chinese government in that it’s part of the Chinese Academy of Sciences and has direct reporting responsibility to the country’s top governing body, the State Council.

The Center also forecast 2012 GDP growth at 8.5%, which is a bit lower than the estimate made by the world Bank of 8.7%, a decrease from the 9.2% growth in the Chinese economy in 2012.

The GDP forecasts have raised concerns outside of China as to the beginning of trend of slowing of the Chinese economy.  But, compared to the lack of economic growth in Europe and minuscule economic growth in the U.S., the Chinese growth should be seen as a bright spot in the global economy.

Turkey: Euroasia’s Bright Investment Opportunity

It’s not uncommon for some of the world’s emerging economies to take advantage of the anemic growth in the U.S. and the Euro zone by experiencing economic growth.  Many of these countries are also well positioned to be appealing by global investors.

Turkey may be the best example of an emerging country that has been positioning itself as a strong and stable economy worthy of foreign direct investment.  Turkey has experienced an average GDP growth of 4.8% for the past 8 years and posted 10% growth in 2010. For the 2011 through 2017 perod, the country is forecast to have annual GDP growth of 6.7%, which is he highest of the 34 members of the Organization for Economic Co-operation and Development (OECD).

Turkey’s population is also growing and becoming more educated.  The country has a population of 74 million, with nearly 50% of its population being under the age of 29.  Approximately half a million college graduates annually joining the country’s workforce.

Location and infrastructure improvements have also aided Turkey’s success.  Turkey has historically been a centrally located country, bridging the Middle East, Asia, and Europe.  This strategic location has opened up vast market opportunities for the Turkish economy and has created low cost and efficient export and import routes for companies.

Turkey has access to multiple markets totalling US$23 trillion of annual GDP.  Infrastructure improvements have taken advantage of Turkey’s central location by making transportation and delivery routes to Europe efficient and straightforward.

 Telecommunication and improvements in the country’s energy infrastructure have been undertaken to further establish the country’s presence as a reputable economy for doing business.

Turkey sees the lack of growth in the US and the Euro zone crisis as an opportunity to cement itself as an economic power connecting the East and the West.  Turkey’s expected future GDP growth, large domestic market and young/educated labor force, improved infrastructure, and central location make it a prime destination for foreign investors who are looking to invest outside the United States and western Europe.

Foreign direct investment in Turkey this year is expected to total US$12 million..  A recent survey published by the  International Investors Association (YASED) indicated, “Thirty-seven percent of investors believe the economicenvironment for FDI in Turkey will improve, whereas only 9 percent hold the same opinion when it comes to the worldwide economic environment.”

The Turkish government also has reduced corporate tax rates and is providing increased incentives to promote foreign direct investment.  The country’s private sector recorded US$114 billion of exports in 2010, an increase of 225% since 2002.

It is easy to see why Turkey has become such a popular spot for foreign direct investment in this currently financially unstable world. But there are always risks in investing in emerging economies.  Some analysts have indicated that believe that that Turkey is at risk of overheating due to growing debt in the private sector and a large current-account deficit.

Author: Daniel Greenberg

Standard & Poor’s Upgrades Brazil’s Sovereign Debt

In a great sign of confidence in Brazil’s booming economy, Standard & Poor’s has become the third ratings agency this year to upgrade Brazil’s sovereign debt.  Standard & Poor’s joined the other major rating agencies, Fitch and Moody’s who also raised Brazil’s local currency and foreign credit ratings this year.

This is a major confirmation of the future of Brazil’s economy and should increase the interest by global investors to invest in companies in the country’s growing economy.

Of particular note, is that these three credit upgrades happened at time that the economies of Europe and the United States are floundering, and a year in which the United States had its credit rating downgraded for the first time.

In announcing the credit upgrade, Sebastián Briozzo, S&P’s credit analyst, was quoted as saying, “The upgrade of Brazil is supported by the current administration’s growing track record of prudent macroeconomic policies, including fairly consistent primary surpluses of close to 3 per cent of GDP.”

Author:  Jeffrey Friedland

Fueled by Domestic Spending Indonesia’s Economy Grew Almost 7% Last Quarter

Indonesia, Southeast Asia’s largest economy,  continued to weather the impact of a troubling global economy last quarter, fueled by domestic spending.Surprising to many, Indonesia’s gross domestic product (GDP) for the quarter ended September 30th climbed 6.6 percent from the same period a year earlier.  The three month period’s growth was also an increase from the  6.49 percent GDP growth for the April through June period..

While Indonesia is less dependent on exports than its Southeast Asian neighbors, concerns have been raised that a global economic downturn may decrease foreign investment.

In commenting on the growth, Bank Indonesia Governor Darmin Nasution said that the actual GDP growth may have been even greater.

Bloomberg quoted Helmi Arman, a Jakarta based economist with Citigroup as saying, “Indonesia’s growth is being driven by strong domestic demand and investment, while net exports may have fallen last quarter due to global conditions. Inflation is slowing, interest-rate differentials with advanced countries remain high and there is uncertainty in the global growth outlook. Bank Indonesia wants to be forward-looking to support domestic growth.”

Is Vietnam Worthy of Foreign Investment?

Vietnam, a country recently considered a promising emerging economy, has seen their foreign direct investment (FDI) decrease in 2011 and questions have arisen as to whether Vietnam is an emerging economy worthy of foreign investment.

Vietnam’s economy has recorded 7% annual growth rate for the past decade and the International Monetary Fund (IMF) predicts that the Vietnamese economy can maintain similar growth rates for the next two years.  Vietnam has grown due to their resilience during the financial crisis by adopting a stimulus fiscal package and a more open monetary policy.

Vietnam’s attractiveness to foreign investors stems from their recent growth, proximity to China’s strong economy, and their increasingly open and transparent economy.  Vietnam has been quick to move away from its traditional agriculturally based economy and into a more industrial and manufacturing economy.  Increasing labor costs in China is an encouraging sign that Vietnam’s industrial sector, where labor costs are low, will experience even more growth.  Nokia, the world’s largest cell phone manufacturer, is taking advantage of Vietnam’s growing manufacturing sector by investing US$356.22 million in a new plant in Vietnam.

Vietnam joined the World Trade Organization (WTO) in 2007, and since its ascension to the WTO, there has been significant progress in the business environment. Vietnam hasttracted more than 4,000 foreign direct investment projects worth over US$114 billion.

Vietnam’s emerging economy seems prime to become a rising star in Asia; however, after more closely examining its economy, it appears that Vietnam may not live up to its hype.  Because of the government stimulus package and the monetary policies adopted to help Vietnam with the financial crisis, inflation and debt has sharply risen. Inflation ballooned to 28% in 2009 and has hit a 24-month high in July, 2011 as inflation stood at 22% (year over year).  In addition to the high debt growth and rising inflation, the Dong, the Vietnamese currency, was devalued by 8.5% in February.

It also seems that foreign companies are hesitating to enter Vietnam’s manufacturing sector.  Major toy companies including Hasbro Inc, LeapFrog Enterprises and Toys R Us Inc have chosen to remain manufacturing in China despite China’s increasing labor cost because the Chinese are still more efficient and the country has a more developed infrastructure than
Vietnam.  Other corporations for example, Ford and Canon, have chosen to open plants in Thailand over Vietnam because of the growing Vietnamese inflation and the signs of a troubling Vietnamese economy.  Executives having to increase workers salaries due to the high inflation are frustrating companies that have come to Vietnam for low labor costs. Hoang Minh Tri, the owner of a LG TV manufacturing plant in Vietnam, says he plans to increase his workers’ salaries 20-30% for the next year and says that large companies “can make use of the cheap workers here but this advantage cannot last long, as labor will not be so cheap in five years.”

Vietnam’s foreign direct investment dropped 48% year-on-year for the first six months of 2011; clearly a sign that investors are beginning to lose confidence in a once promising Vietnamese economy and are looking elsewhere to invest their money.

As far as investments outside the Euroland and the US, the “wait-and-see” strategy might be the best approach to dealing with Vietnam in its current state.  Vietnam may have been overrated and its future does not look as bright as it once did, but policy makers are currently working to create stricter monetary and fiscal policies and are trying to reduce the size of their debt and growing inflation.  If these policies can be successful, than Vietnam could garner enough power to become a worthy investment to those looking to invest outside major economies.

Author: Daniel Greenberg

Bloomberg: China May Sustain 9% Growth Pace for 2011 With Investment Moving Inland

Bloomberg News-July 13

China may maintain growth of about 9 percent this year, avoiding a “hard landing,” as spending on low-cost homes and developing inland provinces counters the impact of Europe’s debt crisis and monetary tightening.

Investment by local governments and private businesses helped drive a 9.5 percent gain in second-quarter gross domestic product from a year earlier, the National Bureau of Statistics said in Beijing yesterday. That was faster than estimated as growth in industrial output and retail sales accelerated and copper and aluminum production reached records.

Investment accounted for more than half of the nation’s expansion in the first six months of the year and may offset threatened weakness in exports in the second half. At the same time, dependence on fixed-asset spending highlights limited progress in shifting to a more consumption-driven model that would play a bigger role in supporting global demand.

“I would be willing to increase my exposure to the Chinese economy,” said Fred Hu, chairman of Primavera Capital Group in Beijing and former Greater China chairman at Goldman Sachs Group Inc., adding that there are attractive opportunities withconsumer goods, financial services and manufacturing stocks.“Equity valuations and investor sentiment have become overly bearish as markets got spooked about a hard landing.”  …

Full Story: http://www.bloomberg.com/news/2011-07-13/china-may-sustain-9-growth-pace-for-2011-with-investment-moving-inland.html

Peru, a Country Worthy of Consideration by Global Investors

The Andean country of Peru has emerged as one the fastest growing nations in the world. Peru’s economy has experienced remarkable growth rates of around 9% for the past couple years and many analysts believe that the country will be able to maintain a growth rate of approximately 7% through 2013.

Peru’s economic resurgence is being powered by the recent raise in demand for commodities and raw materials. Peru is the world’s largest producer of silver and the third largest producer of copper, zinc and tin. Like other emerging economies, Peru has also seen a substantial increase in their foreign direct investment (FDI). In 2010 Peru had a FDI inflow of $7.3 billion, up 31% from 2009. Peru’s stock market also considerably increased last year jumping nearly 65% in 2010.

Cesar Perez-Novoa, managing director of the investment bank Celfin Capital, recently stated, “I see the main stock-market drivers in the first quarter as continued economic growth, good year-end financial results and strong commodities prices. We [Peru] are bullish on the financial and commodity sectors.”

Peru appears to be one of the most popular emerging economies because of their recent astronomical growth rates coupled with their ability to maintain economic expansion with their strong natural resource sector. However, political risk must be taken into account and investors need to be cautious. Political stability has not always been present in Peru and with the newly elected leftist president, Ollanta Humala, some are concerned that progress might be slowed. When news that Humala had won the election, the Lima stock exchange fell a record 12.4%.

Humala has stated that he will continue to facilitate Peru’s economic explosion and will encourage more foreign investment, however some fear that the “leftist policies of Humula, which are expected to include increased government intervention into the mining sector and increased social spending to fight poverty,” could stifle Peru’s advancing economy.

Peru’s economy is certainly trending upwards and would appear to be capable of continuing on that path. To investors, Peru presents an opportunity for high returns that carry certain risks due to Peru’s political uncertainty.

Author: Daniel Greenberg

China to Overtake the U.S. as the World’s Largest Economy in 8 Years

If China’s rate of growth over the past decade continues, which is most agree, very likely, , China will have overtake the U.S. as the world’s largest economy in 8 years using purchasing power parity as the measure of size.

In that China willl increasingly challenge American hegemony over the next decade, it’s critcial that that U.S. political and economic policies adjust to what will inevitably become a China dominated global economy.

International Monetary Fund: China’s Economy Will be Larger than that of the U.S. by 2016

A new world order, with China at the epicenter is becoming a reality.

The International Monetary Fund (IMF), utilizing its calculation of the size of an economy based on “purchasing price parity,” has announced that China’s economy will be larger than that of the U.S. by 2016.

But, this announcement by the IMF is a bit deceiving. Based on a measurement in U.S. dollars, estimates are that the U.S. gross domestic product (GDP) will be 70% larger than that of China by 2016.

Many of us are used to the economic yardstick of GDP. But, what is “purchasing price parity?”

Purchasing price parity is an economic theory that states that the exchange rate between one currency and another are in balance when their domestic purchasing powers at that rate of exchange are equivalent. This essentially means that a bundle of goods should cost the same in China and the United States once you take the exchange rate into account, or specifically that the cost of a kilo of rice, or for that matter a Starbucks latte should cost the same in both countries.

By stating that China’s economy based on “purchasing price parity” will be larger than that of the U.S., even though China’s GDP will be substantially less, indicates that the “value” of the goods and services in China will be larger than that of the U.S. in 2016.
This prediction by the IMF shouldn’t come as a surprise to anyone, as it has been inevitable.

But with China becoming the largest economy there will be adverse affects to the United States and to Americans.

These include China’s economic policies becoming more important than those of the U.S. With China’s increased economic power there will be the likelihood that China’s military and foreign policy will also become more important than that of the U.S.

Individual American’s will also likely feel poorer due to the huge burdens on taxpayers and the government of having to deal with continuing budget deficits, the funding of entitlements taking a greater percentage of the budget, and the interest expense on the government’s debt taking an increasingly greater percentage of the U.S. government’s budget.

Author:  Jeffrey Friedland