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The World in 2012

Escrito el 22 enero 2012 por Miguel Aguirre en Economía Mundial

Growth in Advanced Economies

Last Monday COFACE held its 16th Country Risk Conference, Coface is principally issuing a warning about the systemic nature of the current crisis, of which the Euro zone is the epicentre. In 2012, the European economy will be marked by a recession rate of -0.1%, while growth will stabilise in the USA at +1.6% and recover in Japan at +1.8%. This should prevent a return to the worst of the 2008-2009 crisis, characterised by a synchronised recession in all three advanced economic areas. Overall, growth in advanced economies will be 1.1% in 2012.

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Growth in Emerging Economies

Emerging countries should maintain growth at 5.1%, with a 0.6-point drop in GDP against 2011. Emerging European economies will be the areas most exposed to the intensification of the Euro crisis through both commercial and external banking credit channels. 

In addition, among the risks to be monitored is a clear return of political risks in emerging countries. 

European companies: victims of the new global systemic crisis 

The period from the second half of 2009 to the first half of 2011 was a brief respite for the world economy. The situation worldwide has deteriorated since the summer of 2011 with the crisis in the Euro zone worsening. Coface has noted a clean break in companies’ payment behaviour in the second half of 2011, with a sharp rise in non payments. For 2011 as a whole, Coface recorded a 19% rise in payment incidents worldwide, with a particularly marked increase (28%) for companies in the Euro zone. The deterioration of average company solidity demonstrates that the crisis is taking a new direction and has attained a global systemic level with Italy entering a recession. The situation appears to differ from the 2008 shock as a result of this critical mass effect, but also because of increased financial interdependence and the exposure of banks both inside and outside the EU to European sovereign debts. 

Increased vulnerability in emerging European economies to a contraction in European demand 

The emerging European economies will suffer the most from the contraction in demand and financing movements within the Euro zone. Given their exposure to sovereign debt in the Euro zone, Western European banks will be obliged to reduce support to their subsidiaries, which will affect the granting of credit facilities to companies. Assets held by European banks account for 70% of Eastern European GDP. It is also estimated that one-fifth of the growth in the last decade in Eastern Europe can be attributed to dynamic trans-frontier credit. Were the European credit tap to be shut off, there would be a major impact on emerging European economies, which also frequently have a private sector with massive currency debts.The growth of open economies will be halved from 4.1% in 2011 to 2% in 2012. 

Emerging countries fall prey to the return of political risks 

The wave of political unrest in North Africa and the Middle East in 2011 was a turning point in emerging economies that heralded a return of political risks. In 2011 Coface noted several non payments as a result of political risks. The wave of regime changes can be attributed to the inexorable surge in the will to change the societies in emerging countries. This reflects profound economic and political frustration, supported by a burgeoning middle class and social and cultural changes (access to the Internet, falling fertility, travel). In emerging democracies, as in Latin American countries, frustration is expressed by higher crime rates, whereas regime changes in authoritarian States take place when incumbents are no longer capable of meeting the increasingly pressing hopes of their population in terms of political rights and access to employment and entrepreneurship. 

Where will it be interesting to export and to invest in 2012?

Source www.coface.com. Country Risk Analysis

 

Comentarios

Gabriela Camacho 22 enero 2012 - 13:39

In regard to your ending question, my interest in Peruvian politics has led me to believe that Peru is strategically well placed to take advantage of forecasted high growth in emerging economies.

Peru, is currently experiencing high levels of sustained economic growth, largely off the back of primary industries such as mining. There was a previously foreseen political instability after last years election, however this has not transpired and private industry is markedly growing.

Peru is also geo-strategically well placed, notably in its membership of APEC, as to allow it to take advantage of many key emerging economies (China, Brazil, Mexico), which are demanding increased amounts of primary resources such as minerals and gas.

Kirit Patel 22 enero 2012 - 13:44

Gabi, yes I think you are correct and Peru is strategically well placed and perhaps a good case can be made for it to be added to Goldman Sachs “Next eleven” list of emerging economies.
With regard to your point about primary industries, I think they will indeed play a crucial role in the next few decades of emerging economy development. However, I have read an interesting theory that as the emerging economies move past the primary stages of development, where the typical beneficiaries have been those exporting primary resources (such as Australia and Peru) and those exporting tools for infrastructure and development (such as Germany), will decline in relative importance.
The next stage will see the emerging economies demand more specialised tertiary services, such as insurance or education. This is already starting to happen and we can see that from the increased activity of emerging economies in the Lloyds of London insurance market and many US and British Universities opening faculties in high potential areas. It will be very interesting to see how these economies develop their own tertiary system and whether the West can maintain a competitive advantage in these areas over time.

Jonathan Mulligan 22 enero 2012 - 14:19

To answer the closing question and to respond to Gabi, I think if you look to the south of Peru, a perhaps even better investment is possible. Despite the massive 8.8 earthquake in 2010, Chile still posted a terrific year in 2011 and was praised by Standard and Poor’s as being “resilient”. As the originator of liberalization successes in Latin America, Chile has now had 20 plus years of a stable democracy and has some interesting projects coming up. Firstly, Valparaiso, arguably the most important port in Latin America (there was no argument before the Panama Canal was built) is set to expand due to the high level of imports and exports coming and going from there. Next, there has been an agreement signed with Argentina to build two tunnels through the Andes–one for trains and another for cars–though a completion date is not yet set. This will significantly cut down the transportation time and dangers associated with the snowy, switch-back road over the Andes. Finally, there is talks between Chile and Bolivia to improve and have more access to the road leading to Brazil. Chile, along with Brazil, is taking a firm grip of the economic boom coming to Latin America. Chile has the open economy experience and natural resources; if it had more land and a larger population, we’d be talking about the BRICCs in class.
Kirit, that’s a very interesting theory you have explained. Though Western universities continue to enjoy worldwide prestige, their prices have not changed in the recession and many have even increased significantly (ie California universities) which may change that competitive advantage at some point.

Jesse 22 enero 2012 - 15:00

I have to agree with Kirit on the importance and attractiveness of investments in professional services. JJ your point about the increase in fees at American universities is important, but I think it misses Kirit’s point. These are not American universities trying to attract foreign students, these are US schools physically opening campuses overseas. They are not charging US prices. They package and price their services for the national market. Many have opened campuses in the Gulf with generous donations from wealthy sovereign funds, allowing them to drive costs down significantly. Anecdotally, St. Louis University has a campus in Madrid that charges 1/6 the price for the same degree. I’m on my mobile or I’d add statistics and links for you. As the population growth in places like China and Mexico level off, the demand will shift to educating those populations to move into the service economy. You can see this especially well in places like India and the Philippines where outsourcing is starting to hit a management capacity wall. I know of several large projects where management of service delivery for US clients has to be reshored because the Indian talent was there to do it. India is very interested in building up its education capacity to keep itself compeitive in services. And with the Gulf states looking to diversify away from oil, I think professional services and education consulting are the places to go in the emerging markets. Plus it’s lower risk as you have lower hard infrastructure costs. Please excuse any typos.

Eduardo Sholl 22 enero 2012 - 16:49

I have to agree with Gabi’s, Kirit’s and JJ’s points, but I will be more specific. Kirit, I think it’s a very interesting theory, and I agree with it, whenever the first stages of developement are through, yes, the basic needs of a country in fact change, but regarding 2012 to export and invest, I will have to go along with the common sense: BRIC’s, and if I may, focus on the B.
Brazil has comparative advantage against the two giants of this group, it will not have to deal with a superpopulation problem in the upcoming years.Not only Brazil has a huge amount of unexplored ( undiscovered oil ) natural resources to back up and foster the economy, but we are also talking about a mainly urban country that has a lot geographical space to grow. For new business and developing industries, I will have no better port to look for if not Brazil. Another huge benefit for companies to settle there are the upcoming world wide sports events, the FIFA world cup in 2014 and the Olympics in 2016, local economy is booming right now with the investments being made for this two events. To close up this argument, I would say that the city centers of Brazil, like São Paulo, Rio de Janeiro, Belo Horizonte and Brasilia are prepared for such investments, with educated and capable people that are ready to join this boom.

Kristina Zoller 22 enero 2012 - 18:00

Ok, so I just tried to post and it didn’t work, hopefully this one does. I agree with Kirit and Jesse that investment in the tertiary market is the best way to go. Investment in primary markets, even emerging ones, are subject to volatility and generally finite (how finite remains to be seen, however). India, for instance, is becoming a powerhouse due to outsourcing (Canadian companies, for example, are “offshoring” many different aspects of their services to India). Dubai, for instance, is almost out of oil. Its focus on diversification and having an open economy puts them in a better position than a country that invests purely in its natural resources. In this case, I agree Chile would probably make a great investment for its open economy experience.

To make a note about Eduardo’s comment about hosting FIFA and the Olympics – I don’t think this will help the Brazilian economy at all. The city of Vancouver is 1 billion dollars in debt due to hosting the Olympics, and as a result, funding for a lot of social programs was cut to cover costs. The recession didn’t help, but even with a global recession, cities struggle with debts after hosting such events. The IOC offered emergency funds to Vancouver to help cover the costs (the amount wasn’t divulged), but the investment after hasn’t been what was expected.

http://www.nytimes.com/2010/02/25/sports/olympics/25vancouver.html

South Africa came across some trouble with its own debt for hosting FIFA.

http://www.fin24.com/Economy/Fifas-World-Cup-debt-trail-20101017-2

The investment that goes into hosting such a large sports event is huge, and historically speaking, rarely pays itself off without sacrifices by the host country. Not to say that it won’t expose the world to possible Brazilian investment, just that the costs of doing so are exceptional and lead to certain sacrifices.

Kristina Zoller 22 enero 2012 - 18:01

Sorry, my comment about even with a global recession was meant to be “even without a global recession”.

Jesse 22 enero 2012 - 19:23

Eduardo, I love your enthusiasm for Brazil! It is definitely a key selling point if all Brazilians are as welcoming and hardworking as you. I do have a question though – How easy is it to setup a business in Brazil? I’ve heard stories that foreign investors are required to have a partner with permanent Brasilian residency/citizenship, must give that partner a percentage of ownership in the firm, and need to have a large bank account just to get permits to do business. Those factors combined with exorbitant taxes and the super strong real seem to make a strong barrier to entry. In your opinion is Brazil a viable option for small or medium sized firms? Can they make a profit that justifies the challenges?

Erin Florio 22 enero 2012 - 21:55

After reading all your interesting comments, I’m a bit surprised there has been little mention of Australia. We’re all aware of how Australia’s ambundant mineral wealth and proximity has allowed it to capitalise on the booming Chinese and Indian economies, but this is to oversimplify Australia’s success. There are undoubtedly other countries with mineral wealth that could supply this demand at much lower cost(due to lax safety and labour laws, and cheap wages), but Australias competitiveness lies in its mature financial & legal system, skilled mining workforce and developed infrastructure. This explains why the worlds biggest miners (BHP, Rio Tinto and Xstrata for example) are basing their main operation in this politically and economically stable region. There was however recent uncertainty about the tax regime imposed on mining operations, but this has since been resolved. The Australian electorate which has enjoyed the best growth rates in the Western world, seem unwilling to change this. Australia is where my money would go!

Saumya 22 enero 2012 - 23:22

Hi everyone

All really interesting comments! Erin, you beat me to it, I was going to answer the final question as – Australia! My bet would also be on a Australia being a very interesting country to watch in 2012 in terms of export and imports for several reasons.

According to Deloitte Access Economics, Australia’s GDP is expected to expand 3.6 per cent in 2012 from an estimated 2 per cent growth last year. Although a minor uptick in inflation is expected from 1.8% to 2.5% year on year, this rise is well within the Reserve Bank of Australia (RBA) inflation range of 2-3% and will help unemployment strategies employed by the Gillard government.

I would expect consumer based product imports, especially online goods and services, to increase in 2012 due to the strong commodities flux leading to the Aussie Dollar being much stronger against the Greenback. I read an article that quoted the global head of EBay, John Donohoe saying ‘’that the Australian dollar was predicted to be strong and that consumers were ‘’very open to imports and looking for brands’’.

Of course the net exports is predominantly driven by Australia’s somewhat dubious relationship with China. Even though growth is predicted to slow in China, it is still positive. The demand for iron ore, copper and other natural resources have companies like Santos, BHP, and Fortescue Metals clambering to get into China’s mainstream deal pipeline.

On the other hand, it must be noted that these predictions of growth are comparative. Brasil, Chile, Peru, India and even Australia although predicted to be netting comparatively positively from potential Export-Import positions can only really do as well as the US, Europe and China can allow. For example, if the PRC decide to temporarily float their currency, or if SOE’s in China begin to spiral into more default positions. These events will surely have a domino effect on the US (with China holding most of the US FX in bonds and other instruments) and thus Europe, Australia and so on.

Although my bet is with the Australia, I am by no means bullish in my 2012 views!

Kristina Zoller 23 enero 2012 - 08:46

Please work this time.

Ok, so I just tried to post and it didn’t work, hopefully this one does. I agree with Kirit and Jesse that investment in the tertiary market is the best way to go. Investment in primary markets, even emerging ones, are subject to volatility and generally finite (how finite remains to be seen, however). India, for instance, is becoming a powerhouse due to outsourcing (Canadian companies, for example, are “offshoring” many different aspects of their services to India). Dubai, for instance, is almost out of oil. Its focus on diversification and having an open economy puts them in a better position than a country that invests purely in its natural resources. In this case, I agree Chile would probably make a great investment for its open economy experience.
To make a note about Eduardo’s comment about hosting FIFA and the Olympics – I don’t think this will help the Brazilian economy at all. The city of Vancouver is 1 billion dollars in debt due to hosting the Olympics, and as a result, funding for a lot of social programs was cut to cover costs. The recession didn’t help, but even with a global recession, cities struggle with debts after hosting such events. The IOC offered emergency funds to Vancouver to help cover the costs (the amount wasn’t divulged), but the investment after hasn’t been what was expected.

South Africa came across some trouble with its own debt for hosting FIFA.

The investment that goes into hosting such a large sports event is huge, and historically speaking, rarely pays itself off without sacrifices by the host country. Not to say that it won’t expose the world to possible Brazilian investment, just that the costs of doing so are exceptional and lead to certain sacrifices.

Ilja Perschbacher 23 enero 2012 - 12:56

The Australian economy is starting to suffer from “Dutch Disease”. Thus I agree to a certain degree with Samuya, there is and will be a demand for imported consumer goods. However, bare in mind that most projected growth numbers for Australia are almost exclusively driven by its natural resources sector. Thus, as the “Dutch Disease” takes a stronger hold of the economy, it will likely result in significant job losses in all sectors of the economy. As such it appears to be an interesting market to import products which are cheap to begin with – and further discounted by the strong AUD.

As global demand for natural resources, and thus Australia’s “well being”, remain a wildcard for most of 2012, I would opt for an export model which only puts a limited amount of our financial resources at risk. Thus I would refrain from JVs, branches or subsidiaries in Australia. but engage low risk forms of market penetration instead (licensing, franchising, etc).

If we are talking about a longer time horizon, I would invest in India, as it is the only high-level self-sustained economic growth around – thus making it almost exempt from a lot of the global turmoil we have been – and will be – facing…

Alison Caputo 23 enero 2012 - 21:04

Hello All,
This is my second attempt at posting so hopefully this time it works. All of these comments are very interesting. I agree that emerging markets, especially India and Brazil have good investment and trade opportunities in 2012. I read an interesting article about Singapore and as we all know Singapore’s economy is one of the most open and competitive economies of Asia. In 2011, the World Bank Ease of Doing Business Index ranked Singapore as one of the best countries to do business in. In fact, it is a very conducive economy to start-up a business. It takes about only three days to start a business in Singapore which is much less than the average (34 days). Since Singapore’s domestic market is rather small, they are open to foreign markets and this is an important aspect to consider for investment opportunities. Furthermore, Singapore has highly skilled and educated workers. Considering its strategic geographic region, skilled laborers, key business and regulatory policies, highlight the opportunities for investment and trade. Despite the global financial crisis, Singapore had a better than expected year in 2011 with concern to investment (http://www.enterpriseone.gov.sg/en/News/2012/Jan/120118%202011%20Record%20Year%20For%20Singapore%20Investments.aspx).

Jeremy Newman 23 enero 2012 - 23:10

In relation to Ilja’s comments that Australia is beginning to suffer from Dutch Disease, I wouldn’t dispute that the Australian economy is largely driven by its natural resource sector, however, there are a few qualifications to that point that must be made. Australia’s reliance on exporting iron ore to China is clearly important, but it is by no means the only resource natural resource Australia exports. For example, Australia is one of the world’s leading producers of gold, in 2006-7 it produced AU$10.3 billion worth of gold, making it the world’s second largest producer of gold for that year. (http://www.dfat.gov.au/facts/resources_sector.html) Similarly, it is generally among the world’s top five silver producers. The beauty of this is, that these commodities dramatically increase in value in times of economic uncertainty. By definition, to say Australia has Dutch Disease must be covenanted by the fact that our resource industry is highly diversified, and commodities such as gold, silver, and liquified natural gas, are less susceptible and to a degree benefit from economic downturn, in contrast to commodities such as iron ore. Ok, a diversified natural resource industry does not quite prevent us from contracting Dutch disease, but allow me to continue:

Our mining industry itself is not only a producer of raw materials, but also develops technology and sustainable methods which are then exported as patent licences, such technology means that even when Australian dollar prices cause importers to look for cheaper commodities, the other countries often increase their own production by paying large amounts for Australian patents, or hiring/contracting Australian consultancies or professionals.

Secondly, from my personal experience, Australia is highly developed country, the UNHD index tends to agree with this statement, rating us only behind Norway. We can do other things than dig up rocks. If China stops importing as much of our iron ore, there will be a few less Porches on the road, granted! However, in the event that the resource sector slows, the accompanying drop in the Australian dollar is likely to result in increases in other industries, for example tourism and education, which the high Australian dollar currently precludes to a degree, rather than the full economic meltdown a nation truly suffering from Dutch Disease may expect should their predominant resource slow.

Tomas Mensi 23 enero 2012 - 23:42

I would say India. In fact even if all the BRIC (maybe except Russia) are potentially very good markets to invest in, India has some interesting comparative advantages. In my opinion one of the most important is the demographic one. India is one of the youngest countries in the world and soon (2030) will become the most populated too. Its demographic pyramid is much more favorable than the other “BRC”. China for example will be paying the effect of the one child policy and will probably face the risk of becoming old before than rich. Russia is an “old giant” and Brazil, even if it has a very good prospective, could be enjoying its “demographic bonus” for just few more years. In addition India has a population with a relative high level of education and with English language skills. Another aspect that in my opinion makes India a very good market is the high level of private consumption accounts that is close to the 60% of the GDP. In conclusion, according to what Kirit was arguing, it’s interesting to see that in India, as opposed to the Chinese case, the economy has jumped directly from an agricultural basis to the service sector and now the government is working in developing the secondary sector. This is a big issue because a manufacturing sector would be vital in order to give a job to the increasing labor pool.

Paloma Gabriel Pinel 23 enero 2012 - 23:54

Latin America certainly looks promising invetstemnt hub for 2012.There have been lots of highlights like: Colombia’s credit rating being raised to investment grade by both Moody’s and Standard & Poor’s springs to mind, as well as Brazil overtaking the UK as the 6th largest world economy.
I confident the Agribusiness sector, particularly in Brazil and Argentina, will do well. The potential is huge, Brazil´s agribusiness area is more than twicethe size of that in the U.S. Given that China has been making massive investements in infrastructure in exchange for crop production,as well as its progressive bi-lateral trade agreements in both Argentina and Brazil in order to satisfy its limited ability to feed itself, the agribusiness sector might be something investors want to look at.
Another interesting trade agreement development is the EU-Mercosur agreement to open up trade on both sides. Negotiations are progressing, but some experts are confident a final agreement will be reached this year.This will of course make it easier to do buiness or invest in huge agribusiness countries like Brazil and Argentina.
Maybe another potential to watch out for is the the development of the Free Trade Agreement between the EU and Colombia, due to be ratified this year!!!!!! Colombia is a high growth market rich in oil, natural gas, and minerals. Although competition is stiff, there will certainly be demand from the extractive industries for Information and Communication Technologies (ICT), environmental consultancy,as well as non-traditional areas like wireles security technologies – Wink wink nudge nudge CESAR!

Pablo MIR 25 enero 2012 - 01:06

We are in repeating the 30´s nigthmare scenario.In fact the 29 slump had its peak 4 years later in 1933.We are repeating the same errors both in the economic domain and in politics.No wonder far right parties are gaining ground.Most forecast tend to favor BRICS and Middle East oil rich countries as the paradise for investors in 2012.Nevertheless,I believe that Europe has much to offer in spite of the debt crisis:legal security,political stability,the governance of the EU and international companies whose assets are diversified.Do not understimate Europe.
I agree with Paul Krugman.We must give a primacy to growth within Europe.Once we are on track we will deal with fiscal consolidation and balancing the deficits.

Elizabeth M. Rojo 25 enero 2012 - 11:16

While there are several good options, whichever country we decide to invest in 2012, will certainly depend on the wellbeing of the economies in the US, Europe and China. I agree with Eduardo and Paloma that the best place to invest is in Latin America, and particularly Brazil. Eduardo stated the many reasons why Brazil would be a good choice: the major world events happening in the next several years, a powerful growing economy as part of the BRICs, etc., however, there was little to no mention of what are the issues that could prevent a large return on an investment there. Brazil´s lack of entrepreneurial accessibility due to a lengthy process to start a new business (it takes 152 days) and stagnated Gini coefficient which could eventually lead to a population uprising like the one experienced in North Africa and the Middle East. However, if this does occur it would be in a long time, making it a good option for short-term investing.
Also, with Brazil´s rapid growth it´s easy to forget the 2nd largest economy in Latin America: Mexico. Mexico although it is experiencing a deep structural change in politics and society with the war on drugs and this years presidential election, it is a great long-term investment opportunity. Mexico is expected to grow 3.1% in 2012, which is only 0.4% less than what is expected of the Brazilian economy. These numbers make me wonder if the war on drugs were non-existing, would Mexico then be a better option for investment than Brazil? Would it grow at higher rates if it were politically stable? It is difficult to know when will the political risk no longer be a factor, but we can draw from Colombia´s experience in the 1990s and their war on drugs, it is clear that the economy will not only recover, but will prevail as Paloma pointed out with the Colombian economy. Therefore, Mexico would be a better option for long-term investment and Brazil for shorter-term investment in Latin America.

Pablo MIR 25 enero 2012 - 18:38

I leave this interesting link in which you can listen Cardoso view on Brazil´s Future:

http://www.economist.com/blogs/americasview/2012/01/fernando-henrique-cardoso-brazils-future-0

Cynthia Bowles 25 enero 2012 - 23:21

When looking at possibilities of investment in 2012, I would have to agree with Eduardo, Paloma and Elizabeth. I would invest in Brazil as it is one of the great emerging economies in the world and as Goldman Sachs calls it one of the BRICs. With Lula’s administration introducing the G20,which consists of developing countries opening up the agricultural market for developed countries in the World Trade Organization. This could be great opportunity for the agribusiness sector to further grow as trade barriers will be facilitated. Also as Brazil has become China’s greatest trade partner or as many call it the “hand of God” this creates many jobs and investment opportunities for Brazilian companies.
As Eduardo mentioned, Brazil will be the 2014 FIFA world cup host and the 2016 Olympics host, which for the country means new infrastructure and innovation. These two events also serve to generate millions of jobs and keep boosting the economy. Thus with the internal and external economic growth Brazil has been demonstrating, it would be the best investment option for 2012.

Ana 26 enero 2012 - 12:37

While I believe that investing in Latin America is great due to language and cultural similarities, I´ll rather invest in a nearby country to cut transportation costs. In that regards, I think that Turkey will be a good place. Although it doesn´t belong to the BRIC countries, it is undoubtedly an emerging economy. It has a huge manpower and 30 percent of the population are under 15 years of age. It is also an open door to the Middle East countries which see Turkey as a model for development. Just to finalize, in the long run Turkey might join the European Union, something that will make investing in it more interesting.

César Vírseda 29 enero 2012 - 05:19

When answering the question “Where to invest in 2012”, it has to be taken in account not only the GDP growth inside one country. Protectionist measures, political instability or current maturity of the different economic activities to invest in should be considered.
The main conditionings to evaluate could be:
• Economic conditionings:
o GDP growth trend over the last years
o Growth prevision for 2012
o Economic activities within that market with higher growing rate
• Political conditionings:
o Protectionist policies
o Current diplomatic / cultural relations with Spain
o Political stability
Taking in account above mentioned issues, Brazil has been the best option for the last years, but this “el dorado” could be starting to be saturated. In 2009 LAAD (Brazil International Defence Exhibition) hosted around 300 exhibitors, two years later, LAAD 2011 hosted 600. These figures, despite being just an example of a particular market, could lead us to the following question, is there still room for such a relevant increase of potential investors?
Considering the same political and economic factors that made Brazil one of the best places to invest, Asia-Pacific could be the next geographic area to focus our interest. According to Foreign Direct Investment (FDI) Confidence Index published by the A. T. Kearney consulting firm, Singapore has risen from pos. 24 in 2010 to pos. 7 in 2012, Malaysia from pos. 20 to pos. 10, and Indonesia from pos. 19 to pos. 9. The economic, social and political conditionings taking in account in this index (http://www.atkearney.com/index.php/Publications/cautious-investors-feed-a-tentative-recovery.html) leads us to believe that these Southeast Asian countries could be the best place to invest and sell during the next years.

Eva MIR 29 enero 2012 - 13:35

In response to Ana’s point; yes indeed, Turkey is eager to join the European Union and is pushing economic reforms. The nation also boasts a younger workforce than most of nearby Eastern Europe. The country is willing to a thriving manufacturing base serving both Western Europe and the Middle East. Turkey’s banks are profiting handsomely from an explosion of corporate and consumer lending It seems Turkey is looking for a huge loan growth.

Pablo MIR 29 enero 2012 - 21:55

The outcome of Davos is really scary.Investors believe Europe and euro are the problem,the laggard to resume world growth.We need a common fiscal government in the eurozone,a Mr Euro,an European Bank that implements quantitative easing to boost credit.However,Germany who is bound to lead is reluctant to do so.We have a current account deficit problem in the south.Germany has to channel its surplus to Southern european countries.
On the other hand,I went to a Peru Spain summit a few days ago and Luis de Guindos told us that latin America is the natural outlet for our companies.Chinese ranks first as foreign investors and we are second.Colombia offers great opportunities and legal security,Brazil is over the odds,Peru is becoming a powerhouse and Chili is diversifing its cooper dependant economy.

Esther 29 enero 2012 - 22:54

With the economic instability continuing in 2012 I would suggest that not only is a geographic location an important factor in deciding where to invest but in particular the industry will prove crucial. Whilst it is noted that emerging market growth will remain stable at 5.1 per cent, this is obviously across the whole economy. Some industries will remain strong whilst others weaken. I think we will see three main drivers in 2012:

1. The pace of any recovery of the US consumer market and financial services
2. The confidence, or lack of it, in the Euro
3. The monetary policy of China and the potential slow down of growth. This has the potential to impact a wide range of commodity products, many of which provide a high proportion of emerging markets GDP. Though it is important to note that whilst China’s growth may slow, it is likely to remain, at worst, on par with emerging markets average.

The recovery of established economies is likely to be, at least in the short run, uneven with different countries and sectors recovering at different speeds as consumer and producer confidence returns, and with it liquidity to the financial markets. Certain industries that were hit very hard can provide bargain basement opportunities if investors are able to hold for the medium to long term as the core business fundamentals still exist. We are starting to see this with examples like the Las Vegas gambling industry starting to strengthen.

As many of you have commented the forecast for growth in emerging markets remains positive. One key market that has already been discussed is India. India has an aggressive development goal in their Five Year Plan – with USD 1 trillion in expected infrastructure investments. With a large “base of the pyramid” population and a burgeoning middle class I see India as a very interesting growth country for 2012 and going forward. India, with a population of 1+ billion, has large domestic demand that will continue to demand core essentials irrespective of what happens outside of its shores.

Furthermore, timing of entry and exit of an investment will be important. We have seen increased volatility across many of the major currencies in the past 12 months and this appears set to continue especially with no clear consensus on how to tackle Europe’s debt issues and main of the major economies facing political elections this year. This obviously adds another layer of risk or reward to any investment.

Time magazine raises an interesting idea of 2012 being the year of the entrepreneur. So maybe we should just be investing in ourselves……

http://moneyland.time.com/2012/01/03/2012-the-year-of-the-entrepreneur/

Milagros Yepez 30 enero 2012 - 19:58

SORRY IF IT IS DUPLICATED

Hi everyone!

I partially agree with some of my colleagues about investing & exporting in Latin American as a potential investment hub for this year. The region undoubtedly is nowadays in a privileged situation comparing with some European countries. Furthermore, according to some economic analysts, the quality of public finances and debt sustainability have improved due to public debt has been lowered, interest payments has decreased creating fiscal space, and social public spending continues as a priority in national agendas.
In spite of these facts, to become a very attractive region to invest, Latin America should be aimed at two main issues: 1) Improving infrastructure: Although we are seeing this in Brazil it is still not enough. We can also observe a lack of solid and developed infrastructure in countries such as Bolivia, Colombia, Ecuador, Venezuela, Panamá and so on that impedes trade; 2) Increasing research in science and innovation (technology) as our Asian counterparts have done during last decades.
Finally, Ana and Eva’s comments about Turkey called my attention. In the same way, I partially agree about this country as an investment/exporting destination. We recognize that Turkey is giving its first steps as an emerging country, however those steps are being limited by the instability in its periphery. Particularly, the economic situation in Europe has slowed Turkey’s economic growth and hence its boosting to become a truly model of development.

Rene 1 febrero 2012 - 22:01

Buenas tardes everybody !

Finally made my way through to this blog. I really enjoyed reading your diverse comments. Yet, I am missing one decisive remark on the text Miguel posted: what kind, or better, what scale of investment are we talking about? After reading your texts, I get the feeling the MIRs might be the creators of future hot money. I agree that the BRICs are interesting areas for investment. However, there remain a lot of issues to resolve, which naturally come with the economic development of a rising country: uncertainty in administrative and judicial issues, which are closely related to the security of your investment. Constraints in financial context. Currency fluctuation.

Assumed the Euro does not collapse (Vivat, crescat, floreat! ) or the FED lost the instruction manual for its printing press, the Eurozone as well as the US, not to forget Japan, still offer great opportunities for investment. Sometimes the alleged weakness of an economy might be a great field for future business. Take the aging society, for instance. This field of commerce is yet totally underdeveloped, although huge opportunities arise: not only in health care, which is overregulated in the Eurozone, but in terms of commerce and service. This is a very interesting field for privat equity investment. And there are many more.

Ignacio Berdugo 1 febrero 2012 - 23:15

Hello to everyone!

I’ve just created a graph using the world bank chart, that compares the GDP growth in the BRICS in the last years:

http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG/countries/BR-RU-IN-ZA-CN-AR?display=graph

I have also included in the chart Argentina because as we discussed in our previous class it has been growing so much in the last years. In this chart we can see that the country that have grown more in 2010 is China with a 10.4%, followed by Argentina with a 9.2%, India with a 8.8%, Russia with a 7.5%, then Russia with a 4% and finally South Africa with a 2.8%. Regarding the impact of the 2008 crisis we can see how the country most affected was Russia and that China and India were not affected. Brazil and Argentina are the two countries that have a more powerful recovery trend after it.

Regarding the foreign direct investment indicator:

http://data.worldbank.org/indicator/BX.KLT.DINV.WD.GD.ZS/countries/BR-RU-IN-ZA-CN-AR?display=graph

We can see that China is the country that received in 2010 more direct investment followed by Russia and Brazil being Argentina in the 4th position.

That’s why from my perspective a good country to invest money in in 2012 is Argentina, as is a country that is growing a lot, has a very powerful recovery trend, and is not receiving as much direct foreign investment as the other countries I have compared with. In addition, it just have passed the elections in 2011 being re-elected again the same president that guarantees some stability as she has be ruling since 2007, which probably allows me to predict that I will be safe of political surprises that could affect my investments.

Eva MIR 5 febrero 2012 - 16:09

Hello everyone,

I just saw this video based on “Brazil overtakes UK in economic league table” I thought it was very interesting to share:
http://www.youtube.com/watch?v=EqlGx4nhK6Y&feature=player_embedded#!

Javier Lorencio 6 febrero 2012 - 21:43

The “wiggle-room” index

Hola to everyone,

A couple of weeks ago, The Economist published the so called wiggle-room index (to see the index please follow: http://media.economist.com/sites/default/files/imagecache/290-width/images/print-edition/20120128_FNC450.gif).

This index measures the monetary manoeuvrability and fiscal flexibility of 27 emerging economies, and is based on inflation, interest rates, credit, exchange rates, current-account balance, budget balance and government debt. According to the index, 8 countries are well positioned to withstand another global downturn which, according to the IMF, could take place during 2012 if the euro-area crisis gets worse. The main consequences of such downturn for fast-growing economies would be the reduction of exports and capital inflows.

In this regard, I would like to outstand Peru as a great opportunity for investing and/or exporting, for several reasons. Firstly, it is the 8th economy in the abovementioned index and, therefore, has a lot of room for easing fiscal and monetary policy if the world enters in a new recession escenario. Secondly, its GDP grew on 2011 up to 6.2% and it is expected to reach 5% on 2012.

Considering political risk, Mr. Humala was elected last year as new president and, taking into account its political past, many international investors looked fearful towards investing in Peru. However, after a few months from its election, he has shown determination towards social protesters on several mining sites and his popularity has increased significantly.

Archita Sarmah 7 febrero 2012 - 00:07

I think we should not rule out the developed world on the basis of average GDP growth forecast. There would certainly be some sectors with higher growth potential than others as Esther mentioned . The same goes with emerging world. However I would like to give special attention to the infrastructure sector in India. With the biggest military upgradation to the huge investment in the nuclear power field, Indian government is spending more than 9% of GDP on infrastructure projects (http://www.slideshare.net/amalistclient/2011-india-infrastructure-needs?src=related_normal&rel=7159158). A whopping 1trillion $ in the next 5 years. Indian government plan to do it in close partnership with the private sector which has contributed around 35% in 2011. Also this investment remains untouched by the financial turmoil outside India. The major infrastructure projects involve huge investment in the power sector, airports, ports ,railway and highways. With a stable government in power till 2014 and a liberal view of the government about FDI, Indian infrastructure sector looks rosy in 2012. Exportation of sophisticated machinery and other equipments would increase in India. Investing in the companies involved in the infrastructure development in India would be a good option in 2012.

Matilde Rocca 7 febrero 2012 - 10:57

Hi everyone, great comments!
As many of us, I also think Latin America is a good place to export and invest in 2012. Latin America is a region of opportunities, and as many of my colleagues have already said, not also Brasil and Mexico (because of their potential market in a growing context) are good choices for export and investment. Countries like Peru, Colombia, Chile and Argentina also offer promising opportunities. Undoubtedly, like Rene argues, there are lots of issues to resolve: judicial, administrative and political uncertainties are some of the key issues. Milagros has also pointed out that infrastructure programs are essential in order to assure long-term growth. But the region as a whole has improved not only in the economic aspect, but also in social terms. Take for example Brazil´s commitment to reduce poverty, Colombia´s fight against terrorism and México´s fight against drugs. Nevertheless, we must bear in mind that investing in a developing country also means assuming some risks which naturally come with economic development. In this sense, the World Bank in the “Global Economic Prospect” establishes that 2012 and 2013 will be characterized by increasing vulnerability and uncertainty: “Should conditions in high-income countries deteriorate and a second global crisis materializes, developing countries will find themselves operating in a much weaker global economy, with much less abundant capital, less vibrant trade opportunities and weaker financial support for both private and public activity” (p.17). So, even though some countries relatively easily achieved growth rates of 9% (as Nacho points out this was the case of Argentina), it won´t be that easy to equal and maintain that kind of growth rates in the second decade of this millennium. Nevertheless, the prospects seem favorable for developing countries: the WB estimates high-income country growth in 1.4 %, while developing country growth has been estimated between 5.4 and 6% for 2012.

Wei Ting Huang 7 febrero 2012 - 20:35

Hi everyone,
It was interesting to read all comments. As everyone said the economic power is shifting into the emerging markets, growth focus on Asia and Latin America, following by Africa. Strong growing economies of BRIC, leading the way, the balance of global economic power is shuffling. Investments doesn’t have to be just in BRIC, it’s where ever the opportunity occur in emerging economy.

Even through over all European economy isn’t doing well, there are countries benefiting from joining the Euro currency. I read a article a few days ago on Businessweek on how much Estonia benefits after adopting Euro for 1 year. (http://www.businessweek.com/magazine/why-estonia-loves-the-euro-02022012.html) I think even with decline economy, Europe still have strong and stable countries to sub-stain the economy for a certain level, due to different structure and system of governance. It may have to re-position itself in the role of global economy, in essence to respond to demand from emerging countries.

Tomofumi Fukamiya 9 febrero 2012 - 01:50

I would invest in China, especially stock market, only in 2012. Actually, in this moment, the stock price in China is going down because of tightening monetary policy for controlling high inflation. However, I predict that the stock price will go up in the second half of 2012. It’s because the economic performance is most important key success factor for Chinese government to stabilize its society. In reality, Chinese government implemented huge economic-stimulus package soon after Lehman shock. Also, now is the timing for the transition of power from Hu Jintao to Xi Jinping. In order to avoid unnecessary destabilization in this timing, China will do everything possible. As an example, in the president election in Taiwan last month, China provided cheap airplane tickets to roughly 400,000 of the one million Taiwanese living on the mainland to enable them to return home to vote, in order to boost Mr. Ma (pro-China stance), who has presided over a massive increase in economic ties with the mainland. In same way, I predict that Chinese government will start expansionary fiscal policy in parallel with tightening monetary policy in order to demonstrate new leader’s clout and avoid economic confusion this year. As a result of this, the stock price will recover in the second half of 2012. In addition, current average PER (Price Earnings Ratio) of Chinese stock is quite low, which means those stocks is undervalued in compared with real profit. In conclusion, now is the time to buy Chinese stock.

Pablo MIR 12 febrero 2012 - 09:07

I believe that we may have overlooked one factor.As Miguel Aguirre stated the current crisis derives from current account imbalances.In order to overcome the credit crunch and supply liquidity to the system we need to rethink the international economic system,that is to say Bretton Woods part 2.
WHY?We need to implement control on capital flows,FOREX,balance of payments and packages to stimulate the economy and achieve fiscal consolisation in the middle-long term.Subsequently,It will mean changing the balance of power within the IMF as BRICS will have to assune an increasing role.

Pablo MIR 12 febrero 2012 - 16:40

we are witness of a change of economic wealth:Wealth is being transferred to BRICS and oil producer countries.Commodities are increasing its price and the era of cheap oil belongs to the past.Teddy Roosvelt stated once that the med was the world of yesterday,the Atlantic is today´s world and the pacific will be the world of tomorrow.His forecast has been proved right.

Sonam Chauhan 13 febrero 2012 - 17:44

Interesting set of comments. I agree that the emerging economies, the BRIC countries and the LAtam nations are spearheading growth in these troubled times. A case in point – India. According to an Economic Times article, the global economic slump was actually a boon for the Indian economy. (http://articles.economictimes.indiatimes.com/2011-07-16/news/29781747_1_india-s-gdp-sonal-varma-fdi-inflows) While the developed world is grappling with extremely slow (and in some countries, negative) growth rates, India is poised to grow at 8%. Exports have a small share in the GDP, public debt is mostly internal, and Public and private consumption is a major contributor to the GDP.Also, the recent diversification of export destinations to MENA (Middle- East and North African) and Latin American countries would limit the impact of a slowdown in demand from traditional markets on Indian exports. India’s exports rose over 30% in 2010-11 despite softness in the world’s biggest markets.
While these indicators paint a very rosy picture, the World Bank 2012 “Doing Business” ranking (http://www.doingbusiness.org/Rankings) places India at the 132nd spot (out of 183) on the overall ease of doing business. This metric comprises of factors such as starting a business, construction permits, ease of getting credits, tax payments, cross-border trading etc. Interestingly, the other BRIC nations don’t fare too well either. Brazil is 126th, China 91st, Russia 120th. Bearing these factors in mind, I would argue that while countries would appear promising in terms of conducting business/ as investment opportunities, their legal/regulatory/financial environment might not be as welcoming and that the potential has to be weighed against the current factors.

Petia Moutaftchieva 16 febrero 2012 - 13:30

All are very interesting answers from everyone indeed. As far as the last question, I would like to say that Panama will be a good investment. First of all, the Panama Canal is in its early stages of a multi-million dollar expansion which would increase significantly its cargo capacity. Also, there are several important projects on the way, including the construction of a natural museum and the first Waldorf Astoria hotel in Latin America.
In addition, Panama maintains close ties with the US and even with the EU. A new commercial phase is about to commence between Panama and the US with the signature of the Free Trade Agreement. This agreement is more than likely to increase exports and foreign trade in the country.
Panama also has to offer investors a very well developed infrastructure. Also, Panama City is well known for its high industrialization. Overall, the country will make a good investment due to its active real estate market, developed international banking center, and close ties with the US.

Gabriela Belloso 26 febrero 2012 - 12:42

As other do, I agree in investing in Latin America. Were countries like Chile, Argentina, Peru and Colombia have showed in recent years a stable growth in they potential markets. Their economies show promising markets and opportunities. And like others have mention, there are some problems that need to be solved, but many of them are being solved, such as terrorism, drug cartels and others. But we can see in Chile for example, they went through a terrible earthquake were the consequences were devastating, and through this entire crisis Chile emerged stronger than before. Which shows the ability that country has to overcome such an economic blow. And we can see such examples in Colombia also, were the fight against terrorism is a constant battle, and the situation is improving every day, and how Bogota, the capital and other major cities are improving their infrastructure, making their economy more receptive for investors. It is true that investing in these developing countries comes with some risks, but the economies and markets of such seem favorable.

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