SA – New Bills discouraging trade and investment

containeryardSouth Africa is moving away from a policy promoting trade and investment to one that contradicts this, a roundtable on SA-European Union (EU) trade relations heard on Tuesday.

This comes as global foreign direct investment (FDI) flows jumped 36% last year to their highest level since the global economic and financial crisis began in late 2008, but plummeted in emerging markets, especially SA.

The most recent United Nations (UN) Conference on Trade and Development global investment trends monitor shows FDI into SA fell 74% to $1.5bn last year, while FDI inflows to Africa fell 31% to about $38bn.

Central Africa and Southern Africa saw the largest declines in FDI. The end of the commodity “supercycle” and the plunge in oil prices affected new project developments drastically, the UN body said. This had also affected Brazil, Russia and China, but not India, whose economy had surged ahead of late.

Peter Draper, MD of Tutwa Consulting, which researches policy and regulatory matters in emerging markets, said the promulgation of legislation such as the private security bill and the expropriation bill, created an impression that SA was not an attractive investment destination.

“What lies behind all of that, I think, is an ideological agenda, which is not favourable to business,” he said. “Geopolitically there is no love between SA and the US and SA and the EU. (But) There is lots of love for the Brics (Brazil, Russia, India, China, SA).”

South African and international business have raised the alarm over the quiet signing into law of SA’s Promotion and Protection of Investment Bill late last year, after the government had acknowledged that it would do little to promote trade.

Meanwhile, the Department of Trade and Industry said last week that the African National Congress had directed its economic transformation subcommittee to review the trade agreements signed by SA since 1999.

It said SA’s goal in “negotiating” trade agreements was to support national development objectives, promote intra-African trade and the integration of SA into global markets. This is likely to be highly controversial after the government from 2013 unilaterally cancelled about 13 bilateral investment treaties with major EU countries, drawing warnings from the bloc that this could damage trade relations.

Investors fear the Protection of Investment Bill has diluted recourse to international arbitration over trade disputes, and enhances the possibility of expropriation. Critics also say it contradicts SA’s obligations under the Southern African Development Community’s finance and investment protocol, by undermining equitable treatment between foreign and domestic investors.

John Purchase, CE of agribusiness association Agbiz, which with Tutwa Consulting organised yesterday’s roundtable, said the bill had not answered “all those questions around the bilateral investment treaties”. Source: Business Day

China’s Second Continent – the new colonisation of Africa

chinas-second-continent-howard-frenchFormer US Diplomat Brooks Spector takes a look at this important book (Daily Maverick) that should be on every economic policy maker’s reading list. Howard French’s China’s Second Continent, offers a very different – and provocative – perspective on China’s economic future, with special attention on Africa. Building on years of experience in both China and Africa, and following months of personal inquiry across the continent to search for answers to the questions of what China really wants in Africa, and how it is going to get there, French has effectively turned these questions on their head.

Instead of writing about China’s international economic policies in the language of the think tanks, of Wall Street and The City, or government councils in Whitehall or Washington, French has focused instead on what a million individual Chinese have done – or are now doing – throughout Africa, almost without regard to what the Chinese government may have planned or been thinking. In tackling the topic through this optic, French has given this vast Chinese movement into and across Africa crucial human dimensions. For the full review please visit this hyperlink. China’s Second Continent is available in hardcopy and electronic publication from online book stores. Source: Daily Maverick

Nigeria vs South Africa – size matters, but so does development

Flag-Pins-Nigeria-South-AfricaWhat matters more: the size of the pie or how many mouths it has to feed? It depends whether you’re eating pies, or selling them.

Most of Nigeria’s 170-million people live below the poverty line, so many complained they didn’t feel any richer when the oil producing nation’s statistics bureau announced on Sunday the economy had replaced South Africa as the continent’s biggest. Nigeria’s 2013 GDP was rebased up to an estimated nearly $510-billion – a “pie” one and half times the size of South Africa’s, but feeding more than three times as many people.

But development economists argue that their attention should be on improving the health, education and incomes of ordinary Nigerians, many of whom struggle to feed their families. In 2013, the Economist Intelligence Unit rated Nigeria the worst place for a child to be born out of 80 countries surveyed.

“Really what matters in the end is per capita, how well our individuals are doing,” World Bank chief Africa economist Francisco Ferreira said after the statistical change in Abuja.

“I don’t want to rain on Nigeria’s parade … but what matters are living standards for everyone.”

In GDP per capita terms, Nigeria is looking healthier than before rebasing: per capita GDP was $2 688 last year, from an estimated $1 437 in 2012. Yet that masks growing inequality: at around 60%, absolute poverty in Nigeria is stubbornly high despite five years of average 7% annual GDP growth.

But are better living standards for all really what matters to investors looking to cash in on a big economy? On a per capita basis, Botswana, Mauritius and Seychelles are among Africa’s top five richest states. None has a population of more than two-million, so they are admired but cannot claim heavyweight status when it comes to competing with other African countries for the attention of foreign investors.

“Seychelles is the only African country listed under ‘very high human development’. But when did you last hear Seychelles mentioned during discussions on global political economy?” commentator Azuka Onwuka wrote in Nigeria’s Punch newspaper.

“A high GDP means external … investors pay more attention. The US and Europe no longer look down on China and India.”

Population Power

Nigeria’s potential is predicated on its large population. Economist Jim O’Neill notably included it in his MINT group of countries, alongside Mexico, Indonesia and Turkey, which he thinks will join the BRICs (Brazil, India, Russia, China) he named as the emerging economies shaping the world’s future.

All have large, swelling populations, with a demographic bulge around the soon-to-be-most-productive younger generations. For businesses deciding where to invest next, a consumer market of 170-million beats the Seychelles’ 85 000.

“Size matters,” Oscar Onyema, chief executive of the Nigeria Stock Exchange, said. “Size means you will be able to do … projects you would not have considered in smaller economies.”

For retailers targeting customers at the bottom of the socioeconomic pyramid, a national income spread around more households – lower GDP per capita, in other words – might actually be a good thing, many economists argue. If you are selling washing powder or fizzy drinks, better a large number of consumers on modest incomes than a small number of wealthy. There is only so much cola most people can drink.

For Kenyan industrialist Manu Chandaria, chairperson of Comcraft Group, which sells ironware, including corrugated roofs and pots and pans, Nigeria has massive potential. Comcraft is in 18 locations there, despite the fact that its Nigeria manager has been kidnapped three times by criminal gangs – a common risk facing businesses in southern Nigeria.

“Nigeria is just colossal,” he told the Reuters Africa Summit in Nairobi. “Everybody needs to eat. Everybody needs shelter … Anybody that brings in money needs a pot to cook in, they need a roof – so we are in the right place.”.

Inequality is Risky

Higher up that pyramid, living standards matter more. In this regard South Africa, which still has poverty but also a big middle class and an advanced consumer society, beats Nigeria.

Africa’s top energy producer relies heavily on oil, which tends to concentrate wealth in an elite at the top of the social scale – good for luxury goods firms like LVMH and Porsche, both of which have thriving operations in Nigeria.

But retailers targeting a broader consumer class say Nigeria still needs better infrastructure and a more diversified economy to achieve its full potential as a mass market.

“Until the country invests more in infrastructure, invests more on other activities outside of oil, until that starts to develop the economy … I think the potential is not like it is in South Africa,” said Mark Turner, Africa Director for Massmart Holdings, a unit of US retailer Wal-Mart. Massmart currently has two stores in Nigeria, with another opening in the coming weeks – compared with 300 in South Africa.

Turner said he could see the company opening as many as 15 stores in Nigeria, if the country could deepen development. Yet the market attraction of Nigeria’s growing middle class is already there – Shoprite just opened a store in Kano, despite the threat of an insurgency in the north, and a Massmart ‘Game’ store will soon join it there.

But Nigeria’s growing inequalities add to “political risks, as a result of perceived marginalisation,” said Razia Khan, chief Africa economist at Standard Chartered Bank. Unless something is done to lift the impoverished masses, the risk of social unrest, already being reaped in a bloody insurgency in the destitute northeast and oil theft in the south, will grow.

She said: “The pressure on the authorities to create some sort of social safety net in response will be significant.”

Source: Engineeringnews.co.za

Poland SEZs – Case Study 20 years after

CASE Study - SEZs in PolandIn “Special Economic Zones – 20 years later” Camilla Jensen and Marcin Winiarczyk offer a panel data evaluation of the effectiveness of Poland’s regional policy since 1994. The policy was originally initiated to foster new economic activity in designated greenfield zones in high unemployment areas at the beginning of Poland’s transition. Over time the policy has evolved and many areas including areas that encompass economic activities from the socialist period have been adopted into the scheme.

The main incentive tool for new investors to locate in the SEZs are income tax reductions. In exchange Poland is expected to get new, environmentally friendly and export oriented investments that offer additional job placements. The econometric evaluation shows that the policy has been successful mainly on one criteria which is to attract foreign direct investment into the Polish SEZs. More qualitative and long-term development oriented targets such as instilling environmental friendly behaviour are lagging behind.

Comparing the wage developments in and out of the zones also suggests that industries and activities located in the zones are less skill intensive and therefore also less prone to catapult Poland into its next developmental phase, which is a skill-intensive innovation driven economy. Therefore, the authors conclude that to instil among investors in SEZs better behavioural models that will lock investors into a future oriented development path, it is necessary to consider other incentives and initiatives. Read the full report at this link! Source: CASE Research

Death by China

DeathByChina1013x1463-709x1024The featured documentary should be mandatory viewing for all small to medium company owners, economic and foreign trade advisers. While we are inclined to blame the Chinese for all prevailing economic woes, it is in fact the blatant greed of western CEO’s – multinational companies in particular – who have placed profit above prosperity of their country. The film clearly spells out the causes for the systematic destruction of the american economy and manufacturing base, all for the sake of shareholders and outrageous CEO bonuses. The rampant expansion of China in Africa should raise serious concerns for all sub-Saharan African citizens whose elected leaders appear happy, but oblivious, in courting the Chinese with little or no consideration of the realities of their economic and human rights track record.

DEATH BY CHINA is a documentary feature that pointedly confronts the most urgent problem facing America today – its increasingly destructive economic trade relationship with a rapidly rising China. Since China began flooding U.S. markets with illegally subsidized products in 2001, over 50,000 American factories have disappeared, more than 25 million Americans can’t find a decent job, and America now owes more than 3 trillion dollars to the world’s largest totalitarian nation. Through compelling interviews with voices across the political spectrum, DEATH BY CHINA exposes that the U.S.-China relationship is broken and must be fixed if the world is going to be a place of peace and prosperity. Visit – www.deathbychina.com for details on acquiring this powerful documentary.

“A truly life-changing, mouth-dropping documentary film…Peter Navarro’s ‘Death by China’ grabs you by the throat and never lets go.” Francesca McCaffery, Blackbook Magazine

World’s Best (and Worst) Economies

Global Competitiveness Report 2012-13According to the WEF, competitiveness reflects the level of productivity of a country, based on its institutions, policies and economic factors. In its study, the WEF groups the 144 countries it surveys into one of three economic categories. “Factor-driven” economies are the least developed and rely on low-skilled labor and natural resources. More developed countries are considered “efficiency-driven” economies because they turn to improving output. The most developed economies, which focus on improving technology and new product and idea development, are considered “innovative.”

To create the Global Competitiveness Index (GCI) score for each country, the WEF ranked more than 100 economic indicators divided into 12 broad categories, referred to as pillars, that quantify the extent to which a country is competitive. The economic indicators and pillars were then scored 1 to 7. To rank the countries, some economic measures were weighted more heavily than others, depending on how the economy was categorized.

Based on WEF’s Global Competitiveness Report, which ranks 144 countries that make up almost 99% of the world’s GDP, 24/7 Wall St. reviewed the economies with the highest and lowest Global Competitiveness Index scores. Data from the World Bank and the World Health Organization were used to provide additional information on some economies.

For a summary of the results, read – The World’s Best (and Worst) Economies – 24/7 Wall St.

For the full report, a PDF download (<500 pages) is available from: World Economic Forum

For a view on the impact for South Africa, read – Global South Africans

Open Borders and Integrated Supply Chains break down Global Trade Barriers

East Asian economies have recorded marked improvements in their ability to enable trade, while traditional frontrunners Singapore and Hong Kong retain a clear lead at the top of the global rankings, according to the Global Enabling Trade Report 2012, released today by the World Economic Forum.

The report, which is published every two years, also confirms strong showings for Europe’s major economies, with Finland and the United Kingdom both advancing six places to 6th and 11th, respectively, and Germany and France remaining stable at 13th and 20. Other large economies fare less well: the US continues its decline to 23rd, as does China (56th) and India (100th). Among emerging economies, Turkey (62nd) and Mexico (65th) remain stable while Chile (14th), Saudi Arabia (27th) and South Africa (63rd) climb in the ranking. ASEAN members Thailand (57th), Indonesia (58th) and the Philippines (72nd) also improve. Perhaps the proponents of OSBPs and a BMA in South Africa have not read this or have deeper insight into the matter.

As well as ranking nations’ trade openness, the report finds that traditional notions of trade are increasingly outdated as global value chains require new measurements, policies and cooperation. The report also finds that security, quality and trade can be mutually reinforcing through supply chain integrity efforts, but a knowledge gap in identifying buyers remains an important barrier. The biennial report, covering 132 economies worldwide, measures the abilities of economies to enable trade and highlights areas where improvements are most needed. A widely used reference, it helps countries integrate global value chains and companies with their investment decisions.

At the core of the report is the Enabling Trade Index, which measures institutions, policies and services facilitating the free flow of goods over borders and to destination. It breaks the enablers into four issue areas: market access, border administration, transport and communications infrastructure, and business environment. The Index uses a combination of data from publicly available sources, as well as the results of the Executive Opinion Survey, a comprehensive annual survey conducted by the World Economic Forum with its network of partner research institutes and business organizations in the countries included in the report. The 2012 results demonstrate that the ASEAN Trade in Goods Agreement has facilitated trade since its entry into force in 2010. This year, the report also directly captures the most important obstacles to exporting and importing in each country, and notes the strong links between import and export success. Source: AllAfrica.com / WEF

Importers and Exporters may see doubled freight rates by 2015

Get ready for a crazy roller coaster ride…As is already well known, the current situation in the shipping world is that there is a large lack of demand against the current overall supply of container space. Today, the current fleet capacity is around 15.5 million TEUs. Since 2005, the total capacity has roughly doubled – literally.

Because of the imbalance of supply/demand, carriers are losing blood and even declaring a negative balance sheet for end of 2012. This situation pushes them to the dilemma of getting bigger or getting smaller. Getting bigger means buying new, larger ships. These ships allow carriers to improve their cost effectiveness, work with smaller crews and lower their capital costs. On the other hand, some carriers are getting smaller; serving more niche markets where larger vessels will not call since that will reduce the efficiency of the vessel. You can imagine that a 15,000 TEU ship will not make 3 ports in the same country – if that country is not China.

These are the things we see and hear everyday. However a more important game is being played behind the scenes which has a crucial effect on the whole industry. According to Bloomberg; DNB ASA, the world’s largest arranger of shipping loans, expects the shipping industry to have a funding gap of $100 billion by 2015, as European banks are reducing their support to maritime transport. Even if US and Asian banks have an increased interest on maritime loans; EU banks account for 90% of the global ship lending. Considering net shipping loan losses at Nordea Bank AB (NDA), the world’s No. 4 shipping lender, tripled to 135 million euros ($179 million) last year because of “weak market conditions” and “a general decline in vessel values”, everyone will be thinking twice before granting a loan. In addition to that, since there will be less vessel orders with reduced prices, it will be forcing some yards to close in the following 12 to 18 months.

How is this going to affect exporters/importers? That’s our major question of course. Considering several factors; the EU Crisis, US getting out of recession, Arab spring is over; it will take another couple of years to get on track for sure. According to HSBC Global Connections, despite the current climate, the overall trend for international trade is positive with growth acceleration sooner than expected from 2014, than 2015. Over the next 5 years an annualized growth rate of %3.78 is forecasted for international trade. The main countries that will be carrying the growth are China and India, and China is expected to have an annualized growth of 6.60% in imports and 6.61% on exports; while India is expected to have 6.81% growth in imports and 7.60% in their exports from 2012 to 2016.

Now, according to 2010 stats, worldwide container traffic reached 560 million TEUs – an all-time high. China & Hong Kong Ports handle close to 169 milllion TEUs, 18% of this traffic. We need to keep in mind though, this is not only China exports/imports but also transshipped cargo that goes via those ports to other Asian nations.

With that in mind, if we take the growth rate with an average 6% for that region and multiply this with 169 million, we come up with a possible increase of 30 million TEUs annually and 500,000 TEUs weekly basis increase only in the region that handles %18 of global trade.Now, lets go back to the supply side. The major banks will be reducing loans, there will be less ship orders and there will be less ship yards to build new ships. How is this going to affect the years 2014-15 and later?

Can Fidan believes very tough years will come for exporters/importers in the sense of shipping costs and finding available space. Prepare to see more of the complaints from exporters not being able to find space and getting asked to pay very high freight charges like we were seeing in 2010. However, this time the difference will be, there won’t be any idle vessels sitting in Singapore or any new ordered vessels to come in and let everyone breath. Considering today, this sounds improbable… Well? the facts are out there and they show that the roller coaster ride we are on will just get crazier. Source: Can Fidan, MTS Logistics