EMIA Week in Review: Mexican Energy Reform Showing Positive Results, Vietnam’s Payment Trends & More

July 24, 2017


Iran & EAEU Agree On Free Trade. China, India, Mongolia, Pakistan, Singapore & More To Follow

Silk Road Briefing

  • Iran and the EAEU have completed negotiations on Free Trade and are expected to sign off the deal at the next EAEU meeting in Moscow in October.

  • Iran and the EAEU will observe the basic principles of World Trade Organization protocols and create the proper conditions for trading all goods in the framework of commerce collaborations, the EAEU press office reported.

  • Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia are the current member states of the union.

  • The union boasts a combined GDP of US$2.2 trillion, US$ 3.1 trillion of industrial products, and US$ 877 billion trade with non-member countries, equal to 7.3% of world export and 3.2% of world import.


Russia Agrees Significant Silk Road Projects With China

Russia Briefing

  • As predicted, a significant array of economic cooperation agreements were signed between Russia and China during President Xi Jinping’s recent visit to Moscow.

  • The deals include the creation of the new US$10 billion China-Russia RMB Investment Cooperation Fund, which provides access to RMB financing for Russian projects, including under the One Belt, One Road and Eurasian Economic Union initiatives.

  • China was recently given permission to offer settlement services in RMB in Moscow through the ICBC.

  • Other deals include commitments from China Development Bank, China National Petroleum Corporation, the Silk Road Fund, China Investment Corporation, the Russian Direct Investment Fund, and from the Russia-China Investment Fund.


Ecuador steps down from OPEC’s agreement to cut output: need of fiscal funds


  • Ecuador will not honor the Organization of Petroleum Exporting Countries’ (OPEC) agreement to cut oil output, Ecuador’s Oil Minister Carlos Perez said this week.

  • The country, one of OPEC’s 14 member countries, is rethinking its commitment to drop oil production to 522,000 barrels a day.

  • Ecuador agreed to artificially keep output low to help raise the price of oil and drain an international oil glut, Bloomberg reports.

  • ”There’s a need for funds for the fiscal treasury, hence we’ve taken the decision to gradually increase output,” Perez said, according to Bloomberg. “What Ecuador does or doesn’t do has no major impact on OPEC output.”


China Eyes Estonia As Smartest & Nearest Port For EU Access

Silk Road Briefing

  • China’s OBOR reach to the wealthy markets of the European Union has shown concentration on the small Baltic nation of Estonia as a key player in its infrastructure and logistics initiatives for reaching the EU.

  • Estonia, with a population of just 1.2 million, is among the smallest countries in the EU, and currently holds the Presidency.

  • China’s strategy has been to target the country as the nearest full EU member, and to take advantage of and help develop Estonia’s ‘smart’ IT driven interconnectivity and services profile.

  • Estonia has effectively become the world’s first “digital state’ where nearly all interactions between the Government and its citizens are now online, as are communications with Estonia’s 10,000 plus “e-residents”  a service which permits foreign nationals access to banking, business residency and other related services.


Argentina posts a primary fiscal deficit of 1.5% of GDP


  • Argentina posted a primary fiscal deficit of 144 billion pesos (US$8.4 billion), or 1.5% of GDP in the first half of 2017, Treasury Minister Nicolas Dujovne said on Wednesday, beating the government target for a gap of 2% of GDP.

  • The primary fiscal deficit was 103 billion pesos in the second quarter, compared with 41 billion pesos in the first quarter.

  • For June, Argentina posted a primary fiscal deficit of 57 billion pesos, compared with 27 billion pesos in May.

  • The primary budget balance, which measures government spending relative to income and does not include debt payments, is followed by the markets as an indicator of Argentina's ability to meet its financial obligations.


China Regulatory Brief: Personal Access to VPNs to be Blocked, Tax Approval Items Streamlined

China Briefing

  • China’s central government has given directives to the country’s three largest telecommunications providers, namely China Telecom, China Unicom, and China Mobile, to block individuals’ access to virtual private networks (VPNs) by February 1, 2018.

  • Previously, China’s ‘Great Firewall’, the government’s tool to enforce ‘internet sovereignty’, has hindered access to VPNs, but did not make access impossible.

  • China’s Cyberspace Administration published draft regulations on protecting the security of critical information infrastructure (CII) for public consultation on July 10.

  • China’s State Administration of Tax has released an announcement which further streamlines the procedures for handling tax administrative approval items, and updates the templates of tax administrative approval documents and the list of tax administrative approval sub-items.


Whose line is it anyway? The growing threat of China’s maritime presence

Global Risk Insights

  • As China seeks to create a “string of pearls” from Hong Kong to Africa via Sri Lanka and Pakistan, it is no doubt moving to secure its vast oil and raw mineral imports from the Middle East and Africa.

  • Djibouti, a resource-poor nation of 875,000 people, made international headlines last week when China deployed a group of military personnel and equipment to its first ever permanent overseas base on its coastline.

  • Given its proximity to Yemen and the pirate-infested western edge of the Indian Ocean, compounded by its relative political stability, Djibouti is now one of the most important security beachheads in the battle to secure global maritime routes.

  • Accordingly, China’s deployment to the tiny country signals a major new chapter in the expansion of the rising giant’s military presence abroad.


OAS summit in Peru will address democratic governance and corruption


  • The Organization of American States (OAS) and the Government of Peru signed the agreement on preparations for the Eighth Summit of the Americas, which will bring together all heads of state and government of the Hemisphere in April 2018, in Lima.

  • The agreement was signed at OAS main offices in Washington DC. Secretary General Luis Almagro reiterated OAS commitment to the principles of cooperation promoted by the hemispheric event and highlighted the relevance of the issue.

  • Combating corruption, chosen by Peru, as well as the importance of continuing to strengthen the participation of civil society and other social actors within the framework of the Summit.

  • “The topic, 'Democratic Governance against Corruption´, chosen by the Government of Peru for the next Summit, is part of the essential mandates and tasks of OAS. We will be working together during the Summit to contribute to agreeing on tangible actions and results that help our region to face the challenges of governance and corruption,” said Secretary Almagro.


Argentina’s central bank hikes interest rates to combat high inflation


  • Argentina's central bank hiked interest rates on its short-term securities on Tuesday in its monthly auction, the second such increase in the past three months as it seeks to soak up pesos and rein in stubbornly high inflation.

  • The monetary authority sold 467.623 billion pesos (US$27.11 billion) in Lebac securities, compared with the 532.022 billion pesos worth of securities that matured.

  • It raised the interest rate on the 28-day Lebac, the shortest-term security on offer, to 26.5%, up from 25.5% last month.

  • The central bank is targeting inflation of between 12% and 17% this year, well below economists' expectations for 21.5% inflation. The now refurbished and reliable stats office, Indec, reported that consumer prices rose 11.8% in the first half of the year.


Renewables in Vietnam: Current Opportunities and Future Outlook

Vietnam Briefing

  • Vietnam is one of the most efficient power market in Southeast Asia, driven by low-cost resources such as hydro and coal.

  • The country has achieved almost 99 percent electrification with relatively low cost in comparison to neighboring countries, leading it to be a net energy exporter.

  • With energy demand projected to increase by more than 10 percent annually in the next five years and required power capacity to double; the government is moving forward to develop the renewable energy sources to ensure energy security and addressing the growing power demand.

  • Electricity consumption is projected to increase four-fold by 2030 compared to 2014.


Top oil companies plan to invest US$ 1.15bn in Patagonia’s shale formation


  • BP unit and subsidiaries of France’s Total and Germany’s Wintershall have signed an investment agreement with Argentina’s state-run oil company YPF to jointly invest US$1.15 billion in the Vaca Muerta shale formation in Argentina.

  • BP’s unit Pan American Energy LLC, Total Austral, Wintershall Energía, and YPF are committing the investment over the next five years to drill more than 60 wells in the Aguada Pichana area, YPF said in a statement.

  • The partners—which have already invested around US$500 million from 2014 to 2016—will get an unconventional exploitation concession which lasts 35 years, Wintershall said.

  • In April this year, Total sanctioned the development of the first phase of its operated Aguada Pichana Este license in Vaca Muerta and increased its interest in the license from 27.27% to 41%, after the Argentine Ministry of Energy and Mines announced a program to boost unconventional gas developments by guaranteeing gas prices until 2021.


Mexican Energy Reform is showing positive results

Hydrocarbons Mexico

  • Company executives and government representatives spoke about Energy Reform benefits and Round 2 results; they are all pleased with how things are going so far.

  • Sierra Oil & Gas, ENI, Renaissance Oil Corp, Total (NYSE:TOT), Petronas (NYSE:PBR) and PC Carigali signed contracts that represent US$38.1B, or 82.7% of the total expected investments for Mexico.

  • The Mexican Institute of Finance Executives (IMEF) said that the sector has grown and matured with positive results for public finances, thanks to Energy Reform.

  • IMEF representatives emphasized Pemex’s first farm-out with BHP Billiton to develop the Trion field, and said that the company aims to sign more alliances to share risks, and gain knowledge and technology.


Ex Brazilian president assets and bank accounts frozen


  • The Brazilian central bank has frozen four bank accounts belonging to ex-President Lula da Silva due to his recent conviction on corruption charges, the federal judge who heard his case said on Wednesday.

  • The assets in question amount to more than 600,000 Brazilian reals (US$190,000), according to the office of Sergio Moro, who sentenced Lula to 9½ years in prison in connection with a sprawling graft probe involving oil giant Petrobras.

  • Moro also barred the ex president from using three apartments, a piece of land and two cars linked to him. None can be sold until there is a final ruling on the case.

  • A Lula da Silva spokesman confirmed the assets were frozen but did not comment further. The former president denies any wrongdoing and remains free pending a decision on his appeal.


ECP aims to invest CoP$50T

Hydrocarbons Colombia

  • After two years of adjustments to face the fall in oil prices, Ecopetrol (NYSE:EC) said that it is ready to invest CoP$50T during the next 5 years.

  • The NOC’s (National Owned Company) finances have been affected since 2014, when revenues were almost CoP$66T; in 2015 they dropped to CoP$52.3T and in 2016, revenues were at CoP$47.7T.

  • Investment was also affected; it went from US$8B in 2015 to US$2.5B in 2016.

  • Brent prices in 2014 (US$120) also led ECP to increase its indebtedness through 2015.


ASEAN Market Watch: Korean Investment in Laos, Cambodia Infrastructure, and Thailand Retail Sector

ASEAN Briefing

  • Korean businesses are increasingly looking to launch their products in the Lao market through the franchise route. At least seven prominent Korean brands recently participated in the K-Franchise Business Meeting 2017 organised by the Korea Trade Investment Promotion Agency (KOTRA) in Vientiane, where they met with potential Laotian partners.

  • According to Cambodia’s Ministry of Economy and Finance, the country has invested more than US$ 1 billion in local infrastructure, especially in the transport sector. The figure represents about 80% of the government’s total investment and around 7 percent of the country’s GDP.

  • The government is focussing on transport infrastructure to boost economic growth and competitiveness as well as to attract foreign investment.

  • Retail space in Thailand’s main cities continues to grow in 2017 despite declining purchasing power and increasingly popularity of online shopping. About 114,350 square meters of new retail space added in the first half of 2017, pushing the total retail area in the capital Bangkok to over 7.6 million square meters.


Mexico digesting major crude discoveries, delays offshore oil auctions


  • Mexico will delay its next offshore oilfield auctions by a month, giving international bidders more time to evaluate recent major crude discoveries that highlight the potential value of the assets.

  • A new billion-barrel find announced last week “confirms that the Mexican side of the Gulf of Mexico is very prolific,” said Juan Carlos Zepeda, Mexico’s chief oil regulator in an interview.

  • July 12 marked perhaps the single most successful day for the Mexico oil industry since the government ended government-owned Pemex production monopoly in 2014.

  • Premier Oil Plc, Sierra Oil & Gas and Talos Energy LLC reported a reservoir with an estimated 1.4 billion to 2 billion barrels of oil in the southern Gulf of Mexico.


Argentine administration props the housing and construction industry ahead of mid term elections


  • Argentina's new subsidized mortgage scheme is gathering steam, boosting construction activity and winning over the middle class ahead of mid-term elections in October.

  • The mid-terms will determine the future of President Mauricio Macri's market-friendly agenda and his attempts to put the country's accounts in order.

  • Argentines took out 3.7 billion pesos (US$219.32 million) in mortgage loans in June, up from 558 million pesos in the same month last year, central bank data shows.

  • While the overall amount is still modest, it is a notable leap in an economy where high inflation discourages many from seeking credit.


Why is the international community not intervening in Venezuela?

Global Risk Insights

  • Analysts and politicians around the Americas frequently discuss the possibility of involvement, by other states and International Organizations, in order to prevent an escalation of the problematic situation the country shows.

  • However, external intervention in Venezuela is not on the table and the international community seems to favour an internal solution, regardless of how difficult it may be to achieve.

  • The economic and political situation of Venezuela has progressively deteriorated to the extent that international media and authorized commentators openly discuss a wide range of options for international intervention to avoid further damage in the country.  

  • The current panorama, nonetheless, suggests that the international community is not willing to risk resources and political capital in a venture in which it foresees uncertain outcomes.


Pleasant surprise from Far East: Chinese economy grows at annualized 6.9%


  • China's economy grew at an annual rate of 6.9% between April and June according to official figures, slightly higher than forecast.

  • The growth rate, which compares expansion with the same three months in the previous year, was the same as in the first quarter of 2017.

  • Beijing is trying to rein in debt and a housing bubble with tough measures on the property sector and lenders.

  • Many analysts expected China's economy to slow as those policies kicked in. But the latest data is well above Beijing's 6.5% growth target for 2017.


S&P downgrades Chile’s rating, for the first time since 1990


  • Credit ratings agency S&P downgraded Chile's long-term foreign currency rating to 'A+' from 'AA-' on Thursday, the country's first downgrade since the 1990s, as weak business confidence and low prices for key export copper have eaten into fiscal revenues.

  • Chile, is Latin America's highest-rated sovereign debt holder, with a long record of stability, sound fiscal management, and rainy-day buffers in the form of sovereign wealth funds.

  • But falling commodities prices have severely hurt the export-dependent economy in recent years, while a number of corruption scandals in a country that takes pride in its probity have sapped confidence.

  • Business leaders also blame the center-left government of President Michelle Bachelet for generating uncertainty by trying to push a raft of social and economic reforms through an increasingly fractured Congress.


AIIB Receives Triple A Credit Rating

Silk Road Briefing

  • Fitch Ratings has given the Chinese backed Asian Infrastructure Investment Bank (AIIB) its highest credit rating of AAA, following on from last month’s similar AAA rating from Moody’s.

  • Fitch said in a statement that the rating is based on AIIB’s “existing and expected intrinsic strengths”, adding that “AIIB has been endowed with a substantial capital base, which in Fitch’s view, will support the projected rapid expansion in lending; exposure to risk will be mitigated by a comprehensive set of policies and by high quality governance”.

  • “The rating is very critical for our positioning in the international capital markets. It puts us at the very level of the World Bank and the IMF,” Soren Elbech, treasurer of the AIIB, stated.

  • Beijing-based AIIB was officially established in December 2015, and opened its doors for business in January 2016.


Vietnam’s Payment Preferences: Four Trends to Watch

Vietnam Briefing

  • Vietnam is aiming to move towards a 90 percent cashless economy by 2020 by reducing cash transactions and increasing electronic payments.

  • With 90 percent of current transactions conducted in cash and only 30 percent of citizens having a bank account, the government faces an uphill task to achieve its goals.

  • Nonetheless, recent regulatory reforms and emergence of private players in the last few years have been encouraging towards creating a sustainable digital payments market.

  • In this article, we will look at the current state of the cash based economy, rise of fintech solutions, government cashless policies, rising internet penetration, and what the government needs to do to ensure the transition.


Seven million Venezuelans in symbolic referendum vote to cut short Maduro’s mandate


  • More than seven million Venezuelans participated in an unofficial referendum organized by the opposition Sunday and 98% voted to delegitimize the rule of President Nicolas Maduro, according to academics monitoring the vote.

  • Voters responded to three questions and they overwhelmingly rejected the proposed new super legislative body, urged the military to defend the existing constitution, and supported holding elections before Maduro’s term ends in early 2019.

  • Maduro dismissed Sunday's poll as unconstitutional and continued to campaign in support of a July 30 vote to create an assembly that would have the power to rewrite the constitution and dissolve state institutions.

  • The symbolic plebiscite was held amid an economic crisis that has left millions of Venezuelans struggling to meet basic needs, and almost daily anti-government protests for several months that have cost the lives of about 100 people.


Foreign Investment in Indian Retail: Challenges and Opportunities

India Briefing

  • India’s regulatory framework on foreign direct investment (FDI) in retail is one of the most complex in the world. But, navigating this perplexing system means gaining access to one of the world’s fastest growing consumer markets.

  • This article outlines India’s regulatory landscape for FDI in retail while offering suggestions on how foreign businesses can successfully maneuver through them.

Tags: aiib, argentina, china, chinesze economy, emerging markets, energy reform, frontier markets, growth, housing sector, macri, maduro, mexico, midterm election, oil and gas, payment trends, political unrest, renewable energy, venezuela, vietnam, weekly roundup
Posted in Global, Macro Economics, Macro Economics