EMIA Week in Review: Implications of Argentine Primary Results, ‘New Retail’ in China & More

August 21, 2017


Venezuela begins systematic purge of the regime’s opponents


  • Venezuela’s high court issued an arrest order for the ousted chief prosecutor’s husband on Thursday after authorities accused him of running a US$6 million extortion ring.

  • Government critics promptly denounced the ruling as a move aimed at silencing opponents of President Nicolas Maduro.

  • The government-stacked Supreme Court also announced it was referring German Ferrer’s case to the new, all-powerful constitutional assembly.

  • The assembly was installed in early August at Maduro’s behest following a widely criticized vote, and it is expected to proceed with lifting Ferrer’s immunity from prosecution that comes with legislative office.


Myanmar Special Commodity Tax, Thailand VAT, and Indonesia Luxury Sales Tax – ASEAN Regulatory Brief

ASEAN Briefing

  • The government has decided to exempt emeralds and diamonds from Special Commodity Tax (SCT) with immediate effect. Raw and uncut emeralds and diamonds were taxed at the rate of 10% and their processed and cut variants were taxed at the rate of 5% until recently.

  • The Thai government has decided to extend for another year the country’s reduced VAT rate of 7%. Thailand’s statutory VAT rate was fixed at 10% when the levy was first introduced in 1992.

  • However, following the Asian Financial Crisis of 1997-98, the rate was cut to 7%. Successive governments have maintained the reduced rate since then through yearly extensions.

  • The Indonesian government is planning to cut sales tax on sedans in an effort to spur domestic sales. Sedans are currently regarded as a luxury good and are taxed at 30 to 40%.


Argentine stocks and the Peso strengthen following Sunday primary results


  • Argentine stocks rose, the peso strengthened more than 3% and credit default swaps fell on Monday after the mid-term legislative primary election was seen as favoring business-friendly President Mauricio Macri's reform effort

  • With 95.68% of polling stations counted in crucial Buenos Aires province, Macri's favored candidate, Esteban Bullrich, had 34.19% of votes for a Senate seat, versus 34.11% for former populist leader Cristina Fernandez.

  • Fernandez had been expected to win by several percentage points, according to the final polls last week, causing investors to fear a comeback in Congress could pave the way to her running for president in 2019 and ending Macri's reform agenda.

  • No matter how many seats Macri's “Let's Change” coalition picks up in October - when Argentines elect one-third of the Senate and half the lower house of Congress - Macri will still lack a majority and must build alliances to pass reforms. However, analysts said less support for Cristina Fernandez would strengthen his negotiating position.


Mexico: Pemex relies on alliances

Hydrocarbons Mexico

  • Pemex’s budget cuts increased while its extraction figures got lower; this tendency will continue at least in the short and medium term.

  • Pemex reported a reduction in investments for the construction and acquisition of goods such as machinery and heavy equipment, and an investment of MXN$249B to develop Mexico’s main oil fields.

  • Two major projects were approved for Pemex Exploration and Production’s (PEP) exploration and production activities; one that would allow the company to achieve 1.8mmbd, and another where, through farm outs and fiscal conditions similar to other companies, PEP could attain an additional production of 195mbd starting next year.

  • A representative of Pemex, however, said that this additional production cannot be expected in the short-term because projects take time to give results.


New Retail in China: a Growth Engine for the Retail Industry

China Briefing

  • Chinese e-commerce giant Alibaba opened its first cashier-free retail store, Tao Café, in Hangzhou this July.

  • Customers can enter the store after obtaining a machine-readable QR code entry ticket through their Taobao account, and going through the facial recognition system at the store.

  • Customers can not only dine in the café, but also purchase various products both physically in the store and online by using interactive screens at each table. Customers pay automatically as they exit through the checkout sensor door. There are no queues at the cashier and no need for cash or even mobile payment.

  • Numerous other unmanned convenience stores have emerged and expanded rapidly in recent months. Are we witnessing the second retail revolution after e-commerce?


Colombia: Oil & Gas Industry results in 2017

Hydrocarbons Colombia

  • Ecopetrol (NYSE:EC) reported its 2Q17 results, ending the first half on an ‘up’, with higher net income than the whole of 2016.

  • Nevertheless, the NOC (National Owned Company) reduced its investment budget by US$600M for this year and plans to invest US$3.5B. The firm’s management said that the lack of maturation of some fields forced this decision.

  • Bottom-Line: The good news continues despite ongoing operating challenges in the country.

  • The industry has many plans to develop in 2H17 and they should keep reporting positive results, so long as oil prices stay stable and the government helps the sector to ease operations.


FARC hands over weapons, prepares for the political phase of peace accord


  • U.N. observers on Tuesday removed the last of more than 8,000 guns once carried by the guerrillas of Colombia’s largest rebel army and collected at 26 demobilization sites around the South American nation under a historic peace deal.

  • The next phase of the peace deal is for the ex guerrillas to organize politically and run for seats in congressional election.

  • Rebels agreed to disarm as part of the pact reached with the government last year, and some of the weapons will be smelted and transformed into statues commemorating the end to Latin America’s longest-running armed conflict.

  • “This puts the country on the path to a new future,” Jean Arnault, head of the United Nations’ mission in Colombia, said at a ceremony where President Juan Manuel Santos put a lock on the final container as leaders of the Revolutionary Armed Forces of Colombia, or FARC, looked on.


Vietnam Startup Ecosystem

Vietnam Briefing

  • The year 2016 was the year of startups in Vietnam.

  • In the last few years, entrepreneurship has slowly emerged as a key driver for economic prosperity and growth.

  • 39580 startups have entered the Vietnamese market in just the first four months of 2017, an increase of 14 percent from the first quarter of 2016.

  • Aggregate capital registered in 2017 is approximately US$ 17 billion, an increase of 54 percent compared to the first quarter of 2016.


Trump orders review of China’s practices regarding intellectual property


  • President Donald Trump has asked his country's top trade official to review China's practices regarding intellectual property.

  • The move was incremental, but could eventually lead to the US imposing trade sanctions.

  • Mr Trump is trying to balance working with China on relations with North Korea, with his “America-first” trade views. Beijing warned that it “will not sit idle” if the probe leads to sanctions.

  • Mr Trump returned to Washington to sign the order, which authorises US Trade Representative Robert Lighthizer to explore whether to undertake a deeper Section 301 investigation.


Algeria’s battle against terror

Global Risk Insights

  • According to a 2015 report by the US Department of State, some of the most active Islamist groups operating within Algeria include: Al-Qaeda in the Islamic Maghreb (AQIM); the Mali-based organisation Movement for United and Jihad in West Africa (MUJAO); al-Murabitoun and Jund al-Khilafa (Soldiers of the Caliphate).

  • The challenge for the Algerian security forces is controlling the country’s porous 4000 mile border and the mountainous terrain in the north east, which has proven ideal since the early 1990s for Islamist guerrillas.

  • To counter this, Algeria actively participates in the US-backed Trans-Sahara Counterterrorism Partnership (TSCTP), which aims to strengthen counterterrorism capabilities among states in the Maghreb and the Pan Sahel region.

  • While such programs are certainly designed to assess the changing nature of the threat across North Africa, for the government of Algeria, what remains certain for the foreseeable future is whether Algerian mujahideen choose to fight under the banner of the Islamic State or Al-Qaeda, the tactics and strategies they adopt remain the same.


Primaries in Argentina show Macri’s coalition is en route to become the main political force


  • Argentina's ruling coalition headed by president Mauricio Macri managed better than expected overall results in Sunday's national mandatory and simultaneous primaries to choose candidates for the midterm elections of 22 October.

  • In effect, if Sunday's results are replicated in October, Macri's party “Let's change” would become the main political force in Argentina.

  • Its candidates received the most votes in the leading electoral districts such as Cordoba, Santa Fe, Buenos Aires City, Mendoza, Entre Rios, La Pampa and in the crucial Buenos Aires province, --that holds 38% of the national electorate--.

  • The overall performance means that the Macri administration should manage a larger representation in October when half of the Lower House and a third of Senate benches (24) will be renewed.


Brazil opens first corn ethanol plant; the country leads in sugarcane ethanol


  • Brazilian company FS Bioenergia inaugurated a corn ethanol plant, the first in the country, to produce 210 million liters year.

  • The plant was built by a joint venture between the local agro-company Fiagril and US-based Summit Agricultural Group with investments of BRL 450 million (US$ 141.1m), said the Ministry of Agriculture, Livestock and Farming.

  • Brazil is the biggest sugarcane ethanol producer globally. The US, meanwhile, is the top ethanol producer, relying mainly on corn as feedstock.

  • Located in the municipality of Lucas do Rio Verde, Mato Grosso state, Brazil's first corn ethanol plant will also generate power and make other corn products like oil and bran. The plant will use fiber-removing technology during the ethanol production process, improving yield and efficiency by creating co-products rich in essential nutrients, the ministry noted.


Implications of Iran gas deal with France’s Total

Global Risk Insights

  • With this deal, Total is the first Western company to resume its activities in Iran since the lifting of the nuclear sanctions in January 2016.

  • Under the terms of the 20-year contract, the French multinational now holds 50.1% of the consortium, alongside state-owned oil and gas company China National Petroleum Corporation with 30%, and National Iranian Oil Co subsidiary Petropars with 19.9%.

  • As a first step, Total will invest an initial $1 billion in the South Pars gas field, before eventually injecting $4.9 billion in the project.

  • “We aren’t a political organization, but I hope this agreement will encourage other companies to come to Iran because economic development is also a way of building peace,” Total CEO Patrick Pouyanné said after signing the deal in Tehran.


Brazil’s Pre-Salt Extraction Costs Fall To US$8 Per Barrel


  • Not too long ago Brazilian state oil company Petrobras was the most indebted oil & gas company in the world. Now, thanks to new management and their recently-discovered pre-salt wells, Brazil is the comeback story of the year.

  • Discovered only ten years ago, Brazil’s pre-salt area has rapidly become the biggest oil-producing area in the country.

  • Because pre-salt layers are so deep underground (they are the geological layers that were laid before a layer of salt was created by the Gondwana breakup about 600 to 530 million years ago) they are quite costly and difficult to drill in, but hold massive potential for production.

  • Brazil just announced a fantastic first half, with pre-tax profits reaching US$4.4 billion in 2017, a staggering increase from US$395 million a year ago. This is thanks in huge part to falling production and exploration costs, which dropped by 68%.


The domestic and global shocks of the growing water crisis in China

Global Risk Insights

  • As of 2014, North China holds two thirds of Chinese agriculture but only one fifth of its water.  The rise of Mao in 1952 and an interventionist political ideology has cemented this chronic structural issue in the Chinese economy

  • Contemporary developments are further pressuring China’s water economy as rapid economic growth has sucked-in water.

  • Agriculture and industry account for 85% of water usage. China has 20% of the world’s population but only 7% of its freshwater resource and a rapidly growing middle class with water-demanding lifestyles; the average hamburger takes 2400 litres to produce.

  • In 2014, eleven out of thirty-one Chinese provinces did not meet the World Bank’s water needs criteria of 1500m3 per person; in 2015 in Beijing for example, water provisions amounted to only 100m3.


Opportunities to strengthen the UK-Argentina relationship


  • British Ambassador Mark Kent: "A few days ago I completed my first year as British Ambassador to Argentina. During this time, I have had the fortune to meet the people of the country, visit some of its cities, try its food, attend events and learn about its way of life.”

  • “And I confirmed the idea that I had even before I arrived in this wonderful country: no other nation in the whole of Latin America can claim to have had through the years a more intense relationship with the UK than Argentina.”

  • We are optimistic about the future of our relationship. We know that there are lots of opportunities in different areas for Argentina and Britain to work together and contribute to the well-being of our peoples and the development of the international community.”

  • “I am convinced that, together, we will find ways to realize those opportunities."

Tags: argentina, asean, brazil, china, colmbia, emerging markets, frontier markets, hydrocarbons, mexico, new retail, primaries, venezuela, weekly roundup
Posted in Global, Macro Economics, Macro Economics