EMIA Week in Review: Indonesia Latest Asian Nation To Discuss EAEU Free Trade & More

September 25, 2017

EMIA

Moody’s Rates Belt & Road Initiative “Overall Credit Positive” But Warns China Of Risks

Silk Road Briefing

  • Moody’s Investors Service has issued a report stating that China’s Belt and Road initiative (BRI) will benefit its own economy and corporate businesses, but will also pose challenges in how risk will be allocated between participating Chinese entities and the participating sovereign nations.

  • However, Moody’s also warns that officials face significant logistical and fiscal challenges, due to the significant credit risks in doing business with some of the country’s eager to sign up to the infrastructure-targeted plans, many of which have poor credit profiles.

  • Among the participating countries, Moody’s estimates less than 40% would be considered as having relatively “high financial strength”.

  • “The initiative will result in increased exposure by Chinese issuers to countries with comparatively poor credit profiles, including weak financial strength, high susceptibility to event risk, and unfavourable business environments.” said Lilian Li, a Moody’s vice-president and senior analyst.

 

Chilean Central Bank Revokes Reciprocal Credit Line with Venezuela

MercoPress

  • Chile’s central bank said it had revoked a reciprocal credit line with its Venezuelan counterpart, citing what it called Venezuela’s failure to pay back its debts.

  • In a statement, Chile’s central bank said it had notified Venezuela’s central bank and that the line would be cancelled within 10 days.

  • The monetary authority said it has been taking steps to mitigate its exposure to Venezuela since 2014 and was currently owed US$2.1 million by that country’s central bank.

  • “The progressive deterioration of Venezuela’s financial indicators and the (Venezuela central bank‘s) behavior in prior years under this arrangement had already motivated us to adapt measures to safeguard the Central Bank of Chile’s wealth,” the monetary authority said in a statement.

 

Money Talks: China’s Purse Strings Direct Pakistan’s War on Terror

Global Risk Insights

  • China is being lauded as Pakistan’s new partner, in the fight against regional terrorism, by offering soft loans in the interests of securing the China-Pakistan corridor, with some 71,000 Chinese nationals reportedly visiting the country in 2016.

  • Following last week’s BRICS summit, hosted by China, it is clear the region is looking for more than sheer military might, as offered by the US, in order to shore up future security.

  • When President Trump accused Pakistan of continuing to provide a “safe haven to agents of chaos, violence and terror”, he failed to recognise that the South Asian nation has, in fact, made great strides in improving the security situation following a costly four-year crackdown on domestic insurgent groups.

  • These improvements are reflected in Pakistan’s macroeconomic performances since 2012, not least due to the relative confidence of investors in the $55 billion China-Pakistan Economic Corridor (CPEC), as part of China’s ambitious Belt and Road Initiative.

 

Five Fastest Growing Countries in Asia

InvestAsian

  • Investing in Myanmar might seem like a great idea on paper. The problem is that foreign investors have very few options. Myanmar has one of the world’s smallest stock exchanges with only four listed companies. In addition, you can’t buy property in practice despite laws existing which allow foreign real estate ownership.

  • Analysts have talked all about China’s “slowdown” in recent years. However, cries of doom and gloom are mostly overdone. The fact remains: China is still one of the fastest growing countries in the world despite its slightly weaker economy.

  • The Philippines’ greatest strength is probably its skilled, English-speaking workforce. There’s nowhere else in Asia (except India) where Western multinationals can find tons employees who speak their language at such a low price.

  • Cambodia might have the best prospects of all five places on this list, despite ranking second in terms of growth. Economic growth and government policies are both headed in the right direction, making Cambodia attractive to investors.

  • Laos tops our list of the fastest growing countries in Asia. This small, landlocked nation of around 7 million people is positioned in the heart of Indochina. However, despite a central location bordering five other countries in Southeast Asia, Laos is at a disadvantage. That’s because Laos is landlocked with no access to the ocean.

 

Brazil Fears Venezuelan Default on US$5BN Contracts: It Missed US$262M Payments

MercoPress

  • Brazilian officials plan to visit Venezuela next week to prevent Caracas from defaulting on contracts worth as much as US$5 billion after falling in arrears on a payment due to infrastructure contractors this month, newspaper Folha de Sao Paulo reported on Thursday.

  • Venezuela missed a US$ 262 million payment owed to Brazilian contractors in September, the newspaper said, adding the government will send representatives to Caracas to discuss the matter.

  • The Brazilian negotiators will include central bank and Finance Ministry officials, Folha reported, citing unnamed government sources.

  • The Brazilian government's main concern is related to the possibility of Venezuela failing to make good on upcoming payments related to the contracts. Most of the payments are related to work done by Odebrecht, Andrade Gutierrez and Camargo Correa SA in Venezuela.

 

Investing in Macau: An Overlooked Market in Asia

InvestAsian

  • Macau often lives in the shadow of nearby Hong Kong. However, the former Portuguese colony has some strong points which even its larger neighbor can’t claim.

  • The city surpassed Las Vegas back in 2007 to become the world’s top gambling destination. Nowadays, Macau’s gaming sector brings in over 7 times Las Vegas’ revenue – an astonishing figure.

  • Naturally, this strong growth helped its economy thrive over the past decade. Macau’s GDP rose by over 20% in both 2010 and 2011, making it the world’s fastest growing market during that time.

  • The city’s reliance on the gambling industry means that growth isn’t stable or consistent though. For example, Macau’s GDP fell by 21.5% in 2015 when China began cracking down on corruption. The economy picked up since then and is now growing at double digit rates once more.

 

OAS to Observe Brazil’s Next Elections

LatinNews

  • On 21 September, the Organization of American States (OAS) announced that it will send an Electoral Observation Mission (EOM) to Brazil for the 2018 general election.

  • This is the first time that the OAS will observe an election in Brazil and comes in response to a request by the country’s supreme electoral court (TSE).

  • Following a torrent of recent investigations into illicit campaign donations received by Brazil’s three main political parties - Partido do Movimento Democrático Brasileiro (PMDB), Partido da Social Democracia Brasileira (PSDB), and Partido dos Trabalhadores (PT) -  many have welcomed the move towards greater electoral transparency.

  • Brazil becomes the 28th country of the OAS’s 35-member states to receive an EOM. However, given the extent of the government graft uncovered by the ‘Operation Car Wash’ anti-corruption investigations, the OAS’s effectiveness in helping to guarantee a fair election result in 2018 will be tested.

 

Japan’s Investments in India Unveil Growing Economic Partnership

India Briefing

  • India and Japan marked their 12th annual bilateral summit last week.

  • A two-day blitz of investment pledges and the much hyped Mumbai-Ahmedabad bullet train, it showcased a relationship that is fast maturing into a strategic economic partnership.

  • Both Prime Minister Narendra Modi and his Japanese counterpart, Prime Minister Shinzo Abe have promised resurgent economies to their voters.

  • apanese aid and investments into India are not just filling critical infrastructure gaps in the country, but are also directly benefit Modi’s economic reforms programs: Make in India, Skill India, Digital India, as well as Startup India.

 

Petrobras Recovers Significant Investment Risk and Trims Debt Burden

MercoPress

  • Petrobras raised US$2 billion from the sale of seven- and 10-year securities, replacing more expensive shorter-dated bonds as it seeks to trim a debt burden that is the largest among major oil firms.

  • Petrobras sold US$1 billion each worth of senior unsecured bonds due in 2025 and 2028, respectively.

  • Market experts said Petrobras sold the January 2025 bond at a yield of 5.3%, and the January 2028 bond at 6%.

  • The transaction, which follows a significant improvement in Brazil’s investment risk profile, underscores how Petrobras has regained the ability to obtain financing, both locally and overseas, amid efforts by Chief Executive Officer Pedro Parente to cut US$85 billion of net debt.

 

Indonesia Latest Asian Nation To Discuss EAEU Free Trade

Russia Briefing

  • Indonesia has requested to open negotiations for a Free Trade Agreement with the Eurasian Economic Union, Russian Foreign Minister Sergey Lavrov has said this week.

  • Speaking in the follow-up to the negotiations with his Indonesian counterpart Retno Marsudi, Lavrov said that the proposal on creating an EAUE-Indonesia free trade zone is under consideration.

  • “Indonesia shows interest in starting negotiations on creating a free trade zone with this union [EAEU]. The relevant proposal has been introduced and is now being considered. Russia backs it.”

  • Lavrov also discussed with Marsuri the idea of extending EAEU contacts by engaging the union in events conducted by Asia-Pacific Economic Cooperation (APEC) member states. Indonesia offered to establish a group dedicated to examining the feasibility of a free trade deal.

 

Who Is Financing The New Economic Silk Road?

Silk Road Briefing

  • While the Belt & Road has become synonymous with China, fundamentally defining projects China has a vested interest in, the development of the new economic Silk Road overall includes much more than Chinese involvement.

  • While China generates much of the media attention, many other multilateral and national funds are also investing.

  • Some have been doing so for years, and may be somewhat perplexed by suddenly being described as “funding a B&R project”. Others have been specifically created to deal with particular regions and trade blocs.

  • In fact all countries involved in China’s Belt & Road will in way of another have part of their own sovereign wealth involved, and especially when it comes to supporting their local industries and business interests. Further drilling down is required to establish the nature of such national project finance.

 

Argentina 2018 Budget Bill Forecasts Growth of 3.5% and 15.7% Inflation

MercoPress

  • Argentina’s 2018 budget bill forecasts economic growth of 3.5% next year and average annual inflation of 15.7%, Treasury Minister Nicolas Dujovne told Congress.

  • The bill proposes a 2018 primary fiscal deficit of 3.2% of gross domestic product (GDP) as previously announced.

  • But it lowered the expected 2017 deficit to 4% from 4.2% previously.

  • “We will continue to reduce spending on the national public administration,” Treasury Minister Nicolas Dujovne said in presenting the bill to lawmakers.

 

Five Million Critical Jobs Needed in Africa to be Created in Nigeria

BizNis Africa

  • Nigerian business leader Aliko Dangote told investors “Agriculture, agriculture, agriculture. Africa will become the food basket of the world.”

  • In a packed room at the headquarters of global law firm Shearman and Sterling LLC, high level business leaders and international diplomats invited by the Corporate Council for Africa to hear Africa’s richest man, Aliko Dangote, and Rwandan president Paul Kagame openly converse on Africa’s opportunities and challenges.

  • Both leaders underscored the ongoing movement to diversify African economies. In the case of  Nigeria, Africa’s largest economy, Dangote stated “we should pray that oil prices remain low. This helps wean us off the dependency on revenues from petroleum. We must take oil to be the icing on the cake. We already have the cake,” he added.

  • In addition to agriculture Dangote cited Nigeria’s vast mineral resources and gas as well and the need to manufacture more goods locally for domestic consumption. Both he and President Kagame cited continued need for heavy investments in education and connected the need for young people to be well trained for the jobs of tomorrow.

 

Investing in China’s Free Trade Zones

China Briefing

  • Free Trade Zones (FTZs) play an important role in modernizing China’s business landscape and serve as areas where authorities can experiment with pro-business regulations.

  • Currently, there are 11 FTZs in China; seven planned FTZs were announced in August 2016.

  • Each FTZ has an industry focus and matching incentives to attract investment.

  • FTZs are of critical consideration for foreign firms, but this decision process is highly dependent on an investor’s business focus and growth prospectus.

 

Egypt’s Looming Concern: Increasing Violent Unrest and a Fragile Economy

Global Risk Insights

  • The state of the economy of Egypt has garnered the attention of the IMF. Investments are needed but will the escalating violence and increasing prices hamper such efforts?

  • Following the ouster of former president Mohammed Morsi, many hoped the situation in Egypt would stabilize with current president Abdel Fattah el-Sisi. The majority of Egyptians were seemingly exhausted after two Revolutions and years of uncertainty in the political, security and economic establishments.

  • After all, certainty is needed when it comes to investments, which in turn helps balance other sectors of the country.

  • However, the current climate in Egypt is filled with economic hardships on one hand and a rising threat of disenfranchised Islamists and the so-called Islamic State on the other.  Detailing some of these factors is crucial when analyzing the future state of Egypt.

 

Argentina Seeking to Impose Fiscal Responsibility

LatinNews

  • The government led by President Mauricio Macri is seeking to push a new fiscal responsibility bill through Argentina’s national congress.

  • The bill seeks to impose strict spending limits on the central and as well as provincial governments to “guarantee the solvency” of public finances.

  • The bold initiative is part of the wider economic reform plans that the Macri administration has been trying to advance since it came to power in December 2015.

  • This is perhaps the least controversial of the reforms that the Macri government is now seeking to implement, which explains why it decided to submit the bill to the national congress with just a little over a month left before the midterm federal legislative polls. But this does not ensure the approval of the bill in the opposition-controlled legislature.

 

Venezuela “free of the dollar tyranny” publishes oil and fuel prices in Chinese Yuan

MercoPress

  • Venezuela published the price of its oil and fuel in Chinese currency on Friday in what it called an effort to free the socialist-run country from the “tyranny of the dollar,” echoing a plan recently announced by President Nicolas Maduro.

  • Maduro last week said his government would shun the dollar after the United States announced sanctions that blocked certain financial dealings with Venezuela on accusations that the ruling Socialist Party is undermining democracy.

  • A weekly Oil Ministry bulletin published on Friday listed September prices in Yuan, while including prices from previous weeks and months in dollars.

  • “This format is the result of the announcement made on Sept 7 by the president ... that Venezuela will implement new strategies to free the country from the tyranny of the dollar,” the ministry wrote in a statement released after the bulletin.

 

Investment Opportunities in China Open Up Following Regulatory Changes

China Briefing

  • Recent reforms to China’s foreign investment regime have lifted ownership restrictions and offered new preferential policies in a number of industries.

  • The updated Catalogue of Industries for Guiding Foreign Investment (Catalogue) and Free Trade Zone (FTZ) Negative List, both released in June 2017, remove a variety of restrictions on foreign investment, offering new opportunities for businesses previously handcuffed from doing business in China.

  • New opportunities arise in different contexts. Domestic demands, such as environmental and energy needs, have led the government to remove restrictions on certain industries, while policies to encourage the development of strategic sectors have driven other reforms.

  • This article outlines some of the intriguing new industry opportunities emerging because of the latest regulatory changes.

 

Kirchnerismo gets boost ahead of Argentine elections

LatinNews

  • On 18 September, some 2,000 protesters marched in La Plata, the capital of Argentina’s Buenos Aires province, linking the 11th anniversary of the disappearance of Julio López to that of the missing political activist, Santiago Maldonado, who has not been seen since a pro-Mapuche protest in the south-eastern province of Chubut on 1 August.

  • An explicit link between the disappearance of López and Maldonado puts the government led by President Mauricio Macri firmly on the back foot with just one month to go until the midterm federal legislative elections due on 22 October.

  • Protesters claim that the Macri administration is protecting the national gendarmerie (GNA) which they blame for Maldonado’s disappearance.

  • An adverse comparison with Kirchnerismo on the issue of human rights is damaging for the Macri administration ahead of the midterm polls.

 

Top five energy and power trends to watch in Africa

BizNis Africa

  • Africa’s power and energy sector is a critical driver of growth and development across the continent – so in order to ensure that the industry reaches its full potential and addresses the energy needs of citizens, it is necessary for businesses and producers to keep up to date with a rapidly changing landscape

  • In this way, we have identified five key trends that will impact on the way that people live and work:

  • Coal power plants and projects are becoming more difficult to finance as there is a greater move towards investment in low-carbon technologies and green energy

  • The growing appetite for renewable energy in emerging markets

  • The rise of battery storage

  • The power of distributed generation and the rise of smaller grids

  • The long-term move towards integrated grids through increased investment in transmissions projects

 

Brazil’s new prosecutor general sworn in: “People will not tolerate corruption and demand results”

MercoPress

  • The new prosecutor general tasked with leading Brazil's anti-corruption drive was sworn in on Monday, and said she would continue her predecessor's campaign against graft in Latin America's biggest nation.

  • Raquel Dodge took over as head of the prosecutor-general's office from Rodrigo Janot, during whose tenure investigators uncovered Brazil's largest graft scheme, involving billions of dollars in political kickbacks in return for contracts at state-run companies.

  • In brief remarks at the prosecutor-general headquarters in capital, Brasilia, Dodge said that the Brazilian people expected her to carry on cleaning up corruption.

  • “The people maintain their hope for a better nation, they are interested in the nation's destiny,” she said. “They are following the investigations and trials, they will not tolerate corruption and do not just wait on results, but demand them.”

 

Powering Europe’s newest nation: Investigating the Kosovo energy crisis

Global Risk Insights

  • Last month, Kosovo narrowly avoided an energy crisis by reaching a deal with two private property owners to access some of the lignite coal it needs to supply its power plants.

  • Several weeks earlier, the state-owned power company, KEK, had come dangerously close to running out of coal after villagers living near the reserves requested more money to resettle.

  • The situation had raised the question of whether Europe’s newest nation might be on the edge of a complete energy collapse, as KEK only possessed two weeks’ worth of reserves. It exposed the extent to which many developing countries still depend on coal as the most cost-efficient resource to meet their energy needs.

  • Furthermore, it demonstrates how despite recent restrictions on funding for coal plants, institutional investors like the World Bank – which has been funding a new lignite coal-fired power plant in Kosovo – sometimes decides that, in rare cases, fossil fuels are the only feasible option.

 

Morocco – Gabon 2017 Forum announce billion dollar investments

BizNis Africa

  • The Morocco – Gabon Forum which has just ended in Rabat was the occasion for the Moroccan companies and investors to announce their intention to invest several billions of US dollars in Gabon in the sectors of Infrastructures, the numerical Economy, Agro-industrial industry and the sanitary facilities.

  • Bringing together nearly 300 participants in the buildings of the chancellery of the Embassy of Gabon, in Rabat and intended to promote the direct investments and to instigate the exchanges between the two countries, the Morocco – Gabon Forum made it possible to the Moroccan investors to discover the opportunities offered by Gabon

  • According to the president of the Africa and South-South Commission of the General Confederation of the Moroccan Companies (CGEM), Abdou Souléye DIOP, “The Forum will have made it possible to better identify the Gabonese projects and the tools to accompany their execution.”

  • “The General Confederation of the Moroccan Companies all is prepared to accompany and to structure the actions of development and B2B between the Moroccan and Gabonese companies and to impulse this new momentum of economic relations between Morocco and Gabon.”

 

Paraguay’s agricultural sector: how much is at risk?

Global Risk Insights

  • Despite the political and economical instability facing South America, the small nation of Paraguay is experiencing growth.

  • This upturn is due to a record soy harvest alongside a number of infrastructure projects supporting predictions of the country’s economy to grow by more than 4.2 percent this year.

  • The most important part of the Paraguayan economy is its agricultural sector that is the world’s fourth-largest soy exporter. The 2016/17 soy crop yield is estimated to be more than 10 million tonnes and expectant to be worth $3 billion.

  • These figures are very important to an economy that lacks in mineral resources while the nation has recently been affected by weather conditions that have destroyed 430,000 hectares of high-protein wheat sown this year.

Tags: africa, agriculture, argentina, belt and road, brazil, china, corruption, emerging markets, emia, frontier markets, funding, india, japan, maduro, paraguay, silk road, venezuela, weekly roundup
Posted in Global, Macro Economics, Macro Economics