globalEDGE Blog - By Author: Manesha Sampath

When commodity prices tumbled last year, economists worldwide forecasted a steep decrease in GDP growth for many African countries. For decades, the continent has been worryingly dependent on commodities to power economic growth. So when prices collapsed, economics would also theoretically nosedive. While this was true of some nations, others managed to weather the storm. The dichotomy is most illustrated by the stark differences between the Sub-Saharan and East African regions.

The thriftily lending of Spain’s commercial and investment banks to those who borrowed excessive capital from international markets to lend to developers at rates they could not repay caused the Spanish economy to tumble in 2011. Basel III, a voluntary framework on bank capital adequacy, stress testing, and market liquidity risk, seemed to be the regulatory answer by the financial services industry. It was adopted by all of Spain’s largest lenders and local governments. Their main mission: stabilize the credit markets enough for foreign direct investment (FDI) into the Spanish economy.

With changing political office, comes changing economic policy. At least, that is what millions of Nigerians are hoping for from newly elected President Muhammadu Buhari. The Nigerian capital market responded positively to the change in leadership, gaining 8.30%, its single biggest daily gain all year. High optimism for the new leader to follow through on his promise to reshape the national economy is sorely needed at this point.

The European Union is in a metamorphic phase, as illustrated by globalEDGE’s various blog posts on the topic. The trade bloc is trying desperately to stabilize its currency, sustain healthy industry growth, and prevent Greece from defaulting on sovereign debt. These nations have remained resilient before and many economists believe they will stand the test of time, for there is strength in numbers. Six countries are currently in the process to become full-fledged members. One of the candidates is Iceland.

In part 4 of our international tourism blog series, we discussed the importance of cultural sensitivity as tourism increases in developing countries. In this blog, we will focus on how hosting international conferences can stimulate a country’s hospitality and tourism sector. Organizing global conventions requires an extensive amount of planning, data gathering, and business acumen. One of the most important decisions made is location. Attendees, reporters, and small enterprises will flock to the chosen venue. This presents a prime opportunity for significant amounts of resources and capital to be exchanged. But is it possible for a singular event to revitalize an entire economy?

The aphorism “you can catch more flies with honey than with vinegar” is now being internalized by the financial world. In a league of their own, activist investors are taking great measures to rebrand themselves as “engagement” funds. Typically, this designation is reserved for an individual or group that purchases a significant stake of a publicly traded company and tries to implement major changes within said company’s business model.

In yesterday’s blog post, we spoke of the how falling oil prices could lead to increased mergers and acquisitions in the private sector. This blog will focus on the public sector and which countries benefit the most from these low energy prices. Commodity pricing is as much an art as it is a science; the fundamentals of supply and demand clarify most of these fluctuations, however they do not properly explain the exaggerated influence prices. The saturated, oversupplied market is now creating volatility for producers, but opportunities exist for speculative nations looking to stabilize or expand their global economic footprint.

In a recent Harvard Business Review article, Michael Porter reported on how the ‘Internet of Things’ is changing everything. The aforementioned phrase has arisen to reflect the growing number of smart, connected products and highlight the new opportunities they can represent. With an estimated impact of $140 trillion, this industrial transformation is the third wave of IT-driven competition in the global economy.

Earlier this week construction began on a canal that will link Venado on Nicaragua's Caribbean coast to Puerto Brito on the country's Pacific side. The secretive project has an estimated price tag of $50 billion, which is four times the size of Nicaragua's economy, and the government claims it would create at least 50,000 jobs for construction and 200,000 more upon completion. A rival to the Panama Canal, this channel hopes to fuel growth within the agricultural, industrial, and manufacturing industries by facilitating heavy freight transportation.

The Jasmine Revolution of Tunisia was the first in a series of democratic uprisings that extended to a number of North African and Middle Eastern countries, in what became known collectively as the Arab Spring. Earlier this month, Tunisia’s new unicameral parliament held its inaugural session at the nation’s capital. Although the landmark transition towards a new republic has been fraught, a novel, egalitarian constitution was adopted, while a majority of the other participating nations deteriorated into extremism.

With an Internet penetration rate of 12.6%, investors looking to diversify their portfolio are currently appraising India’s e-commerce market for opportunities with exponential dividends. According to the technology research firm Gartner, India’s e-commerce industry is poised to grow 70% at the end of this year, with revenues crossing $6 billion. This will make it one of the fastest developing segments in Asia alone. Ranging from laptops to mobile phones to tablets, it is the pervasive use multi-platform technology for online retail that has catalyzed this boom.  Current estimates predict that within the next five years, the sector will quadruple in size to $43 billion. But how can sustainable, organic growth be cultivated in an ever-changing digital marketplace?

Southeast Asia has been lauded for its robust connectivity and commerce within sectors ranging from manufacturing to tourism to technology for the past few decades. And, in light of recent events, Burma (also known as Myanmar) seems to be following the same trend. Last month, more than 22 companies announced they will move manufacturing facilities into Burma’s Thilawa Special Economic Zone (SEZ). The initiative is one of the first steps President Thein Sein took to reintegrate Burma in the global economy. When fully-functioning, Thilawa will be able to employ 70,000 workers and manufacture goods, consumer products, and construction materials for the domestic market, while also supporting export-oriented goods such as apparel, textiles, and automotive parts.

Given the myriad of groundbreaking new biotechnology products coupled with accelerating costs of research, development, manufacturing, and regulatory mandates, the healthcare industry today finds itself at a crossroads. Consumers, hospitals, and governments are petitioning for fairly priced goods and services without compromising top-tier quality or extending risk exposure. However, the narrowing global economic environment is persuading market-leading manufactures to reevaluate not only their value chain processing, but also their premium pricing models. Under the aforementioned conditions, it is often in the best interest of suppliers, consumers, and shareholders to empower profit maximization by outsourcing core operational services for efficiency.

Under the umbrella of the financial services industry rests private equity. These organizations, which make strategic long-term investments through capital-intensive buyouts, have been at the epicenter of many economic debates in the past year. In 2005, the private equity industry saw large consolidations of size and power after the bubble burst. Rationalizing that many returns had been realized within a mature market, large private equity firms seeded many investments abroad with their higher amalgamated capital. The European and Asian markets saw the most attention given the sheer economic size and amount of restructuring opportunities. According to the Financial Times, partners of the three largest private equity firms made almost $22 billion of principal investments abroad this year.

Long before the financial crisis hit in 2009, private debt clouded the economics of developed countries and emerging markets.  Between 2004 and 2009, as seen on this interactive map, shows the private-sector non-financial debt rose by an average of 43% of GDP in the Western countries.  Since then, the public sector’s ledger has taken on the debt burden.  The frequency and amount of government bailouts and fiscal stimuli dished out by lethargic economies sent the ratio of government debt to GDP spiraling.  The Corporate sector have begun to deleverage while Households and Financials are taking on more.  This is especially evident in France, where sustainable growth is expanding in five strategic areas: education, research, industrials, infrastructure, and financial technology.

Harnessing the energy in shale has created a boom in the markets with enough momentum to alter the global energy industry altogether.  The controversial drilling technique involves fracturing shale formations using water, sand, and other (undisclosed) chemicals to access natural gas.  Entrepreneurial potential coupled with technological innovations from both the public- and private-sectors attract investment to either resource rich regions or competitive hedging projects for returns.

Globalization is the worldwide movement to increase the flow of goods, services, people, real capital, and money across borders in order to create a more integrated world economy.  Previously, I wrote of international trade in antiquities, but let take a look at trade during antiquity and how it has affected today’s economy.  Trade networks have always followed the trends of politics, economics, technology, and most importantly culture.  Exotic luxury goods demanded by elites encouraged trade to gain momentum: Incense Route, Silk Road, Amber Road, Spice Route, and Tea Route.  Soon, economics became so interconnected that World Systems became dependent on each other.

“Trade creates wealth”: an age-old saying oft used to break international boundaries for the free exchange of goods, services, currency, and capital. But this age-old saying does not hold true when it comes to the underground economy of old-age empires’ wealth.  Trafficking antiquities not only creates sinkholes in the public goods marketplace, but it also depreciates cultural heritage sights.  Furthermore, these black market deals are exponentially increasing the rate of cultural homogenization by privatizing potential world-heritage commodities.  Why be entrepreneurial with a public good like history?  It is far more meaningful for archeologists, history enthusiasts, and the inquisitive society.  Due to its unauthorized, undisclosed, unregulated, and highly informal, the black market for antiques can only be scratched at surface level but three distinctive vacuums emerge: currency, knowledge, culture.

Identifying intercontinental and cross-cultural opportunities and weaving them into unique profit-building innovations can be a daunting task for a small start-up, especially when a high cost-risk ratio is factored.  Michigan State University offers a multitude of resources for global entrepreneurs for understanding how to tackle the most common roadblocks: market commonality/divergence recognition, foreign economy entrance, and network access for concrete business-services platform.

The global sovereign debt crisis has impacted our world economically almost like a 3rd world war.  And because money was thrown out with rabid fury, it is boomeranging back with a vengeance.  In his quintessential narrative-style nonfiction book, Boomerang, Michael Lewis presents to the reader four case studies: Iceland, Greece, Ireland, and Germany.  Lewis travels the world examining how each of these countries dealt with the collective problem of debt and how their cultural characteristics impacted the citizens.

The flash of Dubai has captivated the world for the past decade.  But thoughts of skyscrapers built on sand with borrowed cash rather than a concrete future has been incepted into the minds of the world.  The opulent structures have created a city within a city – an oasis surrounded by relative poverty.  Consequences of such lifestyles and myopic philosophies are not latent in nature; they may be apparent tomorrow, next year, and even for the next generation.  While the world outlook for 2013 is positive in many ways, it would be arrogant to assume all liabilities will be paid by the end of this year.

Southeast Asia set high expectation for 2013 despite the global crisis, but it was Thailand that caught my attention.  The country’s economy is expected to grow 5.7% in the coming year.  One cause is the substantial increase in public investment for higher quality infrastructure, education, energy and health.  Furthermore, there has been an flood of foreign ventures by not only large corporations, but also small business on Thailand’s resources, technology, and human capital.  This stream of assets has, in turn, created a new consumer base and multinational companies that are quietly looking outward.

There are certain facts of life and globalization is one of them.  But with completely integrated social, economic and structural systems comes both a profit and a price.  The phenomenon has occurred in three waves across modern human history: beginning around 1870 and ending at the start of World War I, reviving in 1950 due to multiple trade agreements and ending in 1980, and finally establishing permanently at the fall of the Berlin wall in 1989.  But as the flow of goods, services, currency, technology, legislation and human capital increase across national boundaries, there have been a number of costs (both apparent and latent) that a variety of stakeholders have had to bare.

The Indonesian economy is known globally for many things: tourism, agriculture, and defense.  But maybe transport manufacturing should be added to the list.  The production of Indonesian factories were most efficient all year last month; According to a report by Markit Economics and HSBC Bank, the purchasing managers’ index (PMI) for Indonesia's manufacturing sector increased from 50.5 in September to 51.9 in October.  Any reading above 50 on a PMI indicates expansion, which can be attributed to a multitude of variables.  However, the prime conclusion has been that the increase in PMI is a direct reflection of higher order intakes.  This is most apparent in Indonesia's auto industry.

While tourism to the culturally prominent cities of Casablanca and Rabat is increasing, Morocco’s aggregate economy is slowing.  Recently, the King Mohammed VI of Morocco staged a week-long tour of the Arabian Gulf to rally support as the European-dependent economy falters in the wake of the global crisis.  Morocco has strong relations with the Arabian Gulf nations stemming from centuries old historical, religious, even and linguistic ties, while Rabat and Casablanca (and other major cities) have been largely influenced by Europe, particularly Spain and France.

We were always taught not to judge a book by its cover, but packaging experts know that building a positive connotation and allure around a good is crucial to its marketability.  Companies take many factors into consideration when packaging their product: environmentally responsible, flawless presentation, exceptional quality/quantity, and cultural sensitivities.  Balancing the variables of material, size, imagery, color, and design is the challenge facing most firms.  And they only amplify as companies expand to the global marketplace.

Brazil has been a steady pillar of South America and the BRIC for the past few years, but things seem to be taking a turn for the worse.  Not only has the economic powerhouse been losing steam when it comes to industry domination, but also labor costs are being set ridiculously high.  KPMP’s 2012 Competitive Alternatives Report, which compares the structure of costs for companies in various countries while taking into account, taxes, labor, rent, and cost of capital, studied 19 industry sectors in the BRIC and nine other industrialized countries.  The commentary revealed that Brazil is the most expensive developing nation for doing business, only about 7% cheaper than the United States.

The food and beverage industry covers an assortment of products and companies within.  It happens to include one of the largest commodity markets, coffee.  With its distinctive socio-cultural ties, coffee has been produced, branded, and marketed uniquely in every part of the world.  With any product, various factors must be taken into consideration when developing a brand: consumption patterns, cultural relevance, product expectation, and marketplace competition to name a few.  Branding essentially tries to build an emotional kinship with the consumer that transcends the products actual function.  Brands aspire to create an identity, a lifestyle to live by.

With bountiful natural resource and an extremely small population to support, Mongolia is becoming an independently powerful economic powerhouse.  With $5 billion pumped into the economy in 2011 fueling a stunning 17% increase in the country’s GDP, Mongolia has become the world’s fastest growing economy.

Landlocked between Russia and China can be both a blessing and a curse in international trade.  The former has supplied all of Mongolia’s oil needs and the latter receives 90% of Mongolia’s exports.  Both are wooing the country so they may become the dominant force in developing the country’s natural resource.  However, with other nations pouring in, they might not be as successful in having too much leverage.

The BRIC countries (Brazil, Russia, India, and China) constitute 20% of the world economy, and, according the IMF, will have a projected combined GDP of more than $14 trillion this year.  Growth and prosperity have been bestowed upon these now-influential powers for the past decade.  But clear signals are being given that these economic bastions are heading towards a muddy path, like most macro bull run investments do.

Leaders from Somalia and Somaliland, the unrecognized sovereign region of Somalia, had their first formal conference in London to discuss the future of an internationally recognized sovereign state of Somaliland.  Since declaring independence in 1991, the northern region has been relatively peaceful with orderly civilian and political movement whereas the rest of Somalia has been overflowing with conflict.  The government of Somaliland, having sought internationally assistance for gaining a stronger legal, economic, and security base, have agreed to continue cooperations with Somalia for squashing the terrorism, violence, famine that plagues much of the region while the negotiations take place.

Spain’s Labor Ministry recently reported that the number of people filing for unemployment benefits fell by 0.63% since May.  While this might seem like good news, it is not.  An estimated 30,113 people have simply stopped trying to find a job.  The country’s unemployment rate of 24.3% is the highest in Europe.  A new conservative government is trying to battle the rough economic times by employing a variety of labor market reforms.  Some of the legislature has included a reduction in severance pay and the banning of increases in salary to match inflation. Spain's new measures for reducing the unemployment rate and debt levels are highly unpopular with unions.

The rolling tides of economic woes have slammed the shores of Jamaica.  The island nation’s unemployment rate has risen above 12% while its debt-to-GDP ratio is at a staggering 130% - not far behind Greece.  Discussion has started with the International Monetary Fund for a significant amount of debt relief.

This will not be the first time the international financial institution has come to Jamaica’s aid for in 2010, the country received $1.27 billion.  Prime Minister Portia Simpson-Miller of the People’s National Party, who stepped into office early January 2012, has yet to implement many of her social and economic policies (one of which includes finalizing negotiations for financial aid with the IMF).  Other hot topics of Jamaica’s political discussion are tax and pension reform and reducing wages for government workers.

With booming agricultural and mining industries, Latin America has seen economic and human development increase exponentially in the past decade.  While human capital and resources attracted foreign investors for a past few years, lately it has been the plentiful sunshine that catches the eyes of many venture capitalists.

Chile in particular has caught the “green” bug.  While imported fossil fuel accounts for more than 60% of the county’s electricity production, hydroelectric and solar power plants are in high demand by the Chilean government.  With the cost of solar power technology falling, Chile’s quest for affordable renewable energy is not too difficult to obtain.  A trade deal with the world’s leading solar power technology manufacturer, China, is in the works.

Social media has become the dominant mode of communication for the past few years.  This medium for interactive dialogue has not only augmented the rapid exchange of ideas, but also the global economy as a whole.  It has recently been in the news for increasing sales, creating jobs, and positively impacting overall economic of nations.

Coface, a world leader in domestic and international trade receivable management, is hosting their annual Country Risk Meeting at the Sentry Center in New York City on Thursday, May 10, 2012.  Featured speakers include business leaders, economists, and forecasting analysts discussing the short-term economic situation on a region by region basis in North America for the rest of the 2012 calendar year.  They will focus on hot spots, booming regions, and the global economic power bases.  It is a wonderful event that spotlights major international trade and investment opportunities in today’s business arena.

Parisian influence is growing in Asia as French citizens pour into Hong Kong looking for economic hotspots in luxury retail, commercial and residential real estate, and business services. Recently, World Economic Forum rated Hong Kong as the world’s most developed economy.  The country’s booming economy, coupled with Europe’s debt crisis, has significantly increased the rate at which French citizens are immigrating to Hong Kong.  Since 2006, the French community in Hong Kong has grown by more than 60%.  But Hong Kong is not the only country where Westerners are flocking; mainland China, Thailand, Singapore, and India have been expanding rapidly as their markets open up.

For the past few weeks, Western states have not only imposed sanctions on Iran, but also convinced many Asian countries to do the same.  These sanctions are an economically crippling bargaining technique to pressure Iranian officials into discontinuing their uranium enrichment program, which American and European officials claim to be a nuclear weapons program with malicious intent but Iranian officials claim to peaceful and a national right.  Furthermore, many financial institutions that interact closely with Iran’s central bank have also been targeted.  The assets of Iran’s central bank are currently frozen that are linked to Tehran.

The storm caused by the European Debt Crisis has loomed like a dark cloud over much of the world.  But certain sectors of the economy, the transport manufacturing industry in particular, have weathered the turbulent markets.  It is the rise in purchasing manager indexes for the United Kingdom, Switzerland, China, India, and Australia, coupled with the decrease in Germany's unemployment that make economists suggest a boom in the export of cars and machinery for the coming year.

Last month, Hong Kong was reported to be the world’s most developed financial market by the World Economic Forum, an independent international organization.  The responsive business environment and financial stability most industries found in this special administrative region of China, along with its efficiency, size of banking, and other financial services catapulted Hong Kong to the top, surpassing the United States, the United Kingdom, and Singapore.  The rise of Hong Kong has been attributed to non-banking services, like IPOs and insurance, which offer long-term yields rather than the shortsighted investments that Western financial markets tend to favor.

The deals and sales offered during this year’s holiday season captured us all, but companies have been shopping as well. In fact, Japan’s multinational corporations seem to have gone on global shopping spree. This past year, Japanese companies spent a record $80 billion on approximately 620 foreign companies. These international investments could be seen as not only a sign of economic strength, but also as an indication of domestic weakness.