Economy

What happened to Brazil?

4/21/14

For more What in the World watch Sundays at 10 a.m. & 1 p.m. ET on CNN

By Global Public Square staff

The $32 million cable car in the video has not been used since 2012. There is a federally funded extraterrestrial museum, also abandoned. And there is a multi-billion dollar railroad. It was supposed to help farmers from impoverished remote areas transport soybeans. Construction began there eight years ago. Residents have been displaced, land wrecked, but the railroad will probably never be built.

What if we told you that these shuttered, big-ticket infrastructure projects are in the country that will host the world's biggest sporting event in June? What in the world, right?

We’re talking about Brazil, of course, host of this year's FIFA World Cup and the only major economic power in South America. There's even speculation that bus and rail systems being built for the soccer tournament won't be completed until after the games are over.

This is a big comedown for a country that was seen as an economic powerhouse – the B in the BRIC countries – and even made a bid to become a permanent member of the U.N. Security Council. Now, over the last five to seven years, Brazil did experience a boom. It lifted some 40 million people out of poverty in the last decade and kept unemployment rates at record lows.

But, as Ruchir Sharma of Morgan Stanley points out, the Brazil boom was really just a side-effect of the China boom. It was a time of cheap capital, emerging markets were hot, and China was growing fast and sucking up Brazilian raw materials and oil. Brazil rode the commodity wave as China imported its soy, iron ore, petroleum and other natural resources. Between 2000 and 2010, Brazil's exports to China grew by about four times the rate of total exports. By 2009, China had eclipsed the United States as the leading importer of Brazilian goods. The following year Brazil experienced 7.5 percent growth. But it was short-lived. GDP growth dipped to just 2.7 percent in 2011 and declined further to 2.3 percent by 2013.

Why?

Well, as Sharma also points out, China also experienced a downturn, seeing its growth rate dip below 8 percent in 2012 for the first time in a decade. If you feast on high commodity prices, you fast when they fall. Most important, Brazil wasted the good years, postponing reforms, lavishing subsidies on its people, and convincing itself that it had found a magic growth formula that required no pain, no discipline.

That complacency now has a cost. Standard & Poor's downgraded Brazil's credit rating in March. It is not quite in junk status territory, but S&P warned that it would make further cuts if Brasilia did not change its policies.

Brasilia's public spending has been downright wasteful. It's not just the bloated World Cup investments, totaling an estimated $11.6 billion. According to one study, corruption cost the country up to $53 billion in 2013 alone. To top it off, inflation is soaring and businesses have compensated by raising prices. A restaurant tab in Sao Paulo or Rio can rival that of cities like New York or Paris.

To complicate matters, Brazilians will head to the polls in October. In the face of slipping approval ratings, President Dilma Rousseff has vowed to cut public spending, rein in the deficit and enact reforms. It may be enough to get her reelected, but will it be enough to save the Brazilian economy?


Burma’s emerging rich

4/21/14

As Burma’s economy steadily grows, a higher percentage of Rangoon’s population are finding themselves with more cash to spend.

Imported products from Thailand and Hong Kong can be seen on display in downtown shopping malls – something that would have been impossible two years ago as foreign goods were banned under the military junta.

Big international brands are now moving in to take advantage of the world’s last frontier markets: soft-drink giant Coca-Cola opened a factory in Burma in June 2013; VISA and MasterCard now operate inside the country; and Japanese companies Mitsubishi Corp and Sumitomo are expanding their presence in Rangoon.

Foreign investors are pouring money into local industries and infrastructure projects.

Twenty-two-year-old Lae Lin Tun Aye works in a medical lab and said things for her are improving.

“Our company is recruiting more staff and expanding into more markets. Our wages are higher than in the past. Older people tell me that my wage is good,” she said.

Zin Zaw Htet Tun opened a language school in Rangoon to cash in on people wanting to learn English, Chinese and other foreign languages. He said the city is changing dramatically.

“We can see new supermarkets and new cars, and also new bridges and new houses for the people in Yangon [Rangoon]. Many companies are investing in our country. So for the people, they have many good opportunities for their life. In the area of fashion and technology we can see many changes. We used to use dial-up phones and old cell phones, but now we can use modern cell phones with the latest technology,” he said.

While a growing number of people like Zin Zaw Htet Tun are experiencing higher incomes and improvements to their lives, there are still many who are yet to benefit.

Ten percent of Burma’s labour force work abroad, and the passport office in Rangoon is always full of people waiting to process documents so that they can get jobs outside the country.

Khin Sitt Pyu has been working in Dubai for three years and earns US$900 a month, which she sends back to her family in Rangoon.

“The basic salary overseas is ten times higher than here. This made me want to work abroad. At first my relatives didn’t allow me to go because I’m a woman. But my parents and my siblings agreed and supported my decision. Now I have a regular income and everything is fine with me,” she said.

Burma’s economy grew by 7.5 percent in the 2013 fiscal year, according to the Asian Development Bank. An increase in investment, improved business confidence, commodity exports, and a rise in tourism contributed to this growth.

Economic advisor to the government, Maung Aung, believes Burma’s economy will continue to grow over the coming years.

“Now our economy does not only depend on Asian markets, but also European markets. We expect to enter the US market soon. So now we are trading globally. We have lots of opportunity to grow in our economy,” he said.

 

 

 

How U.S. is lagging on quality of life

4/19/14

Fareed speaks with Michael Porter, a professor at the Harvard Business School, about a groundbreaking new Social Progress Index – and how the United States is lagging on many indicators. Watch the video for the full interview or on GPS this Sunday at 10 a.m. and 1 p.m. ET on CNN.

You were shocked at what you learned about America.

Yes, I think this wasn’t the picture of America that I think many of us Americans have – that we are a leader, a social leader, that we've advanced the ball in terms of opportunity and the needs of our citizens. And it shows anything but that.

So if you look at the Social Progress Index, on the whole, what's striking is the top countries are New Zealand, Switzerland, Iceland, these small countries. But basically then a lot of European countries and Canada beat the United States.

Correct.

The United States is 16, Ireland is ahead of it, Japan is ahead of it, Britain is ahead of it, Germany is ahead of it.

Yes.

What does that tell us? What does that measure?

So this effort tries to really, for the first time ever, take let's call it the social or community or quality of life dimensions of a society, and capture those in a rigorous measurement framework – using the best data available in the world. That's the best and objective measures of these various multiple things. But of course, social progress is a broad concept.

Right. And that's where you break it down into these subcategories. Health and wellness, Japan is number one, Italy is number two, Switzerland is number three. You have to go all the way to 70 to get to the United States.

It's an area where the U.S. – if you actually look objectively, we're just not delivering. We actually spend the most money on this of any country in the world, probably in all of recorded history, in terms of our health care budget every year. But in terms of the actual outcomes – and by the way, the Social Progress Index measures the outcomes you achieve, not how much you spend, not how much you care, not whether you have a big heart…

 

 


West Wing Week: 4/18/14 or, “Pull Together, Fight Back, and Win”

4/18/14

This week, the President nominated Sylvia Burwell as Secretary of Health and Human Services, hosted an Easter Prayer Breakfast and a Passover Seder, discussed immigration reform with Faith leaders, welcomed the Wounded Warrior Soldier Ride, announced a major milestone in the continued implementation of the Affordable Care Act, and hit the road to New York City and Oakdale, Pennsylvania.

read more

Vice President Biden Joins Instagram

4/16/14

Today, we’re excited to announce the Office of the Vice President is joining Instagram to give followers a unique look inside the Vice Presidency. This new social media presence continues efforts by the Vice President’s Office to connect with citizens online, adding to his official Twitter handle and the Being Biden audio series.

The VP's Instagram followers will have access to behind-the-scenes photos from the road and around the White House. And today, as the Vice President joins President Obama in Pennsylvania to announce grants that will spur job training and apprenticeship programs, you’re invited to follow along on Instagram.

Stay tuned for photos and videos from the Vice President – and don't forget to check out our other official Instagram accounts, including: The White House, First Lady Michelle Obama, and Chief Official White House Photographer Pete Souza.

What's behind China's reforms?

4/15/14

For more What in the World watch Sundays at 10 a.m. & 1 p.m. ET on CNN

By Global Public Square staff

If Dick Cheney were arrested…and his assets seized…all in an anti-corruption effort by President Obama…you might say "What in the World," right? Well, as the New Yorker's Evan Osnos points out, that scenario is a rough analogy for what is going on in China today.

Some of you will remember that in the first week of 2014, we began the show suggesting that this would be "the year of China," meaning that the country was likely to go through enormous changes that would make or break its rise.

But even we have been surprised at how much has happened on almost all fronts. China is now being ruled by a new generation, spearheaded by President Xi Jinping who has consolidated power and appears to be the strongest and most ambitious Chinese leader since Deng Xiaoping. Consider what he has been doing in just one year in office.

First and most significantly is the anti-corruption drive. And at the forefront of that is the expansive investigation into Zhou Yongkang, China's former domestic security tsar, once head of China's National Petroleum Corporation and a former member of China's "untouchable" Politburo Standing Committee. Zhou is the man who has been called China's Dick Cheney by Osnos.

Authorities have detained several of Zhou's family members and associates and have seized assets worth $15 billion dollars. And President Xi has taken his anti-corruption drive to the military as well, exerting much more influence than did his predecessor. One result: officials reportedly charged former General Gu Junshan of using his power to amass illegal wealth, pointing to his posh homes and other extravagances that could not have been bought on a military salary.

The second area where one sees great change is the environment.

Everyone talks in China about the unbearable smog. A study released last July shows that air pollution in northern parts of the country can actually cut life expectancy by an average of 5.5 years.

Well, Beijing has now decided to begin a clean-up, promising to spend $280 billion to fight air pollution. This year, China has started to directly monitor and publish the pollution impacts of its biggest 15,000 culprits. China's urban middle class now routinely protests against not only polluted air, but polluted water as well. And in February, China announced a plan to spend $330 billion to clean up its water. This mass-scale, public effort may be a reaction to increased discontent, but it’s also about the economy. The impact of environmental degradation cost China 9 percent of its GNP, according to the World Bank.

Perhaps the most important set of proposals, not just for China but for world, are Xi's plans for economic reform. Last November, the party announced it would maintain its authority over the Chinese economy, but would allow the market to play a "decisive" role. The government vowed to take a less active role in the allocation of resources and said it would allow the private sector to invest in state-owned enterprises.

And in perhaps the most striking development, Premier Li Keqiang told a parliamentary meeting in March that China aimed to expand its economy by 7.5 percent this year but (and here's the key part) that growth would not get in the way of reform. Until now, the party has not faced up to reforms, always pushing them off and goosing the economy to keep jobs growing.

Now let’s be clear. So far, economic reform is all talk and little action. And one thing you don't see in this flurry of new policies and proposals is anything about political reform, moves toward greater pluralism or democracy. That's because the goal of all these ambitious measures is to strengthen the legitimacy of the Chinese Communist Party, not to weaken it.


Get Your 2013 Federal Taxpayer Receipt

4/14/14

Want to know how your federal taxes are spent?

President Obama is keeping his promise to make sure Americans like you can easily see what you're getting for your taxes.

Just enter a few pieces of information, and the Taxpayer Receipt gives you a breakdown of how your tax dollars are spent on priorities like education and veterans benefits.

Click here to get your 2013 federal taxpayer receipt.

Promise and Peril of Investing In Iraq, Interview with MENA Capitals’ Ali Albazzaz

4/14/14
 
Ali Albazzaz is a finance specialist focused on doing business in Iraq. He is a consultant working with MENA Capital, an investment company that focuses on the Middle East and North Africa, including Iraq.  That country has huge potential with its vast energy wealth along with huge needs after decades of wars and sanctions. This has attracted a wide variety of companies interested in developing its oil and gas sector along with rebuilding the nation in general. Unfortunately the rebirth of the insurgency might scare off foreign money. To discuss the promise and peril of Iraq is Ali Albazzaz.

1. Most of the talk about Iraq focuses upon the oil sector, but the country needs so much in terms of services and infrastructure that there are plenty of other opportunities. Outside of petroleum and gas what other sectors of the economy have attracted investment?

Housing and construction have received some foreign private investment, especially in the Kurdish region which has seen a plethora of housing developments, high-rise 5-star hotels, shopping malls and now Emaar's Downtown Erbil project. Unfortunately the picture in the rest of the country is not as rosy. There has been investment in hotels, some high profile housing projects have been signed or broken ground, and you can see visible signs of construction activity in Baghdad, where a few malls have now opened, but foreign investment is still limited in spite of Iraq's estimated 3 million housing unit shortfall.

The electricity sector has and will continue to receive a lot of investment. Whilst most of that has been from the Iraqi government, for engineering, procurement and construction contracts ($4.7bn for electricity projects in the 2014 budget), independent power producer projects (IPP) have been executed in the Kurdish region, and these are starting to be used in other parts of Iraq. The IEA estimated in 2012 that Iraq will need to build an additional 70 GW of generation capacity by 2035, so once IPP projects become entrenched outside the Kurdish region these will be a catalyst for further foreign investment of more substantial scale.

The shrine cities of Karbala and Najaf, which see millions of pilgrims per year, have seen a lot of investment in tourism related infrastructure, such as hotels, markets, shopping malls etc.

There has been some limited investment in industry (for example in building materials, steel), some investment in the telecoms sector (such as the three mobile operators that are largely owned by foreign telecommunications), and some investment in ports and logistics infrastructure.

2. Plenty of companies from the region such as Turkey and the Gulf states have gone into Iraq. Have there been as many companies from Europe, the U.S., and Asia doing business there?

There is a very significant presence of Asian companies. The Chinese, South Koreans, and to a lesser extent the Japanese, are active in the Oil and Gas, Construction, and Electricity sectors, among others. Iranian businesses are involved across a range of sectors, and like Turkey and the Gulf, are big exporters to Iraq. European and American firms are present, but nowhere near to the same extent as the countries above.

3. What issues do foreign companies face with Iraq’s banking sector and insurance?

Iraq's banking sector is still rudimentary but slowly improving. Foreign companies are able to use the better private banks to manage payments and payroll and for local foreign exchange operations. They do also provide Letters of Credit and Letters of Guarantee etc. The service levels of the state banks are so poor as to be effectively unusable, Trade Bank of Iraq being an exception. The biggest issue is the state of development of the banking sector. The balance sheets of most private banks are too small and they don’t have the skill set or appetite to participate in a meaningful way in anything beyond small projects. The entry of Standard Chartered Bank and Citibank is therefore much anticipated.

On the Insurance front foreign companies are able to get coverage but purchase it from outside of Iraq as the local market is not developed enough and does not have the depth even if it were [developed enough].

4. Iraq’s bureaucracy and corruption are rather infamous. What kinds of advice do you give to firms in dealing with those two issues?

With regard to bureaucracy, I recommend that firms work with the best local professional advisors, ideally those that operate in partnership with an international firm, and to choose an experienced, effective, and respected local partner. I also counsel them to set their expectations accordingly from the start of the process, and to be patient.

Corruption is rampant but firms do find ways of managing it in countries with similar levels of corruption and firms are able to conduct business in Iraq without resorting to it.

Some ministries and some local governments are better than others, so it’s important for firms and investors to be judicious about which counterparties they enter into agreements with. Firms can minimize the likelihood of rent-seeking behavior by enlisting the support of their national governments and engaging with Iraqi stakeholders (tribes, religious, civic groups) that may be of help.

With regard to internal graft and other illegal practices, firms need to put a lot of care in the recruitment and training of local management and staff, and be very clear about acceptable behavior. The major international audit firms are now operating in Iraq and are able to provide internal audit and assurance.

5. From 2003-2007 there was very little direct investment in Iraq. Then things took off in 2008 when the civil war ended. Now that the insurgency has been reborn and violence is taking off again in Iraq have you seen any change in foreign interest in the country?

The violence has dampened investor interest for projects in central, western, and northern Iraq - however some firms and investors are pushing ahead regardless, whilst many others have slowed down or suspended their plans (as opposed to cancelling them altogether).

It is not only the spike in violence that is of concern but also the governance issues and nature of Iraqi politics. The elections at the end of this month are unlikely to provide a quick resolution to these issues and there will probably be another protracted government formation period with increased violence in the interim, hence many firms are also waiting to see how the elections play out and what the repercussions are.

6. Kurdistan and southern Iraq are largely untouched by the current surge in violence. Do you think those areas will continue to see foreign businesses going there or will the fighting scare off companies in general from Iraq?

The Kurdish Region is not only unaffected but may be benefiting from further reinforcement of its stability and security compared to the rest of Iraq. I think businesses and investment will definitely keep going to that region, and will do so at an increasing rate.

Southern Iraq is being affected by the recent violence, but to a far lesser degree than the rest of the country. Foreign businesses will continue to be attracted, particularly because of the scale of ongoing investment in the oil and gas sector, the increase in provincial revenues and local incomes, its relative safety, and proximity to the Gulf.

Karbala and Najaf are also relatively more secure and have their own economic momentum which has not been greatly impacted.