Bloom Or Gloom Focus In 2010
 A
study published by London-based law firm Eversheds shows confidence
levels among senior business executives in Mumbai and Shanghai have
eclipsed their counterparts in New York and London.
The Boom or Gloom report polled 600 senior
executives in London, Mumbai, New York, Shanghai and the United Arab
Emirates. In it, 87 percent of business leaders across the globe said
that the recession has significantly changed the structure of the world
economy and that established financial centers face a growing challenge
from the emerging economies of the East.
It further revealed that majority of business
leaders were more confident compared to the start of 2009. But when
it comes to confidence in the economy over the next twelve months, there
is a clear East-West divide.
 “This
is potentially very significant. When you have 90 percent of respondents
in Mumbai and Shanghai saying they are very confident about the future,
and only 22 percent saying so in London, it feeds into the plans people
will make,” Eversheds Chairman Alan Jenkins (right) said in a
statement.
More than 90 percent of business leaders
in Shanghai and Mumbai are confident in their economic outlook over
the next year, while only 22 percent in London and 35 percent in New
York were able to say the same.
The confidence gap also reflected how
respondents perceived their own economic performance. In Mumbai and
Shanghai more than half the respondents feel their national economy
is performing better compared to the global economy, whereas in London
and New York this was only around a third.
Jenkins said a high-level government report
in India has singled out all-round infrastructure development as the
key challenge in efforts to develop Mumbai as “even more of a
leading financial center,” and that the rise of Mumbai and Shanghai
would have “significant implications for the post-recession global
economy.”
“Indian business are confident and
are looking to the future, making plans for both within India and globally.
I don’t get the same sense in London,” he said. He added
that there will be considerable pressure on London’s place as
the preeminent center for global financial services in 10 year’s
time.
Meanwhile, East Asia’s emerging
economies are rebounding from the global recession faster than anticipated
-- at least according to the Asian Development Bank.
The Manila-based lender said it expects
a growth of 4.2 percent this year and 6.8 percent in 2010, up from previous
forecasts of 3.6 percent and 6.5 percent. Emerging East Asia includes
the ten Southeast Asian economies in addition to China, Hong Kong, South
Korea and Taiwan.
Regional recovery has generally been due
to government stimulus spending and recovering exports. ADB says that
less open economies in Southeast Asia were partly insulated from the
global crisis, but are not expected to recover strongly.
China grew by 8.9 percent during the third
quarter and is expected to finish at 8.2 percent this year and 8.9 percent
in 2010. Indonesia, Malaysia, the Philippines, Thailand and Vietnam
grew by 1.2 percent in the third quarter although the gross domestic
product of Hong Kong, South Korea, Singapore and Taiwan dropped by 0.1
percent.
ADB’s Chief Economist and head of
the Office of Regional Economic Integration, which prepared the report,
Jong-Wha Lee said in a statement:
“Despite the V-shaped recovery now
underway, it’s essential that fiscal and monetary stimulus remain
accommodative where possible, to put economies on a sound footing. A
key challenge for each economy will be to carefully time when best to
rollback the stimulus to ensure sustained recovery but avoid both excessive
inflation and hefty fiscal shortfalls.”
The region will need to balance risks associated with a short-lived
recovery in developed economies, a slower recovery in private consumption
in Asia and destabilizing capital flows. The region will need to cooperate
to be able to manage capital flows, enhance productivity, and ensure
financial stability.
How ready are investors to make their
capital available in emerging markets, whether in Asia or Africa or
the Americas or the former USSR?
While political risk is a top concern
for corporate foreign investors, the allure of business prospects in
the developing world means that these markets are likely to continue
to attract a growing share of global foreign direct investment (FDI).
These findings and others are revealed
in a new MIGA-Multilateral Investment Guarantee Agency (a member of
the World Bank Group) report, "World Investment and Political Risk
2009".
To gauge how the current global financial
crisis has colored the outlook of the investment community and insurance
industry when it comes to long-term investments in developing countries,
MIGA commissioned independent agencies to conduct several corporate
surveys. The research revealed three key findings that are examined
in depth in the report.
The report found that political risk remains
one of the main obstacles to foreign investment in emerging markets,
and that it is likely to remain so over the medium term. Investors surveyed
for the report ranked political risk among their top three concerns
when investing in developing countries, more often than any other consideration,
including macroeconomic stability and access to financing.
Even though overall risk appetite seemed
to be on the rise leading up to the financial crisis and risk premiums
were flattening in a time of abundant liquidity, political risks had
been deteriorating in a number of areas.
Contract renegotiations in the extractive
industries and a resurgence of “resource nationalism” served
to heighten concerns over expropriation and breach of contract, while
decentralization to sub-sovereign entities led to increased concerns
about such entities being able to meet contractual and financial obligations
– particularly in infrastructure projects.
Although a majority of investors surveyed
didn’t believe that the economic downturn itself resulted in higher
political risks in their main investment destinations, the crisis did
have a more pronounced impact in the most vulnerable destinations. Analysts
commissioned for the report agree that in environments where liquidity
is severely undermined and there is pressure on local currency, there
is a heightened risk that governments may impose transfer and convertibility
restrictions. Strained budgets could also make it more difficult for
governments to fulfill their contractual or guarantee undertakings and
of course economic hardship could weigh on the risk of social unrest.
Despite these risks, the developing world
remains an attractive destination for FDI as many economies have fared
better in the economic crisis than the industrialized economies and
represent untapped opportunities for investors. Investor surveys undertaken
for this report confirm a robust appetite for investment in developing
countries with FDI to emerging markets expected to rebound as early
as 2010, although it will most likely remain directed at a handful of
countries.
As concerns over political risk converge
with an increased interest in emerging market investments, there is
a need for risk-mitigation instruments. Although the use of political
risk insurance (PRI) as a risk-mitigation instrument has been relatively
small, with the majority of investors relying on their own risk management
capacity, 40 percent of respondents indicated they would consider using
insurance for future investments.
The PRI industry itself has grown from
a minimal presence 20 years ago to a well-established market today,
generating annual premiums of about $1 billion. Exposure is diversified
across a number of well capitalized and informed carriers, underwriting
standards and processes have been strengthened, and reinsurance has
grown exponentially. The financial
crisis has demonstrated the value in a balance of public and private
insurers as the private insurance market has experienced capacity constraint
in some countries. The crisis points to a need for continued cooperation
between public and private insurers through coinsurance, reinsurance,
and information sharing.
From 2003-2008, FDI outflows from developing
countries increased more than seven fold reaching an estimated $198
billion in 2008, of which 73 percent came from Brazil, the Russian Federation,
India, and China. And while South-based investors surveyed appeared
bullish in their investment plans, they also are concerned about political
risks. As with North-based investors, political risk is ranked first
among concerns when investing in emerging markets.
This emergence mirrors a trend seen in
MIGA’s portfolio over the past several years. Although the size
of the investments was relatively small, South-based investors represented
50 percent of the share of projects insured by MIGA in fiscal year 2009.
MIGA, like other PRI providers, has responded by tailoring its product
to meet the needs of this emerging market segment, including offering
Shariah compliant cover. Some South-based national insurers, such as
China’s Sinosure, have ramped up their investment coverage. New
regional insurers such as the African Trade Insurance Agency have also
experienced tremendous growth in the past few years. While this represents
important steps in meeting the needs of South-based investors, the report
suggests that PRI providers need to step up their efforts in promoting
awareness of their services and adapting their product offerings.
While PRI is likely to remain a niche
product, in part because insurable risks are a subset of the total spectrum
of political risks, it does play a key role in facilitating large and
complex projects and channeling investment into underserved markets
including the world’s poorest countries and conflict-affected
environments.
Gordon Feller
|
North
China’s Tianjin Binhai International Airport (TBIA) reports
a record high mail and cargo volume in November 2009, handling 19,500
tons in the month and growing 44.9 percent year on year. 
FlyingTypers
