1. A story of Brics without mortar
Philip Stephens, FT
Does it make sense to lump the BRICs together? Not really, says Stephens.
He points out that Brazil, Russia, India and China have little in common other than impressive rates of economic growth. They are not united politically, and he doesn’t see them reliably allying together. Rather, he sees a more multi-polar world where “rising states want to do some things together and some things with the west.”
EM Muser: I completely agree with Stephens that it’s a mistake to view the BRICs as a united political bloc. As the economic power of many emerging markets grows, their political clout will grow as well. However, it should not automatically be assumed they will work together.
We’ve seen a number of recent examples that highlight the lack of coordination among the BRICs. This spring, many EMs would have loved to place one of their own at the helm of the IMF, but they disagreed on who. Overall, it looks like we’re headed toward a more multi-polar geopolitical arrangement – characterized by shifting alliances and no clear dominant power – which likely means a less stable world.
2. South African lawmakers approve ‘secrecy bill’ to protect state
David Smith, Guardian
South Africa’s lower house of parliament passed a controversial ‘Protection of Information’ bill on November 22. The media – as well as human rights organisations, unions and renowned national heroes like Desmond Tutu and Nelson Mandela – see the bill as a major setback for freedom of expression and the fight against corruption.
Daniel Bekele, Africa director of Human Rights Watch: “The manner in which the government pushed this bill through parliament instead of proceeding with consultations as promised, as well as the secrecy embedded in this legislation, send very worrying signs about the government’s commitment to transparency.”
EM Muser: This so-called ‘secrecy’ bill is yet another sign that political risk in South Africa is on the upswing, which is negative for the investment climate. In late October, President Zuma sacked two cabinet ministers for misuse of public funds. Corruption is an ongoing problem, and this bill will make it harder to stamp it out.
The ANC continues to dominate South African politics, winning 66% of the vote in 2009. However, what was once a dynamic party is looking increasingly sclerotic, between allegations of corruption to growing dissension within the party ranks (see The Weekly Mishmash: November 13). Just because the governing party has a large majority in no way ensures a predictable policy environment. Look at Hungary.
3. Not amused: China’s theme park industry should be making easy money
China Economic Review
Over-investment in China is not limited to ghost towns and highways to nowhere. Apparently it also extends to theme parks. Many are boondoggles, and regulators are cracking down. “[T]heme parks larger than 20 hectares or requiring more than US$78 million in investment must obtain national-level approval or halt construction immediately.”
EM Muser: There has been lots of talk about fizzy conditions in China as well as corruption among government officials. The theme park bubble is just the latest example.
4. Fitch Revises Turkey’s Outlook to Stable; Affirms at ‘BB+’
Fitch held Turkey at one notch below investment grade, but cut the ratings outlook to stable from positive last week. This contrasts with S&P, which upgraded the country’s local currency rating to investment grade in September.
Despite strong government finances and a healthy banking sector, “Turkey’s large external financing requirement leaves it vulnerable to the deterioration in the global outlook,” according to Fitch.
EM Muser: While I am upbeat about Turkey’s medium-to-long term economic prospects, I agree with Fitch that the economy looks vulnerable in the short-term.
As I noted in a recent post, Turkey’s high current account deficit (which Fitch expects to reach almost 10% of GDP in 2011) combined with limited foreign reserves and high amounts of short-term external debt leaves the economy very exposed to a dry-up in external financing. (See Which Emerging Markets Appear Vulnerable? A Look at Early Warning Indicators)