A broad ranging discussion I had with the Ambassador at his office in Buenos Aires last week.
A broad ranging discussion I had with the Ambassador at his office in Buenos Aires last week.
According to a recent Bloomberg poll, Brazil is tied with China as the most preferred place to invest, and India follows close behind in third place.
The U.S. has fallen behind emerging markets in Brazil, China and India as the preferred place to invest, a Bloomberg survey shows, though the world’s largest economy still ranks highest of all major developed countries.
The U.S. ranked first three months ago in the last quarterly Bloomberg Global Poll. Along with the slipping perceptions of the U.S. markets in the most recent survey, conducted Sept. 16-17, poll respondents say the Federal Reserve is likely to take further steps to try to bolster the economy.
Asia has released its 2010 roster of the Fabulous 50, the best bigger
companies in Asia-Pacific that are publicly traded. These have sales or
market capitalization bigger than $3 billion.
Indian firms on the
list are: Adani Enterprises, Axis Bank, Bharat Heavy Electricals, Dr.
Reddy’s Laboratories, HCL Technologies, HDFC Bank, Hindalco Industries,
Infosys Technologies, ITC, Jindal Steel & Power, JSW Steel, Kotak
Mahindra Bank, Larsen & Toubro, Mahindra & Mahindra, Sterlite
Industries and Tata Consultancy Services.
Here at IndusLatin we recently highlighted the growing role of cities like Mumbai, India, and São Paulo, Brazil, as international financial centers. The NY Times has just drew attention to a few recent developments in Brazil that indicate that this trend is unlikely to stop any time soon. Here are some key facts from the article:
The article further emphasizes that Brazil is an increasingly dominant world player in the food and agriculture industries, and with growing fears over the world’s food supply, Brazilian agriculture is looking like a solid investment.
TWO OF AMIT WADHWANEY’S passions are international stocks and ethnic restaurants. That he is an avowed value investor is no surprise, given that Third Avenue Management, his employer, was founded in the mid-1980s by famed bargain-hunter Marty Whitman. Wadhwaney’s duties include running the Third Avenue International Fund (TAVIX). Barron’s recently caught up by Wadhwaney by phone.
Although investors in other parts in Latin America have started investing in Colombia, there is very a long way to go. On the plus side, there is a lot more de-risking that is taking place in Colombia on the ground level in terms of security, which is resulting in the opening up and starting up of new businesses. Consider, for example, the world of resources. Exploration in Colombia over the years for things like hydrocarbons, base metals, precious metals and coal was nonexistent. You didn’t dare do it because you wouldn’t come out of the bush alive. Now, on the other hand, there is a whole industry building—and not just because of the better security. It’s also because of the tremendous legal infrastructure that is in place to protect foreign investors—something lacking in many other countries in the region.
Jim speaking at an event – “Investment strategies in an emerging financial lanscape”. Funny to see the Indian interviewer’s (probably an MBA!) WTF reaction to Jim’s comments on agriculture. In trying to sell the attractiveness of the farming business in South America to potential investors, I’ve found the going rough in India. People cannot imagine farming as a lucractive proposition, like it is in South America. No Indian middle class family would want their kids to get into farming. Heck, even Indian farmers – almost half of whom want to quit farming, don’t want their kids to be farmers! Farming and agribusiness gets a bum rap in India, because it is a disastrous business there – afflicted with a nexus of misdirected subsidies, price support, import and export controls, collapse of extension services, absence of an agricultural land market and pervasive corrupt bureaucratic intervention across the entire range of the rural economy, as Dr. Rajiv Kumar of ICRIER so eloquently states.
One of the CEOs of an Indian agrochemical company shared a story with me last month. One of his employees approached him asking for his help in finding a job for the employee’s 25 year old nephew back in the village. When the CEO asked what the son was doing, the employee replied “Nothing” The CEO said “How can he be doing nothing, he is 25 years old?” The employee replied, “He is dabbling in farming, that is like doing nothing!”
Agriculture in my view, is one of the best places to be in the next 30 Years , I mean all these people getting MBAs are making terrible mistakes as far as I’m concerned , they should be getting farming degrees.
Agriculture has been a disaster for 30 years…Agricultural products are gonna be the best investments over the next several years. I think farming…agriculture is gonna be one of the best industries in the world. Like I said, all people who got MBAs made a mistake, they should have been getting agriculture degree.
Successful LatAm companies and wealthy LatAm individuals would be reluctant to invest in Asia, given they are coming from a culltural framework of high uncertainty avoidance. Investing and doing business in tried and tested regions like the U.S. and Europe is preferred over the new.
A preferential trade agreement (PTA) between the Southern Africa Customs Union (SACU) and India has been mooted for many years, but has yet to materialise. The India-Brazil-South Africa (IBSA) Trilateral has also been talking about an India-SACU-Mercosur (the Southern Common Market including Brazil) preferential trade agreement.
If the commercial relationship is to be truly leveraged, the agreement must be fast-tracked. With a consumer base of more than 1.6billion people, a PTA will redefine the trade corridor between South Asia, southern Africa and Latin America.
South African companies have not fully leveraged opportunities in infrastructure, energy, power generation and agro-processing in India. A case in point, India plans to invest $1.7-trillion in the next 10 years in infrastructure developments, yet no South African construction companies have been able to penetrate the Indian market.
BASIC countries (Brazil, South Africa, India, China), IBSA countries (India, Brazil, South Africa), and BRIC economies (Brazil, Russia, India and China) have rapidly clubbed together to advance the interests of the South. This, coupled with SA’s strategic positioning in the expanded G20, has resulted in government accelerating our strategic alignment with the South. This is clearly reflected in the new industrial policy action plan. However, business has not always followed suit.
South African companies are comfortable with doing business in traditional economies in the US and Western Europe, but are less comfortable with doing business in emerging economies.
I think the India-Latin America trade corridor is one of the last frontiers in business. India does more trade with Africa – 2-way flows about $40 billlion, which has a fraction of the overall GDP($2,5Tn at PPP) compared to Latin America (almost $6Tn at PPP) – 2-way flows about $16billion. So, the future potential is quite rosy.
“We are very upbeat about Latin America and view it as the next frontier of growth,” says Harshul Asnani, head of Latin America and US West operations for BPO company TechMahindra.
The rapid growth in IT and network spending, increased mobile/broadband penetration and large scale consolidation in the telecoms sector in Latin America offers “vast potential” for a specialized telecom-focused systems integrator like Tech Mahindra, he says.
Omar Momin, vice president of strategy and M&A at Godrej Industries, also sees strong Latin America potential. “There are tremendous opportunities in Latin America that fit in with our strategic objectives,” he says. “These emerging markets have characteristics and consumer demographics similar to India with significant middle of the pyramid populations. They also hold tremendous potential in terms of growth in the coming decade and give the Godrej Group an opportunity to serve the needs of Latin American consumers better.”
One of the reasons why India´s trade with Latin America is below potential is the inadequate attention Indian business have paid to this region in the past,” says R. Viswanathan, India’s ambassador to Argentina, Uruguay and Paraguay and his country’s top Latin America expert. “Now this is changing. [Indians] are impressed by the strength and resilience of Latin American markets which have withstood the U.S. crisis and are marching ahead despite the gloom in Europe.”
In terms of sectors, he predicts that Indian investment will grow in IT, agribusiness, mining and petroleum in the coming years.
Meanwhile, lighting products manufacturer Havells Sylvania is also looking at expanding. “We are open to new proposals and are looking at both organic and inorganic growth in Latin America [along the] lines …Havells in India has aggressively grown from year to year,” says Kapil Gulati, the Costa Rica-based general manager and director of the Americas for Havells Sylvania. “We plan to initiate assembly operations in a few countries.”
Note: an abbreviated version of this article titled “India’s Interest in Latin America must go beyond World Cup” was syndicated by Indo-Asian News Wire Service. A few portals that ran the article include: SIFY, TradeIndia, IndiaNewsPost, ThaIndian, SouthAsiaMail, ProKerala, Gulf Times, Qatar and the Ministry of Overseas Indian Affairs.
Over the next few weeks, millions of Indians, like their compatriots around the world, will be glued to the television, cheering for their favorite World Cup teams. Among the South American teams are traditional favorites, Brazil and Argentina. But other teams from the region include Uruguay, Paraguay and Chile. All these countries are football superpowers, with a long history of producing players who dazzle with their stylish play: eyes-in-the-back-of-the-head passing, bicycle kicks, dancing and dribbling past three or more defenders before scoring. The names of Messi, Kaká, Tévez and Forlán will echo off fans’ lips well after the finals.
In India, meanwhile, fever for those South American fútbol stars tends to fade once the games are over. Yet there is an important reason why enthusiasm for South America should persist beyond the World Cup: The Mercosur trade bloc of countries – Brazil, Argentina, Uruguay and Paraguay are the world’s emerging agriculture superpowers. They are already shipping their tremendous surpluses worldwide and, as agriculture outsourcing hubs, have the potential to meet India’s food needs in the coming decades.
South American surpluses, especially in oilseeds, pulses and sugar, will feed the growing food deficits in much of Asia, with shrinking arable land and expanding populations.
First some geographical context, since South America – unlike Canada and the United States – generally doesn’t appear on the Indian radar. Brazil is three times the size of India. It is even larger than the continental United States. Yet its population is about that of Uttar Pradesh and Uttarakhand. Argentina is nearly the size of India, with a population equivalent to New Delhi, Mumbai and Kolkata. Uruguay, sandwiched between Brazil and Argentina, is about the size of either Karnataka or Gujarat, three and a half times the size of Punjab, yet it holds less than half the population of Bangalore or Ahmedabad.
Flying from India to cities like Buenos Aires, Montevideo or Sao Paulo, located in the South Atlantic seaboard, is quicker than getting to California. All these Mercosur countries lie in the tropical and temperate latitudes where a wide range of crops can be grown, outside the zones of hurricanes, earthquakes or volcanoes.
What makes the agribusiness fundamentals so great in these countries?
With these advantages, the Mercosur countries enjoy large agriculture export surpluses and ship 60 to 90 percent of their annual production to such countries as China, Vietnam, Korea and Japan. India imports their grains, edible oils and sugar.
On the socioeconomic front, Mercosur countries are democracies, with relatively little ethnic, religious or racial conflict. Cultural values, such as emphasis on family and relationships, resemble those in India. Indians will find a good business fit while operating in these countries. The Mercosur governments are dedicated to attracting responsible foreign investment and industry.
In South America, various combinations of buy/lease farming options are available, and annual financial returns can exceed 20 percent or more. In addition, farm portfolio managers in South America (akin to financial portfolio managers) can manage an agriculture operation for a fixed fee per hectare, plus a share of the profits. This would suit those Indian investors who know nothing about farming but do care about output and returns, and don’t want to deal with purchasing equipment or hiring personnel. Indian agrochemical companies like United Phosphorus and Excel Crop Care, and farm equipment players like Mahindra are reaping rewards from the South American agriculture market.
It is a fact that India’s domestic production cannot keep pace with the growing demands for more and better-quality food. It is time that Indian companies and investors look at South America for “backward integration” into farming operations. To use a World Cup analogy, it’s time to score goals for India’s food needs.
Venezuela has been particularly hard hit by the global recession over the last few years. Last year alone, the country experienced 27% inflation and a 2.9 percent decline in economic output. Times are tough enough, in fact, that famed “anti-capitalist and Marxist” Hugo Chávez has declared that, “Investment and experience from foreign oil firms is necessary in Venezuela. We need it.”
Venezuela has long been criticized by the US and others for its policy of nationalization, which it has pursued with vigor in industries like telecommunications and oil. Chávez actually nationalized the entire oil industry in 2007, but recently, that trend has begun to change; Chevron inked a deal worth multi-billions of dollars to drill in Venezuela after it submitted the winning bid for some oil blocks in the first oil auction since Chávez took office 11 years ago. A second group of companies, previously highlighted on this blog, won a different set of oil blocks.
According to the NY Times, this deal signals a significant shift in strategy for Venezuela and Chávez.
After clashing with foreign oil companies in recent years, President Hugo Chávez of Venezuela has shifted strategy and awarded contracts to Western oil companies, hoping to increase his nation’s flagging oil production and pull the country out of a sharp economic downturn.
Chevron, the American oil giant, led a group of companies that won one of the concessions on Wednesday night…
Furthermore, this shift in oil policy may indicate that Venezuela will be seeking warmer relations in general with the United States and other countries that Chávez has been prone to demonizing.
In an unusual display of warmth given his friction with Washington, Mr. Chávez happily greeted a senior Chevron executive in attendance, Ali Moshiri, the company’s president of African and Latin American operations. Mr. Chávez conceded that differences remained with the Obama administration, but he also extended an invitation for President Obama to visit Venezuela’s southern oil region, telling Mr. Moshiri, “You bring him here.”
This latest development in Venezuela may be part of a general shift in Latin America from the left to the center. Other indications of this current centralist trend include the election of a right-wing billionaire in Chile’s presidential election, the strong success of Brazilian President Lula who governed from the center-left, and an overall decline in combative left-right discourse throughout South and Central America.
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