Category Archives: emerging markets

Top Posts of 2012

This blog is a year old this week.

In 2012, the three most popular posts (in terms of hits) were:

1) Financial Repression Update

2) The Boom Bust Life Cycle of Ireland’s Balance of Payments and Net Foreign Assets

3) Mexico: A Political Risk Assessment

Picking up the Pace – Renaissance in Indonesian Manufacturing

While working with the World Bank over the summer, I contributed to this in-depth report on the state of Indonesia’s manufacturing sector, which has just been published.

Having never fully recovered its dynamism after the Asian financial crisis, now is the ideal moment for Indonesia’s manufacturing sector to recapture its former glory. With recent improvements and a favorable outlook, the sector may be on the verge of a renaissance if critical competitiveness challenges can be overcome. Continue reading

Indonesia Rising

After the trauma of the 1997-98 Asian financial crisis, Indonesia has come roaring back, growth averaging over 6% in recent years even as the world struggles with the first financial crisis of the 21st century, and the deepest since the 1930s.

If the developed world remains wracked by ‘slowing pains’, many of Indonesia’s economic challenges can be classed as ‘growing pains’.

Creaking infrastructure, for instance, results from under-investment, but the problem is rendered far more acute by the capacity strains that come with break-kneck economic growth. Roads may be of insufficient number and quality, but the trebling of road traffic over the past decade is the real source of bottlenecks.

Policymakers aim to help the economy kick on to reach its full potential, with growth in the 7-8% range which would see Indonesia become one of the world’s top ten economies by 2025.

While Indonesia’s large domestic market and burgeoning middle class shield the economy to a certain extent from ongoing economic weakness and uncertainty in the developed world, so-called ‘decoupling’ has been proven a mirage for emerging markets. Indonesia is no different. The combination of slowing growth in China and stagnation in developed export markets are two challenges on the immediate horizon.

Economic transition in China, however, brings its own opportunities. Increasingly, rising wages in China mean Indonesia is being sought out as a low cost production hub. Increased domestic demand in China means a massive, growing export market on Indonesia’s doorstep.

During my time working with the World Bank in Indonesia, I made a modest contribution to the latest Indonesian Economic Quarterly.

These are its top five take-aways: Continue reading

Mexico: A Political Risk Assessment

Here is the final paper for my course in ‘Managing Political Risk’ at Columbia with Ian Bremmer, Preston Keat & Ross Schapp. I enjoyed learning from the best!

Ten takeaways:

1. Enrique Peña Nieto is long odds-on favourite to be elected President on July 1st, the first time PRI will hold the Presidency since losing it in 1997 after 71 years of unbroken rule.

2. Current polling suggests the PRI-PVEM alliance will comfortably secure a Congressional majority, raising the prospect of unified government for the first time since 1997 (NB: this did not subsequently come to pass; November 2012).

3. Unlike at past Presidential elections, no significant political or economic instability is anticipated to ensue, chiefly because Mexico’s macro fundamentals are now far stronger. Continue reading

Long Term Potential for Private Sector Investment in Mexican Shale Gas

The US Energy Information Administration (EIA) estimates Mexico’s shale gas reserves at 683 trillion cubic feet (tcf), roughly a quarter of US reserves.

At present, PEMEX has a monopoly on the extraction of hydrocarbons on Mexican soil, protected by article 27 of the constitution.

To date, PEMEX has drilled one shale gas well, and expects to drill three more by 2013. It’s longer term aim is to drill 4,000 wells to yield 1 billion cubic feet per day (bcfpd). Based on current estimates, this is equal to one sixth of total current gas production and roughly 9% of expected demand for gas by 2025. Continue reading

Only (Limited) Upside for Private Sector Oil Operators in Mexico

Over the medium-term there are likely to be improved opportunities for private sector firms to participate in incentivized service contracts for oil exploration and extraction in Mexico, albeit with asymmetrical contractual obligations, legal & political risks. Opportunities for more far-reaching entry into the Mexican oil sector, including asset acquisition, are viewed as less likely over the same time horizon. Continue reading

Narco-security in Mexico – Fat Tail Downside Risk to Financial Markets

Potential changes in Mexico’s internal security situation pose both upside and downside risks to corporates, each with relatively equal, medium likelihood and medium-to-high impact. With relatively lower probability, an extreme deterioration poses substantial broad-based downside risks for currency, credit and equity markets. Continue reading

My Take on Mexican Politics

Formally, Mexico is structured as a federal constitutional republic, consisting of 31 States plus a Federal District, not dissimilar from the US. It has several distinguishing characteristics, however: 1) it combines constitutional separation of powers with a civil law system, 2) consecutive re-election for the same public office is prohibited (although running for an alternative office is both permitted and common), 3) having been dominated by a single-party, PRI (Institutional Revolutionary Party) for 71 years until Vincente Fox of PAN (National Action Party) won the Presidency in 2000, transition to genuine democracy is still incipient. Continue reading