Africa may be a needy continent but this need offers rich rewards for businesses that are daring, innovative and flexible enough to grapple with poor infrastructure, underdeveloped markets and volatile politics.
This is the premise of a new book, “Africa Rising: How 900 Million African Consumers Can Offer More Than You Think” (Wharton School Publishing, $29.99).
Author Vijay Mahajan, who holds the John P. Harbin Centennial Chair in Business at McCombs School of Business, University of Texas at Austin, debunks traditional stereotypes about a continent that is starting to beep ever louder on the radars of global investors.
His book, published this month, is built around interviews with African and expatriate business people across the continent, including producers of consumer goods, alcohol, soft drinks, airline firms and retailers.
“(Many entrepreneurs) were tired of the media reporting too many negative stories about Africa .. faxless payday loans. if something happened in one country, all Africa was on fire. They were saying ‘how come our story doesn’t get out?’” he told Reuters in an interview.
High commodity prices, greater political stability in many countries, fewer wars, better communications and economic growth of around 6.5 percent have helped lure new investment, often from China and other emerging countries, primarily for resources such as oil and gas.
Mahajan says Africa’s 900 million plus people in 53 countries offer much as a market — they need to eat, they need clean water, clothing and medicine and they want cell phones, bicycles and computers.
If Africa were a single country, according to World Bank data, it would have had $978 billion total gross national income in 2006, placing it ahead of India.
Samsung Electronics Co Ltd (005930.KS: Quote, Profile, Research, Stock Buzz), the world’s top maker of memory chips, said it may buy flash memory maker SanDisk (SNDK.O: Quote, Profile, Research, Stock Buzz), which is valued at $3.2 billion, in a deal that could reshape a struggling industry.
“We are looking at various opportunities regarding SanDisk, but nothing has been decided yet,” Samsung spokesman James Chung told Reuters in response to reports the South Korean firm was interested in the U.S. maker of flash memory, which is widely used in storage devices and digital gadgets.
In a regulatory filing later, Samsung said an acquisition of SanDisk was an option.
Analysts said an acquisition could shift the balance of power in the flash memory industry.
“Samsung buying SanDisk would mean big damage for Toshiba,” said Yoshihisa Toyosaki, head of IT research firm J-Star Inc paydayloans.com.
Shares in Samsung closed up 1.2 percent after gaining more than 3 percent, outperforming a 1.6 percent fall on the wider Seoul share market .
Stocks in Japan’s Toshiba (6502.T: Quote, Profile, Research, Stock Buzz), which trails Samsung in the flash market but which plans to nearly double its chip production capacity in partnership with SanDisk, fell 4.6 percent to their lowest since November 2005.
In a brief statement, SanDisk said it “periodically has conversations with multiple parties, including Samsung, regarding a variety of potential business opportunities,” but declined to comment further.
A revised reading on gross domestic product announced Thursday showed much better U.S. economic growth than previously reported for the second quarter.
GDP, the broadest measure of the nation’s economic activity, stood at an annual rate of 3.3% in the quarter, adjusted for inflation, the Commerce Department said.
Economic growth between 2.5% and 3.5% is typically viewed as the norm for a healthy economy.
The revised result surpassed last month’s initial estimate of 1.9%. It also surprised economists surveyed by Briefing.com who expected a revision to 2.7%.
Stimulus works: The $90 billion in economic stimulus payments that reached taxpayers during the quarter helped boost GDP up from just 0.9% growth in the previous quarter.
Personal spending helped add 1.2% to the second-quarter preliminary GDP reading released Thursday, up from the advanced reading of 1% for the quarter and just 0.6% in the first quarter.
But many economists say the boost in consumer spending is a temporary factor attributed to the tax rebate checks, making the jump in the second quarter an anomaly.
"We got a decent boost from the stimulus, which hit the economy at a time when we really needed it," said Wachovia senior economist Mark Vitner. "It will have less of an impact going forward, though and we may even have a payback in the fourth quarter."
Trade helps too: The increase from the initial estimate was also partially due to June’s U.S. trade gap reading, which was not available until after the advanced GDP numbers were reported easy payday loans. Much improved demand for U.S. exports added 3.1% to GDP, compared to just 0.8% in the advanced reading.
"We would have had growth even without the stimulus, as much of the rise in GDP had to do with the trade deficit," Vitner added.
A pickup in government spending, particularly a 0.4% rise in defense spending by the federal government, also boosted GDP.
But imports declined over the period, meaning lower inventory levels for retailers, which account for more than half of all GDP. Changes in non-farm inventories subtracted nearly 1.3% from overall growth.
Inflation: The government report also showed mixed readings for inflation in the previous quarter.
The GDP price index, the so-called "price deflator," which measures prices overall, rose at a 4.2% annual rate.
But the core PCE deflator - a more closely watched inflation reading that measures prices that individuals pay excluding volatile food and energy prices - rose 2.1%, the same as was reported in the first GDP report.
Inflation is still just barely above the perceived comfort zone of central bankers. The Federal Reserve is generally believed to want to see the 12-month change in core inflation readings remain between 1% and 2%.
"Without a price spiral, the Fed won’t have to squeeze the life out the economy, which should help sustain modest economic growth," Vitner said.
Recessions are threatening to crash over the world economy in waves, as one country after another turns down a year after the onset of the global credit crisis.
Such rolling recessions pose a quandary for central bankers Ben S. Bernanke, Jean-Claude Trichet and Mervyn King: If the whole world were clearly slumping, they'd be united in cutting interest rates. Instead, with some countries still booming, they can't ignore the inflation threat. Paralyzed between slowing growth and accelerating prices, U.S. and European policy makers this week are set to fall back on keeping rates unchanged.
“We're in a peculiar situation where, a year from now, we're likely to look back and say that monetary policy makers have made a very, very serious error,'' says David Lipton, head of global country-risk management for New York-based Citigroup Inc. “The problem is, we don't know whether we're going to say they were too loose or too tight.''
A lot's at stake. If central bankers leave rates too low, they risk stoking global inflation that's already projected by the International Monetary Fund to be the fastest in nine years. Keep rates too high and the world could fall into its first recession since 2001-2002.
In the past, when the U.S. economy weakened, the rest of the world usually followed quickly, and inflation eased as demand for oil and other commodities fell. U.S. recessions in 1990-1991 and 2001 brought global growth down by half, sending fuel prices tumbling.
Slowdown Delayed
That didn't happen this time. The world expansion barely slowed last year and oil prices surged, even as the U.S. economy shrank in the fourth quarter. Only now — two years after the U.S. housing boom went bust — is the slowdown spreading worldwide and the price of oil showing signs of receding.
The world may avoid a recession, deemed by economists to be global growth of 3 percent or less, and still end up with what Allen Sinai, chief economist at Decision Economics in New York, calls a “witches' brew'' of ailments: declines in the housing and stock markets, a credit crunch and commodity-driven inflation.
The energy and credit crises may have permanently weakened the global economy by making production and investment costlier. Deutsche Bank AG economists say long-term growth may fall to 4 percent from 5 percent.
`Weaker for Longer'
While the world rebounded from its last slump to record the strongest expansion since the 1970s, Richard Berner, co- head of global economics for Morgan Stanley in New York, says that “growth will have to stay weaker for longer'' this time if central banks are to curb inflationary pressures. “Investors should consider these developments as a regime change,'' Berner says.
The U.S. risks a relapse after bouncing up in the second quarter as consumers spent some of their $91 billion in tax rebates. “I don't see recovery'' on the horizon, says Harvard University's Martin Feldstein, who serves on the National Bureau of Economic Research committee that determines when recessions start and end.
The big concern is that consumers — whose spending accounts for more than 70 percent of the economy — will cut back after their splurge. The omens aren't good: Overdue payments at the six largest credit-card lenders rose in June after falling the two previous months.
Division at Fed
Chairman Bernanke and his Fed colleagues are divided over what to do next after cutting rates to 2 percent from 5.25 percent a year ago. Some, including Dallas Fed President Richard Fisher, favor tighter credit now to contain inflation overnight payday loans. A majority prefer to wait and see how the economy develops.
Kenneth Rogoff, a Harvard economics professor and former IMF chief economist, says Fed policy makers are “stuck.'' While they may want to raise rates to 3 percent to head off inflationary pressures, they can't for fear of upsetting still- fragile financial markets. Consequently, they'll hold borrowing costs unchanged for “an extended period,'' he says.
European Central Bank President Trichet's dilemma is similar. After dodging the U.S. slowdown last year, the 15- nation euro-area economy may have shrunk in the second quarter for the first time since the common currency's introduction in 1999. As in the U.S., housing booms in Spain, Portugal and Ireland are collapsing, while the euro's appreciation is hurting companies that export.
Recession Risk
“The risk of a recession is no longer negligible,'' says Holger Schmieding, chief European economist at Bank of America Corp. in London.
When a worldwide slump last began in 2001, the ECB cut interest rates. Not this time.
With inflation the fastest in more than 16 years, the bank raised rates to a seven-year high of 4.25 percent last month. Officials warn they'll do more if workers win big wage deals. Employees at Deutsche Lufthansa AG, Europe's second-biggest airline, last week ended a strike after winning a 5.1 percent pay increase retroactive to July 1, and an additional 2.3 percent increase next year.
“The ECB is clearly walking a tightrope,'' says Martin van Vliet, an economist at ING Bank in Amsterdam, who predicts the bank will keep its key rate unchanged until 2009. “It has to balance the lingering risk of a wage-price spiral with prospective disinflationary pressures emanating from the downturn,'' he says.
Sharp Debate
The debate is sharper at Governor King's Bank of England. The U.K. is slipping toward its first recession since 1990 as house prices slide after tripling in the past decade. With inflation almost twice the bank's 2 percent target, King's policy panel split three ways last month; the majority voted to keep rates at 5 percent.
Japan, too, is at risk of a recession. Exports fell in June for the first time since 2003 and unemployment reached 4.1 percent, almost a two-year high. The Bank of Japan has little room to act, with its benchmark interest rate of just 0.5 percent and consumer prices rising at the fastest pace in a decade.
“The fog hanging over Japan's economy will stick around for the time being,'' bank board member Atsushi Mizuno said July 24.
Even Asia's rapidly growing emerging economies are showing signs of slowing. The region's policy makers are at odds over how to react as inflation remains high.
Chinese officials suggest they may seek to bolster their economy after growth slowed in the second quarter by the most since 2005. Others remain intent on curbing inflation. India has raised rates three times since May while suffering the weakest growth in five years. Surging food and energy costs prompted Indonesia, Thailand and the Philippines to tighten credit in July.
“There's a kind of stagflation marching over the world economy,'' Sinai says. “I hope policy makers are able to figure it out and make the right decisions to fight it.''
Deutsche Bank AG’s net profit fell 64% in the second quarter as financial market turbulence from the U.S. credit crisis led to $3.6 billion in writedowns, the bank said Thursday.
Deutsche Bank (DB), Germany’s biggest, said net profit in the April through June period fell to $1 billion from $2.8 billion in the second quarter of 2007.
Total net revenues were down 39% to $8.42 billion from $13.7 billion a year ago, the Frankfurt-based bank said.
"The second quarter of 2008 proved to be another very challenging quarter for the banking industry," said Josef Ackermann, Deutsche Bank’s chief executive in a statement.
Corporate banking and securities’ loss before income taxes for the quarter were $485.2 million, the bank said. Markdowns on residential mortgage-backed securities, bond insurers, commercial real estate, and other positions amounted to $3.6 billion.
"The environment continued to affect the performance of our investment banking business, but our ’stable’ businesses again proved their resilience faxless payday advance. Despite additional markdowns, we produced a solid profit," Ackermann said.
"Looking forward, we remain cautious for the remainder of 2008. We will continue to strictly manage cost, risk and capital and to reduce our exposures in key areas. We will continue to invest in all our core businesses, both organically and by acquisition, but we will not relax our discipline."
Ackermann was not more specific on investing in acquisitions, nor did the report offer more of an outlook for the year.
Federal regulators on Tuesday extended through mid-August a temporary order banning a certain kind of short-selling of the stocks of mortgage finance companies Fannie Mae, Freddie Mac and 17 large investment banks.
The Securities and Exchange Commission said the ban on so-called "naked" short selling will be in effect until 11:59 p.m. EDT on Aug. 12 and will not be extended.
Short sellers make a bet that a stock’s price will fall so that they can profit from it. They borrow shares of the stock and sell them. If the price drops, they buy cheaper actual shares to cover the borrowed ones, pocketing the difference.
"Naked" short selling occurs when sellers don’t even borrow the shares before selling them, and then look to cover positions immediately after the sale. The SEC order requires short sellers to actually borrow shares before selling them.
SEC Chairman Christopher Cox said the order was also helping prevent potential "distort and short" manipulation of stocks, which occurs when rumors and misinformation are used to drive down the price of a stock that has been sold short.
"In addition to continuing the existing order against naked short selling, the commission will continue exploring other remedies for the broader marketplace to further protect investors from ‘distort and short’ artists," Cox said in a statement.
The SEC said that extending the restrictions on short selling will allow regulators more time to collect and analyze data on the order’s impact and effectiveness.
After ban runs out, regulators will move to draw up formal rules to provide additional protections against abusive naked short selling in the broader market, while allowing legitimate short selling, the SEC said.
Advocates for smaller banks and investment firms have been urging the SEC to expand the ban on naked short selling to cover additional financial companies.
Analysts and government regulators blamed aggressive short selling for exacerbating the recent plunge in Fannie Mae (FNM, Fortune 500) and Freddie Mac’s (FRE, Fortune 500) stock, as well as that of big investment house Lehman Brothers Holdings Inc (LEH, Fortune 500).
The SEC initially announced the emergency order on July 15 after a perilous slide in shares of Fannie and Freddie, the government-sponsored companies that together hold or guarantee more than $5 trillion in home mortgages - nearly half the U.S instant payday loan. total.
The regulators’ move followed a 13% drop in the price of Fannie shares and a 22% plunge in Freddie’s on July 10, when a news report said the government had begun contingency planning in the event the companies failed. The next day, Freddie shares plummeted 33% at one point and Fannie stock lost 29% of its value.
Yahoo Inc (YHOO.O: Quote, Profile, Research, Stock Buzz) President Susan Decker defended the company’s Web search advertising deal with larger rival Google Inc (GOOG.O: Quote, Profile, Research, Stock Buzz), saying some investors and industry participants had yet to understand its advantages.
In an interview with Reuters on Friday, she would not discuss reports of an executive exodus and an impending reorganization of the company’s products division that sent Yahoo shares down more than 3 percent on Friday.
Decker focused comments on concerns that the Google deal eventually would cut into Yahoo’s competitive position against Google, which has steadily grown an already-dominant share in the search market.
Yahoo still aims to build up its position in search and views it as inseparable from bolstering growth in other online ad markets, such as graphical display. Tests the two companies had conducted also showed the deal would not prevent Yahoo’s Panama search advertising system from gaining ground.
The deal would help Yahoo make money off of less-used search terms, for one, she said.
“It is really a back-fill in places where we’re not doing much business,” Decker said cash advance. “It’s our choice every day whether and how we might serve ads from Yahoo or Google, or a third party if we opened it up further.”
Shares in Yahoo are down 16 percent since the company ended buyout talks with Microsoft Corp (MSFT.O: Quote, Profile, Research, Stock Buzz) last week and instead forged a non-exclusive ad deal with Google for up to 10 years.
Investor concerns over Yahoo’s future have also mounted amid daily reports of executives leaving, including Jeff Weiner, executive vice president of its network division, and Qi Lu, the top engineer for Panama.
NEW YORK — JPMorgan Chase & Co.’s higher offer for Bear Stearns on Monday gave the investment bank control of nearly 40 percent of its ailing rival, blunting the threat that angry shareholders could scuttle the deal.
The $2.4 billion lifeline to rescue the investment house stands a strong chance of success — assuaging investors unhappy with a $2 per share offer by upping it to $10 apiece quick payday. JPMorgan has faced an outcry among Bear Stearns shareholders about the lowball offer, and faced the possibility that rival deals would begin to surface.
Most analysts said a higher bid was unlikely, but some bondholders reportedly have been buying the stock in order to ensure their right to vote for a deal and prevent a bankruptcy that would wipe them out. Bear
Toyota Motor Corp. said Thursday it will start selling the hybrid Prius and two other models in South Korea next year as it expands its offerings in the country beyond the luxury Lexus brand.
"It’s a big challenge for Toyota," Chairman Fujio Cho said of the decision to enter South Korea under the Toyota brand. The local market, which is dominated by domestic manufacturers including Hyundai Motor Co. and Kia Motors Corp., is "pretty tough," he said.
Toyota said it will begin selling the Prius, the Camry sedan in gasoline and hybrid versions, and the RAV4, a compact sport utility vehicle, during the second half of next year through a dealer network.
The world’s biggest automaker by production has set modest sales goals - initially targeting a total of 500 vehicles a month. It said, however, that it plans to quickly double sales to 1,000 vehicles a month.
Toyota has already had success with its Lexus brand, which it began selling in South Korea in 2001. Sales have risen every year, with 2007 the best to date at 7,520 vehicles.
That accounted for 14.1% of the imported car market, just behind Germany’s BMW at 14.3%, according to figures from the Korea Automobile Importers & Distributors Association.
Japan’s Nissan Motor Co. (NSANY), which markets its luxury Infiniti brand in South Korea, also plans to begin sales under the Nissan brand later this year credit scores. Mitsubishi Motors Corp. also has plans to enter the South Korean market.
Honda Motor Co. (HMC) sold 7,109 vehicles in South Korea last year, the third-largest total for foreign automakers.
Toyota previously sold the Camry and Avalon models in South Korea through a local sales agent from 1997 to 1999.
The company manufactured a record 9,497,754 vehicles worldwide in 2007, up 5.3% from the previous year, beating General Motors Corp. of the United States, which made 9.284 million.
Toyota, however, sold 9.366 million vehicles last year, about 3,000 fewer than its U.S. rival. GM (GM, Fortune 500) has been the world’s top-selling car company for 77 years.
Executive Vice President Tokuichi Uranishi said the strong Japanese yen, high costs for raw materials and slackening demand in major markets are casting a shadow over this year, for which Toyota has set an annual group sales goal of 9.85 million vehicles.
"Frankly speaking, the Japanese, U.S. and European markets are very soft … if the current situation continues I think that will be hard" to achieve, Uranishi said of the target.
Toyota (TM) hopes sales in emerging markets such as China and Russia will help cover weakness elsewhere, he said.
Manufacturing provides many Canadians with good jobs and the opportunity to develop high skills. Yet today, manufacturing is at risk. Several hundred thousand jobs have disappeared in recent years and things could get much worse. There are two reasons for this.
One is the increasing possibility of a difficult U.S. recession combined with a high dollar, which poses a serious threat to many small and mid-size manufacturers dependent on the U.S. market.
So here the question is what can federal and provincial governments do to help sustain manufacturing companies during what could be a long and deep U.S. slowdown?
The second challenge, which is more troubling, is the urgent need to adjust to deep structural changes in the world economy. Advances in technology and an intensifying race to bring new technologies to market is one dimension. Another is the entry of new competitors with abundant low-cost yet skilled workers, such as China and India, into the global economy.
New business models are emerging, based on global supply chains in which multinational corporations organize production by sourcing parts and components from companies around the world, based either on high-quality leading-edge technology or low costs. Canadian manufacturers can only compete with high-quality, leading-edge technologies.
While responding to the first challenge of surviving a recession is the current headline issue, the more troubling and pervasive challenge of structural change in response to new forms of competition is the more fundamental.
There is a temptation to write manufacturing off on the grounds that our natural resources and services industries can assure a healthy economy for all. But this would be a huge mistake.
Manufacturing does matter. It is easy to forget how pervasive manufactured products are in our lives. From food, clothing, shoes, furniture and building materials to pharmaceuticals, automobiles, aircraft, computers, TV sets, BlackBerries, chemicals, plastics and, for that matter, newspapers.
Today, many manufactured products have a high content of what we call intangibles – design, software, engineering, patents, marketing expertise, research and development bad credit payday loan. It is these activities that generate many of the good jobs in manufacturing. But for intangibles to have value, there ultimately has to be a manufactured product.
There’s also a tendency to see manufacturing as increasingly a developing world activity. While it is true that many products can be made more cheaply in the developing world, about 75 per cent of global manufacturing still takes place in the advanced economies, compared to about 10 per cent in China. And much of what China exports consists of high-value parts and components made in more advanced economies but assembled in China into a final product.
So it’s possible to have a healthy manufacturing industry in a high-cost country like Canada if it produces high-quality products.
Finally, there’s a tendency to overlook the reality that manufacturing affects all provinces. While Ontario is the centre of Canadian manufacturing, all provinces have manufacturing industries.
But a strategy to ensure a healthy manufacturing industry in Canada depends on close co-operation between governments at all levels.
For example, provinces want to help their smaller manufacturers participate in global supply chains. Federal foreign trade offices and the Export Development Corp. have roles to play. Provinces want to free up cash flow in businesses by allowing companies with unused investment tax credits to turn them into cash. Ottawa has to change its tax rules to do this.
Provinces want to see strategic investments to develop industry clusters and target promising technologies, as was possible under the old Technology Partnerships program. Ottawa has to overcome its resistance to direct support programs.
Unless we can get the federal and provincial governments aligned in support of an innovative manufacturing industry with good jobs, Canada will become a country with diminished prospects. Manufacturing matters.
David Crane’s column on Global Issues appears Sundays. He can be reached at crane@interlog.com.
Powered by WordPress -- XHTML 1.0