http://www.engineeringnews.co.za
  SEARCH
Login
R/€ = 14.49Change: 0.01
R/$ = 10.50Change: -0.01
Au 1294.90 $/ozChange: 0.00
Pt 1407.50 $/ozChange: -5.50
 
 
Note: Search is limited to the most recent 250 articles. Set date range to access earlier articles.
Where? With... When?








Start
 
End
 
 
And must exclude these words...
Close Main Search
Close Main Login
My Profile News Alerts Newsletters Logout Close Main Profile
 
Nelson Mandela 1918 - 2013   Agriculture   Automotive   Chemicals   Competition Policy   Construction   Defence   Economy   Electricity   Energy   Environment   ICT   Metals   Mining   Science & Technology   Services   Trade   Transport & Logistics   Water  
What's On Press Office Suppliers Directory Research Jobs Announcements Contact Us
 
 
 
Article   Comments   Other News   Research   Magazine  
 
 
Aug 13, 2010

Rising intra-emerging market trade and investment creating new momentum

Back
BANGALORE|Beijing|Edinburgh|Geneva|London|Mecca|Medina|Rome|SEOUL|Shenzen|SYDNEY|Washington|Amp|China Mobile|China Railway Construction Corporation|Embraer|France’s Areva|General Electric|Goldman Sachs Group|HSBC Holdings|Huawei Technologies|Locomotive & Rolling Stock Corporation|Rio Tinto Group|Royal Bank Of Scotland Group|Standard & Poor|Africa|Asia|Europe|Latin America|North America|Bangladesh|Brazil|China|Democratic Republic Of Congo|Egypt|France|Guinea|India|Mozambique|Pakistan|Russia|Saudi Arabia|South Korea|UAE|United States|Zambia|USD|Gross Domestic Product|Oil|Steel|Chu Moon Sung|Dariusz Sliwinski|Jerome Booth|Kieran Curtis|Luiz Inacio Lula Da Silva|Martin Currie|Neill|Paulo Cesar|Shane Oliver|Stephen King|Wang Jianzhou|Middle East
bangalore|beijing|edinburgh|geneva|london|mecca|medina|rome|seoul|shenzen-city|sydney|washington|amp|china-mobile|china-railway-construction-corporation|embraer|frances-areva-company|general-electric|goldman-sachs-group|hsbc-holdings|huawei-technologies|locomotive-rolling-stock-corporation|rio-tinto-group|royal-bank-of-scotland-group|standard-poor|africa|asia|europe|latin-america|north-america|bangladesh|brazil|china|democratic-republic-of-congo|egypt|france|guinea|india|mozambique|pakistan|russia|saudi-arabia|south-korea|uae|united-states|zambia|usd|gross-domestic-product|oil|steel|chu-moon-sung|dariusz-sliwinski|jerome-booth|kieran-curtis|luiz-inacio-lula-da-silva|martin-currie|neill|paulo-cesar|shane-oliver|stephen-king|wang-jianzhou|middle-east



The high-speed rail link China Railway Construction Corporation is building in Saudi Arabia doesn’t just connect the holy cities of Mecca and Medina. It shows how Asia, the Middle East, Africa and Latin America are holding the world economy together.

Ties between emerging markets form what economists at HSBC Holdings and Royal Bank of Scotland Group call the “new Silk Road” – a $2,8-trillion version of the Asia-focused network of trade routes along which commerce prospered starting in about the second century.

Today’s world-spanning web is insulating markets such as China from the drag of weak recoveries in the advanced world and providing global growth with a new power source. Stephen King, HSBC’s chief economist, predicts the relationships will strengthen and lists them as a reason for his forecast that emerging markets will grow about three times faster than rich nations this year and next on average.

“The potential for interemerging market trade is ginormous,” said Jim O’Neill, chief economist at Goldman Sachs Group, in London, who coined the term ‘Bric’ in 2001 to describe the rising role of Brazil, Russia, India and China. “That makes it quite difficult to see how you get a sustained global recession because of what’s going on in the West.”

The Bric economies hold a 13% share of world trade and have been responsible for about half of global growth since the start of the financial crisis in 2007, according to O’Neill. He predicted the Brics will grow about 9% this year and next, compared with 2,6% in advanced nations.

Investors are tuning in. Research by Kieran Curtis, who helps oversee $2-billion at Aviva Investors, in London, found growing trade between emerging markets helps explain why they now account for about 30% of global final consumption, about the same as the US and up from 10% in 1990. That should increase demand for the Chinese yuan if the government continues to loosen restrictions on settling trade transactions with its currency, he said.

China’s government signalled on June 19 that it would allow a more flexible exchange rate. So far, it’s limited the yuan’s rise to less than a percent against the dollar after allowing a 21% appreciation in the three years to July 2008.

Jerome Booth, who helps oversee $33- billion of emerging-market assets as head of research at Ashmore Investment Management, in London, said emerging markets are increasingly starting to denominate trade contracts in currencies other than dollars as commerce between them rises.

Commodity prices that may have been dropped in the past when advanced nations grew less are now cushioned by trade between emerging markets, said Dariusz Sliwinski, head of emerging markets at Martin Currie Investment Management, in Edinburgh. “Commodity prices would have been much lower without the support, which is good for the likes of Russia and Brazil,” said Sliwinski, who helps manage about $15-billion.

Royal Bank of Scotland chief China econo-mist in Hong Kong Ben Simpfendorfer says emerging Asian and Middle Eastern economies will account for 75% of every extra barrel of oil consumed or produced in the next decade, while copper should gain because it’s a key input in infrastructure and nickel may benefit because of its use in steel.

 

The Standard & Poor’s GSCI Total Return Index, tracking the net amount investors received from 24 raw materials, climbed 13% last year. While the price of oil fell as low as $32,40 a barrel during the recession, it has since rebounded, ending last week at $78,95 a barrel. The cost of nickel and copper more than doubled over the same period.

 

Chu Moon Sung, a fund manager at Shinhan BNP Paribas Asset Management, in Seoul, which manages $26-billion, says investors will increase their holdings of emerging- market equities. “The populations in emerging markets, especially in Asia, are large,” he said. “They are getting more educated and income levels are rising, which make these countries very attractive for companies. China is a favourite for stock investors but we’re seeing more interest in Indian, Brazilian and Russian markets.”

 

Trade Gains
The Geneva-based World Trade Organisation (WTO) estimates intra-emerging market trade rose on average by 18% a year from 2000 to 2008, faster than commerce between emerging and advanced nations. It totalled $2,8-trillion in 2008, about half of emerging-market trade with all nations.

 

That performance is especially welcome now given the sluggish recovery in the rich economies, said HSBC’s King, author of Losing Control: The Emerging Threats to Western Prosperity and a former UK Treasury official.

 

Chinese exports to the emerging world accounted for about 9,5% of gross domestic product in 2008, compared with 2%in 1985, he calculated. India’s jumped to 7,3% from 1,5% and Brazil’s almost doubled to 6,3%. Emerging-market economies will grow 6,9% this year and 6,2% in 2011, King said, outpacing the 2,4% and 1,9% projected expansions of developed economies.

 

“There are now massive trade connections within the emerging markets and they’re becoming increasingly important,” said King in a telephone interview. “It means in one sense the emerging world is protected from the worst ravages of the developed world.”

 

Those ravages were born in the global recession of 2008/9 from which the advanced world is proving slow to recover, even after policymakers cut interest rates to record lows. That’s prompting businesses and investors to seek other sources of growth. Of the foreign direct investment flowing into South, East and South-East Asia alone, China was a source of 13,3% in 2008, compared with the US’s 7,9% and up from 0,4% in 1991, according to a report last month from the Geneva-based United Nations Conference on Trade and Development. China, the world’s fastest- growing major economy, dominates the push into fellow emerging markets, passing the US as the biggest exporter to the Middle East in 2008.

 

Shenzen-based Huawei Technologies, its biggest maker of phone equipment, had orders of $1,7-billion from India in 2008 and said in January that it would invest $500-million in its research centre in Bangalore. China Mobile, of Hong Kong, the world’s biggest phone carrier, is “interested in doing business in Africa”, where it can boost services in rural areas, chairperson Wang Jianzhou said on June 26.

 

Elsewhere in Asia, a group led by Korea Electric Power Corpor-ation, South Korea’s largest utility, beat off competition from General Electric and France’s Areva to win a $20- billion UAE nuclear contract. The Saudi Railways Organisation last month awarded a contract to China South Locomotive & Rolling Stock Corporation to supply ten cargo locomotives. The Mecca–Medina rail contract went to Beijing-based China Railway as part of a Saudi-Chinese consortium.

 

Brazil in Africa
In Latin America, Brazil’s Vale has been on an international spending spree, helped by booming commodities demand from China and a currency that has doubled against the dollar since 2003. The company estimates that its $1,3-billion coal mine, in Mozambique, will have a capacity of 11-million tons a year three to four years after it enters production in the first half of 2011.

 

Vale, in 2009, acquired stakes in three copper projects, in Zambia, Africa’s largest producer of the metal, and the Democratic Republic of Congo. In April this year, the company agreed to pay $2,5-billion for iron-ore deposits in Guinea, including assets the country confiscated from Rio Tinto Group. “We saw the same phenomenon with American and European companies 50 to 100 years ago as they went global,” said Shane Oliver, head of investment strategy at AMP Capital Investors, which manages about $95-billion in Sydney. “Emerging-market companies are now big enough and they have the choice of going to developed countries, where they may be more constrained, or to the emerging world, where the growth potential is.”

 

They are also jostling with each other. Brazil’s Empresa Brasileira de Aeronautica, or Embraer, is braced for increased competition from new Chinese and Russian rivals. In December 2009, 32% of the backlog of orders for Embraer’s medium-range E-Jet airliners were from emerging markets, up from 1% in 2005. Over the same period, the company’s backlog of orders from North America and Europe fell to 53% of the total, down from 91%.

 

“We are selling less, on a proportional basis, to the US and Western Europe, and we have a growth in sales in Latin America, Asia and Asia-Pacific,” said Paulo Cesar, Embraer’s executive vice-president for the airline market. Embraer is braced for new competition from Russia’s Sukhoi and the Commercial Aircraft Corporation of China, or Comac, particularly in their home markets, Cesar said. Both companies are developing civilian airliners.

 

Royal Bank of Scotland’s Simpfendorfer, whose book, The New Silk Road: How a Rising Arab World is Turning Away from the West and Rediscovering China, was published last year, says the trade ties between China and the Middle East alone make for a modern ‘Silk Road’. The original was more than 10 200 km of trade routes crossing Asia and into southern Europe and North Africa. Based on China’s silk industry and once travelled by Marco Polo, the commerce it enabled also helped power the growth of civilizations from Egypt to Rome.

 

Governments are seeking to take advantage of the modern version. India said in May that it would open an economic division at its embassy in China’s capital as the two countries seek to increase bilateral trade to $60-billion this year from $43- billion last year. Since taking office in 2003, Brazilian President Luiz Inacio Lula da Silva has visited about 68 developing nations, more than any of his predecessors.

 

With trade nevertheless comes tension. Developing economies in Asia and the Middle East accounted for about 45% of new antidumping investigations reported to the WTO in 2009, up from 22% in 1998.

 

China said in May that India shouldn’t discriminate against Chinese telecommunication products, a month after people with knowledge of the matter said contracts for products from Huawei Technologies and ZTE were vetoed by India’s government on national security grounds.

 

MTN Group, Africa’s largest mobile-phone company, in June halted talks to buy $10-billion of assets from Orascom Telecom Holding SAE after Algeria’s government blocked a sale of the company’s local unit, the most profitable in the portfolio. Orascom, the biggest mobile-phone company by subscribers in the Middle East, also operates in Bangladesh, Pakistan and Egypt.

 

There is still scope for ties to strengthen. In a study released last week, the Washington-based Inter-American Development Bank concluded “massive bilateral trade” could develop between Latin America and India if tariffs are cut.

 

Gene Grossman, who succeeded Federal Reserve chairperson Ben Bernanke as head of Princeton University’s economics department, sees a repeating pattern of what he called the “home market effect”, in which countries at similar income levels increasingly trade because their consumers have similar tastes and spending power.

 

 

 

• The Bloomberg reporters who wrote this article are Simon Kennedy, Matthew Bristow and Shamim Adam.

Edited by: Bloomberg
Comment Guidelines
 
 
 
 
 
 
 
 
Other Editorial Insight News
Trade and Industry Minister Dr Rob Davies took the high road when responding to news that Nigeria had officially surpassed South Africa as the continent’s largest economy. Following a rebasing of its gross domestic product (GDP), Nigeria’s statistician-general...
Article contains comments
Besides frighteningly frank warnings (which some have disparaged as being apocalyptical) about the threat posed by climate change to everything from food security to human health and ecosystems, one of the stand-out themes from the latest Intergovernmental Panel for...
With South Africa poised to open the way for shale gas exploration, it was interesting the gain insight into the issue of hydraulic fracturing (fracking) from UK special representative on climate change Sir David King. King, who was born in Durban in 1939 and...
Article contains comments
More
 
 
Latest News
Few would argue with the notion that unemployment, which stands at around 25% on the narrow definition as reported by Statistics South Africa, remains one of the country’s most pressing challenges. Fewer still could contest the view that South Africa’s education...
Renewable-energy projects, such as this Northern Cape solar farm, seen as key to low‐carbon energy supply.
Upfront investment costs will and should remain a critical consideration as South Africa moves to upscale and accelerate its infrastructure programmes. But one of the lead authors of the latest Intergovernmental Panel on Climate Change (IPCC) argues that the...
The barrier to efficient water service delivery in South Africa was not of a technological nature but rather related to legal and Constitutional challenges, Water Research Commission (WRC) CEO Dhesigen Naidoo said on Thursday. Opening a WRC debate under the theme...
More
 
 
Recent Research Reports
Steel 2014: A review of South Africa's steel sector (PDF Report)
Creamer Media’s Steel 2014 report provides an overview of the global steel industry and particularly of South Africa’s steel sector over the past year, including details of production and consumption, as well as the country's primary carbon steel and stainless...
Projects in Progress 2014 - First Edition (PDF Report)
This publication contains insight into progress at the delayed Medupi and Kusile coal-fired projects, in Mpumalanga and Limpopo respectively, as well as at the Ingula pumped-storage scheme, which is under construction on the border between the Free State and...
Automotive 2014: A review of South Africa's automotive sector (PDF Report)
The report provides insight into the business environment, the key participants in the sector, local construction demand, geographic diversification, competition within the sector, corporate activity, skills, safety, environmental considerations and the challenges...
Construction 2014: A review of South Africa's construction sector (PDF Report)
Construction data released during 2013 hints at a halt to the decline in the industry during the last few years, with some commentators averring that the industry could be poised for recovery. However, others have urged caution, noting that the prospects for a...
Electricity 2014: A Review of South Africa's Electricity Sector (PDF Report)
This report provides an overview of the state of electricity generation and transmission in South Africa and examines electricity planning, investment in generation capacity, electricity tariffs, the role of independent power producers and demand-focused initiatives,...
Defence 2013: A review of South Africa's defence industry (PDF Report)
Creamer Media’s 2013 Defence Report examines South Africa’s defence industry, with particular focus on the key players in the sector, the innovations that have come out of the defence sector, local and export demand, South Africa’s controversial...
 
 
 
 
 
This Week's Magazine
The Electronic Systems Laboratory (ESL) of the Department of Electrical and Electronic Engineering at Stellenbosch University is strongly reaffirming its position as one of South Africa’s leading centres for satellite technology and expertise. It is currently...
MORE IN SA Phase 2 should see local content on the mainline locomotive increase from 65% to 80% by the end of 2014
The world’s lowest-cost diesel-electric locomotive is not made in China, but in Pretoria, at RRL Grindrod Locomotives’ newly upgraded 30 000 m2 plant. The company’s locomotive pricing is “more competitive than any other original-equipment manufacturer (OEM)...
The South African Defence Review 2012, released to the public at the end of last month (despite the year given in its title) recommends the creation of the post of Chief Defence Scientist. This official would be responsible for the management of defence technology...
AltX-listed engineering technology company Ansys has been awarded an R188-million contract by Transnet to supply integrated dashboard display systems to the freight rail utility’s locomotives. Black-owned and controlled Ansys developed the bespoke integrated system...
South Africa’s sole nuclear power station Koeberg, which is located in the Western Cape, breached a major operations milestone on April 4, which marked the thirtieth anniversary of Unit 1 having been connected to the grid. Eskom, which operates the two-unit plant,...
 
 
 
 
 
 
 
 
 
Alert Close
Embed Code Close
content
Research Reports Close
Research Reports are a product of the
Research Channel Africa. Reports can be bought individually or you can gain full access to all reports as part of a Research Channel Africa subscription.
Find Out More Buy Report
 
 
Close
Engineering News
Completely Re-Engineered
Experience it now. Click here
*website to launch in a few weeks