The Real Deal
The G20 is coming to grips with what governments are and are not willing to do over the next year in terms of stimulus plans and regulations. Most agree that the bottom has been marked during this downturn, but that the recovery is going to be less than stellar in western eyes.
The language in London has been downright bellicose when it comes to bank bonuses and re-gigging remuneration packages -- and that is what has been coming from the regulators! Whether concrete proposals actually crystallize is another matter altogether. The reality is most leaders have one hand on the populist pulse (re-elections in the case of Britain and Germany) and the other on the wheel of a ship which has been through one heck of a storm.
Collective action, including more than a trillion dollars spent to prime the banking system, has provided us with more security, or at least the perception of more security than in September 2008. On the streets of London, we all witnessed a period of about a week when one did not know whether their financial institution would remain open. All of a sudden, depositors had to learn a great deal more about deposit insurance limits.
At the start of this year when the western led downturn started to really bite, one wave of economists boldly stated the decoupling theory widely touted the previous year had been proved to be wishful thinking. The so-called BRIC countries are export dependent and cannot excel without the support of European and U.S. demand, the collective logic concluded.
It is time for those doctors of emerging market doom to re-think their prognosis. Collectively, the U.S. and Europe will be lucky to grow between one and two percent over the next year. In contrast, China is already growing eight percent and India and Indonesia better than five and the broader Middle East around three and a half percent. This is not theory, but the real deal.
This week, I sat down with Egypt’s Trade and Industry Minister, Rachid Mohamed Rachid who continues to comb the east and west for growth opportunities on behalf of Egyptian companies. These days he is logging more long-haul trips to China and India in search of joint ventures or to recruit companies for special economic zones under development.
Rachid, as a former senior Unilever executive, is acutely aware of recessions and business cycles in general.
“Today we are not talking about theory but about facts. We are seeing numbers that are totally different than the U.S. and Europe. We are seeing prospects that are more bullish than the rest of the world.”
It is not easy to navigate larger economic tankers through these turbulent times, but that is exactly what some of these fast developing countries have done. When the export machine started to falter in China, it steered the economy to a domestic infrastructure build out -- not little league spending but some $9 trillion between now and 2017. The other billion person economy, India, was in the midst of a reconstruction plan that will see new railroads, airports and the rest built over the next two decades. Those who have travelled the roads or rails on India would not argue about the need to do more at this stage of development.
Some would contend this is good sound planning by the two future giants. The fact is that luck and good timing had a lot to do with it. The infrastructure plans were on the books and were rightly accelerated to respond to the downturn.
The storyline is not dissimilar in the Middle East. The Chief Executive of GE International Nani Beccalli-Falco points to the model of public-private partnerships in the region where there is a track record of growth.
“We are getting out [of the downturn] because the so-called emerging countries, which in my mind are not emerging anymore because they have already emerged, are really pulling the global economy,” said the finely-dressed Italian from Turin, “You think about China, you think about India, you think about the Middle East, you think about Brazil.”
So while government leaders try to develop a consensus for future action, those with capital reserves will keep their taps open on a large scale. That is, what they say in business, not theoretical but “the real deal.”
ABOUT THIS BLOGJohn Defterios’ blog accompanies the weekly business program, Marketplace Middle East (MME) that is dedicated to the latest financial news from the Middle East. As MME anchor, John Defterios talks to the people in the know, finding out their opinions on the big business moves in the region, he provides his views via this weekly blog. We hope you will join the discussion around the issues raised.
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