The UK Election and the Economy

A recent article in the economist made some concerning comparisons between the UK's recovery from the recent financial crisis and Japans recovery from the Asian banking crisis in the 1990s. The report compared the 2 countries of level of indebtedness and found them similar; it also stated that Japan has never really recovered from its economic momentum since the crisis.

I agree with the Economist that this is an unlikely outcome for the UK; I have a lot of faith in the UK's businesses and entrepreneurs to find a way to stay profitable and keep growing. However this growth can only be assured if business and the wider economy are supported by the government. With elections fast approaching and the outcome more uncertain than in recent years there are signs of fear in the stock market and public anxiety around a hung parliament.

This is the worst time for British politicians to try to learn the art of government by coalition and compromise when the economy is still in need of strong leadership and decisive action. Whatever the form of the next British government takes it must be able to act rapidly and with conviction.

The polls are suggesting the Liberal Democrats are doing better than ever before, this must surely increase the chances of a Hung Parliament. I hope that any coalition Government can quickly form a consensus on the direction of Britain's economic recovery, and the parties' inability to agree does not prevent a return to sustained growth. I was surprised that Nick clegg still feels that Uk should join Euro. It would have been a disaster for Uk if it had joined Euro. UK is much better outside Euro so that it can control its monetary policy as Uk's Economy is very much linked to global economy. Singapore ,a much smaller country and economy, is in the same position and is able to see high growth as it controls its own currency.

What ever the outcome of the elections i hope politicians of all parties will be more honest with the public about the state of economy and the need for structural reforms to return to economic growth and to balance the economy between various sectors and particularly to increase the role of manufacturing. Hard decisions will need to taken sooner than latter particularly in balancing the reduced role of government and recovery of the economy.

Encouraging signs in Malaysia

Last week I was in Kuala Lumpur, Malaysia to continue talks with Prime Minister, Najib Tun Razak, started at CBF in Trinidad. I had a very good meeting especially coming at a time when the economy is showing encouraging signs of growth estimated to be 5% for the coming year. The main theme of the discussion was on the Prime Ministers views on the return to global growth particularly through emerging markets like Malaysia. The Prime Minister told me that Malaysian Companies are becoming more and more active in other Asian Countries, particularly China, India and Indonesia.

The British High Commissioner to Malaysia, Boyd McCleary, confirmed the importance of the Malaysia to the developed world in the wake of the Financial Crisis, more and more British companies have a growing presence in Malaysia.

I met with a number of prominent Malaysian business leaders during the trip; they all expressed similar optimism and described growth plans for the coming year, from plantation projects in Indonesia, rural Malaysia and Nigeria to exporting the Malaysian experience in world class Infrastructure development to other markets, such as India. Malaysian companies are expecting real growth this year.

What will 2010 bring?

Contrary to all expectations at the beginning of the year 2009 ended with a majority of the developing nations in surprisingly strong economic positions. Most of the largest developing nation stock markets have recouped all the losses made in 2008, and countries such as China and India have avoided recession all together, only experiencing reduced growth. 2010 will have a much greater emphasis on the G20 and the BRICs countries than we have ever seen.

Recovery in the developed nations will now depend much more on how the consumer acts in India, China and other emerging markets. Demand for imports of high value manufactured goods from the BRIC countries can help drive forward recovery in western countries. There is evidence that Germany, France and Spain are enhancing manufacturing capacity to match the increasing demand from India and other countries, I hope the UK will follow suit.

Energy is going to be an important sector in 2010 as we move more towards clean technologies it will create new manufacturing opportunities in both the developing and developed world. Infrastructure represents a similar opportunity, the high demand in India and Africa will create opportunities for specialised companies in the western world. Africa will be the focus of a push for increased global agricultural production.

As Developing countries return to stronger growth they will help push the whole of the global economy out of recession. Consequently, how the developing world manages its economies will have a much greater impact on the western countries than ever before.

2009 was not the end of globalisation as some predicted, rather, we have seen just how linked the world economies have become. Globalisation will now be driven more by the BRIC countries, the G20 and the developing world than before, so it is in all our best interests to see the Developing world do better.

In this light I hope that 2010 will see a successful conclusion to the Doha Round of trade talks, this will depend much on the level of emphasis the developed countries put on it. In 2010 I think the major difference will be in the respective importance of the G20 and G8. The G20 will come to the fore on most Global Issues. There has been a reversal that will be all the more obvious in 2010, for the last 2 decades the consumer in the West has been buying from the manufacturer in the East, now it is the Consumers in Asian Countries that will drive forward the next stage of globalisation.

India, Prudence and FDI

The Indian Prime Minister’s, Manmohan Singh, recent announcements about new economic reforms, particularly the 10% divestment of public sector companies, is movement in the right direction.

India is satisfied that it has avoided the worst of the global financial crisis, its conservative banking system and high capital ratio have protected it from the worst of the global turmoil. However, this conservatism works both ways, yes it reduces risk, but it also limits access. In India, this means millions of potential entrepreneurs are excluded from the financial systems that they can use to prosper. Prudence is good, but too great a level can limit growth and exclude too many members of society. To accelerate the rate of growth India should, perhaps, be a little less prudent.

Relatively low levels of FDI in India, only $121 billion over the last 8 years, are a mystery to me. India represents a fantastic investment opportunity and the levels should be higher. Recent Figures have shown a 9.1% increase in industrial production from last year, and the Government’s commitment to $500 Billion in infrastructure investment, a figure that will be far higher when including the Private Sector contribution. The IFC, the World Bank’s private sector arm, decision to increase India’s exposure from the $3.4 Billion or 10% of its portfolio last year, are all signs of confidence in India’s policy and growth. As one of the few countries where economic activity is near levels hit before the economic crisis, India will prove to be one of the most attractive investment destinations over the coming years.

Grenada, the financial crisis and tourism

During this time of financial crisis smaller states need to work hard to find new ways of attracting foreign capital. CBC recently hosted a lunch for the PM of Grenada, Hon. Tillman Thomas; I was interested to hear how he plans to tackle this problem in his own county.

With the reduced numbers of people travelling for the traditional holiday, countries that rely on tourism for a large percentage of their income need to broaden there appeal and try to attract different visitors in addition to the traditional holiday maker. The Prime Minister described how his country was diversifying into, Eco Tourism and Health Tourism. He also talked of making the country self sufficient in terms of Agriculture – he wants the majority of what tourists consume to be produced locally, there should much fewer agricultural products imported for tourists.

I was also glad to hear the Prime Minister talk so passionately about a home grown chocolate bar that has now found a market in Europe.

Mr Sanusi appointed Nigerian Central Bank Governor

Last week I was in Nigeria to attend a Business Breakfast organised by Mr Pascal Dozie, one of CBC’s Board members, and was pleased to catch the Senate Confirmation Hearings of Mr Sanusi Lamido Sansui as the Governor of the Nigerian Central Bank on TV.

I was glad to see Mr Sanusi, former CEO of First Bank, a CBC Member, appointed as the Governor of the Nigerian Central Bank though a true governance process; the senate questioned him in detail on topics of great importance to the banking system and the Nigerian Economy as a whole, including Regulation and Recovery. Coincidently, Mr Sanusi is the Second Central Bank Governor of the same name to move from CEO of First Bank to the Governorship.

In General the impression I got from the Business men and women I met in Lagos was extremely upbeat; there are tremendous opportunities for investors in Nigeria, especially within the Infrastructure sectors. Government and Infrastructure Companies are actively and determinedly seeking outside investors to help develop the infrastructure base, in Lagos and other regions.

Africa to buck recessionary trend

While visiting East Africa last week I had the opportunity to meet with both President Museveni of Uganda and President Kagame of Rwanda to discuss the global financial crisis. It is apparent that there is a lot of innovative thinking going on in Africa right now, around how to resist the severe impact of the Global crisis and maintain the flow of FDI.

A Recent article in Time Magazine ‘Africa a Business Destination’ demonstrated this, reporting that while ‘Africa, usually the poorest performing region in the world economy, is now likely to be among the best-performing’. A consequence of not venturing into the derivatives markets or subprime lending as the west did has left the continent relatively immune to the Global Crisis. While recent the latest estimates for global growth this year look bleak, the same article reports that Africa will ‘buck the recessionary trend’ and grow over 3% this year.

New ideas are emerging regarding investment in Africa in sectors such as Agriculture, Infrastructure and ICT. It is a new reliance on business as cash rich countries such as China and the Middle East look for new markets in which to invest, that will fuel this growth. Even the Investment funds in the UK, Europe and the US are beginning to take serious notice of Africa as an investment destination, practically the agriculture sector.

The Caribbean and the Financial Crisis

I was in the Caribbean last week preparing for our Business Forum to be held in Trinidad alongside CHOGM later this year, so was meeting with government and business leaders, 2 main concerns seem to be affecting the islands’ leadership.

Firstly that the financial crisis is having a direct impact on the islands economy as the level of tourism drops off as potential visitors in the US and UK chose not to travel or to stay closer to home for their holidays. I hope that the various stimulus packages proposed around the world shorten the duration of the Recession and allow growth and prosperity to resume as soon as possible as a drop in the level of tourism is a serious threat to smaller states.

Secondly, there is an indirect consequence that may potential have a bigger impact on some of the island states. The current trend of viewing tax heavens as separate from the rest of the globalised economy and as singularly bad, the focus should be inclusive and on the greater involvement of small states as part of global competition and as useful elements of the global economy.

The threat to the Burgeoning Bourgeoisie

In the last edition of the economist there was an article, the ‘burgeoning bourgeoisie’ that said ‘for the first time in history more than half the world is middle class’. It also highlighted that while the increase India and China has been, as expected; massive the middle class has increased dramatically across all emerging markets. There are for example 80 million more middle class Sub Saharan Africans today than in 1990.

This growth in prosperity is something I have been working for throughout my career, but it is fragile and millions of lives now rest on the decisions that will be taken in the developed world over the coming months. The banking crisis has left millions of the world’s population in real peril and the longer the crisis continues the more of this new middle class will slip back into poverty.

From G7 to G20 - The Financial Crisis

The G7 finance ministers meeting on the 13th passed almost un-noticed there were the requisite statements on coordinating the response to the financial crisis, resisting the pull of protectionism, and the importance of free trade, but no progress on an international trade deal, or a global response to the crisis.

The real priority is to shore up the banking system. Governments should take action together to remove toxic assets from banks’ balance sheets through insurance schemes, and reopen the flow of credit. Im surprised that Governments are mainly taking advice from bankers in this restructuring, when input should come from as wide as possible, including other sectors of the economy.

Attention is now focused on the G20 meeting in London in April, with many hoping that it will become the starting point for recovery, for a new global financial and governance structure.

Trade Talks and the Financial Crisis

The current state of the world economy and the financial crisis makes the successful conclusion of the Doha Round of trade talks all the more unlikely.

The Heads of the G8 Countries are making all the right noises about resisting the draw of protectionism in a retracting market situation and with increasing unemployment at home, but for all this, the result is the same; the Round is not likely to be completed in the present climate and almost certainly not within the year.

While I congratulate Pascal Lamy for his continuous and seemingly untiring efforts to keep moving forward with the Round, I do not believe that either the upcoming G8 or G20 meetings will hasten the conclusion of the Doha talks.

India and the emerging markets the solution to the Credit Crunch?

In the context of the recession and ‘credit crunch’ I think people would have been amazed had they been in Gujarat yesterday and the day before, nearly 20 000 people attended the opening of the Vibrant Gujarat Global Investor’s summit 2009. India’s captains of industry and its top business leaders were present for the summit as well as representatives from governments around the world.

In the session I chaired, ‘Infrastructure with a focus on Special Investment Regions’ there was a stampede to sign MOU’s, it was an amazing site, to see so much confidence in India’s particularly Gujarat’s growth. Companies from all round the world were falling on each other to sign, Japan, Germany, the US, the UK, China, Korea and South Africa among many others.

The PM of Kenya and the Vice President of Uganda along with the numerous ministers from many African and Asian countries who were present for the summit seemed almost dazed at first by the response from business were desperate to learn from the experience.

The summit is the perfect antidote to all the news floating around about investors to nervous to invest. It was a hugely encouraging experience, India; especially Gujarat is the place to be. I have no doubt the solution to the credit crunch lies in emerging markets like India where there is still growth and the opportunities for business, as demonstrated over the last couple of days, is huge.

Dubai, Singapore and Malaysia optimistic about global financial crisis

Before the Christmas break I had the pleasure of taking a whistle stop tour of Dubai, Singapore and Malaysia. It gave me the opportunity to see firsthand just how ‘global’ the current financial crisis is, reaching out from the west, and affecting the rest of the world.

In Dubai the construction industry, long a pillar of the countries growth, has ground to a virtual halt and the price of Real Estate has dropped dramatically, but there is none of the panic or pessimism that’s visible in the west.

Following meetings with several of the financial groups in Dubai the impression I received was one of optimism in the long term. There was the belief that this current crisis was inevitable, that the last few years growth had been unrealistic and un-sustainable, and that the current recession is a correction.

There is even less pessimism in Kuala Lumpur and Singapore, the belief that the storm can be weathered is strongly rooted and that after a period of stock taking growth will resume, albeit with more realistic returns. This feeling of optimism is something that I and the CBC will tap into as we actively participate in both Dubai and Malaysia later in the coming year.

3 further ideas to help the UK through the current economic storm

Purchasing the surplus housing stock of troubled home builders
The Government could consider purchasing surplus stock, particularly at fire-sale prices, from companies such as McCarthy & Stone and Crest Nicholson (both of which are restructuring and have roughly 5,000 unsold housing units) the government would be able to make an immediate impact on social housing, unclog the balance sheet of troubled homebuilders and allow construction activity to resume

The creation of a public fund for innovation
Also, establishing a Fund to support innovation in manufacturing and export oriented industries could incentivise R&D units and university based research to focus on creating goods and services for export. The UK economy will need to position itself for a changing economic landscape – one in which consumption and consumer spending will become less reliable engines of growth and external markets will become as much a destination for export as they were a source of goods and services imports

Long term tax breaks for export oriented and manufacturing sectors
Finally, the promotion of the UK (through tax credits and regulatory reform targeted to foreign entities) as a destination for cash-rich companies in China, India and a Middle East as a base for high-end manufacturing and export oriented industry.

Extraordinary solutions to extraordinary times, my ideas to help the UK economy through the financial crisis

Speaking to the CBI in November this year, Gordon Brown said “All over the world, policy makers are leaving behind the solutions of yesterday and recognising that extraordinary times require extraordinary actions”. While I expect the most effective solutions to the current crisis will be monetary and regulatory in nature, I propose a couple of ‘out the box’ ideas that I believe will help the most vulnerable in society while hopefully reducing the impact of oncoming recession.

The creation of community banks
Small businesses account for more than half of Britain’s GDP and employ more than 13 million people across the country. I believe the government should promote the formation of strategically placed community banks to help ensure a fair supply of credit to small businesses. These banks could be run by healthy banks (HSBC, Santander) in equity partnerships with government who can target them at specific geographic areas ensuring the most vulnerable groups get the help they need.

A Government sponsored asset manager
I think it would be sensible to establish a Government Sponsored Asset Manager whose sole mandate would be to bid and purchase illiquid and distressed assets from banks. Many assets on bank balance sheets are mispriced owing to the near failure of trust in the interbank lending market. An independent entity that is a ‘buyer of last resort’ – one that has a mandate to analyse and make last bids on those assets – would allow troubled banks to improve solvency. The creation of such an entity should be considered within the context of regulatory reform of financial markets.

There will be more suggestions soon....