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As a top 10 analyst in recent stock performance and detailed research and strategy notes in banking, retail, logistics and IT services businesses I would be an ideal partner for most entrepreneurs and large company strategists, sales and marketing teams An accomplished presenter, I get frequent... More
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  • Infrastructure spending is sacred, countries aren't (GII, PBR, EEM, IGF) also (CIC, CNOOC)  0 comments
    Oct 17, 2009 1:31 AM | about stocks: GII, IGF, PBR, EEM, PXR, CEO
     Infrastructure spending is supposed to reach $35 trillion ( that’s 10 China’s or maybe 5 including the future growth) in the next 20 years according to CIBC World Markets and thus the deficit we have been running in infrastructure spending will soon reflect in national deficits and the economic paradigm may shift too! ( more on that later !)

    China has been increasingly activating itself in the last few weeks, what with the $6 billion bid for Nigerian Oil, and the bid for mineral resources in Guinea.

    The Chinese GDP of $3.4 trillion thus has built up at least $44 billion in aid extended by it to others including 28 countries in Africa) Though any attempt to measure it might fail in relating the two figures, it is important that this has been done without jeopardising their debt to GDP ratio and now when that ratio may be in threat after the $8 trillion bubble of new 2009 domestic debt

    However, China has started facing infrastructure financing blockages of its own and this project could well signify a Rubicon given the increasing deficits and inflation which would emerge from such financing off the national GDP of China

    In the meantime Russia has already collapsed from printing money to fund deficits contracting 5% in 2009 and Brazil and Venezuela have gone thru multiple cycles of re-denominating currencies and surrendering debt even as Lehman, IMF and AIG continued extolling the virtues of leverage and printing money. The world hasn’t changed a wee bit but the lessons to learn might be new, whether China or Brazil or Good old USA and India trying deficit financing. The infrastructure spend however, will not suffer this time whether in India, in China or in Kenya.

    Unfortunately, Sovereign Wealth Funds including the CIC, Temasek and Dubai World have already suffered reverses at the break of dawn and the same cultural anathema that broke global banks in 2001 and 2008 is the over riding culture at banks allowing Taiwan over India and Venezuela and Russia over China in economic decisions..it is the language, it is the global classroom and it is the incapacity to give the deserving a place in the face of an opportunity to screw yourself with leverage instead, as depicted in the Cold War movies and James Bond, in the Gazprom pipeline crossing all Western Europe without a bit to the Eastern padres and in the social catastrophe that was communism.


    Nations like US, India and others have to survive this onslaught of Infrastructure spending in this decade and thus I am no tvery confident in the face of unbridled rise in Infrastructure ETFs at this point, but obviously the long term trend is bullish. South Africa and Brazil are somewhat busy having been in the limeight and having outbid the other contenders. They would need a lot of allied urban infrastructure which would get financed , but none of it can substitute for security and resilience in the face of domestic unrest and the violent repercussions the world has had to face. This is going to be a testing decade.  

    However, that digression apart Private Equity would be an important element after the first flush of Government debt gets tired and PPP and Take-out models are given enough impetus. Given that then these would be again financed by highly leveraged structures, another disaster would look simplistically the only way forward..

    India has already raised INR 60000 Crore ($13 b) of its 100000 Crore ($22 billion)  target for 2009 ( as evinced by Advantage zyaada here) because public funds have shown that success can be achieved with investor funds and returns given. Private Equity can generate even more interest but maybe needs to be told firmly to not leverage up its books in the ‘hot season’

    India’s Aviation infrastructure would be a germane example in this case where Private Enterprise has taken root in such large ticket requirements. However in such Aviation , railroad, lifestyle or urban infrastructure as metros and airports the effect of loss-making operations has also internationally manifested in most cities. Rural and Oil infrastructure has till now been heavily subsidized even in the US and other developed nations, enabling the unholy nexus between war-mongering governments and OIl and Defence companies. The jury is still out and there will be more to write as a quantitative evaluation of these financing models and their results comes out and our children take over from us.


     

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