There have been a litany of worrying events for investors in Argentina. First investors saw the government of President Kirchner order oil and mining companies to repatriate all future export revenue to Argentina. This was followed with the introduction of tighter oversight of the foreign exchange market, the implementation of further protectionist policies to restrict imports and the revocation of oil concessions from foreign controlled oil companies. All of these actions culminated in the nationalization of Argentina’s largest and previously state-owned oil company YPF (YPF) by the expropriation of almost all of the Spanish company Repsol’s (REPYY.PK) shares in the company. All of which has created speculation that the government of President Kirchner will target other former state-owned business for nationalization. Two companies that have in recent months come under the government’s gaze are the two largest Argentine telecommunications companies Telecom Argentina (TEO) and Telefonica de Argentina. Both of these companies once formed the state-owned telecommunications company Entel.

The period from 1990 to 1996, saw Argentina undergo broad structural reform, including the privatization of most state owned enterprises including airlines, telecommunications, utilities, railroads, ports, petrochemical plants, the state oil company and some provincial banks. As a result of this privatization Entel was divided into two companies, with Telecom Argentina being awarded the north of the country and Telefonica de Argentina the south. Telecom Argentina is now majority owned by Nortel Invesora (NTL), a company that is controlled by Telecom Italia (TI). Telefonica de Argentina is owned by Spain’s second largest company Telefonica (TEF).

The Argentine telecommunications market is seen as one of the most advanced telecom infrastructures in Latin America and telecom revenues are expected to reach more than $14 billion in 2012. All of this indicates that it is a highly profitable market for its two main players Telecom Argentina and Telefonica de Argentina.

Both of these companies reported strong financial results for the first quarter 2012, with Telecom Argentina reporting in comparison to fourth quarter 2011 that revenue remained steady at %$1.2 billion but that OIBDA rose by 17% to $370 million and net income rose by 16% to $157 million. For the same period Telefonica de Argentina’s revenue rose by 12.9% to $1.1 billion, but OIBDA fell 11% to $345 million.

Both companies are seeing substantial growth in their Argentine mobile and internet operations because as in other Latin American countries fixed-line revenues are gradually decreasing. Furthermore, Argentina has one of the highest rates of internet use in Latin America, having the third highest number of users after Brazil and Mexico.

Since the end of fourth quarter 2011 Telecom Argentina has seen a 2% increase in the number of mobile subscribers and an 8% increase in average revenue per mobile user to $12.60. Whereas, Telefonica de Argentina saw its mobile subscribers increase by 3.3% by the end of first quarter 2012 from fourth quarter 2011. For the same period average revenue per mobile user grew by 2% to $12.36.

As at the end of first quarter 2012, Telecom Argentina has a 34% share of the mobile market, a 35% share of the broadband internet market and a 47% share of the fixed line market. Whereas Telefonica de Argentina has a 40% share of the mobile market, a 31% share of the broadband internet market and a 48% share of the fixed line market.

As the market share figures illustrate both companies have a dominant position in the Argentine telecommunications market and are capable of delivering solid financial results. Both Telecom Argentina and Telefonica de Argentina’s parent Telefonica, have seen their stock prices plunge since the start of 2012, but for very different reasons. Telecom Argentina has dropped by 33% for its ADRs to now be trading at around $12 and Telefonica by 30% to now be trading at around $12. The key reason for Telecom Argentina’s plunge is the increase in Argentina political risk and the ongoing pressure being applied to the company, firstly with regard to payment of its dividend and now with regard to capex in Argentina.

Telefonica has a geographically diverse business with a strong presence in Latin America but it only receives 6% of its revenue and 5% of its OIBDA from Argentina. The majority of its revenue and OIBDA from its Latin American operations is obtained from its independently listed Brazilian subsidiary Telefonica Brazil (VIV), which accounts for 23% of Telefonica’s revenue and 25% of its OIBDA. Therefore, for Telefonica, any substantial drop in its Argentine market share or revenues will not have a significant impact on its bottom-line.

However, since President Kirchner’s re-election in October 2011, there have been a series of developments concerning Argentina’s telecommunications industry that have affected both incumbents. It started with President Kirchner’s government applying significant pressure to Argentina company’s including Telecom Argentina not to pay out dividends and instead reinvest that capital in Argentina. This occurred on the back of increasing capital flight that was putting pressure on the value of the Argentine peso, leading to further price increases in an economy with problematic inflation.

However, to its credit and in stark contrast to the views of many analysts and market commentators, myself included, Telecom Argentina defied the government pressure announcing on 27th April 2012 it would pay dividends totaling $183 million dollars to shareholders. This has given Telecom Argentina a very attractive dividend yield of 7.5% based on this 2012 dividend payment. If it is followed up with the usual second dividend payment which is typically the same amount the company will have a very appealing dividend yield of 16%. However, given the previous pressure brought to bear on the company by the Argentine government, there is no guarantee of a further dividend payment at this time.

Furthermore, as a conciliatory gesture aimed at deflecting further government criticism and further intervention in the company’s actions as a result of electing to pay the dividend, Telecom Argentina has committed to boosting investment in Argentina by more than 40% to $1 billion. The Argentine planning minister Julio de Vido earlier this year stated that the government would keep a close eye on whether the company’s investments in Argentina were in line with its profits. Obviously, this is to remind Telecom Argentina that the government expects it to follow through with its capex investment promise.

We have also seen the Argentine government recently fine Telefonica $43 million for a service outage in April this year in its Movistar unit, which offers wireless voice and data services in Argentina and across South America. During this outage 18 million Argentine clients of Movistar were without phone and data services for several hours due to technical problems. After the outage, the company moved to compensate customers but the Argentine government decreed that the compensation wasn’t sufficient. The fine was composed of $41.6 million as compensation for affected customers, or $2.25 per customer, and the remaining $1.4 million to be paid as a regulatory fine to the Argentine government. Interestingly, at the time of announcing the fine the planning minister has also asked telecommunications companies to increase their investment in fixed infrastructure in Argentina stating;

“Cellphone service quality has declined in recent months. We need to have full service, not service that gets worse when you walk a few meters one way or another.”

All of which I believe indicates that the government is increasingly using the regulatory stick to pressure telecommunications companies to increase investment in infrastructure in Argentina. Especially as any investment will improve government popularity, as it seen to create jobs in a country with high unemployment. It also alleviates the government’s inability to raise the necessary funds to invest in critical and much needed internal communications infrastructure, because they can’t tap international credit markets for those funds.

This becomes even clearer when we consider that last week, the Argentine government met with Vale (VALE), Xstrata (XSRAF.PK) and Barrick Gold (ABX) to apply pressure on these mining companies to develop and implement plans to replace imported equipment with locally manufactured equipment. This accords with what is becoming a recurrent theme, the government is forcing companies to adopt measures that decrease the flow of capital outside of the country and increase consumption of domestically produced goods. These actions do accord with the view expressed by the CEO of Telecom Argentina Franco Bertone that he doesn’t expect the government to nationalize telecommunication companies.

Even more cynically, I would think that the fine is nothing more than a much needed capital injection, rather than a move down the path towards nationalizing Telefonica de Argentina. I have taken this more cynical view as the government faces renewed balance of payments pressure and attempts to raise funds for investment in newly nationalized YPF. Given Telefonica’s share of the Argentine telecommunications market and the strong financial performance of its subsidiary it is unlikely that it would depart the Argentine market.

However, if Telefonica were to sell its Argentine operations it would not see significant impact on its revenue or net income. Nonetheless it would see the loss of valuable income producing assets. Any decision for investors on whether to invest in Telefonica should obviously not be based solely on the performance of their Argentine subsidiary especially as the company has debt management and cost issues that need to be addressed.

Despite no indications that the government has considered expropriating Telefonica de Argentina from Telefonica, I have lingering suspicions that it has at least been considered in some form or another by members of the current government. Given the current Latin American predilection for expropriating domestic companies from their Spanish owners it is certainly something that can’t be discounted. Particularly when it is considered that Argentina does not contribute a substantial amount of and the company is focused on building its Brazilian operations as well as being distracted by managing debt and expense issues and the ongoing contraction of the Spanish economy.

There have been some signs that share strong similarities to the events that led up to the nationalization of YPF. These include the planning minister making demands of both Telecom Argentina and Telefonica de Argentina to increase investment in Argentine telecommunications infrastructure. In the case of YPF the government made claims that the company wasn’t meeting agreed levels of production. This then saw the government commence stripping away oil concessions from the company, which impacted on its production, revenue and eventually profits. Finally, on the basis that YPF was unable to increase production the government nationalized the company.

It leaves me pondering what action the government will take if one or both companies fail to invest in telecommunication infrastructure at the level demanded. It is possible that the government will place restrictions on either company should they fail to comply or, even worse, revoke the non-compliant companies telecommunications license, which would prevent them from operating in the industry. This in effect would shut down their business and be only a short step from providing the government with the excuse to nationalize the license less company, so as to ensure Argentina’s telecommunications structure remains intact.

Based on its current price Telecom Argentina appears to be a compelling investment. This is particularly so when as the company is trading at only 23% of its book value per share of $9.99, has an earnings yield of 23%, a profit margin of 12% which is being converted into a very tidy return on equity of 34% and a historical dividend yield of 16%. However, given the increasing political risk in Argentina combined with the governments somewhat erratic and unpredictable decision making it would certainly be only a very hardy speculative investor who would consider the company. Even more so when it is impossible to predict whether the company will continue paying a dividend.

Telecom Argentina also makes up 4.4% of the holding of the only Argentine ETF currently available the Global X FTSE Argentina 20 (ARGT), which has fallen by 26% since the start of 2012. Until the government’s direction with the telecommunications industry and the economy as a whole becomes clearer, it would be prudent for investors to reconsider investing in this ETF.

At this time there is no clear evidence that the Argentine government is seeking to nationalize part or all of the country’s telecommunications industry. However, there are indicators that the government is willing to intervene directly in the industry in order to achieve its economic and political agenda. This includes pressuring telecommunications companies to retain profits in Argentina and increase capital investment in telecommunications infrastructure. The increased capital expenditure required to please the government will obviously have an effect on the profitability of both Telecom Argentina and Telefonica de Argentina. Investors should also be actively monitoring the situation, because the government’s actions to date closely mirror those that were taken at the start of the process to gain support for the nationalization of YPF. The government is also in a position where it can play the politically popular position that intervention in, and partial or full nationalization of the telecommunications industry, is a means of ensuring national security.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Between March and now, the rand has dropped from about R7.45 against the US dollar to its present level of just above R8.30. That’s a drop of about 10% and we know it’s been fuelled by the flight from risk caused by the Greek crisis. We – South Africa, that is – are considered risky. So when times are tough, the tough get going and sell assets here, repatriating their dollars, yen and euros, and the rand weakens.

In mid-May 2011, it was around R6.90 to the dollar. A year before, about R7.50. So, depending on which starting point you pick to compare with today’s rand value, you could argue that the rand has dropped by 10% or 17%. The starting point is irrelevant. For the proponents of a weaker rand – it’s never enough.

Cosatu is a major culprit in this regard, albeit a canny one. Here’s general secretary Zwelinzima Vavi on March 9 2011: “Cosatu is engaging with government and the ANC to try to convince them that we have to change to a radically different macroeconomic strategy, based, among others, on lower interest rates, a weaker rand, and more tariff protection for vulnerable industries identified by IPAP2 and NGP as potential job drivers.”

No specific number, you’ll note, just “a weaker rand”. That morning in March last year the rand was trading at R6.89 to the dollar. Today, it’s 17% weaker. Is that enough for Cosatu? Of course not. Whatever the rand’s level, Cosatu would always want it weaker, as we shall see. I recall Cosatu suggesting that R8.50 to the dollar would do the trick, while a recent edition of City Press suggests they would prefer R10. Who knows, least of all Cosatu?

Leave aside their nostrums about tariff protection and whether or not IPAP2 can create jobs. Let’s also forget the Commission of Inquiry into the Rand in 2002, which went over all of this in exquisite detail. Examine instead some fresher numbers, which are quite hard to produce but easy to understand. They come from one of the country’s leading economists and financial practitioners – Adrian Saville.

Saville is currently an associate professor in Economics and Finance at GIBS in Johannesburg.* He’s also a past Head of Finance at the University of Natal and has a string of publications in peer-reviewed journals to his name. More importantly, perhaps, Saville puts his money where his mouth is, running his own asset management firm, Cannon Asset Managers. For him, it’s not just about theory, but also about practice in the real world.

In 2010, Saville published a short paper called “Cents and Sensibility – Why a Weak Rand Is Unlikely to Help South African Manufacturing”. It is a direct rebuttal of the “weak rand” argument, not only for Cosatu but also anyone else proposing this scheme as a panacea for South Africa’s economic ills.

Saville’s arguments are based not on theory but hard data. In a court of law, that data is called evidence and, as Saville points out, “the evidence in the South African economy shows no explanatory relationship between a depreciating Rand and growth in the manufacturing sector.”

Read the paper a couple of times and you’ll see that, for an economic treatise, it’s quite easy to comprehend. He repeats his conclusion: “…there appears to be no relationship of any significance between manufacturing production and changes in the level of the Rand measured over what arguably constitute reasonable observation periods and response times.” He adds that “if people are anticipating that a revival of the South African manufacturing industry will flow from a weaker rand, they are possibly pinning their hopes on defying history.”

So what does drive manufacturing growth? Saville posits that “South African manufacturers participate in global economic growth when the world’s economies are performing well… sales are lifted by the rising tide of world economic growth.”
As a result, “the more buoyant global economic conditions convert into direct and portfolio investment flows into emerging markets, which includes an appetite for South African assets. In turn, the sentiment favouring South African assets translates into a strengthening Rand.”

To add a simple translation of my own: when times are good around the globe, they’ll be good for us, too, and reflect in a stronger rand, but when the global economy is bad – as it is right now – the rand will be weaker. End of story.

Almost. Saville would not be the distinguished academic he is, if didn’t argue a bit further. Our exports – like cars – contain significant levels of imported components. Thus, when the rand is strong, “imports become cheaper which means imported inputs become cheaper.” There may even be evidence, he suggests, to show that a strong rand is – contrary to the “weak randers” – good for manufacturing as a result.

But that’s not all, as they say on TV. Suppose that we did find evidence to back the “weak rand” hypothesis. And suppose that policymakers intervened in the markets – as department of trade and industry director-general Lionel October suggested they should in March this year, according to City Press? Saville notes that “the average daily turnover on the South African foreign exchange market is in the order of $10bn. This compares to the size of foreign exchange reserves held by the South African Reserve Bank of just over $40bn, equivalent to four day’s turnover on the foreign exchange market.”

Acknowledging that this was written in 2010, the reserves are not that much higher today. As any Governor knows, once the market knows which way the Reserve Bank is betting, you’re on a losing ticket. If you only have four days’ cover, well…would you mind leaving the casino, please, sir?

Saville puts forward several other points to back his point of view but the clincher is quite simple. If the approach of weakening your currency to gain competitive advantage in manufacturing exports works, “why would other countries not adopt the same simple strategy?” In other words, why isn’t every other nation on earth doing it right now, all the time?

Saville concludes his treatise by reminding us that “labour is the single most important input into manufacturing… by extension, labour productivity is the single most important factor in determining South Africa’s relative competitiveness.”

It’s that simple. Compared to global standards, labour productivity in South Africa is abysmal and labour costs are extremely high. Behind labour stands Cosatu, which would never acknowledge that either of those statements is true, despite overwhelming evidence to the contrary. It’s far, far easier to blame the strong rand – whatever its level. That way, it really can’t be helped: blame someone else, it’s not my fault!

*Disclosure: GIBS is a client of the Gibbons.

DM

Commodities / Gold and Silver 2012
May 16, 2012 – 01:26 PM

By: Julian_DW_Phillips

What Greek Elections Now Mean

Greece cannot form a government so expect elections within a month. We have come to the point where the bad news is out -the markets are telling us that Greece will likely leave the Eurozone and possibly the euro as their 10-year debt continues to trade at 27%. They may not pay out €436 million to creditors and keep it, fearing they will not get the next bailout tranche. Reneging on the obligation also would constitute a default triggering derivatives contracts and clauses requiring the settlement of other un-swapped bonds. Meantime the country has no government to make the choice. The country may run out of money by early July. The standoff has reignited concern that Greece will renege on pledges to cut spending as required by the terms of its two bailouts negotiated since May 2010

This blazes the trail for Spain to follow by asking, first, for a bailout. Portugal, Ireland, and potentially Italy are looking more and more each day like Greece. We’re now looking at the worst possible scene.

Whether this will happen or not is not the point for investors in gold and silver. The fact that markets are aware of this situation and are, in fact, discounting it is much more pertinent. If the euro doesn’t collapse and if these nations leave the Eurozone, then do not expect to see the Eurozone fall apart but to be much stronger having jettisoned the weak members. This would strengthen the euro enormously and send it back up towards the €1: $1.40 area. We do not think this is being discounted yet. The old rule that when the news is at its worst is the historic turning point of markets. With gold and silver moving with the euro, traders may keep the precious metals moving with the euro as it rises. This is where we are now.

Consequences in Greece

We have been witnessing a massive flight of capital out of Greece, out of the banks, i.e. Soc. Gen., that are large holders of Greek debt and even Greek money leaving to hide in the stronger member’s banks in the Eurozone. Any exit of Greece from the Eurozone would have to see their banks re-capitalized. Under the Maastricht Treaty, which formed the Eurozone, any member state can impose Exchange Controls for a short period of time while that country remains in the Eurozone. In Greece, that could happen just to close the exits and prevent a further run on the banks.

If the government decides to switch back to the Drachma, then expect to see the steps Argentina took when they switched from the U.S. dollar back to the Peso. These would automatically lead to the changing of all money, deposits and all, to Drachmas.

We would then envisage not just a two-tier currency -one for trade and one for capital. Expect the “Commercial Drachma” to trade at around 50% of the value of the euro and the “Financial’ Drachma” at a 30% discount to that. While this would stall imports, import replacement would spring to life inside Greece and a boom would begin. Tourism would likely roar as cheap holidays drew in huge volumes of tourists.

The central bank would impose draconian exchange controls grabbing all the foreign funds they could. Banks would be eager to return to Greece as they would see a sort of “scheme of arrangement” where they could bring in loans through the “Financial’ Drachma” and, provided the loans were given a 10-yr plus life, would be allowed to repay them through the “Commercial’ Drachma” giving them not just huge capital profits but a boost in their interest earnings over the life of the loan. The resulting low cost of labor and the financial incentives to manufacturers could see manufacturers move production there too. Such a positive outcome for nations that follow this path is normal.

Yes, many in Greece would struggle terribly; however, the core of their financial system would continue, and maybe even thrive. (Note: Since 1971 the author has experience with Exchange Controls and would be happy to consult on this subject.)

The success or failure of a Greek exit from the Eurozone and probably the euro would depend entirely on how the financial side of the departure was handled.

It’s well known that Greeks love gold, and rightly so, especially when one considers what lies ahead for them. But they have been buying and preparing for this eventuality for the last two years.

Consequences outside Greece

The Eurozone banking system would suffer tremendous losses and would initially suffer the blows of lost confidence. Again, we’re seeing this now. The overall Eurozone has entered a mild recession that could get worse, but the same could apply to the U.S., travelling some distance behind, in a financial structure more capable of weathering such storms.

The fiscal and political unity in the States is responsible for the current strength of the dollar; however, should the global debt situation worsen and there is a maturing of other major, U.S. problems, then the U.S. will follow Europe; before this happens, however, the emerging world will need to reach the point where it equals the financial world of the developed side of the globe. The Yuan going global would start the process.

We would have to see a rapid expansion of the money supply in Europe as toxic national debt values shrank and needed a fresh injection of capital to replace lost value. We’re on the brink of another chapter of this right now. While this would undermine confidence in the euro and the dollar, the reality that these currencies are the only available means of exchange will continue to ensure their use and control over the developed world.

But the loss of confidence process would result in investors seeking to preserve the value of their wealth in gold and silver bullion even more than we have seen in the last few years. Many times we’ve discussed just how gold would be used to reinforce the current currency system and how that process would become reality. More importantly, the institutionalization of gold in an active role in the monetary system would become a reality.

This would start in Europe, but the U.S. would dovetail into the developments as a cautionary reinforcing of its own monetary system too.

It may be that the public discussion over where Germany’s gold is held will lead to public pressure on Germany to repatriate it. If this happens, expect other nations in the develop0ed world to follow over time, accompanied by the recognition of gold’s importance in the reserves of a nation. This will highlight the desirability of gold in reserves to other nations outside the developed world and an acceleration of the demand for gold by the world’s central banks.

Gold Forecaster regularly covers all fundamental and Technical aspects of the gold price in the weekly newsletter. To subscribe, please visit www.GoldForecaster.com

By Julian D. W. Phillips
Gold-Authentic Money

Copyright 2012 Authentic Money. All Rights Reserved.

Julian Phillips – was receiving his qualifications to join the London Stock Exchange. He was already deeply immersed in the currency turmoil engulfing world in 1970 and the Institutional Gold Markets, and writing for magazines such as “Accountancy” and the “International Currency Review” He still writes for the ICR.

What is Gold-Authentic Money all about ? Our business is GOLD! Whether it be trends, charts, reports or other factors that have bearing on the price of gold, our aim is to enable you to understand and profit from the Gold Market.

Disclaimer – This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold-Authentic Money / Julian D. W. Phillips, have based this document on information obtained from sources it believes to be reliable but which it has not independently verified; Gold-Authentic Money / Julian D. W. Phillips make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold-Authentic Money / Julian D. W. Phillips only and are subject to change without notice.

© 2005-2012 http://www.MarketOracle.co.uk – The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Not only is this view misguided, it threatens U.S. global competitiveness. One reason is that those who espouse this position are essentially arguing that policy makers do nothing but wait for China’s economy to cool off and fade while we continue to out-innovate them. Problem is, there’s a growing gap in the U.S. between technology innovation and the ability to scale up and produce new value-added products and services.

At the very least, we need to close that gap.

Moreover, some proponents of the hit-the-wall theory are the same Beltway insiders who enriched themselves by helping to ship U.S. manufacturing jobs to China, a ruinous trend that has effectively hollowed out the U.S. industrial base.

Naysayers also point to China’s overheating real estate market as another sign of an impending slowdown, along with a declining rate of growth for China’s GDP. It’s also true that China’s state-run enterprises are a drag on economic growth, and the failings of the central government are, as one observer says, “unbelievable.”

But China watchers note that the stasis created by China’s command economy is slowly being challenged by more nimble provincial and municipal governments. Regional and local officials “are doing everything in their power to make the system work, sometimes against the wishes of the central government,” Dan Breznitz, a China expert at Georgia Tech’s Nunn School of International Affairs, told a recent hearing before the U.S.-China Economic and Security Review Commission. “We should not rely on China failing.”

Robert Atkinson, president of the Information Technology and Innovation Foundation, argues that the dismissive attitude toward China’s innovation drive is predominantly held by “Washington elites.” “There are way too many who have this deeply held view that we just don’t have to worry” because the China can’t innovate,” he told the U.S.-China commission. China “will hit the wall when they get to the stage of Japan, which is a long time from now,” Atkinson predicts. “The Chinese can go 40 or 50 years before they get to that wall.”

Breznitz stresses that China is not Japan. Municipal and provincial officials, he argues, have a clear set of goals, the money and the will to transform China’s economy in hopes of surpassing ours. “It is time that we wake up and smell the jasmine or ginger [tea] because it’s coming,” Breznitz warns.

One could argue that China’s current leaders are taking the nation in a direction that is unsustainable. Beijing’s air pollution is but one example. Another is rising labor costs in China, a trend that has some Western companies looking for ways to pull their manufacturing operations out of China. But penalties related to government economic and other incentives will make these manufacturing “re-shoring” efforts difficult.

Rather than wait for China to hit a theoretical wall, the U.S. must rebuild its manufacturing capacity from the ground up. Atkinson’s foundation is preparing a report to be released in June that will propose the creation of 15 “manufacturing universities” that will be modeled on Germany’s approach to training manufacturing engineers. Such an initiative would augment other efforts to revive U.S. manufacturing so that we can begin the close the gap between laboratory innovation and the introduction of new products and services that can help create a new engine of U.S. economic growth.

Rising Chinese salaries and US wage stagnation are causing factory repatriation and a US ‘manufacturing renaissance’, managers and allocators say.

The relationship between the US and emerging markets is of increasing interest to asset managers and allocators. The historic trend of US manufacturers moving ­production to cheaper emerging market centres shows early signs of reversing, as the gap between total production costs ­narrows.

Charles-Henry Monchau (pictured), head of discretionary ­management at EFG Asset Management, says some US companies are repatriating ­production from Asia after wages and benefits for Chinese factory workers grew annually by 15%-20%. In real terms, wages have fallen slightly in America’s manufacturing heartlands since 1980.

In the States, Monchau says, “wages haven’t been rising at all, which is equivalent to a drop in real terms. As there have been lay-offs on top of that, manufacturing states in the US were hit hard. Loss of jobs and caps in wages meant a lesser buying power, creating a vicious circle for the GDP of these states”.

Boston Consulting Group says the total remuneration advantage of 55% China enjoys today could narrow to 39% by 2015 after accounting for higher productivity of US workers. At about this point, it will be cheaper for Americans to make goods at home.

Technological edge

Studies from Bank of America ­Merrill Lynch and ISI also point to the possibility of ­companies repatriating production. Boston says: “The savings gained from outsourcing to China will drop to single digits for many products.”

Monchau highlights America’s technological and educational advantage, and more savings if manufacturers need not transport dutiable goods from China’s harbours.
The fall in the dollar against major EM currencies over recent years, plus the sharp drop in prices for US ­natural gas (a key energy input cost for manufacturers) to the lowest levels among developed world countries, are all relative advantages arguing for domestic production.

The result? The so-called ‘American manufacturing renaissance’, and the fact that, for the first time in 35 years, US manufacturing employment growth exceeds national jobs growth.

Monchau says: “Leaving the labour costs to one side, the US does benefit from two major advantages c­ompared to some emerging markets: t­echnology and education.”

Automation and robotics can indeed provide the cost savings US companies are looking for without outsourcing, he adds.

Conrad Herrmann, director of US growth portfolio management for Franklin Equity Group and co-portfolio manager of the Franklin US Opportunities fund, calls such onshoring “a long-term theme that does not happen ­overnight”.

MSP News

Data centers are an integral part of cloud services and the security, storage capacity, networking capabilities and backup and disaster recovery plans of storage facilities are of major importance to any managed service provider (MSP).

There were several announcements in the data center and managed hosting space this week, including new enhanced services and a super-node architecture rolled out by UnitedLayer for its North American customers. The solutions are available at the hosting provider’s data centers in San Francisco and Los Angeles, and offer specialized, customizable and innovative infrastructure solutions tailored to customers’ needs.

The company announced a new enterprise-grade SAN replication solution as part of its new services, featuring open storage to reliably meet customer Recovery Time Objectives (RTO) and Recovery Point Objectives (RPO) at a lower cost per GB. The scalable new super-node architecture offers security, compliance and on-demand provisioning in a reasonably priced private cloud solution.

An intelligent cloud storage solution was also announced by MSP NaviSite, Inc. The company’s NaviCloud Intelligent Storage (NCIS) offering helps enterprises to store, manage and protect distributed, unstructured content via a flexible and scalable solution. NaviCloud uses the EMC Atmos cloud storage platform, enabling Storage-as-Service through a scalable, pay-per-use model that aids in managing customers’ massive data growth and works with their storage budgets.

In acquisition news, it was announced that GMS Live Expert, an outsourced help desk and NOC for MSPs, has acquired Dove Help Desk. Dove is based out of Lexington, MA and offers outsourced live help desk services exclusively for U.S. MSPs. The acquisition will add resources and experience to the GMS offerings while also aiding the company’s MSP Partners by providing them with greater economies of scale, enhanced PSA system integration, broader service coverage and extended NOC capabilities.

Erin Harrison’s piece on the negatives of offshoring discussed how the phenomenon may actually benefit MSPs. A recent article from the MSPAlliance discusses the practice of offshoring to lower-cost geographical locations and how previously claimed benefits of this practice may not be accurate or ideal for every situation. The piece mentions that, while offshoring has some associated negatives, the practice of nearshoring or onshoring – outsourcing locally – is picking up momentum. This bodes well for the professional MSP community as companies take their business back onshore when looking for hosted and managed services.

Source Article from http://www.mspnews.com/msp/articles/290052-managed-service-provider-week-review.htm

Over 24 years, Joanne and Bob McIntyre built their Largo manufacturing firm Ditek Corp. into one of Tampa Bay’s little engines that could.

The couple has weathered recessions and expanded beyond making surge protectors to contract manufacturing of industrial, medical and military devices. With demand for surge protectors increasing as much as 15 percent this year, Ditek is adding to its 86-employee roster.

“We’re going into our busy season and we’re hiring as often as we can find gifted folks,” Joanne McIntyre said.

If only the bay area had more Diteks. A lot more.

Tampa Bay has never been known as a manufacturing mecca, but a new report released today underscores just how much the region lags both in the number of manufacturing jobs and what they pay.

Only 5 percent of Tampa Bay’s economy revolves around manufacturing. That’s far lower than the 8.5 percent average of most metro areas, according to a report on metro manufacturing trends by the Brookings Institution.

One way to look at it: If Tampa Bay’s manufacturing sector was as pivotal here as it is in most metros, it would be about 35 percent bigger and pump another $3 billion or so into the economy. On the wages side, the report indicates that Tampa Bay manufacturers tend to pay less than the average in other metros, be it in high-tech, moderately high-tech or all manufacturing jobs.

Steve Meitzen, president of the Bay Area Manufacturers Association, thinks the latest snapshot from Brookings is misleading, in part because industries like tourism and leisure play an outsized role here.

“There is a general observation that manufacturing is non-existent in this area, which is just not the case,” he said. “Look at how many people have left large manufacturing jobs up north and come to Florida and started a 15-man shop.”

Tampa Bay manufactures everything from plastic molding and medical equipment to flight simulators and etching equipment used to make semiconductor chips. Among well-known players are Jabil Circuit (electronics) and Aerosonic (aircraft instruments). Its top manufacturing sectors include computers and electronics (17 percent) and fabricated metals (9 percent).

There have been numerous attempts over the decades to increase manufacturing in the region. A common lament is that too many young workers disregard manufacturing as a career, unaware of the growth and wage potential.

In Oldsmar, veteran manufacturer Dick Peck is spearheading the latest efforts of the Florida Manufacturing Extension Partnership to help smaller manufacturers find workers.

Here’s one encouraging sign: Between January 2010 and December 2011, Tampa Bay posted a 3.6 percent increase in manufacturing jobs compared to a 2.7 percent increase among other metros.

Allen Brinkman, president and CEO of SunTrust Bank’s regional operation, thinks that recent uptick is only growing.

Many of SunTrust’s manufacturing clients — including “nearly every medical device company we bank right now” — are posting higher revenues, he said. “We are tracking an average 46 percent increase in manufacturing lending over the past two years.”

Brinkman concedes the area has a long way to go to make manufacturing more central to its economy “but we’re moving in the right direction.”

Aerospace historically has been one of the area’s top manufacturing industries. But political squabbles in Washington have hurt the return of aero jobs, said Meitzen of the Bay Area Manufacturing Association.

“Aerospace-related manufacturing could be a boom to this area if we could get back to things like passing a federal budget or letting NASA and the Defense Department plan on what their expenditures could be,” he said.

One way for manufacturing to regain its footing hinges on bringing back jobs that have been offshored in pursuit of cheaper labor outside the United States. The list of companies that have already brought back, or “onshored,” jobs is growing — Caterpillar, Whirlpool, Ford.

And, back in Largo, the much smaller Ditek Corp.

Ten years ago, the company made many of its products in Asia. Now, most of its manufacturing has shifted back to Florida. Patriotism aside, the decision makes business sense, company owners say.

“If you manufacture something overseas, you can’t adapt to changes quickly,” Bob McIntyre said. “We have complete control over our product and we can adapt overnight. That is a big key in our U.S. manufacturing.”

Between onshoring and automating more to keep up with technology, the McIntyres feel that Ditek and other local production companies with a similar strategy will be here for the long haul.

“We firmly believe that manufacturing is alive and well in Pinellas County, Florida,” Joanne McIntyre said.

Jeff Harrington can be reached at jharrington@tampabay.com or (727) 893-8242.

MSP News

The merits of offshoring have been long-debated, and according to some end users, the practice of offshoring to lower-cost geographical locations may not be working, according to a recent CBS news interview, referenced in a recent article written by the MSPAlliance’s Charles Weaver.

According to the interview with Boston Consulting Group, managing director, Hal Sirkin suggests that the previously claimed benefits of offshoring may not actually be accurate and recognizes the shortcomings of offshoring, or more precisely, that offshoring is not ideal for every situation.

While offshoring is associated with negatives, the trend toward offshoring business services jobs in the United States is not going away anytime soon, and will in fact accelerate during the next few years, according to a new study from The Hackett Group, which indicates that businesses based in both the U.S. and Europe will shed almost 4 million services jobs relating to IT, finance, procurement and HR by 2016.

However, as Weaver points out, the CBS interview underscores an even larger trend that is very promising for the professional MSP community. Nearshoring or onshoring, which is the practice of outsourcing locally, is picking up momentum, particularly among end-users who have had experience in outsourcing beyond the shores of their country.

“Companies like Boston Consulting Group have learned that the benefits of offshoring are not benefits, but they could actually be negatives,” Weaver said.

In particular, the specific areas of concern with offshoring include: Cultural differences; language differences; time zone differences; and data privacy and other IT related laws that may make doing business in that country more challenging.

While many end-users and MSPs effectively employ the use offshoring, those instances are in the minority, according to Weaver. In addition, those companies must also employ very tightly controlled models of offshoring to ensure that the offshore partners are held accountable.

“More importantly, offshoring does not mean the same thing as outsourcing. In fact, IT outsourcing, or more precisely managed IT services, is a great business model for accomplishing IT objectives that would otherwise be cost prohibitive or not practical if done in house,” Weaver reported.

The CBS interview highlights that there are, in fact, better onshore alternatives – a message that could help the managed services profession.

Edited by Brooke Neuman

These analyses predict the repair of two of America’s greatest economic vulnerabilities in recent times: dependence on foreign energy, with the threats of supply disruption, and the decline of the manufacturing sector in the face of lower-cost foreign competition. Both problems are on the way to being reversed, the analysts argue.

First, the case that America is entering a new era of energy security: My expert here is Robin West, a friend who is chairman of PFC Energy, a Washington-based advisory group. He argues in a series of recent reports to clients that because of the rapid expansion of oil and gas production from shale, America is likely to become by 2020 the world’s No. 1 producer of oil, gas and biofuels — eclipsing even the energy superpowers, Russia and Saudi Arabia.

West explains that the natural-gas boom will mean a dramatic change in energy imports and, thus, the security of U.S. energy supplies. He forecasts that combined imports of oil and natural gas will fall from about 52 percent of total demand in 2010 to 22 percent by 2020. The totals are even more impressive if supplies from Canada are included.

“This is the energy equivalent of the Berlin Wall coming down,” contends West. “Just as the trauma of the Cold War ended in Berlin, so the trauma of the 1973 oil embargo is ending now.” The geopolitical implications of this change are striking: “We will no longer rely on the Middle East, or compete with such nations as China or India for resources.”

Energy security would be one building block of a new prosperity. The other would be the revival of American manufacturing and other industries. This would be driven in part by the low cost of electricity in the U.S., which West forecasts will be relatively flat through the rest of this decade, and one-half to one-third that of economic competitors such as Spain, France or Germany.

The coming U.S. manufacturing recovery is the subject of several studies by the Boston Consulting Group. I’ll focus here on the most recent one, “U.S. Manufacturing Nears the Tipping Point,” which appeared in March.

What’s happening, according to BCG, is a “reshoring” back to America of manufacturing that previously migrated offshore, especially to China. The BCG analysts estimate that by 2015, China’s cost advantage will have shrunk to the point that many manufacturers will prefer to open new plants in the U.S. In the vast manufacturing region surrounding Shanghai, total compensation packages will be about 25 percent of those for comparable workers in low-cost U.S. manufacturing states. But given higher American productivity, effective labor costs will be about 60 percent of those in America — not low enough to compensate U.S. manufacturers for the risks and volatility of operating in China.

In about five years, argue the BCG economists, the cost-risk balance will reach an inflection point in seven key industries where manufacturers had been moving to China: computers and electronics, appliances and electrical equipment, machinery, furniture, fabricated metals, plastics and rubber, and transportation goods. The industries together amounted to a nearly $2 trillion market in the U.S. in 2010, with China producing about $200 billion of that total.

As manufacturers in these “tipping point” industries move back to America, BCG estimates, the U.S. economy will add $80 billion to $120 billion in annual output, and 2 million to 3 million new jobs, in direct manufacturing and spin-off employment. To complete this rosy picture, the analysts forecast that in about five years, U.S. exports will increase by at least $65 billion annually.

Hold on, Dr. Pangloss. Those are just economists’ estimates. What do real manufacturers say? Well, BCG has some new numbers on that, too. In late April, the consulting firm released a survey of executives at 106 U.S.-based companies with annual sales of over $1 billion. Thirty-seven percent of them said they were planning to reshore manufacturing operations or “actively considering” the move. Among larger companies with sales over $10 billion, the positive response rose to 48 percent.

Talking about American decline has become a national sport among policy intellectuals. The country still has severe political problems, but the numbers in these new studies make me wonder if some of the deep pessimism is misplaced.

Source Article from http://www.southcoasttoday.com/apps/pbcs.dll/article?AID=/20120508/OPINION/205080306

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RHINEBECK, N.Y., a Hudson Valley village founded by Dutch settlers, has a fitting fascination with vintage mechanical things. The Old Rhinebeck Aerodrome houses one of the finest collections of flyable antique aircraft in the United States. And this weekend, the Hudson River Valley Antique Auto Association unofficially starts the region’s collector-car season with the annual Rhinebeck car show and swap meet at the nearby Dutchess County Fairgrounds.

The weekend, called Rhinebeck 2012, consists of two separate shows, with Saturday’s event reserved for street rods and customs and Sunday’s dedicated to unmodified antique, classic and collectible cars built before 1987. Though not technically a concours, the Sunday event is considered the main attraction, with 200 judges and almost 60 judged classes, including a new classification for so-called barn finds.

One of Sunday’s most interesting entrants has an unlikely connection to the region. A 1913 Fiat Type 56 seven-passenger touring car, owned by Edward N. Dina of Marlboro, N.Y., was built in nearby Poughkeepsie.

Fiat, of course, is not generally associated with the Empire State except in reference to Fiat 128s and 124s from the ’70s that rusted to death on the state’s byways. But in a rather obscure episode, Fiat actually manufactured cars in the mid-Hudson Valley from 1910-17.

Fiat was not the only European automaker with an early manufacturing presence in the United States; Rolls-Royce produced cars in Springfield, Mass., in the 1920s. But while a clear genealogical line can be drawn between those Rolls-Royces and the BMW-built Phantoms and Ghosts currently shuttling royals and oligarchs to red-carpet events, the Poughkeepsie Fiats are a breed apart from Jennifer Lopez’s 500 Cabrio.

Mr. Dina, an avid collector of World War I-era automobiles, said in a telephone interview that he was compelled to repatriate the big Fiat to the region after its decades-long exile on the West Coast. His records show that the car was originally bought by the Mohonk Mountain House hotel and resort near New Paltz, across the river from Poughkeepsie. It later spent years in a collection in Washington State. Mr. Dina bought the car in 2008.

The Type 56 was quite expensive in its day, selling for around $6,000, the equivalent of about $126,000 today. A Model T Ford typically sold for $550 at the time, about $11,500 in current dollars.

Before being bought by Mr. Dina, the car was the subject of a 2004 feature in Hemmings, the collector-car publication. According to that account, the Poughkeepsie Fiat plant built two models, one with a 4-cylinder engine and another with a 6-cylinder. The 4-cylinder model was produced for the American market and for export, whereas the straight 6, the unit found in Mr. Dina’s Fiat, was never exported. It’s a daunting piece of machinery, displacing 525 cubic inches, or roughly 8.6 liters, and is rated at 55 horsepower, although Mr. Dina says it is closer to 80 horsepower. The car weighs more than 5,000 pounds and has a stretched-out wheelbase of 135 inches.

The Fiat factory was across the road from what is now the main campus of Marist College. Few residents seemed to know the building’s original purpose before it was razed in the ’90s to make way for a shopping center. Mr. Dina said he hoped his Type 56 would help illuminate for showgoers the auto manufacturing heritage of the region.

The Rhinebeck events start at noon Friday with a swap meet; the shows open at 9 a.m. on Saturday and Sunday. Admission is $10 for adults, free for children 12 and younger.

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With so much talk these days of America’s decline, it may sound strange to ponder the prospects for an American economic boom a decade or so from now. But that’s the thrust of two new studies, which have me thinking like Dr. Pangloss, Voltaire’s caricature of optimism.

These analyses predict the repair of two of America’s greatest economic vulnerabilities in recent times — dependence on foreign energy, with the threats of supply disruption, and the decline of the manufacturing sector in the face of lower-cost foreign competition. Both problems are on the way to being reversed, the analysts argue.

First, the case that America is entering a new era of energy security: My expert here is Robin West, a friend who is chairman of PFC Energy, a Washington-based advisory group. He argues in a series of recent reports to clients that because of the rapid expansion of oil and gas production from shale, America is likely to become by 2020 the world’s No. 1 producer of oil, gas and biofuels — eclipsing even the energy superpowers, Russia and Saudi Arabia.

West explains that the natural gas boom will mean a dramatic change in energy imports and, thus, the security of U.S. energy supplies. He forecasts that combined imports of oil and natural gas will fall from about 52 percent of total demand in 2010 to 22 percent by 2020. The totals are even more impressive if supplies from Canada are included.

“This is the energy equivalent of the Berlin Wall coming down,” contends West. “Just as the trauma of the Cold War ended in Berlin, so the trauma of the 1973 oil embargo is ending now.” The geopolitical implications of this change are striking: “We will no longer rely on the Middle East, or compete with such nations as China or India for resources.”

Energy security would be one building block of a new prosperity. The other would be the revival of American manufacturing and other industries. This would be driven in part by the low cost of electricity in the U.S., which West forecasts will be relatively flat through the rest of this decade, and one-half to one-third that of economic competitors such as Spain, France or Germany.

The coming U.S. manufacturing recovery is the subject of several studies by the Boston Consulting Group. I’ll focus here on the most recent one, “U.S. Manufacturing Nears the Tipping Point,” which appeared in March.

What’s happening, according to BCG, is a “reshoring” back to America of manufacturing that previously migrated offshore, especially to China. The BCG analysts estimate that by 2015, China’s cost advantage will have shrunk to the point that many manufacturers will prefer to open new plants in the U.S. In the vast manufacturing region surrounding Shanghai, total compensation packages will be about 25 percent of those for comparable workers in low-cost U.S. manufacturing states. But given higher American productivity, effective labor costs will be about 60 percent of those in America — not low enough to compensate U.S. manufacturers for the risks and volatility of operating in China.

In about five years, argue the BCG economists, the cost-risk balance will reach an inflection point in seven key industries where manufacturers had been moving to China: computers and electronics, appliances and electrical equipment, machinery, furniture, fabricated metals, plastics and rubber, and transportation goods. The industries together amounted to a nearly $2 trillion market in the U.S. in 2010, with China producing about $200 billion of that total.

As manufacturers in these “tipping point” industries move back to America, BCG estimates, the U.S. economy will add $80 billion to $120 billion in annual output, and 2 million to 3 million new jobs, in direct manufacturing and spin-off employment. To complete this rosy picture, the analysts forecast that in about five years, U.S. exports will increase by at least $65 billion annually.

Hold on, Dr. Pangloss. Those are just economists’ estimates. What do real manufacturers say? Well, BCG has some new numbers on that, too. In late April, the consulting firm released a survey of executives at 106 U.S.-based companies with annual sales of over $1 billion. Thirty-seven percent of them said they were planning to reshore manufacturing operations or “actively considering” the move. Among larger companies with sales over $10 billion, the positive response rose to 48 percent.

Talking about American decline has become a national sport among policy intellectuals. The country still has severe political problems, but the numbers in these new studies make me wonder if some of the deep pessimism is misplaced.

David Ignatius is a syndicated writer in Washington. His email address is davidignatius@washpost.com.

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May 04, 2012 13:23 PM

FDI In Several Latin America Countries Marked Historic Record In 2011

SANTIAGO DE CHILE, May 4 (BERNAMA-NNN-MERCOPRESS) — Foreign Direct Investment (FDI) in Latin America and the Caribbean during 2011 reached US$153.448 billion which represents 10% of the global total flows.

This is according to a report presented by the Economic Commission for Latin America and the Caribbean (ECLAC) in Santiago, Chile.

This is about the largest amount of FDI received by the region so far, as stated in the report entitled Foreign Direct Investment in Latin America and the Caribbean 2011.

In 2010, the region received US$120.880 billion dollars, whereas in 2009, due to global recession, inflows decreased to US$81.589 billion. Until then, the highest record had been registered in 2008, when investments amounted to US$137.001 billion.

In 2011, the main FDI recipients were Brazil (US$66.660 billion, representing 43.8% of total inflow to the region); Mexico (US$19.4 billion); Chile (US$17.3bn); Colombia (US$13.24bn); Peru (US$7.66bn); Argentina (US$7.24bn); Venezuela (US$5.3bn) and Uruguay (US$2.53bn). For Brazil, Chile, Colombia, Peru and Uruguay it was a historic record.

In Central America FDI increased by 36% compared to 2010, where the amounts received by Panama (US$2.8bn), Costa Rica (US$2.1bn) and Honduras (US$1.01bn) stand out. In the Caribbean, inflows soared by 20% compared to the previous year, with the Dominican Republic at the head with US$2.371 billion.

“In spite of the prevailing uncertainty in global financial markets, Latin American and Caribbean economies attracted significant FDI in 2011. These volumes should remain high in 2012,” said ECLAC Executive Secretary Alicia Barcena.

In 2011, 46% of net income from FDI was due to profit re-investments, whilst the remaining percentage was due to capital contributions and loans among companies. ECLAC points out this underlines trans-national corporations confidence in the region and business opportunities.

According to the report the good performance which took off in 2012 is the result of increased assets accumulated by trans-national corporations in the region and a surge in profits because of the good economic prospects of the region and high international prices for raw materials.

However Eclac points out to a current phenomenon that is increasingly relevant since 2004: the growing repatriation of profits by trans-national corporations investing in the region, a fact that reminds that FDI is not a one way flow.

“FDI revenue transferred back to the countries of origin has increased from US$20 billion dollars per year between 1998 and 2003 to US$84 billion from 2008 to 2010 annually” said Barcena.

The document underlines that FDI strengthens the production basis of Latin America and the Caribbean. In 2011, 57% of FDI in South America (except Brazil) was directed to the natural resources sector, 36% to services and 7% to manufacturing.

At the other end, 7.8% of FDI received by Mexico, Central America and the Caribbean were oriented to natural resources, 39.7% to manufacturing and 52.5% to services. Meanwhile, 46.4% of FDI in Brazil was for manufacturing, 44.3% services and 9.2% to natural resources.

Investments made by Latin American and Caribbean trans-national corporations -also known as trans-Latins- decreased to 22.6bn in 2011, having reached 44.924bn in 2010. In spite of the decrease, ECLAC underlined that these corporations are still in an expansion phase.

According to ECLAC the downsizing can be mainly explained by Brazil where net borrowings granted by subsidiaries abroad to parent companies increased, whereas capital contributions were cut down, a fact that suggests that Brazilian companies are investing more in their own country.

Chile was the country that invested the most abroad in 2011 (US$11.82bn), followed by Mexico (US$9.6bn) and Colombia (US$8.23bn).

The report also shows that the European Union (EU), as a bloc, is the largest investor in the region. In the last decade, the EU invested an average of US$30 billion per year in the region, representing 40% of the total received.

EU investments concentrated in South America, are very diverse but strongly relevant to strategic sectors such as electricity and banking.

The 2011 investments’ ranking has the United States leading with 18%; Spain 14%; the Latam and Caribbean region 9% and Japan 8%, among others.

Finally ECLAC estimates that in 2012, FDI flows to Latin America and the Caribbean will maintain high levels. But it warns that if the Euro zone crisis worsens, the flow of investments, especially from Europe could be reversed.

– BERNAMA-NNN-MERCOPRESS

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(subscription-based) 
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May 04, 2012 13:23 PM

FDI In Several Lat Am Countries Marked Historic Record In 2011

SANTIAGO DE CHILE, May 4 (BERNAMA-NNN-MERCOPRESS) — Foreign Direct Investment (FDI) in Latin America and the Caribbean during 2011 reached US$153.448 billion which represents 10% of the global total flows.

This is according to a report presented by the Economic Commission for Latin America and the Caribbean (ECLAC) in Santiago, Chile.

This is about the largest amount of FDI received by the region so far, as stated in the report entitled Foreign Direct Investment in Latin America and the Caribbean 2011.

In 2010, the region received US$120.880 billion dollars, whereas in 2009, due to global recession, inflows decreased to US$81.589 billion. Until then, the highest record had been registered in 2008, when investments amounted to US$137.001 billion.

In 2011, the main FDI recipients were Brazil (US$66.660 billion, representing 43.8% of total inflow to the region); Mexico (US$19.4 billion); Chile (US$17.3bn); Colombia (US$13.24bn); Peru (US$7.66bn); Argentina (US$7.24bn); Venezuela (US$5.3bn) and Uruguay (US$2.53bn). For Brazil, Chile, Colombia, Peru and Uruguay it was a historic record.

In Central America FDI increased by 36% compared to 2010, where the amounts received by Panama (US$2.8bn), Costa Rica (US$2.1bn) and Honduras (US$1.01bn) stand out. In the Caribbean, inflows soared by 20% compared to the previous year, with the Dominican Republic at the head with US$2.371 billion.

“In spite of the prevailing uncertainty in global financial markets, Latin American and Caribbean economies attracted significant FDI in 2011. These volumes should remain high in 2012,” said ECLAC Executive Secretary Alicia Barcena.

In 2011, 46% of net income from FDI was due to profit re-investments, whilst the remaining percentage was due to capital contributions and loans among companies. ECLAC points out this underlines trans-national corporations confidence in the region and business opportunities.

According to the report the good performance which took off in 2012 is the result of increased assets accumulated by trans-national corporations in the region and a surge in profits because of the good economic prospects of the region and high international prices for raw materials.

However Eclac points out to a current phenomenon that is increasingly relevant since 2004: the growing repatriation of profits by trans-national corporations investing in the region, a fact that reminds that FDI is not a one way flow.

“FDI revenue transferred back to the countries of origin has increased from US$20 billion dollars per year between 1998 and 2003 to US$84 billion from 2008 to 2010 annually” said Barcena.

The document underlines that FDI strengthens the production basis of Latin America and the Caribbean. In 2011, 57% of FDI in South America (except Brazil) was directed to the natural resources sector, 36% to services and 7% to manufacturing.

At the other end, 7.8% of FDI received by Mexico, Central America and the Caribbean were oriented to natural resources, 39.7% to manufacturing and 52.5% to services. Meanwhile, 46.4% of FDI in Brazil was for manufacturing, 44.3% services and 9.2% to natural resources.

Investments made by Latin American and Caribbean trans-national corporations -also known as trans-Latins- decreased to 22.6bn in 2011, having reached 44.924bn in 2010. In spite of the decrease, ECLAC underlined that these corporations are still in an expansion phase.

According to ECLAC the downsizing can be mainly explained by Brazil where net borrowings granted by subsidiaries abroad to parent companies increased, whereas capital contributions were cut down, a fact that suggests that Brazilian companies are investing more in their own country.

Chile was the country that invested the most abroad in 2011 (US$11.82bn), followed by Mexico (US$9.6bn) and Colombia (US$8.23bn).

The report also shows that the European Union (EU), as a bloc, is the largest investor in the region. In the last decade, the EU invested an average of US$30 billion per year in the region, representing 40% of the total received. EU investments concentrated in South America, are very diverse but strongly relevant to strategic sectors such as electricity and banking.

The 2011 investments’ ranking has the United States leading with 18%; Spain 14%; the Latam and Caribbean region 9% and Japan 8%, among others.

Finally ECLAC estimates that in 2012, FDI flows to Latin America and the Caribbean will maintain high levels. But it warns that if the Euro zone crisis worsens, the flow of investments, especially from Europe could be reversed.

— BERNAMA-NNN-MERCOPRESS

We provide
(subscription-based) 
news coverage in our Newswire service.

DUBAI – Pakistan is confident to secure UAE and Gulf investments in mega projects especially in the energy- and agro-based industries, its delegates at the Annual Investment Meeting, or AIM, said.

Top officials from the Trade Development and Authority of Pakistan, or TDAP, Abu Dhabi Group and Sindh Board of Investment on Wednesday gave presentations on key investment projects in renewable energy, power generation, agriculture, coal mining and infrastructure developments.

“Pakistan offers various investment opportunities in energy and power sectors as well as in agro-based industries to international and Gulf investors at AIM,” Tariq Puri, chief executive of TDAP, told Khaleej Times on the sidelines of the conference.

He said discussions and meetings with government and private levels are being held on the sidelines of AIM and the Pakistan delegation is expected positive results in coming days.

Pakistan’s 80-member trade delegation, led by Federal Minister Makhdoom Amin Fahim, participated in the second-day activities of investment forum and gave presentations on various key projects especially in Sindh province.

Amin Fahim said Pakistan has huge potential for investment in key sectors and the government will go all-out to facilitate the foreign investors especially from the Gulf countries.

Sindh chief minister Syed Qaim Ali Shah said the agricultural economy of Sindh province contributes about 23 per cent to Pakistan’s gross domestic production.

“Keeping in view global food security concerns, the province vast agriculture expanse has capacity to become region’s food basket,” he said.

Shah said agro-related investment projects are ready for investment and introduction to value-addition through use of technology, efficient irrigation system and modern implements can help attain true potential of province agriculture. The Sindh Board of Investment, the primary investment promotion agency of the province, invited Gulf investors and UAE companies in particular to avail the benefits of conducive-investment policies.

“We are offering investment opportunities in agriculture farming, livestock, grain-storage project as well as in infrastructure development projects,” Muhammed Zubair Motiwala, chairman of the Sindh Board of Investment, told Khaleej Times.

Elaborating, he said the government of Sindh is looking to offer land for establishment of Halal Meat Park in Sukkur and Thatta near Karachi. He said the Rs500 million project will pay back the cost in three to five years and offers a 20-22 per cent IRR to investors.

Motiwala said the provincial government has strived to facilitate and create investor-friendly environment to attract more investment especially in Thar Coalfield, which is declared as a special economic zone. Investors can avail 30-year tax holiday, zero per cent customs duties on import of coal mining equipment and machinery. “We are offering up to 22 per cent IRR to investors on the their investment in Sindh along with other benefits which include repatriation of 100 per cent capital, profits, royalty and zero import duties on capital goods, plant and machinery and equipment not manufactured locally,” he said.

He said that the province has also an estimated hydropower potential of 153 megawatts based on various sites identified along the Sindh canal network.

He said the UAE has showed interest in Thar coal mining and power plant projects. “Al Manhal has shown interest in developing block 2 of the Thar Coalfield. We may discuss the project this weekend and if talks go positively, the UAE firm may invest up to $6 billion in the Thar coal project,” he said.

Motiwala said Thar coal reserves have an estimated potential of generating 100,000 megawatts of electricity for a period of 300 years. “It provides an opportunity for large-scale mining and power-generation over a longer period of time,” he said.

He said Pakistan has been facing an acute shortage of electricity and direly need investments in power-generation projects. According to a delegate, about 700 main industries in Punjab and Sindh are directly affected by electricity shortages in the country.

“About 400 industries in Punjab and 300 factories in Sindh have shut down their operations due to load-shedding and shortage of electricity,” he said.

Motiwala further said Sindh government also offers investment opportunities in renewable energy like solar street light initiative and wind power projects worth around $5.3 billion.

“International investors are in queue to invest in wind power projects because the province has potential to generate 50,000 megawatts electricity through wind turbines across its coastal belt,” he said.

To a question about potential investors in wind energy, he said Hydro China, China Three and NBT/Malakoff, among others, showed interest in 26 projects in the province with installed capacity of 1,800 megawatts.

“We also have offered some renewable energy projects to Masdar. We will discuss some investment opportunities with Masdar officials in Abu Dhabi and expect positive results,” he said.

“The annual radiation of 3,000 hours in Sindh has an endless potential for solar energy,” he said adding that the government is keen to encourage public-private partnerships in energy, power, agriculture and infrastructure development projects.”

muzaffarrizvi@khaleejtimes.com

Copyright 2012 Khaleej Times – Galadari Printing and Publishing Co. L.L.C.


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About 800 workers at a Caterpillar plant in Joliet went on strike early Tuesday, claiming the heavy-equipment manufacturer proposes to freeze wages, double health care premiums and eliminate pensions and seniority rights over a six-year contract.

Particularly irksome for the workers, members of the International Association of Machinists Local 851, is that they would be locked into their pay scales. Workers make anywhere from around $13 per hour on the lower end to $28 per hour for senior workers. About 250 to 300 of the union members are at the lower pay scale.

Caterpillar said its offer is competitive. “The company’s last and best final offer was presented last Friday, and we believe it was a fair and reasonable and comprehensive proposal,” said Rusty Dunn, a Caterpillar spokesman. Negotiations had gone on for more than a month, and no further talks are scheduled.

The prospect of stagnated wages has Caterpillar workers worried that they won’t be able to cover escalating health care costs as well as keep up with food and housing costs.

“I’m at the cap. That’s it,” said John Andrews, 33, who moved from being a supplemental employee to a new hire at $19.73 an hour. He was among several dozen union members walking the picket line outside the plant Tuesday. Andrews, who lives in Joliet, said his biggest concern is “keeping a roof over my head.”

Joe Stachon, 25, who was hired April 9 at a base pay of $13.90 an hour, said the company promised wage increases every six months for the next 31/2 years. Now that seems unlikely as a result of the contract proposal.

The labor issues playing out in Joliet are illustrative of a rapidly changing global economy where technology advances have made it possible for companies to make products virtually anywhere in the world.

The U.S. auto industry opened the door for two-wage systems some three decades ago, suggesting that as older workers retired second-tier counterparts ultimately would gain those jobs, along with pay increases. Barry Chiswick, a professor of economics at George Washington University, said the two-tier system made American workers more competitive globally.

At the same time, however, the two-tier system gave U.S. manufacturers the upper hand in negotiations with unionized workers. As a result, they have demanded more concessions in return for creating and retaining jobs, and the lower pay scales have driven down wages at other companies as well. Caterpillar’s last contract with workers at the Joliet plant was negotiated in 2005.

Labor costs at some American companies have gotten low enough to allow them to “reshore” or restart manufacturing in the U.S. as wages have soared in emerging economies like China.

Bill McCarl II, a machinist and an IAM official, said the lowest-paid workers were capped at 15 percent of the workforce and do not have any benefits. He said those workers were to be laid off at the end of two years if they weren’t hired permanently. Instead, he said, the company laid them off at 23 months and called them back to work for another two years.

McCarl he is paid $25.82 an hour, but faces the same stagnation in pay as Andrews: “Neither one of us will go any higher, and my pension’s frozen.”

Citing the bonus and incentive pay increase given to Caterpillar’s chief executive, along with company first-quarter profits, McCarl said, “Yet you don’t want to give anything to the employees who’ve helped you make the profit.”

Last week Caterpillar reported that its first-quarter net income rose 29 percent to $1.59 billion, or $2.37 per share, as revenue increased 23 percent to $15.98 billion.

Lower-paid workers also complained that the standards they’re expected to uphold are the same for them as for the higher-paid workers. “I have to do the same job, while the guy next to me makes $26.98 (per hour),” said Andrews.

McCarl said the fact that members voted 94 percent in favor of a strike “in this time and this age is unheard of.”

“I’d rather strike here (at the plant entrance) and lose my house than work in there and lose my house,” said McCarl, 49, who lives in Elwood.

Robert Bruno, a professor of labor studies at theUniversity of Illinois at Urbana-Champaign, said lower wages benefit companies in the short term but create other problems in the long term, especially in towns dominated by large plants. A multinational company like Caterpillar, which is not tied to the economic fortunes of the U.S., can use its muscle to lower labor costs. But that outcome can leave behind a community of workers in need, he said.

“It becomes a race to the bottom,” Bruno said. “It’s hard to see anyone benefit but companies.”

Tribune reporter Alejandra Cancino reported from Chicago; freelancer Dennis Sullivan reported from Joliet.

acancino@tribune.com

Twitter @WriterAlejandra

CHICAGO — More than a third of U.S.-based manufacturing executives at companies with sales greater than $1 billion are planning to bring back production to the United States from China or are considering it, according to a new survey by The Boston Consulting Group (BCG).

Decision makers at 106 companies across a broad range of industries responded to the survey, which BCG conducted in late February. Thirty-seven percent said they plan to reshore manufacturing operations or are “actively considering” it. That response rate rose to 48 percent among executives at companies with $10 billion or more in revenues—a third of the sample.

The top factors cited as driving future decisions on production locations: labor costs (57 percent), product quality (41 percent), ease of doing business (29 percent), and proximity to customers (28 percent). In addition, 92 percent said they believe that labor costs in China “will continue to escalate,” and 70 percent agreed that “sourcing in China is more costly than it looks on paper.”

The results are consistent with earlier BCG findings on the changing economics that are starting to favor the manufacturing of certain goods in the U.S. In a report released last month, U.S. Manufacturing Nears the Tipping Point: Which Industries, Why, and How Much?, BCG predicted that improved U.S. competitiveness and rising costs in China will put the U.S. in a strong position to add 2 million to 3 million jobs in a range of industries and an estimated $100 billion in annual output by the end of the decade.

“These survey findings confirm our own analysis and what we are hearing from major companies,” said Harold L. Sirkin, a BCG senior partner and coauthor of the firm’s “Made in America, Again” series, which began last year. “Companies are realizing that the economics of manufacturing are swinging in favor of the U.S., for goods to be sold both at home and to major export markets. This trend is likely to accelerate starting around 2015.”

Interest in shifting manufacturing to the U.S. is particularly strong among companies in several sectors identified in BCG’s March report as nearing a “tipping point.” In these industry groups, China’s cost advantage is likely to shrink within the next few years to the point where companies should rethink where they produce certain goods, mainly those for sale in North America. These tipping-point sectors are transportation goods, appliances and electrical equipment, furniture, plastic and rubber products, machinery, fabricated metal products, and computers and electronics. BCG predicts that production of 10 to 30 percent of U.S. imports from China in these industries, which account for approximately 70 percent of goods that the U.S. imports from that nation, could shift to the U.S. before the end of the decade.

In the new survey, 67 percent of respondents in rubber and plastic products, 42 percent in machinery, 41 percent in electronics, 40 percent in computers, and 35 percent in fabricated metal products said they expect that their companies will reshore production from China to the U.S.

“Not long ago, many companies regarded China as the low-cost default option for manufacturing,” observed Michael Zinser, a BCG partner who leads the firm’s manufacturing work in the Americas. “This survey shows that companies are coming to the conclusion surprisingly fast that the U.S. is becoming more competitive when the total costs of manufacturing are accounted for.”

About The Boston Consulting Group

Amtico

Despite today’s return to recession, it’s not all doom and gloom for British industry. Amtico is a manufacturing business that continues to benefit from retailers, despite the sector’s ongoing UK woes. The Coventry-based flooring manufacturer counts shops from Germany to the US among its biggest clients and its home market remains strong. “It is looking fine,” says Jonathan Duck, Amtico’s chief executive. While construction has suffered in the UK over the past three months, Amtico has benefited from refurbishment orders from retailers, offices and hospitals. “Most of it is remodelling and refurbishment. If you are largely in the new-build sector things might look a little different, because that has been depressed.”

Amtico’s floor tiles can last 25 years in a well-trodden environment, underlining the company’s appeal at a time when capital expenditure has to endure and the path to recovery grows ever longer. It posted double-digit revenue growth in the first quarter and expects the same for the whole financial year, which ended in March. It has also repatriated some manufacturing from China after whittling down costs.

Duck says there are many more companies that have outperformed the wider economy. “There are lots of people like us out there who are succeeding.But the issue is that when you have government spending accounting for 50% of the economy, and that is being reduced, you are going to hear squeals.”

He admits, however, that doom and gloom will have an impact. “It is a confidence game. Looking at the eurozone will affect people’s investment plans.”

Amtico’s spending proposals are safe after it was taken over by a US business in March, although Duck would like to see UK businesses unlock a corporate cash pile that stands at £754bn, according to the Ernst & Young ITEM Club.

The UK is not investing enough, he says, due to a mix of low confidence at home and abroad, an uncompetitive tax regime and a lack of bank funding. “I would love to find a way of unlocking this corporate cash that has built up,” he says.

Future Life

Hard times mean difficult meetings for Jill Thomas, whose wealth management firm on the edge of Sheffield is getting more and more clients from both ends of business – success and failure.

Jill Thomas. Photograph: Guardian

“It can get quite emotional for all of us,” she says of sessions with former riders of the ‘noughties’ boom whose investments on borrowings have crunched and, judging by today’s GDP figures, are not in sight of revival any time soon.

“It has to be a Betty Ford moment,” she says, comparing the plight of those caught by hard times with the United States’ First Lady who had the courage to confront her alcoholism. “It may be a matter of accepting losses and dealing with them before things get worse, but facing up to reality is the essential first step.”

The offices of Future Life are in a converted stables at Renishaw Hall but a dose of Yorkshire pragmatism isn’t always enough to solve problems for her clients.

Her team of accountants and lawyers comb regulations and financial options, both to rescue clients landed with debts – unsaleable and unlettable foreign property is a commonplace – and others who might have, for example, a flourishing engineering firm but need skilful handling of expansion in a turbulent market.

“Part of the time, we’re looking at options which are available now,” she says, citing a way in which currently low-valued commercial premises can be bought through a self-invested personal pension scheme, thus helping a business through hard times. “Sometimes it’s keeping a more strategic eye: we’ve had two meetings this week where quantitative easing has come up, and its possible effect on final salary pension funds. Take that with the gender equality retirement measures and the time we’re taking to get out of recession, and you’ve the makings of a perfect storm.”

Thomas talks with the brio of a well-experienced sailor heading into rough seas, but she’s also sustained by a conviction that the trials of double-dip mask a different challenge: the UK’s unreadiness for success.

She says: “One of the commonest cries of successful manufacturing clients is: where are the skills? They’ve won back orders from China because their standards are so much higher, but they need new staff to come in and keep that up.”

Alistair Reid, a property solicitor in Sheffield who chairs the local Chamber of Commerce’s regeneration committee, calls Thomas’ analysis spot-on. “Firms are piling back into apprenticeship schemes as fast as they can,” he says. “That’s the way to get GDP back up again.”

Polypipe

As a maker of piping for building projects ranging from schools to homes and roads, Doncaster-based Polypipe can testify to the pressure on the construction and manufacturing industries. The company says UK sales volumes have been “static” over the past three months and if George Osborne is hoping for a swift recovery in the construction sector, he will have to wait.

Construction accounts for 7.6% of the UK’s economic output and recorded a big contraction of 3% in the first quarter of this year, helping to propel the UK back into recession.

David Hall, Polypipe’s chief executive, said: “We do not expect there to be a recovery in the market until 2014,” says Hall. “And even then we don’t expect it to be huge.”

Hall says the construction industry’s problems stem from the public spending cuts announced by Osborne in 2010. The ensuing slowdown in hospital and schools building has started to hit the industry hard, he says.

“The health and education market has been wound down over the past 18 months. As these jobs are completed it slows construction output because there are no new projects coming in at the top. Also, spend on social housing has slowed down.”

He adds: “The private market has picked up a bit, but it is not sufficient to pick up the slack from the public sector.”

As well as the divergence between public and private sector, says Hall, there is a geographical split. Predictably, London and the south-east are doing better than the north. “There is plenty of high-rise building going on in London but it gets more difficult as you go north.”

Polypipe is owned by a private equity firm and employs 1,800 people in the UK. Hall is happy with the balance of the business, which is split 70/30 between the public and private sector. “There is a lot more piping in a three-bedroom house with two bathrooms than in the same amount of space in an officeblock or a school,” says Hall.

In the meantime, Polypipe is looking to foreign markets for growth and has “put more people on the road”, he says. A recent export success has seen Polypipe strike a deal in Sierra Leone. In contrast to the UK, it was for a hospital.