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Monday, June 21, 2010
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Monday, June 21, 2010
Wednesday, June 9, 2010
Inner City Low-Income Housing Investments
Contributing to the constructive regeneration of inner city areas and the significant need for affordable, better-quality accommodation proves to be an extremely viable way for entrepreneurs to develop and grow a sustainable business.
Roanda Reits is committed to provide support to private and social entrepreneurs interested in providing affordable accommodation to low income earners.
Further benefits to entrepreneurs are the Urban Development Zone (UDZ) tax incentive. This initiative aims to promote inner city renewal across South Africa with any taxpaying, property owning individual or entity qualifying for the benefits. The tax allowance incentive covers an accelerated depreciation made into either refurbishing an existing property or creating new developments within designated inner city UDZ’s.
Assistance provided by Roanda Reits
· Assessment of client’s capabilities and support requirements.
· Evaluation of size, location and market of project.
· Evaluation of the project feasibility and suitability to the client.
· Assistance in sourcing of adequate finance for residential properties and developments.
· Project & Property Management.
For more information contact:
Liné Nel
Cell: 083 388 5265
Email: line@roandareits.co.za
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Wednesday, June 09, 2010
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Monday, June 7, 2010
Thursday, May 20, 2010
Brave New World
By Chris Mayer
May 19, 2010
Gaithersburg, Maryland, U.S.A.
When Gen. Cornwallis surrendered to Gen. Washington after the Battle of Yorktown, the British band supposedly struck up the tune “The World Turned Upside Down.” After all, such an outcome would have been unthinkable at the start of the American Revolution.
That is in the nature of things, however. No one stays on top forever. Only recently, the mighty U.S. consumer — long the dominant force in world trade — has lost its top seed. There is a brave new world emerging, and it has a brave new consumer. This time, it’s Americans that might want to strike up that old ballad.
Consumers in emerging markets are now the dominant consumer group in the world, surpassing the U.S. We’ve crossed an important threshold.
As The Economist notes, “The emerging world is enjoying the most spectacular growth in history.” Some of the growth rates are just blistering. Thailand grew 15% on an annualized basis in the fourth quarter. Taiwan grew 18%. “Multinationals expect about 70% of the world’s growth over the next few years to come from emerging markets,” The Economist adds, “with 40% coming from just two countries, China and India.”
It’s a great time to be an investor as we witness this history-making shift in global markets that will surely create great opportunities for us. Just look around and you can see the impact already.
For instance, Coca-Cola reported a 20% increase in first-quarter profits despite the fact that North American sales declined. Sales in emerging markets, such as India (up 29%) and Turkey (up 18%), made it possible. About 75% of Coca-Cola’s sales are now overseas. This is just one example. There is a whole slew of iconic companies that now generate more sales overseas than in the U.S. It’s still early.
The next big consumer market to open up might be Indonesia. It’s the world’s fourth largest population, behind China, India and the U.S., with 240 million people. Ford just opened its first dealership here. Honda says it can’t make motorcycles fast enough. And H.J. Heinz reports that Indonesia is a big part of why its Asia sales rose 41% last year.
So the long-awaited emergence of the emerging markets consumer is at hand. More than that, the emerging markets are also becoming a source of innovative ideas. Fortune 500 companies are happy to set up brainy shops in emerging markets. They already have 98 R&D facilities in China and 63 in India. GE has a vast R&D facility in Bangalore, its biggest in the world. Cisco is spending a $1 billion on a second HQ, also in Bangalore. Accenture has a quarter of its work force in India. Microsoft’s biggest R&D center, outside of Redmond, is in Beijing.
And they are enjoying tremendous success. For example, GE’s Bangalore laboratory invented a new hand-held electrocardiogram that sells for $800, instead of the usual $2,000. The cost per test is only $1 per patient.
As The Economist put it, emerging markets have become a “fizzing cocktail of creativity.” Moreover, it’s not just Western companies doing the creative work. (Huawei, a Chinese telecom giant, is now the world’s fourth largest patent applicant.) Companies in China, India and other places outside the U.S. are inventing game-changing technologies. A few of the stories The Economist highlights in its report are simply amazing.
In Chennai, a Tata company created a water purifier that uses rice husks — a common waste product. A family can enjoy bacteria-free water for the grand price of $24. New filters every few months will cost $4. It’s cheap and portable and will make a big impact on the poor the world over, most of whom lack access to clean water.
Another Indian manufacturer concocted a $70 fridge that runs on batteries! A Chinese company, Mindray, makes a lithium battery for $12, compared with $40 previously. Bharti Airtel, an Indian company, has the lowest cell phone fees in the world — 2 cents a minute and nationwide coverage. It’s worth $30 billion.
One of the most startling tales was that of Devi Shetty. He is applying Henry Ford’s assembly-line techniques to hospitals. Shetty’s flagship hospital in Bangalore has 1,000 beds. (The average American hospital has only 160.) His team of 40-some cardiologists cranks out 600 operations a week. Open-heart surgery costs about $2,000 — compared with $20,000–100,000 in an American hospital. Shetty and his team have performed tens of thousands of such operations with results as good as the best of American hospitals. Incredibly, these hospitals even make money! According to The Economist, “Dr Shetty’s family-owned hospital group reports a 7.7% profit after taxes, compared with 6.9% in American private hospitals.”
So where are the opportunities? I believe that the biggest opportunities and the biggest rewards will go to the homegrown companies in these markets. The biggest winners won’t be the multinationals, their present success notwithstanding. (And it hasn’t all been sugar and spice. Ask Google or Yahoo or Black & Decker or a host of others who met defeat in foreign markets.) As in baseball or football, the odds favor the home team, which has more knowledge of local markets, customs and the like.
For example, China’s auto market grew 45% last year to become the biggest in the world. GM, for the first time ever, now sells more cars in China than in the U.S. But Chinese automakers have made the largest market share gains. As of 2004, Chinese automakers were 21% of the market; today, they are 32% and rising. Of the 89 new models unveiled at the global auto show in Beijing recently, 75 were Chinese brands.
We are now at a point, too, at which we can list a host of companies that are world-class in what they do and call an emerging market home. Mittal as recently as 1990 was an unknown steel maker in Indonesia. Today, it’s the world’s largest steel company. China’s Lenovo didn’t even exist in 1990 and today is the world’s fourth largest PC maker. There are many more examples from Brazil’s Embraer to China’s battery maker BYD.
Warren Buffett bought a piece of the latter company in September 2008. BYD went from about $7 to $80 in about 18 months. (The question to ask yourself is if you bought BYD for $7, would you have held on to $80?)
The above is just a snippet of the mind-bending changes taking place right now. As Marco Polo once said, “I have not told the half of what I saw.” Stay tuned for more on this front soon…
Regards,
Chris
P.S.: Needless to say, investors in these kinds of companies have reaped huge gains. And some of the biggest opportunities in the next 10 years will come from the next crop of Mittals and Embraers and BYDs.
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Thursday, May 20, 2010
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Wednesday, May 12, 2010
Thursday, May 6, 2010
ECONOMIC POLICY FAILURE IN SOUTH AFRICA
By Professor Peet Strydom
Economic policy failure comes in various forms. The most well known failure is when policy instruments fail in achieving the policy aims.
The present policy dilemma in
In contrast, macroeconomic policies are more effective in achieving policy aims.
Our exposition is concerned with this dilemma between micro and macro policy frameworks. In the following sections we discuss the elements of this dilemma and how it relates to policy failure.
The absence of a general accepted model
During the 1990s economic policies in developing and emerging economies were conducted in terms of the so-called Washington Consensus model that was propagated by The World Bank.
In principle these policy prescriptions were derived from neo-classical economics that emphasised stable and equilibrating markets. The policy advice concentrated on privatisation, trade liberalisation, the liberalisation of markets, the abolition of exchange controls and the stimulation of exports through currency depreciation.
The main advantage of this consensus model was that it offered a generally accepted policy framework to be applied by policy makers that, in many instances, were lacking policy making experience.
Many critics of this approach tend to characterise it as an application of neo-liberalism and market fundamentalism to developing countries. Latin American and many African countries applied these policies.
The failure of this consensus policy model in developing countries was gradually established and by 2005 the World Bank documented the failure of this policy model in its well-known document Economic Growth in the 1990s: Learning from a Decade of Reform and reviewed by Rodrik (2006).
The main reason for the failure of the Washington Consensus is that its basic tenets were not applicable to the economic conditions in developing and emerging economy countries.
These basic tenets were derived from neo-classical economic theory in terms of which market adjustments are driven by relative price differences that are disseminated via perfectly competitive markets under conditions of full employment.
Accordingly, price differences induce substitution processes in production and consumption and factors of production as well as final goods are efficiently allocated to optimal utilisation by economic agents without delay and without cost.
In the real world of developing countries this theoretical framework is not very helpful in conducting policy making.
The real world conditions prevailing in these countries do not secure efficient markets and in many instances they are small relative to international counterparts.
The opening up of such markets in developing countries usually went hand in hand with volatile price movements as has been evident in terms of international capital flows and flexible exchange rates.
Volatile market outcomes are ineffective in disseminating information in support of the optimal allocation of scarce resources.
Moreover, in the real world we do not observe smooth and costless allocation in terms of relative price differentials. These adjustments normally come with huge costs.
In a world with so many rigidities that hamper market adjustments one cannot rely on relative price changes to induce the effective allocation of resources.
Such a world is better explained in terms of a model that assumes rigid prices and imperfect competition while relying on income driven substitution processes.
Such a theoretical framework cannot be accommodated within neo-classical economics.
It is evident that the basic analytical framework of the Washington Consensus is failing effective policy making in general, but particularly in emerging as well as developing countries.
This truth gradually enforced itself on the intellectual world during the 1990s. Moreover, there is no universally valid intellectual framework to assist policy making in a dissimilar world. The conditions in a particular country have to be assessed and the relevant economic principles have to be applied in designing a policy framework.
The international Panel on Growth, chaired by Ricardo Hausmann, that recently submitted proposals on the AGISA economic growth framework to the South African government did not subscribe to the Washington Consensus framework.
The Panel concentrated, instead, on the economic constraints that were particularly relevant to the South African economy, as described by Hausmann (2008). The policy proposals were aimed at relieving these growth constraints. This is an example of a modern departure from the Washington Consensus policy framework.
In
Non-market policy frameworks of centralised control, nationalisation of certain industries, price controls and a fixed rand exchange rate entered the policy debate to oppose the typically market-oriented policy framework of the
South African government.
This situation is very similar to what existed during the pre-1994 period in
The policy debate in
Macroeconomic policies refer to monetary and fiscal policies and in this respect the government has chosen to follow orthodox market oriented policies by following a monetary policy based on the analytical framework of flexible inflation targeting. Fiscal policy is conducted in a prudent way by controlling the budget deficit, as percentage of GDP, within a fixed band that favours surplus budgets to deficits.
In an economy that is relatively open and well integrated with the international economy, macroeconomic policy making is not independent of international market disciplines.
Moreover, as a member of the G20 world policy forum, South African policy making at the macro level is limited by the parameters that are set on a global basis in accordance with international best practices. Presently these parameters impose an orthodox market friendly policy framework.
The powerful discipline of these international market processes have revealed themselves very explicitly following the bankruptcy of the
A more recent example is the discipline of market forces in terms of interest rate spreads on international capital markets that compelled European politicians to resolve the Greek debt problem in a market friendly manner.
As opposed to macroeconomic policies, microeconomic policies in
This implies a policy dilemma as micro policies that are aimed at industrial development; labour market regulation, land reform and regulatory issues on businesses are open to the dominance of diverging political views within the ruling ANC party.
These diverging policy views are often compromised into a strategy that does not bode well in terms of progress in active policy making. The policy dilemma is that the outcome of these processes delays the implementation of important projects such as infrastructure development. This, in turn, impacts negatively on the achievements of macroeconomic policy variables such as GDP growth.
In other instances this leads to political infighting with devastating effects on service delivery at the local level of municipalities. The outcome is dilapidated municipal infrastructure, poor social delivery owing to incompetence, followed by civil actions by local communities in protest against non-existing public services
New millennium collectivism
This term was introduced by David Henderson (2001) to describe the new thinking in developed and developing countries that social and economic development has to come largely through delivery by government intervention.
Strong interventionist policies that aim at human and economic development have been introduced in certain Latin American countries such as
Apart from being inefficient these policies tend to favour political elites or politically well connected individuals. Our black economic empowerment programme is a typical example of this collectivism where state intervention favours political elites while imposing a tax on capital in existing firms.
New millennium collectivism is a strong contender in favour of state enterprises. In this respect it is an important opposing view to privatisation that has, probably, been overemphasised by the Washington Consensus.
The South African government has been reluctant to acknowledge the inefficiencies of public enterprises in delivering economic services. These inefficiencies are contributing towards a relatively high cost structure as is evident in terms of escalating administered prices in South Africa, particularly since 2007.
The developmental state
In the pre-1994 period the developmental state became a prominent issue in policy debates. This debate has recently resurfaced, probably under influence of the new millennium collectivism and the collapse of the Washington Consensus policy framework.
This debate, nevertheless, derives its momentum from the successful economic development in
The problem is that many African countries, including
As indicated above, we suffer from extreme inefficiencies in respect of microeconomic policies in this country.
Moreover, in terms of our international commitments
Unfortunately this macroeconomic framework is contradicted by microeconomic market unfriendly interventionist and inefficient policies.
This policy dilemma contradicts an effective developmental state.
Political elites in
Moreover, these countries have applied dissimilar models and experienced mixed results in terms of success. There is no general East Asian developmental state model to replace the Washington Consensus model.
Furthermore, owing to the contradictions between policy frameworks the developmental state is doomed to failure under South African conditions.
The evidence on state delivery in
Most government enterprises are underperforming while executives and board members earn compensation packages far in excess of the average of a JSE quoted company in the private sector.
Examples are Eskom, SAA, Spoornet and the Land Bank.
Within the government sector the poor service delivery of municipalities has triggered many civic protests.
Moreover, the state has failed in protecting its citizens effectively against crime.
Parliamentary democracy as opposed to ruling party conferences
Summary and conclusion
Economic policy failure on the microeconomic level has reached an alarmingly high frequency in
The lack of a generally accepted policy framework is one. The dissimilar fractions within the ANC are another important reason for this development. The ANC tries to hide these diverging policy differences by scaling down on effective policy making while it encourages a growing state sector that is perceived to be a developmental state.
Unfortunately the state sector has failed dismally in terms of delivery while certain institutional aspects of this country contradict the effectiveness of a developmental state in
References
HAUSMANN, R. (2008) Final Recommendations of the International Panel on
Growth, Working Paper.
HENDERSON, D. (2001) The Rise of New Millennium Collectivism, London:
Institute of Economic Affairs.
PARSONS. R. (2009) The Role of the State, in Parsons, R. (ed.) Zumanomics:
Which Way to Shared Prosperity in South Africa? Challenges for a New
Government, Auckland Park: Jacana, 2009:185-208.
RODRIK, D. (2006) Goodbye Washington Consensus, Hello Washington
Confusion? A Review of the World Bank’s Economic Growth in the 1990s:
Lessons from a Decade of Reform, Journal of Economic Literature,
44(4):973-987.
QOBO, M. (2009) The Developmental State Debate in South Africa, in Draper, P
and Alves, P. (eds.) Trade Reform in Southern Africa Vision 2014,
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Thursday, May 06, 2010
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