Will ‘oil’s toil’ for Little Venice ever end?
Venezuela outlook

Overview: Venezuela’s economy
The GDP of Venezuela expanded by 9.3% after a record 17.9% expansion in 2004. Venezuela continues to be highly dependent on the petroleum sector, which accounts for one-third of the GDP. Private sector participation continues to play a significant role in the economy, as it grew by 11.3% in 2005. External debt declined from $4.4 billion in 2004 to $3 billion in 2005. Unemployment continues to hover at around 14% of the total labour force.

Foreign trade: Exports & imports

The petroleum sector accounts for 85% of export earnings. Exports aggregated to $55 billion and imports to $24 billion, in 2005. Goods balance stood at a positive of $31.5 billion in 2005, as against $22 billion last year. Non-oil imports aggregated $22.5 billion out of $24 billion of total imports in 2005.

Balance of payments: Surplus

Venezuela’s international investment position has been improving by every passing year. Being an oil exporting country, Venezuela has managed to post a current account surplus of $25 billion in 2005, compared to $14 billion last year. However, both services and income component continue to remain in negative. Reserves increased from $1.8 billion in 2004 to $5.4 billion in 2005.

CPI: Cost of living

Inflation in Venezuela has remained relatively stable. Consumer price index measured by CPI increased by 4.7% as on June 2006, taken on a semi-annual basis. Prices of food & non-alcoholic beverages increased the most, followed by communications. The food index rose by 7.04% and the communication index increased by 3.01%. Housing rental increased the least by 2.23%, as on June 2006 on a half yearly basis.

Bingeing on Turkish delights?
Turkey really needs to get its deficits and debts under control else foreign direct investments would be badly hit

(column by Bikram Keshari Jena)

Capital from all across the globe has been jostling its way into the land of St. Nicholas. In 2005, Turkey was one of the largest importers of capital, attracting a mind-boggling 1.9% of the total global capital flows. However, this massive influx of capital into Turkey is only a part of the story, as an equally massive capital (hot money) exodus followed. But even after this bedlam, Turkey continues to creditably attract more direct investments. Only a few months back, Turkey was attracting investors from around the globe like bees to honey. It was one of the best performing emerging markets, riding high on the back of Yen carry trade as investors landed up here in search of yield. But suddenly, there was a huge reversal that saw billions of dollars taking flight within a few days, as central banks across the globe went into a tightening mode. Lira, the Turkish currency, was hit hard, falling by as much as 29% in the period between February and June (February 20 – June 23). What has been most promising, is the fact that Turkey has been one of the most attractive FDI destinations, which continues to receive high levels of direct investment.

While in 2001, the amount of FDI was at $3.3 billion, in 2005, the investments stupendously increased to $9.6 billion. And not to forget that within the first four months of 2006, the country has already garnered a colossal $8.6 billion in FDI. Well, the economy seems to be too tempting to be ignored. Fiscal discipline has clearly made it to the top of the government’s priority list. And the results seem to be remarkable. Says Charles Robertson, Chief Economist, Emerging Europe, Middle East & Africa, ING, “Turkey continues to benefit from a strong fiscal performance. Having run budget deficits of up to 14-16% of GDP in 2001, this government has slashed the deficit to just 2% of GDP today, which has helped bring down the inflation and interest rates; hence boosting growth.” Growth rates have improved and inflation seems to be in control. During the year 2005, the economy grew by an impressive 7.4% and inflation was at 8.16% (quarter 1, 2006), much lower than what it was in the 1990s. The recent interest rate hike signals that Turkish authorities are not going to let inflation slip out of their hands at any cost. Moreover, Turkey’s likely accession of the European Union is also luring investors to pump in more capital into the country.

But still, there are certain dangers lurking that might prove to be dampeners for the Turkish economy. First of all, even though debt levels have been reduced, there’s more to be done. As per Dr. Oliver Stönner-Venkatarama, Senior Economist-Emerging Markets, Commerzbank, “Certainly the government’s fiscal discipline has led to a substantial reduction of public debt from about 100% of GDP in 2001 to 69% last year. Nevertheless, the level is still high and requires a tight fiscal stance.” Secondly, the current account deficits are at an alarming level, which might expose Turkey to undesirable external shocks. According to Robertson, “The economy runs at a significant current account deficit and is unfortunately not attracting much manufacturing investments.” It’s so typical of countries like Turkey – that offer high yields and attract a lot of speculative investments – to suddenly lose sight of their deficits. Even though buoyant FDI continues to finance the deficits, this is no time for the government to sit back. In fact, the Turkish government (in order to remain a paradise for investors) has to ensure that it doesn’t get into a trap (of debt and deficit) from where recovery will be a costly affair – which would be too heavy for the economy to bear. The country needs to value its current position of strength and get its act together.

(End of Bikram Keshari Jena column)

In search of home, away from home..!
US must cut down its equity costs to remain no. 1 in capital formation

(column by Deepak Ranjan Patra)

Go America’ seems to be passé for now, at least for the American bourses. Not only have the international corporates diverted their route to European bourses, American companies are also turning their back to US bourses and getting listed outside the country. The blame goes to higher regulatory costs related to ‘SOX’, which have forced almost every fifth public US company to become private and the high costs related to floating an Initial Public Offer (IPO). In the first two quarters of 2006, the US bourses have seen a mere 107 IPOs as compared to a whopping 313 IPOs for the Europe an bourses, not to overlook the fact that the London Stock Exchange (LSE) alone accounts for 148 IPOs (the Europe IPO Watch Survey by PricewaterhouseCoopers). Without doubt, the indications are clear that the Elvis years of US as the world’s largest market for capital formation would soon be over. Tom Troubridge, Head of the London Capital Markets Group, exults, “In 2005, for the first time since 2001, Europe raised more new money from IPOs than the US and also attracted more international IPOs than the US exchanges.” Lovers of Uncle Sam may blame LSE-AIM (Alternative Investment Market) – that allows companies to float shares with lesser regulatory requirements (as a result LSE-AIM has recorded 131 IPOs during the first half of 2006).

Forgetting AIM, it must be noted that during the same period the LSE-Main market (with higher regulatory norms) raised an astounding 6.4 billion euros through 17 IPOs (at an average of 377 million euros per IPO), as compared to US exchanges, which managed to raise 18.2 billion euros through 107 IPOs, and that too, at a pitiful average of 170 million euros per IPO – thus further aggravating the dilemma for US bourses. Apart from regulations, the cost of raising equity, which is almost double in the US as compared to Europe, has been the most critical aspect for companies. According to a survey titled “The Cost of Capital: An International Comparison” (conducted by Oxera Consulting Ltd. And published by the City of London in June 2006), IPO underwriting fees alone cost 7.5% on an equally weighted average scale, compared to 3.8% for the whole of Europe. Cost advantages coupled with less regulatory troubles are diverting both US companies and non-US companies towards European markets. It may not be blame storming time yet, but for upholding its status as the largest market for capital formation, Securities and Exchange Commission (SEC) must amend Sarbanes-Oxley with immediate effect to make things easier for companies. Also, it must put the cost of equity under check, else it won't be long before SEC has to bow down and settle with the number two position.

(End of Deepak Ranjan Patra column)