South Africa joins the BRICS

Regular readers of these country risk advisory briefings will appreciate that there is substantial comparative value in many of the threats and challenges that investors should be aware of with respect to KCS’ multiple country coverage. Investor risks associated with security and governance challenges, both soft and hard in nature, are pervasive across many emerging market economies. Such markets are often rich in natural resources and have thriving albeit underdeveloped consumer sectors, which can make them exciting business opportunities for flows of international investments. Yet the risks associated with investment in such markets should not be underestimated. In particular, the BRIC country group, traditionally comprised of Brazil, Russia, India and China, and near BRIC countries, such as Indonesia, are prone to both risks and rewards from an international business perspective. KCS has given particular attention to these countries in recent writings.

In December 2010, the Republic of South Africa was officially admitted to the BRIC club of states and the Republic’s president, Jacob Zuma, attended the April 2011 BRICS Summit in Sanya, Hainan province, China, as a full member of the now five nation club. This is not, in essence, a surprising development. As many Africa watchers will appreciate, South Africa is arguably the African continent’s most sophisticated country and its largest economy. It is Africa’s largest producer and consumer of energy, with a renowned minerals sector boasting a history of investments from the world’s largest mining companies. Recent surveys indicate that in 2011 South Africa (together with Kenya and Nigeria) is rated as one of the top three countries in Africa for investment, with the country’s Trade and Industry Minister, Rob Davies, recently stating that South Africa had already confirmed new investments in excess of US$17 billion during the next 3 years.

Investments of some US$4.3 billion were recently announced in the country’s automotive sector, creating 13,000 jobs, according to the Trade and Industry Ministry. This bodes well for a country traditionally reliant on the minerals sector (the combined market capitalisation of mining companies listed on the Johannesburg Stock Market is US$270 billion), given its need for diversification of the economy and investments into many other sectors. Last year’s Football World Cup, which was hosted by South Africa, spurred new investments into the country’s construction and infrastructure sectors. South Africa’s increasing presence on the foreign direct investment (FDI) map within the BRICS context bears some resemblance to Indonesia, on which KCS recently reported as ‘almost the BRIC nation’, with high exposure to global FDI flows.

KCS Group Staff

Insurgencies remain visible part of Philippine security landscape

In a similar manner to a number of other Asian countries on which KCS has reported in recent writings, the Philippines poses no shortages of challenges to would be investors in parallel to providing an abundance of business opportunities. While the Philippines is one of Asia’s dynamic, fast growing economies (with 7.3% GDP growth recorded in 2010), the country is also riddled with governance concerns such as systematic and widespread corruption, corporate conglomerates dominating strategic sectors of the country’s economy, and security challenges such as moderate-to-high threats of kidnappings and terrorism, which are both underscored by long-standing internal conflicts between the government and a number of (Leftists and Islamist) rebel groups.

The two main insurgencies in which the Philippines are embroiled include the government’s conflict with the Communist Party of the Philippines (CPP) and its armed wing, the

New People’s Army

(NPA), and a second conflict between the government and armed groups seeking to establish an independent Muslim state on the southern island of Mindanao.

Although the Philippines, with its three centuries of Spanish colonial heritage, is predominantly a Catholic country, Mindanao’s originally dominant Muslim population was represented in armed struggle by the Moro National Liberation Front (MNLF), leading to the creation of the Autonomous Region of Muslim Mindanao in 1996.

However, the Moro Islamic Liberation Movement (MILM) splintered away from the mainstream MNLF since that time and refused to settle for autonomy within the context of the Philippine state, preferring the option of armed struggle. More recent years of the conflict have been characterised by ongoing violence and sporadic terrorism, cease-fires, stalled peace talks and resumption of hostilities.

Stuart Poole-Robb

Contemplating Indonesia as the new China

As stated in KCS’ last country paper on the subject, although an outwardly dynamic and fast growing economy, Indonesia remains every bit of a challenge from a business development angle, just as much as it provides numerous opportunities to realise new investments. As a country abundant in natural resources and availing itself of one of Asia’s largest consumer markets, analysts are now referring to Indonesia as the new China. Glancing at the country’s recent economic dynamism, this would hardly come as a surprise.

Indonesia has actively pursued vigorous growth policies during the last decade, courting foreign investment and advancing economic liberalism. Taking into account that the country is itself located geographically within the rapidly developing Asian economic network of states, this has effectively been music to the ears of many of the world’s leading multinationals. News of high profile new foreign direct investments (FDI) in the Indonesian economy almost appears to be a daily occurrence at the time of writing.

 New investments appear frequently in the country

Food giant Nestle and South Korean car maker, Hyundai, have both announced investments worth hundreds of millions of dollars in Indonesia recently, while the British energy multinational, BP, has pledged to boost its investments in the country by more than US$10 billion during the next decade. Last month (June 12-13), Indonesia was host to the first World Economic Forum (WEF) East Asia, the well known conference brand hosted annually at the Swiss ski resort of Davos, which attracts leading international business leaders and political elites. Last month’s inaugural WEF East Asia attracted more than 600 participants from some of the world’s most well known international corporations (including Microsoft, Cisco Systems, Chevron, Unilever to name just a few) and resulted in the Indonesian government announcing a further US$20 billion in FDI.

Many foreign brands are highly visible in the country, which is an attractive destination for Western business both due to the export potential that cheap labour and an abundance of resources allows, as well as the prospect of catering to Indonesia’s sprawling domestic market. Indonesia has the world’s fourth largest population, much of which is under 35 (years of age) and is consumer oriented (Indonesia has one of the highest rates of BlackBerry mobile phone users in the world for example, as well as reportedly the second highest number of facebook users).

KCS Group Staff