Coface’s predictions are that Europe in 2012 will be marked by a recession rate of -0.1 percent, while growth will stabilise in the USA at +1.6 percent and recover in Japan at +1.8 percent. Emerging European economies are most at risk, particularly those in Eastern Europe who are heavily reliant on European banks, as it is estimated that in the last 10 years, one fifth of the growth of Eastern European economies can be attributed to trans-frontier credit.

Italy and Spain’s assessments have been downgraded to A4, affecting in turn Croatia, which is exposed to Italian risk, which has in turn been downgraded to B. The Czech Republic, Slovenia and Slovakia have been placed under negative watch, with Hungary also being downgraded to B.

The political landscape in North Africa and the Middle East has affected those emerging economies’ assessments also, with Egypt being downgraded to C, Syria to D and the positive watch being removed from Nigeria’s D rating owing to ‘problematic governance’.

President of Coface, François David said, “With no rapid response from institutions to the crisis, negative forecasts on financial markets have prompted the distrust of actors of the real economy. However, it will be the corporates that will feel the repercussions of this crisis despite that fact that they have never been managed so well. In 2012, the combination of significantly weaker growth in Europe with the drying up of credit facilities could significantly affect the companies’ credit risk.”

ABS figures show that while immigrants make up less than 30 percent of the workforce, they have taken more than half of the newly created jobs since 2010. “There’s no doubt that the modern Australian economy was built on immigration,” Harcourt says. “And this has been good for Australia’s trade ties as well. There are clear links between immigration and trade. New migrants are likely to have strong links to business communities back home, in terms of friends, family and business contacts. There are no language barriers, nor any cultural adjustments to make. And as more countries embrace the market economy, there will be many more opportunities.”’

Harcourt says that Australia’s track record of successful immigrant business people and exporters is enough evidence to show that further immigrant exporters could be a boon to the economy. “50 percent of all small and medium sized enterprises that export are run by an overseas proprietor. You just have to take a roll call of great Australian business leaders who were born overseas. The names Abeles, Lowy and Parbo come to mind,” Harcourt says.

“Many of these business leaders came to Australia from war-torn Europe with no assets (and often with no English) but with a range of business contacts in their home market. Much of Australia’s success as an exporting nation in the late twentieth century was due to the efforts of the post-war immigrant business leaders. It’s always important to replenish your stock of entrepreneurial human capital and immigration is part of that process. The influx of migrants also changes consumer tastes in the new country (like new Thai restaurants replacing ‘meat and two veg’ places) and ultimately increases demand for both exports and imports,” he added.

November figures show the unemployment rate for Australian-born employees is at five percent, while the non-Australian born rate is at 4.8 percent.

While some industries are going through growth periods in the face of the strong AUD, notably imports and mining, which has had a massive investment boom, others that are in direct competition are suffering in comparison.

Offshore travel by Australians is at record levels but local tourism, retail and the tertiary education sector are showing weaker conditions, according to HSBC Global Research. So while some sectors of the economy are growing, and rapidly, others are beginning to slow down in order to make way for those on the up.

Much of the slow down has been in response to increasing numbers of Australians travelling overseas. The highest level of external departures on record, 33 percent, was recorded over the last year, which in turn has an effect on local retail spend and the manufacturing industry. This industry in particular has seen a decline in employment, however latest estimates suggest that manufactured export volumes have continued to rise despite the strong AUD.

The education export sector has also shown a drop in numbers over the past few quarters with local universities struggling to compete with the current exchange rate. Part of the reason for this decline however may be due to changes in slowing the issuance of student visas.

Despite the fact that some industries are decelerating in the face of the strong Aussie dollar, others are continuing to show strength, which can be taken as a positive outlook for Australia.

The volatility of financial markets has increased as consumer sentiment drops due to the eurozone crisis and the US economic policy impasse. As a result consumers and investors could begin suspending their purchases.

Chief economist of Coface, Yves Zlotowski says confidence weighs heavily on economic activity.

“The negative changes of country risk assessments confirm that we have left the phase of global improvement in payment behaviour of companies observed since the second half of 2009.”

Distrust towards banks because of their exposure to sovereign risk poses credit concerns for European companies. In the first half of this year, credit contracted in four countries including Greece, with Coface recording further progression of overdue payments and weakened growth in the monetary union expected for the rest of the year.

The risk assessments for Greece and Cyprus have been downgraded again after having already been dropped last June. Greek public deficit has increased and lending to businesses has already decreased by seven percent over the last year.

The positive watch on the A2 risk assessments of five other eurozone economies including Germany, Austria and Belgium have been removed and growth is not expected to improve over the rest of this year. The A3 and A4 assessments of Italy and Portugal respectively have also been downgraded with economic prospects for both looking poor.

Zlotowski  says: “The major challenge for European construction is setting up measures to stem the contagion of the Greek debt crisis to other eurozone economies. This will be the key element which will ensure that the slowdown does not turn into recession.”

Downwards revision of US growth has resulted in the removal of positive watch from their A2 rating. Growth has been restrained after lack of confidence from households and businesses has resulted in political strain over how to handle stimulus plans.

“The absence of consensus between political actors on the solutions that should be taken in order to tackle the sovereign crisis or the weak American growth is one of the drivers fuelling this crisis of distrust,” Zlotowski adds.

The economy is likely to slow down heading into 2012, resulting in increased bankruptcies for small to medium businesses overly exposed to regional banks and struggling with reduced access to credit. Company activity is likely to die down despite growth in demand from emerging economies expected to increase by close to six percent in 2011.

There is some positive news, however. The A4 risk assessment of Iceland has been placed on positive watch after renewed growth, since it was downgraded in March 2009. The country’s foreign debt remains high despite improvements and the banking sector has been cleaned up.

Thailand’s A3 negative watch has also been removed after politics in the country have stabilised and it has shown resistance to global turmoil.

The Australian Institute of Export (AIEx) is offering Dynamic Business readers free attendance to this year’s Annual Economic Review, designed to deliver insights to enable SMBs to survive difficult economic times.

Run in tandem with the Export Finance and Insurance Corporation (EFIC), this year’s event is titled “Economic insights to enable you to steer a course through turbulent times.”

A panel of senior Australian economists will discuss how both domestic and global economic, political and geostrategic issues can and will have an impact on your international business growth in the next financial year.

This event will examine the big macro risks for a global economy including:

• Currency wars
• Transatlantic “double dip” and renewed deflation
• European debt crisis
• The ‘Arab Spring’
• Asset bubbles in emerging markets
• Risks in emerging and frontier markets
• Impacts of a potential Carbon Tax

SYDNEY
Date: Tuesday 26 July 2011
Time: Registration from 4.15pm for 4.30pm. Networking Drinks from 6pm
Venue: The Barnet Long Room, Customs House, Circular Quay
RSVP: Lisa McAuley lisamcauley@aiex.com.au or call 1300 361 526

MELBOURNE
Date: Tuesday 2 August 2011
Time: Registration from 4.15pm for 4.30pm. Networking Drinks from 6pm
Venue: Skyline, 300 Flinders Street, Melbourne
RSVP: Lisa McAuley lisamcauley@aiex.com.au or call 1300 361 526

BRISBANE
Date: Thursday 4 August 2011
Time: Registration from 4.15pm for 4.30pm. Networking Drinks from 6pm
Venue: Treasury Heritage Hotel, George Street, Brisbane
RSVP: Lisa McAuley lisamcauley@aiex.com.au or call 1300 361 526

To get your free tickets, use the promotional code DYNAMIC when RSVPing to Lisa McAuley lisamcauley@aiex.com.au

I thought Brazil offered the strongest prospects for investors and businesses looking to tap into its rapid growth fuelled by domestic consumption, infrastructure investment and intra BRIC trade.

In truth, this wasn’t a difficult prediction to make and I wasn’t alone in making it. Over the last two years the Brazilian economy has grown by 15 percent, the Real has risen by 46 percent and the Bovespa has climbed a staggering 213 percent since its lowest point in 2008.

Last week I chaired a panel of Brazil experts at the AISES From Delhi to Rio event, and there is no doubt that an increasing number of foreign companies are now looking to tap into the close to US$100 billion investment which has been announced so far as the funds set aside to invest in hosting the FIFA World Cup in 2014 and the Rio Olympics in 2016.

A further 1 billion was pledged last week during President Obama’s visit to Brazil and it seems that it will be hard to pick up a newspaper soon without reading more announcements, predictions and commentary about Brazil’s future influence on the global economy.

So, here is my prediction for 2011… this will be the year in which the Russian economy will surprise us on the upside, and over the next two years investors and businesses will beat a path to the door of Russia and Eastern Europe! Sounds unlikely? Well read on…

I am, as always, very grateful to Michael Hanson-Lawson, Karine Hirn and my friends at East Capital, an independent US$7.3bn asset manager specialising in investing in Eastern Europe, for the great work they do in educating us all on the truth about Russia and Eastern Europe, in contrast to the more negative commentary you read in the press.

I am therefore pleased to have their permission to showcase their 3Cs which are aligning to position Russia as the compelling investment story of 2011: Convergence, Consumerism and Commodities:

Convergence

Eastern Europe is catching up Western Europe through political, economic and financial integration. From Slovenia to Poland, all of the Eastern European countries are experiencing rising incomes, increasing productivity and a substantial growth in consumer spending. Across the 27 countries that make up the ‘investable markets’ of Eastern Europe, the GDP per capital has increased by 237 percent over the last decade, compared to only 93 percent in the Eurozone.

Although overshadowed by its larger Asian neighbours China and India, Vietnam has experienced remarkable economic growth over the last decade, despite the global financial crisis and the nation’s low starting point.

Citigroup economist Willem Buiter predicts Vietnam is one of the 11 countries likely to stand out in terms of a high growth rate and investment attraction over the next 40 years, and according to the Economist Intelligence Unit, Vietnam’s economic outlook for 2011 through to 2014 is forecast to be strong.

This positive outlook can be credited to Vietnam’s four key economic strengths.

Strengths

1.    The robust economy

Vietnam is one of the fastest growing economies in Asia, second only to China. It recorded an average growth rate of 7.4 percent in the last decade, and is targeting an economic growth rate of 8 percent during the next five years. Vietnam’s economic exchange with the ASEAN countries, the US, Japan, Australia and Singapore has been expanding rapidly.

What’s more, the opening of the economy according to WTO commitments is in progress, and this signals exciting emerging prospects for foreign investments and expansion in this market. Prominent examples of existing successful Australian investments include ANZ Bank, Qantas, RMIT and the Commonwealth Bank.

2.    Rising retail growth

Vietnam has been experiencing rapid retail growth due to improved standards of living and the growth of its middle class. With 87 million consumers and retail sales up 20 percent year on year there is an increasing demand for imported products, creating unprecedented opportunities for foreign companies to get their merchandise onto Vietnamese shelves.
Drinking imported wines, for example, is now a growing trend among urban affluent Vietnamese.

For those who have been to Ho Chi Minh or Hanoi in the past few years, you would have noticed how rapidly the country is moving towards a Western-style culture where blue jeans have replaced the ao dai, pizzas and cappuccinos are on the lunch menu and driving an Audi Q5 is de rigueur.

3.    Rapid export growth

Low cost labour and high literacy in Vietnam have made the country a compelling alternative manufacturing base to China and the workforce is highly motivated, loyal and has strong work ethics. Vietnam is now a major apparel supplier to the US, just behind China in terms of market share.

The total area of their country (in square kilometres)
Russia – 17.1 million
USA   – 9.8 million
China – 9.6 million
Brazil – 8.5 million
India – 3.3 million

Their large populations
China – 1.3 billion
India – 1.1 billion
USA – 310 million
Brazil – 192 million
Russia – 142 million

The availability of capital (as measured by the size of their GDP)
USA – US$14.72 trillion
China – US$5.89 trillion
Brazil – US$2.09 trillion
India – US$1.65 trillion
Russia – US$1.51 trillion

Based on these three economic factors, the fours BRICs, together with the USA, stand far ahead of all of the other economies in the world which explains why, as a group, they are so important and influential from both an investment, business and, more recently, a geo-political perspective.

It is very important to keep this in mind when reacting to shorter term perspectives and commentary from the media, market analysts and economic pundits!

In January this year, the Leaders of the four BRIC countries (who now meet at least once a year as a Leaders group, and maintain a regular dialogue on global economic policy) decided to invite South Africa to join their annual Leadership Forum and to participate in other BRIC Forums (for example, a study commissioned by BRIC finance ministers and central bank governors would now include inputs from South Africa as well).

This announcement caused economic commentators, bloggers and others to start speculating about whether BRIC should now be referred to as BRICS and whether in fact South Africa deserved a place at the table alongside these four large emerging economic super-powers.

Jim O’Neill, now chairman of Goldman Sachs Asset Management and creator of the BRIC acronym in 2001, was clearly surprised by this announcement and was quoted as saying, “While this is clearly good news for South Africa, it is not entirely obvious to me why the BRIC countries should have agreed. South Africa rightly sees itself as a leading emerging nation, and that explains their motive.

“Furthermore, their historic trade ties with Brazil and India would justify South Africa wanting to be part of any ‘club’ that relates to trade relations between them. Of course, the rapid growth in trade between China and Africa, South Africa included, can explain much of their motive also.

“When I created the acronym, I had not expected that a political club of the leaders of the BRIC countries would be formed as a result. In that regard, the purposes of the two might be regarded differently and more so after this news.

“As far as the economics are concerned, South Africa is one of the more wealthy nations in Africa, and is currently the largest in US$ terms at around $350bn. However, this is quite small, not only by BRIC standards, but compared to some others.

“For example, Russia is around $1,600bn, nearly five times larger than South Africa, and India is currently similar in size to Russia. Brazil is currently closer to $2bn in size, while China is considerably larger at around $5,500bn. Importantly, there are a number of other economies from the so-called emerging world that are bigger than South Africa. This would include Indonesia (approximately $700bn), Mexico ($1,050bn), Turkey ($725bn) and South Korea ($1,000bn).

The Southern hemisphere nation of around 20 million people drawn from many cultures occupies a large land mass, 15.5 percent of the continent. Farming and mining underpin exports of agriculture and natural resources.

With a well educated population, a successful export oriented agricultural sector and a diverse industrial base, Argentina should be a prize destination for international trade. But decades of economic and political instability resulting from poor policy and international fiscal crises have left the Argentine economy fragile.

As a result, “Argentina has dropped from the Australian radar,” according to José Blanco, chairman of the Australia-Latin America Business Council. Argentina is considered a risky environment for investment and its unfavourable political conditions make other Latin American countries more popular as an export destination.

Financial background

From the Great Depression, despite continued industrialisation, the Argentine economy went through long periods of high inflation and high unemployment and took out large foreign loans.

A balance of payments crisis in 1990 prompted economist Domingo Cavallo to peg the peso to the US dollar. This succeeded in containing inflation and raising GDP, but external financial shocks eventually caused the Argentine economy to collapse entirely.

By 2002, Argentina defaulted in what remains a record sovereign debt involving $95 billion of bonds. Successive loans from the International Monetary Fund and a host of heterodox crisis management measures have helped the Argentine economy to recover reasonably well. The peso was refloated in 2002 and is currently valued at about 25 cents to the US dollar.

Argentina today

Carlos Pirovano, Under Secretary for Investments for the Buenos Aires city government, believes that Argentina is not past the crisis of 2001 yet. “But it will pass. We are in post-traumatic crisis.”

This year the Argentine President Cristina Fernández de Kirchner offered to pay back nearly US$100 billion of debt owed to creditors burned by the 2001 sovereign default. It amounts to a restructuring of 92 percent of the bad debt of 2001. The Argentine economic minister hopes it will rebuild credibility with international investors and “end the shame of 2001 once and for all”.

However, the economy remains unattractive for foreign investment due to the current Argentine government’s culture of old-fashioned protectionism, according to Silvia Imas, general coordinator for the Under Secretary of Investments.

The global financial crisis impeded recovery in Argentina, severely limiting growth. Fernandez De Kirchner responded with stimulation measures and an unofficial policy of protectionism. She followed her husband into the presidency, and their two terms have seen the renationalisation of water providers, telecommunications, railways, airlines and private pension funds in Argentina.

My difficulty is not with the background of the new minister. It is the current Labor government’s niggardly policy in promoting private enterprise’s efforts to tap the export market.

Perhaps a look at the 2008 Review of Export Policies and Programs by David Mortimer might help the new minister. Mortimer found that for every dollar of EMDG provided to exporters, it generated between $13.50 and $27 revenue for Australia.

In addition, earlier reports found that for every dollar of grant provided to exporters, 40 cents returns to the government in taxes.

At a time when every competent economic commentator is pointing out that the best and quickest way out of the GFC is through increasing international trade, where Australia is arguably overly reliant on the export of minerals to China, where the EMDG encourages a diversified trade in goods, services and IP all around the world and the EMDG generates between 13 and 27 times the revenue for every dollar spent and the government in any event gets back 40 percent of the grant anyway, why has the Labor government reduced the total EMDG in its budget to $150 million and refused to increase it for the foreseeable future?

This compares unfavourably to the coalition’s promise to increase the total of $200 million, which in my view is also too low.

For the difference of $50 million, we can expect between $675 million and $1.3 billion less revenue to Australia.

The government promotes the EMDG scheme as providing up to $200,000 in EMDG to exporters. Good press, sounds good but it’s not true: last year exporters were guaranteed only $50,000 and this year only $27,500.

Exporters at a time of increasing value of the Aussie dollar are finding it hard enough. To compete they need to increase marketing, and yet the very scheme designed to promote exports is hamstrung.

It’s time to uncapped the EMDG scheme and really help exporters. Are any of the independents listening?