BRIC Day: Ed’s Daily Notes for March 25th   2 comments

Today seems like a good day to look at the BRIC nations:

Reuters (via Yahoo): Brazil scrambles to avoid power rationing as costs soar

More trouble for the BRICs:

Brazil is fighting against time to avoid crippling power blackouts and electricity rationing as a drought prevents the world’s most water-rich nation from recharging its hydroelectric dams.

A decade of growth has diversified the electricity system away from hydropower, but policymakers, industrial companies and investors in the world’s seventh-largest economy may find little cause to relax.

Rio de Janeiro-based energy consultancy PSR puts the odds of rationing at nearly 1 in 4.

“Rationing or not, the drought’s impact on Brazil will be large,” said PSR Director Jose Rosenblatt. “There’s no way to avoid it.”

Hydro reservoirs, which generate two-thirds of Brazil’s power, are at near-record lows. To keep the lights on and factories open, all of the country’s main thermal power plants are running full throttle as an estimated 600,000 visitors prepare to arrive for the June start of the soccer World Cup.

…The risks of rationing and costs associated with the drought threaten growth and investment in the country, Standard & Poor’s said on Monday when it downgraded the credit rating on Brazil’s foreign currency debt.

The administration said on March 13 that it will cost 12 billion reais ($5.2 billion) in 2014 to rescue utilities forced to pay record-high prices to replace cheap hydro with more-expensive power from natural gas, coal and oil plants.

That will probably drive up inflation this year and next. At nearly 6 percent, the rate is close to the top of the government’s target band. If the 2001-2002 drought is any guide, Brazil’s expected 1.7 percent 2014 growth rate could fall to 1 percent or less, according to Brazilian bank BTG Pactual SA.

Rationing, the bank says, is the worst option, but higher power prices for a steel mill or mine would cut corporate profit almost as surely as assembly lines or shops shut by rationing.

In other words, avoid Brazilian investments this year.

Bloomberg: China’s Urbanization Loses Momentum as Growth Slows

This is why China’s recent announcement to increase infrastructure spending is moot:

The pace of migration of rural Chinese to cities, a dynamic hailed by Premier Li Keqiang as key to the nation’s development, is set to slow by a third in coming years, deepening economic-growth concerns.

A government report released this month projected a 6.3 percentage-point rise in the share of people living in cities from 2013 to 2020 — down from a 9.4-point gain the previous seven years. Nomura Holdings Inc. estimates that slower urbanization will slice as much as half a percentage point from annual gross domestic product growth over the next half decade.

The reason for the decline is pretty obvious: China’s big cities are overpopulated and over-polluted. Would you want to live here?

china smog 2013 FL8 biz distr

Bloomberg: Secret Handshakes in India Rackets Fuel Inflation

India’s top political parties are taking aim at a six-decade old practice of collusion among traders at produce markets that policy makers say helps fuel Asia’s highest inflation.

At Mumbai’s Vashi market, middleman Nitin Parakh put a towel over his hand last month as he began an onion auction. Buyers drifting through piles of onions placed bids by reaching under the towel and squeezing his hand: The thumb, middle, ring and pinkie fingers each count for 10 rupees ($0.16), while the index finger has a value of 100 rupees.

“We know secret bidding is illegal and we should actually do open auctions,” said Parakh, one of about 450 traders licensed to sell onions and potatoes at Vashi, the largest wholesale market in Mumbai, a city of about 18 million people. “This practice has been in vogue for many, many years.”

The ruling Congress party put trader rackets on its priority list after surging prices for onions — an Indian diet staple — contributed to local-election losses late last year. With a nationwide ballot looming next month, the opposition Bharatiya Janata Party also is pledging to chip away at the middleman’s margin.

“Secret bidding fuels inflation as there is collusion between the middlemen and wholesalers: They pay lower prices to farmers and sell it at higher price to retailers,” said A. V. Manjunatha, who co-authored a report for the government on onion price manipulation in 2012. “The problems are known, and the solutions are also known: you need to have political will to bring about the changes.”

While progress has been made, change is slow in India’s bureaucratic system. If you want to know why India was the laggard of the BRIC nations, look no further than “tradition”, aka bureaucratic bloat. I think it was investor Jim Rogers a few years ago, who pointed out the problem with India was after the British left, they left the bureaucracy there.

Businessweek: Russia Gets Ready for Life Without Visa and MasterCard

It may just be me, but I found the above article fascinating.

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Posted March 25, 2014 by edmcgon in China, Market Analysis, News

2 responses to “BRIC Day: Ed’s Daily Notes for March 25th

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  1. It is ironic with the pollution in China that they have totally empty cities.
    In other words they could spread out to these other cities, but just that means leaving the current hub of business/life and so you get a chicken and egg problem.

    • Chris,
      One interesting thing I noticed in the article was that Chinese need a special license to own property in the cities. And yet they want more people to live in the cities?

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