Brazil's bright future

Of all of the four BRIC economies (Brazil, Russia, India and China), Brazil is the country which, in my view, is the closest to Australia from a cultural and social perspective. Brazilians share many of the same passions as Australians - the beach, sport, football, the great outdoors and a warm and sunny climate – and this provides a great start for those looking to engage with a country of 180 million people which is rapidly growing in confidence as an emerging economic power.

Brazil’s traditional strengths are in mining and agri-business and in some ways resembles Australia as a leading exporter of commodities (notably orange juice, coffee, soy, beef, chicken) and resources. Whilst we compete in some areas (e.g. exports of iron ore to China) our opportunities to engage with Brazil, a country that will during this century dominate the global economy, far outweigh any competitive threats. And with Brazil hosting the FIFA World Cup in 2014 and the Olympic Games in 2016, Brazil should be high on the list of countries to visit in the coming years

Domestic Consumption
As with all of the BRIC countries, future economic growth in Brazil depends on strong local domestic consumption, as opposed to exports to the cash-strapped developed world, and the Brazilian Government has introduced measures to boost domestic spending via lower interest rates, an easing of capital requirements to Brazil’s banking system (designed to stimulate housing and car loans) and reducing unemployment via a range of spending initiatives.

Brazil’s aspirational population of over 180 million is:
* the 6th largest in the world (and the largest in Latin America) growing at approx. 1.3% per year.
* relatively young, with 42% under the age of 20, with a strong appetite for western style consumer goods, brands, fashion labels, technology and gourmet foods.
* 80% Urban - approximately 30% live in the ten principal metropolitan areas, including São Paulo and Rio de Janeiro which have populations of around 19 million and 12 million respectively. Some 14 other metropolitan areas have populations of more than 1 million. This makes it relatively easy to access the retail markets due to the high levels of concentration in urban centres.
* experiencing a rapid rise in the “middle classes” which is growing by over 8% per annum and becoming increasingly affluent and upwardly mobile
* keen to spend rather than save, as evidenced by the large numbers of new shopping malls, outlets, hypermarkets, supermarkets and convenience stores offering the usual wide range of services (restaurants, coffee shops, fitness centres, beauty parlours, shoe repairs, post offices, bank services and dry-cleaners) and providing entertainment with cinemas, cyber-cafés and play areas for children.

Being one of the world’s “Big Rapidly Industrialising Countries”, Brazil’s growing and increasingly affluent middle class presents opportunities across the board for all retailers, from food and beverage, cosmetics and clothing to some of our more premium products, notably gourmet food and wine.


Resources, Agriculture and Infrastructure
With Brazil’s primary strength as a resource and agricultural based economy, similar to ours, leading Australian companies offering high value adding services to the agri and resource sectors (including technology, software, engineering and consulting services) are highly sought after by Brazilian producers looking for greater efficiency, increased production and improving yields from their existing activities. With Brazil’s vast land mass, much greater than ours, much of its arable land available for farming activities and new sites under exploration for mining, Australia has much to offer Brazil as it seeks to modernise and upgrade its land economy.

In addition, whilst Brazil's construction industry was hit by the global economic slowdown, the Government's Growth Acceleration Program (launched in 2007) is committed to supporting investment in infrastructure projects. With Brazil's large fiscal stimulus package (US$254bn, representing a significant 19% of GDP) there is widespread activity across many infrastructure projects including road, rail, power and the construction of low income housing. In addition, housing, commercial and tourism construction is also set to get a sizeable boost from the preparations for the 2014 FIFA World Cup, which is estimated to inject a further US$43bn into the infrastructure sector, and the 2016 Olympic Games in Rio. With Australia’s Olympic experience in designing, constructing and fitting out sporting venues, opportunities exist in many areas for Australian architects, builders and landscapers.


Alternative Energy
Brazil has, for many decades been leading the world in the development of alternative energy sources, notably ethanol and other biofuels, and 45% of Brazil's energy is already drawn from renewable sources, according to the National Bank for Economic and Social Development, compared to only 6% from developed countries. In 2008, ethanol made from homegrown sugarcane outsold gasoline and 90% of new Brazilian cars and light trucks can run on biofuel, petroleum or both!

Australian cleantech companies, product-providers, consultants and suppliers should go to Brazil to research the significant progress and commitment being made to the renewable energy sector, not just in ethanol and biofuels but also in hydroelectric power, solar and wind farms, and look for opportunities to compare notes, collaborate and export products, services and technology to the Brazilian market.

Financial Services
In addition to the above, the Brazilian financial services industry offers a wide range of products, services and opportunities that attract numerous new entrants each year. Having lived through the Latin American debt crisis of the 1970s and the Mexican devaluation in 1995, Brazil’s banking and finance sector has been under the microscope of the IMF and the World Bank for many years and is now amongst the most well regulated in the world. Furthermore, the Brazilian Government is run by a sophisticated technocracy of top economists and international bankers, many of whom held top positions in leading international banks, and has allowed Brazil to develop a financial services sector which is thriving in the post GFC environment. Opportunities exist across the board for Australia’s financial services sector to participate in the growth of Brazil’s banking, wealth management, funds management and insurance sectors.

Challenges
Brazil offers many challenges for Australian exporters and this would explain, to some extent, the reticence of Australian companies to make the long flight across the Pacific Ocean to engage with a country which has for many years been associated with the burdens of Latin American debt, hyperinflation, military dictatorships and extreme violence and poverty.

Furthermore, with high tariffs, onerous red tape, bureaucracy and language challenges (unlike most other Latin American countries, Brazilians speak Portuguese rather than Spanish) Brazil continues to offer many challenges for Australian exporters.

However, Brazil is committed to a program of structural reform, including a raft of changes to labour, taxation and infrastructure programs, which will alleviate some of the current challenges over time. But, in the meantime, Australian exporters should be prepared for complex and onerous export documentation and customs clearance issues which calls for advice, support and patience!

Can you ignore Brazil?
During this century, Brazil will become one of the largest economies in the world, taking its place behind China, USA, India and Russia as the dominant markets of the 21st Century for business, trade and investment. Brazil will lead the world in many sectors that compliment, enhance and offer opportunities for Australian business, particularly in agriculture, resources and renewable energy, and leading Australian businesses can’t ignore the chance to gain a foothold in this large and significant long term market.

(Extracts from the above article were first published in Dynamic Export, magazine of the Australian Institute of Export (July 2009). Click [http://www.dynamicexport.com.au/articles/markets/building-business-with-brazil here] to read the full article.

Best wishes

David Thomas

Please consider coming with the BRIC+ Program on our BRIC+ Study Tour to Brazil from **1st to 8th May 2010**. A rare and unique opportunity to experience, research and explore investment and business opportunities in Brazil’s booming economy. Please contact us at mail@bricplus.net to receive more information.

China's Booming Economy

I have just returned from China at the end of our latest BRIC+ Study Tour China, a one-week program of briefings, presentations, site visits, activities and workshops for a leading group of Australian investment professionals on their first visit to Shanghai and Beijing.

This was my first visit to China since the Global Financial Crisis (referred to in China as the “American Financial Crisis”!) but the signs of confidence, growth and national pride are everywhere.

Here follows a summary of my key learning and observations from the visit:

1. China’s economy is booming

The evidence is everywhere – in construction, infrastructure, property, retail and large scale manufacturing. China’s economy seems certain to maintain its average growth rate of 8.5% p.a since 1978, despite the dire predictions of late last year, and 2009 will surely be remembered as the year in which China “de-coupled” from the US. To use a well worn analogy: the train has most certainly left the station – either get on it or get out of the way!

2. The Chinese Government is making all the right moves to ensure confidence, stability and national pride in the country’s achievements

The timing, size and impact of last year’s US$586 billion stimulus package has delivered an immediate return to the economy but the greatest benefits have been delivered in so many other ways, including:

* the upgrade in infrastructure in the first tier cities, notably Shanghai and Beijing, which are now as impressive as any city in the world

* the investment in the second tier cities (I made a brief visit to Ningbo prior to the commencement of the BRIC+ Study Tour) is large, significant and impressive and will ensure that the wealth, opportunities and infrastructure are also available to the residents of hitherto unknown cities like Chongqing (population 30m), Dalian, Hangzhou, Tianjin, Ningbo and many others.

* The English language is widely spoken at all levels of society, particularly amongst the younger generations. This was particularly noticeable in Beijing, presumably in the wake of last year’s Olympic Games, which appears to have become a truly international city compared with only years ago.

* the quality of service in shops, hotels, restaurants and even in the markets is now at an international level. Many regular travellers to China (myself included) used to complain that, whilst the “hardware” (ie hotels, airplanes, shops, roads) was often world class, the “software” (ie service, language, skills, training, attitude) was lacking. This is now changing very rapidly.

3. Domestic Consumption is rising rapidly

This is the great test for China. With the collapse of its exports to the developed world, can it consume enough internally to maintain its momentum? The signs are encouraging on the streets of Shanghai and Beijing, with the shops busy and every sign of western-style consumerism, plus the data is positive in terms of household income and expenditure, consumer sentiment, confidence and other leading indicators (eg use of credit cards). But the greatest indicator of increasing domestic consumption and confidence is the sale of motor vehicles which are exceeding even the most positive expectations. Consider the following facts and figures:

* Overall car sales are growing strongly, up 20% in the first half of 2009

* Luxury car sales are up 7% for the first half of 2009 (a time when the rest of the world was shunning luxury purchases of any kind)

* Sales of Mercedes cars are up 50%, and China is now the No. 1 market in the world for the Mercedes S-Class, their high-end flagship vehicle

* Ferrari sold more than 200 cars in China last year

* 80% of all Rolls Royce car sales in China are custom built, higher than in any other market, with customers adding humidifiers, single rear seats, backseat entertainment options and refrigerators to ensure maximum comfort and status

4. China is leading the world in renewable energy sources

This was a particularly surprising aspect of our recent visit. We learnt that China is now producing more solar energy than the rest of the world put together (by some distance apparently!) and this was certainly evident in Beijing with many of the street and highway lights powered by solar panels which were evident along the side of the road. We also read that China plans to build seven large wind-power bases over the next decade and, whilst China’s energy needs are expected to double by 2030, it could reasonably expect to meet at least half of those needs from wind power.

5. The Private Sector is growing rapidly

China is now shaking off its image as a country dominated by a small, lumbering collection of large state owned companies, with all of the associated risks, challenges and restrictions for foreign investment and trade, and an increasing number of opportunities now exist in the private sector. Private companies in the US$5m to US$50m turnover range were identified as representing the most interesting investment opportunities at the moment.

6. China is going global

I was the guest speaker at an investment forum held at [http://www.creativity.net.cn/en/index.htm Innovation Valley] in Ningbo at which over 70 companies attended to learn how to take their businesses offshore, with a particular focus on Australia as a business and investment destination. I gather similar forums are being help throughout China as the country seeks to implement its new “Going Out” strategy (announced in July 2009) to diversify its foreign reserves and increase its share of global exports.

7. China is moving up the value chain

We learned that China is looking to upgrade the quality of its exports by moving into higher value manufacturing capabilities. Therefore, the development of technology-led sectors and high-value capabilities has become a key policy focus. In this respect, the collapse of low value exports to the developed world is a blessing as it has forced the whole country to accelerate its move down this path.

8. Australia is not taking China seriously enough

In conversation with many Australian Chinese and expatriates living in China, I was surprised and dismayed to hear the view that Australia is losing out to the US, Japan, Korea and European countries by not taking China seriously enough. It seems that, whilst many Australians coming to China to “take a look”, very few ever come back again to do something serious. Australia’s exports to China are dominated by our resources sector (which represents only 6% of our GDP) which means that there is significant potential to export the other sectors of our economy, especially those in which we offer innovative processes, technology and world-class products and services.

Russia's Resurgence

Of all the four “BRIC” countries (Brazil, Russia, India and China) Russia is without doubt the most misunderstood and under-estimated when it comes to business, investment and trade. However, unlike the other three, Russia has in recent times experienced life as a global super-power and, with the developing world, notably China and India, becoming increasingly dependent on Russian supplies of energy, particularly oil and gas, it won’t be long before Russia resumes its place as one of the world’s largest economies.

According to Goldman Sachs, by 2050, Russia will be the fifth largest economy in the world (after China, USA, India and Brazil) and the single largest economy in Europe. Whilst badly hit by the global financial crisis in late 2008, Russia’s economy is now picking up across the board, with rising commodity prices (notably a recovery in the oil price), falling inflation, lower interest rates and a slow improvement in credit markets. Furthermore, Russia’s stock market is one of the top performing markets in the world so far this year, with a rise of over 50% since 31st December 2008. An early indicator of improving economic conditions in the months ahead.

Innovative, entrepreneurial and dynamic Australian companies should take advantage of Russia’s dependence on imports and foreign investment to research the local market, explore a wide range of opportunities arising from Russia’s rapid resurgence and develop a market entry strategy to take advantage of a wide range of opportunities in many areas, including the following:

Food and Agri-business
The sector of Russia’s economy which always attracts the most interest and opportunity for foreign players, including Australians, is the food, beverage and agri sector which was the worst hit by the collapse of the Soviet Union and offers the greatest upside potential, at least in the short to medium term. Food and beverage represents 45% of Russia’s total retail trade and is growing at over 19% per year (compared to approx 12% for non food sectors). As Russians become more affluent, they are demanding higher quality, trusted brands and greater variety which represents great opportunities for Australian players, particularly in:
- Meat
- Dairy
- Fruit and Vegetables
- Wine
- Technology

I was in St Petersburg late last year leading a BRIC+ Study Tour consisting of Australian investment advisers and researchers. Our group visited a large dairy and vegetable farm on the outskirts of the city and there was general surprise amongst the delegation at the outdated machinery and technology. This was specifically identified as an area of opportunity for foreign investment and expertise, and Australia has more to offer than most in this field.

Many Australian companies, in all sectors of our economy, survive and prosper in a tough, competitive and relatively small market due to the higher savings, efficiencies and margins that can be generated by leveraging world class technology, machinery, equipment and experience. It is in these areas that Australian companies have a significant competitive advantage overseas – the key is to start exporting our expertise, as well as our products, to the new developing economies of the world.

Financial Services
One area of particular interest to Australia is the rapid growth of Russia’s financial services sector, driven by sustained economic growth, increasing diversification and, as a result of the global financial crisis, a strong appetite for foreign capital through listings, Eurobond issues, private placements and other bank finance. As Russian companies seek to raise capital, so their need for international financial expertise grows – particularly in accountancy, legal and management consulting – and with up to 90% of Russian corporate deals based on English law, this represents significant opportunities for Australian firms. Macquarie Bank’s joint venture with Renaissance Capital to develop infrastructure advisory and fund management opportunities is a good example of what is possible, but there is room for so many more Australian firms and service providers.

Beyond the demand for capital, Russia’s financial services sector is growing domestically, driven by fast-increasing wealth, rapid bank sector expansion, and leading to the growth of services such as insurance, asset management and superannuation. Australian companies are well placed to benefit from these developments and as the Russian domestic market grows, so too does interest in financial services education, training and qualifications, together with a wide range of other opportunities in technology, software, compliance and back office systems.

Technology
As Russia’s economy grows, expands and continues to modernise and develop, the rising demand for international IT services will ensure that it continues to attract foreign IT and consulting firms from all over the world. This represents another important opportunity for Australian firms, particularly in the sectors where our economies overlap such as mining, oil and gas, agriculture and telecommunications. However, with increasing PC and internet penetration, a rapidly growing telecommunications sector and rising demand for software and IT services, Australian technology companies will find a wide array of opportunities to pursue in Russia’s expanding economy.

Conclusion
The current economic slowdown in Australia represents a timely and opportune reminder to innovative and entrepreneurial Australian companies to start leveraging their local success and experience by targeting the Big Rapidly Industrialising Countries of the 21st Century. Nothing could be more important in the search for new customers, new revenue streams and increasing profits, and now is the time for business leaders and entrepreneurs to beat a path to the door of the BRICs.

For the reasons above and others, Russia offers significant rewards for those brave enough to take the first step and my advice would be to:
- Do your research – a good place to start is Austrade’s dedicated Russian web site at: www.austrade.ru/eng
- Talk to Dan Tebbutt, Austrade’s active and passionate senior trade commissioner in Moscow
- Talk to other Australian companies who are doing business in Russia. Join the Australia Russia Business Council (www.arbc.org.au)
- Get some advice on how to develop a market entry strategy for Russia – Think Global can help
- Go to Russia – start in Moscow and St Petersburg, target companies in your sector and dispel some of the myths about Russians and Russia. You’ll be surprised.
- Get started – do something small, gain a foothold and then build up slowly and progressively. Create business targets and milestones, gain confidence and move forwards.

You may find it easier than you think!

(Extracts from the above article were first published in Dynamic Export, magazine of the Australian Institute of Export (July 2009): www.dynamicexport.com.au)

Best wishes

David Thomas

Why you can't ignore China!

China represents numerous opportunities for small business. Many of these don’t involve setting up in China at all, but positioning your business for the enormous potential arising from China’s assault on the Australian market.

For example, how could you tap into some or all of the following opportunities:

• There are 130,000 Chinese students in Australia (a 30% increase since last year) eager to learn business, leadership and entrepreneurial skills to launch their career in China (or Australia)
• The number of tourists arriving in Australia from China each year is currently 500,000 and is projected to increase to 1 million by 2015. This represents many opportunities across the Australian tourist, travel, migration and business sectors.
• There are 12,000 skilled business migrants arriving on permanent visas from China each year, providing opportunities for local SMEs to provide support and advice in numerous areas - accounting, marketing, branding, banking, finance, real estate, legal, business planning, coaching, human resources, recruitment etc.
• With its extensive capital reserves and its ambitions to go global, Chinese companies, entrepreneurs and investors are looking to invest in Australian businesses, particularly in resources, technology, healthcare, education and many other areas of innovation, design and creativity
• Outsourcing your printing, research, manufacturing and/or support functions to China and save 30% - 50% of your costs - a direct result to your bottom line

It’s not as hard as you think and there are many different ways to tap into the market and improve your bottom line. Contact us at www.thinkglobal.com.au for help and support in positioning your business for China

Brazil on the rebound

Regular readers will recall a prediction I made in January this year that “Brazil will lead the global emerging markets out of the current doldrums to be the top performing emerging market in 2009”.

I suggested that there were three reasons to be optimistic about Brazil’s economy in 2009:

• Self-sustaining domestic growth, led by consumer spending
• Massive infrastructure investment
• Increasing trade between the BRIC countries and other emerging markets

So, what’s been happening in the last five months?

Firstly, Brazil’s Bovespa stock index has already climbed 33% this year (following a record 41% decline in 2008) and the economy is growing again after a short-lived recession. The Government predicts GDP growth of 1% this year and Brazil’s economy now stands at $1.31 trillion, the 10th largest in the world. The unemployment rate in Brazil’s six largest metropolitan areas fell to 8.9% in April, the first decline in four months, and the Brazilian real will steady around 2 per US dollar having weakened to 2.51 per dollar in December from a high of 1.56 in August last year.

Self-sustaining domestic growth, led by consumer spending
In order to counter the slowdown in exports, the Brazilian government has cut taxes on cars, home appliances and construction materials, injected about $90 billion into banking and money markets and increased public spending. The central bank has cut interest rates three times since January to a record low of 10.25% and retail sales are rising slowly. According to Brazil’s Finance minister, Guido Mantega, the economy will improve further in the second quarter and the pace of growth in the last quarter of this year may reach as high as 5%. Sales rose 0.3% in March from the previous month, after a 1.5% gain in February. These are encouraging signs for the growth of much-needed domestic consumption.

Massive infrastructure investment
Whilst Brazil’s construction industry has been hit by the global slowdown, the Government’s Growth Acceleration Program (launched in 2007) is committed to supporting investment in infrastructure projects. With Brazil’s large fiscal stimulus package (US$254bn, representing a significant 19% of GDP) there is widespread activity across many infrastructure projects including road, rail, power and the construction of low income housing. In addition, housing, commercial and tourism construction is also set to get a sizeable boost from the preparations for the 2014 World Cup, which is estimated to inject a further US$43bn into the infrastructure sector.

Increasing trade between the BRIC countries and other emerging markets
“Intra-BRIC” trade and investment is one of the key indicators to watch in evaluating the prospects for growth in the global economy in 2009 and beyond, and there have been many deals signed between two or more BRIC leaders in the early months of this year. The latest follows a very successful state visit to China by President Lula de Silva in which he signed 13 agreements with Chinese President Hu Jintao (both pictured above) covering science, space, law, ports and farm products.

In the most significant of these agreements, the China Development Bank agreed to lend US$10 billion to Brazil's Petrobras in return for a guaranteed supply of 200,000 barrels of oil per day to China's state oil firm Sinopec for the next 10 years. The agreement for Brazil to supply China with oil was largely negotiated in February, along with a memorandum of understanding on long-term financing for Petrobras which needs funds to help extract massive, newly-found oil reserves. Petrobras and Sinopec also signed a memorandum of understanding on exploration, refining and petrochemicals. This deal came hot on the heels of a similar agreement under which Russia has agreed to supply China with oil for 20 years in exchange for loans to Russian state firms.

For the first time, China displaced the United States as Brazil's top trading partner in April, a trend that is expected to continue as China looks to secure energy resources from its BRIC trading partners. According to President Lula de Silva, "In 2009, China became Brazil's first trading partner. Now we still face the challenge of exploring the full potential of investments that our economies can offer to each other." Brazilian exports to China have grown by 65% from January to April 2009 compared with the same period one year ago.

Next BRIC Summit
The next official meeting of the BRIC leaders is scheduled for 15th and 16th June in Yekaterinburg, Russia. This will be the first international appearance of Prime Minister Manmohan Singh of India since being re-elected earlier this month (a sign of the times that he has chosen Yekaterinburg over Washington for his first overseas trip!)

According to Chinese Foreign Ministry spokesman, Ma Zhaoxu, when confirming China's involvement in the next BRIC Summit: “The BRIC countries, namely Brazil, Russia, India and China, are all important emerging nations and driving forces for the world's common development. They share the same or similar opinions on many international issues and all have the political desire for further cooperation and communication. In recent years, the four countries have exchanged views on world economic and developing issues of common concern through various channels. The dialogue and co-operation among the four countries is transparent and open and is not aimed at any other country."

Watch out for more news on the changing dynamics of the global economy and what this means for you as investors and businesses.

Best wishes

David Thomas

China to become the next Global Financial Services Centre

Forget Wall Street and the City of London – the next global financial services centre will be in Shanghai and, whilst we can argue about how long it will take for the Chinese to get there (3 years, 10 years, 20 years?) progressive, entrepreneurial and leading financial services and other organisations will be working hard now to position themselves for this major shift in the flow and movement of global capital, investment, foreign exchange, technology and professionals.

China has the money, the motivation and the opportunity to rapidly accelerate the plans they already had in place to play a leading role in global finance and we should expect to see more news confirming China’s serious intentions to dominate the global financial scene, for example:

1. Shanghai’s State Council has been urged by the Central Government to develop a multi-functional financial centre by 2020 and, in order to attract financial professionals worldwide, Shanghai is loosening its residence policy with a view to simplifying the immigrant procedure for financial professionals to work in Shanghai. For the full statement, go to http://eng.wcetv.com/1/2009/03/27/43s12053.htm

2. China is in the process of signing “landmark agreements” with other financial services centres to (a) accelerate the flow of investments between China and other leading financial services centres (b) establish new regulatory frameworks to allow easier access for financial services firms and individuals wishing to conduct business in China, and (c) gradually set up a clearing system for business to be transacted in local currencies. The latest example is the agreement announced this weekend with Taiwan. Go to: http://www.reuters.com/article/worldNews/idUSTRE53P0DF20090426?feedType=RSS&feedName=worldNews for more details

3. China has made no secret of its desire to reduce the world’s dependence on the US dollar as the global reserve currency and replace it with a new currency which is not dependant on any one country, and there is no doubt that they would like to see the Chinese Yuan playing a greater role in global investment and trade. However, whilst the expansion of the yuan's international role is constrained by its limited convertibility, China can promote wider use of its currency by increasing bilateral currency swaps (ie yuan-denominated orders for Chinese imports, thereby avoid using the U.S. dollar in bilateral trade agreements). China's central bank has signed six swap deals since mid December, totalling 650 billion yuan (US$95 billion), with countries from Argentina to Indonesia and South Korea (Go to: http://www.forbes.com/2009/03/31/china-argentina-yuan-markets-currency-dollar.html for more details). China now promises not just more of the same, but bigger swaps with more countries which will not only thaw the current freeze on trade financing, but also reinforce the status of the yuan as an international trade currency.

4. As the largest foreign owner of US Treasury Bonds, and now the strongest economy in the world, China is leading a push by the BRIC countries to have the International Monetary Fund issue its first bonds as part of a strategy by developing nations to gain a bigger say at the IMF. Go to http://www.theaustralian.news.com.au/business/story/0,28124,25391494-643,00.html for more details

Any financial services player, in any country, offering almost any financial services product or service, should now have China at the top of their priority list for global business expansion because, quite apart from some of the global policy and strategic initiatives outlined above, Chinese officials, organisations and individuals are now scouring the world for examples of global best practice in financial services, particularly in the following areas:

* Wealth Management – investment, tax-planning and holistic financial planning advice
* Enabling Technology – reporting, transaction, compliance and back office
administration systems and software
* Research – securities, managed funds, products
* Marketing Communications – branding, design, content and delivery
* Professional Development Training – design, content, delivery

Think Global Consulting specialises in the financial services sector – please contact us now for more information and support at www.thinkglobal.com.au

Best wishes

David Thomas

Go to China!

Go to China!

Innovative, creative and entrepreneurial businesses in Australia will see the current economic slowdown as an opportunity to design, develop and execute a China marketing strategy. A once-in-a-lifetime opportunity to position your business to profit from the massive domestic consumption, infrastructure and professional services boom that will flow from the next stage of China’s remarkable 100-year transformation.

Here’s why you need to act now:

1. China’s relationship with Australia is at an all time high
With a Free Trade Agreement in negotiation, our unique mandarin-speaking Prime Minister, 35 years of diplomatic relations and with China now as our largest trading partner, there is no better time than the present to leverage the goodwill, trust and opportunity that exists on both side of the Sino-Australian relationship

2. China is stimulating their local economy by investing in infrastructure, transport, industry (particularly IT), housing and the environment
China’s commitment so far exceeds A$900bn and whilst they are building the first class hardware (e.g. roads, railways, airports, buildings, waterways, bridges, tunnels etc.) to support their rapidly industrialising economy, what they also need is the software (i.e. the professional services, training, education, technology, creativity, design and leadership) that makes the difference between "third world" and "world class". It’s in these areas that Australian businesses of all sizes can create the most opportunities.

3. China is encouraging domestic spending by offering a range of incentives, discounts, tax breaks, loans and other measures to increase the sale of domestic and foreign products and services
For example, sales of Australian wine in China grew by 28% last month and, at a time when car sales are going backwards in the developed world, the sales of passenger cars, buses and trucks in China surged 25% in February 2009. Watch out for a massive domestic consumption boom as the Chinese Government encourage their population to spend rather than save.

4. China has capital and is willing to invest to attract foreign companies to set up in China, particularly in the areas of innovation, technology and creativity
New technology parks and special economic zones are springing up all over China, particularly in second and third tier cities, presenting opportunities for entrepreneurial Australian companies to get access to low cost capital, skilled labour, new markets and cashed-up customers.

5. China is a Learning Nation
China is willing to invest in products, services and ideas which will enable their country to thrive, prosper and grow in the new global economy of the 21st Century. This provides opportunities for many Australian service providers –accountants, lawyers, architects, technology, software, trainers and other professionals - to make their mark in the world’s fastest growing economy.

This Century will see China become the largest economy in the world – don’t miss out on the opportunity to develop your China market entry strategy!

Best wishes

David Thomas

Here come the BRICs

Here come the BRICs

Regular readers of my blog will know that I’ve been saying for some time that the leaders of the four BRIC countries (Brazil, Russia, India and China, but also known as the Big Rapidly Industrialising Countries) will start demanding a greater say, influence and control on international economic and fiscal policy decision-making.

Well, as if on cue, last Saturday, the BRIC Leaders issued their first ever joint communiqué from Horsham in the UK on the eve of the G-20 Finance Ministers and Central Bank Governors Meeting. You can read the full text of this statement at http://www.reuters.com/article/usDollarRpt/idUSLE47000820090314 but the key points to note are:
- Brazil, Russia, India & China have called for a greater voice on international bodies and backed a large increase in International Monetary Fund (IMF) resources
- they stressed the need to strengthen the effectiveness and legitimacy of international financial institutions and ensure that they reflect changes in the world economy
- they called for emerging and developing economies, including the poorest, to have a greater voice and representation in the IMF

Watch out for the BRIC Leaders (pictured above) playing a more significant role in the G-20 Summit in London, starting on 2nd April. Their time is coming! Perhaps it won’t be long before even the G7 is re-configured, dropping Canada and Italy (both lovely countries and wonderful people, but with less influence than their current status deserves) and adding the BRICs to become a new G9?! Or perhaps even Britain, Japan, Germany and France will have to make way for a new G5 consisting of the US and the four BRICs. Is this out of the question?

If you’re old enough to believe that these developments are unlikely to have any impact on your own personal and business lives, then at least make sure that your children are learning Mandarin, Russian or Portuguese, or watching Bollywood movies!

Please consider:
- Attending our Think Global Masterclass Series 2009 for small business owners, entrepreneurs, creators and innovators to learn how to do business in the BRICs and other emerging countries. Go to www.thinkglobal.com.au for more details and to book online

- Coming on our next BRIC+ Study Tour China from 6th to 14th June. Go to www.portfolioconstruction.com.au/BRIC/BRIC-Study-Tours for more details

- Attending the first China Australia Business Congress on 19th and 20th May in Sydney. Think Global Consulting is an event sponsor, and David Thomas is the Congress Chair. Go to www.acevents.com.au/chinabusiness09 for more details and to register, and be sure to come and say hello over the two days.

Best wishes

David Thomas

Don't give up on the world's BRICs

Don't give up on the world's BRICs

With the BRIC and other global emerging markets experiencing some of the worst share market declines in 2008/9, many people are asking whether the "BRIC story" remains valid. Some have already written BRIC off as yet another marketing gimmick (similar to the dotcom bubble) while others have suggested that the acronym should be changed to "BIC" (removing Russia) or even "BRAC" (to include Australia and Canada in place of India and China).

Don’t believe any of this - The BRIC story remains one of the key investment megatrends of the 21st Century. Here's why:

1. The BRICs are some of the best performing investment markets of the past five and 10 years
While the last 12 months have indeed been severe as investors have re-assessed the BRICs in the face of a global economic downturn and realigned their portfolios accordingly, investors in the BRIC story (often referred to as “emerging markets”) are still outperforming those in more developed markets (now being referred to as the “submerging markets”). See table below:

5 years | 10 years
| Brazil +14.64% | +15.28%
| Russia -3.37% | +21.14%
| India +4.62% | +9.35%
| China +7.62% | +3.67%
| USA -4.74% | -3.68%
| Australia -0.3% | +3.32%

2. The BRICs are maintaining economic growth by trading amongst themselves
One of the casualties of the global financial crisis, and the cause of why the BRIC and other global emerging markets have been so badly savaged in recent months, is the failure of the "decoupling" theory which was the subject of much debate, speculation and optimism in 2007/8.

While economic growth in emerging countries has dropped only slightly, their securities and currency markets have fallen drastically. Presumably, many investors think that the US economic downturn will lead to a dramatic drop in US orders of emerging market products, which will in turn cause those economies to experience an economic downturn themselves.

But this ignores the fact that BRIC exports to the US at their peak in 2007 were a relatively small part of total BRIC exports (no more than 20% in the case of China and Brazil, and as low as 3% for Russia).

There is no doubt that China, in particular, has experienced a severe contraction in US and European orders and, being an export-led economy, it will face some of the greatest challenges in reacting to the global economic downturn. Some of this can, and will, be counterbalanced by domestic fiscal and monetary stimulus and, with their US$580 billion stimulus package, the Chinese Government has virtually underwritten GDP growth in 2009.

But a new lifeline for developing countries is "intra-emerging market trade" which is becoming increasingly important, particularly amongst the BRIC countries which have emerged as a new "trading bloc".

A good example of this is the growth in exports of iron ore from Brazil (and coal and oil from other emerging markets) to China to fuel the latter’s massive infrastructure development and growing consumer demand. Trade between Latin America and China has increased by 13 times since 1995, from US$8.4 billion to US$100 billion.

Another example, just announced this week, is the agreement between China Development Bank and the Russian state oil company, Rosneft, to exchange US$25 billion in loans for a daily supply of 300,000 barrels of oil for the next 20 years. The deal has been hailed by officials from both countries as the ideal way to address China's problems with energy supplies and Russia's lack of credit. The pipeline transporting oil from the vast oilfields in East Siberia will be the first from Russia to China and its load of 15 million tonnes each year will constitute around 4% of China's annual oil requirements. China-Russia trade grew by 18% in 2008 and was worth US$56.8 billion.

Similar trends are emerging throughout the developing world.

The point is that the global economy no longer grows and declines predominantly due to the US and Europe. According to the Financial Times, we can expect the world's GDP to increase by just 0.6% in 2009 with most of this growth coming from Brazil, Russia, India and China whose combined growth is forecast to be 4.7%, almost 8 times higher.

3. The BRIC economies have strong financial reserves and will continue to invest in infrastructure and domestic consumption
The four BRIC nations hold 41% of total global foreign exchange reserves: US$1,528 billion in China; US$464 billion in Russia; US$266 billion in India; and, US$179 billion in Brazil. These have allowed each government to respond to the global financial crisis by announcing fiscal stimulus packages, bringing forward infrastructure spending on housing, education, public health, transportation and energy projects, and handing out social benefits to encourage consumers to spend more. The combined BRIC investment in infrastructure of over US$22 trillion by 2020 was planned well before the 2008 global economic downturn and, far from looking to cancel or defer these commitments to building much-needed roads, rail, ports and power generation, the BRIC countries have actually brought forward spending plans to stimulate economic growth.

4. The BRICs are hungry, and determined to grow
It is easy to forget that only 30 years ago all four BRIC countries were virtually bankrupt. Their vast, hungry and diverse populations were experiencing the pain of poverty and hardship, inept and/or weak Governments, stagnating economies and the humility of being subject to regular lectures from the West about how to run their countries.
How times have changed.

To quote Brazilian President Luiz Inacio Lula da Silva during the G20 talks at the end of 2008: "Important banks - very important banks - that spent their lives giving advice about Brazil and what we should or shouldn't do, are now broke. Brazil is more prepared than any country in the world to deal with the new global economic landscape, and has been preparing for some time to become a solid economy."

Each of the BRIC countries needs to grow – and will continue to grow – in order to satisfy the increasing ambition of its huge population to improve standards of living, increase personal wealth and live a better life.

This Century will see the four BRIC countries become four of the six largest economies in the world – don’t give up on them yet!

Come to a Think Global Masterclass

It's time for action. Come to our one-day Think Global Masterclass Series

2009 is now underway and the general feeling of gloom and doom is everywhere. This isn't the time to procrastinate or bury your head in the sand. With our local economy slowing, its time to look to the growth markets of the world to maintain and grow your business this year, and you can’t afford to put this off any longer.

Consider this:

China has committed to spending A$900 billion on housing, infrastructure, transport, industry (particularly the high-tech services sector) and the environment in 2009. Do you think you could help them?

India expects there to be 136 million mobile phone users by the end of 2009 (an increase of 24% from 2008) and a total of 60 million internet users. Do you think you could offer them something?

Brazil is spending over A$500bn to support and grow their economy in 2009, including investments in infrastructure, services (notably IT) and to support domestic consumption. Do you think you could help them spend some of this?

Remember that, whilst these countries are building the hardware (e.g. roads, railways, airports, buildings, waterways, bridges, tunnels etc.) to support their rapidly industrialising economies, what they also need is the software (i.e. the professional services, training, education, technology, creativity, design and leadership) that makes the difference between “third world” and “world class”. Its in these areas that small business can derive the most opportunities - yet, whilst the services sector represents 82% of all firms in Australia, it accounts for only 3% of our exports!

The problem is: How do you get started? What should you do first? Where will you go? What will you need? Why would you choose one market over another? What skills and knowledge will you need to develop to be successful?

In our one-day Think Global Masterclass for small business owners, entrepreneurs, creators and innovators, we address all of these issues and more. We show you the secrets of doing business offshore. We look at your products, services, skills and capabilities and help you decide how and where to export them. We teach you about cross-cultural exchange, commitment and negotiation skills. We ensure that you leave with a plan that you can research, refine and review with your partners, colleagues, advisers and staff. And we'll show you how to secure Government grants to pay for some of the costs!

If you do nothing else this year, invest one day of your time and A$350 in exploring your options to grow your business offshore in 2009

Book in today

* Go to www.thinkglobal.com.au/docs/Products/Think_Global_Masterclass_Series_2009.pdf to download all the details and booking form to send back to us by fax

* Go to www.thinkglobal.com.au/training-workshops.html to read all about it and book online

* Call Nikki at Think Global on +612-9402-5783 to book your place over the phone

Please do this today, and I'll see you and/or your colleagues, friends and peers at one of our three one-day Masterclass programs in the next 3 months.

Best wishes

David Thomas

Brazil to lead the BRIC economies in 2009

Brazil to lead the BRIC economies in 2009

A very Happy New Year to all of our readers. We hope you have enjoyed (and/or are still enjoying) a restful, peaceful and happy holiday break for Christmas, and are now turning your minds to the challenges of 2009.

Let me start 2009 with a prediction – Brazil will lead the global emerging markets out of the current doldrums to be the top performing emerging market in 2009.

Firstly, let’s not forget that Brazilians have known terrible times. Military dictatorship and economic stagnation are recent memories for even the most prosperous, and there are still tens of millions of Brazilians who live on less than $1 a day. The horrible handling of money affairs put Brazil under the microscope of the International Monetary Fund who, in order to ensure repayment of loans issued by the World Bank, sent experts to Brazil, imposed austerity in public spending, tackled inflation by limiting wage increases, and confronted labour unions and non-governmental organisations.

In 1995 Brazil came under the massive stress of the Mexican devaluation, the so-called “Tequila effect,” which ricocheted around the world, and caught Brazil in a much weaker position than it is in today - higher levels of debt, low reserves, a fiscal sector that needed huge reform, and a much lower capacity for exports. Brazil dealt with this massive stress effectively and went to work on each one of its weaknesses over the next 13 years.

While having the temptation and the perfect excuse for debt defaults and more borrowings, Brazil proved its seriousness back then by taking the hard, but certain road to progress, keeping its international commitments and gradually introducing strong structural reforms. Since then, it has become a net creditor to the world; it controlled inflation, and avoided an overheating of its economy with tight fiscal and monetary policies during the recent run-up in commodity prices.

This is all paying off strongly today. The Brazilian Government, is now run by a sophisticated technocracy of top economists and international bankers, many of whom held top positions in leading international banks, and has allowed Brazil to move forward with confidence and GDP growth projections of between 4% and 5% for 2009. To quote Brazilian President Luiz Inacio Lula da Silva during the G20 talks at the end of last year: __"Important banks - very important banks - that spent their lives giving advice about Brazil and what we should or shouldn't do are now broke. Brazil is more prepared than any country in the world to deal with the new global economic landscape, and has been preparing for some time to become a solid economy.”__

Here are three reasons to be optimistic about Brazil’s prospects in 2009:

1. Self-sustaining domestic growth, led by consumer spending

As with all of the BRIC countries, future economic growth depends on strong local domestic consumption, as opposed to exports to the developed world, and the Brazilian Government has recently announced measures to boost domestic spending via lower interest rates, an easing of capital requirements to Brazil’s banking system (designed to stimulate housing and car loans) and reducing unemployment via a range of spending initiatives. Brazil’s population of over 181 million is:

*the 6th largest in the world (and the largest in Latin America) growing at approx. 1.3% per year.
*relatively young, with 42% under 20 years of age
*80% Urban - approximately 30% live in the ten principal metropolitan areas, including São Paulo and Rio de Janeiro which have populations of around 19 million and 12 million respectively. Some 14 other metropolitan areas have populations of more than 1 million.
*experiencing a rapid rise in the “middle classes” which is growing by over 8% per annum
*keen to spend rather than save, as evidenced by the large numbers of new shopping malls, outlets, hypermarkets, supermarkets and convenience stores offering the usual wide range of services (restaurants, coffee shops, fitness centres, beauty parlours, shoe repairs, post offices, bank services and dry-cleaners) and providing entertainment with cinemas, cyber-cafés and play areas for children.

All the evidence suggests that, provided Brazil can maintain economic growth at its current rate, the domestic consumption story will continue to offer excellent prospects for both foreign retailers and investors in 2009.

2. Massive infrastructure investment

In January 2007, the Brazilian Government launched its “Growth Acceleration Program” to fund housing, education, public health, transportation and energy projects over the next 3 years and allocated 475 billion reals (US$190 billion) for this purpose. Last month, in response to the global financial crisis, this amount was increased by 34% to 636 billion reals (US$254 billion) and was promised to be spent by 2010.

Insufficient infrastructure investment has long been a constraint to Brazil’s economic growth, but with a committed program of investment into highways, railways, ports, electricity and housing projects, Brazil will be transformed into a massive construction site over the next two years, creating millions of jobs and supporting the country’s ambitious economic growth plans.

Whilst many of the major and most visible infrastructure projects will be funded from Government sources, many opportunities for foreign investors, particularly in property, electricity and roads, are already being snapped up by institutions and foreign investors.

3. Increasing trade between the BRIC countries and other emerging markets

One of the casualties of the global financial crisis, and the cause of why the BRIC and other global emerging markets have been so badly savaged in recent months, is the “decoupling” theory (at least “market decoupling” if not “economic decoupling”) which was the subject of much debate and speculation in late 2007 and early 2008.


While economic growth in emerging countries has dropped only slightly, their securities and currency markets have fallen drastically. Presumably, many investors think that the American economic downturn will lead to a dramatic drop in U.S. orders of emerging-market products, which will cause those economies to experience an economic downturn themselves.

But this ignores the fact that Brazilian exports, for example, account for only 13% of GDP, meaning that some contraction in U.S. and European orders can be counterbalanced by domestic fiscal and monetary stimulus. And a new phenomenon that is cushioning the blow for emerging economies is “intra-emerging market trade” which is becoming increasingly important and prevalent, particularly amongst the BRIC countries who have emerged as a new "trading bloc" in their own right.

Increasingly, a growing proportion of the infrastructure needs of industrial goods being bought by some emerging economies are goods produced by other emerging economies. For example, iron ore from Brazil (and coal and oil from other emerging markets) is flowing into China to fuel their massive infrastructure developments and growing consumer demand. Trade between Latin America and China has increased by 13 times since 1995, from US$8.4 billion to US$100 billion.

Brazil is the world's largest exporter of commodities such as beef, iron ore, sugarcane ethanol, soybeans, wheat and alfalfa, all of which have, until recently, been trading near record levels and will continue to soak up strong demand from other emerging, if not developed, economies in 2009 and beyond.

Final thoughts

I should finish by saying that I am not the only person predicting that Brazil is the emerging market to watch in 2009. Since October last year, I have been tracking numerous comments, observations and recommendations from many different investment researchers, stockbrokers and economic commentators who have been arguing the case to invest in Brazil for many weeks now. In fact, the Brazil stockmarket shows better signs of having bottomed than the U.S - since late October, the iShares MSCI Brazil Index ETF (NYSE:EWZ) has gained over 8%, while the S&P 500 is down by nearly 2%. Don't take my word for it - do some googling yourself! You'll find plenty of evidence to support these arguments (and perhaps a few that offer a more gloomy assessment!)

Finally, please remember that the “BRICs dream” (as first conceived by Jim O’Neill of Goldman Sachs in 2001) was never a “2008 idea” or even a “20 year story”. It was (and is) an “investment megatrend”, a 100 year economic seismic shift that will see the BRIC countries become the largest and most influential economies in the world by the end of this century. To decide for yourself whether the thinking that led to the BRIC acronym remains intact, I urge you to watch Jim ONeill’s original video made in 2003 which you can play by clicking on “Web Tour: The BRICs Dream” at this [http://www2.goldmansachs.com/ideas/brics/index.html link]. I'm sure your faith in the BRIC story, if it has been challenged in recent times, will be fully restored by this measured and prophetic analysis of the original BRICs dream!

Best wishes

David Thomas

Please consider:

Coming to our next BRIC+ Masterclass Brazil in Sydney on 28th April 2009. Please email us at support@thinkglobal.com.au to receive more details

Joining our first BRIC+ Study Tour Brazil from 24th October to 1st November 2009, a one-week long visit of meetings, briefings, site visits and other activities designed to provide you with a detailed overview of Brazil’s economic, business and investment prospects. Please email us at support@thinkglobal.com.au to receive more details