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Emergia Partners. Quality business advice on emerging markets

NewsletterNovember 2010

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Change of captain but no change of course in Brazil

Dilma Roussef’s recent election victory should consolidate an economic and social model which has become one that many countries wish to follow. The “Lula model” combines industrial policies reminiscent of the Far East together with an active social policy which has increased the Brazilian middle class from 32% to 52% of the population in seven years.

Lula has also intensified relations between Brazil and the emerging markets. Chinese companies, for example, have made commitments to invest up to 10,000 million dollars in leading projects such as the future Chery car production plant near São Paulo which will produce 170,000 vehicles per annum. The recent partnership between Repsol and the Chinese company Sinopec is another good example.

Dilma Roussef

On the other hand, with four government ministers and 12 million Brazilians of arab origin, Lula also increased relations with that part of the world. Brazil is now the sixth largest car manufacturer in the world and all producers of components for the automotive sector need to have a presence in this market. Other attractive markets in Brazil include food, the audiovisual sector and infrastructure where Brazil lags well behind economies of a similar size. The Brazilian government’s Growth Acceleration Plan includes investments of $ 400 billion in infastructure in the period ending 2014.

Middle East capital revival following Dubai World deal

Dubai

Middle East financial activity is picking up after the Dubai World group secured a settlement with its creditors a few weeks ago. The investment arm of the emirate of Dubai has been negotiating a deal for more than a year regarding its US$ 24.9 billion in liabilities. Now that a solution is finally near in the region’s largest default, capital is beginning to flow again in the Middle East.

After many delayed or cancelled IPOs, stock markets are now seeing the announcement of new floats, such as Aluminium Bahrain (Alba) or Q-Invest. At the same time Islamic financial instruments have not ceased to grow, with global Sukuk (Islamic bonds) issues topping US$ 14 billion in the first half of 2010.

However, their share of Middle East deals is still low compared with Malaysia. Recently, Qatar Islamic Bank placed US$ 750 million while the Total-Aramco new refinery in Jubail (Saudi Arabia) plans to raise over US$ 1 billion in Sukuk, signalling a strong Middle East comeback in Islamic finance.

Islamic finance gains momentum worldwide

After hosting its first Islamic finance summit in June 2010 in Madrid, Spain has become yet another Western country interested in this new and growing asset class. With traditional credit markets dried up and local financial institutions either bailed out or in deep restructuring, Western countries are now turning to Islamic financial institutions for fresh capital. After the UK and France pioneered this move, Spain now wishes to become a hub for Islamic investment into Southern Europe and Latin America. Worldwide, the Islamic finance industry will hit US$ 2 trillion in assets by the end of the year.

Dubai

While Australia is considering tax changes to promote the sale of Sukuk (Islamic bonds), Kazakhstan and Nigeria plan their first issues of this kind. A few months ago, a medium-sized British company became the first Western firm of its size in raising US$ 10 million by means of an Islamic financial deal, thereby confirming that this is indeed a new alternative for fundraising in the West as well.

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