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Sunday, March 23, 2014

Brasil tem que vencer fora do campo de futebol / Brazil must win outside of the football field

(scroll down for version in English)

Em 2012, quando investidores e economistas começaram a se desapaixonar pelo Brasil, eu escrevi um post dizendo que não havia necessidade para desespero. Brasil iria prosperar contanto que o governo investisse em infraestrutura, educação, e combatesse o “custo Brasil” (o custo associado em fazer negócios no Brasil). Após dois anos, eu como um cidadão Brasileiro orgulhoso, estou muito feliz em anunciar que ao invés de fazer aqueles investimentos nós construímos estádios de primeira (com custos absurdos) e vencemos a Copa das Confederações!!! Isso mesmo, o país do futebol vai continuar a ser o país do futebol se depender de nossos políticos. Falando a verdade, impossível de estar feliz com isso. Os Brasileiros vão continuar a sofrer com hospitais horríveis, uma burocracia estagnante, baixo crescimento da economia, inflação e por ai vai… E o pior é que parece que a população se conformou com o inaceitável.

Dinheiro mal investido

Quando o Brasil foi escolhido para as Olimpíadas e a Copa do Mundo, a população foi as ruas para comemorar. Ótima noticia; O brasil estaria no centro das atenções nos próximos anos. Eu não acho que nenhum de nós sabia no que estávamos nos metendo. Talvez apenas os nossos políticos. Mas agora nós temos uma boa ideia do erro que isso foi. Baseando-se no passado de como as coisas são feitas no Brasil, poderíamos facilmente ter previsto que a Copa do Mundo seria uma desculpa para alguns privilegiados se enriquecerem e para o nosso governo fingir que o Brasil é o país do futuro. Enquanto os Brasileiros pagam os impostos e assistirem aos jogos na televisão de casa. Isso era fácil de prever, mas nós tivemos que ver acontecer mais uma vez para acreditar. Talvez nós estivéssemos torcendo que dessa vez seria diferente. Infelizmente não foi, o custo da Copa do Mundo no Brasil é maior do que o custo das últimas duas Copas somadas e três estádios ainda nem estão prontos (1). Todos os $28 bilhões de reais gastos poderiam ter sido usados para construir escolas de primeira, hospitais, estradas, transporte publico, energia sustentável, investir em produtividade dos trabalhadores e ao combate do “custo Brasil”.

Perdemos uma grande chance?

Por alguns anos a nossa economia era uma das de crescimento mais rápido no mundo, o preço de commodities estava muito alto (2), milhões de pessoas saíram da pobreza e ganham poder de compra, nossa população ativa estava (e ainda esta)  no número mais alto que vai estar por décadas (3), China estava (e ainda está por enquanto) importando muito de nós, estrangeiros estavam injetando bilhões de dólares e também querendo se mudar para o Brasil para trabalhar. O quadro era lindo. O problema era que o nosso governo não havia mudado e mais uma vez falhou em tomar decisões responsáveis. Hoje nós temos bilhões de reais investidos em estádios, uma inflação ameaçadora graças a uma política fiscal indesejável (4) e temos a ameaça da desaceleração da economia Chinesa (5). Como Tony Volpon da Nomura disse: "O que ficou claro é que o "modelo Lula" de crescimento, baseado na rápida expansão de consumo, crédito e liderado pelas reações de alta de commodities da Ásia, atingiu o seu limite."(6) De agora em diante, nós brasileiros vamos ter que enfrentar muitas dificuldades para melhorar nosso país. Nós deixamos a banda passar. Quando será que vamos ter outra chance parecida? A ultima vez foi em 1968-1973, durante os anos do “milagre econômico Brasileiro” (7). Quem sabe daqui a 40 anos teremos outra chance.

O que fazer de agora em diante

Os estrangeiros estão com receio que haverá muitos protestos durante a Copa do Mundo. Em 2013 mais de 1 milhão de Brasileiros tomaram as ruas para mostrar sua raiva e indignação com a situação em que vivem. Fiquei com muito orgulho de ver meus compatriotas se expressarem e lutar pelo que merecem. O governo tirou vantagem da nossa complacência por muito tempo. Eles vão dar importância as coisas apenas quando nós unirmos as nossas vozes para dizer nossas prioridades e mantê-los vigiados. Infelizmente, no ano passado quando os protestos aconteceram faltou um plano para uma mudança estrutural de verdade, e nenhum grande avanço aconteceu desde então. Nem mesmo a aprovação de Dilma caiu muito, em uma pesquisa de ibope revelada pelo Estadão a três dias atrás ela pode vencer a eleição em Outubro no 1 turno (8). Eu peço para todos os Brasileiros que se houver protestos durante a Copa do Mundo, que eles sejam organizados e pacíficos. Não há margem para erro. Violência irá apenas manchar e trazer vergonha ao nosso país. Embora seja bom mostrar ao mundo que nós queremos um país melhor, mudanças significantes tem que acontecer “dentro de casa”.  Brasileiros vão reformar o Brasil. Não ha necessidade para dizer aos estrangeiros para não vir para Copa do Mundo. Deixem que venham, deixem eles gastarem seus dólares e euros em nossos hotéis, restaurantes, roupas, produtos e se apaixonar por nosso país fantástico.  Deixem eles virem mais dez vezes. Nós vamos apenas beneficiar disso.  Vamos mostrar nossos dentes e resiliência para nossos políticos, que prometeram que a população não iria pagar pelos estádios com impostos. A eleição Presidencial é em Outubro e parece que nada mudou. Depois de quatro anos de liderança deplorável, a Dilma esta na frente nos índices e com uma margem grande o suficiente para vencer a eleição no 1 turno. O que aconteceu com a indignação do ano passado?

Conclusão 

Como meu amigo Andre Buzolin disse: “torço que seleção passe vexame na Copa do Mundo, que perca na 1 fase e de lavada. Quem sabe assim a população fica irritada e presta atenção ao que importa.” O governo é a representação da sua população. Não adianta reclamar e depois de um ano esquecer. Se você quer um Brasil melhor, vote com sua consciência e exija seus direitos! Vamos ter certeza que essa foi a última vez que os políticos nos tomam por tolos e fizeram suas prioridades a nossa realidade.

Obrigado por ler,

Pedro



Version in English starts here.

When investors and economists started falling out of love with Brazil in 2012, I wrote a post saying that there was no need to feel hopeless. Brazil would still thrive if the government invested in infrastructure, education, and tackled the “custo Brasil” (the high cost associated with doing business in Brazil).  Two years later, as a proud Brazilian citizen, I am very happy to announce that instead of doing those things, we built world-class, over-priced stadiums…and we have won the Confederations Cup!!! That’s right, the country of futebol will continue to be the country of futebol if we leave it to our politicians. Now, seriously, I’m not happy about this. Brazilians will continue to suffer from poor health care, a slaughtering bureaucracy, weak economic growth, inflation, and the list goes on. Even worse, it seems the population has accepted the unacceptable.

Wrong investment

When Brazil was chosen for the Olympics and the World Cup, the population took their celebrations to the streets. It was exciting news; Brazil would be in the spotlight for years to come. I don’t think that any of us knew what we were getting ourselves into. Perhaps, only our politicians did. By now, we have a pretty good idea of how much of a mistake that was. Based on how things are done in Brazil, we could have easily predicted that the World Cup would be an excuse for a few privileged people to get richer, for our government to pretend that we are the country of the future, and for Brazilians to pay taxes while watching the game from the television. That was easy to predict, but we had to watch it happen again to let it sink in. Maybe we were just hoping that this time things would be different. Unfortunately, they were not, for the cost of the world cup in Brazil is already more than the last two World Cups combined…and three stadiums are not even done yet (1). All $12 billion of dollars could have been used to build world-class schools, hospitals, roads, public transportation systems, clean energy, worker productivity, and to tackle the “custo Brasil”. 

Did we miss a great chance?

For a few years, our economy was one of the fastest growing in the world; the price of commodities was very high (2), millions of people were taken out of poverty and given purchasing power, our working population was (and still is) at the highest number that it will be for decades (3), China was (and still is for now) importing from us like crazy, and foreigners were pouring billions of dollars into the economy while looking into moving to Brazil for a job opportunity. Everything looked really great. Except that our government was still the same, and once again, failed to make responsible decisions. As of today, we have billions of dollars invested in stadiums, a rising inflation (thanks to a weak fiscal policy) (4), and the threat that the Chinese economy will soon slow down (5). As Tony Volpon at Nomura said: "Thus what has become clear is that the “Lula model” of growth, one based on the rapid expansion of consumption and credit as reactions to the Asian-led commodity boom, has reached its limit."(6)  From now on, Brazilians will need to face an uphill battle to improve our country. We missed our easy ride.  When will we have a similar chance? The last time that we did was 1968-1973, during the “miracle years”. (7) Maybe we will have another chance in another 40 years from now.

What to do from now on

Foreigners fear that there will be massive riots during the World Cup this summer. In 2013, over 1 million Brazilians flooded the streets to express their anger and disgust with the situation that they lived in. I was very proud to see my countrymen expressing themselves and fighting for what they deserve. Enough is enough. The government has taken advantage of our complacency for too long. They will care about things only when we unite our voices, shout our priorities out loud, and keep them in check. Politicians are in power to serve the population, not the other way around. Unfortunately, last year when the riots occurred, they lacked a plan for real structural reform, and no major change has happened since then. Not even Dilma’s approving rates fell by much. On a research published three days ago by Estadao, Dilma might be reelected in the first term of the Presidential election in October (8). If there is a riot during the World Cup, I urge the Brazilian citizens to execute it in an extremely organized and peaceful manner. There’s no room for error. Violence will only stain and bring shame to our country. While it is good to show the world that we demand a better country, real change has to come from within. Brazilians will reform Brazil. There’s no need to tell foreigners not to come to the World Cup. Let them come, let them spend their dollars or Euros on our hotels, restaurants, clothes, products and fall in love with our majestic country. Let them come back ten times more. We have only to benefit from that. Let’s show our teeth and resilience to our politicians, who promised that the population wouldn’t pay the stadiums with tax money. The Presidential election is in October and it seems that nothing changed. After fours years of appalling leadership, Dilma is winning the race with a margin big enough to be elected in the first term. What happened with last year’s indignation?

Conclusion

As my friend Andre Buzolin said: “I hope that the national team will be embarrassed in the World Cup, that it loses on the first draw and by much. Maybe then the population will get pissed off and care about what really matters.” The government is a representation of its population. It’s worth nothing to complain and then forget about it. If you want a better Brazil, vote with your conscience and demand your rights! Let’s make sure that this was the last time that our politicians took us for fools and made their priorities our reality.

Thanks for reading,

Pedro

Sources:
Thank you Robyn Ondrejka and Andre Buzolin for your contributions. 

(1) Costas, Ruth. "De onde vem o dinheiro da Copa?." BBC 27 06 2013, n. pag. Web. 23 Mar. 2014. <http://www.bbc.co.uk/portuguese/noticias/2013/06/130626_copa_gastos_ru.shtml>.
(2) Rudarakanchana, Nat. "Commodities 2013: Not The Best Investments, By A Long Shot." International Business Times 08 01 2014, n. pag. Web. 23 Mar. 2014. <http://www.ibtimes.com/commodities-2013-not-best-investments-long-shot-1531566>.
(3) "População brasileira deve atingir pico em 2030, diz Ipea."G1 Globo 13 10 2013, n. pag. Web. 23 Mar. 2014. <http://g1.globo.com/brasil/noticia/2010/10/populacao-brasileira-deve-atingir-pico-em-2030-diz-ipea.html>.
(4) Schmidt , Blake . "Fool in Shower Mimicked as Rates Swing Nonstop: Brazil Credit." Businessweek 26 02 2014, n. pag. Web. 23 Mar. 2014. <http://www.businessweek.com/news/2014-02-26/fool-in-shower-mimicked-as-rates-swing-nonstop-brazil-credit>.
(5) Lima, Flavia. "Brasil não está à beira do abismo, avalia Krugman © 2000 – 2014. Todos os direitos reservados ao Valor Econômico S.A. . Verifique nossos Termos de Uso em http://www.valor.com.br/termos-de-uso. Este material não pode ser publicado, reescrito, redistribuído ou transmitido por broadcast sem autorização do Valor Econômico. Leia mais em: http://www.valor.com.br/brasil/3484912/brasil-nao-esta-beira-do-abismo-avalia-krugman
(6) Pearson, Samantha . "Santander Brazil: canary in a coal mine?." Financial Times 25 04 2012, n. pag. Web. 23 Mar. 2014. <http://blogs.ft.com/beyond-brics/2012/04/25/santander-in-brazil-a-canary-in-a-coal-mine/?
(7) Veloso, Fernando. "Determinantes do "milagre" econômico brasileiro ." Revista Brasileira de Economia n.d., n. pag. Web. 23 Mar. 2014. <http://www.scielo.br/scielo.php?script=sci_arttext&pid=S0034-71402008000200006>.
(8) Bramatti, Daniel. "Ibope mostra estabilidade e Dilma mantém expectativa de vitória no 1º turno." Estadao 20 03 2014, n. pag. Web. 23 Mar. 2014. <http://blogs.estadao.com.br/radar-politico/2014/03/20/ibope-mostra-estabilidade-e-dilma-mantem-expectativa-de-vitoria-no-1o-turno/>.
"The grass is greener from the outside." Economist 18 03 2014, n. pag. Web. 23 Mar. 2014. <http://www.economist.com/blogs/americasview/2014/03/investor-sentiment-brazil?zid=305&ah=417bd5664dc76da5d98af4f7a640fd8a>.
Kingstone, Peter. "Brazil: The Sleeping Giant Awakens?." World Politics Review 12 01 2009, n. pag. Web. 23 Mar. 2014. <http://www.worldpoliticsreview.com/articles/3145/brazil-the-sleeping-giant-awakens>.

Sunday, February 23, 2014

FED's Bond Buying Program

In my previous post, I explained what bonds are and why the bond market is the most important market in a country. This post will explain the recent bond-buying program taken by the FED and why the inevitable end of it frightens investors and emerging economies.

What is the FED? 

“The Federal Reserve is the gatekeeper of the U.S. economy. It is the central bank of the United States -- it is the bank of banks and the bank of the U.S. government. The Fed regulates financial institutions, manages the nation's money and influences the economy. By raising and lowering interest rates, creating money and using a few other tricks, the Fed can either stimulate or slow down the economy. This manipulation helps maintain low inflation, high employment rates, and manufacturing output.”


What is the bond-buying program taken by the FED?

Government bonds are traded in the bond market. As explained in my previous post, the price and interest rate of bonds are influenced by the well being of the economy and the investors’ perception of it. If the economy of the US is not doing well, investors, fearing recession or inflation, will avoid buying government bonds. In this scenario, supply would exceed demand, and therefore bonds would lose value, only aggravating the mistrust with the American economy.

To avoid the depression in 2009, (as part of many other economic measures) the FED decided to lower interest rates to nearly zero. Lowering interest rates makes borrowing money cheaper; therefore, people are more likely to spend it, stimulating the economy. In September 2012, the FED decided to stimulate the economy even further. Since interest rates were already at nearly zero, they decided to buy government bonds. By buying government bonds from the bond market, these securities are now on the FED’s books and new money is available to the banking system. Both measures provided liquidity to the economy. The FED expects that with this new money available, investors will venture into the stock market or corporate bond market, henceforth stimulating the economy once again. This policy of providing liquidity to the economy is called Quantitative Easing (QE), and it has been very successful thus far.

Before the 2008 financial crisis, the FED had $800 billion in government bonds. Today, the number is close to $4 trillion. Since the FED has already accumulated so many bonds, QE becomes less effective each day. The US and the global economy have shown several signs of recovery, and it might be time to end this stimulus; the FED can’t keep printing money forever. However, the FED also can’t simply stop buying bonds out of no-where. That would cause turmoil in the markets. In recent months, the FED engaged in something called tapering, which is the gradual reduction in purchases of bonds. In 2013, the monthly bond purchases were $85 billion, and now they are at $65 billion."

*Note: If you are wondering why the FED can simply buy bonds, it’s because the FED can simply create new money. Remember: The FED is the central bank of US, the bank of banks and the bank of the government.

How does this affect financial markets and emerging economies?

The FED needs to be very careful when tapering, since it has already caused negative reactions in several emerging economies, including Turkey, South Africa, and Argentina. Investors expect that with the end of QE, interest rates will rise in the US. There has been a big sell out in currencies, bonds, and stocks from emerging markets, flowing back in to the US. Many emerging economies rely heavily in FDI (Foreign Direct Investment). The fact that these US dollars are heading back home, in addition to Euros, scares them.

The G-20 met this weekend in Sydney to discuss the impact of tapering in emerging economies and to see if they can cooperate in order to avoid a financial folly. Emerging economies want the US to slow down tapering, while the US most likely will not. Reuters just posted: "There was proper recognition that the movement of monetary policy in major developed countries is going to have an impact on emerging economies and there was proper recognition that will be taken into account in the foreseeable future." Stay tuned.

Thanks for reading,

Pedro

Sources
"HIGHLIGHTS-Comments from policymakers after G20 meeting in Sydney." Reuters 23 02 2014, n. pag. Web. 23 Feb. 2014. <http://www.reuters.com/article/2014/02/23/g20-australia-idUSSYDG2020140223>.
Rushton, Katherine. "Federal Reserve could raise interest rates 'soon'." Telegraph 19 02 2014, n. pag. Web. 23 Feb. 2014. <http://www.telegraph.co.uk/finance/economics/10650102/Federal-Reserve-could-raise-interest-rates-soon.html>.
Schaefer, Steve. "Why Panic-Prone Emerging Markets Are Breaking Down In 2014." Forbes 03 02 2014, n. pag. Web. 23 Feb. 2014. <http://www.forbes.com/sites/steveschaefer/2014/02/03/why-panic-prone-emerging-markets-are-breaking-down-in-2014/>.
"How the FED works." How Stuff Works n.d., n. pag. Print. <http://money.howstuffworks.com/fed.htm>.
Irwin, Neil. "The Fed might taper bond buying this week. Here’s everything you need to know.." Washington Post 16 12 2013, n. pag. Web. 23 Feb. 2014 <http://www.washingtonpost.com/blogs/wonkblog/wp/2013/12/16/the-fed-might-taper-bond-buying-this-week-heres-everything-you-need-to-know/>.

Thursday, February 13, 2014

Demystifying Bonds

My initial plan was to explain the ongoing bond-buying program taken by the FED and why the end of it (which is inevitable) frightens investors and emerging economies so much. Though, I realized that I should write that post next, since it wouldn’t make sense to explain the prior without first explaining the bond market. This post, which contains extracts from The Ascent of Money: A Financial History of the World by Niall Ferguson, will explain what bonds are and why the bond market is the single most important market of a country.

What are bonds?

Selling bonds is a way of borrowing money. Large corporations, governments and municipalities can issue bonds. Corporations might need to borrow money to invest on a new technology, expand to a new market or many other reasons. Sometimes, bank loans are not enough, and the company also does not want give away their equity by selling stocks, so their other option is to sell bonds. We must make the primary difference between stocks (equity) and bonds (debt) clear. By buying a stock of a company, you become an owner, and you will receive part of the future profits and sometimes even voting rights. By buying bonds, you are simply a creditor. A bond is a contract. The company or government will borrow money from you, pay an interest rate annually (also called a coupon), and after a few years when maturity date is reached, it will also pay the face value (initial amount). Bonds can be traded in the bond market and normally have a fixed interest rate. A few bonds, however, are floating-rate bonds, meaning their interest rates adjust depending on market conditions. Since bonds are traded, if you buy a bond it doesn’t mean that you are stuck with it for the next 10 years; you can simply sell it. Their price fluctuates. If you sell your bond for a lower price than what you paid, you are selling at a discount. If you sell it at a higher price than you paid, you are selling at premium.

The importance of the bond market

Bill Gross, the manager of the world’s largest bond fund at the Pacific Investment Management Company (PIMCO), said “Bond markets have power because they’re the fundamental base for all markets. The cost of credit, the interest rate [on a benchmark bond], ultimately determines the value of stocks, homes, all assets.”

Niall Ferguson, one of Britain’s most renowned historians, explains how the bond market affects an entire nation. The Ascent of Money, page 65-68:
“Government (and large corporations) issue bonds as a way of borrowing money from a broader range of people and institutions than just banks. Take the example of a Japanese government ten-year bond with a face value of 100,000 yen and a fixed interest rate or “coupon” of 1.5 percent… The bond embodies a promise by the Japanese government to pay 1.5 percent of every 100,000 yen every year for the next ten years to whoever owns the bond. The initial purchaser of the bond has the right to sell it whenever he likes at whatever the market sets. At the time of writing, that price is around 102,33 yen. Why? Because the mighty bond market says so.

All of us, whether we like it or not (and most of us do not even know it), are affected by the bond market in two important ways. First, a large part of money we put aside for our old age ends up being invested in the bond market. Secondly, because of its huge size, and because big governments are regarded as the most reliable borrowers, it is the bond market that sets long-term interest rates for the economy as a whole. When bond prices fall, interest rates soar, with painful consequences for all borrowers. The way that works is this. Someone has 100,000 yen they wish to save. Buying a 100,000 yen bond keeps the capital sum safe while also providing regular payments to the saver. To be precise, the bond pays a fixed rate or “coupon” of 1.5 percent: 1,500 a year in the case of a 100,000 yen bond. But the market interest rate or current yield is calculated by dividing the coupon by the market price, which is currently 102,333 yen: 1,500 ÷ 102,333 = 1.47%. Now imagine a scenario in which the bond market took fright at the huge size of Japanese government’s debt.  Suppose investors began to worry that Japan might be unable to meet the annual payments to which it had committed itself. Or suppose they began to worry about the health of the Japanese currency, the yen, in which bonds are denominated and interest is paid. In such circumstances, the price of the bond would drop as nervous investors sold off their holdings. Buyers would only be found at a price low enough them for the increased risk of a Japanese default or currency depreciation. Let us imagine price of our bond fell to 80,000. Then the yield would be 1,500 ÷ 80,000 = 1.88 percent. At a stroke, long-term interest rates for the Japanese economy as a whole would have jumped by just over two fifths of one per cent, from 1.47 to 1.88. People who had invested in bonds for their retirement before the market move would be 22% worse off, since their capital would have declined by as much as the bond price.”

Conclusion

Ferguson explains the importance of the bond market to a nation. If the bond market loses value, all other markets will also lose value, interest rates will soar, and by consequence, every citizen will suffer. It's no coincidence that Alan Greenspan, former Federal Reserve Chairman, once said “If bond prices continued to rally, it would be by far the most potent [economic] stimulus that I can imagine.” When nations are considered credit worthy, just like individuals, they can borrow cheaper money, meaning that they pay a smaller interest rate. If a country becomes unworthy of credit, or riskier, money becomes more expensive. Since the bond market defines the long-term interest rate for all other markets, money becomes more expensive for everyone in that country, killing economic growth. Lastly, throughout history the bond market also proved to be a decisive instrument for countries that were at war. When most of the working population is in the battlefield, its very costly to supply your troops, pay for weapons, airplanes, ships and etc.. Ferguson traced the use bonds to as far back as 14th century in Italy. Then, Florence, Pisa and Siena were at war with each other, and they made use of bonds to finance their expenses.

I hope that you enjoyed this post and that you now superbly understand the importance of the bond market. My next post will explain the bond-buying program taken by the FED, and why the end of it (which is inevitable) frightens investors and emerging economies so much.

Thank you for reading,

Pedro

Sources
Ferguson, Niall. The Ascent of Money: A Financial History of the World. The Penguin Press, 2008. Print.

Wednesday, June 12, 2013

The Dragon’s Share: How China Is Helping To Transform Africa

Africa’s history is known by all: Africa is a poverty-trapped continent that has been unable to develop regardless of the consistent amount of aid given by Western governments, the World Bank, and the IMF. Indeed, there is much to blame: Civil unrest, corruption, diseases, genocidal dictatorships… but according to Dambisa Moyo, the writer of Dead Aid: Why Aid Is Not Working And How There’s a Better Way For Africa, the true reason to blame is the Western policy of giving aid and treating Africa as if “one rule works for all”, which has consistently failed for the last fifty years.

There has been an aggressive economic battle between the US and China for African resources. Today, China is Africa's largest trading partner, edging the US in 2010. As the Chinese economy and its need for resources grow, the dragon has been investing more and more in Africa. As Moyo says, “China has invested billions in copper and cobalt in the Democratic Republic of Congo and Zambia; in iron ore and platinum in South Africa; in timber in Gabon, Cameroon and Congo. It has also acquired mines in Zambia, textile factories in Lesotho, railways in Uganda, timber in the Central African Republic and retails developments across nearly every capital city. However, oil is the gusher. Angola has overtaken Saudi Arabia as China’s biggest single provider of oil. In the first half of 2006, Angola alone supplied almost 20% of oil imports to China.”



Direct Investment vs Aid

The core difference between the Chinese and the American approach to Africa is direct investment versus aid. The Chinese trade relies on direct investment in which China signs a deal with the African government to have access to its minerals while investing in the country’s infrastructure. Adams Bodomo, African Studies director at Hong Kong University, said "In 10 years, China has built a lot more infrastructure than, for example, Britain did in my own country -- Ghana -- for 100 years".
The Western approach to having access to African resources has always been aid driven, and this approach has been proven to not promote any growth for the continent. Aid doesn’t instigate growth; it doesn’t improve a country’s credit rating or increase its amount of savings. The money also never reaches the people that need it the most: the average African. The only economic growth that aid has generated in Africa is to the personal accounts of corrupt leaders and small elites. In the last fifty years, Africa has been given $400 billion in aid, and as Idriss Déby, Chad's President, said, “In what manner has Africa progressed, in what sector?” referring to decades of close ties to the West. “Whatever the good will of Africa’s old friends and the old partners in its development, it has not progressed at all.”

Dambisa Moyo, born and raised in Zambia, has a chapter in her book titled, “The Chinese Are Our Friends”, where she states that while China has benefited from the trade deals made with Africa, Africa has benefited as well, and most importantly, so has the average African. In 2006, more than forty African leaders gathered at the first Sino-African summit in Beijing, and according to the Chinese state media, the trade between China and Africa totaled $200 billion in 2012.

Criticism

Criticism has been made to the Chinese approach in Africa, and some of it was correct. China supports Sudan with investments, some aid, and previously even weapons. Omar Al-Bashir, Sudan’s President, is wanted by the International Criminal Court for genocide, crimes against humanity, and war crimes in Darfur. China needs to adjust its policy; the country cannot support genocidal governments. The United States hasn’t done any better. The most recent critique is that they have given aid to Rwanda’s Paul Kagame, a country that the U.N. accused of financing rebel groups in the Democratic Republic of Congo.

Headlines such as “Africa told to view China as competitor” from Financial Times, are very misleading, for they should say “Nigeria told to view China as a competitor”. The previous statement was made solely by Lamido Sanusi, the governor of Nigeria’s central bank. Nigeria and South Africa have recently showed some resentment towards China, but these two are the larger economies of sub-Saharan Africa that made many trade deals with China in the past and still do today. They were also the ones influencing countries with a weaker economy before the large amount of Chinese FDI arrived. The June 2007 Pew Report surveyed 10 African countries (Ethiopia, Ivory Coast, Ghana, Kenya, Mali, Nigeria, Senegal, South Africa, Tanzania and Uganda), and they found that the opinion regarding China is decidedly positive.

Conclusion

In 2012, Africa had 7 out of the 10 fastest growing economies in the world, and much of this success can be attributed to high commodity prices, but also to the billionaire projects in infrastructure implemented by the Chinese. For Africa to move up in the development curve, it needs to address corruption, disease, poverty, and war more efficiently. China’s direct investment seems to be the best method to give the "push" in this direction. Of course, the future of Africa lies in the hands of the African leaders. They are the ones that must choose to guide their country into market policies.

Sources:
Dambisa Moyo, “Dead Aid: Why Aid Is Not Working And How There’s a Better Way For Africa.”
“China's Xi promises equal trade relations with Africa”
http://edition.cnn.com/2013/03/25/world/asia/china-africa-xi
“Rwandan minister is leader of Congo rebels, UN says”
http://www.guardian.co.uk/world/2012/oct/17/rwanda-minister-leader-congo-rebels-kabarebe
“Africa and China: More than minerals”
http://www.economist.com/news/middle-east-and-africa/21574012-chinese-trade-africa-keeps-growing-fears-neocolonialism-are-overdone-more
"In Africa, U.S. Watches China's Rise"
http://online.wsj.com/article/SB10001424053111903392904576510271838147248.html
Picture: http://www.nytimes.com/2007/08/13/world/africa/13chinaafrica.html?pagewanted=all&_r=0

Monday, December 10, 2012

Congo: The 21st Century Hidden Genocide

The Democratic Republic of Congo (DRC), located in Central Africa:
Congo is a country of immense beauty, vast landscapes and one of the biggest mineral reserves on Earth. The DRC has been called a “nightmare in heaven”, heaven because of the previous description, and a nightmare because… well, that takes a little bit more to explain.

First, I want to introduce you to someone: a friend named M’MBELA Stany.
Stany is an admirable man. He is 21 years old, a student of engineering sciences at the University of Goma, and he speaks fluent French, English, Swahili, Kimbebe and Lingala. Stany also runs a Non-Profit Organization named Flamme d'Avenir Group / Flame of Future Group, that aims at empowering the youth of his country. Stany lives in Goma, Eastern Congo. If you have been following the news, you know that Goma has been attacked and held hostage by the M23 rebels, which are fighting the government (more info here, use Google Chrome to translate). The rebels killed and raped hundreds of people. Just like all other Congolese, Stany wishes for peace. He wrote this personal letter:

"I am called M’MBELA Stany, I am Congolese, and I live in the Democratic Republic of Congo. I am in the eastern of the country and I live in one of the most difficult regions of the world. We live in the face of overwhelming obstacles.
I was born in a family of 8 children, 4 boys and 4 girls, and the members of my family are all in life. I am 21 years old and I was born in a little village called KASAKWA in 1991. I started my studies in 1997 when we escaped the war of 1996 of Mr. Laurent KABILA. I started my studies at Tanzania refugee’s camp ‘’LUGUFU’’.  In 2000 my family and I came back to DRC after the war. I continued with my studies here in DRC and I got my diploma in 2010. This is my third year at the University of Goma. I learned English in Bujumbura, the capital of Burundi, at the international languages center (ILC). On the 20th of November 2012, the M23 rebels attacked the region of Goma and the situation was very sad; people died, were injured, were harmed…
I escaped to Kigali for a week and then I came back to Goma when the rebels began to take their baggage and go 20 km from Goma city. Women were being raped. It was very sad. Children were abused and some died. Oh Congo, we want peace !!!!"


Stany sent me pictures of civilian casualties, the many pictures that Stany took himself are soul wrecking...
Check them out in the following link (WARNING: strong images): http://4freedomwwp.tumblr.com/
Stany sent me these 3 pictures. In the first one you can see a woman that was quartered; her legs and arms are not attached to her body... In the second one there's a man that survived a machete attack (he had his back cut in half), and in the third picture there was a mother shot in the head in front of her children...
I can't imagine what Stany or the victims felt... How did the children that watched their mothers being raped feel? What about the children that watched their mothers being killed? The horror that they must have felt... How does one recover from such tragedy?
And these pictures are what we, Westerns, never see because the international media won’t show us. These pictures are not an isolated case.

Below are statements published in international newspapers:

- “The International Rescue Committee which said that the conflict and humanitarian crisis in Congo had taken the lives of some 5.4 million people since 1998, and that 45,000 people continue to die there every month.” 

- The U.N. has labeled the DRC, Africa's second largest country, as the "rape capital of the world", 160 women are raped per week in North and South Kivu, mainly by armed men.

- The wars in that country (DRC) have claimed nearly the same number of lives as having a 9/11 every single day for 360 days, the genocide that struck Rwanda in 1994, the ethnic cleansing that overwhelmed Bosnia in the mid-1990s, the genocide that took place in Darfur, the number of people killed in the great tsunami that struck Asia in 2004, and the number of people who died in Hiroshima and Nagasaki -- all combined and then doubled.

This video explains very well why Congo is a nightmare. It's only 26 minutes long and it explains 130 years worth of history:

Nations and multi-national organizations profit from this evil system, while the civilian population of Congo is held hostage doing slave work. We all contribute to this system, from the Coltan that’s in our cellphone or the Beryllium that’s in the airplanes that we fly, we blindly contribute to this genocidal system.
If you wish to understand the Coltan industry better, watch this documentary:
http://topdocumentaryfilms.com/blood-coltan/

As another Congolese friend of mine described: "The congolese government that is currently in place under the President's leadership is one of those Mafias that couldn't care less of what others (population) want. Their voices are ignored and the government in place uses power as an abuse to simply enrich themselves, leaving the population to their own misery."

 In The Shade of the Palms (1907), Edward Wilhelm Sjöblom, a missionary that arrived in Congo on July 31, 1892, explains:
"A small boy of about nine is ordered by the soldier to cut off the dead man's hand, which, with some other hands taken previously in a similar way, are then the following day handed over to the commissioner as signs of the victory of civilization.
Oh, if only the civilized world knew the way hundreds, even thousands are murdered, villages destroyed, and surviving natives have to drag their lives along in the worst slavery..."

It seems like not much has changed in the last 120 years; thousands of Congolese are still being murdered every month.
My urge is for you not to feel hopeless because I have hope. I believe that humanity is better than this, I believe that we live at the time that people tell governments what they can and cannot do, and we must tell our governments that this MUST STOP NOW. How many more lives need to be lost in this absurd war; how many more talented and benevolent people have to die in the hands of tyrants for things to change?


WHAT CAN YOU DO?

You must sign this petition to the White House:

Use your consumer power to make more responsible purchasing decisions. Send messages to companies you purchase from, reminding them how important conflict-free from Congo is to you:

Support my friend and his non-profit organization, empower the people on the ground, like his Facebook page and be updated on his work:

Finally and very importantly, educate other people. Spread the word, make use of the powerful tool that you have access to: social media! SHARE AND TWEET IT!

I'll leave you with this quote:

"You already know enough. So do I. It is not knowledge we lack. What is missing is the courage to understand what we know and to draw conclusions."
Sven Lindqvist

Follow me on Twitter: @Gimenez365

Wednesday, November 14, 2012

What Can 1 Dollar Buy?


If you live in a developed country, 1 dollar won't buy you much. Though in developing countries, nearly 1 billion people live with 1 dollar a day.
The Hofstra University Hunger Project (HUnger Project)  has the mission of fighting global hunger by raising funds and awareness at Hofstra University. It is incredible how much you can help with few resources.
The HUnger Project is affiliated with the WFP and all proceeds are donated to the organization. Critics say, "Don't give a man a fish, teach him how to fish instead".
The WFP does a lot of crisis assistance (which saves thousands of lives), but it also supports educational programs in developing countries.


Education leads to development. By keeping children in school, you are providing them an opportunity for a better future.
It doesn't matter if you don't have much to help with; if you don't have 1 dollar to donate, give some of your free time and volunteer at a non-profit organization that helps your community. What is important is to do something because without realizing it, you might change someone's life.

"To be truly human one must work for the common good."

Monday, August 20, 2012

Brazil: will promise land deliver?

The country of carnival and soccer has always been an attractive touristic destination, Brazil has always been known for its friendly people, majestic beaches, great parties, wonderful biodiversity and beautiful women. But in the last few years the nation has been on the spotlight for another reason, its economic boom. Brazil is considered an emerging economy and there has been a lot of hype when projecting its economic growth, Guido Mantega - Brazil finance minister. said a few months ago that it will take 20 years for Brazil to reach european standard of living. Today, a few months later, this scenario seems a bit uncertain.

Brazil had a GDP growth of only 2.7% last year, and the projection for this year is less than 2%.

Aside from the developed nations economic crises, Brazil faces its own challenges.

The "Brazil cost" is one of them,  Brazil is a very expensive country to invest in, every business has to face terrible roads, outdated labor laws, high energy costs and a slaughtering bureaucracy. The government promised to tackle these issues, but nothing has been done so far. The government points its fingers to the public-sector workers, which have been on strike constantly, demanding a better pay. In the last few months Brazil has constantly faced teachers, federal police and regulatory agencies on strike. Dilma Rousseff has made clear her irritation, she states that most of these workers have received decent pay increases since 2003. but because of the strikes, plans to tackle the "Brazil cost" have been postponed.
IMD, which evaluates the business competitiveness among countries, ranked Brazil number 46 out of 59 countries.

Just like many countries around the world, the Brazilian population is in debt. Approximately 40% of the population owes money to credit cards and bank loans. The federal government latest economic measures to boost the economy, such as the one to make credit more available by lowering the taxes of loans, is not being as effective as before. Also, inflation is at 5.2%, and comparing to last year house prices have risen 19%.

Of course, not everything is looking this dark, the unemployment rate is at 5.8% and the Chinese demand for Brazilian commodities continues to thrive. Brazilian officials  promise that next year the country will have a 4.5% GDP growth.

The government needs to be bold, its new plan to bring private firms into building and running infrastructure (roads, railways, airports...) is a step in this direction. If Brazil finds a way to efficiently tackle the "Brazil cost" and starts prioritizing education, it is likely that promise land will indeed deliver.

Sources: The Economist, BBC and Valor Economico.