Global Markets up on possible China-US deal
Investors appear to have welcomed a report which says that the US is considering a partial lift of tariffs on Chinese products in a bid to encourage Beijing to further open its markets to foreign goods. All European markets were up between 1.23 and 2.63 percent with the FTSE 100 defying Brexit uncertainty in favor of optimism that there may be a trade breakthrough between China and the US. On Thursday, Bloomberg reported that US Treasury Secretary Steven Mnuchin was deliberating on an idea to spur. Chinese concessions by walking back tariffs on that country’s exports to the US. The two countries have held several cycles of trade talks since US President Donald Trump announced a three-month freeze on additional Chinese tariffs during the G20 Summit in Argentina in early December. American and Chinese, in addition to the IMF and World Bank, economic experts have urged both governments to reach an agreement before the freeze expires on March 1. In China, the Hang Seng index closed to 1.14 percent up while the benchmark Shanghai Composite was up by 1.42 percent. This pulled up other Asian stocks: Japan’s Nikkei closed up 1.29 percent, while South Korea’s Kospi rose 0.82 percent. In the US, markets all opened up on reports that China could propose buying bout $ 1 trillion in US goods by 2014, thereby erasing the US trade deficit between the two. At press time, the Dow Jones had jumped more than 300 points to a midday high off 24711, registering an increase of 1.40 percent, while the Nasdaq was up 1.33 percent, and the S&P 500 up 1.44 percent.
India and Russia to enhance strategic partnership, to work for a polycentric world order
India and Russia agree to further deepen cooperation between the two countries in the international arena, including in BRICS and other multilateral formats. Deputy Minister of Foreign Affairs of the Russian Federation Sergey Ryabkov and Foreign Secretary Vijay Gokhale, met on the sidelines of the Raisina Dialogue organised by the Ministry of External Affairs. During the meeting, the two sides took note of the Russian-Indian Special and Privileged Strategic Partnership, and issues of mutual interest as well as bilateral interests were discussed. Both Gokhale Ryabkov also talked about the implementation of the Joint Comprehensive Plan of Action (JCPOA) to resolve the situation around the Iranian nuclear program. They also discussed in detail the Organisation for the Prohibition of Chemical Weapons (OPCW), other issues of the current global agenda issues in the field of arms control and non-proliferation of WMD.
In a joint statement released at the end of the India-Russia annual summit in New Delhi, it stated: “The two sides underlined the importance of the full and effective implementation of the Joint Comprehensive Plan of Action (JCPOA) on the Iranian nuclear programme in order to support international peace and security, to strengthen non-proliferation regime and to develop normal economic cooperation with Iran. They called for all issues related to the Iranian nuclear programme to be resolved peacefully and through dialogue.” Both sides also reaffirmed the commitment to the form a polycentric world order based on fair and democratic principles and the rule of law. On Wednesday the visiting minister had told a group of journalists that there won’t be any delays in delivering the S-400 air defense systems to India within the timeframe agreed under contract between the two countries.
Earlier this week, in a telephonic conversation Prime Minister Narendra Modi and Russian President Vladimir Putin had pledged to increase efforts to develop the India-Russia Special and Privileged Strategic Partnership. Besides exchanging New Year greetings, the Russian leader reiterated an invitation to Modi to take part in the Eastern Economic Forum in Vladivostok in September 2019 as a main guest. According to the MEA, the two leaders “appreciated the major milestones achieved in the Special and Privileged Strategic Partnership between the two countries in the past year”. “The leaders agreed to maintain the momentum in the bilateral relations…. Bilateral cooperation in the key areas including defence and counter-terrorism was also discussed,” the statement added. Just last month, the two countries had reviewed the progress made on various projects between the two countries at the 18th session of the Russian-Indian inter-governmental commission on military-technical cooperation (IGC-MTC) in New Delhi.
As reported by Financial Express Online, the two countries had discussed the draft on the military Logistic Sharing agreement and set up a working group on military cooperation was created within the IGC-MTC format. The draft agreement is being worked up with the Russians and it will be shared with them soon. India already has such Logistic Sharing agreements with countries including the US, Singapore, France and Oman. As has been reported earlier, the IGC-MTC was set up in October 2010. The commission meets once a year, alternating between the capital cities of the two countries. Since last October the two countries have inked major multi-billion dollar defence deals including the $5.43 billion S-400 Triumf contract, the two countries also recently signed a $1.5 billion deal for two Project 1135.6 frigates to be equipped with BrahMos supersonic cruise missiles which is a joint venture between India and Russia.
How does SA’s data prices compare to other BRICS countries?
The Independent Communications Authority of South Africa (ICASA) has released its report on the cost of data among the BRICS nations (including South Africa, Brazil, Russia, India and China). The report detailed how South Africa rated the third most expensive country to purchase data, a vital tool for citizens to have access to broader communities and vital information. Analyzing tariff plans among local operators, ICASA found that the difference between the cheapest and most expensive 2GB package was as much as R170 rand. One of the simplest answers to this question is - spectrum. Spectrum (or radio frequency spectrum) dictates operators ability to provide data transfer to consumers. According to a recent Fin24 report, this is a limited national resource, owned by South Africans and presided over by ICASA. Essentially, operators such as Vodacom and Cell C, rent access to the spectrum. The CEO of Vodacom, Shameel Joosub, claims that if spectrum would be made available data prices would plunge by 'almost half'. MTN shares the sentiment, believing that spectrum is the 'primary obstacle' to bringing data prices down. However, Graham de Vries says that there are other factors to consider, should the needed spectrum be made available, saying: "Say, for instance, the exchange rate goes down by 20% and we get extra frequency – that may not necessarily mean that costs will be less because you still have to import equipment so that the very frequency that you now have can be 'switched on', so to speak, on the network." This equates to a dismal situation for consumers calling for price reductions. Although ICASA will be auctioning off the much needed resource in April 2019, financial relief would still be a long way away. The necessary equipment would then need to be put in place and the costs of this would be carried by the consumers. Cell C's Candice Jones maintains that the spectrum being made available will not single-highhandedly bring prices down. Jones explains: "We can't have a system that allows dominant players ways to gain access to spectrum while excluding the smaller operators from gaining access to that resource. It is ultimately the smaller players that drive down costs through competition,"
BRIC Outlook 2019
- Brazil and Russia seem valued to catch up with India and China after 5 years of underperformance.
- Brazil's new president's agenda aims to crush crime and corruption, reduce taxes, push privatization, reform pensions, and reduce environmental regulations.
- Russia has gone from cheap to cheaper, and should be overweight for investors who don't expect cash earnings there to decline by more than half.
- India has become the most expensive BRIC. India's high allocation to financials may be compared to those of developed markets UK or Singapore.
- China remains by far the largest BRIC, and seems attractively valued, but investors should be wary of debt levels and other financial quality factors.
2019 can be considered a landmark year for the BRIC group of large emerging market countries. Coined in 2001 by Jim O'Neil as an acronym of Brazil, Russia, India, and China, the term turns 18 this year as its name inspired "BRICS Bank" (now known as the "New Development Bank") enters its fifth year in force. It can be said that BRIC has been the most successful shortlist of emerging market countries so far this century, just as G7 has remained one of the most widely used shortlists for developed market economies. Personally, I start my top-down allocations with the five main economies in the acronym JUICE (Japan, US, India, China, and the EU), which leaves out the first half of BRIC, but wanted to do this review specifically to see if now would be a good time to increase allocations to that first half: Brazil and Russia.
One "big picture" way I have long understood the four original BRIC economies is as a balance of natural resource exporters (Brazil and Russia) vs natural resource consumers (India and China). This, combined with the sharp declines in commodity prices since 2014 (for example, the fall in oil from $100 to below $50/bbl) helps to explain why Brazil's and Russia's stock benchmarks have significantly underperformed India's and China's.
Moscow Sees No Reasons To Believe Brazil's Bolsonaro Might Undermine BRICS
Foreign Minister Sergey Lavrov said Wednesday that there were no reasons to believe that Brazil under the leadership of President Jair Bolsonaro would play a destructive role in BRICS. Far-right Bolsonaro was inaugurated on January 1. "Just the other day, Brazilian colleagues introduced to us the plan of Brazil's chairmanship, the dates for ministerial meetings, the summit and the program. I do not see any reason to suppose that Brazil will play a destructive role in BRICS," the minister said.
Moscow Sees No Reasons To Believe Brazil's Bolsonaro Might Undermine BRICS
Deeper collaboration in the defence sector will be the top agenda of talks between India and South Africa. Accompanied by a high level delegation South African President Cyril Ramaphosa will be visiting India at the invitation of by Prime Minister Narendra Modi, as a chief guest at India’s 70th Republic Day celebrations on Jan 26. Sources confirmed to Financial Express Online, “Defence sector in India is one of the sectors witnessing a complete transformation and that it offers exciting opportunities, with the government announcing 100 per cent FDI. There are immense opportunities for companies from both sides to jointly develop and manufacture for both forces as well as global demand.” As reported earlier, South African State-owned defence industrial group Denel is free to do business with the Indian government and Indian companies. The company is suited for ammunition supplies to the armed forces in which Indian companies have to create new facilities. Denel was one of the prime contenders for small arms, ammunition and artillery programs in the 1980s in India. The two countries are also working together through IBSA (India, Brazil and South Africa) and BRICS (Brazil, Russia, India, China and South Africa). The Indian Ocean Rim Association (IORA) has emerged as a key platform of engagement for the maritime neighbours connected by the Indian Ocean where South Africa is holding chairmanship of the organisation for 2017-19. From the perspective of the maritime security, the waters of the Indian Ocean are common sea frontiers of both the countries. While IORA was formed in 1997, it was revived under India’s lead from 2011-13, Australia from 2013-15 and Indonesia from 2015-17.
As reported by Financial Express Online earlier, aiming to build interoperability and mutual understanding as well as sharing of best practices, the 6th edition of IBSAMAR, a joint multi-national maritime exercise between the Indian, Brazilian and South African Navies, was held at Simons Town, South Africa in Oct 2018. Initiated in 2006, ‘Exercise IBSAMAR’ is the most visible manifestation of convergence of democratic values, economic interests and maritime cooperation. South Africa had along with three platforms SAS Amatola, SAS Protea and SAS Manthatisi the South African Navy sent in elements of its maritime reaction squadron. According to a IBSA dialogue forum Joint communiqué issued after external affairs minister Sushma Swaraj met with her counterparts from Brazil and South Africa on the sidelines of the 73rd session of the UNGA in New York City last year, the member countries emphasized their importance as a positive example of trilateral cooperation in defense and confirmed the continuity of these activities as well as the exploration of new initiatives with great potential in that field. South Africa is also a member of the Indian Ocean Naval Symposium (IONS) an extremely significant regional maritime security initiative launched by India in February 2008 under the aegis of the Indian Navy. This seeks to increase maritime co-operation among navies of the littoral states of the IOR (Indian Ocean Rim) by providing an open and inclusive forum for discussion of regionally relevant maritime issues. Besides India, other member countries including the UAE, South Africa, Australia, Bangladesh and Iran have held the chairmanship of IONS. The company’s troubles in India started in 2005, after the defence ministry put all contracts with it on hold. Investigations probed two contracts that the firm had signed in India, a Rs 78 crore deal for procurement of 400 anti material rifles and a Rs 66 crore transfer of technology contract with the Ordnance Factory Board but failed to find any proof of corruption.
Shifting politics poses threat to BRICS future
The rise of populist, right-wing leaders across the world, such as US President Donald Trump, raises questions about the groupings that India has assiduously helped to build in the past decade. Brics - one such grouping of five major emerging powers from different continents - was to bridge the divide as the world underwent an economic and political power shift from the Atlantic to the Asia-Pacific (or what is today called the Indo-Pacific). Although annual summits of the founding members - Brazil, China, India and Russia - began in 2009, South Africa was added to co-opt an African member in 2010, despite neither its population nor its GDP rivalling that of the other four.
Political churn in each nation is likely to impact Brics’ future. South Africa under its former President Jacob Zuma had faced an economic meltdown rendering South Africa’s membership lame duck till his replacement by Cyril Ramphosa in February 2018. The cleaning up of the financial mess is still underway, with the alleged “state capture” by outside agents like the Gupta brothers, who are of Indian origin. Reform of the National Prosecuting Service (NPA) and the South African Revenue Service (SARS) is also incomplete. Meanwhile, South Africa faces a general election in May this year, coincidently like India. The nation most likely to rupture Brics is Brazil, under its recently-elected populist President Jair Bolsonaro. Brazilian foreign policy, whether under authoritarian rule till 1985 or as a democracy since then, has been conditioned by the legacy of the Baron of Rio Branco, foreign minister in 1902-1912. He settled the Brazilian borders with all 10 neighbours, combining respect for international law, peaceful deal-making and soft power. The appointment of a relatively junior serving diplomat Ernesto Araujo as foreign minister, who proclaims “God is back and the nation is back”, and thus swears by religion as the touchstone of diplomacy, has shocked several of its neighbours as well as the Brazilian elite. He is additionally a China sceptic and during the campaign had visited Taiwan, which would not have gone unnoticed in Beijing. Not surprisingly, he is also candidly enamoured of US President Donald Trump and other populist-nationalists in Italy, Hungary and Poland. It is possible that this new evangelism may be moderated by the pragmatic economy minister Paulo Guedes, but President Bolsonaro is unlikely to abandon his core beliefs, which could well disrupt Brics, particularly as Brazil is due to host the next summit. Although Indian Prime Minister Narendra Modi is a populist-nationalist himself, he has kept his politics for domestic vote consolidation while adopting a more liberal stance abroad. Russia and China are the other two legs of Brics. It was the Chinese need to successfully hold the Xiamen Brics summit in September 2017 that had facilitated a resolution of the Sino-Indian standoff at Doklam that year. But there has been a growing Sino-Russian convergence alongside the escalation of the Sino-US trade standoff, which they are trying during a three-month time-out to resolve by discussions. But Chinese President Xi Jinping on January 2, in a speech marking 40 years of the 1979 message that moderated the Chinese approach to Taiwan from “liberation” to “peaceful unification”, conveyed his impatience with the delay in annexing Taiwan and held out the possibility of the use of force to achieve it. If anything, this has hardened Taiwanese domestic opinion against unification, with one poll indicating only three per cent of the islanders in its favour. A close reading of the report delivered by Chinese President Xi Jinping at the 19th Party Congress on October 18, 2017 reveals the Chinese strategy to get to the envisioned China 2025. The “national rejuvenati-on” touted is about moving China closer to the global centre stage to transform global governance as per the Chinese vision of their centrality. Prof. Xiang Lanxin has thus called the Belt and Road Initiative as a “post-Westphalian” integration of a 21st century Eurasia. This is a resurrection of Tianxia or Mandate of Heaven that the Chinese have used historically to rearrange other nations in a “dynamic equilibrium”, ensuring Chine-se supremacy. This bodes ill for the unity of Brics. Russia under President Vladimir Putin has reinvented its role as the arbiter of peace in West Asia, Afghanistan and the Pacific, by drawing Japan into negotiations over the Kuril islands’ return. President Putin is now using China as an economic and strategic partner and main foil to the United States, ceding it supremacy in the Chinese maritime periphery in exchange for China accepting a similar lead role for Russia on the Eurasian continent. This deal may not hold beyond the Sino-US standoff but is the basis of a new order. The fate of Brics thus hangs in the balance with President Bolsonaro likely to pull in a different direction. India will be the outlier balancing the pulls and tugs of old players with new moves. Meanwhile, both the Indian and South African people are to decide in May their next governments. The old saying appears apposite - the Brics are now loose bricks!