Canada: Economy Likely to be One of the First to Recover

The big financial crunch has bitten most economies and recovery is still a dot on the horizon. But there could be one cookie that has not crumbled. Canada has been named as one of the first economies in the world to likely come out of recession, according to Angel Gurria, secretary-general of the Organization for Economic Co-operation and Development (OECD), speaking at the 15th annual International Economic Forum of the Americas held in Montreal.

Gurria’s assessment backs up Canadian Finance Minister Jim Flaherty’s recent statement that Canada will lead the global recovery. The OECD has named Canada among four industrialized nations, including France, Italy and the U.K., that are showing signs of having reached a trough in the economic downturn. The OECD’s composite leading indicator for Canada edged up to 93.6 in April from 93.2 in March, giving rise to hopes of stabilization and recovery. There are other green shoots of recovery as well. For instance, the Canada Mortgage and Housing Corporation reported that the annual rate of housing starts increased by about 9% in May from the previous month.

It seems that Canada, a commodities based economy, is benefitting from the positive change of pace in world trade. Oil prices are climbing to more than $70 a barrel, a good indication for Canada, which has the world's second largest oil reserves and is the largest exporter of oil to the U.S. As well, emerging economies like India, China and Brazil are showing signs of revitalization. China especially is showing good potential as industrial production is picking up, pushing up demand for natural resources. This has augured well for Canada, a nation rich in natural resources like minerals, energy and forests. Chinese imports of metals like zinc and copper are positives for Canada, which rang up a brief trade surplus of $1.1 billion in March up from $262-million in February. Minerals and metals have remained one of the strengths of the Canadian economy, with the industry contributing $40 billion to Canada’s GDP in 2008.

But Canada still has a $50 billion plus deficit and an unemployment rate that hit an 11-year high of 8.4% in May. The OECD has urged Canada as well as other nations to keep their stimulus measures in place until a rebound is clearly visible. While other countries have exhausted their spending capacities, Canada is in a position to boost spending if necessary.

Canada’s GDP is expected to expand by 0.7% next year, which is a slight improvement over the 0.3% predicted in March this year. The OECD report specifies that Canada’s “recessionary conditions” will linger well into the third quarter and there will be only a slow recovery thereafter as unemployment will continue to be a problem until early 2010.

But however slow the rebound may be, as Canadian Finance Minister Jim Flaherty aptly sums up, there is “cautious optimism that a global economic recovery may not be far behind."

Taiwan: A Thaw in Taiwan-China Relations

After six decades of hostility, mistrust, and animosity, Taiwan and China, once bitter foes and arch enemies, are reaching out to each other. The global economic recession has created unusual friendships, changed old ones, and created a dynamically different world. In an announcement that could have far reaching implications on Asian trade and investment, Taiwan’s Ministry of Economic Affairs has decided that it would open up Taiwan’s borders to allow for Chinese investments.

The Cabinet approval for the move marks a personal triumph for Taiwan’s President Ma Ying-jeou who has been aggressively campaigning for closer ties with China. The two sides had separated during China’s civil war in 1949, although China claims that Taiwan remains a part of its territory. At best, relations between these two nations have been fractious and uneasy. As the world grapples with the unrest of the financial meltdown and worsening relations between South Korea and the nuclear-armed North, signs of a growing friendship between China and Taiwan will only mean good news.

Under the new rules, Chinese investment will be allowed in a total of 100 categories in Taiwan’s service, industry, and infrastructure sectors, including textiles, cell phones, cars, auto parts, and building of airport facilities, resorts, and commercial ports. Service sector categories include retail, restaurants, farming and medical products.

The move will help correct a considerable imbalance in cross-strait relations. Taiwanese companies have invested in the Chinese economy since 1991, helping push the country on a trajectory to becoming the world’s fastest growing major economy. Now, it is hoping that China can return the favor. Taiwan desperately needs the boost – its economy contracted by a record 10.24% in the first quarter, and the jobless rate rose to a high of 5.84% in May.

Yet, Taiwan is still playing it safe. In an effort to avoid criticism that the government is jeopardizing Taiwan’s sovereignty, no Chinese investment is allowed in Taiwan’s core markets. Consequently, its semiconductor, solar panel making, communications, and flat panel technology industries are not open to China. No Chinese company with a ‘military interest’ will be entertained either, the Ministry warned.

Not all agree that these safeguards are adequate. The opposition Democratic Progressive Party (DPP) sharply criticized the change as a “threat to national security”. The DPP claimed that Chinese investment might hurt domestic companies and intensify competition. But in a battered economy, investors and manufacturers alike are welcoming all the crumbs they get. Since a travel ban to Taiwan was lifted a year ago, almost 350,000 Chinese tourists have made a trip to the island, providing a much needed impetus to the tourism sector.

Ultimately, both China and Taiwan stand to benefit, but they are not alone in reaping the rewards. In this closely integrated world, a strong and stable China and Taiwan may help the global economy emerge from the abyss of the recession. It appears that crisis may indeed lead to opportunity.

A Postcard from Europe Russia: Recasting Its Role in the World Kremlin, Moscow

President Obama visited the Kremlin hoping to expand on Russian-U.S. trade, which currently stands at around $36 billion a year, just around 1% of all U.S. trade.

The majestic Kremlin building in Moscow, which has seen many a leader come and go over the past centuries, is no doubt looking down with an approving nod in the aftermath of the recent U.S.-Russia Business Summit between President Barack Obama and President Dmitry Medvedev. While Obama stoked the fires of free trade between the two former Cold War foes, Putin was flexing Russia’s muscles by seeking membership to the World Trade Organization (WTO) as a customs union with Belarus and Kazakhstan. Alongside, in anticipation of the G8 summit, Russia together with China and India, furiously advocated the need for a new global reserve currency. Russia is back on the world scene, clad in regalia and jostling for supremacy as emerging countries fight for a new world order.

Sitting on some of the world’s largest reserves of oil and gas, Russia is the R in the BRIC acronym; the term used to group together the fast-growing developing economies of Brazil, India, China and Russia. While these vast resources have driven much of Russia’s economic growth over the years, at the same time there is growing alarm over what is perceived as the country’s growing political, economic and military clout.

Russia, as Obama urged at the Moscow summit, must learn to use this power wisely. Its clash with Georgia last year, known as the South Ossetia War, sparked outrage and criticism in the international community. And with Russia controlling the spigot of natural gas in the region, Europe has grown wary, desperately obtaining a stake in the newly announced ambitious Sahara gas pipeline project, which will transfer Nigerian natural gas to the Mediterranean.

Despite Obama’s calls for greater U.S. - Russia trade, the nation itself is one of the world’s most closed economies. It ranked a low 114th in the Global Enabling Trade Index for 2009, just released by the World Economic Forum. And the global recession has also created more than its share of grief. Economic growth in Russia has slowed down significantly to 5.6% in 2008 after a healthy rise of 8.1% in 2007, and the economy is expected to contract further by 7.9% this year. Adding to this, Russia scuttled its chances of entering the WTO when Prime Minister Vladimir Putin said that Russia would only consider joining the organization as a customs union. The decision took the WTO by surprise as only individual countries have joined the organization to date.

Yet there are green shoots that promise that Russia’s impressive resurrection in the last decade was no flash in the pan. The World Bank recently praised the Russian government’s response to the global recession as ‘swift, coordinated and comprehensive,’ the Russian stock market has rebounded from alarming lows touched last year; and a large stimulus package appears to be working enough to ensure a ‘modest recovery’ in 2010. The U.S. and Russia have now laid the framework to reduce their nuclear arsenals, with Obama and Medvedev working together to draft a new arms control agreement that will eventually replace the Strategic Arms Reduction Treaty (Start I). On the world scene, as a permanent member of the Security Council, Russia is slowly reemerging.

And expectations are rising. The Moscow summit has not only resulted in a commitment to enlarge bilateral trade, but also an announcement of at least $1.5 billion in U.S. investment, with several U.S. companies promising to expand their stake in the Russian market over the next few years. To be sure, Russia is eager to realign the world order along with the others in the BRIC. This was evidenced in the first ever Russia-hosted summit in Yekaterinburg on June 16, which concluded with a call for greater representation for developing economies in the world’s financial institutions. With its immense resources, Russia stands to dominate as the global supplier of raw materials. The country now stands as a worthy competitor in the fierce race to the top in the BRIC league.

A Postcard from the Middle East Jordan: Medical Tourism Uplifts the Economy

Jordan is growing in popularity as a medical tourism destination

The majority of the patients who visit Jordan from all around the world seek organ transplants, plastic surgery and cardiac surgery.

The doctor, dressed in a white lab coat and a matching white headscarf smiled at her American patient. Her foreign patient had come for a major surgery and was now preparing to return to the U.S., completely cured.

Medical services in Jordan are offered to foreign patients from around the world and it has developed into an industry itself known as “medical tourism.” It is such a strong sector that it has emerged from the global financial crisis without a scratch. Medical tourism brings in around $1 billion in revenue annually and has been privy to a 10% increase in the influx of foreign patients every year.

According to a study by the Private Hospitals Association (PHA), 210,000 patients from 48 countries received treatment in Jordan in 2008 compared to 190,000 in 2007. PHA President Fawzi Hammouri says that foreigners are attracted by the “high quality and competitive cost of healthcare.” Iraqi patients topped the list of medical visitors last year numbering at 45,000 followed by an approximate 25,000 people from Palestine. More than an estimated 1,800 Americans, 1,200 UK citizens and 400 Canadian citizens went to Jordan for medical treatment in 2008 – and with good reason – the expenditure is only 25% of the value of the same medical procedure in the U.S.

In 2008, Jordan was ranked number one in the Arab region by the World Bank, and number five in the world as a medical tourism destination. And now the country is aggressively touting these rankings in the U.S. with advertising campaigns to lure Americans worn out by soaring health costs. Hospitals in Jordan now offer package deals that include air travel and a list of tourist destinations in the country, a plan that promises not just physical repairs but also overall relaxation. With the advertising campaigns calling out to American citizens for medical procedures, Jordan hopes to enrich itself with some badly needed cash.

Jordan relies heavily on tourism, foreign investments and worker remittances for its revenue and surprisingly lacks the natural resources, like oil, that many of its neighbors enjoy. With this, Jordan is on a drive to promote new services and industries, especially medical tourism, which has surfaced as one of the biggest saviors of the sagging economy. Ironically, Jordan’s local medical sector is facing numerous challenges, which include rapid population growth along with a constant inflow of refugees and inefficient financing of health services. Jordan, which has an annual population growth of 2.2%, has racked up $1.311 billion in health expenditures, constituting 9.8% of the GDP.

Jordan also faces stiff competition. According to medical industry experts, the country faces a tough battle with other rival locales such as India, Costa Rica and Thailand, who are all jostling for space at the top in the world medical tourism market. Because of their proximity, the Caribbean Islands remain the top preference for American tourists.

But how will Jordan tap the lucrative U.S. market, snaring business away from its neighboring rivals? The Medical Tourism Association of Jordan has invited top healthcare specialists and insurers from the U.S. to visit the country in July and see the city’s six internationally accredited hospitals. The invitation is part of the marketing campaign that Jordan has launched to elbow its way to the top of the competition. Jordan’s visitor numbers show that the world outside the Middle East is just waking up to the services Jordan has to offer. Working in Jordan’s favor is a host of English-speaking doctors, high-quality service, as well as the promise of cheap treatment during tough times. That might just be the cure the doctor ordered.

A Postcard from the Asia Pacific Malaysia: Glad Tidings of Reform

Malaysia

As the fastest growing city in Malaysia, Kuala Lumpur has attracted immigrants from around the world, resulting in the city having a diverse mix of ethnic backgrounds ranging from Chinese to Indian to Indonesian and others.

When Malaysian Prime Minister Najib Razak was sworn into office on April 3, 2009, he promised to introduce bold reforms that would transform Malaysia’s economic landscape. Few listened. Fewer still believed him. Yet barely a few months later, Najib has introduced reforms that no other prime minister before him has dared to undertake, in a sweeping liberalization program.

Chief among Najib’s changes is a repeal of laws that demanded that ethnic Malays must hold a combined 30% stake in foreign companies. Now, the quota has been cut to 12.5% for newly-listed companies, while foreign companies seeking to list on the Kuala Lumpur stock exchange are no longer bound by the quota system. Foreign investors are also allowed to own 70% of local stock brokerages, increased from the present 49% limit.

The Prime Minister is looking to restore Malaysia to its glory days in the early 1990s when the Kuala Lumpur stock exchange was the largest in Southeast Asia by market capitalization. At that time, investors were eager to enter the country but were hampered by Malaysia’s complex preference programs. These date back to 1971 when Malaysia introduced its New Economic Policy, or NEP, an experiment in social engineering. The NEP ushered in a new society where Malays or bumiputras were given a canopy of privileges including reservations, quotas and subsidies.

Ironically, it was former Prime Minister Abdul Razak, who introduced the same laws that Najib Razak, his son, is now seeking to overturn. These laws were meant to uplift the economically disadvantaged Malays but were deeply resented by the Chinese and Indian minority populations. The policy was an instant political success but economically, the results were mixed. In an increasingly globalized world of equal opportunity, the policy was proving to be slowly unsustainable.

But juggling the economic rewards and political backlash may prove tricky for Najib. Despite a surge in his ratings since the move, he has been quick to assure the Malays that they will continue to obtain preferential access to universities, cheap loans, and civil service jobs. While abandoning the NEP policy completely may well spell political disaster for Najib’s United Malays National Organization (UMNO) party, investors have welcomed the reforms. Already, the rewards are trickling in. Through its sovereign fund, Abu Dhabi has promised to increase its investments in Malaysia with a fund of $1 billion.

No doubt, Najib’s action was prompted by a deteriorating economy and declining foreign investment. Yet his bold initiatives also prove that countries are willing in these tough times to encourage reforms, and promote openness in ways that no one could ever have foreseen before the world financial crisis. Already, India is planning to introduce liberal reforms of its own under Prime Minister Manmohan Singh. Hungary also introduced several budgetary reforms, including a major overhaul of its tax system that aims to enhance the country’s competitiveness. In these times of a global recession, Malaysia has shown that rethinking old policies and enticing investors can create new era of promise and growth.

October 9, 2009 A Postcard from the Middle East Egypt: Wiring the Telecom Gap

As the world becomes increasingly globalized, developing economies like Egypt are striving to create a durable information society for the future.

It is a transformation that did not seem possible, yet has become a reality. Once languishing, Egypt’s telecommunications industry, in the space of less than a decade, has changed its colors to become one of the country’s most promising sectors. Now, the Ministry of Telecommunications, an entity that only came into existence in 1999, is offering bids for two licenses for cable, internet and telephone services that are expected to attract investments of around $1 billion over the next five years.

The move could have far-reaching implications for Telecom Egypt, which until now has been the only fixed-line operator in the country. Also in play are Egypt’s nearly 50 million mobile phone users, who are currently served by three operators as well as some 13.7 million internet users. The bidding date for the new licenses has been set for January 12 next year, and work is hoped to begin in the second half of 2010.

Although the announcement is new, the decision to allow new operators is not. Last year, the National Telecommunications Regulatory Authority or NTRA was forced to postpone an auction and scuttle all plans to bring in a new fixed-line operator when economic turbulence rocked the world. With economic conditions improving now globally, the initiative has resurfaced once again. Interestingly, the successful bidders will not have to make an initial payment but instead offer around 8% of the revenues to the state, a bow to the difficult economic conditions. The Communication and Information Technology Minister Tarek Kamel has admitted that the move is intended to attract foreign companies.

Egypt has fared better than most in the global slump. The country’s gross domestic product is expected to touch 5% next year, but foreign investment declined over the past year as investors and companies alike restricted their budgets. Now, Kamel is hoping to revive investor interest.

But, there are some difficulties – will a second and third operator gain significant market share in a region that has been dominated by Telecom Egypt? For now, the two operators would be restricting their range to suburbs outside Cairo and other such communities in the country. These are small communities housing a maximum of 5,000 units, developed over the past few years as space in Cairo stagnated, and developers were forced to build housing projects further and further afield. Telecom Egypt would continue to operate in these areas as well. Kamel did not rule out prospects of additional licenses for the future, and it will be interesting to see if competition will spur a tariff or services war.

Over the years, Egyptian society has evolved as e-services have helped make life easier. From obtaining birth certificates, to official identity cards online, Egypt’s telecommunications boom has transformed a society used to long delays and longer lines to one that operates on efficiency and promptness in service. It is a revolution that continues as internet penetration increases, and mobile connections grow. Clearly, the telecom industry remains a top priority in driving development in Cairo. Egypt has now become the standard by which other countries in North Africa measure themselves. The past decade has laid the foundation for growth, and the next ten years may well decide if Egypt will move on to becoming one of the world’s most important telecommunication hubs.

October 16, 2009 A Postcard from the Asia Pacific Japan: Revving Auto Industry Boosts Export Hopes

The Tokyo Motor Show, a biennial event, has been one of the world’s premier auto shows ever since its inception in 1954.

The prestigious Tokyo Motor Show, set to run from October 23 to November 4, has seen its last major foreign exhibitor pull out barely a week before its launch. This has left the show, once the glittering celebrity-studded automotive spectacle in the world, bereft of some of the biggest international global brands. Is this a sign of the times?

It would indeed appear strange that the world’s biggest auto companies are shunning a show that is showcasing as many as 39 world launches and 21 Japanese premieres. Yet, foreign automakers pulled out citing their own economic woes. Running alongside is the undercurrent that Japan has never been easy for the international vehicle manufacturer. Japan’s vehicle market has always been skewed heavily in favor of its own domestic brands – whereas in the U.S almost 55% of all vehicles sold have a foreign nameplate, in Japan it whittles down to just a tiny 5%. A discouraging import tariff barrier means that foreign vehicle manufacturers have barely managed to stake a toehold in Japan. As well, the government encourages exports of high-value manufactured goods such as cars, making it possible for Japanese vehicle manufacturers to ship and sell cars around the world at competitive rates.

Digging deeper, there is a flipside to the tale. Japan’s biggest vehicle manufacturers are all revved up and raring to go. For them, it appears to be business as usual after the serious hiccups suffered earlier this year. Despite the recent slump, Japan remains the world’s third largest auto market. Although it might soon be overtaken by speeding China, Japan also is the world’s biggest car producer having an output of 9.916 million vehicles last year. Encouragingly, for the first time in 13 months in August, the Japanese auto industry posted a year-on-year increase of 2.3%, selling 198,265 units for that month, spurred in part by ex-Prime Minister Taro Aso’s incentive measures. That trend continued in September when industrywide sales rose 0.2% over a year earlier to 477,818 units. That is quite a comeback from the industry’s 38-year low, slumped into in March as consumer confidence dipped. Yet, the Japanese government is keeping its fingers crossed that the auto sector, so crucial a cog in the country’s export wheel, will continue its revival once the stimulus effect fades. It is this – Japan’s export dependence-- that also contributed to the country’s severe fall during the ongoing global recession. Despite the late revival in domestic sales, it is clear that overall sales might fall to their lowest this fiscal. Not surprisingly, most Japanese manufacturers have set their sights overseas – to promising markets in China, India, the Philippines, and of course, the U.S., which remains one of the biggest buyers of Japanese cars.

Japan’s auto industry has for long been the pivotal force driving the country’s exports. And when its exports improve, Japan as an economy improves. The Tokyo Motor Show might be just the opportunity for Japan to burnish its former luster in the world.