This week on Street Talking in NEXT, I take a step back from my parochial interests in investor relations and shareholder issues to trace the tight relationship between sound judgment among the political leaders and national economic progress. My inspiration has been the realization that even with the most enthusiastic and sincere efforts by companies, the responsibility for creating an enabling business environment lies with the government. If the government fails in that task, or the politicians deny that duty, then no matter the commitment of companies and the capital that investors are willing to pump in, the economy will not reach its full potential, ultimately hurting shareholders in the long run.
Today, my story begins with the unlikely case of Brazil. By the way, my interests have not shifted to football. Nonetheless, it is still a bit of deviation from my usual neck of the woods. First, a little bit of background to provide some colour.
In his now famous November 2001 paper, ‘Building Better Global Economic BRICs’, Jim O’Neill, chief economist at Goldman Sachs, the Wall Street juggernaut, created a novel cognitive map for the future of the global economy when he coined the building-inspired acronym to collectively identify Brazil, Russia, India and China.
The Brazilian success story fascinates me because the country has risen beyond the status of dirt playground for hot money briefcase foreign investors. Brazil has earned its place of honour as an economic powerhouse and global policy voice. It was no birthright. ‘Exotic’ does not apply to Brazil. In Brazil, rules apply.
Last weekend, I was catching up with a Brazilian colleague, Fabiane Goldstein, who runs an investor relations firm in Sao Paulo. After a few minutes, she spun the conversation to politics, a subject I studiously avoid. The Workers’ Party, Brazil’s ruling party, had just announced its selection of Dilma Rousseff as its candidate for the October presidential elections. Rousseff, a favorite of President Luiz Inácio Lula da Silva, popularly called Lula, currently serves as the cabinet chief minister. Lula, Fabiane confessed, had been good for Brazil. Brazilian citizens, she explained, agreed that he had brought the country luck, plus World Cup and Olympic hosting rights to boot. In a sports mad country, he is widely seen as blessed by the gods.
Yet, she admitted that Lula’s leftist credentials had worried many in the business community at the time of his 2002 election. But looking back now, ‘Brazilians,’ in her words, ‘had never had it so good.’ Lula had allowed Brazilian businesspeople to ignore politics and to focus on creating wealth. If stories she heard were true, a good number of leading Brazilian businessmen were putting pressure on him to accept the position of the Central Bank governor or chief minister if Dilma Rousseff, his anointed candidate, wins in October.
Responding to rumours this week that Henrique Meirelles, the current central bank governor, might resign to pursue the presidential ticket, Lula told a press conference that
I am not worried. Today, we could make those changes without any difficulty, or fear, because the whole world knows if there is something notable about our government, it is the seriousness of economic policy.
Investors agree and have rewarded the São Paulo Stock, Mercantile & Futures Exchange’s Ibovespa index handsomely. Without putting to simplistic a point to it, politics in Brazil has provided the scaffolding for Brazil’s prosperous economic edifice.
Contrast the market calm in Brazil over Meirelle’s resignation plans with the situation in neighbouring Argentina. A few days ago, Jude Webber of the Financial Times wrote a damning article, ‘Argentina: A Profligate President’, criticizing the economic policies of President Cristina Fernández de Kirchner. The president’s botched removal of Martin Redrado, the former Argentine Central Bank governor, in January over his refusal to comply with her demand to surrender reserves to a government debt payment fund has further worsened perceptions of her government.
This week, the country’s seven-percent bonds due in 2015, fell to their lowest level in five months on fears that Amado Boudou, the respected economy minister, may leave the government over differences of principle and ideology with President Fernández de Kirchner. Investors have been on a panic binge since last year. In February 2009, MSCI Barra, the index creator, had demoted the country from its emerging market status to frontier markets class. Argentinean politics has a bad habit of putting investors in anxiety overdrive.
Ideally, investors want to take politics for granted because they cannot diversify it away. Politics is a systematic risk investors in any economy must bear.
At the end of a series of meetings held with leading frontier markets investors in the US last week, Christopher Hartland-Peel and Ashley Bendell of Exotix, the London-based boutique investment bank focused on frontier markets, shared these fund managers’ top-line impressions of recent events in Nigeria. In their words, ‘Nigeria remains one of, if not the most favored African and frontier stock market, and [while] investors are interested in, in the Nigerian political situation, they are not hung up on it.’ This is certainly more than a cautious tip to the benefit of doubt.
The Nigerian stock market’s best is yet to come. I believe that so wholeheartedly. Nigerian investors have been through stormy seas in the past two years. Their confidence has been dented. But the country’s economic potential is vast and undeniable. In spite of the day-to-day roller coaster of politics in recent months, when one steps back and takes a wider frame view, it is obvious that the country has made giant strides in the past decade. Faltered sometimes, but getting up and striving ahead again.
Disclosure, access, engagement, water-tight risk management culture, attuned corporate strategy, sound corporate financial planning are all well and good. But they can only bear fruits for investors when the markets do not lose sleep over politics. To stir the hornet’s nest now would be foolhardy after the progress of these years. If the politicians heed good advice, O’Neill’s BRIC acronym may one day become BRINC (Brazil, Russia, India, Nigeria and China). But will the politicians pull back from the cliff?
The original article may be read here on the NEXT website.
Readers may find the following economic research papers by Goldman Sachs Economic Research department informative.
One cannot help noticing how Niyi Meka Olowola, Oando's Head of Corp Comms, is nodding in approval. Maybe Goldman Sachs can learn lessons.04:47:49 PM January 25, 2012from HootSuite
Twitter: CustomsStreet
