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Bone up on the Brics

Half Way There, by Chris Hart and Glenn Silverman

BRAZIL, Russia, India and China excited the investing world with their nascent success, potential and energy. This grouping was identified as “Bric” and the name gave form to more than just a unifying collection of large emerging countries.

It gave form to a loose entity bound by the desire to form a bulwark against the traditional power blocks of the West, and with the aspiration to form mutually beneficial treaties and associations. With South Africa joining the group, they are now referred to as the Brics.

Half Way There, the title of this book, is the work of Investment Solutions chief economist Chris Hart and chief investment officer Glenn Silverman. They have produced a record of their travels to the Brics to supplement their knowledge of these countries’ investment potential.

The result is an entertaining account by two thoughtful investment professionals. There is enough in this book to make it worthwhile as travel literature alone, but its purpose, as insight into investment in the Brics, makes it especially valuable.

The book chronicles their research visits to business centres in each of the countries. They met with knowledgeable informants in each city and site who shed light on subtleties and insights beyond what is commonly acknowledged. Their primary intention was to offer the South African investor a deeper view of the potential, risks and opportunities of investing in the Brics.

In this process, they revealed interesting perspectives as seen from a few examples below.

Brazil's mind-boggling tax regime

Brazil has a complex tax system with federal, state and municipal taxes, widely varying value added taxes liabilities and rebates that make it the most time-consuming tax regime in the world.

India’s richest man and his family of five live in their 27-story tower block home with nine lifts and three helipads only kilometres away from Mumbai's Dharavi slum. The slum is home to 8 million people, but is also an economy that turns over about $1bn annually.

China’s impressive infrastructure development is responding as urbanisation continues to grow and fuel the economy. Some of the development is of ghost cities, built where no one lives.

Russia has few millionaires but, proportionate to its population, many billionaires. The billionaires were created with the fall of the Soviet Union when ruthlessness, political connections and the ability to seize assets cheaply gave them a huge base. Putin, purportedly, gave the oligarchs an instruction to keep out of politics as the price for accumulating wealth. It is little wonder that Russia has the highest corruption rate in the Brics.

The market capitalisation of the JSE is almost five times that of Ghana, Nigeria, Egypt and Kenya put together. However, when one measures South Africa against the population size and land mass of the other Bric members, it is small.  With a lacklustre performance while the Brics shone, South Africa’s role as the African participant will require sorting out internal problems and realising its potential.

Every nation has its scar

A very novel and useful concept introduced by the authors is that of the “National Scars.” The concept differentiates countries by identifying an important factor that influences and affects how the country deals with current challenges. The National Scar is much like a personal trauma in one’s youth that shapes how one responds in adulthood.
 
Brazil endured hyperinflation for 14 years with money inflating in value up to 6 400%. This erased wealth, made investment timeframes extremely short and rendered normal savings and budgeting impossible. Lurking behind many decisions and national attitudes is the fear of hyperinflation. It manifests, for example, in distrust of politicians and a heightened awareness of the need for inflation hedges.

Complex India has three National Scars. The country is hobbled by a tradition of stifling bureaucracy required for every business activity, combined with the resultant high levels of corruption. This is compounded by India’s heart-breaking poverty with every fourth person living on less than $2 a day.

India is further influenced by the humiliation of this once-great country’s subjugation by Britain, and the resulting partitioning of the country into Hindu and Muslim states.

Russia lived under communist rule for over 70 years, subject to a series of strong dictators. Putin is one more. There were always a wealthy few and many poor, and there still are. Russian history is scarred by the horrors of the invasion of the French and later the Germans. The Soviet Union provided some security from invasion, but that has folded and Russian fears need the security of nation rebuilding.

South Africa’s National Scar is the widely acknowledged apartheid era. Its legacy has determined how we respond, plan and work. Hart and Silverman add to apartheid the scar of our shocking unemployment, which has to be the focus of so many of South Africa’s decisions.

This notion of identifying a National Scar is a profound way to understand a nation, whether it is part of Brics or not.

While the book is wide-ranging and full of interest, the authors never lose sight of their intent – to provide the reading public with keen insights into the investment potential and risks of the Brics.

Half Way There should be somewhere on your Christmas shopping list, and will make for stimulating reading and conversation over the holidays. 

Readability:  Light ---+- Serious
Insights:      High +---- Low
Practical:      High --+-- Low

 - Fin24

*Ian Mann of Gateways consults internationally on leadership and strategy and is the author of Strategy that Works. Views expressed are his own.

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