In The Headlines
High Stakes Economic Poker in Africa
The 1990s stand out as a hugely pivotal time in the geopolitics surrounding Africa. With the Cold War over, the U.S. turned its attention away from the continent, largely defining its problems as humanitarian issues, which are traditionally the lowest station of foreign policy priorities. By contrast, in the 1990s, China’s leadership was beginning to understand that the good run the country had enjoyed since opening its economy to foreign investment in the 1980s could carry it only so far. To sustain growth, China had to find new international markets. In 1996 the Chinese committed to a policy known simply as Going Out, and selected Africa as a priority zone for expansion.
Many policy makers who have focused on China’s burgeoning ties with Africa have suggested the country’s strategy is mostly a play for natural resources. Africa’s resource wealth is certainly of great importance to China, a manufacturing superpower that is urbanizing and building infrastructure on an unprecedented scale. Unlike Western powers, however, China sees raw materials as only one of the three pillars of its Africa strategy. The second pillar involves using Africa as a springboard to help Chinese businesses emerge as global players. Over the past decade, Chinese companies have built large order books in Africa, where U.S. competitors are mostly not present. The Chinese calculate that the wealth they accumulate in Africa, and the lessons they learn, will serve them well as they push into bigger, richer, and tougher markets.
The third pillar of Beijing’s strategy is based on the population dynamics of Africa. Understanding that for the remainder of the century the bulk of global population growth will take place in Africa, China is making a long bet on the emergence of vibrant, high-consuming middle class sectors there. Although at a glance Africa still looks overwhelmingly poor, it has recently become the fastest-growing region of the world, and its share of global gross domestic product has increased to 4.1% from 3.4% percent in 2000. This is a trend that figures to accelerate. Africa already has a middle class larger than India’s, albeit a fragmented one. And as its economic emergence continues, it will benefit from new technologies that will allow it to leapfrog current communication and infrastructure hurdles.
Perhaps most important is Africa’s so-called demographic dividend, which over the next few decades will place most of the population in the most productive, youthful, and high consumption phase of life. Young people in Africa resemble less and less the peasant multitudes of the past. Instead, they are urban and highly globalized in terms of culture.
China’s dreams of Africa are not unlike the Western dreams of China over the past century, which consisted of a vision of selling a yard of cloth or a gadget or a bauble to every Chinese person. Chinese companies are gradually familiarizing consumers with Chinese products, from mattresses to mobile phones. The complacency in the U.S. corporate world about the continent leaves an open path for China to move up the value chain in African markets.
The Obama administration has pushed the generation of electricity as a priority aim in Africa. Over the past decade or so, China has been the main actor in terms of African infrastructure development, with its companies racking up huge profits constructing highways, ports, airports, and railway systems. The continent is as underserved in electrical power as it is in roads, and this is a sector in which the U.S. can make a huge difference in the years ahead. The Obama initiative, known as Power Africa, was announced in June 2012. It relies on a mixture of government and private financing and aims to double the African electricity supply, by adding 10,000 megawatts to production. A recent Senate bill proposes doubling that goal.
Another area where the U.S. can compete effectively and has a decisive competitive advantage is education. African investment in education, among the highest in the world in terms of percentage of GDP, can barely keep up with the heavy demand for learning. The thirst for education can be seen in United Nations data that show enrollment in secondary schools jumped 48% in sub-Saharan Africa from 2000 to 2008; higher-education rates meanwhile grew 80%. American schools are investing heavily in China and the Middle East, but their biggest potential markets and greatest potential impact are arguably in Africa, where the population is expected to nearly triple, to a projected 3 billion people. In the 21st century, that is where the students will be.
The Great Texas Wind Experiment
The winds of change are blowing through Texas. Home to both vast repositories of conventional and shale oil, the Lone Star State is also a major player in wind power, a new twist on the U.S. quest for energy independence. However improbable it might seem, the nation’s second largest state has served as ground zero for a quiet renewable energy revolution.
Texas has invested about $7 billion in a sprawling wind power network that spans nearly 4,000 miles. Wind power generates more than 12,000 megawatts (MW) of electricity for the state, according to the Texas Public Utilities Commission, The state ranks first in the country for total megawatts of wind power capacity. Earlier this year, the state broke a U.S. record for the most power generated from air power.
A combination of public subsidies, new federal carbon regulations and private investment has made Texas “…one of the fastest growing hubs in the world for wind energy,” said Matthew Senicola, registered representative of JHS Capital Advisors. “Texas has one of the largest electricity consumption rates in the U.S. mainly derived from their exploding energy and production sector,” he added.
In fact, wind plants have been a staple of the electric supply in Texas since at least 1995, a function of the state’s climate and the massive amounts of electricity it consumes. Overall, the wind energy sector has created more than 8,000 jobs nationwide, most of them in the Lone Star State, according to data from the American Wind Energy Association.
Traditionally, alternative energy projects have benefited mostly from generous public investment, including direct subsidies and tax incentives. However, sectors like solar energy have slowly attracted more private investment, which some say charts a potential path for wind power’s growth. Air-powered electricity remains a staple of oil and gas giant BP, as part of what the Wind Energy Association says is more than $23 billion invested in the state’s wind sector.
Although the energy company decided last year to divest most of its renewable properties, it still maintains wind power properties worth more than $1 billion, according to a BP spokesman. Of the 16 wind farms across the U.S. that produce about 2,600 MW of electricity, four BP assets are located in Texas. In addition, Google has staked a claim to two Texas wind farms, one that the technology behemoth expects to power 56,000 houses. In varying degrees, Walmart and Microsoft have also channeled resources into the emerging wind sector.
Analysts point out that the slow trickle of capital reflects the maturing of wind power, even as alternative energy still remains very reliant on public support. As a result, expansion in Texas of its wind capacity could be a major test of the industry’s ability to become self-sufficient, especially after T. Boone Pickens was forced to abandon a massive wind farm initiative in 2012. “The more mature and efficient newer technologies become, the more they tend to grow,” said JHS’s Senicola, even though alternative energy has had a bumpy ride of public and private support. “Texas wind build out can be viewed as a very large ‘wait and see’ experiment,” he said. “If it proves to be successful, I think the industry could really catch fire and the national build out rate will increase.”
Sources:
1. http://buswk.co/1ucSZJY – BusinessWeek
2. http://www.cnbc.com/id/101880518 – CNBC
The Good News Is . . .
• The U.S. economy rebounded this spring, growing at a 4% annual rate according to new government data. Robust consumer spending helped drive the expansion during the second quarter, while businesses rebuilt their inventories. U.S. exports spiked, helping to offset a jump in imports. State and local governments also increased their spending after cutting back during the first quarter. The government also revised its previous estimate of 2013 GDP growth from 1.9% to 2.2%.
• Exxon Mobil Corporation, the world’s largest oil and gas production, refining and marketing company, reported earnings of $2.05 per share, an increase of 32.2% over year-ago earnings of $1.55. The firm’s earnings topped the consensus estimate of analysts by $0.19. The company reported revenues of $111.6 billion, an increase of 4.7%. Management attributed the company’s results to strong operational performance and development of its portfolio of oil and gas assets.
• E.W. Scripps and Journal Communications, the publisher of The Milwaukee Journal Sentinel, announced that they planned to merge and then spin off their combined newspapers, leaving behind a company focused on broadcast television. The deal would create two publicly traded companies. One company, keeping the E.W. Scripps name, would be one of the biggest owners of TV stations affiliated with ABC, and maintaining a presence in eight states, including Colorado, Florida, Missouri and Ohio. The other company, to be named the Journal Media Group, would own newspapers in 14 markets, led by The Journal Sentinel. The merger is the latest move by media companies to focus on either television or print operations, with nearly all choosing to leave behind the slower-growing print business.
Sources:
1. http://wapo.st/1siEHai – Washington Post
2. http://www.cnbc.com/id/18080780/ – CNBC
3. http://exxonmobil.co/1pypaSW – Exxon Mobil Corp.
4. http://nyti.ms/1n6lnYA – NY Times Dealbook
Planning Tips
Tips for Calculating the Value of Your Home
Understanding what your home is worth can help you decide whether or not to sell, how to price your property, and whether your property is holding its value. Below are some tips to help you estimate the value of your home.
Understand the factors that affect value – There are essentially three types of factors that can affect the value of your home. The first type includes what are called inherent factors. These include: architecture, quality of construction, landscaping and special features (e.g., a pool). The second type of value factor covers direct environmental factors such as: neighborhood, schools, amenities (e.g., parks, libraries, and bike paths), transportation and zoning / planning considerations. Finally, the third type covers indirect environmental factors. These include: economic, demographic changes, recent disasters, and public perceptions of your neighborhood.
Go online to research prices – Today, there are a number of good online sites that you can use to get a sense of prices and sales in your neighborhood. Here are a few of the most popular:
- Zillow.com – Type in your address and Zillow will give you a “Zestimate” of the price your home would fetch. You can review and change the facts about your home to get a more accurate estimate. The site will also provide a Rent Zestimate if you want to see what kind of monthly rent you could get for your home.
- Trulia.com – In addition to the kind of price estimates Zillow provides, Trulia also shows you a “heat map” to give you a graphic picture of an area’s sales, price trends and popularity.
- Realtor.com – This is the official site of the National Association of Realtors. More than 900 Multiple Listing Services across the U.S. funnel home listings here. The site contains comprehensive information about mortgages, real estate trends, and related topics.
Perform a comparative analysis – Gather information on comparable sales from the past six months. Comparable sales are houses similar to yours that have roughly the same square footage and number of bedrooms and bathrooms, and are located in your neighborhood or a similar area. The easiest way to do this is to work with a real-estate agent who has access to sales information online. You can also browse real-estate ads or drive through your neighborhood and talk to anyone who’s sold their home recently. Select houses that sold in a reasonable amount of time, as these probably indicate homes that were priced appropriately. Select 3-5 comparable homes, total their sales prices, and divide by the number of homes to get an average sale price.
Consider your home’s price-to-rent value – The use of a price/rent ratio is analogous to employing a price/earnings (P/E) ratio for stocks. When a stock price is high, and its earnings per share relatively low, the P/E is high. A high P/E often indicates that the stock is too expensive, and the share price is headed for a drop.
What someone is willing to pay to rent a place becomes that home’s “earnings.” And, just as in the stock market, a high home price related to the rental earnings could mean the home is priced too high. For a specific look at how a home’s P/E is determined, let’s consider an example. A home in Chicago has been rented for the past three years for $1,600 per month. It is currently listed for sale at $400,000. Dividing the price by the total annual rent of $19,200 gives a “housing P/E” of 20.83. According to Moody’s Economy.com, the long-run average housing P/E is 16, so a P/E of 20.83 suggests that this home may be somewhat overpriced.
Talk to a realtor – You have gathered the necessary data to have a general idea of what your home is worth in today’s market. This is a rough estimate of the fair market value of your property. However, it is always a good idea to consult a local real estate professional before engaging in any kind of sales transaction.
Sources:
1. http://bit.ly/1kwDGf0 – Bankrate.com
2. http://usat.ly/UV6OjG – USA Today
3. http://on-msn.com/1p2XoyT – MSN Real Estate
4. http://bit.ly/1qIPGI4 – SFGate.com
5. http://bit.ly/1qTkwTh – WikiHow
6. http://bit.ly/1o2XUwC – Realtor.com
