Archive for September, 2010

The Shifting Fortunes of the World’s Most Competitive Economies

The World Economic Forum — the organization that sponsors the annual conference of the global uber elite at Davos each year — just issued the latest edition of its annual Global Competitiveness Report. Much like U.S. News & World Report does for its annual college rankings, the study ranks countries based on a range of criteria. In this case, the criteria include macroeconomic policies; the strength of public and private institutions; the quality of education and infrastructure; and the efficiency of markets for goods, labor and capital.

The World’s Most Competitive Economies: Today’s Top Ten

And much like U.S. News‘ annual college rankings, the report always causes a bit of a stir. This year, much was made about the fact that the United States fell two places to #4. It turns out that the lack of macroeconomic stability, budget deficits, and weak public faith in the political leadership all weighed on the U.S. ranking. Those with a political bent were quick to point out that for as much as the Bush administration tarnished the image of the United States abroad, outside observers still consistently ranked the U.S. economy as the most competitive in the world. Others point to the irony that even as the U.S. government now is paying many federal workers more than Wall Street pays Ivy League law school graduates to toil 16 hours a day, Fidel Castro is firing a huge chunk of Cuba’s government workers and cutting their salaries.

But when the dust settles, the top 10 most competitive economies pretty much stay the same year after year. Compared with 2009, there were no newcomers in the World Economic Forum’s top 10. Switzerland topped the World Economic Forum’s ranking, with Sweden #2, and Singapore rising to #3. As always, the Nordic countries did well with Sweden, Finland and Denmark among the top 10. A rival ranking — the 2010 World Competitiveness Yearbook by Switzerland’s IMD business school — came out with a very similar top 10 list in May. That list had Singapore ranked as the world’s most competitive economy, toppling the United States from its number one position for the first time in 16 years.

The World’s Most Competitive Economies: What Has Changed in Ten Years?

Year-to-year fluctuations in competitiveness rankings can be dismissed as noise — especially as rankers often tinker with criteria annually just to shake things up a bit. But looking at changes over time are revealing. To this end, I compared rankings of the World Economic Forum’s 2010 data with the rankings from 2001 — the latest data readily available on its website.

Little Change in the Top Ten

Much like college rankings, the top ten most competitive economies in the world have remained largely unchanged — though there has been some shuffling in the ranks. The United Kingdom and Australia both have fallen out of the top ten and were  replaced by (perhaps surprisingly) Japan and Canada. Singapore moved up from #10 to #3. The United States dropped from #2 in 2001 to #4 in 2010. Switzerland rose from #5 to #1. Finland dropped from #1 to #7.

For all the handwringing about tectonic shifts among the competitive ranks of the world’s leading economies, the past decade has shown more evidence that, as far as the top ten economies are concerned, “the more things change, the more things stay the same.” But there were important shifts in the rankings over the past decade looking farther down the table — some of which are at stark odds with conventional wisdom.

BRICs Overrated…

The trend among the highly touted BRIC economiesBrazil, Russia, India and China — was distinctly negative. All of the BRIC economies, except for China, fell in the rankings — and often by a substantial number. While China rose from #47 to #27, India fell from #36 to #51. Current BRIC darling Brazil plummeted from #30 to #58. Russia fell slightly from #58 to #63. The irony is that the stock markets’ returns over the same period were just about the reverse, with Brazil and Russia making the most money for investors.

Asia Rising…

The trends in the competitiveness rankings confirmed the rise of Asia over the past decade.

Just look at the highly touted Asian Tigers. Singapore rose from #10 to #3. Rival city-state Hong Kong went from #18 to #11. Taiwan rose from #23 to #13. South Korea also rose from #28 to #23. Starting from almost nothing 50 years ago, these economies have taken rightful places as some of the world’s most competitive economies.

Asia’s continuing strength also showed itself in Japan’s surprising rise from #15 to #6. Indonesia, the “new BRIC,” actually outranked all but one of the original BRICs — rising from #55 to #44. The “Fifth Asian Tiger,” Malaysia, also rose from #37 to #26.

Europe Dying…

If Asia’s relative rise over the last decade is as clear as day, so was the continued relative decline in the competitiveness of both Western and Eastern Europe. The sole exception is export powerhouse Germany which remained steady — ranking at #4 or #5. But after 13 years of a Labor government, the United Kingdom fell from #7 to #12. France dropped from #12 to #15. Europe’s PIGS fared the worst. Portugal dropped from #30 to #46. Italy plummeted from #24 to #48. Spain was close behind, dropping from #23 to #42. Greece plunged an eye-popping 40 places from #43 to #83.

The former Communist nations of Eastern Europe also fared poorly. While Poland and the Czech Republic stayed basically steady at around #39 and #35, respectively, Hungary’s drop was a PIGS-like #26 to #52. Slovakia also dropped from #39 to #60, its progressive foreign investment laws and flat tax laws notwithstanding.

Latin America Disappointing…

Nor can fans of Brazil and Latin America derive much good news from this comparison over the past decade. As I noted, Brazil dropped from #30 to #58 — an astonishing fall that rivals that of the worst of Europe’s PIGS. Latin America’s second-biggest economy, Mexico, did slightly better, at least in relative terms, falling from #51 to only #66. Crisis-ridden Argentina tumbled from a lousy #53 to an absolutely miserable #87. Among the major Latin American economies, only free-market maven Chile was able to maintain its position over the past decade, at around a ranking of #30.

The Rest of the World Mixed…

Finally, here’s a quick word about two other areas mostly off the radar screens of U.S investors — Africa and the Arab countries. The largest African economies, South Africa and Nigeria, plummeted in the rankings over the past decade. South Africa fell from a respectable #25 to an Eastern Europe-like #54. For all the talk of Sub-saharan Africa’s improving prospects, Nigeria’s ranking fell off a cliff from #67 to #127.

The top-ranking Arab countries — Qatar, Saudi Arabia and the United Arab Emirates — all made it into the world’s top 25 in 2010, with rankings of #17, #21 and #25, respectively.

How much progress have these Arab countries made during the past decade?

Quite a lot, it seems. The World Economic Forum did not even bother including them in its 2001 study.

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Europe’s Booming Southwest: Time to Invest?

Europe’s Booming Southwest: Time to Invest?

This past week I have been travelling along the “new” Southern Coast of Europe — the Algarve in Portugal and Spain’s Costa del Sol. As I write this, I have a terrific view of the Rock of Gibraltar — symbol of one of the last vestiges of the British Empire, where it still takes Great British pounds to buy yourself a pint of beer. Although most visitors come here for the climate, which is just about identical to that of Southern California, I came here less for the sunshine than to look at opportunities in the collapsed real estate market.

Europe’s Booming Southwest: A Remarkable Transformation

This southern fringe of Europe has undergone one of the most impressive transformations in Europe, since, well… the reconstruction of Germany, France and the rest of continental Europe, after the Second World War. Much like Florida, Nevada and Arizona in the United States, this formerly undeveloped section of Europe has attracted massive amounts of investment in real estate and infrastructure during the last 30 years. While James Bond was cavorting in the South of France and Monte Carlo, a revolution was taking place down the coast.

Much like Las Vegas, Phoenix and Orlando — cities that were barely on the map in the United States in the 1970s and 1980s — cities like Faro (Portugal), Sevilla, Marbella and Mallaga have emerged as hot spots for Europe’s own version of snow birds — retiring Brits who are fed up with the high cost of living and lousy weather in Birmingham, Manchester and even London. As in, say, Boca Raton, Fla., close to one out of seven residents on Spain’s Costa Del Sol are from elsewhere — mostly Brits and Germans, with a surprising dash of Romanians and Bulgarians.

As you drive along the coast, the quality of the infrastructure  strikes you first. Unlike the crumbling roads and bridges of the D.C.-Boston corridor in the United States, highways and ports are new and shiny. Before I came, I didn’t know what to expect. But I did not have that increasingly bizarre experience of driving from JFK Airport to New York City and seeing the run-down, shabby housing and decaying bridges that have many visitors gasping: “My God, this is a third world country.” To be fair, I don’t get that feeling in the newer parts of the United States when I travel to Las Vegas, Orlando or Atlanta. But what I have seen here far exceeds what I had expected from Spain — a country that was still a dictatorship when Gerald Ford was president.

Virtually every town I saw in Portugal has its own shiny, new municipal stadium — and even skateboarding and BMX bike-riding parks. The Portuguese beach town of Albufeira has all this — and even escalators taking guests up and down from the beach. These are serious luxuries for a municipality of only 35,000. The town of Vilamoura reminds me more of Wailea, Maui’s five-star resorts and golf courses than an old Portuguese fishing village. It shocked me to able to log on to a free Wi-Fi connection at a brand new bus station in the remotest of locations. I can’t imagine that’s the case, say, in Akron, Ohio.

My hotel in Sevilla, Spain, boasted not only a free Wi-Fi connection, but a free laptop. The room was as nice as the one that I stayed in at the Las Vegas Vdara in May. And while the partying USC and UCLA grads in Newport Beach, Calif., like to boast that Orange County’s boats, women, cars, climate and shopping are the best place in the world for singles, I think the inhabitants of Puerto Banus, in Marbella, Spain, can give the Orange County crowd more than a run for its money — on all four counts.

Europe’s Booming Southwest: Illusion or Reality?

The irony, of course, is that both Portugal and Spain are charter members of Europe’s PIGS, the group of profligate countries that collectively stand on the precipice of debt-fueled economic collapse. And with Spain’s stock market among the worst performers in the world this year, something clearly does not add up.

Much like the skyscrapers that dot the cityscapes of Chinese cities that few outside of China have ever even heard of — and the six-lane highways that lead to them — new and shiny infrastructure is impressive on its face. Yet it also can blind you to the long-term consequences. As any economist from the Austrian School of Economics will tell you, much of the investment during a boom period is misguided. The least impressive things I saw in Spain were the pavilions from Seville’s 1992 World Expo. Despite providing a home to a handful of high-tech companies, the expo site has the feel of a 1960s U.S. urban renewal project on steroids — too many weeds poking out of too many graffiti-infested concrete walls. Beijing’s iconic “Bird’s Nest” Olympic stadium is already headed down that route. I wonder if the same fate awaits the site of the Expo 2010 in Shanghai.

In many ways, Europe’s Southern coast is like the successful Southern California mortgage broker with the Porsche and the McMansion. It’s all very glitzy and glam while it lasts. But once the real estate bust hit, it was a short route from the McMansion to McDonald’s. Overnight, the boring “millionaire-next-door” types in the Midwest — or in Europe’s case, the Germans — are looking a lot smarter.

Europe’s Booming Southwest: In the Long Run…?

The most street-smart entrepreneur I know dismisses real estate and debt collapses as ultimately irrelevant. After all, he reasons, it’s not like the bridges, buildings and parks are going to disappear once they’re built. True. But those who look at these projects purely as investments take a different view. Last week, I was walking along London’s toniest neighborhood with a top hedge fund manager who made his fortune from the subprime collapse. When I pointed to the apartment that an Arab sheikh had just purchased for a reported $140 million at One Hyde Park in London, his instinctive reaction was, “I wish there was a way I could short it!”

As for real estate? I’m holding off for now. Between the excess supply of housing, and prospects for a weaker euro, this is not the time to buy for a U.S.-dollar investor. That said, I am coming away with an appreciation that — debt-fueled or not — new things can happen on the Old Continent. Europe has come a long way from Chevy Chase’s 1985 movie “European Vacation.”

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