Apparently my skepticism about Mexico’s growth outlook is not widely shared among international investors. I learned this morning that Mexico has sold 100 year bonds denominated in euros! That is some serious optimism, both about Mexico and the Euro.
So let’s get this straight. Mexico, a country with a long history of default, issues 100 year bonds in a currency whose very survival is questionable. Hmm, what could possibly go wrong? Do investors study history at all?
The article goes on to note that these are not the only centennial bonds that Mexico has raised recently:
“Over the past five years they have extended the equivalent of more than $5 billion of 100-year bonds to Mexico in three currencies: dollars, sterling and now euros. It is the only country to have tapped the so-called centennial market since China and the Philippines in the 1990s, and it has done so at relatively low yields—of 6.1% on its dollar bond in 2010 and just 4.2% on its euro bond last month.”
One optimistic investor argues that Mexico “is one of the few countries that has been fixing the roof while the sun shines.” A leading Mexico City economist, Gerardo Esquivel, has a decidedly less optimistic take on the situation, likening recent reforms to “putting a bright coat of paint on the exterior of the house, while the inside is rotting away.” I was cautiously optimistic at the start of EPN’s term, but I’m leaning much more towards Gerardo’s view at this point.
Mark Rosenzweig and Chris Udry have an interesting new NBER working paper called “Forecasting Profitability.” As a side note, the title really needs work though in terms of catchiness–the current one sure doesn’t hook potential readers. If it wasn’t for Marc Bellemare, I would have passed the paper right up.
So..what makes this paper interesting is it studies whether rainfall forecasting ability affects Indian farmers decision to invest. According to their calculations, uncertainty causes “Indian farmers to under-invest by a factor of 3 compared to optimal investment levels.” Some of this uncertainty is reduced when the farmers can rely on good weather forecasters. Now forecasting is not equally precise in all parts of the country and farmers know this. When forecasters are good, farmers pay more attention and are more likely to respond by increasing investment.
Howard French, once a New York Times journalist and now an associate professor at Columbia has a great new post on AfricaPlus called “The China-Africa Convergence: Can America Catch Up?” He wrote one of my favorite books on Africa a couple of years ago called A Continent for the Taking: The Tragedy and Hope of Africa. I’d highly recommend it for anyone interested in development.
He has been working more on China (and the China-Africa connection) these days and has a new book coming out in 2014 called “China’s Second Continent: How a Million Migrants Are Building a New Empire in Africa.” He makes some great points in the blog post on the issue of Chinese versus American attitudes about Africa. He writes:
“More than a million Chinese have moved to Africa in the last decade, largely because they see the continent as an arena of almost limitless opportunity. This holds true from big company executives to mom and pop entrepreneurs from China’s inland, second tier cities. Americans, meanwhile, despite their far deeper historical associations with the continent, including 13% of the population that traces its ancestry to Africa, cling to deeply engrained attitudes toward this part of the world, as a place of war, of misery, of strife, etc. For this reason, and because we cannot get over a long-running sense of Africa as a place to be aided, we are ill equipped to see or appreciate the opportunities that Africa offers.”
He goes on to note that American embassies across Africa are shutting down their “commercial sections, which historically have researched African economies and provided helpful information and contacts to American businesses looking for opportunities.”
He makes a good argument that the US needs an attitude adjustment about Africa and I couldn’t agree more.