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Emerging Markets Daily - Oct 1-2
EM 'Cryptoization' and Financial Stability, DP World Sees More Supply Chain Woes, China Power Shortfall Hits World, Duterte Announces Retirement, Mexico Energy
The Top 5 Stories Shaping Emerging Markets from Global Media - October 1-2
Emerging Market ‘Cryptoization’ Threatens Financial Stability: IMF
“The advent of digital currencies in emerging markets could spark ‘cryptoization’ of local economies, potentially undermining exchange and capital controls and upsetting financial stability, the International Monetary Fund said on Friday.”
“Bitcoin and its kin have in the last year soared in price and popularity, with emerging and developing market economies such as Vietnam, India and Pakistan seeing rapid growth in some measures of adoption, according to U.S. blockchain researcher Chainalysis.”
“Cryptocurrencies offer, in theory, a cheaper and quicker way of sending money across borders. Backers say digital tokens such as stablecoins could also help protect savings from high inflation or fluctuations in local currencies.”
“In September, El Salvador became the first country in the world to adopt bitcoin as legal tender, with backers tipping the experiment to lower costs for billions of dollars of remittances sent to the Central American nation.”
“The IMF said that unsound macroeconomic policies and inefficient payment systems are among the drivers of cryptocurrency adoption in emerging economies, along with the lure of quick gains that has also excited investors across the world.” Reuters reports.
DP World Sees No Short-Term Easing of Supply Chain Bottlenecks
“Dubai’s DP World, one of the biggest global port operators, expects supply chain bottlenecks that have rattled global trade flows to continue at least for another two years.”
“‘The global supply chain was in crisis in the beginning of the pandemic,’ Chairman and CEO Sultan Ahmed Bin Sulayem told Bloomberg TV in an interview at Dubai Expo 2020 on Friday. ‘Maybe in 2023 we’ll see an easing.’
“The effects of shortages and the accumulated delays is reflected in the skyrocketing costs of shipping goods, he said. ‘Freight rates will continue to increase and the shipping lines are having an amazing time.’”
“Global supply chains are struggling to keep pace with demand and overcome labor disruptions caused by Covid outbreaks. The world’s largest shipping line, A.P. Moller-Maersk, has also warned bottlenecks may last longer than expected, and some companies have pledged to cap spot rates.”
“DP World is one of the world’s largest operators of marine ports and inland cargo terminals, stretching from gateways in London and Antwerp to hubs in Africa, Russia, India and the Americas. It recently announced a string of deals as it attempts to become a more diversified, integrated logistics company.”
“Meanwhile, it continues to look for ways to cut debt. DP World is considering offering international investors a chance to buy into the Jebel Ali Free Zone, a prized asset that helped transform Dubai into a hub of global trade, people familiar with the matter have said.” Adveth Nair and Manus Cranny report.
China Power Shortfalls Ripple Across the World
Wall Street Journal
“China is struggling with widespread power shortfalls, dealing a blow to the recovery of the second-largest economy and risking disruption to global supply chains and heightened inflationary pressure around the world.”
“The power crunch, on a scale unseen in more than a decade, highlights how some of Beijing’s changing policy priorities, including its effort to limit carbon emissions, can ripple through a global economy that has been reshaped by the pandemic.”
“‘There’ll be a cascading effect,’ said Mike Beckham, Oklahoma-based co-founder and CEO of Simple Modern, which makes products such as insulated water bottles and backpacks, ‘As we started to comprehend the ramifications of what’s happening, we realized that this is potentially bigger than anything we’ve seen in our business careers.’”
“Last week, one of Mr. Beckham’s main suppliers, based in Quzhou city in eastern China, was told by the local government that it could only operate four days a week, instead of the usual six. In addition, it must adhere to a power-usage cap, which cuts the capacity of the factory by about one-third as a result.”
“Mr. Beckham anticipates U.S. retail prices for many products could increase by as much as 15% next spring, as appetite from retailers stays strong.” WSJ reports.
Duterte Announces Retirement from Politics, Paving Way for Daughter
“Philippine President Rodrigo Duterte said on Saturday he will no longer seek the vice presidency in next year's election and will retire from politics, a move that may clear the way for his daughter to run for president.”
“Duterte, who is constitutionally limited to a single six-year term as president, last month accepted his party's nomination for the country's second-highest office.”
"‘The overwhelming sentiment of the Filipinos is that I am not qualified, and it would be a violation of the constitution to circumvent the law,’ the 76-year-old Duterte said. ‘Today, I announce my retirement from politics.’ The remarks came shortly after Sen. Bong Go, Duterte's longtime aide, filed his candidacy for vice president.”
“The latest developments will fuel speculation that presidential daughter and Davao City Mayor Sara Duterte will move forward with a presidential bid, despite local media reports that she filed candidacy for a third term as Davao mayor on Saturday.” Cliff Venzon reports.
Mexico President Seeks Constitutional Change to Tighten Grip on Energy
“Mexico’s president Andrés Manuel López Obrador has unveiled plans to change the constitution to strengthen the state’s grip on the country’s energy market by eliminating independent regulators and nationalising future lithium exploration.”
“The constitutional bill sent to congress on Friday would guarantee 54 per cent of the power market to state electricity company CFE — compared with 38 per cent that the company says it holds currently — and would get rid of the independent National Hydrocarbons Commission (CNH) and the Energy Regulatory Commission (CRE).”
“The proposal is a sign that Mexico’s nationalist leader is redoubling efforts to strengthen state energy companies, keep natural resources in government hands and reverse a 2013 opening of the market to private investment.”
“…Energy analysts said the bill, if passed, would hamper more investment in the sector and increase reliance on dirtier power produced by CFE plants.” Christine Murray reports.
“Let us not pray to be sheltered from dangers but to be fearless when facing them.” - Rabindranath Tagore