Emerging Markets Infrastructure Project Investment: Issues and Opportunities

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Global investment in real estate and infrastructure projects are on the rise. Preqin’s 2018 Infrastructure Fund Manager Outlook notes that institutional investors have heavily invested in the infrastructure asset class for solid diversification and stable returns. Indeed, the report ascertains aggregate asset under management (AUM) quadrupled from US$99bn to US$418bn over the past decade. The industry is expected to increase exponentially over the next decade. Globally, North America and Europe present the most viable of real estate and infrastructure opportunities. However, a bundle of emerging markets economies follow a close third. Global emerging markets infrastructure investments are currently fueled by Asia Pacific’s growth as opposed to other developing regions. Total deal value for the Asia Pacific amounted to roughly US$50bn over the past five years, with more dry powder allocated to projects within Asia.

Feasible emerging market infrastructure projects usually have a Public Private Partnership (PPP) structure, especially for risk mitigation. As we had examined in US Infrastructure: A Case for Public Private Partnerships, PPPs are beneficial as the private entity internalizes life-cycle costs during the majority building phase of new projects, while the project is listed as public investments on the government balance sheet. Purely public sector projects tend to be inefficient, and have full political risk, while purely private projects may have higher returns, but would not have the accountability of check and balance which sovereign involvement brings. Even so, there are many challenges which investors, financiers, and infrastructure fund managers must take into consideration primarily for emerging markets.

Challenges Faced:

The Macquarie Group is one of the global leaders in asset management with US$356bn AUM, and is considered to be the top global infrastructure finance advisor as at 2017. The Group has dispensed significant pain points and mitigating factors with regards to project investment in emerging markets. Most issues stem from long standing bureaucracy, lack of transparency, corruption, geopolitical and cross border risks. Highlights are follows:

Bid and Post-Bid Processes:

In short, red tape from every conceivable side of the project is challenging at best. Emerging markets tend to have delays in bid preparation, unclear bid guidelines, erratic time to submit request for proposals, and restrictive bid processes which place heavy tariffs on the build-operators of the project. In addition, project ‘hand-holding’ requires higher cost of bid bonds and of additional advisors, planners, quantity surveyors and numerous government officers. In addition, deciding on the best commercial funding structure for the PPP would most likely not be as clear or timely as with developed country projects. For instance, financing default from the private side of the PPP may lead to immediate freezing of project assets, as opposed to debt coverage negotiation.

Terms of Concession Agreements:

Land Acquisition is one of the most troublesome components of the project process in emerging markets. The land surveying, land release, ground approvals and resource rights processes, especially in real estate type transactions, take an inordinate amount of time. The best PPP investment projects that may circumvent this onerous component would be public works and transport type projects, where the government already has clear ownership of the sites in question, with full government use of site resources. Also, there is a huge communication gap in terms of the types of environmental and regulatory requirements needed for all emerging markets projects. As the Macquarie Group states, most delays in their infrastructure portfolio stems from having to backtrack and fulfill regulations that were not mentioned from pre-bid inception onwards.

FOREX Challenges:

Forex issues come in second only to land acquisition challenges in emerging market PPP project fulfillment. This is by no means theoretical as I am currently battling this challenge. In many parts of LATAM & the Caribbean multi-million infrastructure developments are offered a mere US$200.00 a day by Central Banks due to paucity in supply and treasury mismanagement. From an investment perspective, Forex volatility for projects denominated in local currencies may create lower yields due to cross border risks, and hedging for many emerging markets currencies is not available.

Macroeconomic Inefficiencies:

In addition to the Macquarie Group’s points supported above, project developers and financiers know that labor supply, labor quality, labor laws, as well as tariffs on materials, material supplies and weather factors are extremely dictating of successful project fulfillment. Most emerging markets may seem to have a dearth of labor supply. However, educated construction labor may be hard to find, and to keep. Many viable emerging market infrastructure projects that have been fully funded have stalled indefinitely due to a lack of both construction and management labor. Unfortunately with PPPs government policy would require local labor to be sourced, creating a chicken and egg situation.

Solutions Presented:

Emerging market project development, financing and investment fit in with high risk, high reward appetite. Yet as we mentioned before prudent infrastructure investments give solid returns and add practical diversification to portfolios. Therefore emerging markets project financing and investments are not to be avoided, but to be mitigated. Successful project investment takes a great deal of sovereign and macroeconomic research, whether per project or via an infrastructure fund. The Macquarie Group pinpoints several requirements needed for investor comfort when it comes to infrastructure investing, and especially for emerging market conditions.

  1. Stable Political Environment:

    Note that a stable political environment will not mitigate red tape. However, mitigated political risk allows PPP projects to be safeguarded against event risks such as coups, and freezing of foreign investments.

  2. Stable Economy with Growth Potential:

    Overall a stable economy with high credit rating gives comfort of low default risk. However, it is necessary to delve further into macroeconomic variables such as labor and capital intensive predilections. Does the country have stringent union interests? Does the country’s labor have the educative capacity to cost effectively get PPP projects done? Are there punitive tariffs on capital intensive projects? It is necessary to ensure the emerging market country accounted for PPP infrastructure projects in its annual budget, broken down by sectors such as transport, seaports, utilities etc.

  3. Open and Transparent and PPP Bid Process:

    Is the country’s public procurement and bid processes in line with international standards and policy frameworks? What is the track record of successful PPP projects in terms of pre-bid to completion timeline? It is necessary to be in close contact with the country’s department of public works, transport and infrastructure to get a detailed log of such a track record before investing in any project, or in any fund.

  4. Stable Financial Market:

    This one is tricky for actual returns, especially as most emerging market projects are structured in local currencies. If investing in an infrastructure fund, the risk is mitigated. If there is direct investment in the PPP project, the risk is heightened, no matter how stable the financial market is. And don’t be fooled by oil-based emerging market countries. One would believe that such countries would have strong cross border Forex capabilities. However, if the projects are non-energy infrastructure, FX paucity and volatility can still be an issue. It’s necessary to examine the country’s central bank and its monetary policy beforehand.

Sources:

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The Case for a Free World: Central Banks vs Cryptocurrencies

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Most anyone with some access to media of any description, has now heard of Bitcoin. Many are also excited about the possibilities and opportunity in this now booming market. And then there are those who are involved in this ‘cryptocurrency revolution’ in a more intimate manner; and we often evaluate the blockchain world of tomorrow.

How will blockchain technology be utilized in different market sectors? What are its immediate and long-term potentials? What are the legal and societal impacts? And sometimes; How can I get rich from this? This article is not going to address these somewhat weighty topics.

Instead, this post will shed light on a dark situation, that affects every single one of us, yet very few address: The Federal Reserve’s ownership of this country (and others), and how cryptocurrencies can set us free.

In this post I will argue that a move away from debt-based fiat currency, to a decentralized community owned peer to peer smart contract currency, will unhinge the central banking system that we are all forced to endure.

What is this Federal Reserve and what is this central banking system you may ask; and why do we have to endure it? It may alarm most to hear of this public record fact: the largest banks in the world – including The Federal Reserve, The Bank of England, European Central Bank, up to the International Bank of Settlements (the pinnacle of the system) – are all privately owned. That’s right. Our country’s banks are owned by private citizens.

Our banks are not owned by governments or the populace, nor controlled by the people or governments. This is not speculation, nor theory, it is what it is. The sovereign right of the peoples of nations to mint and control their accepted currency, has been taken away by a few families. Who now own the very right to this fiction of money – that we must work, profit, borrow, spend, cheat, lie, fight over, etc. Yet these families can make it up, literally, from thin air with but a few keyboard strokes.

Want a trillion dollars United States? Sure: at interest, at debt. If you need some more monies tapped into an account to pay back these awesome monies we just invented for you, do come back and we will make you some more. Again, at debt. So where do these monies to pay back this initial interest and debt come from? From the same entity. When all money comes from the same entity, and at interest, there is no way to ever pay it back; the only option is to accumulate debt. Thus, bankruptcy and never-ending debt is built into the system: $21 Trillion of debt and growing, that is.

How did this happen? Shouldn’t the peoples of all nations have the right to mint their own ‘coin of the realm’ and not have a few families punch numbers into a computer at interest? Quite simply, it came about via a multi-generational effort of bribes, corruption, funding both sides in wars, and instilling this central banking system by default upon humanity.

Here is an example: War Machine to the somewhat mildly discontent populace of Erghmanistan:

“Congratulations! We’re bringing you ‘democracy’ by force – oh wait, we mean the wonders of central banking – hey they’ll lend you enough, newly installed government of Erghmanistan – enough to re-start after we invaded/liberated, until you go broke to the interest on this newly invented ‘money’ we provide- then we own the whole show- and in the meantime some of you can stuff your pockets while your country goes to the banksters.”

People were writing about this 100 years ago and more – about the same family owners of the fiction of money that dominate us now. Why has this continued? Well, the Golden Rule helps (i.e he who has the gold makes the rules), combined with social engineering better discussed by Noam Chomsky than myself. But the truth is out there, always has been; it is not discussed as it should be. And if the media, many outlets owned/partiality owned by these same families, continues to chase Kim Kardashian’s new handbag and LeBron James’s sprained ankle, we are never going to hear this ‘inconvenient truth’.

Solution: cryptocurrencies and decentralized systems

We need to be clear about these inconvenient facts:

Fact 1: Fiat money is only ever created at interest/debt, by the private central banks, and by private credit institutions through the wonder of fractional reserve banking: the so-called culprit in the latest GFC.

Fact 2: Fiat money is only worth anything more than paper or binary 1’s and 0’s because we agree upon it, as a society.

Fact 3: There can never be enough fiat money to pay back this debt, as it is only ever created at interest.

Fact 4: In this equation fiat money equals debt, and debt equals slavery.

So how does decentralized cryptocurrency factor into this equation? It does not. Until the banksters wrestle control of large quantities of cryptocurrency, and manipulate the markets, the most they can do is fear-monger and regulate, using the Golden Rule. They use their puppet governments to ratify legislation designed to curb the public uptake of cryptocurrencies, and utilize the media, which they largely control, to push markets up and down, to create the perceived need of strong regulation on this decentralized agreement.

We are supposedly free individuals who are happy to give their all to succeed; yet are working within a fiscal system not of our devise nor control: a system where a large portion of our earnings goes to pay an ongoing odious debt. So what options do we have as a populace?

Cryptocurrencies are a form of rebellion. It is challenging the power of these families and the very fiction of money that they own. Cryptocurrencies are rebutting the system of centralized control of all trade, and providing a decentralized means of trade, outside these banksters’ control.

Also, I have long been a fan of time-banking: a means by which individuals, even corporations can trade goods and services, without fiat currency. They can bank the time/credits they accumulate and use them to purchase goods and services from any other provider involved in the network. Now, with the advent of cryptocurrency we will see time-banking and crypto evolve into one. We will no longer have the need to borrow money at debt, from these families who can make it up out of thin air.

My family and company (Wide Awake Media) are proud to be at the forefront of this revolution; for with media lies the power to alter the discourse of humanity. Fake News is done. It’s time for Truth Media, and it’s time for rebellion.

The world is waking up in droves, and we aren’t happy being slaves.

Sources:

  • “Economic Warfare: Secrets of Wealth Creation in the Age of Welfare Politics,” Abdelnour 2012, Wiley & Sons
  • ‘The Money Masters’
  • ‘The Secret of Oz’ -William Still
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Why Keep the Mortgage Interest Deduction Intact for Now

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Arguments over the mortgage interest deduction are not new and arise from both sides of the political spectrum. It’s important to remember that when Congress first imposed a federal income tax, they made all interest payments deductible. At the same time, the Tax Foundation contended that Congress wasn’t thinking about middle-class homeowners in the early part of the 19th Century. They excluded the first $3,000 for individuals and $4,000 for married couples, so only about one percent of the population of the country paid federal income taxes back then.

In those days, Congress may have considered business or farm interest but probably not typical home mortgages. As time passed, notions about interest deductions and exactly who would be impacted have obviously evolved. Today, the home interest deduction and the related property tax deduction remain as the two sacred cows in the tax code. It’s fair to say that they remained intact after other interest-related deductions had been gutted because lawmakers believe that they provided incentives for homeownership, and because homeownership was something that Congress hoped to encourage.

Why Keep the Home Mortgage Deduction Intact?

First, the latest tax code proposal doesn’t ask to completely do away with these two deductions, so it’s important to look at the latest bill to learn exactly what it does do.

This is a brief summary of the changes for home mortgage deductions:

  • You cannot deduct interest on a second home but only a primary residence.
  • You can still deduct home interest on any loan or part of a loan up to $500,000.
  • It’s worth noting that the related deduction for home property taxes would be capped at $10,000.

Arguments in favor of these changes usually underscore the additional revenues that the government can collect by eliminating these home deductions. Since the proposed changes aren’t eliminating all home deductions, it’s also easy to argue that they won’t impact the majority of Americans who only have one home, don’t have a mortgage over half a million dollars, or who pay more than $10,000 for property taxes each year.

How Could Changes to Housing Deductions Impact the American Economy?

A lot of Americans may not think that this sort of change to the tax code will impact them that much. Such expensive homes are rare in most counties and probably don’t represent more than four percent of all American homes. It would be possible to apply a similar argument to the property tax deduction. Lots of homeowners don’t pay $10,000 in property taxes every year, and many of those don’t even pay enough to allow them to itemize deductions.

However, the CBS report pointed out a couple of impacts that the news of the tax code has already had on the U.S. economy:

  • Home builder stocks: For example, the SPDR fund dropped by over five percent on the news reports. Even home-improvement retail chains like Home Depot and Lowes lost value.
  • Vacation homes: An analyst for Cowen named Jaret Spielberg said that his firm found the news negative for the market of vacation and second homes. Obviously, the tax code will also impact more homeowners in pricier markets. For instance, home prices average around $276,000 in Austin, Texas but over $1 million in San Francisco. This change may impose an additional burden on people who already struggle to afford housing in more expensive cities. Even if the old deductions get grandfathered in, the change is still likely to impact future home sales, and thereby the availability of different financing options. This, in turn, may affect the ability of these expensive housing markets to attract new people.

Also, the tax proposal included an increased standard deduction. It’s not accurate to only view the way these changes will impact future home buying decisions at the top end. More people with modest homes in areas that don’t have such high property taxes may also find that homeownership doesn’t give them the tax benefit that it used to.

In any case, the National Association of Realtors felt strongly enough about the impact of these changes on the real estate market to speak out. Because it can eliminate the tax incentive of purchasing a home for many taxpayers, they believe it will weaken the real estate market and result in higher taxes for many Americans. According to NAR’s president, William E. Brown, the changes would result in a “one-two punch” that would end up reducing America’s homeownership rate, which has certainly never been a goal stated by the political platform of either party.

A key resolution to consider…. If the intent is to make America greater than ever.

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