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The Giants are awake

16 March 2006 Angelo Coppola

Sleep is for those who have nothing to do. This adage seems to apply to India, although China is slightly ahead in terms of investment attractiveness, India has a better demographic profile. And perhaps its time to pay a visit to at least one of these cou

But when all is said and done it is expected that the western countries will be used as the resource to take the two countries to the next level in their economic development stage.

In terms of how Africa fits in Africa is a treasure trove and both countries have woken up to this fact, says Michael Power, strategist at Investec Asset Managers.

Power says that the India stock market is not that attractive yet, for entry timing. Wait six to eight months unless you have a 10-year time line.

The local (SA) companies that see the two countries as attractive include the gold and diamond producers, luxury goods suppliers, energy suppliers, the beverage sector, and the media sector.

While on the business front several India brands are springing to life and showing an interest in South Africa. Tata is just one example, with the Taj hotel group looking at SA development, while he says that the pharmaceutical companies are bound to make an impact in the near future.

When comparing India to China, says Power, its either a sleeping tiger or leaping dragon, or perhaps two brothers that will compete for attention, to soar together.

The world is in fact very different, and its not only about China rising. He maintains that there is an arm wrestle between the two. Or it could be a question of the two together, rising very fast, as Bill Gates from Microsoft maintains.

The comparison begins with reform with India well ahead, while China wins with $62bn in FDI, more than the USA is getting. Although $10bn of FDI went to India, following good performance in the second half of last year.

As an investor, China is loosing, with India up hugely, if we use the turn of the century as the benchmark.

An interesting point or two

In terms of the population density, India is centred on the Ganges. Laundry in Bombay is a spectacularly efficient system. Shangai on the other hand is all about modern technology.

Indias rate of growth is hotting up, and the 8% growth rate is evidence of this. There is also a move away from the farm to the services sector, although there are still 75% of the population or 700 m people are still employed on the land.

It appears that intellectual capital is the strength of the country (India), while productivity is surging, with bank loans also rising dramatically. The muster points for modern India are the IT campuses that are springing up in the South, around Delhi.

Business Process Outsourcing (BPO) is the new growth industry and its booming, says Power. Indian students are training in the USA to the extent that Indian students come second, only to Mexico in terms total remittances from the USA, although a far greater proportion of Indians return to the motherland, after an average of five years. There is also no male female divide, and both work equally hard.

In terms of literacy there is a huge drive to increase the rate. Added to which the geological treasure is astounding, with an abundance of Iron ore, Lead, Zinc.

India's Hong Kong?

There is also a drive to stay and get connected to the rest of the world. Singapore is becoming an increasingly important part of India, with a large contingent of Indians. Interestingly enough Mauritius is one of the biggest single investors into India.

In terms of China they do exist and they are competing. Power reckons that there could even be an unofficial agreement between the two with manufacturing going to China and services going to India. Unfortunately neither can survive on either chosen route. As it turns out, China is the biggest importer of technology and telecoms.

That was then, and Power says that the truce is over and its time to develop the weaker areas. India has a better service culture at the moment.

DHL learns some lessons

On the service level front the entire DHL management were taken to India and learnt some lessons in service delivery, as more than 4m meals are delivered daily, with a less than 0.1% error rate.

In terms of infrastructure, China is well ahead however, with roads and power capacity are just two examples. Power mentioned that India was catching up.

Turning to the issue of power supply China build enough power supply infrastructure last year to power the UK. They plan to build the same capacity again in 2006. India still has some issues however, with the withdrawal of failed US business Enron.

India comes out on top in terms of the banking system, which is Chinas Achilles heel. While return on capital is better in India, than in China.

Speaking of return on capital most sectors have been deregulated, including the banking sector. We know of at least one bank that whose share capital is 74% by foreigners.

Interestingly enough the retail sector is tightly regulated. Why? Simple there are over 5m mom and pop stores scattered around the country and these enterprises are a major employment creator.

It also appears that in terms of India the labour costs are better and lower than China. In Shanghai you have to work for 27 minutes while in Mumbai you would have to work for 104 minutes.

Watch that cycle

In terms of resources, Power says that there could be a 20 year bull run ahead if predictions are accurate that China is only 2/3 into their cycle, with India just five years behind the cycle.

On the demographic front, it appears that China has the fastest aging population, with Indias age profile showing the 15 year age group to be the fastest growing, and by 2050 India will be the worlds most populous country, overtaking China.

Quick Polls

QUESTION

Do you believe this is the toughest period for financial advice in many years?

ANSWER

Yes, it’s hard to navigate the challenges and difficult to adapt. I’m struggling.
No, I have managed to navigate the challenges and have adapted. I’m good.
50/50. I just feel like whether we like it or not, we have to ready ourselves for change… be resilient and scale for the future. It’s not about survival of the fittest anymore but survival of the quickest. We just have to move on with life.
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