Globalization Requires Skepticism

Along with telling children to be kind to others, part of raising kids involves cautioning them to avoid being lured into a van to see or search for a puppy and to avoid being touched in areas covered by their swimsuits. James Bond's dictum to trust no one is a bit too much, but healthy skepticism about ulterior motives is a useful life lesson. If playmates tap them on their left shoulders, while others on the right steal their bags of chips, they get the message.

     Even adults can be duped. Wisconsin's Republican Governor, Scott Walker, and President Trump received splashy news coverage, when they announced the Chinese Foxconn company would bring new jobs to Wisconsin. The State soon learned its taxpayers were expected to contribute $3 billion to the project. The amount grew to a little over $4 billion which required borrowing from the State's transportation budget to build new roads to the plant. Foxconn's environmental plans and ideas about water usage from Lake Michigan required negotiation. The promised 1300 jobs were reduced to an initial 300, and, since the plant site is on the border with Illinois, there was no guarantee that all these jobs would go to employees from Wisconsin.

     The Foxconn deal began looking like an albatross Democrats could hang around Governor Walker's neck. So, the Chinese offered to bring more jobs to Wisconsin to help bail the Governor out from the unfulfilled promise he made to bring 250,000 jobs to Wisconsin during his first campaign in 2010. Foxconn announced additional innovation centers were in the works for Wisconsin in Milwaukee, Green Bay, and Eau Claire. According to Foxconn, these job-creating centers are designed to inspire local companies and entrepreneurs to create new solutions.

     Here's where skepticism comes in. Why would China seem eager to help a Republican Governor in a fly-over State not uppermost in many minds? The innovation centers and investments China already has in Silicon Valley provide some clues. With the U.S. preoccupied with Russian interference, Chinese tech companies associated with Beijing's government have been taking advantage of opportunities to pour venture capital billions into U.S. startups in fields, such as virtual reality, AI, financial software, cyber security, quantum computing, robotics, 3D printing, and biotechnology. Since the U.S. military does not purchase technologies from startups with foreign investors, Chinese investments can not only buy up technological advances from Wisconsin's startups, but they also prevent these innovations from improving U.S. defenses.

     Delayed skepticism about the technological advantages the Chinese government can gain from U.S. startup innovations and increased concern about the national security implications involved caused Congress to pass the Foreign Investment Risk Review Modernization Act (FIREMA) to enhance the oversight provided by the Committee on Foreign Investment in the United States.
Already, China is thinking about how to get around the crack down by making a move to Canada a condition for a venture capital investment or by hiring a team of employees from an innovative startup, the way the Chinese online giant, Alibaba, does this in China.
     

Never Too Young to Invest in the Future

Small and large scale investments offer money-making opportunities throughout the world. Check out $25 gift-giving ideas for kiva and other organizations at the blog post, "Gifts for Happy Holidays."

     A Special Report in the Financial Times (October 6, 2014) is cause to consider major money-making opportunities in Africa. Javier Blas wrote that high commodity prices, cheap Chinese loans, and improved governance have led to Africa's currently healthy growth. (Go to the later blog post, "Chocolate's Sweet Deals," to see how cocoa growers and investors can cooperate to benefit from the growing demand for chocolate in emerging markets.)

     The African Private Equity and Venture Capital Association estimates there is now $25 billion worth of private investment in Africa. It is in basic household goods, power, telecom transmission and pipeline projects, not just commodities, oil, diamonds, gold, and other minerals. When the US Carlyle Group launched its maiden African fund with a $500 million target, it closed at $700 million. It's first African investment, $150 million in Nigeria's Diamond Bank, was followed by an investment in a tire and parts retailer in Johannesburg, South Africa. Runa Alam, chief executive of London-based Development Partners International (DPI), a private equity fund that invests in African businesses, observed that top business schools are producing investors with skill sets that include global and local networks that can sniff out investment worthy companies in Africa, not only in China and Latin America.

     Indeed, private investment continues to find opportunities in Africa. In February, 2015, Actis Capital (a London-based private equity firm that concentrates its investments in emerging markets) and Mainstream Renewable Power (a Dublin-based clean energy developer) teamed up to invest $1.9 billion in a new Lekela Power venture that will operate solar and wind power projects in South Africa, Ghana, and Egypt.

     That is not to say Africa is problem free. Economic conditions have not improved across the board. Potential unemployment hovers over large chunks of the new middle class. The young population of one billion, on its way to four billion by 2100, is disillusioned and under-educated. (See the later blog post, "Recess Differs Around the World," to get a glimpse of Africa's under funded schools.) Compared to Asia, Africa's young people are unqualified for manufacturing jobs. (The earlier blog post, "Discover Africa," however, tells how young Africans take advantage of entering and winning contests and are starting their own businesses.)

     The Ebola crisis showed that disease can still devastate some parts of Africa; the abduction of over 200 teenage girls in Nigeria shows how religious and ethnic divisions persist; and corruption and greed continue to infest government and motivate leaders, except in Nigeria (See the later blog post, "Nigeria's New Beginning."), to cling to their positions after their constitutional terms of office end. With mobile phones and social media, however, young people have the means to voice their demands and frustrations and to receive solicitations from Islamic extremists. Nonetheless, young voters can be a powerful bloc capable of making their call for change heard. In the end, Africa is an investment opportunity that should not be overlooked.