2012 – A Look Ahead, plus Dealing with Growing Pains and U.S. EXIM Stuck in Crossfire

POST UPDATED MONDAY, JANUARY 9th 10:15 am EST

Dear Readers, I wish you all a Happy New Year and I hope all of you had a fantastic holiday season!  In this post, I would like to outline what’s ahead for the Fluent In Foreign™ organization this year and kick the off the first issue of 2012 with couple of interesting topics: the first one is about  a country dealing with growing pains, the second talks about how American airlines are desperately trying to remain competitive by sabotaging U.S. exports.

Last year was a very successful one for the Fluent In Foreign™ platform.  In 2011, our readership base has exceeded 350,000 as many articles appeared in national publications including Industry Today, Business Finance, The Wharton Magazine Blog,  The New York Enterprise Report and Industry Week.  Along with our colleagues from the Princeton Council on World Affairs, we hosted or appeared at several major events in New York, Washington and Boca Raton, Fla.  My book, Fluent In Foreign Business™, was released in May and has gathered critical acclaim most notably from Governor Perdue of North Carolina, Governor Christie of New Jersey, Fmr. Governor Rendell of Pennsylvania, Congressman Myrick of North Carolina and Senator Alexander of Tennesee.  I thank every one of you who has purchased the book and all who supported this blog and attended our events.

This new year is shaping to be extremely busy for the Fluent In Foreign franchise.  In the first quarter of 2012 we will be introducing our proprietary FI3 ™ indices.  These indices will measure market attractiveness of 180 countries for exporters, direct investors and franchisors.  Based on a wide variety of economic, political and business variables, these indices are forward looking and have a 3-5 year predictive horizon.  Indices will be included in our proprietary country profiles described below and available to our Clients.

In May, Fluent In Foreign™ will also publish A Complete Business Reference Guide to 180 Countries™. Using the latest country information from various government and international NGO sources, combined with Fluent in Foreign’s expert analysis, we have developed a full set of unique country profiles, which will be available both online to Fluent In Foreign subscribers and in paperback version.  This useful and unique advertiser-supported 1,200 page reference tool will  be provided to the international business community throughout the world.

We are currently in the final development stages of the first phase of the  www.FluentInForeign.com website.  Scheduled to go live February 1st, the website will serve as a platform for franchisors, exporters and investors wishing to launch or expand their international operations.  Through our proprietary D.I.C.E. & Finance™ (Develop, Insure, Comply, Educate, & Finance) methodology, our clients will be able to obtain a full range of services from educating themselves on various foreign expansion issues to actually retaining world-class professionals to assist them in entering foreign markets and growing their business there, while mitigating risks and complying with applicable laws.  The second phase of the website, which will have additional tools to allow for self-education, certification of international third party service providers and interactive event management, is set to go live May 1st.

A second edition of the Fluent In Foreign Business™ book will be released next September, while a second book – Fluent In Foreign Franchising™  – is in development for release next year.  Fluent in Foreign will be participating in the International Franchise Show in New York in June and we will be hosting three events this year.  Additionally, I will be speaking at several conferences and U.S. Commercial Service/Pan Asean Chamber of Commerce events.  Please watch for upcoming announcements.

So as you see, we have a lot going on this year and we certainly welcome assistance from our readers, partners and clients.  We are currently seeking blog contributors  to write on international business expansion issues and cover topics on political risk, international liability and export credit insurance, FCPA, international IP Protection and cross cultural faux pas.

We also welcome your comments on issues covered in our posts, or topics you would like to see included in the Fluent In Foreign Blog.  If your company is interested in participating as an advertiser or sponsor for the above mentioned Country Reference Guide, please email Ruth Sigalus at rsigalus@broadstreetcap.com for the complete info package.

Once again, thank you for your support and Best Wishes for the New Year!

Alexander Gordin

Creator of the Fluent In Foreign™

Now back to our regular programming 🙂

We kick this year off opining on two topics which were well-highlighted by the recent WSJ articles. The first deals with growing pains experienced by many fast-growing countries, in this case Ghana.  Although rapid economic development in emerging and frontier markets is one of the brightest spots on our weak global economic landscape, success often comes at a steep price. Straining infrastructure, pressure on local currencies, and inflation all curb or even cripple the much needed growth and necessitate very precise and decisive actions by local politicians and business owners, lest such welcome growth turn into nightmare.  Please enjoy the article below, which further highlights this issue.

Our second topic is a bit more highly charged. It deals with weak, uncompetitive and drowning entities pulling down the strong and productive.  In past issues of this blog, we’ve discussed how unions prevented Boeing from setting up a cost-competitive Carolina plant and how multiple Trade Agreements, worth billions of dollars annually to U.S. exporters, were stuck in Congress for years – held hostage to a politically motivated TIA retraining bill.  Today’s second set of articles articles deals with U.S. airlines and their lobbying organization Air Transport Association of America Inc., now called Airlines for America holding hostage additional funding authorization for the U.S. Ex-Im bank.

It is one of the most appalling things I have seen. (For the record, I am a loyal Delta Frequent Flier.)  Not only are these bloated, uncompetitive, often insolvent airlines, which at best provide average service, unwilling to address their cost issues, negotiate more cos- competitive compensation and pension arrangements with their unions and learn to provide better service, but they seek to subvert one of the few successful economic growth engines in the U.S. – The Export- Import Bank.  Their argument is that by subsidizing U.S. airplane and engine sales to foreign airlines, the U.S. Ex-Im enables those airlines to be more competitive.  THAT IS THE MOST ABSURD THING I HAVE HEARD!

Every other developed and developing country provides subsidized financing for their aircraft- related exports through their respective Export Credit Agency (ECA). So if Ex-Im will not provide financing for Boeing or GE, Europeans will provide additional financing for Airbus, Rolls Royce, or Dassault. Russians will provide financing for Antonov or Ilyshin and Chinese will provide financing for their emerging airline manufacturers.  Foreign airlines will get still their planes and the U.S. will lose thousands of manufacturing and engineering jobs courtesy of U.S. airlines.

I am not terribly concerned with the issue of financing ceiling raised in the article. U.S. Ex-Im still has lending room, as some of the authorized capacity is contingent and has not and will never be disbursed.  I am also sure that when the time comes, the lending limit will be raised. However, the fact that our politicians even allow such pressure to be exerted by the airlines, rather than forcing them to become more globally competitive, is disheartening.   Airing this in the press also portrays U.S.  airlines as weak to their global competitors.

Please enjoy our second set of articles –U.S. Trade Bank Stuck in Crossfire of Lobbying War Over Loan Limits and

Air India’s U.S. Bank Loan Guarantees Unlawful, Groups Argue.

As always your comments are welcome.

 Article 1

In an African Dynamo’s Expansion, the Perils of Prosperity

By DREW HINSHAW,  The Wall Street Journal, December 30th, 2011

ACCRA, Ghana—In Africa’s fastest-growing economy, there is a lot to drink to. The hiccup? How to brew enough beer.Guinness Ghana Brewery Ltd., in a rush to keep pace with a booming middle class, wants to double the amount of stout it bottles over the next five years.To get there, Guinness Ghana, which is majority-owned by Diageo PLC, will need more water, after shortages idled its factory for 50 days last year. More electricity would help, too, since Ghana’s Soviet-era dam struggles to electrify Accra, a city where the number of refrigerator owners has doubled in ten years. And to feed the brewery, a more efficient supply line would be nice: Crates of barley are often stuck in containers, waiting to clear the city’s congested port.”We see such opportunity,” said Guinness Ghana Managing Director Ekwunife Okoli. But, given the country’s infrastructure strains, he adds: “Clearly, it’s going to get worse before it gets better.”

[GHANA]
What is happening at Guinness illustrates the conundrum of Ghana, a west African nation whose runaway prosperity is both enriching and suffocating its capital, Accra.In 2011, Ghana’s economy is forecast to grow 13.5%, a clip that exceeds every other country in the world except Qatar, according to the International Monetary Fund. Big oil finds pumped growth beyond 2010’s 7.7%.As growth stagnates in the U.S. and Europe, Ghana’s robust multiparty democracy has turned its capital into a hub for companies chasing business—on a continent that grew 5.5% this year, according to the IMF.
Other things have gone Ghana’s way, too. As leading cacao producer Ivory Coast descended into civil conflict this year, Ghana stepped up production of the chocolate ingredient. For the first time, Ghana farmed one million tons of cacao, as the cash crop hit a 32-year high on London markets.Ghana’s growth has made the nation of 24 million Africa’s newest middle-income country, joining Namibia, Botswana and South Africa. Nigeria will soon join them, economists forecast.It has been a noisy transition. In Accra, drivers in newly purchased Toyotas and Peugeots honk in traffic and blare gospel music. The number of passenger sedans on Accra’s roads has doubled in the past ten years, and the number of motorcycles has tripled, according to Ghana’s government figures. Vehicles crowding narrow roads have squeezed pedestrians onto tight sidewalks.In September, chicken chain KFC opened a three-story restaurant in downtown Accra.Google Inc., IBM Corp., and Cargill Inc. have set up offices in the country.
In the first nine months of 2011, Ghana attracted $4.23 billion in foreign direct investment, tripling last year’s rate.But Ghana’s bottlenecks are curbing what economists say could be even faster growth, offering lessons for other African countries that may follow a similar path of development.”Yes, growth numbers look wonderful and everyone thinks, wow, especially in this environment,” said Johannesburg-based economist Yvonne Mhango of Renaissance Capital. “However, that growth comes with an increased burden on existing infrastructure.”Accra, a former British colonial city, was built in the early 20th century for just 500,000 residents. It now accommodates 4 million.
Even rises in consumer income pose a challenge. As a new middle class aspires to buy foreign luxury products, imports have doubled since 2006, weighing down the Ghanaian currency, the cedi. That isn’t great news for manufacturers such as Guinness Ghana, which imports about 75% of its raw materials, or Ghana’s KFC, which imports all its chicken and is “probably losing money,” said Executive Director Ashkof Mohinani of the Mohinani Group, which operates the franchise. “We’ll just sort of have to ride this storm through,” he said. “Ghana looks potentially good, but there are lots of ifs and buts at the moment.”Ghana’s ruling party says it has a plan to help Ghana’s infrastructure catch up with its private growth. That plan aims to double the country’s electric supply by 2015, carve new roads through crowded areas, and expand Accra’s airport. As part of a plan to improve water supply, officials have pledged to construct at least four reservoirs. The question is whether that new infrastructure will arrive ahead of more investors. This year, Ghana became Africa’s newest crude exporter, tapping its first 25 million barrels of offshore oil. Hoteliers in Takoradi, the four square mile port town near the crude find, are scrambling to build new lodging for the influx of oilmen from Hess Corp. and Tullow Oil PLC who are handling offshore rigs.By Accra’s airport, construction workers are finishing off a 209-room Marriott Hotel and a 186-room Hilton, two of the 400 hotels built in the past decade.”Politicians like to say, ‘We are poised for growth,’ ” said Sydney Casely-Hayford, a consultant for Ghana’s Finance Ministry. “But there is so much to do before we’re ready to take off.”
Article 2

U.S. Trade Bank Stuck in Crossfire of Lobbying War Over Loan Limits

By JOSH MITCHELL, The Wall Street Journal, December 20, 2011

Members of Congress may have reached a holiday truce on government funding, but their latest spending agreement leaves unfinished a bitter lobbying battle between two groups of the nation’s biggest corporations: exporters and airlines.

The congressional spending deal reached late last week leaves unchanged through May the current $100 billion lending limit on the U.S. Export-Import Bank, which provides loan guarantees to foreign buyers of American products, from jetliners to hair-care products. With $90 billion in commitments, the bank is expected to hit the cap on outstanding loan guarantees in the first months of next year, which would effectively halt its activity.

Boeing Co. and General Electric Co. are among dozens of major exporters urging Congress to raise the limit to $140 billion, but some U.S. air carriers oppose the move, arguing that the bank’s lending subsidizes their foreign competitors.

The exporters say the Ex-Im Bank, which dates back to the Great Depression, has helped boost business and U.S. jobs during the fragilde recovery by guaranteeing billions of dollars in global deals that otherwise wouldn’t go through. The bank facilitated the purchase of $41 billion in U.S. products in the year ended Sept. 30.

Both sides in the debate say they are seeking to protect U.S. jobs.

In a letter sent earlier this month to the congressional leaders, more than 60 chief executives, including Boeing’s James McNerney Jr. and G.E.’s Jeffrey Immelt, warned that leaving the current lending limit in place could result “in the loss of thousands of U.S. jobs.”

Delta Air Lines Inc. and other U.S. airlines oppose raising the Ex-Im Bank’s lending cap, saying its aid to foreign airlines puts U.S. carriers at a disadvantage. Delta declined to comment but referred questions to Airlines for America, the industry’s main trade group, formerly known as the Air Transport Association. The group has sued to block a deal that would provide loan guarantees of more than $3.4 billion for state-owned Air India to purchase Boeing aircraft. “We support the goal of expanding U.S. exports, but not at the expense of U.S. companies and U.S. jobs,” Airlines for America said in a statement.

The airlines won the latest round with the spending bill approved last week. But the fight is set to continue into the new year.

Senate Banking Committee Chairman Tim Johnson (D., S.D.) said in a statement last week the bank is a “proven jobs creator” and has bipartisan support. He said he was working with Senate leaders to ensure the bank “can continue to provide support for U.S. exporters and workers.”

A senior House Democratic aide said it was “untenable” to include in last week’s spending deal a provision to raise the bank’s lending limit as part of a multiyear funding plan for the bank. But the aide said the short-term measure “should put enough pressure” on Congress to pass a long-term plan for the bank in the next few months.

Proponents of the bank note that raising its lending limit would not add to the budget deficit because the institution is self-supporting and even makes money for taxpayers by collecting interest and fees paid by users. The Congressional Budget Office estimates that a Senate bill to raise the bank’s lending limit to $140 billion would result in $900 million in taxpayer savings between 2012 and 2016. But critics argue the bank’s aid is a form of corporate welfare and exposes taxpayers to risk.

Those pushing for higher lending by the bank have accused congressional Republicans of resisting either for ideological reasons or to improve their bargaining position on other measures. Representatives of House Speaker John Boehner (R., Ohio) and House Majority Leader Eric Cantor (R., Va.) didn’t respond to requests for comment.

The Obama administration also supports raising the bank’s lending limit. Mr. Obama has touted the bank as a vital tool in pursuing his goal of doubling U.S. exports by 2015. During his trip to Indonesia last month, he credited the Ex-Im Bank and other administration officials with playing a “critical” role in facilitating the planned purchase of 230 Boeing jets by Lion Air, a Jakarta-based airline.

“The longer Ex-Im re-authorization remains unresolved the more uncertainty it creates around U.S. companies’ ability to compete in the global marketplace,” Fred P. Hochberg, the bank’s chairman and president, and an Obama appointee, said in a statement.

Boeing declined to comment. GE referred questions to the Coalition for Employment Through Exports, which represents Boeing, GE, Caterpillar Inc. and other major exporters. John Hardy Jr., president of the group, said that failing to raise the bank’s lending cap would jeopardize deals in the pipeline and risk sending potential customers of U.S. products to competitors overseas. “The bottom line is this is a jobs bill,” Mr. Hardy said.

Article 3

Air India’s U.S. Bank Loan Guarantees Unlawful, Groups Argue

Bloomberg January 08, 2012, 7:33 PM EST

  • By Tom Schoenberg

Jan. 6 (Bloomberg) — U.S. pilots and airlines asked a federal judge to stop the Export-Import Bank of the United States from giving Air India $1.3 billion in loan guarantees to buy Boeing Co. aircraft.

U.S. District Judge James Boasberg in Washington today heard arguments by trade associations for the largest U.S. airlines and pilots requesting that he block the guarantees while he considers their legal challenge. Boasberg said he would rule on the request by Jan. 13, three days before Boeing is scheduled to deliver one of its aircraft to Air India.

“It’s highly likely that Air India will put these airliners on routes in competition with American airlines and records show zero jobs would be created,” Robert Bailey, a lawyer for the Air Line Pilots Association, told the judge.

The Air Transport Association of America Inc., now called Airlines for America, filed the lawsuit in November claiming the bank didn’t seek public comments or consider the impact on the U.S. airline industry before approving $1.3 billion in loan guarantees and $2.1 billion in preliminary commitments to support the sale of 30 Boeing aircraft to Air India.

At least 27 of those aircraft are the 787 Dreamliner, which lawyers for the trade groups said are “dramatically efficient.”

Air India is getting “access to the very best planes in the world at a subsidized rate,” Michael Kellogg, a lawyer for the Air Transport Association, told the judge.

Potential Impact

The groups asked the court to find the loan-guarantee commitments unlawful, to prevent them from being issued and to require the Export-Import Bank to study the guarantee’s potential impact on U.S. industry and jobs.

The Export-Import Bank is a federal agency that provides loans, loan guarantees and insurance to foreign companies. According to the lawsuit, the bank’s loan portfolio is “overwhelmingly devoted” to financing the purchase of airplanes for export. In fiscal year 2010, air transportation loans accounted for 47 percent of the bank’s $75.2 billion in total outstanding loans, the lawsuit claims.

The Air Line Pilots Association intervened in the lawsuit in the airlines behalf.

The bank argued that the association lacks any legal basis to challenge the loan commitments and that blocking the commitments would be disastrous for the 77-year institution.

Market Signal

“It would send a signal to the market that it could no longer rely on Ex-Im as a guarantor,” Ian Gershengorn, deputy assistant attorney general in the Justice Department’s civil division, told the judge.

If the Export-Import Bank didn’t guarantee the Air India loans, the airline would have sought financing elsewhere and purchased aircraft from Airbus, the world’s largest passenger- jet maker, Gershengorn said.

“Boeing was awarded a contract of $5 billion with Air India in large part because of efforts by the bank,” he said.

Gershengorn argued that Congress gave the bank wide discretion to operate much like a commercial bank.

He also noted that several of the trade group’s largest members, such as United Air Lines Inc., Continental Airlines Inc., American Airlines Inc., Atlas Air Inc., Federal Express Corp. and United Parcel Service Inc., didn’t join the lawsuit.

Chicago-based Boeing isn’t a party in the case.

The case is Air Transport Association of America Inc. v. Export-Import Bank of the United States, 11-cv-2024, U.S. District Court, District of Columbia (Washington).

–With assistance from Eric Martin in Washington and Karthikeyan Sundaram in New Delhi. Editors: Fred Strasser, Mary Romano

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About Alexander Gordin
An international merchant banking professional with over twenty years of business operating and advisory experience in the areas of export finance, international project finance, risk mitigation and cross-border business development. Clients include foreign governments, municipalities and state enterprises as well as Fortune 500 and small/medium enterprises. Strong entrepreneurial instincts, combined with leadership and strategic skills. Transactional and negotiations experience in over thirty five countries. Author of the highly acclaimed "Fluent in Foreign Business" book and creator of the "Fluent in OPIC", "Fluent in EXIM","Fluent In Foreign Franchising", "Fluent in FCPA",and "Fluent in USTDA" seminar/webinar series. Currently developing "Fluent In ......" seminars and publications. Co-author of the Fi3 Country Business Appeal Indices. Extensive international business development and project finance transaction experience in healthcare, aerospace, ICT, conventional and alternative energy infrastructure, distribution and hospitality industries. Experience managing international public and private corporations. Co-Founded three companies abroad. Strong Emerging and Frontier Market expertise. Published and featured in numerous publications including: The Wall Street Journal, Knowledge@Wharton, NBC.com, The Chicago Tribune, Industry Week, Industry Today, Business Finance, Wharton Magazine Blog, NY Enterprise Report, Success magazine, Kyiv Post and on a number of radio and television programs including: Voice of America, CNBC, CNNfn, and Bloomberg. Frequent speaker on strategy, cross-border finance and international business development. Executive MBA from the Wharton School at the University of Pennsylvania. B.S. in Management of Information Systems from the Polytechnic Institute of NYU. Specialties Strategic Management Advisory, Export Finance, International Project Finance & Risk Management, Cross-border Negotiations, Structured Finance transactions, Senior Government and Corporate officials liason

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