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Optimism On Third World M&A

Economic Trends

Optimism on Third World M&A

But there's still reason to be wary

As more nations opened themselves up to foreign investment in the 1990s, the dollar value of cross-border mergers and acquisitions grew tenfold--from $85 billion in 1991 to $850 billion in 1999, according to figures compiled by the United Nations. And a healthy share of that M&A money has gone into the Third World. About 13% of acquired or merged assets in 1991 were in developing countries. In 1994, developing countries' share peaked at 31%. Since then the percentage has drifted back into the low teens.

This year, the value of M&A in developing countries should rise as acquirers increase their efforts to globalize and take advantage of the Internet, according to Morgan Stanley Dean Witter & Co. analysts Joseph P. Quinlan and Andrea L. Prochniak. They won't venture a guess as to the total dollar value but say it should rise somewhat as a share of overall cross-border M&A. Companies in the developing world will consent to mergers because they "don't want to be left behind" by new technologies, says Quinlan. And barriers to entry are falling in nations such as South Korea, Mexico, Brazil, Russia, and Poland, adding to Quinlan's upbeat outlook for more M&A.

That said, there are a few hurdles to overcome. "Any dramatic rise in U.S. interest rates is going to slow global mergers and acquisitions," says Quinlan. Also, fewer big privatizations are in the works. Many former state-owned companies, such as Brazilian telephone company Telebras, have already been sold to foreigners. A final reason to be wary is that leaders of certain countries--including Poland and China--would rather have multinational companies invest in their nations by building new factories as opposed to buying existing companies.By Laura CohnReturn to top

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A Double-Digit Export Jump?

Global growth will fuel demand

Now that the world economy is picking up speed, U.S. export growth is likely to take off in a big way. According to RFA Dismal Sciences Inc., a West Chester (Pa.) economic consultant, U.S. exports will probably post double-digit growth in the coming months.

Among the U.S.'s major trading partners, Mexico should grow at a 3.9% rate this year after expanding at a 3% pace in 1999, according to RFA. Also this year, growth in Western Europe should expand by 2.9%, vs. last year's 2.1% pace. The Asia-Pacific region is likely to see 2.4% growth, matching last year's rate, but well above the 1.8% contraction in 1998 at the height of the global financial crisis. And if domestic demand slows at the same time, the ballooning U.S. trade deficit should stabilize by the middle of the year--and even start to narrow in late 2000.

The net result: The swing in trade should add 0.4% to growth this year vs. a year earlier. Economists at the consulting firm are looking for U.S. gross domestic product to rise 3.3% this year. With no improvement in the trade deficit, growth would be just 2.9%, they say. In 1999, a worsening of the trade deficit reduced growth by 1.4 percentage points from a year earlier, says RFA.

Along with some improvement in the trade deficit, the U.S. economy could see other effects from the global rebound, including a weaker dollar, less buoyancy in the financial markets, and tighter labor conditions. "With the global economy on the mend and better prospective returns in foreign markets, we might see some pressure on our own stock and bond markets," says Mark M. Zandi, RFA's chief economist.

Improvement in the trade deficit also could make the U.S.'s tight-as-a-drum labor market even tighter. When the global economy was in the doldrums in 1997-98, demand for workers in the U.S. soared, leading to a flow of high-tech employees to U.S. shores. But now that economies overseas are improving, it may be harder for technology companies to find workers, says Zandi. It's great that the trade deficit is narrowing, but one drawback is that it could put upward pressure on inflation.By Laura CohnReturn to top

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