Saturday, October 02, 2004

A Cautionary Tale.


Q: What's the difference between Tanzania and Goldman Sachs ?
A: One is an African country that makes $2.2 billion per annum and shares it among 25 million people, the other is an investment bank that made $2.6 billion profit in 1992 and shares that with 161 people.


Years ago when reading about economics I came across an interesting comparism that ranked the top MNCs revenues against the countries' GDPs. Microsoft would be ranked something like 8th in the world by GDP/revenue if it were a country.

I remembered idly thinking: Microsoft should probably buy a small island-country and declare independence as a nation, saving a good chunk of US corporate taxes.

The truth is indeed stranger than fiction. See General Electric versus Nauru.

A summary of the events so far:

In 1968 Nauru gains independence from Australia. 10,000 people. 21 square kilometers of island in the South Pacific, 320,000 square kilometers of fishing terrorities, deposits of high-phosphate ores to mine and other natural resources.

Recognising that the natural resources were limited, the government invests heavily in properties to the tune of A$1.7b (at peak) to secure an economic future. Unfortunately the country starts spending more than it rakes in revenues.

Fast forward 30 years. There are now only about 5 years worth of phosphate left in the mines. The properties are worth about A$420m. Staggering amounts of external debt. The country of Nauru owes General Electric Capital alone around A$250m at 9% interest (subprime debt). Receivers are liquidating the foreign real estate holdings to pay debtors.

At the end of the day, General Electric may end up owning the island of Nauru.

A cautionary tale? Or a portend of things to come?


For comparism Singapore's 2003 GDP was in the region of US$100b. The list of publicly listed companies in the US alone with revenue more than Singapore's GDP are: ConocoPhillips, AXA, ChevronTexaco, TotalSA, GE, Toyota, Ford, DaimlerChryslerAG, Enron, BP, ExxonMobil, Wal-Mart. This ignores the many private companies and listed companies outside the US that are just as big (or bigger).

If Singapore were a corporation with a profit margin around 1.7% - 4.0% and traded at a high PE of around 30, the market valuation would not even place it in the top ranks of the global corporations!

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