Month: December 2009

Bolivia’s President Evo Morales wants to launch state-run paper and cement ventures and develop lithium, petrochemical and iron projects in his second term but a lack of foreign investment and know-how could hamper his ambitious plans.

Leftist Morales won 63 percent of the vote in an election on Sunday to run the energy-rich but economically poor Andean nation for a second term, according to quick count tabulations. Official results were due later on Monday.

In his first term, Morales nationalized the natural gas industry, the country’s top export earner, forcing foreign firms such as Spain’s Repsol and Brazil’s Petrobras to hand a larger share of revenues to the Bolivian state.

He also took over mining and telecommunication companies and launched a government-run airline and a daily newspaper.

The government has said it now controls 28 percent of the economy, up from about eight percent before Morales took office, and is eyeing a 40 percent role in the near future.

Morales is negotiating the acquisition of a majority stake in three power generation companies, two of which are controlled by Britain’s Rurelec PLC and France’s GDF Suez.

He has vowed to use his five-year second term to build large hydroelectric dams; launch cement, paper, dairy, sugar and drug companies; and develop petrochemical, iron and lithium industries to allow Bolivia to export value-added products.

Although the landlocked country has the second-largest deposits of natural gas in South America after Venezuela and massive reserves of lithium and iron, it has failed to develop a strong economy from its natural wealth and most consumer goods are imported.

Bringing know-how
Finance Minister Luis Alberto Arce acknowledges the government cannot develop large-scale projects without outside help.

“Foreign investors have two advantages, they could bring the know-how and the cash … (they would be welcomed) to invest in strategic sectors if they have an expertise that we don’t have,” he told reporters in an interview on Friday.

“We’d like to do it on our own, but we can’t,” he said.

Morales, an Aymara Indian who herded llamas as a boy, has said large-scale projects would allow him to boost social welfare programs. Cash handouts to encourage school attendance, to the elderly and to young mothers have reached 2.5 million Bolivians, about a quarter of the population, this year.

“Thanks to the nationalisations … we can pay stipends and subsidies,” Morales said in a campaign meeting in the northern Pando region last week.

Although critics have accused Morales of buying voter support with subsidies, Arce insisted they are spurring economic growth.

Analysts say Morales’ moves to give the state a bigger role in the economy have deterred foreign investors, preventing Bolivia from honoring pledges to increase natural gas output.

“They told us that the natural gas sector was going to fuel revenue growth, but instead we are losing markets … It remains to be seen whether there will be resources to finance these huge projects,” said analyst Gonzalo Chavez.

Between 2006 and 2008, foreign companies invested an average of $383m a year in Bolivia, less than half what they invested between 1998 and 2000. Arce said sales of natural gas to Brazil, which buys the bulk of Bolivia’s energy production, fell this year by 22 percent to 24 million cubic meters a day.

However, Bolivia hopes to boost natural gas exports to Argentina, thanks in part a consortium led by oil major Repsol, which has pledged to invest $1.5bn in Bolivia.

Morales last week lamented that the lack of foreign investment prevented Bolivia from developing an industry to refine natural gas into other by-products and acknowledged that he needs to lure investors to the landlocked country.

“How to guarantee these projects, how to guarantee investments, that’s the responsibility of the state. That’s another challenge,” he said.

Morales is a fierce critic of capitalism and blames foreign companies for ransacking Bolivia’s natural resources, but some analysts say he will likely to be less radical in his second term.

“The government … now wants to attract more investments to develop (the hydrocarbons and mining sectors). As a result, it will probably be careful not to adopt excessively aggressive measures that could lead to the departure of foreign investors,” said the New York-based Eurasia Group.

OPEC is expected to hold output steady when it meets in Luanda at the end of this month, rounding off a year of stable production policy and of robust oil prices.

Oil inventories are brimming and any recovery in demand is expected to be slow, but international benchmark U.S. crude futures have more than doubled from just above $32 a barrel last December to above $76 now – roughly the level OPEC has said is high enough for producers and not too high for the still delicate world economy.

“The oil price has not been the cause of surprise for us for some time, so there is really no need for OPEC to surprise the oil market,” one OPEC delegate told Reuters.

More comments were expected this weekend at a meeting of the Organisation of Arab Petroleum Exporting
Countries in Cairo on Saturday, but no formal decision on output policy is expected until the 12 members of OPEC meet on December 22 in Luanda.

When the Organisation of the Petroleum Exporting Countries last met in September, Saudi Oil Minister Ali al-Naimi told reporters the market was supported by expectations of economic growth and able to ignore excess supply.

That meant the group could keep output policy officially unchanged, as it has done ever since last December’s announcement of a record cut of 4.2 million barrels per day.

In an interview shortly after the September meeting, Naimi went so far as to predict there would be no need to change output targets for all of 2010 on the basis of supply and demand forecasts then available.

“I think they are comfortable with where prices are now. I don’t think anybody is suggesting this is justification for a rise in supply. Equally, they’re not too worried right now about fundamentals,” said David Kirsch, director of market intelligence at PFC Energy in Washington.

Unofficially moving targets
The only change this year has been decreasing compliance with OPEC’s output targets.

As prices have recovered from the December 2008 fall to the lowest in nearly five years, OPEC’s discipline has gradually slipped from historic highs of around 80 percent in April and May to only around 60 percent of agreed curbs now.

Provided the group does not spring any surprises in Luanda, at a meeting hosted by the current OPEC president Angola, this would be the longest period of steady output policy since 2005-6.

Then oil prices had faltered to around $60 a barrel, but a long-term bull-run, begun around 2002 was still essentially intact.

The rally ended with last year’s record price spike to nearly $150 a barrel in July, followed by the economic crisis.

Fundamentals versus speculation
Now, some analysts argue, OPEC could face further price falls if it does nothing in view of inventory levels well above historic averages and the prospect of a seasonal fall in demand in the second quarter of next year.

Another view is that prices have been remarkably resistant given historically high levels of inventory. The implication is there is speculation in the market and OPEC should raise output levels if it wants to cap price gains that could destroy demand in a still difficult economic context.

Already leading exporter Saudi Arabia increased its supplies to some regular customers in December, industry sources said, although Kirsch estimated the increase was probably only around 150,000 bpd.

“Given that Saudi Arabia has already started to leak a bit more crude oil and has sent repetitive comments that it would not allow the market to run away higher, we will not exclude the scenario of an increase in the official quota at the next meeting,” said Olivier Jakob of Petromatrix.

The backdrop of Copenhagen climate change talks December 7-18 has highlighted the risk to OPEC of a global drift away from fossil fuels and the Dubai debt crisis, right at the heart of the core oil-producing region, has served as a reminder of the continuing weakness of the global economy.

In an interview with reporters, OPEC Secretary General Abdullah al-Badri said OPEC would have to tread carefully at the December meeting.

“OPEC’s policy decisions throughout 2009 have clearly demonstrated our commitment to the global economy and assisting in its recovery,” Badri said.

He also noted the high levels of inventory. In addition to brimming stocks on land, he estimated a massive 165 million barrels of crude oil and refined products were floating in vessels at sea.

“They (OPEC members) don’t feel that fundamentals are driving it up, so if they put more oil in the market now what good would that do?” said Kirsch of PFC Energy.

Lamborghini expects to post a roughly 35 percent slide in 2009 sales as the global economic downturn slams the brakes on spending from even the super-rich, with growth likely to pick up again only in 2011.

Next year will remain challenging for the maker of supercars graced by a charging bull logo, a unit of top European car-maker Volkswagen, though bright spots such as China may help salve the pain.

Chief Executive Stephan Winkelmann said on Wednesday Lamborghini was on track to end 2009 with about 80 cars sold in China – a sliver of the company’s annual 2,000-odd production but a market that should rank among its biggest in coming years.

Lamborghini sold 70 cars in China in 2008.

“It was tough, it’s still tough,” Winkelmann told reporters in an interview in Los Angeles before opening the company’s first fashion and accessories boutique outside China.

“2011 will be a recovery, but we first have to see, if the year 2010 will be another very tough year for the industry.”

Known for low, sleek designs and eye-watering top speeds, Lamborghini and rival Ferrari, owned by Italy’s Fiat, have remained resilient through past downturns. But the severity of the current recession has walloped their business.

Lamborghini posted a 37 percent drop in sales in 2009’s first 10 months, Winkelmann told Reuters. Executives nonetheless expect to achieve a full-year pre-tax profit.

It sold 2,430 cars in 2008 with prices ranging from €170,000 to €360,000 ($256,000-$542,200). In the first half, it managed a €5.4m profit on revenue of €223.7m – a drop of more than 43 percent.

Winkelmann would not forecast 2010 sales.

But “everything you see has been much worse than forecast,” he warned, referring to the industry and economic data.

Divine sound
All that gloom was set aside briefly on Wednesday. In a nod to the city’s reputation as a luxury motorists’ haven, about a score of brightly hued Lamborghinis powered their raucous way from Santa Monica through winding canyon roads to the suburb of Topanga, drawing envious stares.

Winkelmann and a number of executives from Lamborghini’s Sant’Agata Bolognese headquarters then presided over the low-key launch of a fashion boutique outside of Los Angeles, near the upscale beachfront community of Malibu, selling branded products from jackets and trousers to bags.

The boutique bore more than a passing resemblance to outlets bearing Ferrari’s prancing stallion logo, but executives downplayed comparisons.

“You buy into a brand, you increase image and awareness,” Winkelmann said. More are planned in future, but “in this tough economic situation we don’t want to push too much.”

Founded in 1963 by Ferruccio Lamborghini and now a unit of Volkswagen’s luxury Audi brand, Lamborghini will remain focused on investing in technology and matching production with waning demand, Winkelmann stressed.

It has hemorrhaged customers in real estate and investment banking industries pummeled by financial market turmoil and the credit crunch. But many are simply postponing purchases as the decision to buy a Lamborghini was both emotional and financial, executives argued.

In response, the company has scaled back production, sent workers home temporarily and negotiated deals with suppliers to tide it through the difficult environment.

Lamborghini boosted pre-tax profit by 27 percent in 2008 to €60m ($84.66m) on revenue growth of 2.5 percent to €479m.

Longer term, the company is making inroads into promising markets beyond its traditional strongholds of Europe and the United States, including Latin America, to continue to try and expand its fan base.

Winkelmann has said he expects China to overtake Italy as its second-biggest market in the next three to five years, up from ninth-biggest last year.

“If it’s going to go on like this, it’s going to happen sooner than expected,” Winkelmann said. But “I don’t want to be too optimistic.”

Hopes China’s Tengzhong will complete the deal to buy General Motor’s Hummer brand as early as this week appear unlikely to be fulfilled, with the regulator tasked with assessing the deal yet to receive a formal application, according to a regulatory source.

Nearly two months have passed since GM signed a deal to sell its iconic but tarnished Hummer brand to Sichuan Tengzhong Heavy Industrial Machinery, an obscure Chinese machinery maker.

Hummer’s CEO Jim Taylor told Automotive News last month he hoped a deal would be closed by December 1 but the deal needs approval from China’s Ministry of Commerce, which is still awaiting documents from Tengzhong.

“We have not received formal application materials from Tengzhong,” said an offical at MofCom, who asked not to be identified due to the sensitivity of the matter.

“The Tengzhong-Hummer issue is not on our agenda yet,” the official told reporters.

However, Tengzhong said it had been in touch with the Chinese government since before closing the landmark Hummer deal with the Detroit automaker in early October.

“We have been cooperating with the government all along and have submitted whatever materials needed for the approval,” said a Tengzhong representative.

“There is little we can do at this stage. We can only wait.”

A MofCom spokesman declined to comment.

Rocky road
Chinese manufacturers are venturing on to the global stage with bids for Western brands to take advantage of a steep industry downturn, but there remain doubts on whether they can handle such deals given their lack of expertise and limited international exposure.

For Tengzhong, the challenge is even greater, as on top of turning around GM’s struggling gas guzzler, it needs to clear regulatory hurdles for a deal which runs counter to China’s energy efficiency drive.

Taylor, the GM executive who has helped steer the sale and will remain as the new company’s chief executive, was told that approval would take four to six weeks after closing the deal, according to Automotive News.

Analysts say the apparent foot-dragging by the commerce ministry suggests there are opposing voices in the Chinese government against the Hummer deal even though it is premature to ring the death knell now.

“Obviously regulators in Beijing can’t see eye to eye on the Hummer buy as it’s a brand going down hill globally,” said Boni Sa, an analyst with international industry consultancy CSM Worldwide.

The lack of details disclosed in the sales agreement, including the financial terms, also raised question marks.
 
“All we know is that Tengzhong owns the Hummer brand and the right to use the technologies. And that by itself does not sound like a good deal,” John Zeng, an analyst with consulting firm IHT Global Insights.

Hummer has its origins in a multipurpose vehicle known as the Humvee that was used by the US military. GM bought the brand in 1999 and its sales peaked in 2006, but they have been hit hard since then by a slumping US economy and higher gas prices.

Through September, its US sales were down 64 percent this year.

Spain’s registered jobless rose for the fourth consecutive month in November official data showed on Wednesday, and was seen edging higher as the recession weighs and a multi-billion euro stimulus package loses steam.

The Spanish economy is not expected to emerge from recession until next year as it reels from the collapse of a decade-long construction-led boom and plummeting consumer spending.

Seasonally unadjusted data showed Spanish jobless claims rose by 60,593 in November from October to almost 3.9 million people, almost a million more than a year ago, the Labour Ministry said.

The rise was less fierce than the almost 100,000 layoffs in October and around 170,000 leap in November 2008, the government noted, but should not be taken as a sign the economy will begin to create jobs any time soon, economists said.

“The November numbers were slightly better than expected. However, in general, unemployment in Spain is likely to increase further, but maybe at a slower pace,” said Giada Giani at Citigroup.

The Spanish government pumped €8bn into the economy this year to create more than 400,000 mostly low-skilled jobs in an attempt to patch the hole left by the paralysed housing sector.

The around 30,000 infrastructure contracts created by the plan will be completed by the end of the year, and with little sign of a general return to growth, Spain’s labourers are once again expected to rejoin dole queues.

“We don’t see the government suddenly withdrawing stimulus measures to help workers. But in 2010 we continue to see unemployment increasing with minimal growth expected,” said Silvio Peruzzo at RBS.

The government has announced plans to launch a new €5bn stimulus plan for 2010, but it will be aimed at sustainable long-term growth sectors like renewable energy, environmental tourism and new technologies.

Reform talks
While economists have called for wide-sweeping reforms to the labour market, the government has been cautious to make any major proposals which have not been decided through consensus with the workers’ unions and business representatives.

Spanish Prime Minister Jose Luis Rodriguez Zapatero outlined several areas in which the labour market could be streamlined on Wednesday and said tripartite talks on the measures will begin in the first quarter of next year.
But analysts worry that the number of jobless would continue to increase in the absence of urgent reforms and as the recession drags on.

Eurozone-wide unemployment remained stable at an 11-year high in October at 9.8 percent, official data showed on Tuesday, while Spain stood at 19.3 percent in same month, the worst in the 16-member region.

Last year’s sudden collapse of the construction sector has quickly spread across the whole economy and all main economic areas registered losses in November, the government said.

Data showed the jobless rate in the service industry rose 1.7 percent month-on-month and by 1.3 percent in construction. Joblessness also increased by 0.6 percent in the industrial sector and by 2.6 percent in agriculture.

Dubai nationals were alarmed by the fallout from the emirate’s debt standstill, but many hope the crisis may stem the torrent of foreigners into the conservative Gulf Arab city, where locals are outnumbered ten to one.

The freewheeling emirate, one of seven that form the United Arab Emirates, sent jitters through global markets last week when it announced that one of its flagship developers had asked for a six-month repayment freeze on some debt.
The global financial crisis over the last year has tarnished Dubai’s growth model – neo-liberal, East Asian-inspired and tightly managed from the top by ruler Sheikh Mohammed.

Construction work has slowed. Dubai’s debt pile is now estimated by Moody’s ratings agency at $100bn.

Most Emiratis say they are proud of the UAE’s global name, gained largely through Dubai’s glamorous projects such as man-made islands in the shape of palm trees and architectural gems such as the sail-shaped Burj al-Arab hotel.

But as foreigners flocked in, Emiratis were reduced to barely a tenth of Dubai’s 1.7 million population and their share of UAE’s 4.2 million total population is not much greater.

Radio talk shows and internet debate have portrayed the issue as a crisis in the past year.

“I don’t have anything to lose in this financial crisis,” said Ebtisam al-Kitbi, a politics professor at the UAE University in al-Ain. “As an activist and academic, I view it as an advantage for us as Emiratis.”

“There was only the sound of real estate here, and if you criticised anything, they said ‘you are against development’,” Kitbi said, adding that major trading families had their own commercial interest in what was termed the “Dubai model”.

Dubai was the UAE and Gulf Arab pioneer in allowing foreigners to own property in certain areas, encouraging wealthy Arabs, Asians and Westerners to buy into the dream.

The rulers and certain merchant families have been the biggest local beneficiaries of the affluence. Most Emiratis work in the government sector and some live modestly.

While foreigners cluster in the cities and luxury skyscrapers, Emiratis tend to live separately in their own communities, jealously guarding their traditions.

“Emiratis are relieved a bit due to the international financial crisis, but it is nowhere close to where people would like to see the country heading,” said UAE blogger Ahmed Mansoor. “I believe the UAE has reached the point of no return when it comes to demographic imbalance.”

Defiant tone
The tone was defiant during UAE national day celebrations this week, where miniature models of iconic Dubai buildings and Sheikh Mohammed’s book “My Vision” – lauding a “make the desert bloom” miracle – have been paraded through the streets.

On a TV talent show, the audience gave a special cheer when the name of the man behind Dubai’s “miracle” was mentioned.

The Dubai ruler, also UAE vice president and defence minister, came out fighting on Tuesday, saying the global reaction to the debt crisis had shown “a lack of understanding”.

Dissent has been muffled in a society encouraged by official media to go along with the runaway development brought about by their rulers’ policies. The UAE has a federal advisory body, but less than one percent of Emiratis are eligible to vote.

Media activity criticising rulers or harming the economy faces heavy fines in a draft media law waiting approval.
Emirati political scientist Abdul-Khaleq Abdullah, who signed a rare petition against the draft law this year, said the authorities were now keen to assuage local concerns.

“On a fundamental level, there is a realisation that this country has managed to cater to expat needs too far and they paid little attention to local, national concerns,” he said.

“They don’t want to get locals too angry. The state is one step ahead of a demand from locals.”

Foreigners are being encouraged to dress modestly, some were arrested for eating in public during the Muslim fasting month of Ramadan, and two Britons were tried last year for engaging in sexual activity out of wedlock and in public.
The foreigner majority is even cited in UAE domestic discussion as a reason for avoiding democracy, since that could encourage long-term residents to demand a say in governance.

“It’s safer to have 90 percent of the population as foreigners, as long as locals can have some kind of elite status,” said British historian Christopher Davidson, adding that Dubai paid only lip service to controlling expat inflow.