Year: 2010

Blaming the weather for high US unemployment

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That means key US data on jobs and manufacturing for February, which hold big implications for global financial markets, could lead to a befuddled reaction from investors.

Confusion will also likely reign in Europe where fears about Greece’s financial situation, potentially exacerbated by speculative activity in bond markets, have kept the Eurozone’s single currency under pressure.

China, a growing contributor to the global economic outlook, will release a business sentiment survey, which analysts expect to slip for a second month as the country tightens credit.

But the major indicator to watch is US employment since it has a direct effect on the consumer spending that powers two-thirds of the world’s largest economy.

The forecasting range is unusually wide, but median projections point to a loss of 50,000 jobs in February. The jobless rate is seen ticking back up to 9.8 percent after a January decline.

“Everybody who’s thinking the economy is heading for a double dip is going to say this is evidence of that, and every one saying the economy is doing fine will dismiss it because of the weather,” said Bob Barbera, chief economist at the Investment Technology Group in New York.

He is confident that US economic activity, which registered an impressive 5.9 percent growth rate in the fourth quarter, is on a sustainable path. “Don’t mistake a snow cone for a double dip,” he said.

Even if growth does gain traction, the economy has lost 8.4 million jobs in just over two years as the country experienced its worst recession since the Great Depression. And the trend suggests those jobs will not return very quickly.

“The underlying trend to us is concerning because jobless claims are signaling that, at best, employment is probably flat right now to possibly still falling slowly,” said Abiel Reinhart, economist at JP Morgan.

First-time claims jumped to 496,000. Coupled with very weak numbers on housing, the figures sparked concern that the US rebound could be losing steam.

A Greek drama
While the Greek debacle has thus far not had a major impact on global economic activity, analysts fear another round of severe bank losses could crimp credit markets just as they are starting to recover.

Bank lending all but seized up late in 2008 after Lehman Brothers filed for bankruptcy and AIG required a huge and controversial bailout from Washington.

“The institutional corset of the euro area, the structural inflexibility of their economies and the ECB’s primary focus on inflation is likely to accentuate the internal tensions and lead to a weakening of the real value of the euro and a period of subdued relative growth,” said Christian Broad, economist at Barclays Capital.

If European growth does languish, the global economy will have to look east, even though China’s breakneck expansion appears to be easing off.

The country’s official survey of purchasing managers is forecast to fall to 55.45 in February, down from 55.8 in January as the authorities presided over a modest tightening of monetary policy. The central bank raised reserve requirements just before the Lunar New Year.

Lakshman Achuthan, managing director of the Economic Cycle Research Institute, says his firm’s alphabet soup of leading indicators was already pointing to a moderation even before the government’s actions on the monetary side.

“Whatever intention they had on these tightening moves may have already begun before they tightened,” Achuthan said.

With government debt levels rising sharply and simultaneously around the world, experts see plenty of drags on the economy. Finding new engines for growth may be much harder.

S Africa’s PMI hits three year high

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The survey’s headline index rose to 60.4 points on a seasonally-adjusted basis from 53.6 in January, above the key 50 mark that signals expansion for the fourth month in a row and at its highest level since March 2007, sponsor Kagiso Securities said recently.

The recovery from recession in Africa’s biggest economy gathered pace in the fourth quarter of 2009, led by a rebound in factory output.

The sector – the second biggest contributor to GDP – grew by 10.1 percent, helping the wider economy expand a faster-than-expected 3.2 percent quarter-on-quarter and annualised.

The surge in PMI suggests the rebound continued in the first quarter of this year, Andre Coetzee, head of fixed income at Kagiso, said in a statement.

“[This suggests] that manufacturing in all likelihood remained a key sector driving the overall growth in the first quarter of 2010.”

With the exception of suppliers’ performance, all other key sub-components were up in February, with new sales orders leaping 13.2 points to 68.6, while the business activity sub-index was up nine points at 65.2.

“The sharp gain in new sales orders hopefully indicates that South African consumer spending moved back into growth territory during the first quarter of 2010,” said Coetzee.

The production sector looks well into recovery but the demand side of the economy remains weak, with households under strain from high debt and the nearly 900,000 jobs lost during last year’s downturn.

The Reserve Bank cut interest rates by five percentage points between December 2008 and August last year to help boost growth and some analysts say soft consumer spending may warrant another cut.

However, signs the economy is recovering may see it hold rates steady again later in March, particularly with consumer price inflation hovering around the top of the three to six percent target range.

The PMI also showed some respite on jobs, with that sub-index edging up to 52.1 in February, signalling a small rise in employment last month.

Earthquake to drag on Chile recession recovery

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The 8.8-magnitude quake tore up highways and bridges, knocked out power that feeds mines and factories, and shook apart scores of buildings, killing more than 700 people.

With details of the extent of the destruction still emerging, economists said it was hard to estimate the degree to which Latin America’s most advanced economy would be set back.

The damage could cost Chile up to $30bn, equivalent to roughly 15 percent of GDP, said Eqecat, a firm that helps insurers model catastrophe risks.

The quake has also shaken president-elect Sebastian Pinera’s pledge to boost economic growth just before his centre-right government is sworn in, ending 20 years of leftist rule.

“There will be a widespread and deep impact on Chile’s economy,” said Nick Chamie, who heads research on emerging markets at RBC Capital Markets in Toronto.

Chamie and other analysts said Chile’s peso could weaken, perhaps sharply, on the news. “We would play the Chilean peso short,” IDEAglobal said.

At the same time, the country’s biggest copper mines, which are important economic drivers, were mostly spared by the disaster and officials said copper exports would not be affected. Chile produces a third of the world’s copper.

The country’s relatively good construction standards also helped it resist the quake, which was one of the world’s strongest in the last 100 years.

“The direct economic impact of the earthquake (could) be limited,” said PIMCO portfolio manager Curtis Mewbourne, based in Newport Beach.

Further helping Chile, the country’s fiscal position is widely considered to be the most solid in Latin America, which will make it easier for the government to rebuild hospitals and highway overpasses.

But with damaged and destroyed buildings now littering central Chile, the earthquake nevertheless knocks some of the wind out of a recovery from last year’s recession, which was its first in a decade.

Rethinking rate hikes
Chile’s economy was set to grow as much as 5.5 percent this year after shrinking an estimated 1.9 percent in 2009, according to forecasts by the central bank, which has hinted it could raise rates although not until at least the second quarter.

Policymakers might now hold rates steady for longer to give the economy a lifeline.

“This will create serious disruptions for a few weeks,” said Goldman Sachs economist Alberto Ramos, who said GDP would take a hit in the current quarter and probably in the April-June period as well.

“It’s likely the central bank will keep liquidity and monetary conditions extremely loose in the near future in order to support the government’s efforts to stabilise the economy,” Ramos said.

Despite the immediate hardships, Chile is probably Latin America’s best-prepared nation for disasters.

Chile privatised its pension system in 1981, years ahead of similar policy shifts in other Latin American countries. The change helped build a deeper domestic capital market that reduced dependence on borrowing from foreigners. Strict regulation also helped Chile’s banks fend off the global financial crisis.

And while Latin American governments like Mexico freely spend their natural resource bounties, Chile has a track record of prudent saving and has amassed a huge warchest of funds from copper exports.

This makes Chile less dependent on borrowed money, and Chile has one of Latin America’s lowest government debt-to-GDP ratios, helping it borrow at cheaper rates than can Mexico or Brazil.

“As the priority shifts from the urgent humanitarian needs to reconstruction, the strong state of government finances in Chile will facilitate these efforts,” said PIMCO’s Mewbourne.

The reconstruction will likely benefit construction and materials sectors in the medium-term, Ramos said.

US Q4 economic growth revised up on inventories

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In its second reading of fourth-quarter GDP, the Commerce Department said the economy grew at a 5.9 percent annual rate, rather than the 5.7 percent pace it estimated in January.

It was still the fastest pace since the third quarter of 2003. The economy expanded at a 2.2 percent annual rate in the third quarter.

Analysts had forecast GDP growing at a 5.7 percent rate in the October-December period.

While the economy rebounded strongly in the second half of 2009 from the worst downturn since the 1930s, data so far suggests the rapid rate of acceleration slowed somewhat in the first quarter of 2010.

A sharp brake in the pace at which businesses liquidated inventories combined with increased spending on equipment and software to boost growth in the fourth quarter, offsetting lacklustre consumer spending and residential investment.

Stripping out inventories, the economy expanded at an annual rate of 1.9 percent, rather than the 2.2 percent pace estimated in January, indicating growth was not being driven by demand.

Business inventories fell only $16.9bn in the fourth quarter instead of $33.5bn estimated at the start of the year. They dropped $139.2bn in the July-September period. The change in inventories alone added 3.88 percentage points to GDP in the last quarter.

This was the biggest percentage contribution since the fourth quarter of 1987.

For the whole of 2009, the economy contracted 2.4 percent, the biggest decline since 1946, the department said.

In the final three months of 2009, consumer spending increased at a 1.7 percent rate, rather than the two percent pace reported in January. That was below the 2.8 percent rate in the prior quarter when consumption got a boost from the government’s “cash for clunkers” auto purchase programme.

In the fourth quarter, consumer spending – which normally accounts for about 70 percent of US economic activity – contributed 1.23 percentage points to GDP.

The department confirmed robust spending on equipment and software caused business investment to grow for the first time since second quarter of 2008, despite a drop in spending on commercial real estate.

Business investment rose at a 6.5 percent rate, much faster than the 2.9 percent pace estimated in January. It had dropped 5.9 percent over the prior three-month period.

Spending on new home construction grew at a slower five percent rate in the fourth quarter, instead of 5.7 percent estimated originally. It had grown at an 18.9 percent pace in the third quarter.

Both exports and imports grew much stronger than initially estimated in the fourth quarter, leaving a trade gap that contributed 0.3 percentage point to GDP growth, the data showed.

India lifts borrowing in budget, bonds hit

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India will increase market borrowing by 1.3 percent in the next fiscal year, disappointing bond investors, as it counts on a surging economy and a partial rollback of stimulus measures to cut its fiscal deficit.

Bond markets reversed earlier gains on worries over the government budget’s plans to increase market borrowing, and some watchers said India missed an opportunity to take more aggressive fiscal measures.

Finance Minister Pranab Mukherjee rolled back some tax incentives implemented to help tide the economy through the worst of the global downturn, and outlined plans to bolster agricultural output.

Gross borrowing for the new year will total 4.57 trillion rupees ($99bn), slightly below a poll forecast for 4.61 trillion rupees and above the expected 4.51 trillion rupees in the current fiscal year.

“The government missed the opportunity of fiscal timing despite growth being on a strong trajectory,” said Robert Prior-Wandesforde, HSBC senior Asian economist in Singapore.

“Given that the fiscal stimulus withdrawal was not strong, the Reserve Bank of India may have to be more aggressive in its policy tightening,” he said.

The central bank is widely expected to raise interest rates at its next quarterly policy review on April 20.

India’s economy grew six percent in the December quarter, short of a poll forecast of 6.8 percent as farm output fell 2.8 percent.

Mukherjee said the fiscal deficit will decline to 5.5 percent of GDP in the new year, from 6.9 percent this year, slightly lower than a reporters poll forecast of 5.6 percent. The deficit figure was slightly better than forecasts and in line with government expectations.

Expectations for robust economic growth in the new fiscal year will help India reach its deficit target without making tough decisions to cut spending.

“The first challenge before us is to quickly revert to the high GDP growth path of nine percent,” Mukherjee said in a budget speech to parliament that was interrupted by loud protests from opposition lawmakers.

High food prices have helped push broader inflation to what some economists expect could hit 10 percent next month.

Mukherjee is counting on surging economic growth, which his ministry forecasts will grow by 8.5 percent in the next fiscal year, as well as higher revenues from sales of government company stakes and 3G mobile licences to forestall the need for politically unpopular spending cuts.

The government growth target for next year exceeds the eight percent forecast in a poll of economists in late January.

Tearful Toyoda apologises; Japan hopes for recovery

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Toyota Motor Corp President Akio Toyoda apologised to US lawmakers probing the automaker’s safety record and ended the day in tears, in what Japanese politicians hoped was a first step towards rebuilding trust in the country’s most valuable company.

Toyoda, peppered with questions about a massive recall that has rocked Toyota’s reputation, told lawmakers he was “deeply sorry” for accidents and injuries involving its cars.

He said Toyota had lost its way during a period of fast growth but vowed to steer it back to the values that made it a watchword for quality.

Cheered by Toyota plant workers and dealers at an event organised by the automaker on February 24 in Washington, Toyoda broke into tears under a giant display bearing the name of the company that his legendary grandfather founded.

“I believe that Toyota has always worked for the benefit of the United States,” Toyoda said. “I tried to convey that message from the heart, but whether it was broadly understood or not, I don’t know.”

He also offered a sober assessment of the challenges still ahead: “We at Toyota are at a crossroad. We need to rethink everything about our operation.”

Toyoda’s appearance in Washington marked a dramatic peak in a safety crisis that broke in early January with a series of recalls over unintended acceleration and braking problems that now include more than 8.5 million vehicles globally.

Politicians in Japan are worried about the potential fallout from the crisis. Toyota, with a market value of about $125bn, is at the the heart of a massive supplier network that is vital to the economy’s health.

“It was good that the Toyota president himself appeared before the panel and testified,” Prime Minister Yukio Hatoyama told reporters in Tokyo.

“I don’t think this marks the end of everything. He spoke of working to make improvements. This is a matter involving cars, that affects people’s lives, so the important thing is pay close attention to safety and to fulfil its aim to make improvements where they are needed. I’m hopeful and I think they will do so.”

Japanese Trade Minister Masayuki Naoshima said Toyota’s problems could have an impact on the image of Japanese products and that he wanted the car maker to win back consumer trust.

Electronics probed
The costs of the recall are set to grow with an agreement with New York state to speed customer repairs and provide alternative transportation, a pact likely to expand to other states.

Toyoda’s efforts to reassure US officials and consumers were undercut by a confrontation over a 2009 memo in which Toyota boasts of saving $100m by persuading safety regulators to accept a relatively cheap recall of floor mats implicated in the unintended acceleration.

US Transportation Secretary Ray LaHood, who preceded Toyoda before the committee, simply labeled recalled Toyota vehicles as “not safe.”

Dressed in a gray, pinstriped suit, Toyoda said he, more than anyone, wanted Toyota cars to be safe. “My name is on every car,” he said in English before using an interpreter to answer questions.

But Toyoda rejected the possibility that some of the acceleration problems are in the electronics rather than the recalled sticky accelerator mechanisms and floor mats that can trap the accelerator pedal.

Chris Gidez, director of risk management and crisis communications at Hill & Knowlton, said Toyoda gets points for coming from Japan to testify and judgments will not be made in just one hearing. “This is going to be a marathon for Toyota.”

Five deaths
The unintended acceleration problems have been linked to five US deaths, with 29 other fatality reports being examined by US authorities.

Representative Paul Kanjorski, a Democrat from Pennsylvania, warned Toyoda that his company would have to pay for the deaths and injuries as US lawsuits mount. “You will be called upon to pay compensation,” Kanjorski said.

Republican John Mica, a Florida Republican, called it an embarrassing day for regulators and for Toyota.

“I’m embarrassed for you, sir,” Mica told Toyota’s North American President Yoshimi Inaba, who was testifying with Toyoda. “I’m embarrassed for the thousands of Americans who work at 10 plants across the United States.”

Toyota now faces a criminal investigation and a securities probe in the US as well as unresolved questions about hundreds of incidents of unintended acceleration reported by consumers.

The FBI raided the Detroit operations of three Japanese suppliers of electronic components to the auto industry on February 24. Denso Corp confirmed the raids were unrelated to the Toyota recalls.

Toyota has promised internal reforms, including a new committee on safety chaired by Toyoda himself.

Jim Press, a former North American chief for Toyota who left in 2007, said the company had become dominated by “anti-family, financially oriented pirates” and needed Toyoda at the helm.

“Akio Toyoda is not only up for the job, but he is the only person who can save Toyota,” Press wrote in an email to industry publication Automotive News.

Toyoda, who took just a few questions from reporters, only appeared to relax at the evening rally organised for Toyota dealers and workers.

One woman who works in a Toyota plant in Alabama, building engines, asked what she could do to help the company in its crisis. “Let’s make a better car,” Toyoda said, breaking into English.

Saenz: Reform could be dangerous

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“If all these elements that are being discussed under the Basel III umbrella are put in place… it would be very onerous, a heavy burden on the profitability of the banking system and the banking industry,” Alfredo Saenz, chief executive of Santander, told UK lawmakers recently.

He said it was impossible to accurately predict the impact as details of many of the measures were not known.

Top banks would see annual profits slump by $110bn if proposed regulations to increase capital and liquidity and other reforms are brought in, analysts at JPMorgan estimate, saying it would hurt economic growth and raise bank costs.

As part of the reform process, Santander submitted a “living will” to the Bank of Spain earlier in the month, to outline how it would be wound down if it collapsed, to prevent a wider financial crisis, Saenz said. He said its plan will need to be “fine-tuned” but he thought it was the first bank in the world to submit one.

All systemically important banks need to develop a living will by the end of this year, under proposals set out by G20 countries last year.

Saenz was being quizzed by UK lawmakers as part of a probe on whether banks are “too big to fail”.

He and Executive Chairman Emilio Botin have steered Santander through the financial crisis thanks to a risk-averse model, a focus on retail banking and lucrative operations in Brazil and elsewhere offsetting a tough Spanish market.

More capital for risk
Forcing banks to hold more capital to cover riskier activities would be better than forcing the break-up of big lenders, Saenz said.

“I would be in favour of extra requirements of capital for riskier activities, such as proprietary trading. Rather than a separation, I would advocate for additional requirements of capital,” he told the UK parliament’s influential Treasury Select Committee.

Saenz said Santander had “negligible” activity in so-called “prop trading”, which the US wants banks to separate from other areas. Proprietary trading is when a firm actively trades with its own money, rather than on behalf of a customer, to make a profit for itself.

“I can’t see any benefit in this kind of break up of banking, the community and the customers would lose efficiency which means better prices and better services,” Saenz said.

He said use of a leverage ratio, which the US is pushing to be used more widely, was not popular in Europe as it failed to capture the risk of assets.

Santander is the second-biggest home loans provider in Britain with a market share of 13 percent and wants to bulk up in commercial banking, Saenz said, targeting a market share of between eight percent and 10 percent, from under three percent now.

It could pick up some of the assets being sold by rivals Royal Bank of Scotland or Lloyds, sources familiar with the sales have said previously.

Kenya economy to grow by 4.5 pct in 2010

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The effects of post-election violence, a drought and the global economic crisis pushed Kenya’s economic growth to 1.7 percent in 2008, after expansion of 7.1 percent in the previous year.

“Last year, the recovery in tourism, and in some other key sectors, mitigated effects of the severe drought that caused food, water and energy shortages,” he said at the opening of parliament after a recess.

“As a result, the economy grew at 2.5 percent. This year we are optimistic that the forecasted 4.5 percent growth rate will be achieved.”

The 2.5 percent figure is in line with the government’s forecast of 2-3 percent growth for 2009.

Kibaki said a united coalition government and a low interest rate environment, were necessary for economic growth.

“Our politics must promote political stability and public confidence in the future of our country. Secondly we must take policy initiatives that will reduce and maintain low interest rates,” he said.

Parliament is reconvening amidst a deep division between the two main coalition partners, Kibaki and Prime Minister  Raila Odinga, over the suspension of ministers whose ministries have been accused of graft.

One of the major tasks ahead of this parliamentary session will be constitutional review.

Copenhagen billions key to climate talks success

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But there’s only months to figure out a way to start deploying the cash, say the world body, negotiators and greens.

A sense of despair has shrouded UN climate talks after what many say was a disappointing outcome of last December’s Copenhagen summit at which world leaders crafted a non-binding political accord in the final hours of the meeting.

While groundbreaking in some ways, the accord left nations struggling to figure out how to achieve the ultimate objective of years of negotiations: a tougher pact that succeeds the existing Kyoto Protocol and strengthens the fight against climate change.

Money could be one way to try to restore momentum, and trust, some analysts feel.

“There needs to be some kind of mutual understanding of where to move forward. My sense is that finance is a good one for that,” said Kim Carstensen, head of environmental group WWF’s global climate initiative.

The accord promises $10bn a year in aid from 2010-12, rising to $100bn a year from 2020 and scores of countries have submitted action plans to curb emissions by 2020, effectively supporting the document.

It also makes clear that steps by all major emitting nations, rich and poor, were key to limit the impacts of rising seas, floods and more disease as the planet heats up.

“I think the finance part of the accord is the critical test of credibility and I don’t think any hedging about implementation of that will be seen kindly by developing countries,” a senior climate negotiator said on condition of anonymity.

Recently, the head of the UN Environment Programme, expected developing nations could be able to apply for some of the $30bn promised in the accord within months. If that didn’t happen, that part of the accord would be in trouble, he said.

Poorer nations feel the rich have broken past climate aid promises and aren’t doing enough to cut their own emissions, creating years of mistrust that have undermined climate talks.

Yet China, India, Brazil and other big emitters have ramped up efforts to curb the growth of their emissions and expect the rich, particularly the US, to finally step up.

China has the world’s third largest wind capacity, behind the US and Germany. Growth last year was highest in the world at 13 gigawatts, bringing China’s total to 25 GW. The government has set a 100 GW target for 2020 – about twice Australia’s total power generation capacity.

Negotiating table
Getting back around the negotiating table is also crucial. The chaotic scenes in the final hours of Copenhagen created doubts over the UN’s ability to deliver a tougher climate pact.

“We’ve gone into a whole new level of complexity in terms of the international change regime and its future,” said Stephen Howes, a director of the Crawford School of Economics and Government at the Australian National University in Canberra.

“There’s nothing in that political agreement [Accord] which says how it will be converted into a legal treaty, when it will be converted or even whether it will be converted,” he said.

Some negotiators say ways must be found to help the UN get back to work and try to resolve impasses.

In a first step, a select group of negotiators decided Germany would host an extra session of UN climate talks in April, the first of the year, ahead of the main Nov 29-Dec 10 meeting in Cancun in Mexico. But the April meeting would not be a formal negotiation session.

Over the coming months, nations must also try to settle once and for all what the new climate pact might look like. The accord, which was not formally adopted by the meeting in Copenhagen, adds an extra layer to the existing negotiations.

For several years, nations have been working on ways to succeed the Kyoto Protocol and negotiations have followed a twin-track path.

One looks at expanding Kyoto from 2013 and the other looks at longer-term climate actions and includes the US, which never ratified Kyoto.

Prior to the final hours of Copenhagen, these twin tracks were the only negotiating paths to guide the talks and have yielded hundreds of pages of complex negotiating texts.

“The Copenhagen Accord provides guidance,” another senior climate official said. Talks this year shouldn’t just try to return to negotiating the existing texts and pretend Copenhagen didn’t happen, said the official, who requested anonymity.

There also remains uncertainty on the fate of the Kyoto Protocol. Many rich nations want a new pact that commits all major emitters to emissions curbs, not just wealthy nations, and say Kyoto hasn’t worked. The Accord barely mentions it.

One way forward may be to put aside efforts to clinch a new legally binding pact by Mexico or by 2011.

The focus should be getting nations to meet emissions cut pledges under the Accord, Howes said.

But for that to happen, actions must speak louder than words.

“If China can show it can drive a wedge between its economic growth and the growth in its emissions and show that it is on a low-carbon growth path, then that would generate more momentum,” he said.

Pakistani finance minister to resign

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Pakistani Finance Minister Shaukat Tarin is to step down this week to focus on his private banking interests, according to reports, following speculation that he would resign.

 Tarin, who negotiated an IMF loan in 2008, was not immediately available for comment.

In March 2008, a consortium comprising the International Finance Corporation, Bank Muscat, Nomura and Sinthos Capital, led by Tarin and another Pakistani banker, Sadeq Saeed, bought an 86.55 percent stake in Silk Bank for about $213m.

“New investors in his Silk Bank had set preconditions that they will invest billions in the bank provided a seasoned banker like Tarin pays full-time attention,” read reports.

Tarin’s resignation is not expected to destabilise the government but international donors will be keen to see a respected minister appointed in his place.

Tarin had suggested three candidates to replace him, according to reports. One was former central bank governor Ishrat Husain, another was senior economist Hafiz Pasha and the third was chief executive of Arif Habib Investment Ltd, Nasim Beg.

Asked by reporters this month about the possibility of his stepping down, Tarin said he had not resigned nor had he discussed stepping down with anyone.

Prime Minister Yusuf Raza Gilani was caught advertently by media microphones telling a former finance minister, Ishaq Dar, that Tarin would be leaving.

Tarin was appointed the prime minister’s top adviser on economic affairs in October 2008 and later sworn in as finance minister.

Yilmaz Yildiz on Turkish insurance | Groupama | Video

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The Turkish economy has performed impressively over the last three years, with one of the fastest growth rates after China. The pensions and insurance market has mirrored this performance, but although growth is strong (15 percent), excessive competition and regulation hinders profitability. Yilmaz Yildiz discusses the way forward in a country where the premium per head is just one sixth of the European benchmark.

Leading emerging markets

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Founded by entrepreneur Laércio Cosentino in 1983, TOTVS is the largest emerging markets software firm and the world’s seventh largest firm specialising in the development and sale of Enterprise Resource Planning (ERP) software. The company has five thousand direct employees and another four thousand indirect employees, operating 208 franchises in Brazil and around the world.

Focused on the IT segment, TOTVS’s growth has been fast, well structured and transparent. As early as 2005, the company adopted an external auditing procedure and it was the first private company to win the national prize awarded by the Brazilian Institute of Corporate Governance (IBGC) recognising the company with the best corporate governance practices in Brazil. Transparency has always been a core value at TOTVS, which sells more than software; it also sells longevity – its own, by investing in research and development, as well as that of its clients, who can count on the company to provide durable and constantly updated solutions.

In 2006, TOTVS became the first Latin American IT company to hold an IPO and to list its shares on the Novo Mercado segment of the São Paulo Stock Exchange. To this day, the company maintains its listing on the Novo Mercado segment, the Bovespa corporate governance category with the most stringent requirements.

The company’s concern for its management is reflected in the composition of its board of directors, which has been comprised of at least 70 percent external members over the past seven years, as well as in its decision to create Auditing and Compensation committees.

Intent on leading the consolidation of its sector, TOTVS has acquired several important competitors in Brazil (such as Logocenter, RM Sistemas and Datasul) significantly increasing its portfolio and its vertical operations, which are divided into specialised market segments and have the ability to serve any client, regardless of size. TOTVS also entered into a joint venture agreement with Quality, creating TQTVD, giving it a presence in the digital television segment. All told, the company is comprised of a total of 23 individual firms and has more than 9,000 employees.

The experience TOTVS has gained through its acquisitions and mergers have positioned the company as an Administrative Operator, an intelligent and challenging concept. More than just supplying software, the company focuses itself on best business practices and positions itself as the provider of a variety of solutions that, in addition to software services, include consulting, technology services and value-added services such as BPO, infrastructure, educational and service desk solutions.

TOTVS is the only Latin American company with a proprietary technology platform for use in the development of its software solutions and it possesses operational expertise in the following 11 segments: health care, agro-industry, legal, financial services, distribution and logistics, retail, education, construction and projects, manufacturing, small businesses (series 1 and 3) and services.

The company currently has operations in 23 countries and owns six units in Brazil and 15 others distributed throughout Argentina, Mexico, Portugal and Angola. TOTVS’s portfolio totals 24,200 clients.

Strength in operations
TOTVS’s goal is to expand its operations in specialised markets, and the company has defined business segments to which it can offer software solutions with specific characteristics. The company’s segment-specific solutions go beyond the automation of back-office operations to include applications with specific functionalities for each of the segments. In order to advance in each of the segments, the company is among the biggest spenders on research and development investment in Brazil. Last year alone, the company allocated $65m to R&D.

An intelligence unit has been created for each segment that, among other activities, is charged with elaborating its operational strategy and is responsible for maintaining relationships with the market, identifying strategic partnerships and communicating material facts and information to the sector. The company’s goal is to offer personalised software solutions for the market in which its clients operates, while taking into consideration the specific challenges and compliance with the legal requirements pertinent to each segment.

Accomplishments
The past year was a period of growth and accomplishment for TOTVS. The company celebrated record sales, an increase in market share (it leads the market with a 38.7 percent share), new acquisitions, brand consolidations, the announcement of new products and the strengthening of its business segments.

In the first nine months of 2009, TOTVS posted $366.6m in net revenue, a 7.6 percent year on year increase. EBITDA totaled $94.1m in the 9M09, a 32.5 percent jump over the 9M08. In the same period, net income came to $58.2m, a 7.9 percent increase over 2008. EBITDA margin rose by 490 basis points relative to the 9M08.
The group’s 26 years of market operations led to a number of prizes in 2009, including Best Corporate Governance in the Technology Segment category and, for the second straight year, recognition in the top five Corporate Governance – Best of Brazil and of Latin America ranking by MZ Consult, a leading investor relations and financial communications firm.

In 2008, the company won IBM’s international award for “Best Partner – Innovation That Matters,” having been identified as one of 50 “local dynamos” in a listing of case studies of successful businesses published by Boston Consulting Group (BCG), one of the largest consulting firms in the world. The company was also mentioned in an article published in the Harvard Business Review that highlighted its business model and the aggressive strategies it has employed in its consolidation of the Brazilian market.

TOTVS is also active in the communities in which it operates. The company understands that corporate social responsibility is an integral part of its business, which is why it has operated the Social Opportunity Institute (IOS), a professional training programme for low-income youths, for 10 years. More than 18 thousand students have already completed the programme. IOS gets help and support from TOTVS’s clients and partners.

Entrepreneurship, leadership, a consolidating spirit and transparency are among the core values of TOTVS, a company that operates in a broad and still little-explored market. These credentials, along with the fact that TOTVS is the only emerging markets company to develop state-of-the-art technology from which to develop its software solutions, are fundamental aspects of the company’s long term prosperity and that of its clients and investors.

For more information, visit: www.totvs.com

Blazing a trail

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Winner of this year’s World Finance award for corporate governance in Turkey, it is no surprise to Turkcell’s stakeholders that the telecoms giant would receive such acclaim. After all, Turkcell is the only Turkish company to attain listing on the NYSE (TKC), which occurred in 2000, the same year as it joined the Istanbul Stock Exchange. Since its formation in 1994, Turkcell has been the leading communications and technology company in Turkey and a major international operator.

Turkcell is the market leader in five of the eight countries in which it operates (Azerbaijan, Belarus, Georgia, Kazakhstan, Moldova, Northern Cyprus and Ukraine.) In Turkey alone, Turkcell has 36 million subscribers (as of September 2009), making it the second largest European mobile operator.

In 2008, Turkcell’s revenues reached $7bn (with a 37 percent EBITDA margin) yielding a net income of $1.8bn.  In the first nine months of 2009, Turkcell recorded a gross revenue of $4.3bn (with a 34 percent EBITDA margin) and a net income of $922.9m.

Corporate governance
Being the only Turkish company to be listed on the New York Stock Exchange, it stands that the company’s corporate governance standards are exceptional and adhere to the requirements that come with NYSE membership. The company discloses information on a regular basis to conform with the regulatory requirements of Turkey’s Capital Markets Board (‘CMB’), the Istanbul Stock Exchange, the Securities and Exchange Commission and NYSE Euronext.

The company’s disclosure policy ensures active and transparent communication which is complete, fair, correct, timely, clear and cost-effective and equally accessible for all stakeholders. Turkcell’s interim and annual financial statements are prepared in accordance with the regulations of the CMB and IFRS published by the International Accounting Standards Board. Turkcell management host global teleconferences with analysts and investors following the release of its financial results and engage with the media both in Turkey and internationally.

Growing operations
Overall, Turkcell serves a population of 160 million customers in eight countries. Turkcell’s international presence dates from 1999 when it formed KKTCell in Northern Cyprus. Since 2000, Turkcell has been operating in Azerbaijan, Kazakhstan, Georgia, and Moldova through its 41.45 percent stake in Fintur. Turkcell has also had operations in Ukraine since 2004 and in Belarus since 2008.

Turkcell and has made $8.2bn US worth of investments since its foundation − excluding license fees – and remains opportunistic about M&A. In 2010 and beyond, Turkcell’s growth strategy will continue to be focused on organic growth, whilst selectively seeking and evaluating new investment opportunities in international markets and adjacent and new business opportunities.

Innovations in technology
Turkcell’s strong infrastructure, innovative products and commitment to provide high quality services are the reasons behind the company’s success and market leadership.

The huge customer interest in Turkcell’s 3G offering exceeded expectations and the company has been able to offer increasingly innovative mobile services to its consumer and corporate customers. Turkcell’s high quality network enables it to further build its wide portfolio of products and services. Innovative services Turkcell has launched include videocall, mobile TV, video surveillance, video chat and video messaging. Turkcell distinguishes itself from its competitors through its massive distribution network: a full 87,000 sales points. The company’s distribution channel acts as a sales force, equipped with all the latest technology.

A good example of Turkcell’s technological leadership is a recent initiative in collaboration with Turkey’s Directorate General of Coastal Safety. Together, they pioneered the “Remote Management of Lighthouses’’ project to bring the latest technology to lighthouses and reinforce existing infrastructures.

Turkcell’s technological leadership has also been recognised internationally. At the GSMA World Congress in Barcelona in 2009, Turkcell won the award for Best Mobile Advertising Service, honoring outstanding achievement in an industry renowned for its innovation. Turkcell also received an award for the “Best Mobile Content Development” for its ‘Turkcell NTV VIDEO News’ service at the prestigious Mobile Excellence Awards programme.

Turkcell has always led the way in bringing new technology to Turkey. The company is passionate about encouraging innovation and values external sources to generate ideas for new products and services. Turkcell promotes platforms to encourage innovation, making Turkcell a product and services “idea-sharing” hub. The company has established internal teams of employees from different areas to evaluate ideas. Periodically, it runs evaluation meetings to select the best ideas and to decide how to develop them into competitive offerings.

Turkcell’s recently launched partner portal (turkcellpartner.com) serves its existing partners, as well as potential new partners, with content reflecting its technical and business know-how, partnership mechanisms and procedures, and technical capabilities. Turkcell Technology, founded in 2007, aims to provide world class technology through a local work force. Turkcell Technology’s success is reflected in the fact that, on average, it has filed for a different patent every month of its existence. The trail blazing continues and Turkcell doesn’t disappoint.

3G Revolution in Turkey
While 3G mobile may be “old hat” in Europe since its launch early in the new millennium, and had a lacklustre launch in those times, the launch in Turkey in July, 2009 further cemented Turkcell’s hold against its competitors, Vodafone and Avea. With more than 19,200 base stations, Turkcell has the best mobile coverage (99 percent of the population) and highest quality network in Turkey. Today, with 36 million subscribers, Turkcell provides 3G services to a whopping 65 percent of the Turkish population.

Turkcell’s VAS revenues comprised 15 percent of its consolidated revenue in the third quarter of 2009, compared to 14 percent one year earlier. Going forward in this new 3G era, Turkcell’s 3G business model is forecasted to drive growth in its VAS revenues through increased use of mobile broadband and services.

Africa risks overstated says Egyptian export insurer

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“We’re getting a lot of business in this area…mainly the Nile Basin,” said Alaa Gouda, General Manager of ECGE, adding shrinking demand from the West after the global financial crisis was driving Egyptian export interest in sub-Saharan markets.

Partly state-owned ECGE has a $200m portfolio and says more of its clients are eyeing the African market to export engineering and infrastructure products in particular, including electric cables, cement and ceramic tiles.

ECGE insures short and medium-term deals against risks like buyer insolvency and civil disturbance in the buyer countries.

“We have 50 percent of our exports going to the U.S. and Europe, now demand in the U.S. and Europe due to the financial crisis has declined. It’s normal to see a shift,” he told reporters in an interview, adding that Africa was now a growing focus.

He said Egyptian firms were targeting African markets because of upbeat growth forecasts, expanding populations and high returns. ECGE’s business with Africa grew from 10 percent of its portfolio in 2008 to 25 percent now, Gouda said.

The shift in focus by exporters is mirrored by a growing interest from Egyptian investors, which ECGE does not cover, such as private equity firm Citadel Capital’s plans to invest $200-400m in East Africa by 2012 mainly in transport and logistics, and El Sewedy Cables investment in power line production in Ethiopia.

No default
Foreign currency shortages in some African markets meant payment deadlines were often a longer tenure than in Europe, but Gouda said: “We don’t have default in the area of the sub-Sahara.”

He added that this was the only region for the ECGE with no default during the financial crisis. “Those (African) markets have been booming,” he said.

Kenya’s economy is seen growing by 3.9 percent in 2010 and Uganda’s by 6.38 percent, a poll shows.

Ratings agencies typically highlight threats such as a fear of resurging political violence in Kenya or possible secession of south Sudan, but Gouda said this seemed to overstate risks and African businesses had learnt to deal with such issues.

“All the ratings agencies have been giving weak ratings for these countries and saying there’s a lot of political risk,” he said. “You could find a lot of ethnic riots. It’s always been there, but it does not paralyse economies.”

“We have always been speaking of this part of the world as high-risk, high-risk, high-risk, then we got the hit from somewhere else,” he said, referring to the global crisis that hit the U.S. and other developed countries hard.

He said the eagerness of African states to attract foreign direct investment often encouraged businesses to be extra careful about meeting payments and improving business practices.

“For the coming two decades at least, foreign investors will be in a safe haven,” he said.