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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.

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.

EU exec says no 20bn euro aid plan for Greece

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They were reacting to a report in German weekly Der Spiegel that Germany’s finance ministry had sketched out a plan in which countries using the euro currency would provide aid worth 20-25 billion euros ($27-$33.7bn).

“There is no such plan because Greece has not requested a single euro in financial aid,” European Commission spokesman Amadeu Altafaj told a news conference in Brussels.

In Berlin, a finance ministry spokesman told a news conference Germany had not made a decision on aid for Greece but expected the debt-ridden country to be able to refinance in April.

Greece’s central bank governor meanwhile said the country was prepared to take extra fiscal steps to make sure it meets its deficit-cutting targets though he said financial markets were over-reacting to the country’s financial woes..

“Even if some risks materialise – like [poor] growth – the government is prepared to take immediate corrective action,” George Provopoulos, also a member of the ECB’s Governing Council, told Bloomberg in an interview.

“The government has said already on several occasions that it will take any additional measures required in order to achieve its goal,” Provopoulos was quoted as saying.

Der Spiegel had reported that “initial considerations” by the German finance ministry were for financial aid for Greece to be calculated according to the proportion of capital each country holds in the ECB.

Greece has pledged to reduce its budget deficit by four percentage points to 8.7 percent of GDP in 2010. Spreads of Greek government-bond yields over German bunds have surged since October.

In another Der Spiegel report, Greek Prime Minister George Papandreou told Germany he was not seeking aid, and criticised the Commission for failing to ensure Member States adhered to the EU’s Stability and Growth Pact that limits budget deficits.

“The union could in the past have more rigorously policed whether the stability pact was being observed – with us too,” he said. “In future we should allow the European statistics office direct access to individual Member States’ data.”

“We suggested that, but not all countries wanted to have so much transparency,” Papandreou said.

Bond offer
Financial markets have given Athens a hammering this year over worries it will not be able to refinance debt coming due this year, and the fallout has seen other highly-indebted EU states suffer, along with the euro itself.

The 10-year Greek/German government bond yield spread  narrowed by three basis points on the day to 314 bps, the narrowest since February 17.

In his comments to Bloomberg on the way financial markets were reacting, Provopoulos was quoted as saying: “They take advantage of the weak link to make profits.”

“It’s clear that there is a certain degree of overshooting. Given the high degree of uncertainty in the markets, one should not expect that the situation will normalise overnight.”

Greece’s deficit swelled to 12.7 percent of GDP in 2009, way above the EU’s cap of three percent, and Athens needs to sell some 53 billion euros of debt this year, including at least 20 billion euros in April and May.

In another report, Germany’s Handelsblatt business daily on Monday said German Finance Minister Wolfgang Schaeuble favours using bilateral aid to help Greece in the event that Athens defaults on its debt commitments.

Finance Minister George Papaconstantinou told reporters that Greece would decide on the next bond issuance soon but confirmed no details.

Bernanke has some explaining to do

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The head of the central bank heads to Capitol Hill on Wednesday and Thursday for twice-yearly testimony, fulfilling a long-time practice.

Normally, the main topic is the state of the economy.

This time, Bernanke will also have to answer why he decided to spring a surprise on financial markets last week by raising the interest rate the Fed charges on emergency loans to banks – and whether that signals the days of easy money are over.

Higher borrowing costs would be unwelcome news to Congress, where the majority of lawmakers are up for re-election and want low rates to foster economic growth and keep voters happy.

Bernanke was already under pressure from some lawmakers who thought he failed to see the financial crisis coming and mishandled the fallout. Thirty senators voted against him serving a second term as chairman, the stiffest opposition in the nearly 32 years the Senate has voted on the position.

He can expect to hear more of that criticism this week as lawmakers debate how best to reform financial regulation, and how large a role the Fed ought to play.

When the Fed announced the hike in the so-called discount rate on Thursday, it went out of its way to say this would not raise borrowing costs for households or consumers.

The numbers back that up. The rate hike affects only the Fed’s “discount window” for emergency loans, and borrowing there averaged $87.73bn a day in the week ended February 17. Paying an extra 0.25 percent interest on that amount works out to just $219m – a drop in the bucket for multitrillion-dollar global credit markets.

Why now?
That the central bank was planning to raise the discount rate was well known. Bernanke himself had said on February 10 a move would probably come soon as the Fed tries to encourage banks to resume borrowing from the private sector.

But the timing raised questions. Why did the Fed deem it necessary to raise the rate last week? Couldn’t it wait until its next scheduled policy meeting on March 16? And if not, why didn’t the Fed make this move at its January 27 meeting?

The result was a new wave of speculation that the Fed was closer to raising its benchmark interest rate, which governs lending between banks, than markets had assumed, said Brian Bethune, an economist with IHS Global Insight in Lexington, Massachusetts.

“Hopefully, Bernanke’s testimony to Congress … will shed some important new light on the Fed’s policy intentions,” he said.

Jack Ablin, chief investment officer at Harris Private Bank in Chicago, said he expected Bernanke to reassure both lawmakers and investors that borrowing costs are not heading higher any time soon.

In fact, by taking smaller steps such as raising the discount rate and talking about the need to normalise policy, Bernanke can buy himself some more time to keep rates low.

Financial market players tend to react to tightening talk by pushing up the dollar, which eases inflation pressure and gives the Fed some breathing room.

“In his heart, I don’t think he has any intention of raising rates this year,” Ablin said. “In order to do that, he has to jawbone. The more they can talk and flap their arms, the less they have to raise rates.”

To make matters even more complicated for Bernanke, his testimony comes in the midst of debate over how to reform financial regulation to ward off the next crisis.

Senator Christopher Dodd, chairman of the Senate Banking Committee where Bernanke will be testifying on Thursday, and Republican Senator Bob Corker are expected to unveil a bipartisan financial reform bill this week.

The Fed’s role in that remains to be seen. Bernanke thinks the central bank is best placed to serve as systemic risk regulator, overseeing the largest financial firms to ensure they don’t take on too much risk.

Dodd opposes putting the Fed at the centre of systemic risk regulation, and will probably seek to curb its powers.

Between the drama over the discount rate hike and the debate over regulation, Bernanke’s view of the economy may be a bit overshadowed. Look for him to give a brighter view of growth prospects, if anyone is still listening.

Brokering the mould

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Keeping it people-focused, maintaining integrity at all times and innovating along with the changes in the market – these are the ingredients that make Al Ramz Securities, LLC or RAMZ one of the strongest independent brokerage companies in the UAE since its inception in the late 90s. RAMZ has matured along with the growth of the UAE as an economy and as an international investment hub. 

The UAE has witnessed profound and in some ways, unprecedented changes over the last few years. Perhaps this is best underscored by the fact that, notwithstanding the spike in oil prices, oil now contributes less than 30 percent of the country’s domestic economy. The rise in the non-oil sectors’ contribution to UAE’s GDP reflects the aggressive diversification of the economy through legislative reforms, encouragement and empowerment of the private sector, and active support of the government for industrial growth.

Both the Abu Dhabi Stock Exchange (ADX) and Dubai Financial Market (DFM) have grown considerably in terms of listings, trading volumes, trade turnovers and market capitalisations. In 2005, what is now known as NASDAQ Dubai (re-branded from its former name of Dubai International Financial Exchange) opened as the international exchange serving the region between Western Europe and East Asia. Through out all these advancements, RAMZ has been an integral part of the UAE financial markets providing reliable access for investors to participate in one of the world’s fastest growing markets. 

From its humble beginning in 1998, RAMZ has to date become an independent powerhouse. Even before the ADX and DFM were formally established in 2000, RAMZ has been trading equities in the over-the-counter (OTC) market. With the establishment of the country’s two stock exchanges, RAMZ immediately saw a strong position among the competitors for market share. RAMZ has consistently maintained a significant portion of traded volume on both the ADX and DFM ranking amongst the top five brokers in the UAE in terms of volume. Such achievements would not have been possible and would not have been maintained had it not been for the company’s unfailing focus to better serve its customers and continuously evolving to suit market developments.

RAMZ offers its clients a more personalised approach to their brokerage needs, which has distinguished it in the region as a leader in brokerage services. From customer service to execution, the client is provided with an up-to-date look of the UAE markets, keeping the client informed on their investment portfolios by a range of brokers spread out through a network of branches across the UAE.  RAMZ’s highly professional team works within a strict ethical framework – ensuring that clients’ interests are safeguarded at all times. RAMZ also recognises that these concepts are not enough to maintain success. Markets are dynamic and changes are inevitable. The company perceives change as a challenge that presents great opportunities – and so RAMZ moves forward with transformation.

Through the years, RAMZ has expanded both geographically as it established branches all over the country and organically as it developed more service offerings. The company has set up six strategically placed branches across the emirates to cater to the investment community and provide a network of highly trained brokers and an online trading platform for its retail client base. Clients can execute their own trades from the comfort of their own homes or offices while always being able to contact their local broker for a quick summary of the day’s news and events that are affecting their portfolios. 

In early 2009, apart from securing membership from NASDAQ Dubai, RAMZ formally established its Institutional Desk. More recently RAMZ, aware of the growing participation of institutional investors both locally and regionally, further expanded its institutional reach by pursuing a merger with National Financial Brokerage Company, the brokerage arm of Invest AD, combining the institutional and retail markets to build a brokerage powerhouse. The transaction brings together two leading complementary brokerage firms in the region each being a leader in their respective fields. This has given RAMZ an edge in the institutional market of the UAE in exchange for Invest AD becoming a strategic shareholder in the expanded RAMZ Group.

Invest AD joins a distinguished and influential roster of RAMZ shareholders, which include established and reputable institutions in various sectors such as finance, investments, insurance and property. RAMZ is also in a unique position to count among its owners members of the ruling Al Nahyan Family of Abu Dhabi, Invest Abu Dhabi (formerly known as Abu Dhabi Investment Company) and Oman Insurance as well as regional business leaders with decades of professional experience and expertise in diverse fields. 

RAMZ has made significant strides since its inception, maintaining its premier market position even in the face of growing competition and extreme market environments. This would not have been possible without the firm’s deep and unique understanding of its markets and customers and leveraging its competencies in terms of its service offerings, branch network and technological innovations. Going forward, RAMZ sees diversification in terms of geography and, in terms of product suite, as it actively pursues expanding into asset management.

With its unrivaled ambitions and strong continued growth, Al Ramz has established itself as a unique and independent brokerage aimed at helping its clients reach financial independence on their own, by bringing a wealth of experience to better serve the investor.

Powering infrastructures

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The world economy is in a very delicate phase and the effects of the financial crisis will continue to be seen for some time to come. Despite the high degree of uncertainty, the most recent forecasts offer hope that the worst has passed and that the conditions for recovery are strengthening, partly thanks to the large economic stimulus programmes put in place by the governments of leading industrialised countries. Infrastructure investment (transport, energy, telecommunications and construction) is central to such initiatives.

Atlantia has a key role to play in responding to the crisis, providing a boost for the economy thanks to its planned investment in the Italian motorway network through its subsidiary, Autostrade per l’Italia. This will see the group once again drive the kind of renewed economic growth that helped to rebuild the Italian economy after the Second World War.

Autostrade-Concessioni e Costruzioni Autostrade SpA − now Atlantia SpA − was established in 1950 as a publicly owned company tasked with building the backbone of the Italian motorway system. The company began operating in 1956, entering into an agreement with ANAS (Italy’s Highways Agency). On the basis of this Autostrade was committed to co-financing, building and operating the Autostrada del Sole between Milan and Naples, which opened in 1964.

The business has grown into the present group, which today operates a network of over 3,400km, accounting for 52 percent of Italy’s motorway system and used by four million travellers a day.

Autostrade was privatised in 1999, before a restructuring in 2003 led to the creation of Autostrade per l’Italia SpA, a wholly owned subsidiary of Autostrade SpA, which, in May 2007, changed its name to Atlantia SpA.
With a stock market capitalisation of approximately Ä10bn at the end of 2009, Atlantia is one of Italy’s leading companies with turnover of Ä3,477m and an EBITDA margin of 60.8 percent in 2008.

Autostrade per l’Italia and its motorway subsidiaries are committed to upgrading and modernising around 900km of network, involving a total investment of almost Ä22bn. The programme aims to bring the capacity of the motorways operated under concession into line with growing traffic volumes and the need for greater safety and service quality, and makes Autostrade per l’Italia the country’s biggest private investor.

In carrying out its core business, the Atlantia Group is fully aware of the importance of its role in a sector that is crucial to the socio-economic development of the areas crossed by its motorways. It is also conscious of the significant environmental impact of its activities, requiring it to work with and reach agreement with local authorities and communities. In addition, the group is faced with the complexities of raising the necessary financing and ensuring an adequate return on invested capital. The complexity of the business requires a prudent and balanced approach to managing relations with the various stakeholders involved in the group’s business model.

For a listed company that was once under public control, operating in a business with a large number of very different stakeholders, it is crucial to have a corporate governance system capable of balancing the interests of the various stakeholders (customers, government, environment and communities, investors, capital providers and staff) and ensuring a correct and transparent approach to doing business.

Moreover, corporate governance is, more than ever before, seen as a critical factor in the success or failure of a company: the collapse of some of the world’s leading companies during the recent financial crisis, as a result of poor management, has reinforced the need for an exemplary corporate governance strategy.

Atlantia SpA’s corporate governance system is based on the concept of balance in the representativeness and roles of corporate bodies, on ongoing dialogue with the wider stakeholder community and on transparency, in terms of both market disclosures and internal procedures.

Atlantia’s corporate governance system is based on a set of rules in line with the latest standards defined by the market and regulators, with the aim of ensuring that stakeholders engage with the strategies followed by the group. This system has been implemented and updated over time by the introduction of rules of conduct in line with development of the business and the requirements of Borsa Italiana SpA, as set out in the Guidelines to the Corporate Governance Code for Listed Companies.

The ability to guarantee the different interests of the various parties depends on a series of bodies and tools designed to protect the interests of each stakeholder category and implement the related controls:
– Customers: the “Consultative Safety and Service Quality Committee”, set up in collaboration with the highway police and consumers’ associations with the aim of identifying, agreeing and checking on initiatives and programmes designed to improve motorway services and road safety.
– Environment and communities: the “Sustainability Committee”, set up to promote sustainable development principles and values within the group and propose social and environmental responsibility objectives, programmes and initiatives.
– Government: the “Supervisory Board”, responsible for drawing up the organisational, management and control model for all group companies in order to prevent the company being liable for administrative crimes, via identification of the areas of the business at risk and the definition of control procedures.
– Investors: the Internal Control and Corporate Governance Committee, which provides advice, recommendations and assistance relating to checks on the correct functioning of the internal control system, with particular reference to compliance with international standards, the various codes of conduct and declared principles.
– Staff: “Consultative Workplace Safety Committee”, consisting of union representatives, representatives of Autostrade per l’Italia and external experts in workplace safety.

The group also has a “Stakeholder Committee”, which is responsible for assessing corporate advertising initiatives aimed at stakeholders, ensuring the consistency of objectives, content and approach and verifying implementation.

Atlantia’s corporate governance system also includes a number of key elements that reflect the group’s commitment to going beyond the requirements of current legislation, by adopting additional measures to protect minority interests and ensure correct governance. This regards the use of voting lists, enabling shareholders to appoint three out of 15 members of the board of directors, which is more than required by existing regulations.

The group is committed to complying with the highest self-regulatory standards set by the authorities that oversee the regulated markets on which the shares of group companies are listed, and to maintaining high levels of transparency and correctness in the management of group companies.

The results achieved with regard to the categories of stakeholder offers are proof of the progress made since privatisation and provide an incentive to achieve even more ambitious objectives, including in terms of recognition and visibility:
– Efforts designed to bring about ongoing improvements in motorway infrastructure and service quality have resulted in a 73 percent reduction in the death rate  since privatisation, outperforming both the reductions reported by other road networks and the European Community’s ten-year goal of halving road deaths by 2009;
– In September 2009 Atlantia was included in the Dow Jones Sustainability World Index, the prestigious global corporate social responsibility index that selects the best enterprises from the 2,500 international companies in the Dow Jones Global indexes, based on economic, environmental and social criteria;
– The group’s ability to raise new funding is proof of its stronger financial credibility in the markets: even during a year when access to credit was at its most difficult, Atlantia has raised approximately Ä5bn in new borrowing to finance capital expenditure.

For this reason, it is of particular significance to Atlantia to have won the World Finance Corporate Governance Award for 2009, reflecting both the high profile of the jury that chose the winner and the quality of the competition. We are firmly convinced that corporate governance is a key factor in the success and survival of a business. The World Finance award is proof that we are on the right track and will spur us on to reinforce our commitment to establishing a benchmark for our market.  

Gian Maria Gros-Pietro is Chairman of Atlantia

Irish “bad bank” transfers delayed until end March

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Ireland will transfer the first loans to the National Asset Management Agency (NAMA) “bad bank” by the end of March, missing its latest deadline of late February, as it waits on European approval to begin the scheme.

Finance Minister Brian Lenihan has said work valuing the total loans initially worth 80 billion euros ($109bn) was also still ongoing on the scheme charged with cleansing its troubled banking sector.

The transfer of loans to NAMA which the government estimates it will pay 54 billion euros for was originally meant to start in December and the head of the country’s debt agency had said earlier this month that it would make its February target.

“It will take until the end of March but it is very important we get the valuations right. We also have to get our EU approvals and they are going very well,” Lenihan told Ireland’s Newstalk radio station.

The write-downs caused by asset transfers to NAMA will require banks to raise additional capital and the central bank said recently that the government would have to provide more capital to them as a result.

Ireland was forced to take nearly 16 percent ownership of Bank of Ireland this week – its first direct stake, in lieu of a payment due on the 25 percent indirect stake it took last year.

The bank said recently that it would transfer nearly 200 million ordinary shares in lieu of a due 250 million euro payment that could not be repaid until a European Commission verdict on its restructuring plans for state aid.

The Commission had told Bank Of Ireland and rival Allied Irish Banks, which the government also holds a 25 percent indirect stake in, to stop paying dividends on shares and interest on some debt pending the restructuring decision.

Lenihan said he expected that verdict in a matter of weeks, adding that it was possible the taxpayer would have to inject further capital into the banks but restated his preference that the lenders meet their capital needs privately.

“I believe there is scope for asset disposals within the banks themselves. There is also scope for the realisation of other assets they have overseas,” Lenihan earlier told national broadcaster RTE.

Allied Irish’s first payment is due in May and Lenihan said there would be a “far clearer picture” regarding its restructuring plan by then.