Business

TOKYO — Japan’s pandemic-hit economy shrank in 2020 for the first time in more than a decade, but the contraction was less than expected and it ended the year on a strong note, thanks to a pick-up in exports and huge government support.

Still, analysts warned the near-term outlook could be bumpy as fresh virus restrictions dampen domestic consumption, and with borders still closed to tourists less than six months before the postponed Olympics.

The world’s third-largest economy shrank 4.8 per cent last year, its first annual contraction since 2009 at the height of the global financial crisis.

However, the figure was better than forecast in a Bloomberg survey of analysts thanks to a strong October-December performance, which saw the economy expand 12.7 per cent from the previous quarter on an annualised basis.

Government stimulus measures of about $3 trillion since the COVID-19 pandemic began provided crucial support.

The news helped send Tokyo’s Nikkei 225 index rallying more than one per cent to break 30,000 for the first time in more than three decades.

Shahana Mukherjee, an economist at Moody’s Analytics, said better-than-expected growth in the fourth quarter was driven by Japan’s “resilient trade position” with exports up and a smaller rise in private consumption.

“The intense domestic third COVID-19 wave moderated Japan’s recovery momentum in the last months of 2020,” she said.

“But with exports continuing to recover and the Pfizer vaccine approval coming through, the months ahead should see a stronger revival,” Mukherjee added.

Like other countries, Japan was plunged into a steep recession at the start of 2020 — suffering its worst second quarter on record — as virus containment measures throttled economic activity, while a 2019 consumption tax added to the weakness.

A slowdown in new cases allowed business to bounce back in the second half, with domestic demand and net exports contributing to the improvement, the cabinet office said.

Spending on housing and corporate investment also rebounded, it added.

Olympic question 

However, infections began surging to new records in late December, prompting the government to impose a fresh virus state of emergency in much of the country including Tokyo and Osaka — and while the long-term outook is positive, there was a warning for the start of 2021.

“A decline in GDP appears unavoidable in Q1 2021 due to the state of emergency declared by the government in a number of Japanese prefectures,” said Naoya Oshikubo, senior economist at SuMi Trust, in a note published ahead of Monday’s figure.

Japan’s virus measures are limited, with bars and restaurants requested but not obliged to close by 8pm while working from home is strongly recommended. There are no blanket stay-at-home orders. 

Oshikubo said the relative leniency of these emergency measures could help mitigate the expected contraction in the first quarter.

But observers said the economy will not likely receive the much-needed boost from the summer’s postponed 2020 Olympics, even as organisers insist the event will go ahead even if the pandemic is not fully under control.

With doubts over whether foreign spectators will be allowed to attend, and plans for athletes and officials to stay isolated during the Games, there will not be much chance for spending, said Anwita Basu, head of country risk for Asia at Fitch Solutions.

“The growth outcome of zero spectators and Games not being held would be roughly the same,” she said.

Anti-virus measures and other delay-related costs have added 294 billion yen ($2.8 billion) to the event’s price tag, which has ballooned to at least 1.64 trillion yen — making Tokyo 2020 potentially the most expensive Summer Olympics in history.

But with people’s everyday financial priority to “get over the COVID hump and normalise their day-to-day living... I’m not sure psychologically the Games are going to be welcomed [in Japan]”, Basu added.

“The consumption sentiment could even get lower if they decide to carry on with the Games.”

RIYADH — Saudi Arabia will stop doing business with foreign companies with regional headquarters outside the kingdom starting in 2024, state media said on Monday, in a move aimed at boosting investment as unemployment soars.

The bold announcement could intensify competition between the kingdom and other Gulf petro-states, including its principle ally the United Arab Emirates, for foreign capital as they reel from an economic downturn.

“Saudi Arabia intends to cease contracting with companies and commercial institutions with regional headquarters not located in the kingdom,” the official Saudi Press Agency (SPA) reported, citing an unnamed official source.

“The cessation will include agencies, institutions and funds owned by the government and will take effect January 1, 2024.”

The decision seeks to “create more jobs, limit economic leakage, increase spending efficiency and guarantee that the main goods and services purchased by the different government agencies are made in the kingdom”, it added.

Saudi Arabia, the biggest Arab economy, has been struggling to attract foreign capital, a key pillar of Crown Prince Mohammed bin Salman’s “Vision 2030” economic diversification plan to boost non-oil revenue.

Under a previous government initiative known as “Programme HQ”, Saudi Arabia had offered multinational companies tax breaks and incentives to relocate their Middle East headquarters to the kingdom.

Many multinationals doing business in the conservative kingdom prefer to have their headquarters in the neighbouring United Arab Emirates and other Gulf capitals that offer a relatively more liberal lifestyle and permit alcohol.

SPA said “24 international companies announced their intent to move their regional headquarters to Riyadh” at last month’s Davos-style Future Investment Initiative forum in the capital.

‘Commercial 

challenge to UAE’ 

“Pressing multinationals to establish headquarters in Saudi Arabia centres upon the belief that foreign companies benefitting from the Saudi market should bolster their physical presence in the country,” Robert Mogielnicki, a resident scholar at the Arab Gulf States Institute in Washington, told AFP. 

“This is ultimately a reevaluation of the sustainability of Saudi Arabia’s economic development model and not an intentional commercial challenge to the UAE. If done successfully though, it is likely to have a commercial impact on the UAE.”

Monday’s announcement comes as the petro-state battles high unemployment and a sharp coronavirus-triggered economic downturn.

Joblessness in Saudi Arabia touched 14.9 per cent in the third quarter of 2020, dipping slightly from an all-time high of 15.4 per cent in the previous quarter, official data showed last month.

“The impact of COVID-19 pandemic continues to affect the Saudi labour market and the economy,” Saudi Arabia’s General Authority for Statistics said in a statement last month.

The crown prince said in January that Saudi Arabia’s sovereign wealth fund will invest $40 billion annually in the domestic economy over the next five years, as the kingdom seeks to boost job creation.

Last year, the twin shocks of the coronavirus pandemic and a drop in oil prices prompted the top crude exporter to triple its value-added tax and suspend a monthly allowance to civil servants to rein in a ballooning budget deficit.

The highly unpopular austerity measures were implemented even as the kingdom continues to boost spending on a slew of megaprojects, including the planned $500 billion NEOM megacity on the kingdom’s Red Sea coast.

NEW YORK — Swiss banking giant Credit Suisse paid $600 million to financial guarantee insurer MBIA to settle long-running litigation connected to the US subprime mortgage crisis, MBIA said on Thursday.

The agreement follows a ruling by a New York judge in favour of MBIA in the case concerning Credit Suisse's representations to the company, which provided insurance for residential-backed securities ahead of the 2008 financial crisis.

MBIA said the court dismissed the suit following the settlement. The original case was filed in 2009.

On January 8, Credit Suisse announced it was increasing by $850 million the provisions set aside for the MBIA case and others involving mortgage backed securities, leading to an expected fourth-quarter loss.

ALGIERS — Shuttered assembly plants, jailed bosses, laid-off workers. Algeria's once ambitious plans to create a flagship auto industry have turned into a fiasco.

The country's recent years of political turmoil have also seen its foreign joint venture factories close and cronies of its ousted president Abdelaziz Bouteflika end up behind bars.

Algeria's dream of creating thousands of jobs has collapsed and the country is in dire need of new vehicles. 

The government is putting on a brave face.

Last month, the country’s Industry Minister Ferhat-Ait Ali pledged that it is "preparing the revival of this industry on solid foundations, which break with the practices of the past".

Algeria's auto industry was born in 2012 when French maker Renault partnered with the government in Algiers to build the first plant two years later near Oran, the country's second biggest city.

Other companies followed suit.

South Korea's Hyundai opened its assembly plant in 2016 in Tiaret, and Germany's Volkswagen started operations the next year in Relizane.

The sector became a priority as the north African country sought to reduce imports, compete in the sector with regional rival Morocco, and diversify its economy in the face of falling oil revenues, which had been the source of over 90 per cent of its export earnings.

Morocco's own bet on the automobile industry has paid off.

It is now the country's top export sector after the Renault-Nissan group opened two factories in the kingdom in 2012 and 2019, followed by its rival PSA, which opened one in 2019, attracted by incentivising fiscal and customs policies.

'Disguised imports' 

But Algeria's industry became embroiled in controversy from early 2017, when authorities started to denounce as "disguised imports" the practice of foreign carmakers bringing in "semi knocked-down" (SKD) units.

SKD units are partially stripped down at the origin and reassembled on arrival, requiring minimal labour input.

The government investigated Hyundai after images spread on social media showed almost completely-built imported models that required little more work than putting on the wheels. 

In July 2017, former industry minister Mahdjoub Bedda, who is now in prison on graft charges related to the wider scandal, suspended all new car assembly projects.

After Bouteflika, under pressure from mass demonstrations, was ousted by the army in April 2019, several assembly plant bosses were convicted of corruption. 

His successor, President Abdelmadjid Tebboune, pledged to review the entire auto sector as soon as he came to power in December that year. 

"Some projects cannot be described as an industry because they are simply disguised imports," he charged the day after his election.

Algeria then banned the import of spare parts for assembly plants, sounding the death knell for the young industry already struggling after the incarceration of its key executives.

Volkswagen suspended production indefinitely in December 2019 and put 700 employees on technical unemployment. 

In May 2020, the Algerian subsidiary of South Korea's Kia closed its assembly line, throwing 1,200 employees out of work.

Corruption trials 

The automobile scandal was at the heart of the first major corruption trials of the post-Bouteflika era.

They exposed that companies owned by tycoons linked to Bouteflika's inner circle were favoured and benefited from undue privileges, such as state incentives and tax exemptions.

The scandal led to the imprisonment of former prime ministers Ahmed Ouyahia and Abdelmalek Sellal and two industry ministers.

The ex-premiers were convicted of "misappropriation of public funds, abuse of power and granting undue privileges" as well as illegal financing of ailing Bouteflika's aborted 2019 reelection bid.

Corporate heavyweights, such as Mahieddine Tahkout, owner of the Hyundai plant, and VW factory owner Mourad Oulmi, also received heavy prison sentences in separate cases. 

Seeking to prevent a repetition of the debacle, the government adopted new rules last August, notably requiring that vehicles sold in Algeria contain 30 per cent locally manufactured parts.

Industry experts have, however, warned that such rules are unrealistic.

"It is illusory to claim to be setting up an automobile industry without [local] know-how," said journalist Mourad Saadi, who has reported on the auto industry since 1999.

Saadi said the automobile assembly sector had failed mainly because Algeria lacks suppliers who can manufacture locally made parts.

Ali, the industry minister, already under fire for delays in drawing up the new rules, recently spoke of talks "with German and other global operators to launch a real industry for tourist and utility vehicles". 

But, for the moment, no manufacturers have taken the plunge back into Algeria.

Mohamed Yadadden, a former executive turned consultant, said setting up "a real production plant requires on average of five to 10 years to respond to the industrial challenges".

He also said it would need to build at least 150,000 units a year to guarantee profitability — no mean feat in Algeria, a country of 43 million people, where total demand is estimated at 450,000 units a year.

By Abdellah Cheballah

WASHINGTON — President Joe Biden's administration said on Thursday it will maintain punitive tariffs on some European imports as part the long-running trade dispute between Boeing and Airbus.

In a notice that was due to be published in the Federal Register on Friday, the US Trade Representative (USTR) said "it is unnecessary at this time to revise" the levies.

Since coming to power last month Biden has suggested he will not modify the latest tariffs enacted by his predecessor Donald Trump. These took effect January 12.

But Biden has said he wants to restore good ties with traditional US allies, including the countries of the European Union, after they came under severe strain with Trump's "America First" approach to trade and foreign policy.

Since 2004, the United States and European Union have been squabbling over alleged unfair trade practices, with both sides claiming the other provided support to private companies, such as aircraft manufacturers Boeing and Airbus, in violation of international trade agreements.

Both sides have won rulings from the World Trade Organisation (WTO) that permit punitive tariffs.

In December, the USTR announced new tariffs on aircraft parts, wine, cognac and brandies from France and Germany, adding to a long list of products from EU countries that have been subject to 25 per cent duties since 2019.

After a WTO ruling in October, the EU in November levied additional customs duties on $4 billion worth of American products including Boeing planes and also farm produce, such as wheat and tobacco, plus strong alcohol and chocolate.

The notice released on Thursday in Washington said, "the US Trade Representative will continue to consider the action taken in this investigation."

In a phone call on January 24, French President Emmanuel Macron suggested to Biden that they broker a settlement to the trade dispute, CNBC reported.

The network said the Biden administration was non-committal on the idea.