Business

HONG KONG — Asia is proving new and fertile ground for Western lobbyists and public affairs consultancies who are helping shape post-crisis financial reforms in a region where regulators traditionally operate behind closed doors.

As the reform agenda has become increasingly global, regulators in Asia are having to juggle local issues such as poor corporate governance and rampant insider trading, while implementing extensive Group of 20 reforms — from overhauling the derivatives markets to clamping down on shadow banking.

All this is going on across several markets, each with their own rules and watchdogs, making for disproportionately high compliance costs — a combined $89 billion last year for financial services firms operating in Hong Kong, Singapore, Japan and China, according to estimates by law firm Berwin Leighton Paisner and Oxford Economics research group. 

The more developed European markets of the UK, Germany, France, Spain and Italy had combined compliance costs of $68 billion.

This is a potential gold-mine for lobbyists who have created an industry out of influencing policy makers in the West.

"The financial services public affairs industry in Asia is growing significantly," said Andrew Naylor, Asia-Pacific director at London-headquartered lobby firm Cicero Group. "The regulatory debate is much more global, and Asian jurisdictions are playing an important role in shaping it." 

Gentler tone 

The challenge in Asia is that information on policy developments can be hard to find. Lobbyists recalled times when foreign executives in Vietnam and Indonesia, for example, were horrified to learn of devastating rule changes that appeared virtually overnight.

"A key issue for the industry is knowing what changes are on the horizon," said Naylor. "No-one likes surprises."

According to lobbyists and bankers, it was not uncommon for regulators in smaller markets to freeze out foreign firms using Washington DC-style pressure tactics that can be critical, demanding and legalistic. 

"Western lobbying techniques don't go down well here," said Aaron Franz, a director at Southeast Asia public affairs firm Vriens & Partners. "They tend to come off as threatening."

Lobby groups that honed their tactics in the rough-and-tumble of Western financial realpolitik have had to deploy a more delicate touch in Asia. Written exchanges tend to be gentler and more appreciative in tone, and play to the national interest of often suspicious regulators.

Groups like ICI Global and the Asia Securities Industry & Financial Markets Association (ASIFMA) typically engage Asian regulators through formal private meetings with officials at their government offices — inviting a Vietnamese or Indonesian government official for a casual glass of wine is not advised, say lobbyists.

Franz discourages clients from airing problems in the international media, a common and effective pressure tactic in the West that often alienates Asian regulators. "This sets up the dialogue as 'Us versus Them'," he said.

Lobby groups in Asia also spend a lot of time on education around technical issues, such as bond market development — a long-term strategy that positions them as a useful resource for developing market regulators, who may lack expertise.

"It's not about pushing back," said Rebecca Terner Lentchner, head of ASIFMA's policy and regulatory affairs team. "It's about looking at Asia's development objectives and providing information and insight where we can."

Highlighting the group's growing influence, Hong Kong Exchanges and Clearing Ltd. said this year, after lengthy dialogue with ASIFMA and others, that it would review its position on introducing equity market trading controls, said brokers familiar with the matter.

Little choice but to listen 

To be sure, not everyone sees the expansion of Western lobbying into Asia as a force for good.

"One of the reasons why the crisis was so severe was because regulators listened to what the industry wanted," said Kenneth Haar of Corporate Europe Observatory, an EU think tank. "There's a risk of regulatory capture. Asian regulators need to make sure they get advice from various sources."

But some Asian watchdogs do believe the work of lobby groups generally improves the rule-making process.

Toshihiko Kurosu, a deputy director at Japan's Ministry of Economy, Trade and Industry, cited the International Swaps and Derivatives Association (ISDA) as one group helping to smooth global implementation of cross-border derivatives trading rules.

The group was instrumental in defusing a potentially explosive stand-off a year ago that could have forced European banks to stop trading and quickly liquidate their positions. 

Amid growing uncertainty, European banks drew up contingency plans in the event that India's central bank refused to concede to post-crisis European union (EU) demands that it believed violated its sovereignty, according to bankers at the time. 

After several meetings with Indian government officials including the Reserve Bank of India (RBI), Keith Noyes, ISDA's Asia Pacific director, was able to help persuade the regulator to cooperate with the EU just days before a deadline — allowing European banks to continue trading in India. The RBI declined to comment.

The sheer complexity and magnitude of post-crisis reforms has left Asian regulators with little choice but to listen to the industry, say regulatory experts.

Eight of 11 financial lobby groups identified by Corporate Europe Observatory in April as being very active in Europe are now present in Asia. ASIFMA said it tripled its headcount in the region in the past two years.

Financial firms spent around $600 million on lobbyists' services in the United States and Europe last year, according to data from US research group the Centre for Responsive Politics and Corporate Europe Observatory. Asia Pacific data was not available, though trade groups can command sizeable fees.

ASIFMA, for example, charges around $176,000 a year for a top-tier bank membership, said the Asia head of compliance at a major US institution. "Lobbying firms are making a difference in Asia. They allow you to raise an issue without sticking your head above the parapet," he said.

Personal ties

Hong Kong's Securities and Futures Commission (SFC), once notorious among bankers for ignoring consultation responses, has begun to engage more closely with industry, according to one individual at the watchdog, and now holds regular catch-ups with ASIFMA and other industry groups.

Lobbyists including the Global Financial Markets Association — the US-headquartered umbrella group that includes ASIFMA — ISDA and the Alternative Investment Management Association, a London-based hedge fund group, for example, won concessions on derivatives rules drawn up by the SFC and the Hong Kong Monetary Authority, including narrowing the product scope and territorial reach of the proposal.

As is often the case in Asia, personal relationship building can be crucial, too. Because Asian policy makers are less accessible than those in the United States and Europe, executives with connections to regulatory officials are attractive candidates for lobby groups.

Take Qiumei Yang, who last year established ICI Global's Asian arm. Her's was not the only group pressing China in May to relax rules on cross-border investment, but her previous experience working at China's Securities Regulatory Commission gave her access to the country's foreign exchange regulator.

"I think it's a bit easier for me because of my background," said Yang. "Personal relationships always help in Asia."

AMMAN — Amman Chamber of Commerce (ACC) President Issa Murad on Friday met with Bangladeshi Ambassador to Jordan Muhammad Enayet Hossain and discussed ways to develop commercial and economic relations. During the meeting, Murad stressed the importance of cooperation between the two countries’ private sectors, exchanging delegations and benefiting from investment opportunities. He noted that Jordanian exports to Bangladesh reached JD7 million, while Bangladeshi imports to Jordan amounted to JD10 million in 2013. Hossain invited ACC to organise a visit of a commercial delegation to Bangladesh to further develop bilateral relations. Also on Friday, Murad met with South African Ambassador Molefe Tsele and called for establishing joint commercial projects and benefiting from agreements that allow Jordan to export its products to the US, and other markets, without customs fees or limitations on quantities. Tsele valued Jordanian investment environment, stressing the important of implementing joint projects. Jordanian exports to South Africa reached JD22 million in 2013, with South African exports to the Kingdom estimated at JD15 million.

AMMAN — Much discussion of Jordan’s economic potential focuses on the mining and processing of minerals, but knowledge sectors like pharmaceuticals may offer a more effective tonic for the economy.

The latest data released by the Department of Statistics show that pharmaceuticals exports in the first half totalled JD218.5 million ($308.4 million), up 6.6 per cent from the same period last year. 

By comparison, the value of traditional export commodities such as crude potassium (or potash) and phosphates fell by 20 per cent year-on-year to JD223.6 million ($315.6 million) and 3.8 per cent to JD155 million ($218.8 million), respectively.   

Energy effects

The raw numbers, however, tell only part of the story. While the extractive industries and related spin-offs provide significant revenues, producers are doubly exposed — as buyers and as sellers — to shifts in global commodity markets. 

For example, Amman-based Arab Potash Company (APC) posted a fall in profit of more than 50 per cent in the first six months, which it attributed to both lower prices for its own products and higher ones for the energy it uses to produce them, the same factors it blamed for a 35 per cent drop in profit for 2013. 

The increased fuel costs are exacerbated by Jordan’s near total reliance on energy imports, which have been interrupted repeatedly by regional unrest in recent years, forcing companies like APC to burn more expensive heavy fuel oil. 

APC has agreed to buy gas from neighbouring Israel’s promising offshore fields but that flow is not scheduled to start until 2016.

By contrast, pharmaceuticals companies operate in the high-skill, high-tradability knowledge sector of the economy, which, while still relatively small in Jordan, continues to expand at a rapid rate. 

Companies in this segment, which also includes information and communications technology (ICT), and air transport, tend to be export-oriented, hire well-educated employees and offer relatively strong wage, and benefit packages.  

Employment driver

While extractive industries will always be partly hostage to energy supplies and costs, pharmaceuticals play to Jordan’s strengths. 

The country’s workforce is among the most educated in the Middle East North Africa (MENA) region and it also ranks near the top of the region on the UN’s Human Development Index. 

In addition, the pharmaceuticals business enjoys multiple synergies with another beneficiary of Jordan’s reserves of highly skilled human capital: Its relatively advanced healthcare system, including a medical tourism industry. 

In recent years, the pharmaceuticals sector directly employed some 5,000 people in Jordan, with 3,000 more indirect jobs created in areas such as packaging, shipping and marketing.

“The pharmaceuticals industry is [Jordan’s] second-most-valuable export… after mining. The export market accounts for 80 per cent of all revenues… which shows just how strong the sector is in itself, and for Jordan,” Maher Kurdi, managing director of Hayat Pharmaceutical Industries, told Oxford Business Group (OBG).

Kurdi warns that the industry must not rest on its laurels, particularly in terms of training tomorrow’s workforce. “The education system in Jordan has been gradually slowing down… and I believe this will have ill effects on our long-term competitiveness, unless this is reversed,” he said.   

Regional ambitions 

According to the Jordan Association of Pharmaceuticals Producers, around four-fifths of production is for export, with around 90 per cent of foreign sales going to Arab countries, thanks to strong growth across the region.

London-listed Hikma Pharmaceuticals, which was founded in Jordan and has a US Food and Drug Administration-approved manufacturing facility in the country, pointed to strong growth in key markets such as Egypt and Saudi Arabia when reporting its first-half results in August, posting a 44 per cent jump in adjusted profit to $176 million and a 16 per cent rise in revenue to $738 million. 

In its annual report, it indicated that pharmaceutical sales for the top nine private retail markets in the MENA region grew by 7 per cent in 2013, to reach $11 billionn, according to IMS Health.

The Gulf’s own pharmaceuticals sector is relatively underdeveloped due to several factors, including the lack of focus on the development of a manufacturing sector in the countries of the Gulf Cooperation Council (GCC) until a few years back, the difficulty of raising funds for an industry that is inherently capital-intensive and involves a long payback period, as well as a shortage of suitably trained personnel, according to a sector report by Alpen Capital.

Here, the early establishment of Jordan’s pharmaceuticals industry in the 1960s is paying dividends. The Kingdom, along with Egypt, has matured into an important regional centre from which major multinational companies export drugs into the Gulf. 

It was the largest exporter of medicines in the Arab world in 2011, according to the World Trade Organisation data, as well as the second largest in MENA, behind Israel.

The GCC countries offer major markets in which drug prices are “significantly higher than the world average” and changing lifestyles are increasing the incidence of chronic health conditions such as diabetes, driving increased consumption of both prescription and over-the-counter medications, noted Alpen Capital.

This article is provided to The Jordan Times by Oxford Business Group team in Jordan.

SYDNEY — Rising sea levels could threaten infrastructure worth more than Aus$226 billion ($205 billion) in Australia if climate change is left unchecked, a study has warned.

The Climate Council report said the most serious consequences of rising seas would be an increase in the frequency of coastal flooding and the retreat of shorelines. 

Both these threats could cause massive damage in Australia, where the majority of the population live on the coast and where cities, towns and infrastructure are concentrated, it said.

"Coastal flooding is a sleeping giant," the report said, describing the potential for economic damage as huge.

"More than $226 billion in commercial, industrial, road and rail, and residential assets around Australian coasts are potentially exposed to flooding and erosion hazards at a sea level rise of 1.1 metres, a high end, but quite plausible, scenario for 2100," it added.

When he came to power a year ago Prime Minister Tony Abbott, who once said climate change science was "absolute crap", axed the government-funded Climate Commission in a bid to find savings.

It was soon relaunched as the Climate Council — an independent watchdog operating as a non-profit body funded by public donations.

Its report said the sea level had already risen and was still rising as a result of climate change, and was likely to climb 0.4 to 1 metre through this century.

But even a 0.1 metre rise in sea level increased the risk of coastal flooding, a potential problem in Australia where more than half the coastline is vulnerable to recession, it said.

A sea level rise of 0.5 metre could involve a potential retreat of sandy shorelines by 25 to 50 metres, it added.

The report said the combined impact of inundation and shoreline recession put thousands of homes and businesses and 27,000 to 35,000 kilometres of roads and rail at risk.

In addition, rising sea levels also posed dangers for many of Australia's species and natural attractions, including the Great Barrier Reef, due to the "drowning" of reefs, salt water intrusion destroying freshwater habitats and sandy beach erosion.

At particular risk of the rising sea levels were the coastal communities living on the Torres Strait islands in northern Australia, the report said.

The Climate Council said Australia's infrastructure had been built for the climate of the 20th century and was unprepared for the problems associated with unchecked climate change.

"We need deep and urgent cuts in greenhouse gas emission this decade and beyond if we are to avoid the most serious risk from rising sea levels and coastal flooding," it concluded.

Australia's conservative government recently scrapped a carbon tax designed to combat climate change but has said it is committed to reducing greenhouse gas emissions to 5.0 percent below 2000 levels by 2020.

CAIRO — Egypt's current account deficit shrank to $2.4 billion in the 2013-14 fiscal year from $6.4 billion the previous year, boosted by billions of dollars in aid from Gulf Arab donors, the central bank said on Thursday.

The year in question began with former army chief Abdel Fattah Al Sisi's overthrow of president Mohamed Morsi and the worst violence in Egypt's modern history, followed by an influx of financial support from Arab Gulf states that backed Sisi's move.

Those states do not regularly issue details of the size and timing of their aid payments, however Saudi Arabia, Kuwait and the United Arab Emirates have pledged more than $12 billion aid to Egypt since July 2013 — roughly the same as the net official transfers figure released by the central bank on Thursday.

The bank also said that improvement in the current account was driven by a rise in remittances and other payments from abroad, including aid. Net official transfers increased by more than tenfold to $11.9 billion in the fiscal year that ended in June from $835.6 million the previous fiscal year.

However, Egypt still posted a current account deficit of $2.123 billion between April and the end of June — the fourth quarter of the fiscal year — according to Reuters calculations.

This came after it registered a surplus of $523.1 in the third quarter, between January and March. The marked difference appeared linked to the timing of official transfers — most likely the receipt of foreign aid from Egypt's Gulf allies.

In the third quarter, official transfers were $4.5 billion, compared to just $1.4 billion in the fourth quarter, according to Reuters calculations.

Sisi took office as president in June and pledged to combat terrorism, improve the economy and restore stability after three years of upheaval, which began when a popular uprising ended three decades of iron-fisted rule by Hosni Mubarak.

According to Mohammed Abu Basha, economist at investment bank EFG-Hermes, the figures show Egypt's finances are still precarious.

"From a macro standpoint, things were not really that solid, if you look at tourism and exports. It's the foreign flows that helped restore macro stability and support the currency," he said.

The central bank said the improvement might have been larger without a sharp decline in tourism revenues. They fell 48 per cent to $5.1 billion from $9.8 billion a year earlier.

The trade deficit grew by 9.8 per cent to $33.7 billion from $30.7 billion a year earlier, the central bank indicated, as merchandise imports rose 3.7 per cent and merchandise exports fell 3.2 per cent.

Foreign direct investment in Egypt rose to about $4.1 billion in the last fiscal year compared with $3.8 billion in the previous year, the central bank pointed out, attributing the increase to a net inflow for oil sector investments.

AMMAN — The Aqaba Special Economic Zone Authority (ASEZA) and the Aqaba Development Company (ADC), the central development company of ASEZA, participated in the Cityscape Global Exhibition. That was held in Dubai with the participation of 28 countries and 265 companies specialised in real estate development. The ASEZA’s participation aimed at marketing the developing real estate market in Aqaba, in addition to showing the most important investment opportunities in this vital sector, and shedding light on big projects currently available in the city. Bashar Abu Rumman, deputy chief executive officer of ADC, described the exhibition as an opportunity to make contacts with major international financial companies that seek to have a share in the MENA investment market. Separately, ASEZA on Wednesday signed an agreement to build marine trailers and boats to deal with the entry and exit of ships loaded with liquefied gas from Aqaba Port. The agreement was signed between Aqaba Port Company for Marine Services, ASEZA and Turkish Sanmar Company which will build the trailers and boats worth $53 million.

AMMAN — The Cabinet on Wednesday listened to a briefing by Royal Jordanian (RJ) Chairman Nasser Lozi on the challenges facing the national carrier as a result of the political and security unrest sweeping the region. During the session, headed by Prime Minister Abdullah Ensour, Lozi outlined strategic plans RJ is implementing to address the current challenges, saying that the government's recent decision to increase the national carrier's capital by 50 per cent over three years to reach JD234 million will greatly help in face its problems. Lozi  said RJ has decided to shrink its fleet to 29 instead of 32 and will deploy new aircraft that consume less fuel. Ensour stressed the government's support to enable RJ avert financial troubles.

AMMAN —  Gas plus renewables like solar and wind power could be a winning combination for Jordan and other countries in the region, according to a press statement received Wednesday from Shell EP International.

The press release highlighted the input of Mounir Bouaziz, Shell’s vice president of commercial and country chairman for Dubai and the Northern Emirates, during his participation in the Powering the Middle East Summit 2014, which was held in Amman last week.

Bouaziz spoke about the value natural gas can bring to the region’s energy mix as a means to help countries like Jordan, which are heavily dependent on imported fuel, diversify their energy mix and reduce CO2 emissions in the long term. 

"Despite ongoing progress on developing its oil shale resources that are currently being explored by the Jordan Oil Shale Company
(JOSCO), in the short and medium term, Jordan is expected to import liquefied natural gas as a bridge fuel to satisfy growing energy needs," the press release quoted him as saying.

JOSCO is a wholly owned subsidiary of Royal Dutch Shell that invests in exploring and evaluating the commercial potential of Jordanian oil shale using the latest advances in technology to produce the assets that would otherwise remain dormant.

According to the World Energy Council, Jordan currently imports over 90 per cent of its energy requirements while it is estimated to hold the 8th largest oil shale resources in the world.  

By 2020 the country expects to meet 33 per cent of its energy needs from natural gas, while reducing reliance on imports to 61 per cent according to Jordan’s 2007 national energy strategy.

“Natural gas is the fastest and most affordable route for many countries to meet their energy needs, including Jordan,” Bouaziz indicated. 

International Energy Agency (IEA) estimates that with a rapidly growing world population, increasing prosperity and improved access to reliable electricity, the global demand for energy is expected to increase by 80 per cent by 2050.

Jordan, faces similar challenges with growing energy demands on the one hand and rapidly increasing power demand on the other, driven primarily by increasing industrialisation and a growing population. 

Beyond the cost and speed at which natural gas plants can be set up; the Environmental Protection Agency states that natural gas is the cleanest burning fossil fuel. Meaning that when combusted, natural gas releases very small amounts of sulfur dioxide and nitrogen oxides, virtually no ash or particulate matter, and lower levels of carbon dioxide, carbon monoxide and other reactive hydrocarbons.

According to the US energy information administration, carbon-related emissions dropped by 3.8 per cent from 2011 to 2012 as the US increased its dependence on natural gas, displacing coal in power generation. 

“If paired with renewables like solar and wind power, gas also offers a reliable source of backup power when the sun isn’t shining or the wind isn’t blowing,” said Bouaziz. 

“Increasing natural gas within the energy mix could drastically slash greenhouse gas emissions — a very real consideration for all the nations of the world. Although there’s no ‘silver bullet’ solution, gas plus renewables could be a winning combination for Jordan and other nations in the region,” he added in the press statement.

Ultimately, considerable investments need to be made in the power sector globally including in the areas of energy efficiency, the development of renewable energies and power generation. The IEA estimates that over the next 20 years, a cumulative investment of $16.4 trillion is needed across the power sector with an annual average of $740 billion per year.

Bouaziz concluded: “Each country in the region faces different challenges that will dictate their individual approaches. Governments, policy makers and regulators will make energy choices based on a number of factors: ensuring security, reliability and flexibility of energy supply. Ultimately, countries like Jordan will be developing an energy system that allows their economies to be globally and regionally competitive, and create jobs while making responsible choices on climate change and greenhouse gas emissions.”

AMMAN — A Korean delegation, from Choonngbuk City, held business meetings with their  Jordanian counterparts on Tuesday.

The delegation, representing nine companies, aims at  promoting and developing trade cooperation.

AMMAN — Jordan has the highest rates of ICT services in the Middle East and North Africa (MENA), according to an Ericsson report on the Networked Society City index.

Tareq Saadi, the regional manager of northern Middle East in Ericsson, indicated Tuesday that the report showed that Jordan was among 11 countries in MENA in the highest rates of ICT services, constituting 4.6 per cent of the total gross domestic product compared with the regional rate of 3.5 per cent.

Around 7 per cent of the Kingdom’s population work in the ICT sector, whereas the regional rate does not exceed 4 per cent, Saadi said.

He added that the study showed a possibility of more investments in Jordan to attract the most modern technologies, such as 4G LTE networks.