Business

IRBID — Ambassador of the Netherlands to Jordan Paul van den IJssel on Wednesday stressed the strong Jordanian-Dutch relations and expressed his country’s interest in boosting them, especially in economic spheres.

During a meeting with representatives of various economic entities held at Irbid’s Chamber of Commerce, he said he will work with his country’s government to eliminate any obstacles precluding an increase in commercial and industrial cooperation between the two countries.

He also expressed his country’s readiness to cooperate with Jordan on developing and amending the free trade agreement signed between Jordan and the European Union (EU) in a manner that achieves justice for all concerned parties and facilitates the flow of goods between Jordan and EU countries, including the Netherlands.

Commending the investment environment in the Netherlands, the ambassador said he will work in close cooperation with Dutch investors to explore investment opportunities in the Kingdom, as a whole in general, and in Irbid, in particular, beside working to increase commercial and investment cooperation between Jordanian and Dutch businessmen. 

WASHINGTON — Google has agreed to sell Motorola to Chinese technology giant Lenovo for $2.91 billion, after a lackluster two-year effort to turn around the smartphone maker it bought for $12.5 billion.

The deal ends Google’s run as a handset maker after its biggest-ever takeover, which was announced in 2011 and finalised in 2012.

It also provides Lenovo footholds in smartphone and tablet markets where it is eager to gain traction while acting as a peace offering to Samsung and other partners that make devices powered by Google-backed Android software.

“It is win-win,” said analyst Tim Bajarin of Creative Strategies in Silicon Valley. “Google keeps the patents and the research group, and they keep partners off their back, while Lenovo gets what they need to get into the US smartphone market.”

The deal comes just a week after Lenovo said it will buy IBM’s low-end server business for $2.3 billion, giving it a platform to compete in that sector with US giants Dell and Hewlett-Packard.

However, Lenovo’s Hong Kong-listed shares dived 8.21 per cent to HK$10.06 on Thursday as investors were spooked about Motorola’s profitability.

Even under Google, Motorola failed to gain traction in a rapidly evolving smartphone market now dominated by South Korea’s Samsung and US-based Apple.

Google and Lenovo claimed the deal was good for everyone involved.

“Lenovo has the expertise and track record to scale Motorola Mobility into a major player within the Android ecosystem,” Google Chief Executive Larry Page said in a statement.

Lenovo Chairman and Chief Executive Yang Yuanqing said the acquisition “will immediately make Lenovo a strong global competitor in smartphones. We will immediately have the opportunity to become a strong global player in the fast-growing mobile space”.

The Chinese firm was the fifth-largest smartphone maker in the fourth quarter, with a 4.5 per cent market share, barely behind fellow Chinese maker Huawei and South Korea’s LG, according to a report by research firm IDC.

Ramon Llamas, at IDC, said with Motorola added in, Lenovo will be number three globally and gain other benefits.

“Lenovo gets an all-important foothold in North America and in Latin America, and to a lesser extent western Europe,” Llamas indicated. “Motorola has distribution, it has brand recognition, Lenovo does not have that.”

Lenovo became best known in the United States after buying IBM’s PC business in 2005, and used that to become the world’s biggest PC maker in 2013.

However, JP Morgan analysts said in a note to clients that Motorola is deeply unprofitable with losses approaching $1 billion and questioning whether Lenovo can get the business in the black.

They asked: “Are they buying a bit more than they can chew?”

While Google would be taking a loss on the sale, it did spin off the Motorola Home division for $2.3 billion in 2012 and sold off some of its manufacturing facilities.

Some analysts said one of Google’s main interests in Motorola would be the portfolio of 17,000 patents, the majority of which it will keep.

“Google got what they wanted and needed from Moto — they got patents, engineering talent and mobile market device insight,” said technology analyst Jack Gold. “They don’t need to be in the device business... This is a win for Google and a win for Lenovo in my opinion.”

But according to Llamas, the deal still leaves a hole of about $7 billion for Google and asked AFP: “Are the patents worth $7 billion? I don’t know but that is a big question.”

Llamas said Motorola failed to make headway some had expected with Google’s deep pockets. While the unit produced a highly regarded Moto X handset and a budget-priced Moto G, it has remained far behind the leaders.

“Nobody expected Motorola to go back to its heyday, but I think with Google’s backing, some of us expected it to make a run at the market leaders and that didn’t happen,” he added.

In a blog post, Page said Google bought Motorola “to help supercharge the Android ecosystem” and that goal has been accomplished.

“But the smartphone market is super competitive, and to thrive, it helps to be all-in when it comes to making mobile devices. It’s why we believe that Motorola will be better served by Lenovo — which has a rapidly growing smartphone business and is the largest [and fastest-growing] PC manufacturer in the world,” Page said.

“This move will enable Google to devote our energy to driving innovation across the Android ecosystem, for the benefit of smartphone users everywhere,” he added.

UNITED NATIONS — The UN Development Programme (UNDP) warned in a report on Wednesday that income disparities in countries around the world have been worsening, posing new risks for global economic and political stability.

The UNDP warning echoes remarks from US President Barack Obama in his annual State of the Union address on Tuesday, in which he said there was a widening gap between rich and poor in the world’s biggest economy and that while the stock market has soared, average US wages have barely budged.

According to the UNDP report, income inequality increased by 11 per cent in developing countries over the two decades between 1990 and 2010.

The majority of households in developing countries — more than 75 per cent of those nations’ populations — are living today in societies where income is more unequally distributed than it was in the 1990s, the report pointed out.

The UNDP says this is a global trend that, if left unchecked, could have dire consequences since it “can undermine the very foundations of development and social and domestic peace.”

The widening income gap comes as some major developing countries — such as China and India — have seen strong economic growth and an overall increase in national wealth. But that wealth has not been evenly distributed, which has contributed to greater inequality in those societies.

“The sharpest increases in income inequality have occurred in those developing countries that were especially successful in pursuing vigorous growth and managed, as a result, to graduate into higher income brackets,” the UNDP report said.

“Economic progress in these countries has not alleviated disparities, but rather exacerbated them,” it added.

In an interview with Reuters, UNDP chief Helen Clark made clear that this negative trend is reversible and that one of the key components is creating quality employment opportunities.

“The key thing is the focus on jobs — jobs, jobs, jobs,” Clark stressed, emphasising that it was important for governments to pay attention to ways of improving the skills of its labour force.

She also touched on the subject of the widening income disparities in countries like China and India, which have seen significant levels of economic growth in recent decades.

“It’s the nature of the growth,” she explained. “If it’s uneven growth... it does create tensions within society because people can see that others are doing much better than them.”

“The China example shows that you get fast growth and poverty reduction, but you also get the growing inequalities,” Clark said. “And this is of concern to China’s leadership.”

According to the report, there was evidence that increases in inequality over the last two decades were mainly due to trade and financial globalisation processes that weakened the bargaining position of labour.

Clark said one of the problems with globalisation is that it “has proceeded in a very deregulated world”.

She advocates more regulation of international trade and financial flows but without eliminating risk and the ability of companies to generate profits.

“It’s a balance,” she concluded. “You have to leave room for risk.”

ANKARA — A massive rate hike may have stalled the Turkish lira’s fall and salvaged the central bank’s credibility, but it stunts growth at a politically fraught time for Prime Minister Recep Tayyip Erdogan and may not shield Turkey from a fragile global backdrop for long.

The bank raised all its key interest rates in dramatic fashion at an emergency policy meeting late on Tuesday, ignoring opposition from Erdogan as it battled to defend the lira following its fall to a series of record lows.

The boldness of the actions stunned investors, propelling the lira to its biggest one-day gain in more than five years and stirring hopes it would short-circuit a vicious cycle of selling in emerging markets.

But gains of almost 4 per cent on the day quickly faded in later trade on Wednesday as market focus switched to a later monetary policy decision by the US Federal Reserve (Fed).

Erdogan, keen to maintain growth ahead of an election cycle starting in two months, has been a vociferous opponent of higher borrowing costs, railing against what he describes as an “interest rate lobby” of speculators seeking to stifle growth and undermine the economy.

He has yet to react to the midnight rate hike.

But a senior government official, speaking on condition of anonymity, said the bank had made a tough but necessary call.

“The move will certainly have some consequences for the economy, namely a reduction in consumption, higher credit costs and secondly a lower growth rate,” the official indicated, noting the government’s 4 per cent growth target for 2014 looked in jeopardy.

Turkey’s economy grew an estimated 3.6 per cent in 2013, but higher inflation and the withdrawal of cheap money by the Fed have dented hopes of much of an improvement this year.

“Although there will be no immediate effect on politics, approaching elections with low growth will of course have a cost,” the official said.

Fitch, which has a BBB- investment grade rating on Turkey, said the rate hike had reinforced the credibility of the central bank but would dent domestic demand and could lower growth.

The central bank had been struggling to contain the lira’s precipitous slide, with investor confidence damaged by a corruption scandal shaking the government and the global impact of the reduction in US monetary stimulus.

Reluctant until now to make an outright hike, the bank instead tried to defend the currency by burning through foreign exchange reserves and trying to squeeze up borrowing costs on the margins, before biting the bullet and tightening.

“Whatever happened yesterday, Turkey was facing a growth slowdown because it was living beyond its means,” said Neil Shearing, chief emerging markets economist at Capital Economics. “The tightening last night is not all negative. A loss of faith would have been more damaging.”

Self preservation

Finance Minister Mehmet Simsek played down the impact on growth, saying the economy would have suffered greater damage if the credibility of the central bank had been undermined.

“If we don’t preserve credibility, growth would lose ground on a much bigger scale. It would weaken much more rapidly,” Simsek told Turkish broadcaster NTV.

The lira strengthened to 2.18 per dollar in the immediate aftermath of the rate move, a sharp rise from the record low of 2.39 it hit on Monday. But it lost much of its gains by 1630 GMT, trading at 2.239.

Shares in Turkish banks fell 4.9 per cent, causing the wider stock market to underperform emerging market peers, as investors feared higher interest rates would squeeze demand from borrowers and squeeze their profits.

Turkey’s problems had been exacerbated by a sharp global emerging market selloff in recent days. Yet much of the pressure on Ankara is of its own making.

Erdogan has overseen strong economic growth since coming to power in 2002, transforming Turkey’s reputation after a series of unstable coalition governments in the 1990s ran into repeated balance of payments problems and economic crises.

But his increasingly authoritarian style — from a heavy-handed police crackdown on street protests last summer to his reaction to the corruption investigation in recent weeks — has started to unnerve investors.

The graft scandal, which triggered the resignation of three government ministers and the detention of businessmen close to Erdogan, has grown into one of the biggest challenges of his 11 years at the helm, just as he prepares for local elections in March and a presidential race five months later.

He reacted by purging the police force of thousands of officers and seeking tighter control over the courts. The response has been criticised by the European Union and raised investor concern over the rule of law and independence of state institutions.

The central bank’s rate hike after Erdogan’s opposition helps the case that institutions still function independently.

“Some might argue that all this was stage managed,” said Timothy Ash, head of emerging markets research at Standard Bank. “Arguably, when there is much talk of the independence of various state institutions being under threat... the government can perhaps now hail the central bank as being really independent.” 

BEIJING — China’s local governments have published separate audit reports detailing their combined public debt of $3 trillion for the first time ever, to increase transparency and quell investor concerns.

The audits showed China’s wealthiest eastern provinces are the most indebted, though repayment burdens are more onerous in poorer areas such as the southwestern province of Guizhou, where the ratio of debt to gross domestic product (GDP) is the highest, at 79 per cent.

Most governments were shown repaying the vast majority of their debt on time, though a handful, such as Inner Mongolia, have fallen behind, with the portion of loans due but unpaid running as high as 28 per cent.

The burst of transparency follows criticisms from some experts this month that China was not releasing enough information about its local debt troubles, widely regarded by investors as the biggest threat to its $9.4-trillion economy.

“The issues are the most pertinent in the poorer parts of the country,” said Louis Kuijs, an economist at RBS in Hong Kong. “Those parts of the country have difficulty repaying their debt.”

Spurred by the need to sustain brisk growth in the world’s second-biggest economy, Chinese local governments have borrowed heavily over the years to fund non-lucrative public works such as sewage systems and railway lines.

Though some analysts welcome the public works and say China is right to build its infrastructure now before costs escalate as its economy grows, others worry that rapid investment has generated waste and sowed the seeds for bad loans.

Audit statements from 30 of China’s 31 local regions, provinces and municipalities showed the governments of Jiangsu, Guangdong and Sichuan are the three most indebted, with Jiangsu borrowing the most, at 1.5 trillion yuan. Tibet was the only region that did not release an audit report.

In terms of total debt as a portion of local GDP, however, Guizhou, Chongqing and Yunnan led the league.

The Beijing local government was at the top of the table in terms of money borrowed as a percentage of annual fiscal income at 100 per cent, followed by Chongqing’s 93 per cent and Guizhou’s 92 per cent.

Worrisome but
not a crisis

China released its most comprehensive audit of local government finances last month in response to mounting investor scepticism that its local debt problems are worse than official numbers suggest.

The report showed debt surging 67 per cent in two years, far more than officials had publicly admitted.

But analysts said it did not suggest China was on the verge of a crisis as total government debt is worth around 58 per cent of the economy, far from the levels of Greece and Japan, where public finances are strained.

Fears that China may suffer higher bad debt levels imperilling its financial system were compounded in the past two years by its cooling economy, where growth narrowly missed a 14-year-low forecast in 2013.

The audit reports showed a handful of governments were struggling to repay some loans. Inner Mongolia seemed to be under the most strain, with overdue loans that have not been paid making up 28 per cent of total debt.

The governments in Gansu, Shandong, Shanxi and Jiangxi also reported that unpaid loans accounted for between 8 and 10 per cent of total debt.

Standard & Poor’s expects 30 per cent of bank loans to local Chinese governments to sour if borrowers are not aided by other authorities, the rating agency said in a report last week.

“Nonetheless, we don’t see an imminent risk of a systemic crisis from local government debt,” it added, noting that China’s banks are buffered by strong profit growth.

Separately, China’s foreign exchange reserves, already the world’s largest, reached $3.82 trillion yuan at the end of 2013, the central bank pointed out, a new record.

The end-of-year figure was up from the $3.66 trillion as of the end of September, according to data published by the People’s Bank of China (PBoC).

It came after the country’s trade surplus reached $259.75 billion last year, up 12.8 per cent on 2012 and its highest since the global financial crisis.

Growth in China’s vast reserves has been fuelled by years of huge trade surpluses as the country has grown to become the world’s second-largest economy.

The surpluses have caused friction with China’s rivals in the West, headed by Washington, which says Beijing keeps its yuan currency artificially low in order to make its goods cheaper overseas and give exporters an unfair advantage.

But the rate of growth of China’s reserves has slowed in recent years as the once-booming economy is hit by troubles in the key export markets of Europe and the United States, while the yuan has been steadily strengthening against the dollar.

Analysts attributed some of the 2013 surge to speculative capital inflows, sometimes disguised as exports or foreign direct investment.

“We reckon hot money inflow pressures could be still strong at the moment,” Bank of America Merrill Lynch economists said in a research note, citing China’s rising interest rates, the rise of the yuan and confidence in the currency’s strength despite the tapering of the US stimulus.

Chinese leaders have repeatedly said they want to transform the economy to one in which domestic demand is the key growth driver, rather than public investment and exports.

But the daunting task looks set to be a long and arduous process.

The central bank said Chinese lenders extended a total of 8.89 trillion yuan ($1.47 trillion) in new loans last year, 687.9 billion yuan more than in 2012 and surpassing the reported official target of 8.5 trillion yuan set at the start of 2013.

In December alone, banks granted 482.5 billion yuan in new loans, down from 624.6 billion yuan a month ago, according to a PBoC statement.

AMMAN — Jordan’s public debt exceeded JD19 billion at the end of November 2013, official data showed on Tuesday.

According to the Ministry of Finance figures, the debt shot up by 15 per cent or JD2,484 million reaching JD19.065 billion.

The monthly bulletin carried on the ministry’s website showed the figure rising from JD16.580 billion at the end of 2012.

Subsequently, the public debt represented 79.5 per cent of the estimated gross domestic product (GDP) for 2013 compared with 75.5 per cent of the GDP of 2012.

The external debt totalled JD7,202.8 million or 30 per cent of the estimated GDP for 2013 with a debt service of around JD112.2 million, while at the end of 2012, the external debt was JD4,932.4 million or 22.5 per cent.

The domestic public debt reached around JD11,862 million at the end of November 2013, representing 49.4 per cent of the estimated GDP for 2013 compared with JD11,648 million at the end of 2012 or 53 per cent of the 2012 GDP.

The domestic debt covers both the central government and its independent entities.

The ministry’s bulletin also pointed to the $1.25 billion US-guaranteed Eurobonds issued by the Jordanian government, carrying an interest rate of 2.503 per cent and set to mature in 2020.

Other data showed that the state budget deficit, excluding external foreign grants, widened to JD1,680.2 million compared with JD1,523.8 million.

If external grants are taken into account, the deficit narrows down to JD1,100.8 million compared with JD1,427.2 million.

Total local revenues and external grants at the end of November 2013 increased by JD595.9 million to JD5,111.6 million compared with JD4,515.8 million at the end of 2012.

The bulletin attributed the rise in local revenues to an increase by 160.9 million or 5.1 per cent in taxes, coupled with a JD47.7 million drop in non-tax income.

External grants amounted to JD579.4 million during the first 11 months of last year compared with JD96.6 million in the previous year.

Total expenditures recorded at the end of November 2013 rose by JD269.5 million to JD6,212.4 million compared with JD5,942.9 million last year.

The increase resulted from rise by JD70.1 million in current spending, accompanied by an increase by JD199.4 million in capital expenditures.