Business

DUBAI — Some Saudi Arabian construction companies are struggling to pay their staff on time in a sign of growing pressure on the economy from low oil prices, which are causing the government to slow spending on building projects.

In an unusual move this week, the ministry of labour issued a public statement saying workers at a "major institution" had complained they had not been paid for months. It said it had established the complaints were true and taken remedial action.

The ministry did not name the institution or give details of its action; it did not respond to telephone calls seeking comment. But senior industry sources told Reuters that the firm was in the construction sector and that at least several other sizeable companies in the industry faced the same problem.

One executive at a large Saudi construction firm, speaking on condition of anonymity, told Reuters it had been having problems paying its employees for a few months. 

"It's not just us, it's several construction companies that work on government projects," he said.

As the government of the world's top oil exporter slows spending to reduce a budget deficit of around $100 billion, construction is proving to be the hardest hit sector, because firms depend heavily on government business for their cash flow.

"The pace of execution on some of the existing projects has slowed down, so a project that would take six months to complete may now see an extended execution time line," indicated Murad Ansari, analyst at EFG-Hermes in Saudi Arabia.

"Moreover, government payments have slowed down. As a result, contractors which normally rely on short-term funding for projects are feeling an impact on their working capital, so their ability to repay debt is not as strong as it was before," he said.

Construction accounts for only about 7 per cent of Saudi gross domestic product. But, in coming months, the sector's difficulties could have a wider impact as suppliers are hit and banks lending to the industry take more provisions for potential bad loans.

Payments

Delayed payments to staff, sometimes due to red tape and inefficient bureaucracy rather than financial difficulties, have been a feature of the construction industry in Saudi Arabia and the Gulf for years.

But the problem has worsened greatly in the last few months because of government austerity measures, industry executives said, speaking on condition of anonymity because of commercial sensitivities.

"Many contractors are awaiting payment from the government. It's an industry-wide problem," said an executive at another construction firm operating in the kingdom.

The 2016 state budget envisages total spending of 840 billion riyals ($224 billion); if the government keeps to that figure, it would represent a 14 per cent drop from last year's actual spending. 

Since the government has little political room to reduce spending on wages for civil servants, much or most of its cuts are believed to be in building projects.

During Saudi Arabia's last economic slowdown in 2009, also triggered by an oil price slump, the government raised advance payments to builders to support their cash flow and ensure that projects continued without interruption, Ansari said.

That is not happening now. The finance ministry has cut advance payments to firms doing state construction work to 5 per cent of contract value from 20 per cent, the Al Hayat newspaper reported.

"Money is not being paid at the top level," indicated one banker to the industry. "This has been going on since October and it is hard to know how long it will go on for."

The vast bulk of many big builders' business comes from the government.

At least several companies have begun talks to reschedule debts. Jabal Omar Development said last month it was in talks with creditors after failing to make the first repayment of 650 million riyals on a 3 billion riyal government loan.

"The continuity of the company and its ability to honour its obligations depends on its ability to obtain a new agreement on its finances,” Jabal Omar added in its statement. It did not answer telephone calls by Reuters to its offices on Tuesday.

Of nine Saudi banks covered by Reuters, seven indicated impairments for bad loans rose year-on-year in the fourth quarter of 2015. Analysts believe some of the new provisions were linked to construction.

Some banks are now shying away from new lending to the construction industry. Moody's Investors Service expects Saudi banks' non-performing loans to rise to 2.5 per cent of gross loans in 12 months from 1.4 per cent in mid-2015.

AMMAN — There is a need for Jordan and Algeria to activate the joint free trade agreement, increase commercial exchange volume and encourage establishing investments in both countries, Industry, Trade and Supply Minister Maha Ali said on Monday. 

At a meeting with an Algerian economic delegation, currently visiting the Kingdom, she added that both countries are interested to develop economic cooperation in different fields to serve joint interests, stressing that the importance of exchanging visits, expertise and organising commercial exhibitions.

Jordan has an attractive, competitive investment environment, which was boosted by a new Investment Law offering many incentives for investment projects, Ali continued.

She also acquainted the Algerian delegates, headed by Khobzi Abdul Madjid, president of Zibans Chamber of Commerce and Industry, with the Kingdom's bilateral and multilateral free trade agreements, such as those with the US and Canada, which gives Jordanian products access to major markets in the world.

The minister called on the Algerian private sector to benefit from the investment opportunities available in Jordan and to have a first-hand look on the investment environment, so as to work on developing bilateral economic cooperation.

The delegates expressed interest in the Kingdom's investment environment, the industrial development and the advanced technology it adopts.

Also on Monday, Amman chambers of commerce and industry signed a cooperation and twinning agreement with Zibans Chamber of Commerce and Industry aimed at developing bilateral commercial, industrial, investment and tourist relations.

Under the agreement, signed at the Amman Chamber of Commerce (ACC), signatories will exchange information on industrial activities, including commercial, economic and tourist fields, and legal aspects related to new procedures in both countries.

ACC President Issa Murad, Amman Chamber of Industry (ACI) President Ziad Homsi and Abdul Madjid signed the agreement.

Murad noted that the Kingdom's exports to Algeria in 2015 reached $150 million versus $12 million of Algerian exports to Jordan, and called for activating the Joint Jordanian-Algerian Business Council, which was established in 1997.

He said Jordan possesses enough skills and competencies that can be utilised in many sectors, stressing that the Kingdom provides a good opportunity for locally manufactured goods to penetrate many international markets.

Homsi, who is also a senator, expressed hope that the Algerian government would grant the Kingdom a preferential treatment to facilitate the movement of Jordanian exports.

He also noted that the ACI is currently considering establishing a Jordanian commercial office in Algiers to boost bilateral commercial, industrial and investment relations.

The Jordanian industrial sector in 2014 attracted some 40 per cent of foreign direct investment amounting to $636 million, which contributed to around 25 per cent of the gross domestic product, the ACI president highlighted.

Despite the challenges facing the sector, whose total capital exceeds $6 billion, its exports form 90 per cent of the national exports with a value of $7 billion reaching 120 countries.

Abdul Madjid noted that the Algerian market represents a "big opportunity" for Jordanian investors in light of customs and tax exemptions on production input manufactured in the country. 

He added his country could be a gateway for Jordanian merchandise to enter African markets, noting that Algerian imports reach $60 billion annually.

LONDON — London has ramped up its foreign exchange reserves in a move described by British media on Monday as a war chest against market chaos should Britain leave the European Union (EU).

Currency reserves jumped 34 per cent to $98.2 billion (87.9 billion euros) in January 2016, from $73.4 billion for the same month a year earlier, according to recent data from the Bank of England (BoE) which manages the Treasury's foreign exchange funds.

The nation's emergency "war chest" has been ramped up to guard against a "disorderly collapse" in the pound and equity markets if Britons vote in a key referendum expected later this year to leave the EU, The Times newspaper said on Monday.

The reserves are mostly held in dollars.

However, both the BoE and the government declined to comment on why the currency reserves have risen so rapidly over the past year.

"We do not entirely know what the government intentions are," said Scott Corfe, economist at the Centre for Economics and Business Research.

"But that certainly can be one explanation, accumulating currency reserves as a precaution, because there would be some volatility in the event of Brexit," Corfe added.

Economists warn that the pound could potentially collapse by 20 per cent in value, in the event of a British exit.

"Faced with a Brexit, we would expect the authorities to welcome a weaker pound," said David Owen, chief European economist at Jefferies.

A weaker British currency would likely boost the nation's exporters because it makes their goods cheaper for international buyers using stronger currencies.

"The key thing here is see a managed depreciation of sterling — with the [Treasury] still able to successfully issue gilts, rather than something more of a rout," Owen warned.

Support for Britain leaving the EU has risen since Prime Minister David Cameron unveiled plans for a deal to keep the country in the bloc, a poll showed Friday.

The survey showed 45 per cent now wanted to leave the EU, ahead of 36 per cent who wanted Britain to remain in the 28-member club.

That marked a three-point rise for those in favour of a so-called "Brexit" since a poll taken a week earlier.

Cameron has set a deadline of the end of 2017 to hold a referendum on whether Britain should stay in the EU, but sources say he is keen to push a vote through by June.

To get ready for a British exit from the EU and, with little idea of what that would look like, companies are spending millions of dollars and preparing for higher costs and moving their headquarters from Britain.

British business is keen to play down the possibility of a "Brexit" after a planned referendum to ease widespread uncertainty, mainly over how long it would take and how it would play out.

But with the government giving few hints as to how a possible departure could unfold, companies have begun to direct teams of lawyers and advisers to pore over different scenarios to try to determine where they could hurt the most.

Dominic Barton, global managing director at consulting firm McKinsey & Co., said he knew of one global bank which was spending $75 million "because you've got to think about [your] real estate footprint, moving people, tax implications".

"And even though you don't think it's going to happen, as a leader you've got to have a backup plan," he told Reuters.

The chief executive of a large financial institution with business across Europe, who spoke on condition of anonymity, said it could cost $50 million to work out how to shift certain operations from London to cities on the continent.

Companies could consider moving their headquarters due to the uncertainty that would immediately follow an exit vote over Britain's relationship with its former EU partners and the rest of the world.

The costs, he indicated, would include deciding how to take on office space, how to staff new outposts and how to best to manage the large expense of relocating executives and their families to different countries.

Complaints

Cameron has called on businesses to support him in his negotiation with the EU on winning better membership terms for Britain in the bloc and then to campaign alongside him to keep the country in it.

He received a sympathetic response from hundreds of business leaders, but they also called on him to do as much as possible to agree a deal in February and then hold the referendum as quickly as possible — in June.

"Timing is critical," Martin Sorrell, head of the world's biggest advertising group WPP, told Britain's finance minister, George Osborne.

Others wanted more direction from the government, which has refused to talk about a possible exit before Cameron's renegotiation ends, to judge where its departments see the main pressure points if Britain votes to leave.

One investment fund head said it was almost impossible to plan for because there were just too many "unknowns". 

Several big international banks think Brexit would be bad for Britain, while they could live with it.

Anne Richards, chief investment officer at Aberdeen asset management, said there would be some winners.

"We are checking to make sure that our existing arrangements could cope, and so far we think they could, so we think we are covered," she said Reuters' Global Markets Forum.

"We don't yet have a handle on costs, but I'm sure the one definite winner out of the referendum, whichever way it goes, will be lawyers and advisory firms we'd all have to hire to make sure we have every base covered," Richards added.

Separately, BoE cut its growth forecasts and the only policymaker who had been pushing for a rate hike reversed his position, suggesting rates will stay on hold for the foreseeable future.

BoE Governor Mark Carney said officials still expected the next move in interest rates to be upwards, but echoed downbeat comments from central banks around the globe, warning that global growth would be modest as emerging economies struggled.

Highlighting risks from China's economic rebalancing and the financial market turmoil, he added that risks to Britain were rising even if domestic demand remained strong.

"All of these developments pose downside risks to growth in the United Kingdom via trade, financial and confidence channels," Carney told a news conference. "The outlook for trade is particularly challenging."

The bank said its Monetary Policy Committee (MPC) voted 9-0 to keep rates on hold at a record-low 0.5 per cent, where they have been for almost seven years.

MPC member Ian McCafferty, who had voted for a rate rise since August, unexpectedly fell into line last week, citing a temporarily weaker outlook for wages.

Central banks around the globe have pared back growth and inflation expectations, openly discussing the need for more accommodation and erasing hopes that policy normalisation could start later this year.

The Bank of Japan last month cut rates into negative territory, the European Central Bank (ECB) hinted at a further cut in March and dovish comments from New York Federal Reserve (Fed) Governor William Dudley suggested that no US rate hike could come at all this year.

Britain has stood out from Europe's economic weakness with relatively healthy growth, little spare capacity and a jobless rate near the long-term equilibrium, for a while raising expectations that it would soon follow the Fed's December hike.

‘Next move is up’

Global market turmoil has since dashed those prospects but Carney noted that the next move was still more likely up than down. Moreover he said that if the BoE followed recent market bets for a rate hike only late next year, it would end up slightly overshooting its 2 per cent inflation target.

"We'll do the right thing at the right time on rates," he added. "More likely than not, the next move is up."

Asked if he stood by repeated remarks that the next rate move is likely to be up rather than down, he stressed: "Absolutely. The whole MPC stands by that."

Since the BoE finalised its forecasts a few days ago, markets have pushed out bets on a first rate rise until mid-2018. There was little change in pricing after Carney spoke.

Economists, however, still mostly expect a much earlier move and RBC's Sam Hill said Carney's comments strengthened his conviction that rates would start to rise in around a year.

"In the near-term, the MPC is more circumspect on the current vote but... a hike is being signalled as necessary some time before markets currently imply," he said.

Part of the reason markets appeared only to expect rates to rise in 2018 was because they were partly factoring in the risk of a rate cut before then, something Hill noted that Carney had dismissed.

Sluggish wage growth

The BoE forecast Britain's economy would grow 2.2 per cent this year and 2.3 per cent in 2017, down from forecasts of 2.5 per cent and 2.6 per cent in November and barely changed from 2015, when growth disappointed expectations.

Consumer price inflation is forecast to stay below 1 per cent through 2016, longer than previously thought, but then is forecast to rise to just over 2 per cent in two years' time, similar to the last set of forecasts.

The BoE also cut its wage forecasts, predicting wage growth of 3 per cent, a level officials had previously identified as supporting a rate rise, only at the end of 2016.

Few weeks ago, Carney said he would only back a rate rise once growth was faster than average, wages had picked up and underlying inflation was nearer 2 per cent.

Carney added that sterling's recent fall, the resilience of the financial system and solid growth in both household and corporate consumption supported the British economy, indicating the domestic economy could withstand increased global stress.

Sterling has weakened by more than 3 per cent over the past three months. The BoE said this reflected concerns about global growth, lower interest rate expectations and possibly uncertainty about Britain's referendum on leaving the EU.

LONDON/HOUSTON — As oil and gas companies cut ever-deeper into the bone to weather their worst downturn in decades, boards have adopted contrasting strategies to lead them out of the crisis.

Crude prices have tumbled around 70 per cent over the past 18 months to around $35 a barrel, leading to five of the world’s top oil companies reporting sharp declines in profits in recent days.

Executives at energy firms face a tough balancing act: they must cut spending to stay financially afloat while preserving the production infrastructure, and capacity that will allow them to compete and grow when the market recovers.

Companies have opted for differing approaches to secure future growth, often choosing to narrow focus to their areas of expertise and the geographic location of their main assets.

American firms Chevron ConocoPhillips and Hess Corp. are withdrawing from more costly deepwater projects to focus on shale oil fields on their home turf, for example.

Britain’s BP is betting on offshore gas in Egypt, while Royal Dutch Shell has opted for an alternative route as it seeks to safeguard its future: the $50 billion takeover of BG Group.

In the five years before the downturn began in mid-2014, when crude prices held above $100 a barrel, big energy firms had raced to expand production capacity, including buying stakes in vast, costly fields sometimes located thousands of metres under the sea, and kilometres from land.

Over the past year however, companies have slashed their overall capital expenditure, scrapping plans for mega projects that cost billions to develop and take up to a decade to bring online.

“Companies want to strike a balance between long and short-cycle investments while maintaining a robust balance sheet to fund their way through the down cycle,” said BMO Capital analyst Brendan Warn. 

Focusing on a specific set of expertise and geographies allowed them to offer investors a “unique value proposition”, he added.

US shale, Egypt gas

Chevron, the second-largest US oil firm after Exxon Mobil by market value, last week outlined plans to target spending on “short-cycle” investments, lower-cost projects that can take months, rather then several years, to come online.

In particular, it is focusing on its big presence in shale oil fields in the US Permian basin at the expense of high-cost, complex deepwater projects after cutting its 2016 capital expenditure, or capex, by 24 per cent.

“In terms of longer-cycle projects, we aren’t initiating. We aren’t initiating any. You are going to see us preferentially favour short-cycle investments, and if they don’t meet our hurdles, we won’t invest,” Chevron Chief Executive Officer John Watson said in an analyst call.

Even though developing shale wells can be more costly than some deepwater projects on a per-barrel basis, a much shorter development cycle and lower execution risks mean that companies can reap benefits quicker.

The short-term investment strategy is driven in part by the fact that, unlike for example BP, it already has a pipeline of longer-term projects, it is currently developing some of the world’s largest liquefied natural gas (LNG) projects such as the Gorgon and Wheatstone plants in Australia.

Smaller firms ConocoPhillips and Hess have also shifted away from deepwater projects to onshore shale production including in North Dakota’s Bakken Shale.

BP was one of very few companies that approved a major project last year, with its $12 billion investment decision in the West Nile Delta gas project in Egypt. 

The strategy is partly based on its plans to see a large part of its future production growth come from gas off the coast of the North African country.

But the company, which reported its biggest-ever loss last week, also does not have the line-up of long-term projects boasted by the likes of Chevron; the development is also driven by the fact it sold more than $50 billion of assets after the deadly 2010 Gulf of Mexico oil spill, leading to a significant decline in output, according to analysts.

“BP aren’t digging themselves through a hole. They are investing a little bit through the cycle,” said Warn.

Dealmaking

Shell, by contrast, opted at an early stage of the downturn to acquire Britain’s BG Group in the sector’s largest deal in a decade. It will make it a leader in LNG and offshore oil production in Brazil and increase its energy reserves by about a fifth.

The Anglo-Dutch group, which posted its lowest annual income for 13 years last week, expects to complete the deal this month.

US giant Exxon may need to take a leaf out of Shell’s book and seek a major merger and acquisition deal after it surprised many in the market last week by slashing its 2016 spending by a quarter to $23 billion, said Anish Kapadia, analyst at Tudor, Pickering, Holt and Co.

The capex cut signals the company, which reported its smallest quarterly profit in more than a decade, is not planning to invest in many new projects, he added.

“That is a signal that Exxon doesn’t have an attractive enough project queue to invest in and is not willing to invest in upstream, so if it wants to grow it will have to make an acquisition,” Kapadia continued.

“In this environment with the potential for higher oil price, Chevron are doing the right thing. They can survive over the next few years and have the option to grow. Exxon is at the bottom of the pile. It looks the most expensive but it is hard to justify given the lack of growth outlook,” he indicated.

Tudor, Pickering, Holt and Co. has a ‘buy’ recommendation on Chevron and Shell, a “hold” on BP and “sell” on Exxon.

Norway’s Statoil and France’s Total, meanwhile, appear to be sitting in the middle ground: both have indicated they will not invest in new projects this year but they also have big projects coming on stream in the coming years that will counter production declines.

LONDON/NEW YORK — Candy bars have shrunk and economic growth in Asia has slowed, meaning people are eating less chocolate and its key ingredient cocoa, which has seen its price fall this year after defying commodities trends to soar in 2015.

High prices for ingredients last year, including nuts and milk as well as cocoa, helped make chocolate a less affordable treat for consumers in emerging markets such as China and India. Chocoholics in North America and Europe, meanwhile, opted for quality at the expense of quantity.

Market research firm Nielsen has estimated there was a 3.7 per cent year-on-year decline in global chocolate confectionery demand in the September-November period.

With food retailers pressing manufacturers to minimise price rises, one response was "shrinkflation". Some companies put smaller bars in the pack but kept the price unchanged.

"It used to be you had 'fun sizes' and now it's bite sizes," said Judith Ganes-Chase, soft commodities expert and president of New York-based J Ganes Consulting. "Fun size" bars in North America are two or three bites big.

A much lower-than-expected crop in Ghana, the world's second largest producer, helped push global cocoa prices up by more than 10 per cent last year. 

The early weeks of 2016 have already seen prices fall back again by as much as 15 per cent, as production in Ghana rebounded and some investment funds reduced their holdings in commodities such as cocoa.

But those hoping for chunkier bars or cheaper chocolate are likely to be disappointed, with manufacturers likely to pocket most of whatever they save on ingredients.

Euromonitor analyst Jack Skelly indicated that most chocolate makers are focused on cutting costs at the moment, noting that cocoa prices are still much higher than a few years ago.

"Profit margins are at the forefront for companies at the moment due to global market slowdown," he said.

Consumers in more affluent countries have developed a taste for premium chocolate, with the extra cost partially offset by less frequent purchases.

Premium chocolate maker Lindt & Spruengli reported sales growth of more than 7 per cent in 2015, while mass-market rivals such as US-based Hershey Company have struggled.

The maker of Hershey Kisses and Reese's Peanut Butter Cups reported a bigger-than-expected 5 per cent drop in quarterly net sales last month, noting weak demand in China and North America.

"We believe the macroeconomic environment and competitive activity in the international markets where we operate will continue to be a headwind for the chocolate category and Hershey in 2016," John P. Bilbrey, president and chief executive of Hershey Co. said during a conference call.

According to Euromonitor analyst Skelly, price rises has stunted demand growth in Asia.

"In emerging markets like China and India I think affordability is a real issue which means chocolate isn't growing as quickly as it could," he said.

Grinding recovers

The fall in prices for cocoa has already begun to revive demand for grinders, who turn cocoa beans into ingredients like the cocoa butter used to make chocolate.

"We are seeing very keen demand and off-take which is unusual for this time of the year," indicated Jeff Rasinski, vice-president of procurement and risk management for Blommer Chocolate Company, the biggest cocoa grinder in North America.

Last year's rise in cocoa prices had made it less profitable to grind cocoa. In the 2014/15 (October/September) crop year, the International Cocoa Organisation estimated global grindings fell by nearly 5 per cent to 4.1 million tonnes.

Analysts and traders said the revival in demand for processed cocoa may be driven by manufacturers restocking inventory, and doesn't necessarily mean people will soon be eating more chocolate.

"There are a lot of people who delayed purchasing when prices were high. They're going to look to take advantage of the lower prices. That's going to help improve grind," Ganes-Chase said.

"It has nothing to do with how much chocolate is being sold on the retail level. This is more about inventory management and trying to lock in lower price levels for manufacturers, bakeries or confectionery manufacturers," she added.

RABAT — Abnormally dry weather across North Africa is threatening to become another financial headache for Morocco and neighbouring Tunisia and Algeria, just as each seeks to spur more economic growth and cut public spending.

Rising food import costs would come at a delicate time, as Morocco faces protests over austerity measures, Tunisia struggles to ease an outburst of unrest over joblessness, and Algeria cuts spending after a collapse in oil prices.

Along with Egypt, Morocco, Algeria and Tunisia are among the world's biggest wheat importers, with import levels highly sensitive to the results of the local harvest.

"Drought has a huge impact across the region," Jon Marks, chairman of the consultancy Cross Border Information, said. "It weakens the trade balance and holds back efforts to overhaul the agriculture sector."

"In Algeria and Tunisia, drought may slow the pace of planned subsidy cuts," he added. "Morocco, the region's big winner from the oil price slump, may channel some more resources into rural areas."

Morocco plans nearly $600 million of measures to support farming, including assistance for small farmers, feed subsidies, and around ($125.4 million) of insurance from the state-run Moroccan Agricultural Mutual Insurance (Mamda).

It also plans to subsidise 800,000 tonnes of barley production and imports, by paying almost 1 dirham per kilogramme of the crop.

With drought looming, the Moroccan cereal harvest is expected to fall sharply from an exceptional 2015 crop that hit a record 11 million tonnes.

"[The] rainfall deficit has reached around 61 per cent until now. If the spring cultivation is also affected, this year's cereal harvest would reach hardly 2.5 millions tonnes," indicated the head of Morocco's planning agency, Ahmed Lahlimi Alami.

The planning agency estimates that the drop in agricultural output will drag down gross domestic product (GDP) growth to 1.3 per cent this year, against a government projection of 3 per cent, from an estimated 4.4 per cent in 2015.

The agency, known by its French acronym HCP, says the drought would also increase government spending this year, raising doubts over plans to cut the budget deficit.

The government estimates that the budget deficit will fall to 3.5 per cent of GDP this year from 4.3 per cent in 2015.

Agriculture accounts for more than 15 per cent of the Moroccan economy.

Longer import window

Experts and traders expect this year's Moroccan imports to remain under 3 million tonnes as last year's bumper harvest helps mitigate the impact of the drought. However, one Moroccan importer said the country would likely have to extend its import window, which is typically open from October to April.

The import window is closed to protect the local harvest, he added, but this year there may be nothing to protect. 

"We expect it to be expanded until the end of May," he continued.

Importers expect shipments to rise next season, once last year's harvest has been worked through. They say the government should suspend custom duties on soft wheat to ensure adequate supplies to the market by the start of the next season.

Across the border in Algeria, officials played down the impact of any rain shortfall on their country's economy.

"We cannot talk about drought right now," Agriculture Minister Sid Ahmedi Ferroukhi told reporters last week. "We had insufficient precipitation in November and December, but we got good volumes of rains and snows this month [January]."

Algeria's grain imports rose 11.2 per cent to 13.67 million tonnes last year, despite efforts to curb purchases from abroad. Its foreign exchange reserves dropped by $6.33 billion to $152.7 billion in the third quarter as global crude oil prices plunged.

The government has said it plans to boost cereal output to 6.13 million tonnes this year from 3.77 million tonnes in 2015, through better-quality seeds, improved mechanisation and more incentives for farmers.

It has also said it would raise total irrigated areas by two-thirds to 2 million hectares by 2019. The share of irrigation for cereals is expected to leap to 600,000 hectares from 60,000 hectares currently.

In Tunisia, El Majid Ezzar, president of the Tunisian farmers organisation, said it was too soon to gauge the implications of the dry weather.

"This will be a tough year, but we hope there will be enough rains in February and March to save the season," he added.

Tunisia currently imports around 2.4 million tonnes of grains annually including 1.2 million tonnes of soft wheat, but experts and analysts expect trade deficits may widen because of heavier food imports.

Drought would also make it harder for governments to reform their subsidy systems, as requested by foreign lenders.

AMMAN –– Lafarge Jordan has a plan to turn its dusty site for cement production in Fuheis into an "environment-friendly urban hub", but is still waiting decision makers' nod, the company's Chief Executive Officer (CEO) Amr Reda told The Jordan Times Monday. 

The envisioned project, Reda said, would be an entire clean energy city that would include shopping malls, residential and commercial properties, medical facilities and restaurants, describing the scheme as "a great" investment opportunity" for the regional and international developers, the local community and the country. 

Lafarge Jordan is considering the development plan as it seeks economic salvation to problems facing its factories in Fuheis, a town just few kilometres northwest of Amman. The plant  has been non-operational for several years due to pressure of the local community over environmental impact, according to Reda. 

On the value of the project, Reda said it would exceed JD2 billion, indicating that the company sent an official letter to the Jordan Investment Commission in October 2015 informing them about the plan but still has not received any response. 

The size of the land, fully owned by Lafarge, is 1,880 dunums, according to the CEO, who said that the Paris-headquartered leader in the cement and building solutions industry has the expertise and  knowhow to develop environment-friendly schemes. 

"This would be the group's first of its kind project in the world, if approved," he said, adding the company can bring in an international engineering firm to design the project and invite local, regional and global developers to invest.

"If we get government approval for this development project, economic returns for the country and the area would be double. It would create a large number of job opportunities," he said, adding the firm is ready to work on this project as soon as possible.

"We would love to meet His Majesty King Abdullah or Royal Court officials to present the idea,"  he continued.

Reda said the vision for the development project was initiated after Lafarge completed merger with Holcim to create LafargeHolcim, a new leader in the building materials industry. 

"The company seeks a new strategy to end the status quo here," he said. 

‘A heavy inheritance at Fuheis’

"The status quo of losses cannot continue," Reda said when commenting on the halt in operations at the cement factory in Fuheis.

 Established in 1951 as the Jordan Cement Factories owned by the government, Lafarge entered in 1998 as a strategic partner through buying 33 per cent of the government shares.

Now the France-based Lafarge Group owns 51 per cent of the shares, 25 per cent owned by state-run Social Security Investment Fund, while the rest are owned by individual shareholders.

 The company owns two cement plants, one in Fuheis and another in Rashadiyah.

 The factory in Fuheis was described by Reda as a heavy inheritance in terms of dispute with local community over operations and environmental impact and other issues related to labour. 

He said between 2005 and 2009 the company developed the factories to reduce the environmental impact by using the latest technology to monitor emissions to be in line with international standards. Previously, production used to rely on heavy fuel. 

In 2009, competition was allowed and currently there are five factories operating in Jordan. 

Other firms were allowed to use cheaper energy, which is coal, he said, adding that, unfortunately, Lafarge did not have the same privilege due to local community pressure. 

In 2011, Reda said Lafarge established a factory to be run on piteoke in Fuheis but again the local community objected, leaving the two lines of production and 200 engineers and workers in complete halt for several years. 

Rashadiyah factory was allowed in mid-2013 to use coal for production.

"We have to pay JD5 million a year in compensations for the local community as environmental impact. What impact and the factory is not operational?," he asked.

Reda talked about a rising phenomenon, which he described as the mafia of lawyers. 

"If someone buys a land near the factory, lawyers approach landlords to get compensations for them for loss in value of property," he said.  

Despite the fact that factory is not producing, demands of the local community are increasing, Reda complained. 

"Do we still need the factory now? It is unfeasible anymore," he added. 

Asked if LafargeHolcim, which has factories in 90 countries, would consider quitting the Jordanian market, Reda said it could be a possibility if the group comes to a conclusion that it is unfeasible to stay anymore.   

He indicated that the company's accumulated losses between 2010 and 2014 are estimated at JD60 million, attributing losses to operational costs and compensations. 

The company employs 580 people currently, most of them are not needed because its business in Jordan is not fully operational. 

Reda said the company is also burdened by health insurance costs for pensioners that is estimated at JD2.5 million a year. 

The insurance system covers dependent males until 18 and females until marriage. It is a huge legacy as the number of beneficiaries ranges between 5,000 to 6,000 people.  

Cement production

Reda said Lafarge production ranges between 3.9 to 4 million tonnes a year but he expected a drop in demand for cement this year that could reach 15 per cent. 

He attributed the projected drop to an expected slowdown in building activity in the Kingdom in 2016, adding that residential projects consume around 75 per cent of the cement production in the Kingdom. 

ISTANBUL — The lifting of sanctions against Iran may be a mixed blessing for Turkey, opening up access to a fast-growing, lucrative market, but one that could someday rival Ankara as both an investment destination and exporter.

NATO-member Turkey remains the region's economic powerhouse, with output of nearly $800 billion in 2014, well above Iran's $425 billion, and an advanced manufacturing industry that exports televisions, cars and washing machines to Europe.

But Iran, with a similar-sized population, could close that gap, Turkish business leaders say, thanks to government incentives, a well-educated workforce, and vast oil reserves that obviate the need for energy imports.

"It is an economy with great potential," said businessman Alper Kanca, whose company, Kanca Dovme Celik, produced engine parts for Iranian automakers for 20 years prior to the sanctions.

"There is extraordinary support from the Iranian government to expand domestic industry," he added.

After the lifting of international sanctions last month, Iran is now the biggest economy to rejoin the global trading system since the Soviet Union broke up more than two decades ago.

Iranian President Hassan Rouhani says Tehran needs as much as $50 billion a year in foreign investment to meet an economic growth target of 8 per cent. So far, deals worth at least $37 billion have been announced in industries ranging from construction to aviation and auto manufacturing.

In the short term, Turkey's auto industry, which accounted for $22 billion in exports last year, could be a beneficiary, thanks to its advanced manufacturing techniques.

"After working closely with European producers for years, Turkish auto parts producers have an upper hand," indicated Mehmet Dudaroglu, the chairman of the Turkish auto parts manufacturing association (TAYSAD).

"However, Tehran's potential incentives for the industry, as well as lower costs, could make Iran the new competition," he said.

Not a rival

The International Monetary Fund expects Iran's economy to expand 4.3 per cent this year, with growth at or above 4 per cent in the next two years. It also sees Iran's imports expanding 18 per cent this year, 14 per cent next year and 7 per cent the year after.

"Turkey will be one of the countries that benefits the most" from the opening of Iran, Economy Minister Mustafa Elitas told Reuters in an interview in Chile on Monday, while on a visit to Latin America.

Turkey's trade with Iran reached $22 billion in 2012, he indicated, before dropping off sharply in subsequent years as tighter sanctions hit. Ankara aims to reach $30 billion in trade with Iran by 2023, he said.

Elitas added that Iran won't be able to draw as much foreign investment as Turkey because it is less democratic.

"Turkey is the most democratic country in the region and foreign investments will go to democratic nations, to countries that can guarantee those investments," he elaborated. "If Iran advances with its economy, then they could become a rival."

Turkey attracted more than $12 billion in foreign direct investment in 2014, while Iran garnered $2 billion.

Some Turkish steel producers take a less sanguine view of Iran, pointing to its immense oil reserves. Turkey is forced to import almost all of its energy needs.

"The steel industries of both countries are based on nearly the same product range. The Iranians have the potential to export some of what they produce and could compete with Turkish steel," said Namik Ekinci, the head of the Turkish Steel Exporters Association. Steel accounted for 7 per cent of Turkey's total exports last year.

Cement producers are also wary.

"The input with the highest cost is energy. And energy is cheap in Iran," said a senior officer at a major Turkish cement producer. "There's tough competition ahead."

NEW YORK — Alphabet Inc. easily beat Wall Street's quarterly profit forecasts on Monday, helped by strong mobile advertising sales, sending the shares of Google's parent higher in after-hours trading to surpass Apple Inc. as the most valuable US company.

For the first time, the company disclosed the profitability of Google's search engine and its other online services, and how much it is spending on ambitious technology projects such as self-driving cars.

The numbers were lapped up by investors, who saw room for growth in Google's traditional business, and were relieved to see that spending on new projects it calls “Other Bets” was not as lavish as some had feared.

"It's pretty interesting that 80 per cent of YouTube views come from outside of the United States. I didn't think it would be that high," said Kevin Kelly, managing partner at Recon Capital. 

"It demonstrates that the value of YouTube can continue to be extracted," he added.

The operating profit margin for its Google unit was 31.9 per cent in the most recent quarter, compared to 25 per cent for Alphabet.

Alphabet spent $869 million on capital expenditures for the Other Bets in 2015, up from $501 million in 2014. It has not made any projections about if or when those bets cumulatively would become profitable.

"As long as the core business continues to operate well with accelerated revenue... investment in those businesses can continue," said Ronald Josey of JMP Securities.

The company indicated that consolidated revenue jumped 17.8 per cent to $21.33 billion in the fourth quarter ended December 31, from $18.10 billion a year earlier. Analysts had expected $20.77 billion, according to Thomson Reuters I/B/E/S.

Revenue for Other Bets was $151 million, up 29.8 per cent from $106 million in the same quarter last year, primarily from its smart-home monitoring unit Nest, Google Fiber, which provides high-speed Internet access, and its life sciences business Verily.

Adjusted earnings of $8.67 per share handily beat analysts' average estimate of $8.1 per share.

In a call with analysts, Chief Financial Officer Ruth Porat attributed the strong earnings to "increased use of mobile search by consumers", as well as "ongoing momentum" in YouTube and programmatic advertising, referring to the automatic buying of ads.

Kelly at Recon Capital said he would not be surprised if YouTube saw a surge in advertising revenues beyond the 17 per cent increase it saw during the 2015 fiscal year.

Total operating losses on the Other Bets, which include glucose-monitoring contact lenses and Internet balloons, increased to $3.57 billion in the 12 months ended December 31, and $1.2 billion in the fourth quarter.

The Google unit houses its Internet and related businesses such as search, ads, maps, YouTube and Android as well as hardware products such as its low-cost Chromebook laptops.

Google Chief Executive Sundar Pichai said on the call that its Gmail service crossed 1 billion monthly active users last quarter, joining Search, Android, Maps, Chrome, YouTube and Google Play in topping that mark.

He also touted the company's performance during the holiday shopping season, saying that programmatic video impressions doubled this season compared to last, and that 60 per cent of them came from mobile devices.

But Porat, without providing figures, said the company planned to accelerate capital expenditures in 2016 compared to the previous year.

Google's shares rose almost 5 per cent in after-hours trading. Alphabet's combined share classes were worth $549 billion, compared with Apple, which had a value of about $534 billion.

Google's advertising revenue increased nearly 17 per cent to $19.08 billion, while the number of ads, or paid clicks, rose 31 per cent, the company indicated. Analysts had expected paid clicks to increase 21.8 per cent.

Advertisers pay Google only if someone clicks on their ad.

Net income in the fourth quarter rose to $4.92 billion, or $7.06 per Class A and B share and Class C capital stock, from $4.68 billion, or $6.79 per share. 

Adjusted earnings of $8.67 per share excluded certain one-time items.