Business

BRUSSELS — The International Monetary Fund (IMF) cut its 2014 growth forecast for the eurozone on Monday, warning that the recovery in the single currency bloc was “neither robust nor sufficiently strong”.

In an annual report on the eurozone, the IMF said growth this year would reach 1 per cent instead of the 1.1 per cent earlier forecast. The estimate for 2015 remained at 1.5 per cent.

“We acknowledge there is recovery but a lot more needs to be done,” said Mahmoud Pradhan, deputy director of the IMF’s European department, in a conference call presenting the report.

The Washington-based IMF recommended eurozone policy-makers adopt measures to boost demand, reinforce banks and pursue structural reforms that applied to all 18-member countries, including ways to fight youth unemployment.

The IMF praised monetary measures decided in June by the European Central Bank (ECB), which included negative interest rates and fresh financing for lenders, and noted that proof of their effectiveness could take time.

If the measures fall short however, the IMF urged even more stimulus, including so called quantitative easing embraced by the United States, Britain and Japan, but so far resisted by the more conservative ECB.

The IMF also urged reforms to help businesses replace their dependency on banks for credit with the use of bonds and other methods of raising fresh funds. 

Separately, three of Europe’s leading economic institutes predicted the eurozone’s economic recovery is set to continue at a moderate pace in the coming months, driven by domestic demand.

Germany’s Ifo think tank and its French and Italian counterparts Insee and Istat said in a joint statement they are pencilling in a minimal acceleration in quarterly growth to 0.3 per cent in each of the second, third and fourth quarters from 0.2 per cent in the first quarter.

That will take full-year growth up to a modest one per cent for 2014 as a whole, the institutes said.

“Eurozone growth is expected to recover in the second quarter with GDP (gross domestic product) increasing by 0.3 per cent after 0.2 per cent in the previous quarter,” the statement added.

“Growth rates are forecast to remain at this level in the third and fourth quarters,” it continued. 

The recovery was expected to be “broad-based across sectors and countries. The consolidation of the upturn will be mainly driven by progressive improvements in domestic demand and a marginal contribution by the external sector”, it indicated. 

The 18-country eurozone emerged from its longest-ever recession in the second quarter of 2013, but growth has remained anaemic since then. 

Ifo, Insee and Istat acknowledged downside risks to this scenario, pointing to “increases in the savings rate of private households, weaker external demand from emerging economies, especially from Asia and Latin America, as well as an escalation of international tensions in Eastern Europe, and of the military conflict in Iraq and Syria”.

GENEVA — The United States broke global trade rules by slapping import duties on Indian steel products, a World Trade Organisation (WTO) panel ruled on Monday, calling on Washington to fall into line.

A WTO dispute settlement panel, said Washington had “acted inconsistently” with  regulations set down for the international body’s 160 member economies.

“We conclude that the United States has nullified or impaired benefits accruing to India,” said the panel, which is made up of independent trade and legal experts. “We recommend the United States bring its measures into conformity with its obligations.” 

India filed its complaint at the WTO in 2012, after Washington imposed duties of nearly 300 per cent on imports of products including steel pipes.

The United States applied the duties because it felt Indian steel manufacturers were benefitting from unfair subsidies.

WTO members are allowed to impose so-called countervailing duties — a special import tax — if they believe that their domestic manufacturers are being hurt by subsidies granted by a trade partner to its companies.

The WTO regulations require the importing country to first conduct a detailed investigation that shows properly that domestic industry is hurt.

Legal sparring over the scope and depth of such investigations, and the legitimacy of subsidies and countervailing duties is commonplace at the WTO.

The WTO polices global trade accords in an effort to offer its member economies a level playing field.

Its panels can authorise retaliatory trade measures by the wronged party if its rival fails to fall into line.

It disputes process can last for years however, owing to appeals, counter-appeals and compliance assessments.

Monday’s ruling was the first by the WTO panel in the steel case and Washington has the right to appeal.

Also on Monday, Beijing won a key victory in a trade dispute with Washington, as a WTO panel said the United States was wrong to slap punitive duties on a host of Chinese goods.

The battle covered an array of products including paper, steel, tyres, magnets, chemicals, kitchen fittings, flooring and wind turbines.

The United States had hit them with extra import duties because it argued that they were being dumped on its market to help Chinese companies grab business.

China filed a complaint over the measures at the WTO in 2012.

A WTO dispute settlement panel on Monday said that the US duties were “inconsistent” with global rules.

“They have nullified or impaired benefits accruing to China,” said the panel, which is made up of independent trade and legal experts. “We recommend that the United States bring its measures into conformity with its obligations.” 

In a statement issued by its diplomats at the WTO, China’s ministry of commerce hailed the decision, noting that the annual export value of the affected products was around $7.2 billion.

“China urges the United States to respect the WTO rulings and correct its wrong doings of abusively using trade remedy measures, and to ensure an environment of fair competition for the Chinese enterprises,” it said.

Washington has the right to appeal against the ruling, which was the first in the case.

ABU DHABI/DUBAI — From a 59-storey tower in Abu Dhabi, the offices of Arabtec look out over the Gulf towards Middle Eastern and Asian nations where the construction firm hopes to expand. It is a symbol of the company’s ambitions — and the way in which they have run into hard reality.

Arabtec agreed last year to lease the entire tower, which was to serve as a base for it to diversify into the oil, power, infrastructure and real estate sectors, providing capacity for thousands of future employees as well as joint venture partners.

Much of that expansion is now in doubt. After a souring of ties between Arabtec’s chief executive and a big state investor led to his sudden resignation and a collapse of the company’s shares last month, Arabtec has launched a review of its plans.

The Dubai-listed firm’s troubles have hit the wider stock market, helping to trigger a crash that erased about $30 billion of value in eight weeks, and raised questions over corporate regulation and disclosure in the United Arab Emirates (UAE).

The meteoric rise and fall of Arabtec and former chief executive officer Hasan Ismaik reveal some of the perils of business in the Gulf: secretive state shareholders, management authority which relies partly on personal connections, and hands-off regulation.

“The Arabtec mess points to structural weaknesses in the business environment in the UAE and in the region more generally,” said Jim Krane, a Gulf expert at Rice University’s Baker Institute for Public Policy in the United States.

Business in the UAE is competitive and vibrant, but driven by opaque personal ties and political clout, he added. At the same time, regulation of companies is often tolerated only if it does not get in the way of traditional business methods.

“Companies are expected to adhere to the wider policy choices of the government and ruling family, and these dictates are not generally made public. There is a lot that happens beyond the public eye,” he explained.

Rise

Founded in Dubai four decades ago by a Palestinian-born businessman, Arabtec rode the region’s oil boom to become one of its biggest construction firms. It helped to build the world’s tallest skyscraper, the Burj Khalifa in Dubai.

New horizons began opening in 2012 when Aabar Investments, a unit of the Abu Dhabi government’s International Petroleum Investment Co. (IPIC), raised its stake in Arabtec — effectively giving the firm the backing of Abu Dhabi’s vast oil wealth.

Aabar strengthened its management influence over Arabtec, a process that culminated in February 2013 with the resignation of founder Riad Kamal as chief executive officer and his replacement with Hasan Ismaik, a Jordanian businessman who was then just 36 years old.

Ismaik rose rapidly from obscurity. Born to what he describes as a family of modest means, he says he moved to Dubai in 1996 to work as a real estate broker, getting a big break a few years later when he arranged a deal for well-connected Abu Dhabi investors to buy several buildings in Dubai.

He started buying shares in Arabtec and by August 2012, was prominent enough to become a non-executive member of its board, a position which within a few months led to his becoming chief executive officer.

Investors saw Aabar’s backing of the firm as a ticket to great wealth, driving the share price up more than threefold in the first four months of this year. This made Ismaik rich; in June, Forbes magazine said he had become the first Jordanian billionaire, and the third-youngest in the Middle East.

The benefits to Arabtec of having a big state shareholder seemed almost limitless: in February, Aabar asked it to build 37 new towers in Abu Dhabi and Dubai. The deal was worth $6.1 billion, or three times Arabtec’s total revenues in 2013.

In March, Arabtec agreed on an even more spectacular deal, to build 1 million houses in Egypt in a $40 billion project backed by the Egyptian and UAE governments. Arabtec effectively became a political tool of the Abu Dhabi government, which is pouring billions of dollars into Egypt to prevent any resurgence of the Muslim Brotherhood there.

Ismaik pushed plans to diversify the firm, explored acquisition opportunities and publicly discussed the idea of launching a string of initial public offers of shares in Arabtec units across the Middle East. Foreign expansion plans included opening an office in Serbia to target the Balkans.

“That was my vision — to take Arabtec to an international level,” Ismaik, a tall, bearded, soft-spoken figure in the white dishdasha robes worn by many men in the Gulf, told Reuters in Abu Dhabi earlier this month.

But for many fund managers, who had seen Arabtec’s stock soar far beyond their estimates of fair value as leveraged investors bid it up in response to the bullish predictions, the story was too good to be true — and so it proved.

Arabtec shares began plunging in mid-May as rumours circulated of a dispute between Aabar and Ismaik, raising the spectre of Arabtec losing Aabar’s support and being forced to slash its growth plans. Aabar declined to make any comment.

The rumours snowballed in early June when stock exchange data showed Aabar had suddenly cut its stake in Arabtec to 18.94 per cent from 21.57 per cent over several days.

In mid-June, Ismaik publicly denied there was any rift with Aabar, but the writing was on the wall: two days later he resigned, saying he wanted to pursue his own business interests.

From mid-May to their low in early July, Arabtec shares lost an astounding 70 per cent. Adding to investors’ jitters was uncertainty about the fate of Ismaik’s stake in Arabtec.

In late May, Arabtec said Ismaik had raised his holding to 21.46 per cent from 8.03 per cent; there was no explanation of when, or why this had not been disclosed earlier, since bourse rules require changes in stakes above 5 per cent to be revealed promptly. In mid-June, when Ismaik quit, bourse data showed his stake had risen further to 28.85 per cent.

He says he initially bought under several names — legal in the UAE — and that bourse data showed his stake jumping when regulators decided to consolidate the stakes under one name.

Ismaik says he has received several offers for his stake, from parties he declines to identify. But he insists he is in no hurry to sell, and that he may only consider selling for prices 50 per cent or more above the current market price. 

Future

What went wrong? Both Arabtec and Ismaik say his stint at the company was productive and that his decision to leave was a personal one; Aabar declines to comment. But a number of senior executives linked to Ismaik have left Arabtec since his resignation, company sources say, suggesting Aabar wants a change of management style.

One theory held by many people who know Arabtec is that Ismaik became too prominent and too flamboyant for the taste of the firm’s financial backers, in a society where many of the most powerful businessmen keep low public profiles. The Forbes story on Ismaik’s success may have contributed to his downfall.

“He gave people the bullet to shoot him with,” one Abu Dhabi businessman, who declined to be named because of the sensitivity of the Arabtec saga, said of the publicity surrounding Ismaik.

Another widely held theory is that Ismaik’s investments in Arabtec, which at the market’s peak were worth $2.7 billion, were conducted on behalf of other interests — a common practice in the Gulf — and then became a source of friction with them.

Ismaik says he invested his own money in Arabtec, borrowing money from banks with which he had close ties.

The scars left by the Arabtec saga on both the company and the stock market may heal with time. 

Arabtec Chairman Khadem Abdulla Al Qubaisi held a news conference early this month, his first since Ismaik’s departure, to say the firm’s construction projects remained on track and Aabar continued to support it.

Aabar may further tighten its control of Arabtec; a board member from IPIC, Mohamed Al Fahim, has taken over as acting chief executive officer. In the last few days Arabtec shares have partially recovered, though they remain 46 per cent below their peak.

But Arabtec looks likely to be a more sober, cautious firm than it was in Ismaik’s day. Qubaisi said it was now cutting costs, reviewing excessively high salaries and putting less emphasis on the diversification plans championed by Ismaik.

“We are reviewing a lot of things,” Qubaisi said, adding that the company was restructuring itself to focus on its core construction business.

In particular, Arabtec may outsource more of its new projects rather than bulking up itself, which could be costly and disruptive. 

Analysts believe the firm, which earlier this year said its workforce totalled about 63,000, would need to hire thousands more white-collar staff to manage giant deals such as the Egyptian housing construction project.

Ismaik’s future may also be somewhat more modest. He says he does not feel bitter about his experience at Arabtec and plans to stay in the UAE, focusing on his Abu Dhabi-based private investment company, HAMG, which has interests in areas from real estate to hotels and logistics.

Married with four children, he has been spending some of his time since he quit watching World Cup football match, rooting for Germany; he owns part of German football club TSV 1860 Munchen.

“I will take life as it comes. I believe in God, and I will win,” he said.

WASHINGTON — China’s yuan is a growing force in global finance, more than doubling in use over the past year, according to a new study from the Institute of International Finance (IIF).

Although its use in the international payments system remains dwarfed by the dollar and euro, the yuan, officially known as the renminbi, grew to 1.4 per cent of total transactions.

That jump moved it ahead of the Hong Kong and Singapore dollars and even with the Swiss franc, the sixth most used currency in global transactions, the IIF study pointed out.

In trade finance, overwhelmingly dominated by the US dollar, the yuan jumped into second place last year ahead of the euro and the Japanese yen, comprising 8 per cent of transactions.

And despite Beijing’s still firm controls on its use, the yuan has become the ninth most-traded currency on foreign exchange markets, the volume hitting $120 billion daily on average, compared with $34 billion in 2010.

The study by the IIF, a global association of leading banks, said the gains have come as Beijing slowly frees up the currency for international use.

There are clearing banks for yuan transactions now in five international centres: Hong Kong, Macau, Taiwan, Singapore and, since early this year, London, the world’s leading foreign exchange centre. 

Yuan-denominated bonds, so-called dim-sum bonds, have jumped since the government first permitted their issue in Hong Kong seven years ago.

“While true internationalisation would require much greater capital account liberalisation, the Chinese government continues to take measured steps towards opening China’s fnancial markets,” the IIF said.

“Further gradual steps to widen the currency trading band — and a more market-determined exchange rate — will help this process,” the IIF added.

The use of the yuan is still much smaller than China’s presence in the global economy: almost 12 per cent of all global trade flows and 11 per cent of capital flows.

Its 1.4 per cent share of international transactions is far below the euro’s 42.5 per cent and the dollar’s 31 per cent.

The government continues to keep a firm hand on its use, in part not wanting to release its control on the key yuan-dollar exchange rate.

The United States has repeatedly accused China of keeping the yuan undervalued to enhance its export strength, exacerbating the huge US trade deficit with China.

Beginning in 2010 the yuan strengthened from 6.83 per US dollar to 6.05 per dollar last year, but has since fallen back to 6.2, despite ongoing US pressure over the valuation.

Ironically, China’s fast economic growth and the US pressure had until recently helped limit the growth of the yuan in offshore lending. International deposits of the currency amount to 1.5 trillion yuan, or $240 billion, but yuan loans are minimal.

The IIF said that was because yuan interest rates were high and, until recently, investors held onto the currency in expectation of steady yuan appreciation.

HABUR, Turkey — Abdi Tekin used to spend days waiting to clear this customs post on the border with Iraq, his truck among the hundreds lined up to ferry some $1 billion worth of goods a month to Turkey's second biggest export market.

Now, lying on a thin, dusty carpet in the shade of his cab, he has to wait just a few hours at Habur. Chaos in Iraq, where a bloody Islamist insurgency threatens to dismember the country, has brought one of Turkey's key trade routes to a virtual halt.

"Everything's been different for the past month, month and a half. There are no cargoes or very few... We're racing with each other to get them," said Tekin, 33, as he took a nap to steel himself for a journey he has been making for years, but which in recent weeks has become increasingly treacherous.

Economists expect Turkey's trade balance to take a painful hit after Sunni militants seized swathes of northern and western Iraq last month — including the big northern city of Mosul, a key staging post on Turkey's export route to Baghdad.

Islamist insurgents held 32 Turkish truck drivers there for three weeks last month and still hold dozens of other Turks hostage. Though despite the risks, competition among trucking firms means freight rates have actually come down in many cases.

"The trade has almost stopped," said logistics company owner  Kemal Palta, who runs a fleet of 67 trucks from his office in Silopi, close to the Iraqi border crossing at Habur.

"There is no demand. There are no cargoes for our trucks to carry. I saw some experts saying there's been a fall of 20 per cent. If only that was the case," added Palta, who is also a senior official in the local chamber of commerce.

"I'd say there's a fall of at least 60 per cent and it will get worse in July," Palta indicated, a view echoed by the truckers at Habur, so congested just a month ago that they routinely waited in line for up to five days for paperwork to cross into Iraq.

Turkish exports to Iraq fell 21 per cent to $727 million in June, according to data from the Turkish Exporters Association (TIM), but the full extent of the drop-off in trade is only likely to be reflected in the figures over the coming months.

Iraq has risen to become Turkey's second biggest export market after Germany in recent years as the country rebuilds its economy after decades of war and sanctions and Ankara has sought to diversify its trade away from a dependence on Europe.

Exports to Iraq, mostly to the autonomous Kurdish enclave in the north of the country, had been growing in the double digits since 2005, at times in excess of 30 per cent, helping to narrow a trade gap partly responsible for Turkey's big current account deficit, its main economic weakness.

More than $5 billion worth of exports were shipped to Iraq in the first five months, broadly in line with volumes in the same period a year earlier, before the insurgency flared. Food, building materials and refined fuel are among the main products going across the border by road.

Fear and falling profit

Predominantly Sunni Muslim Turkey warned its citizens last month to leave all but autonomous Iraqi Kurdistan, saying "negative propaganda" was being spread against Ankara in the Shiite-dominated south of the country.

Turkey has long had a tense relationship with Iraqi Prime Minister Nouri Al Maliki's Shiite-led government, not least because of Turkey's thickening ties with Kurdistan, which is at odds with the federal government over oil and land rights.

"At least two dozen of my fellow drivers have stayed at home for the past month, because there are no cargoes and because they're scared to death. So am I," said truck driver Muharrem Cinar, 38, splashing bottled water on his face to keep cool under the scorching sun as he waited at Habur.

The truck drivers held in Mosul appeared in good health when they were released and said they had not been mistreated.

But that is little consolation for nervous truckers in Habur, not least as another 49 Turks, many taken from their consulate in Mosul, are still being held.

"I would never go to Mosul, especially after this," said Cinar. "There was always danger, but now it's entirely different. You go there and they might kill you."

Those still willing to venture into Iraq say the fall in demand for their services is eating into their profits.

"Before the war, the price I charged per tonne for this cargo was $55. Now I am carrying this for $28, and I bargained hard," said Mehmet Badur, 44, lighting a cigarette before jumping into his truck laden with sunflower oil.

Alternative routes

Almost all of those still waiting to cross at Habur were travelling to Kurdistan in the north, relatively untouched by the violence of the Islamic State of Iraq and the Levant (ISIL) and its allies as they fight Iraqi government forces.

That has left transport companies looking for alternative routes into the rest of Iraq without having to go through Mosul. But the detours increase the costs. The straight route from Habur to Baghdad via Mosul is about 550 kilometres. A route to the east, avoiding Mosul, is at least 20 per cent longer.

"ISIL's seizure of Mosul cuts our route in two. Now we're trying to go via Iran, but the Iranians want an additional fee," said Palta, the logistics company owner. Another option might be to hand over loads to Iraqi drivers at the Kurdish frontier.

"But," he added, "we have to keep trying as this is our biggest export market."

Iraq accounted for almost 8 per cent of Turkey's $152 billion exports last year and a fall in trade could force it to cut its $166.5 billion target for 2013, economists predict.

Noting that the violence flared only towards the middle of June, Finansbank chief economist Inan Demir said the 21 per cent decline in Turkish exports to Iraq last month reflected problems that were only fully a factor in the latter half.

"The real impact," he noted, "will be seen in July and August and I wouldn't be surprised to see a 40 per cent decline."

Such a decline could arrest the narrowing trend in Turkey's trade deficit, the main driver of its $50 billion current account gap, which both the government and central bank have been struggling to bring down.

The Iraqi glitch for the economy could discomfit Prime Minister Recep Tayyip Erdogan as he bids for the enhanced post of president next month, though few expect it to prevent him winning an election at which polls make him the clear favourite.

Mehmet Buyukeksi, head of the TIM exporters' association, said this month that the situation in Iraq was worrisome but that trade losses would be compensated for by a revival in demand in European markets. 

Finansbank's Demir did not agree.

"I don't think a rise in exports to Europe can totally compensate for the fall in exports to Iraq," Demir said. "If official trade data proves the decline to Iraq in coming months, a downward revision of my year-end export forecast is likely."

Such economic calculations are a distant concern for the truckers at Habur.

"Iraq is finished for me," Vehbi Demir, 37, one of the drivers abducted in Mosul, told Reuters after his release. "From now on I will never set foot in that country again."

TOKYO — Prayer rooms, hijabs made from local silk and even halal-certified whale meat are appearing in Japan as tourism bosses wake up to the demand from Muslim travellers.

For a largely homogeneous country with only around 100,000 practising Muslims, that means groping its way through unfamiliar customs as it looks to tap a growing market to help it double the number of overseas visitors by 2020.

"Muslim travellers still do not feel comfortable here," Datuk Ibrahim Haji Ahmad Badawi, head of Malaysian food company Brahim's told AFP at a recent seminar on halal tourism in Tokyo. "The government seems to have understood this."

Last year, seminars like this one were held in 20 different regions in Japan, where hoteliers and restaurateurs were invited to learn how to cater to Muslims.

The Osaka Chamber of Commerce handed out 5,000 leaflets as a guide to what can and cannot be eaten — the idea of forbidding consumption of things like alcohol or pork is anathema to omnivorous and foodie Japan.

With the Islamic world currently observing the holy month of Ramadan, tourism to Japan is being heavily promoted in mainly-Muslim Southeast Asia, where visa requirements were relaxed in 2013 for Malaysia and Thailand. 

Indonesia — the largest Muslim-majority country in the world — is slated to follow shortly.

According to the Japanese Tourist Office, the number of Indonesians visiting the archipelago in 2013 was up 37 per cent on the previous year, while 21 per cent more Malaysians came.

Chinese tourist numbers have recovered from their plunge following the 2012 eruption of the spat between Beijing and Tokyo over islands in the East China Sea.

But broadening the appeal of Japan as a destination is key if the industry is to meet the 20 million visitors target set for 2020 when the Olympic Games come to Tokyo.

Catering for the world 

The influx of athletes and spectators from all over the world that the sporting jamboree will bring is also playing into the drive to make the country more Muslim friendly.

"Can you imagine the number of Muslim athletes who will then come to Tokyo? We'll have to feed them," said Badawi.

Brahim as a company has already signed a deal with All Nippon Airways (ANA), one of Japan's biggest carriers, to supply inflight halal meals, Badawi said. A number of large hotels has also approached him looking for advice on how they can cater for Muslim guests.

For Badawi, despite Japan's slow start, the direction of travel is clear: Muslims looking for holiday destinations will come, and in bigger numbers, giving Tokyo an ever-larger slice of a $600 billion global pie.

Slowly, various regions across Japan are catching on. Major airports have dedicated prayer rooms, and tourists looking for the perfect present can pick up hijabs made from Japanese silk as they pass through Kansai International Airport, near Osaka, a recent television report showed.

Longer term visitors are also being catered for, with 19 universities offering halal menus in their cafeterias in a bid to boost the number of Muslim students.

Customers looking for an authentic — but halal — Japanese dish already have a choice in Tokyo, including a yakiniku barbecue restaurant run by Roger Bernard Diaz, a Sri Lankan Catholic who converted his business, but not his religion.

He has no qualms about making the change to offering a range of halal meats and says it has helped him garner reservations from customers from southeast Asia, and even the Gulf.

But sourcing produce can be difficult. "It's hard to find all the ingredients," he admits while pulling a Brazilian-raised halal chicken from a dedicated freezer.

Whale meat 

Muslims who want to sample whale meat are also catered for after Japan's whaling mothership, which slaughters the animals on their controversial hunt, was certified halal-compliant last year.

The Japan Halal Association, which was founded in 2010, is one of only two bodies that can grant this status in the country.

Its chairwoman Hind Hitomi Remon told AFP that business is brisk.

"We are an associate member of the World Halal Council," she said. "Since 2012, we have issued certificates to 40 companies, and that number is set to rise a lot this year," a fact she says is directly attributable to Tokyo being awarded the Olympic Games for 2020.

And even if the tourists don't want to eat in Japan, producers are readying to send produce to them, with exports such as halal-certified soy sauce and even rice, grown in northern Akita prefecture.

But until the numbers swell a little bit more, businesses catering to Muslims still have to keep an eye on what their other customers want.

Yakiniku restaurant owner Diaz says around half of his customers now are Muslims yet he still has to cater for his other patrons.

"It's hard to do business here without selling alcohol," he said.

AMMAN — The inflation rate, which measures the rate of change in the prices of goods and services, recorded a 3.2 per cent rise during the first half of this year, according to the Department of Statistics (DoS) report on inflation. In its report, the DoS attributed the rise resulted from an increase in the prices of rents, tobacco, cigarettes, clothes, footwear, education and transport. This was coupled with a decrease in the prices of hygienic products, meat, poultry products, fat and oils as well as cultural and entertainment charges, according to the DoS report. 

DUBAI — Yemen’s president unveiled a clampdown on public sector spending on Thursday, including a feasibility review of state-owned companies and a ban on all but economy class travel for ministers in the impoverished Arabian Peninsula country.

Yemen has struggled to pay public sector salaries and finance food and energy imports, which has led to power cuts and fuel shortages as its fight against Al Qaeda militants and other rebel groups lays waste to state finances.

“Joint private and public ventures and other economic entities owned by the state will be reviewed for economic feasibility,” a government statement said late on Wednesday, describing President Abed Rabbo Mansour Hadi’s package as urgent.

It did not say how much it expected to save, how it would review state firms or when results might be seen.

“It is difficult to put a number on it but we expect to save billions of Yemeni riyals,” Mohammed Albasha, spokesman for the Yemeni embassy in Washington, told Reuters.

Among the measures, recruitment has been frozen for all state institutions, procurement of cars has been halted, and international travel for senior officials will be restricted.

“Government officials, including ministers, are to be limited to a maximum of four overseas trips a year,” the statement said. “State officials are no longer permitted to travel first or business class.”

Hadi has been trying to stabilise the country for over two years, after political and economic turmoil forced his predecessor to step down. But the state’s push against Islamic militants and rebels has sparked attacks on oil pipelines that are crucial to obtaining up to 70 per cent of state revenues.

Yemen earned just $671 million from exporting crude oil in January-May, nearly 40 per cent less than in the same period last year, and the central bank’s foreign asset reserves have shrunk to $4.6 billion, the lowest level since end-2011.

The Sanaa government will create a military unit from its special forces to help combat tax and customs evasion in a country that is awash with weapons, the statement said.

At the same time, the finance ministry is to review the tax collection process and resolve tax debts.

Sanaa did not announce any measures directly aimed at reducing widespread corruption — a major drain on state funds.

Energy sector

The second-poorest Arab nation is hoping to secure a long-discussed loan from the International Monetary Fund (IMF) that could help unlock more donor funds, held back by fears of corruption and a lack of progress in economic reforms.

Yemen’s finance minister told Reuters in May that the country was seeking “substantially more” than the $560 million which the IMF proposed, and that the fund’s board was expected to finalise the deal in July.

The IMF has pressed Yemen to cut the energy subsidies which cost it $3.07 billion last year, equivalent to 30 per cent of state revenue and 21 per cent of expenditure.

But reducing subsidies is hard in a country where a third of the population of 25 million lives on less than $2 a day, and this week’s austerity package did not address subsidies.

“The authorities recognise the need for subsidy reform, but are not ready to implement stronger measures at this stage, even gradually,” the IMF said in a report on such reform in the region published on Thursday.

“Price adjustment is currently not included in the government’s reform plan,” it added.

Instead, the government said it would review the cost of drilling and extracting crude oil to bring it down to global averages, while the ministries of defence and interior would work to resolve security problems at production sites.

The president also banned the state-owned Public Electricity Corp., which operates most of Yemen’s power generating capacity and the national grid, from building new diesel power plants, leasing them or financing expansion of existing ones.

“The government must work on expanding gas and coal powered plants to replace diesel plants. Plans to install and operate Mareb’s Second Gas Powered Station by the end of January 2015 will be expedited,” the statement said, referring to a power project in Mareb province that was halted in 2010. 

AMMAN – Amman Chamber of Commerce (ACC) President Issa Murad on Wednesday called on the government and lawmakers not to increase taxes on the commercial sector. 

In a statement e-mailed to The Jordan Times, Murad said the new tax legislation, currently at the Lower House for discussion, stipulates raising tax on the sector from 14 per cent to 20 per cent, a 6 per cent increase he described as very high and would hurt economic growth.  

Such a tax rate would also encourage more tax evasion in the country, he remarked. 

Murad urged policy makers and legislators to equalise the tax rate with that planned on the industrial sector, which he said is 14 per cent on the first JD100,000 in profit. 

Profits exceeding this level would be subject to a 20 per cent tax rate, Murad added in the statement. 

According to the ACC president, sales tax collected from the commercial sector reached JD912 million last year, representing 36 per cent of the overall sales tax revenues. 

Merchants also paid JD325 million in taxes and customs fees last year, Murad said, adding that the sector plays an important role in the economic growth of the Kingdom. 

Foreign trade reached over JD21billion last year. 

According to the statement, the ACC current membership counts around 44,000 commercial entities whose capital stands at about JD33.4 billion.    

AMMAN — Global publishing, research and consultancy firm Oxford Business Group (OBG) announced Wednesday in a press statement that Jordan’s plans to reinvigorate its economy through new legislation governing the country’s investment environment will be mapped out in its forthcoming report. “The Report: Jordan 2014” will put the Kingdom’s draft investment law under the microscope, looking at how it could help to create a more investor friendly environment and boost private sector activity,” the statement said. “The publication will include specific analysis of Jordan’s bid to streamline the investment process and strengthen institutional support for the business community.” It added that the Investment Commission has signed a memorandum of understanding (MoU) on research with OBG once again for the forthcoming report on the Kingdom. Under the MoU, OBG will have access to the commission’s expertise and research resources which will be used to compile “The Report: Jordan 2014”. OBG’s Country Director Ece Temel said the group’s reports on Jordan, particularly its coverage of the Kingdom’s infrastructure projects and efforts to encourage industrial growth in key areas, such as Aqaba, had benefited from the Investment Commission’s input.