A digital copy of the Business News 24 (11 June edition). Zimbabwe's premier business news free sheet published by the Zimpapers Newspapers Group (1980) Limited and available every week day from 1530hrs to give a summary of the day's business news
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We are not going anywhere, BAT tells Govt
1. News Update as @ 1530 hours, Wednesday 11 June 2014
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By Tawanda Musarurwa
British American Tobacco Plc has
engaged the Government to commit
its long-term presence in the country.
BAT Zimbabwe managing director
Lovemore Manatsa yesterday said the
Government was one of the key stake-
holders that the company was engag-
ing to reassure them that they had no
plans to exit the country.
Manatsa was speaking on the sidelines
of a tour of the company's Souther-
ton plant by Information, Media and
Broadcasting Services Minister Jona-
than Moyo this morning.
"As BAT Zimbabwe, as BAT Plc we are
not divesting out of Zimbabwe. If any-
thing we are investing . Over the last
four years we have put in $5,4 million
into infrastructure, marketing and dis-
tribution part of the business.
"So that was the basis of our engage-
ment with key stakeholders includ-
ing the Minister of Information to put
across our point that we are not divest-
ing from Zimbabwe," said Manatsa.
The MD said BAT's commitment to
Zimbabwe was express in its full com-
pliance to the country's indigenisation
laws. "At this stage we are fairly confi-
dent that we are considered an indige-
nous player in the country through two
vehicles our Tobacco Empowerment
Trust which owns 10,74 percent of
the company and 10 percent which is
owned by the Employee Share Owner-
ship Trust which are both independent
of BAT as a company and already up
and running," he said.
In 2012, it ceded a 26 percent stake to
Zimbabweans in compliance with indi-
genisation laws, compelling foreigners
to give majority shareholding to locals.
The 20,74 percent shareholding alloo-
cated to the two empowerment vehi-
cles translated to four million shares
worth a combined $20 million. Mean-
while the company, which has an
installed production capacity of 2,3 bil-
lion sticks per annum said it is currently
operating at around 70 percent of that
capacity.
This makes it one of the most effective
industries in the country at present.
Average industrial capacity currently
stands at just below 40 percent,
according to the Confederation of Zim-
babwe Industries.
Manatsa said they can easily reach full
production capacity, but have had to
cut back on production due to limited
local demand.
"Right now we are running about 70
percent of that capacity reason being
a function of demand...we have got
more than enough capacity to supply
the market, it is a function of demand
or the consumer offtake in the mar-
ket," he said. •
We are not going anywhere, BAT tells Govt
2. By Rumbidzayi Zinyuke
Econet Wireless Services has launched
a new online remittance service which
will enable people living in the diaspora
to transfer money directly into an Eco-
Cash wallet in Zimbabwe.
Theservice,EcoCashDiaspora,isbeing
rolled out in partnership with World
Remit, an online money transfer ser-
vice based in London.
Speaking at the launch of EcoCash
Diaspora this morning, EcoCash chief
executive Cuthbert Tembedza said
the product would get rid of the red
tape involved in sending and receiving
money from the diaspora.
“People outside Zimbabwe can now
just send money straight to the recip-
ients’ Ecocash wallets regardless of
where they are located. The money
doesn’t have to go through an agent
and once it has arrived it is treated like
a cash-in, the receiver can do what
they want with it,” he said.
He said the service would have
lower costs of transferring money as
WorldRemit will charge around 5 per-
cent while EcoCash will not charge the
recipient any additional fees for the
transaction. This is almost 50 percent
lower than Western Union charges
which are at around 10 percent.
Tembedza said the new service would
harness the diaspora remittances that
have been coming into the country
through informal channels.
“Last year alone, global remittances
stood at $540 billion of which $60 bil-
lion came from Africa and $1,8 billion
of it from Zimbabwe. And this is only
through the formal channels. If we add
remittancesfromtheinformalchannels
the figure exceeds $2 billion,” he said.
Hesaidtheservicewouldbringvisibility
to those transactions that were being
done underground and give regulatory
authorities a chance to tap into the
growth of the economy.
The product, however, will only cater
for money coming into the country and
not money going out due to exchange
control regulations that restrict the
outflow of foreign currency from the
country. World Remit director for North
America Rob Ayers said the new ser-
vice would capture more than 50 per-
cent of remittances.
“Online Remmitances make up 5
percent of global remittances but we
expect it to grow. In Zimbabwe we
expect to reach 50 percent or more
once we have launched because this
service will bring security, speed and
conveniencetopeoplesendingmoney,”
he said.
He said anyone in the 35 markets that
WorldRemit operates from, including
United States, UK, South Africa, Aus-
tralia, Canada, will be able to transfer
money using credit or debit cards via
their website.
WorldRemit already has a similar
partnership with mobile operators in
Kenya,Ghana,Ethiopiaandotherparts
of Africa. •
NEWS2
Ecocash taps into Diaspora remittances
3. 3 NEWS
By Tawanda Musarurwa
• Revived plant to treat nickel
leach alloy and Platinum Group
Metals.
Alternative Investment Market-listed
Mwana Africa Plc has announced the
completion of an independent study
of an accelerated restart plan for the
nickel smelter of its 76.3 percent
owned Bindura Nickel Corporation.
The independent study, which was car-
ried out by Hatch Goba, represents a
technical and economic assessment of
the potential refurbishment and restart
plans of the smelter complex in Bind-
ura. Mwana Africa said it now plans to
have the BNC smelter in operation dur-
ing the first half of next year.
And should be contributing to cash
flows in 2016. According to the study
"overall capital cost to execute the
restart is estimated to be $26.5 mil-
lion" and "approximately half of the
capital cost will be funded through
debt finance, with the remainder to be
financed from existing BNC cash flow
and company cash balances." CEO
Kalaa Mpinga, CEO of Mwana, com-
mented: “I am pleased to announce
completion of the independent study
of the accelerated smelter restart plan.
This paves the way for us to capital-
ise on the opportunity presented by a
favourable nickel market.
“We can grow our revenue stream by
moving rapidly up the value chain from
current production and sale of concen-
trate, with the associated transporta-
tion saving cost of this, to production
and sale of higher value nickel leach
alloy."
“This study outlines the costs and
key milestones required to restart the
smelter, and we look forward to updat-
ing the market on financing and devel-
opment of the accelerated smelter
restart plan as it evolves over the com-
ing months," he added.
Mwana said further opportunities for
the company exist beyond the smelter
restart, including: potential to increase
volume through development of BNC’s
Hunters Road Mine Project at a later
date; investment in adaptation of the
smelter to treat platinum group met-
als (PGMs), contingent on securing
PGM feedstock; and restart of the BNC
refinery, currently on care and mainte-
nance, to treat nickel leach alloy and
PGMs. •
BNC smelter to resume operations next year
4. BH24 Reporter
Zimbabwe Stock Exchange listed Rain-
bow Tourism Group says revenues for
first quarter went up by 7 percent as
room occupancy went up as a result of
successful promotions ran in the begin-
ning of the year.
Giving a trade update at the company’s
annual general meeting, chief execu-
tive Tendai Madziwanyika said for the
period from January to April revenues
stood at $6 million from $5,7 million
in the comparable period. The number
of rooms sold increased by 16 percent
resulting in an occupancy growth to
44 percent in the review period from
38 percent in the first quarter of 2013.
“The positive performance during the
stated period compares favourably
to the growth in rooms revenue and
therefore points to the efficacy of the
RTG mobile strategy,” he said.
He said Zimbabwe operations reve-
nues increased to $8,2 million from
$7,7 million mainly due to improved
performance by A’Zambezi lodge
which recorded a 25 percent revenue
growth whilst the Rainbow Towers
Hotel and conference centre recorded
a 10 percent growth in turnover. This
was mainly due to the success of the
rainmakers promotion launched at the
beginning of 2014. Madziwanyika said
the significant growth in conferencing
business during the period resulted in a
12 percent increase in revenues of for
food and beverage for rainbow towers
hotel and conference centre. “The Bul-
awayo Rainbow Hotel performed well
during the ZITF period achieving a 24
percent increase in revenues as com-
pared to last year,” he added.
He said e-commerce revenues for the
period went up 19 percent while inter-
national arrivals into RTG grew by 13
percent over the same period last year
as the contributions from the South
African office increased by 51 percent.
ThisenhancedrevenuesfortheVictoria
falls properties.
Hotel Mozambique has been depressed
but the group has since implemented
revenue generation strategies to drive
the business. Madziwanyika added
that cost sales remained within the
expected levels of 10 percent of turn-
over. He said the voluntary retrench-
ment exercise was expected to be
completed this month but would not
disclose the numbers of employees
being retrenched. •
4 NEWS
RTG Q1 revenues up
6. By Elita Chikwati
Cotton producers could be in for
another bad season if China continues
to offload 10 million tonnes of cotton
lint in its stocks onto the international
market.
Already farmers have been selling their
crop at heavily discounted prices as
ginners refused to negotiate on prices
with farmer organisations.
The highest price being offered for
seed cotton is 40 cents per kilogramme
whilelastseasonpriceswentashighas
75 cents per kg.
Zimbabwe Farmers Union weekly
guide shows that cotton prices started
falling after the Chinese government
announced its intention to start selling
its cotton stocks. “Cotton prices tum-
bled 14 percent after the Chinese gov-
ernment announced that it intended to
start selling cotton from its 10-million
tonnes stock,” read the guide.
Most of the cotton being sold by China
is from the 2011 season. “Cotton pro-
ducers could be in for another wild ride
in 2014 as the Chinese government
continues to reduce its stockpile. It
also plans to announce new policies in
the spring for the 2014/2015 growing
season," the weekly guide stated.
Some agriculture economists believe
that the Chinese government will
refrain from continuing to dump` its
Poor funding and lack of markets is
discouraging farmers from growing
sunflower, which has potential to gen-
erate income for rural communities, an
official said on Wednesday.
Zimbabwe Commercial Farmers Union
president Wonder Chabikwa said many
farmers were moving away from sun-
flower to soya beans, cotton and other
small grains which had ready markets.
“A significant number of farmers are
moving from traditional crops such
as sunflower to soya bean and other
small grains which are fetching lucra-
tive prices on the market despite being
capital intensive,” he said.
Chabikwa said many farmers were also
opting for crops that were produced
under the contract system.
“Contract farming has taken center
stage and no contractor is willing to
fund sunflower, resulting in a decline in
its production,” he said.
He said changes in climatic conditions
were also impacting negatively produc-
tionofthecropasrainfallwasnolonger
dependable.
Chabikwa said there was need for the
Governmenttointerveneandfundpro-
duction of the crop, which had dropped
to critical levels. — New Ziana •
6 AGRICULTURE
Lack of markets affecting sunflower production
Zim cotton market under threat
7. By Lynn Murahwa
There has been a 13 percent increase
in tobacco sales this season compared
to last year’s season, according to the
figures released by the Tobacco Indus-
try Marketing Board (TIMB).
So far the tobacco sales have reached
$597 million compared to last year’s
$527 million during the same period.
According to TIMB, as from yesterday
a total of 187 million kilogrammes of
tobacco have been sold in comparison
to the 142 kilogrammes sold last year,
showing a 31.67 percent increase for
both auction and contract sales. At
an average price of $3,18 per kg the
total revenue achieved to date is $597
million which compares positively to
last year’s figure of $527 million at an
average price of $3,70 per kg. The fig-
ures released by TIMB show a steady
increase in revenue and tobacco vol-
umes sold during the past week.
A total of 140 million kilogrammes
of contract tobacco has been sold to
date giving a total revenue of $466
million at an average price of $3, 33
per kg. A lesser volume of 47 million
kilogrammes of auctioned tobacco has
been sold at a lesser average price of
$2, 75 per kg giving a total revenue of
$130 million.
The total amount of rejected tobacco
has decreased this year to 5, 69 per-
cent in comparison to last year’s
rejected 7 percent. A low 3, 35 percent
of contract tobacco was rejected this
season while a higher 11, 15 percent
of auction tobacco was rejected this
season. A total of 2 412 773 bales of
tobacco have been sold to date com-
pared to the 1 850 029 bales sold last
year showing a significant 23.27 per-
centgrowthinsales.Atleast1730578
bales of contracted tobacco have been
sold compared to a lesser 682 195
bales of auctioned tobacco sold to date
according to TIMB.
There has been an increase in the total
amount of tobacco bales laid. This sea-
son 2 558 411 bales have been laid
compared to last season’s 1 950 217
bales laid, showing a 38,29 percent
increase.
The total amount of rejected bales for
this season is a 15 percent higher 121
988 bales in comparison to last sea-
son’s 100 188 bales. The total weight
of tobacco bales so far has shown an
increase since last season. This year
the total weight of bales is 78 kilo-
grammes showing a 1 percent growth
from last year’s 77 kilogrammes. •
7 AGRICULTURE
$597 million worth of tobacco sold
reserves on the market for fear of
undercutting the value of its reserve
and hurting its domestic producers.
Cotton council spokesman Garikayi
Msika said the move by China could
be disastrous if it coincides with the
local cotton marketing season. If they
sell the whole consignment now, it will
greatly affect us considering that they
are selling lint (processed cotton).
Msika said if China does not sell the
whole consignment there will not be
any great change on the international
market. “Local ginners are taking
advantage of the Price Tariff Commis-
sion that declared that farmers nego-
tiate for higher prices with ginners
individually. The same companies are
offering high prices to cotton farmers
in Malawi whose production costs are
far way below ours,” he said. Farmer
organisations’ leaders feel that their
members do not have the capacity to
negotiate with ginners.
Meanwhile, there is speculation that
cotton prices will be strengthened by a
decline in the United States cotton pro-
duction this year.
Some US farmers decided to cut on
cotton production and increase corn
production which offered high prices.
•
8. The equities market has strengthened
on gains made yesterday, albeit mar-
ginally, as positive trading hit a second
straight gain following the Monday hic-
cup.
The Industrial Index was up 0.53
points (or 0.30 percent) to close at
179.02 points.
Conglomerate Innscor gained 2.01
cents to 75.51 cents, while crocodile
skin producer Padenga rose 0.20 cents
to trade at 8.50 cents.
ZHL added 0.15 cents to 0.90 cents.
Pearl inched up 0.14 cents to 2.60
cents and ZPI gained inched up 0.01
cents to settle at 0.81 cents.
Only a single counter traded in the red
today. Giant insurer Old Mutual eased
0.01 cents to 249 cents.
Overall the value of trades was at just
below $860 000 driven by blue chip
counters, Econet, Delta and Innscor.
The Mining Index continued on a posi-
tivepath,adding2.04points(4.97per-
cent) to close at 43.12 points as Bind-
ura gained 0.16 cents to 3.16 cents.
Also positive was Hwange which had a
firm bid at 5 cents. Falgold and Riozim
maintained previous trading levels.
— BH24 Reporter •
8 ZSE REVIEW
Equities strengthen on gains
9. One of the main news headlines today
is about the seven gold miners that
lost their lives when a hoist cage that
was transporting them fell into a pool
of water.
Eleven others were also injured in the
June 9 incident at Golden Valley Mine
in Kadoma, 160 kilometers (99 miles)
west of Harare when the miners' hoist
cage plunged about 80 meters (262
feet) into a pool of water.
It's a tragedy. Any loss of life is, worse
still when it occurs at the workplace.
This is because, for one thing, it may
be the result of mere negligence on the
part of management or perhaps the
workers themselves.
Notwithstanding who is to blame,
the tragedy points to the need for
enhancement of working conditions
especially in the mining sector.
Furthermore, working conditions need
to be improved particularly for the
smaller mining companies and individ-
ual panners.
The larger mining corporations tend
to have better working conditions and
have periodical safety reports pub-
lished for public consumption. The lat-
ter naturally makes these companies
safety-conscious.
But this does not always apply to the
smaller miners, especially the individ-
ual panners who risk life and limb to
make a living.
Perhaps as a result, Zimbabwe has not
been immune to mining deaths in the
recent past.
Last year alone, 35 people died in min-
ing accidents in the country figures
from the Chamber of Mines of Zimba-
bwe show.
A recent study by the Mining, Minerals
and Sustainable Development (MMS-
D),"very poor health and safety condi-
tions exist in small-scale mines due to
ignorance, lack of resources and skills".
"Over 20 people are killed in the sec-
tor every year, but because both the
Mines Department and the Chamber of
Mines do not recognize these as mine
accidents or fatalities due to the illegal
nature of
the operations, nobody is interested in
collecting and maintaining the data,"
says the MMSD of Zimbabwe's formal
small-scale mining sector.
"Most of the accidents occur when the
sidewalls and hangingwalls collapse
due to undercutting worsened by lack
of support," it added.
So it is clear that some of these safety
problems have been in existence for
some time. The issue then is, how do
we as a country resolve them?
Clearly it is necessary for the relevant
authorities to put in place mechanism
that regulate workplace safety on
small-scale mining operations (that is,
if they do not already exist).
If they do (which is most likely the
case) the same authorities need to
enforce these regulations. •
9 BH24 COMMENT
Need to improve mining working conditions for smaller producers
11. Investors buying South African bonds
at the fastest pace this year are using
swap markets to limit the risk of a
weaker rand as ratings companies pre-
pare to rule on the nation’s creditwor-
thiness.
Cross-currency basis swaps, used by
traders to exchange cash flows in rand
for those in dollars, climbed as much as
five basis points yesterday to 42, the
highest level in a month and the most
among 18 developed and emerging
markets tracked by Bloomberg. The
premiumroseevenasforeigninvestors
bought 6.5 billion rand ($610 million)
of domestic bonds last week, the most
since September. The rand is the worst
performer in the past month among
emerging-market peers, according to
data compiled by Bloomberg.
While yields among the highest in
emerging markets are luring investors
to South African debt, the outlook for
the rand is less rosy. The continent’s
second-biggest economy contracted in
the first quarter for the first time since
the 2009 recession as work stoppages
caused platinum production to plunge.
Standard& Poor's which cited weak
growth and labor unrest among rea-
sons for maintaining its negative out-
look on the nation’s debt in December,
will announce the result of its sovereign
review on June 13, the same day as
Fitch Ratings.
“The prevailing tone is one of appre-
hension and nervousness,” Moham-
med Nalla, head of strategic research
at Nedbank Group Ltd., said by phone
from Johannesburg yesterday. “Carry
trade investors are happy to buy the
bonds, but they appear to be protect-
ing against some of the currency risk in
the swaps market.” Bond Buying
Carrytradereferstowheninvestorssell
a currency with a relatively low interest
rate and use the funds to purchase
higher-yieldingassetsinadifferentcur-
rency. South African benchmark bonds
dueDecember2026hadayieldof8.36
percent yesterday, the sixth-highest
among 23 developing-nation sover-
eigns monitored by Bloomberg.
Bond inflows have picked up since the
European Central Bank cut its deposit
rate to below zero on June 5, with
investors buying the most debt the
following day since October 2012. The
rate on cross-currency basis swaps is
still lower than the year’s high of 53
reached on Jan. 29, when central bank
Governor Gill Marcus raised the bench-
mark interest rate and a day before the
rand fell to a 5 1/2-year low against the
dollar. —Bloomberg •
11 REGIONAL News
Rand bond buffs keeping escape hatch ajar: South Africa credit
12. 12 DIARY OF EVENTS
The black arrow indicate level of load shedding across the country.
POWER GENERATION STATS
Gen Station
11 June 2014
Energy
(Megawatts)
Hwange 439 MW
Kariba 750 MW
Harare 44 MW
Munyati 31 MW
Bulawayo 20 MW
Imports -50 MW
Total 1234 MW
11 June - Rainbow Tourism
Group 15th Annual General
Meeting of the Shareholders,
Place: Jacaranda Rooms 2 and 3
at the Rainbow Towers Hotel and
Conference Centre, 1 Pennefather
Avenue, Harare, Time: 12:00
13 June 2014 - Securities and
Exchange Commission of
Zimbabwe 2nd Shareholders
Forum & Responsible Invest-
ing in Zimbabwe Conference
2014 Place : Cresta Lodge,
Harare, Time : 8am -2pm
26 June - Masimba Holdings
Limited Thirty-Ninth Annual
General Meeting of Mem-
bers for the period ended 31
December 2013, Place: 44 Til-
bury Road, Willowvale, Harare,
Zimbabwe, Time: 12:00
THE BH24 DIARY
15. 15 AFRICA StockS
Botswana 8,664.65 -11.96 -0.14% 12July
Cote dIvoire 246.37 +2.18 +0.89% 07Mar
Egypt 7,949.60 -75.68 -0.94% 06Mar
Ghana 2,343.98 +9.46 +0.41% 06June
Kenya 4,881.56 +12.30 +0.25% 06June
Malawi 12,662.47 +0.00 +0.00% 07Mar
Mauritius 2,074.51 -3.51 -0.17% 07Mar
Morocco 9,544.10 +21.01 +0.22% 07Mar
Nigeria 41,529.11 -40.98 -0.10% 06June
Rwanda 131.27 +0.00 +0.00% 24Oct
Tanzania 2,018.97 +25.40 +1.27% 07Mar
Tunisia 4,624.39 -39.32 -0.84% 07Mar
Uganda 1,503.90 +0.81 +0.05% 10Sep
Zambia 4,242.74 +14.95 +0.35% 10April
Zimbabwe 178.58 +1.54 +0.87% 06June
African stock round up Commodity Prices
Name Price
Crude Oil 1,300.91 -0.21%
Spot Gold USD/oz 1,292.63 -0.26%
Spot Silver USD/oz 19.38 -0.46%
Spot Platinum USD/oz 1,421.25 -0.33%
Spot Palladium USD/oz 798.50 -0.64%
LME Copper USD/t 6,770 -0.18%
LME Aluminium USD/t 1,780 -1.17%
LME Nickel USD/t 18,230 -1.73%
LME Lead USD/t 2,095 -1.41%
Quote of the day —"The history
of the world is the histo-
ry of a few people who had
faith in themselves." - Swa-
mi Vivekananda
Globalshareholder.com
16. 16 INTERNATIONAL NEWS
Toyota recalls 2.27 mln vehicles over airbag defect
Toyota on Wednesday recalled 2.27
million vehicles globally over a defect
that could see airbags fail to deploy in a
crash and also posed a fire risk, dealing
another blow to the Japanese giant's
safety record.
The world's biggest automaker said
the latest call back involved 20 models,
including its Corolla sedan, Yaris sub-
compact and Noah minivan, and cov-
ered about 1.62 million cars overseas
and 650,000 in Japan. Some of the
affected overseas cars were already
included in a recall last year, but had
not had their airbag inflator replaced,
Toyota said.
"The involved vehicles were equipped
with front passenger airbag inflators
which could have been assembled with
improperly manufactured propellant
wafers," it said in a statement. "(That)
could cause the inflator to rupture and
the front passenger airbag to deploy
abnormally in the event of a crash."
A company spokesman in Tokyo said it
had received a complaint from a Japa-
nese customer who said his passenger
seat was burned from the defect. No
serious injuries or accidents had been
reported, he added.
In April, Toyota recalled 6.39 million
vehicles globally over a string of prob-
lems,andanother520,000lastmonth,
mostly in North America, over several
issues including cable corrosion that
couldleadunusedsparetyrestofalloff.
In February, it recalled 1.9 million units
of its signature Prius hybrid cars, after
recalling millions of other models in
recent years over a possible fire risk
and other safety issues.
Despite logging record sales and
bumper profits, Toyota has been fight-
ing to protect its reputation as US rival
GM scrambles to contain a deadly igni-
tion-linked scandal. Nissan and Honda
have also issued major recalls in recent
years. In March, Toyota agreed to
pay $1.2 billion to settle US criminal
charges that it lied to regulators and
the public as it tried to cover up deadly
accelerator defects, which caused vehi-
cles to speed out of control and fail to
respond to the brake. Toyota eventu-
ally recalled 12 million vehicles world-
wide in 2009 and 2010.As part of the
settlement, the automaker admitted
that it lied when it insisted that it had
addressedthe"rootcause"oftheprob-
lem by fixing floor mats that could trap
the accelerator.
In the United States, General Motors
has been sideswiped by accusations
that it hid a decade-long ignition and
airbag problem linked to 13 deaths.
On Tuesday, GM chief executive Mary
Barra said the company has not yet
figured out how much its deadly, faulty
car ignitions will cost the Chevrolet and
Cadillac maker.
GM has already set aside $1.7 billion to
cover some of the costs of recalling 2.6
million cars with the problem ignition
switches, Barra said at the company's
annual shareholders meeting.
But it faces the possibility of having to
spend billions more to answer lawsuits
from car owners and victims of crashes
tied to the ignition problem, as well as
their relatives. —AFP •
17. The World Bank cut its global growth
forecast amid weaker outlooks for the
U.S., Russia and China, while calling on
emerging markets to strengthen their
economies before the Federal Reserve
raises interest rates.
The Washington-based lender pre-
dicts the world economy will expand
2.8 percent this year, compared with
a January projection of 3.2 percent.
The U.S. forecast was reduced to 2.1
percent from 2.8 percent while out-
looks for Brazil, Russia, India and
China were also lowered. The setbacks
may be temporary: the 2015 esti-
mate for world economic growth was
unchanged at 3.4 percent.
“The global economy got off to a
bumpy start this year buffeted by poor
weather in the United States, financial
market turbulence and the conflict in”
Ukraine, the World Bank said in its
Global Economic Prospects report yes-
terday. “Despite the early weakness,
growth is expected to pick up speed as
the year progresses.”
Developedeconomies,wheredomestic
demand is improving as fiscal pressure
eases and labor markets recover, are
providing the global expansion with
momentum just as their developing
counterparts fail to accelerate. The
bank is projecting growth in China and
Brazil will slow this year from 2013.
In the report, the World Bank warned
emerging markets that the next bout
of financial unrest may catch them
off guard, recommending smaller
budget deficits, higher interest rates
and measures to boost productivity. —
Bloomberg •
17 INTERNATIONAL NEWS
World Bank Cuts Global Growth Forecast after ‘Bumpy’ 2014 Start
OPEC agrees to maintain oil output ceiling
OPEC has agreed to maintain its oil pro-
duction ceiling at 30 million barrels a
day, Venezuelan Energy Minister Rafael
Ramirez said today after the cartel met
in Vienna.
Asked whether ministers had decided
to leave the output target unchanged,
Ramirez replied: "Yes, I confirm."
Saudi Arabia, the cartel's most influen-
tial player and biggest producer, added
that it was "very happy" with the state
oftheglobaloilmarketTheOrganisation
of Petroleum Exporting Countries, which
accounts for one third of the world's oil,
has held its daily production ceiling at 30
million barrels since December 2011.
In the run-up to the ministerial gath-
ering, more than half of OPEC's dozen
member nations indicated that there
would likely be a rollover of the collective
output target.
Members remain pleased with current
oil price levels, which have jumped by
around 10% since December on supply
strains arising from unrest in Iran, Libya
and Ukraine. Ramirez indicated earlier
this week that the cartel had reached
a consensus for no change, before for-
mally agreeing to the decision. Naimi
had already expressed satisfaction with
the state of the oil market, stressing that
it was stable and balanced.
"Everything is in good order, supply is
good,demandisgood,priceisgood,"he
said yesterday. Earlier this week, fellow
OPEC members Angola, Ecuador, Iraq,
Kuwait, Libya and Venezuela also hinted
at no change being made.Global oil
priceshaveheldabove$100abarrelthis
year,boostedpartlybytheUkrainecrisis,
which has stoked worries of a brutal civil
war that could disrupt energy supplies.
Iran's output meanwhile remains
plagued by Western sanctions over its
disputed nuclear programme. Oil futures
rose today after OPEC decision.
Brent North Sea crude for delivery in
July rose 45 cents to stand at $109.97 a
barrel in London midday deals. US main
contract West Texas Intermediate for
Julygained16centsto$104.51abarrel.
—RTENews •
18. By Nick Cunningham
Last December, as OPEC prepared
to meet in Vienna, Bloomberg News
reported that analysts it polled had pre-
dicted that the oil cartel would leave its
production quota unchanged in the face
of a growing supply glut.
Despite its plans, “falling oil demand
and prospects for increased supply from
some member states mean the group’s
leader,SaudiArabia,willhavetocutpro-
duction anyway,” Bloomberg predicted.
The age of abundance appeared to be
upon us.
Six months later, OPEC may have the
opposite problem on its hands. Despite
December predictions that Saudi Arabia
would need to trim its output by 1 to 2
million barrels per day (bpd) to prevent
a price collapse, the oil kingdom kept its
output level in the intervening months,
and even slightly increased output to
9.66millionbpdinAprilfrom9.56million
bpd in March.
ThegroupwillmeetonJune11inVienna
amid sputtering output among many
of its member states and better than
expected economic growth in China and
the U.S., the world’s largest oil consum-
ers. Taken together, global oil markets
may be undersupplied for the second
half of this year, with analysts now pre-
dictingSaudiArabiamayneedtoliftpro-
duction substantially to meet demand.
Saudi Arabia may need to boost output
tosomewherebetween10.2and11mil-
lion bpd to prevent prices from spiking,
but the Bloomberg survey suggested
analysts question whether or not the
world’s largest oil producer can fill the
void.
The big difference over the last six
months – and why predictions by mar-
ket watchers have been so off – is that
several major oil producing countries
have been affected by internal instabil-
ity or geopolitical upheaval, which has
prevented production levels from rising,
and in some cases, knocked some out-
put offline. Libya has been experiencing
internal political battles that appeared to
be on the verge of resolution earlier this
year.Anti-governmentforceshavetaken
control over oil ports in the east, while
the recognized government in Tripoli has
denounced any efforts by separatists to
export oil as illegal.
In April, the two sides appeared to be
close to a diplomatic solution that would
lead to the resurgence of Libya’s oil sec-
tor, which has the potential of producing
1.6 million barrels per day (bpd).
18 Analysis
OPEC meets as world oil demand rises, production sputters
19. The troubled country has been unsuc-
cessful thus far at boosting oil exports
and the political struggle between the
two sides continues. Libya is now pro-
ducing less than 200,000 bpd according
to recent data.
Iraq, too, has disappointed oil markets.
Despiteongoingviolence,Iraqhasmade
enormous strides in bringing many of its
oil fields online.
In recent years, Iraq surpassed Iran to
become OPEC’s second largest oil pro-
ducer, and the government led by Nouri
Al-Maliki was aiming to lift oil production
to 4 million bpd in 2014. Iraq hit 3.6 mil-
lion bpd in February – a 35-year high –
but since then its output has fallen back
by 8 percent due to attacks on oil pipe-
lines. It will struggle to meet production
expectations through 2014.
An interim deal between Iran and the
Westliftedhopesattheendof2013that
Iran would be able to return some of its
oil production to market, sending prices
downward.
Western sanctions have targeted Iran’s
oil sector with ruthless efficiency, cutting
exports from more than 2.5 million bpd
before 2012, down to 1 million bpd last
year.
ThethawinrelationssincetheJuly,2013
electionofIranianPresidentHassanRou-
hani--andthesix-monthsanctions-eas-
ing deal reached last November -- led
to speculation that Iran would again
become a major oil exporter.
Indeed, Iran succeeded in lifting oil
exports above 1 million bpd, defying
the terms of their deal with the West,
but any further increases depend on a
comprehensive deal over Iran’s nuclear
program, which has thus far proved elu-
sive. The July deadline to reach a deal
is quickly approaching and the failure
to either secure an agreement or a six-
monthextensionwouldresultinanauto-
matic return to sanctions.
Ontopoftheunexpectedtroublesfacing
several OPEC producers, the economies
of China and the United States – the
two largest oil consumers in the world –
have performed much better than was
expected only six months ago.
The U.S. has finally regained the jobs
lost in the financial crisis, and fears over
ahardlandingforChina’seconomyhave
not been borne out by the facts, at least
not yet.
So we are back to a scenario in which
global oil markets are tight once again,
even with Saudi Arabia maintaining ele-
vated production.
At the upcoming Vienna meeting, OPEC
is expected to leave its output quota
unchanged, and any increase in produc-
tionwouldneedtocomefromthecartel’s
largest producer.
Saudi Arabia, as the only holder of sig-
nificant spare oil capacity, stands alone
as a source for additional supplies the
world may need for the remainder of
the year. But while dipping into Saudi
Arabia’s spare capacity – which stood at
only 1.96 million bpd in the first quarter
–couldprovideshort-termrelief,itwould
also leave the markets increasingly vul-
nerable to a supply disruption.
Six months ago it appeared we were
entering a period of a supply glut, but oil
markets have suddenly tightened, even
though Saudi Arabia decided not to cut
production.
UnlessotherOPECmemberspickupthe
slack, oil prices could climb higher in the
latter half of this year. — Oilprice.com
•
19 Analysis