Author Archive: Economist

Amazon Curtailing Business Operations in China

Amazon says it is curtailing business operations in China, the world’s biggest retail market, after struggling against better entrenched local players for more than a decade.

The company announced recently that as of July 18, it will no longer provide services through its Chinese website, Amazon.cn. The decision means Amazon will stop selling goods from China-based vendors to domestic consumers on the portal. Although it is moving out of the e-retail business in China, Amazon will continue with its cross-border business, bringing foreign brands and goods to China, the company said.

“Their demand for high-quality, authentic goods from around the world continues to grow rapidly, and given our global presence, Amazon is well-positioned to serve them,” the company said.

The announcement has raised questions about the extremely thin presence of foreign companies in internet-related businesses in China, while Chinese companies like Alibaba create market space for themselves across the world.

Amazon’s market share in China has fallen from about 15 percent a decade ago to about 6 percent. Alibaba and another local company, jd.com, account for nearly 75 percent of the Chinese market. Online shopping site eBay earlier moved out of China as it could not make a profit.

China is considered by many as a difficult market for foreign players even without taking into account hindrances caused by government policy. In the case of Amazon, however, analysts said the reasons for its poor performance lie in its not being able to localize to meet the requirements of the market.

Shaun Rein, managing director of Shanghai-based China Market Research Group (CMR), said Amazon’s Chinese platform could not survive because it did not have a strong and stable management team. He does not think Amazon was hampered by government policy.

“I don’t think it is a problem of government protectionism,” he said, adding, “They (Amazon executives) didn’t have the necessary relationship in China and were unable to build the right ecosystem for people to sell on Amazon.”

Getting a large number of local sellers is crucial for an e-commerce platform to provide goods at competitive prices and in sufficient variety to customers.

Jacob Cooke, chief executive officer of consulting firm Web Presence in China, explained that Amazon could not compete with a gigantic local player like Alibaba.

“Alibaba has in-country experience, low costs that are passed on to consumers and unique knowledge of counterfeits / fake items. Additionally, they have market data in China that is superior to Amazon’s,” he said.

Cross-border

Analysts said Amazon has been concentrating on cross-border commerce since realizing that it cannot effectively compete in the “local to local” business of selling Chinese goods to Chinese customers, which accounts for the bulk of e-commerce activity.

“Our belief is that the cross-border business suits Amazon much better, as the “local to local” model is filled by large companies who operate on very low (virtually non-existent) margins,” said Cooke. “We feel that cross-border is exactly where Amazon should focus their efforts in China, based on their strengths.”

Fallout

Foreign internet-based businesses have very little presence in China, which has the biggest number of web users in the world. This is partly because a large number of U.S.-based sites including Google, YouTube and Twitter are banned, while e-commerce companies have walked away. Amazon’s departure will likely only make it harder for other foreign retail companies to succeed there.

“I think it would be very hard for large e-commerce players from foreign countries to build in China. It is still possible for niche players like there are opportunities in luxury space and cross-border trade,” Rein said.

American and European brands will have to depend heavily on local e-commerce companies like Alibaba and jd.com to see their products, analysts said. Although Amazon will continue to sell foreign-made goods, its reach is limited in China because local companies dominate the cross-border trade as well.

“Unfortunately, Alibaba is almost a monopoly in some ways and they have way too much power because they control the eyeballs,” said Rein, adding, “They (Alibaba executives) control traffic so they are able to force Western brands to discount even if Western brands do not want to,”Rein said. “Alibaba controls the relationship with the customer rather than the brand controlling the relationship with the customer.”

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Vietnam to Encourage Environmentally Friendly Building Design

Consider that buildings can be designed, in relation to the sun, depending on whether occupants want to maximize the amount of natural light their windows let in, or to minimize the heat absorbed by the building.

Or that they can be built with sensors to detect water leaks, thus reducing the chances that water will be wasted from the start.

More and more architecture students across Vietnam are learning these and other concepts as the country rolls out curriculum on environmentally friendly design. The Southeast Asian nation is still an emerging market, so it has time to build the economy on green standards and to avoid some of the inefficient construction mistakes of older industrialized nations. And as construction is also a major source of greenhouse gas emissions around the world, Vietnam has the chance to adopt a sustainable approach to the industry that could decrease its exposure to the threats of climate change, which is a key concern for the tropical country.

Emphasis on Green education

“Although there have been several seminars and workshops, there are no well-rounded courses on green building for students in Vietnam,” said Nguyen Cong Thinh, who is the vice director of the science, technology, and environment department at the Vietnamese Ministry of Construction. 

But in February his office started working with the Swiss government and the World Bank’s lending agency the International Finance Corporation, bringing exactly these kinds of courses to college campuses. They began with what they call a “training of the trainers,” who learn resource efficiency principles that they can then go on to teach the next generation of builders in Vietnam.

“We are delighted to introduce this course to future architects and engineers in an internationally recognized format that offers a global perspective and a local context,” Thinh said.

For example the participants study ways that structures can be planned to save electricity and water, as well as to be “bioclimatic,” which means that they adapt to the surrounding environment. In the northern capital of Hanoi, it is more useful to firm up insulation and conserve heat to keep people warm in the winter. But in contrast in the southern metropolis of Ho Chi Minh City there are just two seasons — rainy and dry — and not much need to heat buildings. Instead designers can consider how to position southern buildings to take advantage of wind tunnels, which bring natural ventilation in the humid climate, or to soak up sun rays to generate the most solar power possible.

 Environmentally vulnerable

Vietnam counts itself among the top five countries in the world that would be devastated if global warming gets even more severe, especially with its 3,000 kilometers of coast along the South China Sea. As it works to implement an action plan under the Paris Climate Change Accord, the country is looking for ways to mitigate the environmental toll of the fast-growing construction industry, which consumes a lot of sand for cement, electricity, and other building supplies. The construction and industrial sectors expanded 8.8 percent in 2018 versus the year earlier, higher than the overall economy’s expansion of 7 percent, according to data from the property developer Jones Lang Lasalle Vietnam.

Other methods that students are learning to increase design efficiency include use of modeling software, so they can experiment with different eco-friendly technologies before any physical construction begins. They are also studying building codes and standards, as well as the types of construction materials that do the least harm to the environment. 

“In recent times, we have integrated green building into the curriculum of nearly all faculties. However, this course will further help students to become familiar with green building modeling software and present ideas clearly and quantitatively to future clients,” said Dr. Le Van Thuong, who is the rector of the University of Architecture in Ho Chi Minh City.

There are other ideas to improve efficiency whether at the office, the factory, or the home. Increasingly people are installing dual flush toilets, which allow users to choose how much water is dispensed at a time, and shower systems that warm up water before it is released, so they don’t have to let water go to waste as it heats up. And you don’t have to be an architect to add these technologies to a building. 

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5 Algerian Billionaires Arrested in Anti-Graft Investigation

Five Algerian billionaires, some of them close to former president Abdelaziz Bouteflika who quit over mass protests, have been arrested as part of an anti-graft investigation, state TV said on Monday.

They were later brought to court to face charges from the general prosecutor’s office, private Ennahar TV channel said, a legal requirement after an arrest. Further details were not immediately available.

The five are Issad Rebrab, considered the richest businessman in the energy-rich north African nation who is especially active in the food and sugar refining business, and four brothers from the Kouninef family, it said.

Rebrab is chairman of the family-owned Cevital company, which imports raw sugar from Brazil and exports white sugar to Tunisia, Libya and other destinations in the Middle East.

The Kouninef family is close to Bouteflika, who ruled Algeria for 20 years. Bouteflika stepped down three weeks ago, bowing to pressure from the army and weeks of demonstrations by mainly younger Algerians seeking change.

There was no immediate statement from those arrested.

The move came after Algeria’s army chief, Lieutenant General Gaid Salah, said last week he expected members of the ruling elite in the country to be prosecuted for corruption.

An Algerian court has already summoned former prime minister Ahmed Ouyahia and current Finance Minister Mohamed Loukal, two close associates of Bouteflika, in an investigation into suspected misuse of public money, state TV said on Saturday.

Mass protests, which began on Feb. 22 and have been largely peaceful, have continued after Bouteflika’s resignation as many want the removal of the entire elite that has governed Algeria since independence from France in 1962. They also want the prosecution of people they see as corrupt.

Bouteflika has been replaced by Abdelkader Bensalah, head of the upper house of parliament, as interim president for 90 days until a presidential election is held on July 4.

Hundreds of thousands protested on Friday to demand the resignation of Bensalah and other top officials.

Bensalah invited civil society and political parties on Monday to discuss the transition to elections but several parties and activists said they would not participate.

The army has so far patiently monitored the mostly peaceful protests that at times have swelled to hundreds of thousands of people. It remains the most powerful institution in Algeria, having swayed politics from the shadows for decades.

Salah said on April 16 that the military was considering all options to resolve the political crisis and warned that “time is running out.”

It was a hint that the military was losing patience with the popular upheaval shaking Algeria, a major oil and natural-gas exporter and an important security partner for the West against Islamist militants in north and west Africa.

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Food Stamps, Online Grocery Shopping Are About to Mix 

Amazon and Walmart on Thursday kicked off a two-year government pilot program allowing low-income shoppers on government food assistance in New York to shop and pay for their groceries online for the first time. 

 

ShopRite will join the two retailers on the program early next week, said the U.S. Department of Agriculture, which oversees the Supplemental Nutrition Assistance Program, or SNAP. 

 

The USDA has long required customers using electronic benefits transfer, or EBT, to pay for their purchases at the actual time and place of sale. So the move marks the first time SNAP customers can pay for their groceries online.

ShopRite and Amazon are providing the service to the New York City area, and Walmart is providing the service online in upstate New York locations. The agency said the pilot will eventually expand to other areas of New York as well as Alabama, Iowa, Maryland, Nebraska, New Jersey, Oregon and Washington.

Purchase food, but not delivery

The pilot program will test both online ordering and payment. SNAP participants will be able to use their benefits to purchase eligible food items but will not be able to use SNAP to pay for service or delivery charges, the agency said. 

 

People who receive SNAP benefits should have the opportunity to shop for food the same way more and more Americans shop for food — by ordering and paying for groceries online,'' said USDA Secretary Sonny Perdue.As technology advances, it is important for SNAP to advance, too, so we can ensure the same shopping options are available for both non-SNAP and SNAP recipients.” 

 

Perdue said he will be monitoring how the pilot program increases food access and customer service, specifically for those who have trouble visiting physical stores.  

Roughly 38 million individuals receive food stamps in the U.S., according to the USDA. Nearly $52 billion, or 82% of all food stamp dollars, were spent at big box stores and grocery chains in 2017, according to the most recent USDA data. 

 

The 2014 Farm Bill authorized the USDA to conduct and evaluate a pilot program for online purchasing prior to national implementation. The USDA says the move was intended to ensure online transactions are processed safely and securely. 

 

Seattle-based Amazon said those who qualify don’t need to be Prime members to buy groceries with their benefits. They’ll get free access to its AmazonFresh service, which delivers meat, dairy and fresh produce to shoppers’ doorsteps. And they’ll also be able to use Prime Pantry, which delivers packaged goods like cereal and canned food.

Qualifying amounts

However, they’ll need to spend over a certain amount to qualify for free shipping: $50 at AmazonFresh and $25 at Amazon.com. The online shopping giant launched a website, amazon.com/snap, where people can check if they qualify. Amazon said it’s working with the USDA to expand service to other parts of New York state. 

 

Amazon.com Inc. was on the initial list for the government pilot program, and Bentonville, Ark.-based Walmart Inc. made the list later. The world’s largest retailer, however, in late 2017 had started allowing customers in limited locations to order items through its online grocery pickup service and then pay for it in person at the stores. 

 

Access to convenience and to quality, fresh groceries shouldn't be dictated by how you pay,'' Walmart said.This pilot program is a great step forward, and we are eager to expand this to customers in other states where we already have a great online grocery.” 

 

Walmart said that nearly 300 locations with grocery pickup in the states will be part of the USDA government program. 

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National Enquirer Being Sold to Former Newsstand Mogul 

The National Enquirer is being sold to the former head of the airport newsstand company Hudson News following a rocky year in which the tabloid was accused of burying stories that could have hurt Donald Trump’s 2016 presidential campaign. 

 

Tabloid owner American Media said Thursday that it plans to sell the supermarket weekly to James Cohen. Financial terms were not immediately disclosed for the deal, which included two other American Media tabloids, the Globe and National Examiner.  

  

American Media said last week that it wanted to get out of the tabloid business to focus on its other operations, which includes its teen brand and broadcast platforms.

Non-prosecution agreement

Federal prosecutors in Manhattan agreed last year not to prosecute American Media in exchange for the company’s cooperation in a campaign finance investigation. That probe eventually led to a three-year prison term for Trump’s former personal lawyer Michael Cohen for campaign violations among other charges.

American Media admitted it had paid $150,000 to keep former Playboy model Karen McDougal quiet about an alleged affair with Trump to help his campaign. Trump has denied an affair.  

The sale would end a longtime relationship between the Enquirer and Trump. Under the aegis of American Media CEO David Pecker, the tabloid has for years buried potentially embarrassing stories about Trump and other favored celebrities by buying the rights to them and never publishing in a practice called “catch and kill.” 

 

The Associated Press reported last year that Pecker kept a safe in the Enquirer’s office that held documents on buried stories, including those involving Trump. 

Whether James Cohen has any allegiances to Trump is not clear. While he was a registered Republican as late as 2017, according to Nexis records, he has given to both Republicans and Democrats. That included $17,300 in 2016 to an arm of the Democratic National Committee and $2,500 to the Republican National Committee in 2012.

News of the sale comes two months after Amazon chief Jeff Bezos publicly accused the Enquirer of trying to blackmail him by threatening to publish explicit photos of him. 

An American Media attorney denied the charge, but it threatened potentially big legal costs by upending American Media’s non-prosecution agreement in the hush money case. The AP reported that federal prosecutors were looking into whether the publisher violated terms of the deal, which included a promise not to break any laws in the future.

Heavy debt load

The Bezos accusation comes at a difficult time for American Media. It has financed several recent acquisitions with borrowed money and has been struggling under a heavy debt load. American Media said the Cohen deal would help reduce the amount it needs to pay back, leaving it with $355 million in debt. 

 

The Washington Post, which earlier reported the sale, said Cohen will pay $100 million in the deal.

Cohen’s family had run a magazine and newspaper distributor for decades before his father branched into newsstand stores in 1980s, starting with a single one at LaGuardia Airport. Before he died in 2012, the father had opened more than 600 stores. 

 

After the death, James Cohen’s niece alleged her uncle had cheated her out of her inheritance. She lost the case. 

 

The family sold a majority stake in the chain about a decade ago. The business is now owned by Dufry, an operator of duty-free stores in which James Cohen is a major shareholder. 

 

Cohen still owns a magazine and newspaper distributor called Hudson News Distributors. In addition, he runs a real estate developer and a publishing company, which owns Gallerie, an art and design magazine. 

 

Cohen has reportedly been involved in American Media deals before. The New York Times reports that, in 2011, Cohen invested in the company’s American edition of OK!, a British tabloid. 

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Slight US Boost Seen From New North American Trade Pact

The new North American free trade pact would modestly boost the U.S. economy, especially auto parts production, but may curb vehicle assembly and limit consumer choice in cars, a hotly anticipated analysis from the 

U.S. International Trade Commission showed on Thursday. 

The ITC report is a crucial step in the push for Congress to consider ratification of the U.S.-Mexico-Canada Agreement, which was signed by President Donald Trump and the leaders of the other two countries last year to replace the 25-year-old North American Free Trade Agreement. 

The report estimates that annual U.S. real gross domestic product would increase by 0.35 percent, or $68.5 billion, on an annual basis compared with a NAFTA baseline, and would add 176,000 U.S. jobs, while raising U.S. exports. 

The ITC’s estimates are for year six of the trade deal, once it is fully implemented. 

The trade deal’s success or failure in Congress could be determined by how it is expected to affect the U.S. auto industry, a sector that steadily drained jobs to Mexico under NAFTA. The USMCA deal contains much tighter regional content rules, requiring that 75 percent of a vehicle’s value be sourced in North America versus 62.5 percent currently, and 40 to 45 

percent produced in high-wage areas, namely the United States 

and Canada. 

Auto industry employment would rise by 30,000 jobs for parts and engine production, but U.S. vehicle assembly would decline. 

U.S. vehicle prices would rise up to 1.6 percent, causing consumption to fall by 140,000 units per year, or about 1.25 percent of 2017 sales, the report said. 

The report overall was more positive than initially anticipated by economists, who said the traditional economic models used by the ITC to measure previous trade deals would result in minimal gains for the United States. 

White House economic adviser Kevin Hassett told Reuters that he was pleasantly surprised by the results, which used different modeling methods that he called “accurate and well done.” 

“Their estimate is a lot closer to what we think USMCA will do than I expected,” Hassett in a telephone interview. “This is very strong argument for passing the USMCA.” 

Concerns not alleviated

But some key Democrats were not swayed from their demands for improvements to the enforcement of new labor standards before they consider USMCA. Democrats control the U.S. House of Representatives. 

Rep. Earl Blumenauer of Oregon, chairman of the House Ways and Means trade subcommittee, said that he had already believed the trade deal needed changes before it could be considered by the House. “Nothing in this report alleviates those concerns,” he said. 

Sen. Ron Wyden of Oregon, the top Democrat on the Senate Finance Committee said, “The administration shouldn’t squander the opportunity to lock in real, enforceable labor standards in Mexico.” 

The ITC report said Mexican union wages would rise by 17.2 percent if the labor provisions agreed to in the USMCA were enforced. Even so, Mexican factory wages would remain far below those in the United States. 

Republican Sen. Chuck Grassley of Iowa, chairman of the Senate Finance Committee, praised the report for highlighting benefits beyond tariff reductions. 

“Many of the significant improvements in USMCA are reducing non-tariff barriers and implementing rules and fair practices that will help U.S. workers, jobs and businesses tremendously over the coming years,” Grassley said in an emailed statement. 

 

Dueling analyses

The U.S. trade representative’s office had prepared a separate analysis of the USMCA’s automotive benefits that industry officials had described as a rosier alternative view of USMCA aimed at limiting any potential damage from the ITC report. 

USTR estimated that the trade deal would create 76,000 automotive sector jobs within five years as automakers invest $34 billion in new plants to comply with the regional content rules. The total includes about $15 billion in projects already announced. 

USTR officials said their analysis was based on plans disclosed by automakers to the trade agency for compliance with the new agreement’s tighter rules of origin.

“They have verbally committed to us that they intend to comply with the rules,” a senior USTR official said. “And they have told us that this is not going to have significant upward pressure on vehicle prices.” 

But the ITC report said some automakers may decide not to offer vehicles that would be too expensive to bring into compliance with the deal, reducing consumer choice in the U.S. auto market. 

The trade group representing Detroit automakers Ford, General Motors and Fiat Chrysler said it viewed the USTR analysis as more accurate than the ITC’s. 

The ITC “underestimates the longer-term investments and increased U.S. auto parts sourcing that will be made in our sector as a result of the certainty and predictability the USMCA will deliver,” Matt Blunt, president of the American Automotive Policy Council, said in a statement. 

The USMCA deal will also lead to new access for U.S. exports of dairy, poultry and egg products to Canada and U.S. imports of sugar and sugar-containing products from Canada, the ITC said. 

The ITC’s forecast estimated total U.S. dairy product output would increase by $226.8 million, or 0.1 percent. U.S. agriculture and food exports overall would increase by $435 million. 

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Kudlow: White House Talking to Other Possible Fed Candidates

The White House is considering other possible candidates for the board of the Federal Reserve although President Donald Trump still backs his two potential nominees, Herman Cain and Stephen Moore, White House economic adviser Larry Kudlow said on Tuesday.

Kudlow, speaking to reporters at the White House, added that Trump’s picks are still going through the nominating process for the seats on the U.S. central bank’s board of governors.

“We are talking to a number of candidates. We always do,” he said when asked if the White House was vetting alternates for Cain and Moore, whose controversial potential nominations have raised concerns among economists as well as some of Trump’s fellow Republicans.

The U.S. Senate must confirm any nominees, and Republicans control the chamber with 53 seats. But four of them have said they oppose Cain, a former pizza company chief executive, effectively sinking his nomination.

Neither candidate’s name has been formally sent to the Senate, but Trump has pledged to do so.

Economists and other critics have raised concerns about two Trump loyalists serving at what has traditionally been a nonpartisan financial entity.

 

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Fearing Austerity, Lebanese Protest Ahead of Budget

The Lebanese government has yet to disclose its budget for 2019, but protesters are already in the streets fearing the “difficult and painful” reforms it is expected to announce as it tries to get spending in control and rein in public debt.

Retired army officers blocked several highways with burning tires Tuesday, a preemptive warning to the government against any cuts to their pensions that might be part of its effort to reduce one of the world’s heaviest public debt burdens.

Though small, the protests offered a glimpse of the political minefield facing the government.

The budget is seen as a critical test of its will to enact long-stalled reforms that economists say are more pressing than ever for an economy that has suffered years of low growth. State finances are strained by a bloated public sector, high debt servicing costs and hefty subsidizes spent on the power sector.

“We went out today to tell them that our pensions are a red line,” said Khaled Ammar, one of a number of retired officers blocking the highway south of Beirut.

The budget has yet to be finalized but speculation it will include cuts to the massive public wage bill has grown since Foreign Minister Gebran Bassil hinted at such steps Saturday.

“There are those who should be making people aware today that if a temporary reduction doesn’t happen, then there will be no salaries for anyone,” he wrote on Twitter, adding that “if we must start with the ministers and MPs, so be it.”

Protesters said tackling corruption should be the priority.

“If the economic condition of the country has reached this difficult level … we are not responsible for it, the politicians are,” said Ammar, a father of three who served in the military for three decades.

Bloated public sector

Lebanese leaders have been warning of economic crisis for some time. In a February policy statement, the new government committed itself to launching fast and effective reforms that could be “difficult and painful” to avoid a worsening of economic, financial and social conditions.

Prime Minister Saad al-Hariri said last week he was concerned about a Greek-style crisis in Lebanon while saying that government measures would prevent “economic problems.”

At a Paris conference last year, Lebanon promised to cut its budget deficit by 1 percent of gross domestic product a year over five years. Economists are now looking for a bigger cut because last year’s deficit was bigger than expected at between 10.5%to 11% of GDP instead of a projected 8.2%.

Serious reforms would help Lebanon unlock some $11 billion in financing pledged in Paris.

The government last week approved a plan to overhaul the power sector — a major drain on state finances for years.

Critics say the government must deliver this time, pointing to previous such plans that were never implemented.

The public sector wage bill is the state’s biggest outgoing, followed by servicing the public debt equal to around 150% of GDP. The wage bill went up in 2017 after increases were agreed ahead of a parliamentary election.

Nassib Ghobril, chief economist at Lebanon’s Byblos Bank, hopes to see the deficit brought down by 2% of GDP and says reforms should include shutting down the many obsolete government agencies.

“They have to freeze hiring, freeze future salary increases, and increases in benefits, and they have to cut the number of public sector employees and restructure the way companies restructure when they are in financial difficulties,” he said.

“The public sector has recruited 31,000 people over the last four years — more than the entire financial sector.”

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Development Bank Earmarks $4.4 Billion for Central Africa

The African Development Bank (AfDB) promised Tuesday to invest $4.4 billion (3.89 billion euros) in infrastructure in over the next seven years.

The sum will help to finance 30 projects, ranging from electricity networks and transport to information technology and communication and improve cross-border trade, it said in a statement.

Spending will be focused on Cameroon, Chad, Republic of Congo, Democratic Republic of Congo, Gabon, Equatorial Guinea, and the Central African Republic.

Growth in central Africa doubled in 2018, with GDP expanding by 2.2% against 1.1% a year earlier, according to AfDB figures.

The rate is still far behind the average for sub-Saharan Africa, which was 3.5 percent.

 

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