All posts by MBusiness

Sudan to Unify Currency Rate in Bid to Win Foreign Investment

Sudan is taking steps to close the gap between its official and unofficial currency rates and scrap subsidies by end-2019 to win foreign investment after U.S. sanctions ended, Minister of State for Finance Magdi Hassan Yassin told Reuters on Tuesday.

Washington last month suspended 20-year sanctions and lifted a trade embargo because it decided that Sudan had made progress on counterterrorism cooperation and on internal conflicts such as one in Darfur. It also unfroze assets and removed financial restrictions.

Sudan is hoping the measures will help the import-dependent country get back on its feet after years of hardship caused partly when the south seceded in 2011 and it lost three-quarters of its oil output, its main source of foreign currency.

“We will gradually lift subsidies in accordance with the five-year plan by the end of 2019. … Most of the things that hinder foreign investment are being addressed and there are reforms to investment and company laws,” Yassin said.

Sudan last November cut fuel and electricity subsidies and announced import restrictions to save scarce foreign currency.

Sudan’s year-on-year inflation decreased in October to 33.08 percent from 35.13 percent in September on the back of lower food and beverage prices, a report from Sudan’s central statistics agency said Tuesday.

Sudan’s central bank has held the official exchange rate at 6.7 pounds to the dollar but currency is largely unavailable at that price. The pound currently hovers around 23 pounds to the dollar, according to currency traders.

“The 2018 budget, which will start in January, will be the first budget after the U.S. ended the economic sanctions. … The central bank will set policies to unify the exchange rate,” Yassin said.

But “there are no directions to float the pound,” he added.

Analysts and officials say Sudan must conduct tough reforms such as floating its currency if it hopes to benefit from sanctions relief and begin to attract new investment.

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Shrinking GE Rattles Investors, Shares Hit 5-year Low

General Electric’s new Chief Executive John Flannery on Monday outlined steps that will turn the biggest U.S. industrial conglomerate into a smaller, more focused company, surprising some investors who sold the company’s shares to a five-year low.

Flannery’s plan to shrink GE’s multi-industry array of businesses was a reversal of the deal-driven empire building of his predecessors, Jeff Immelt and Jack Welch, and potentially a milestone in the decline of the conglomerate as a business strategy.

Other companies that once emulated the GE model of spreading bets among diverse industries are now unwinding their portfolios as well, something Immelt also did throughout his 16 years as CEO, even as he made acquisitions.

Flannery said he will pare GE down to three core businesses: power, aviation and healthcare. He will keep Immelt’s strategy of building software to complement GE’s machinery, albeit with a narrower focus and reduced budget.

For investors, Flannery’s decision to cut both the dividend and the 2018 earnings forecast by half added up to a whole that was less than they judged GE be worth last week.

GE shares fell to their lowest level in more than five years as investors worried the years-long overhaul would not pare down enough expenses or generate as much cash as they hoped. They closed off the day’s lows, down 7.2 percent to $19.02.

“They need to cut more cost,” said Scott Davis, an analyst at Melius Research. “GE is still a bloated company with duplicate costs up and down the organization.”

GE stock has effectively been dead money since September 2001, when Immelt took over, posting a negative total return even after reinvesting its juicy dividends. Once the most valuable U.S. publicly traded company, GE now has a market value of $168 billion, less than a fifth of Apple.

“You have pessimism around its portfolio of businesses mixed with a pretty harsh cut in the dividend,” said John Augustine, chief investment officer at Huntington Private Bank. “It took them years to get into this mess and it will take them several years to right the ship and get back into a stronger position.”

‘Soul of the Company’

Flannery, who took over as CEO on Aug. 1, said he was “looking for the soul of the company again” and would focus on “restoring the oxygen of cash and earnings to the company.”

He will cut its board to 12 from 18 members, and bring on three new directors early next year.

GE said it already has shed 25 percent of its corporate staff, meaning 1,500 jobs around the world, including some at its Boston headquarters. It is aiming to reduce overhead cost by $2 billion next year, half of that at its troubled power unit that sells electrical generation equipment.

The transition includes GE getting rid of at least $20 billion of assets through sales, spin-offs or other means.

GE will jettison businesses with “a very dispassionate eye,” Flannery said, keeping only units that offer growth, a leading market position and a large installed base.

GE said it would exit its lighting, transportation, industrial solutions and electrical grid businesses, all of which were widely expected, closing factories around the globe.

But it was vague about other disposals.

It plans to get rid of its 62.5-percent stake in oilfield services company Baker Hughes, only months after making the multi-billion dollar investment. Baker Hughes shares lost 3.2 percent.

Flannery offered no quick fixes for investors. He said power, one of the businesses GE would focus on, was “challenged,” but could be turned around in one to two years.

GE’s Digital unit, on which Immelt bet billions of dollars, would focus on selling apps to customers in its core businesses, Flannery said. He confirmed that the shift meant sales staff were being let go, as Reuters reported last week.

GE also will cut spending on the digital unit to $1.1 billion in 2018 from $1.5 billion in 2017. GE had previously said it would invest $2.1 billion in its digital unit in 2017, but that tally included money not tied to Predix, GE’s industrial-internet platform, GE said.

Flannery said there is “no retreat on the idea” of GE providing both applications and the Predix platform to connect industrial equipment to computers that can make machines run better. However, getting one of its key applications to run on Predix could take two more years.

Flannery added that some of its healthcare IT business, such as software for imaging and hospital staff scheduling, were still critical to the company and not likely to be divested.

Dividend Cut

The dividend cut, to 48 cents from 96 cents next year, is only the third in the company’s 125-year history and the first not during a broader financial crisis. It is expected to save about $4 billion in cash annually.

“This dividend cut will be a major disappointment to GE’s (roughly 40 percent) retail shareholder base,” said RBC Capital Markets analyst Deane Dray.

The cut will be the eighth-biggest dividend cut in history among S&P 500 companies, according to Howard Silverblatt, senior index analyst of S&P Dow Jones Indices. GE also had the biggest cut when it slashed its dividend by $8.87 billion in 2009, Silverblatt said.

GE forecast 2018 adjusted earnings of $1 to $1.07 a share, compared with its earlier estimate of $2 per share. Wall Street was expecting $1.16, according to Thomson Reuters I/B/E/S.

Industrial free cash flow will total just $6 billion to $7 billion next year, up from an estimated $3 billion in 2017, but far below earlier targets of $12 billion for 2017.

GE said the weak power business had largely prompted the dividend cut and lowered earnings forecast. Demand for new power plants will remain slow through 2019, Flannery predicted.

But GE also was to blame, he said.

“We did not manage the (power) business well,” he said. “That’s a fundamental change we need to make and that’s going to take some time. This is not a magic wand.”

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Mexico Readying Economic Response if US Exits NAFTA

Mexico’s government is preparing a macroeconomic response in case U.S. President Donald Trump makes good on threats to quit the North American Free Trade Agreement (NAFTA), an event which could wreak havoc on the Mexican economy and hurt the peso.

Mexico’s Foreign Minister Luis Videgaray said on Monday the government and central bank were preparing a plan to address the possibility of a future without NAFTA, but gave few details.

The government has said it is examining how it could adjust Mexican legislation to give investors certainty about their investments if the almost 24-year-old NAFTA collapses.

Underpinning some $1.3 trillion in annual trade between the United States, Canada and Mexico, NAFTA has been a central pillar of recent Mexican economic development. Nearly 80 percent of Mexican exports are shipped to the United States.

Trade negotiators from the United States, Mexico and Canada meet in Mexico City this week to continue talks on overhauling the accord, and Videgaray reiterated the government’s position that the expectation was that talks would ultimately succeed.

Mexico would continue to work on diversifying trade, protect foreign investment, review possible changes to tariff barriers, and prepare a macro-economic response from the finance ministry and the central bank, Videgaray added.

“These are the four lines a plan B must include,” he told Mexican radio. “We have to be prepared for all the scenarios and one of the scenarios is that the United States leaves the treaty, and as we have said, that is not the end of the world, the Mexican economy is much bigger than NAFTA.”

Separately, the International Monetary Fund said in a report on Monday that ending NAFTA would bring back World Trade Organization “most-favored nation” tariffs, which would disrupt Mexican-U.S. trade, and could crimp economic growth, dampen capital inflows and raise risk premia.

The IMF suggested that among various policy responses at Mexico’s disposal, “temporary foreign exchange interventions and liquidity provision could help smooth extreme volatility.”

Concerns that Trump could follow through on his threats to dump NAFTA have battered the Mexican peso in recent weeks.

Additionally, Mexico should continue to implement its structural reforms and boost efforts to diversify trading relationships, which would increase competitiveness and help economic growth over the medium-term, the IMF said.

The IMF sees Mexico’s economy growing 1.9 percent next year after projected expansion of 2.1 percent in 2017.

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Bipartisan Analysis: Senate Bill Would Hike Taxes for 13.8 Million

Promoted as needed relief for the middle class, the Senate Republican tax overhaul would increase taxes for some 13.8 million moderate-income American households, a bipartisan analysis showed Monday.

The assessment by Congress’ nonpartisan Joint Committee on Taxation emerged as the Senate’s tax-writing committee began wading through the measure, working toward the first major revamp of the tax system in some 30 years.

Barging into the carefully calibrated work that House and Senate Republicans have done, President Donald Trump called for a steeper tax cut for wealthy Americans and pressed GOP leaders to add a contentious health care change to the already complex mix.

Trump’s latest tweet injected a dose of uncertainty into the process as the Republicans try to deliver on his top legislative priority. He commended GOP leaders for getting the tax legislation closer to passage in recent weeks and then said, “Cut top rate to 35% w/all of the rest going to middle income cuts?”

That puts him at odds with the House legislation that leaves the top rate at 39.6 percent and the Senate bill as written, with the top rate at 38.5 percent.

Trump also said, “Now how about ending the unfair & highly unpopular individual mandate in (Obama)care and reducing taxes even further?”

Overall, the legislation would deeply cut corporate taxes, double the standard deduction used by most Americans, and limit or repeal completely the federal deduction for state and local property, income and sales taxes. It carries high political stakes for Trump and Republican leaders in Congress, who view passage of tax cuts as critical to the GOP preserving its majorities at the polls next year.

With few votes to spare, Republicans leaders hope to finalize a tax overhaul by Christmas and send the legislation to Trump for his signature.

The key House leader on the effort, Rep. Kevin Brady, said he’s “very confident” that Republicans “do and will have the votes to pass” the measure this week.

Brady, chairman of the House Ways and Means Committee, said he doesn’t expect major changes to the bill as it moves to a final vote in the House. Still, he said Trump’s call for removing the requirement to have health insurance as part of the tax agreement “remains under consideration.”

Trump and the Republicans have promoted the legislation as a boon to the middle class, bringing tax relief to people with moderate incomes and boosting the economy to create new jobs.

“This bill is not a massive tax cut for the wealthy. … This is not a big giveaway to corporations,” Sen. Orrin Hatch, R-Utah, chairman of the Senate Finance Committee, insisted as the panel had its first day of debate on the Senate measure.

Hatch also downplayed the analysis by congressional tax experts showing a tax increase for several million U.S. households under the Senate proposal. Hatch said “a relatively small minority of taxpayers could see a slight increase in their taxes.”

The committee’s senior Democrat, Sen. Ron Wyden of Oregon, said the legislation has become “a massive handout to multinational corporations and a bonanza for tax cheats and powerful political donors.”

Tax increase for some

The analysis found that the Senate measure would increase taxes in 2019 for 13.8 million households earning less than $200,000 a year. That group, about 10 percent of all taxpayers, would face tax increases of $100 to $500 in 2019. There also would be increases greater than $500 for a number of taxpayers, especially those with incomes between $75,000 and $200,000. By 2025, 21.4 million households would have steeper tax bills.

The analysts previously found a similar magnitude of tax increases under the House bill.

A group of more than 400 millionaires and billionaires, including prominent figures such as Ben and Jerry’s founders Ben Cohen and Jerry Greenfield, designer Eileen Fisher and financier George Soros, asked Congress to reject the GOP tax plan and not give cuts to the super-wealthy like themselves.

“We urge you to oppose any legislation that further exacerbates inequality,” they said in a letter made public Monday.

Neither bill includes a repeal of the so-called individual mandate of Barack Obama’s Affordable Care Act, the requirement that Americans get health insurance or face a penalty. Several top Republicans have warned that including the provision would draw opposition and make passage tougher.

Among the biggest differences in the two bills that have emerged: The House bill allows homeowners to deduct up to $10,000 in property taxes while the Senate proposal unveiled by GOP leaders last week eliminates the entire deduction. Both versions would eliminate deductions for state and local income taxes and sales taxes.

Senate Majority Leader Mitch McConnell, R-Ky., asked whether the Senate’s proposed repeal of the property tax deduction could bring higher taxes for some middle-class Americans, acknowledged there would be some taxpayers who end up with higher tax bills.

“Any way you cut it, there is a possibility that some taxpayers would get a higher rate,” McConnell told reporters after a forum in Louisville, Kentucky, with local business owners and employees. “You can’t craft any tax bill that guarantees that every single taxpayer in America gets a tax break. What I’m telling you is the overall majority of taxpayers in every bracket would get relief.”

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EU Approves Economic Sanctions, Arms Embargo Against Venezuela

The European Union has approved economic sanctions, including an arms embargo on Venezuela.

EU foreign ministers meeting in Brussels announced the measures on Monday in response to regional elections last month, which they say worsened the country’s crisis.

The weapons ban is intended to prevent the government of President Nicolas Maduro from purchasing military equipment that could be used for repression or surveillance.

The sanctions also include setting up a system for asset freezes and travel restriction on some past and present Venezuelan officials close to Maduro.

Spain has long pushed for sanctions on those close to Maduro, but the EU has been divided over whom to target.

In Monday’s statement, ministers said they would focus on security forces, government ministers and institutions accused of human rights violations, and the disrespect of democratic principles or the rule of law.

Last Thursday, the U.S. imposed financial sanctions on 10 current and former Venezuelan officials because of corruption and abuse of power allegations related to Maduro’s crackdown on the opposition.

The EU also stressed that it would not recognize Venezuela’s pro-Maduro Constituent Assembly, whose 545 members took office in August and sidelined the opposition-led National Assembly. The EU said its creation has only served to “further erode democratic and independent institutions.”

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Venezuela Sets Foreign Debt Meeting for Monday Afternoon

Venezuela’s foreign debt renegotiation committee will meet with creditors at 2 p.m. (1800 GMT) on Monday at the government’s “White Palace” in downtown Caracas, the finance minister said on Saturday.

“Once again, we invite investors to register their participation in this meeting,” Simon Zerpa, who is also the finance boss of state oil company PDVSA but is on a U.S. sanctions list for alleged corruption, said in a Tweet.

Foreign investor sources had said Zerpa and committee head Tareck El Aissami, who is Venezuela’s vice president but also on a U.S. blacklist for alleged drug traffickers, would probably sit out the meeting to allay any fears about meeting them.

But Saturday’s exhortation by Zerpa, and the location of the meeting right opposite the Miraflores presidential palace, appear to indicate the meeting will not be a low-profile affair.

Socialist leader Nicolas Maduro’s move a week ago to summon bondholders for talks about “restructuring” and “refinancing” some $60 billion in bonds has spooked markets worried Venezuela is heading for a default amid U.S. financial sanctions.

President Donald Trump’s measures against the Maduro administration, which it accuses of being a “dictatorship” that has impoverished Venezuela’s 30 million people through corruption and incompetence, effectively bar U.S. banks from rolling over the country’s debt into new bonds.

Venezuela did, however, appear to be honoring its most recent debt payment: a $1.2 billion payment due on a bond from state oil company PDVSA. Two investors told Reuters they had finally received payment, albeit delayed.

It is unclear how widespread investor participation in Monday’s meeting in Caracas will be. U.S.-based creditors are not prohibited from attending the meeting, but are barred from dealings with officials like Zerpa and El Aissami.

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Emirates Airlines Orders 40 Boeing 787s in $15B Deal

Emirates Airlines agreed to buy 40 Boeing 787-10s in a deal worth more than $15 billion.

The purchase was announced Sunday at the Dubai Air Show by the largest airline in the Middle East.

Deliveries of the wide-body, twin-engine planes are set to begin in 2022.

Boeing’s website says the aircraft typically carries 330 passengers with a range of 11,900 kilometers.  

The manufacturer says the 787 is 25 percent more fuel-efficient than the aircraft it replaces.

Also, Azerbaijan Airlines announced a $1.9 billion deal for more 787s, five to carry passengers and two more to haul freight.

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West Virginia Mine Sites Touted for Agriculture Potential

West Virginia could produce profitable niche crops grown on reclaimed mine sites.

At least that’s what Nathan Hall, president of Reclaim Appalachia envisions.

Hall spoke about uses for reclaimed sites at the West Virginia Good Jobs Conference last Tuesday at Tamarack. The goal of the conference is to bring together entrepreneurs, funders, local community leaders and government agencies to trade ideas, provide mentorship and support entrepreneurs in southern West Virginia.

Reclaim’s first operational site is next to the Buck Harless Wood Products Industrial Park in Holden, a property owned by the Mingo County Redevelopment Authority.

Former miners

Reclaim and Refresh Appalachia have partnered to develop an active commercial agroforestry site, which is on about 50 acres of land that was mined and reclaimed in the late 1990s, managing crops including blackberries, hazelnuts, lavender and pawpaws. The site also has animals including chickens, hogs, goats and honeybees, which are managed with “rotational grazing techniques.”

Hall said he first started work on the Mingo County site early last year. The business has five full time crew members and one crew chief. Of those six employees, four are former coal miners.

According to Reclaim’s website, the organization intends to replicate the model on more mined properties and on a larger scale.

“With any post surface mine landscape, this model works well,” Hall said. “It’s especially suited to areas where it’s not feasible to turn into a big shopping center or a golf course.”

Long-term approach

Hall said the model is designed to be long term and said sites like these may not see profit until a few years down the road.

“This approach is never profitable in year one or even year two,” he said. “It’s more of a three-five year horizon to get into the black. A lot of agricultural investments like this are longer term.

“With animals, you have to establish a breeding stock. It takes some time before you’re able to send animals to slaughter,” Hall said. “And with perennial plants, it takes a year of establishment to get fruit, sometimes three to four years. We are looking at this as a longer-term investment but this is a pretty common way to invest in projects you see on the West Coast and the Northeast. A lot of investors know this is not a quick turnaround.”

However, down the road, Hall said he envisions West Virginia as being primary producers of niche produce on the East Coast.

“If we produce enough at a low cost and upgrade to high value products, move it six to nine hours away, there is a huge amount of ways to use these lands in ways that we’ve barely started to scratch the surface,” he said.

Crops, animals for rocky soil

Hall mentioned the possibility of products including lavender or grapes — plants that can thrive in the rocky soil.

“You could even have things like goat meat, which is something you don’t think about as something to eat in this area,” Hall said. “There are huge markets for it, maybe not here but the conditions are great for these sites.”

Hall spoke about some of the struggles with using these sites including the rocky terrain itself.

“You think about nice farmland where there is this loose, fluffy, brown soil you can almost scoop your hand into,” he said. “This soil, you can’t get a shovel to go more than 2 inches. The only thing that can survive is something with a shallow breeding system.”

Controlling invasive species

Another issue is invasive species of plants that were planted for reclamation. However, Hall said animals including goats and hogs can eat the shrubby plants while also adding nutrients to the soil.

“I’m a fan of high-intensity rotational grazing,” he said. “You have people out there tending fences and maintaining the animals and the site regularly. It has a more diversified income. And there is a benefit to the land through manure and reducing unwanted vegetation. You can eventually replant to better quality pastures if you do rotational.”

He said stacking systems including orchards and animals have been efficient in maintaining the land along with adding a larger labor force.

“You have the animals in between the orchard growth keeping the areas maintained,” he said. “It’s benefiting the roots and the trees. You’re also able to sell the meat and eggs while harvesting fruit and berries.”

Not the first attempt

Hall isn’t the first or the only person to grow crops on reclaimed mine sites. Hall mentioned one in particular back in the 1990s in Kentucky where there was a hog farm on a former mine site.

“There are a lot of activity in these spaces,” he said. “We are more focused on stacking systems and having this multifaceted approach. Other folks want one piece. It’s an interesting time to be involved. We can learn from each other and grow a new sector of the economy.”

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