Wednesday, July 31, 2013

Potash’s $20 Billion Market Transformed by Uralkali

 
For the first time in eight years, the $20 billion global market for the crop nutrient potash is set to become freely traded.
In a surprise announcement yesterday, OAO Uralkali (URKA), the biggest supplier of the commodity, said it decided to end production restrictions that underpinned global prices and suspend a venture with a Belarusian miner that controlled exports from the former Soviet Union.
 
Shares of Uralkali and its biggest competitors -- Potash Corp. of Saskatchewan Inc., Mosaic Co. (MOS) and Israel Chemicals Ltd. (ICL) -- tumbled as much as 24 percent as investors anticipated a flood of supply overwhelming demand.
The venture that Uralkali is abandoning is one of two that until now have controlled most of the world’s supply by negotiating fixed-term supply contracts on behalf of their members. That means the potash companies don’t compete with each other individually in export markets, helping them to match production with demand.
The change may drive down prices as much as 33 percent, according to Elena Sakhnova, a VTB Capital analyst in Moscow. Lower fertilizer costs promise to cut farmers’ expenses and spur demand from India to China. That in turn may increase the size of crops from corn to soybeans and lower food prices around the world.

‘Game-Changing’

“This effectively brings about a transformation of the entire potash industry, shifting it away from what has been a de facto duopoly,” Matthew Korn, an analyst at Barclays Plc in New York, said in a note. “This is one of the few occasions of a market truly undergoing a sudden game-changing event, with impacts that cannot be overstated.”
Uralkali will no longer sell potash through Belarusian Potash Co., the Minsk-based marketing company it established in 2004 with rival miner Belaruskali. Until yesterday, BPC controlled about 40 percent of global potash exports.
The other group dominating the market is Canpotex Ltd., which since 1972 has exported potash for Canada’s Potash Corp. and Agrium Inc. (AGU) and Plymouth, Minnesota-based Mosaic. Leah Laxdal, a Canpotex spokeswoman, didn’t immediately return a call seeking comment,
Potash Corp., Uralkali and other producers have faced a lawsuit in the U.S. court in Chicago from purchasers claiming the companies violated the federal Foreign Trade Antitrust Improvement Act, which can be used to extend the reach of American antitrust laws to foreign anticompetitive conduct that affects U.S. imports.

Lowest Cost

U.S. District Judge Ruben Castillo on June 6 granted final approval to a $10 million settlement between the suing direct purchasers and producers Uralkali and Silvinit. Six days later, he approved a separate $17.5 million pact with defendants Agrium, Mosaic and Potash Corp.
Uralkali said yesterday in a statement it broke with BPC after the Belarus government canceled the group’s exclusive right to export the nation’s potash.
The decision also came after record crop prices last year failed to translate into higher fertilizer prices, Chief Executive Officer Vladislav Baumgertner said. Too much capacity was added in recent years and rivals started behaving “aggressively” in competing for more market share, he said.
“Uralkali is most favorably positioned being the lowest-cost producer,” Baumgertner said yesterday in an e-mailed response to questions. “High capacity utilization will result in economy of scales and enable us to increase our share in all key markets.”

Belarus Feud

Uralkali stock was today cut to sell by analysts at HSBC Plc, Credit Suisse Group AG and Barclays Plc, and neutral at Citigroup Inc.
The Russian company was concerned that Belaruskali, which had started selling independently to China, would try to win a bigger share of the Chinese potash market, VTB’s Sakhnova said.
“We’ve been aware that there’s been a feud of sorts under way between Uralkali and Belaruskali,” Mosaic Chief Financial Officer Larry Stranghoener said yesterday in a phone interview. “We didn’t know it would escalate to this level.”
Russia is likely to put pressure on Belarus President Aleksandr Lukashenko to repair the situation, said Raymond Goldie, an analyst at Salman Partners Inc. in Toronto. Filipp Gritskov, a BPC spokesman, and Olga Dolgaya, a spokeswoman for the government of Belarus, declined to comment.
Baumgertner said that from August, Uralkali will use all of its 13 million metric tons of production capacity. The company sold 9.4 million tons of potash last year. Global sales were 51 million tons in 2012, according to the company.

Mining Costs

A few potash supply contracts that set global benchmark prices are typically settled each year. The last accord BPC signed, for sales into China, was agreed at $400 a ton. That’s one of three price agreements whose terms were published in 2013, according to data compiled by Bloomberg. Prices may now fall as low as $270, VTB’s Sakhnova said yesterday by phone.
For Paul Jeschke, who farms soybeans and corn on 4,000 acres (1,619 hectares) in Mazon, Illinois, such a reduction would be welcome as grain prices decline while supply recovers from last year’s drought. A $100-a-ton drop would cut farming costs by as much as $10 an acre, he said yesterday by phone.
“We need to begin to see input costs decrease if we are going to remain profitable,” Jeschke said.

Marginal Mines

For some potash miners, the concern is that prices may fall close to, or less than, the marginal cost of production. Uralkali has costs of $62 a ton, compared with more than $100 for North American miners and almost $240 in Europe, according to the company’s July presentation.
K+S AG (SDF), Europe’s biggest producer, slumped 24 percent yesterday in Frankfurt, the most in 14 years. Israel Chemicals fell 18 percent in Tel Aviv; Potash Corp. tumbled 17 percent in New York; Mosaic slid 17 percent; Agrium declined 5.4 percent; and Uralkali plunged 19 in Moscow.
Sinofert Holdings Ltd. (297), the Chinese distributor 22 percent owned by Potash Corp., fell 7.6 percent to HK$1.21 by the close in Hong Kong today, the lowest in a year. Sinofert is one of the two potash distributors for BPC in China, according to Citigroup.
Mosaic’s Stranghoener said his company doesn’t plan any specific actions in response to Uralkali’s announcement. Potash Corp. and Agrium said in separate statements there shouldn’t be an overreaction to the move.

‘Price War’

“It is not the first time that Russian producers have had disagreements,” Calgary-based Agrium said.
Uralkali’s decision to start a potash “price war” could be a “game-changer” for BHP Billiton Ltd. (BHP)’s proposed Jansen mine in Canada, Heath Jansen, an analyst at Citigroup in London, said yesterday in a note. A BHP spokeswoman declined to comment on Jansen, which is projected to cost as much as $15 billion to build.
Uralkali itself will delay its Polovodovskoye mine project, Baumgertner said. K+S’s Legacy project in Saskatchewan looks “increasingly unviable,” Sophie Jourdier, a Liberum Capital Ltd. analyst in London, said in a note.
“Uralkali’s decision will affect every potash producer on the globe and will completely change the market,” VTB’s Sakhnova said.
(Source: Bloomberg)

Tuesday, July 30, 2013

Madhya Pradesh wipes out power deficit in 3 years, enjoys 24-hour power supply

 
It took 5,000 young professionals, guidance from PricewaterhouseCoopers and dogged determination from officials to inject a performance-driven culture in an orthodox set up, but in barely three years, Madhya Pradesh has wiped out huge electricity shortages and losses in a rare success story in the distribution sector.


After a series of reforms, tariff hikes, involvement of private firms in supplying electricity to some cities and customer-friendly initiatives, Madhya Pradesh now enjoys 24-hour power supply.

Latest data available with the Central Electricity Authority shows that the state does not have power deficit. Distribution losses, which have crippled many state utilities, have fallen from 37% to 27%, narrowing the gap between revenue and cost to 60 paise per unit from 1. The gap is expected to fall to 43 paise this fiscal. Losses in the transmission segment are at 3.5%, which is one of the lowest in the country.

To bring fresh air in the system, the state hired and trained 5,000 young professionals, including 1,500 engineers in the past three years. It also framed new service rules to ensure a performance-driven culture.
After a series of reforms, tariff hikes, involvement of private firms in supplying electricity to some cities and customer-friendly initiatives, Madhya Pradesh now enjoys 24-hour power supply.
Madhya Pradesh principal energy secretary Mohammed Suleman said the government began with identifying the problem areas, including assessing the actual demand for electricity of the state.


States accept the demand projections given by the Central Electricity Authority and Planning Commission. The state's assessment showed the demand to be far higher than the earlier projections for the state.

The state hired PricewaterhouseCoopers (PwC) for providing all-round consultancy to the government and the generation, distribution and transmission companies. "PwC undertook a six-month long detailed modeling of districts for assessing the demand. We have a fair idea of power demand in relation to
GDP till 2020 and we have accordingly planned for the availability," Suleman said.

PwC executive director (infrastructure) Kameswara Rao said the state needed a strong leadership, a clear action plan and the discipline to implement it. The consultancy firm helped the government in designing, implementing and monitoring the broad-based reform implementation work in various key functional areas like
finance, technology and regulatory framework.

Madhya Pradesh invested about 9,700 crore in expanding and upgrading electricity distribution network by piggybacking on the Centre's flagship schemes. It also laid separate electricity
feeder lines to rural houses. These steps helped it to increase the consumer base to 110 lakh in 2013 from 65 lakh in 2004.

The state pushed for electricity generation improvement, leading to a 126% increase in availability of long-term contracted power. At present, about 5,000 MW of new capacity is under development with which Madhya Pradesh will be power surplus by 2018 and its power procurement costs will be among the cheapest.

The distribution companies have launched many customer-focused measures for easier bill payment, timely issue of new connections. The state government implemented a financial restructuring plan by converting loans, and offering transition period support to distribution companies. The state regulatory commission has also been raising tariffs annually. Structural reforms were taken up sincerely along with the investments.
(Source: Economic Times)

India’s e-commerce retail sector faces cash crunch

 
We need capital, no question about that. We are today sitting in a no-man’s land. We either play for growth or for survival.” That’s Harish Bahl, founder and chief executive of New Delhi-based Smile group, an investor in several shopping sites.
India’s e-commerce retail sector is caught in a peculiar bind. On the one hand, the sites are gaining customers as people become more comfortable with buying things online. But on the other, the government’s decision in September to bar foreign direct investment (FDI) in the online retail business has led to some amount of desperation among shopping sites, especially the smaller ones.
Just when they need to be spending money to gain customers, the FDI pipeline is running dry. Those who are already invested are trying hard to ensure that their companies are compliant—and the sites seem to have found a way around the rules. Meanwhile, a clutch of e-retailers are lobbying in order to try and persuade the government to ease the rules.
India’s budding e-commerce market is threatened by depressed valuations, lack of funding and confusion over regulations. Online retail still only accounts for a minuscule $600 million (around Rs.3,600 crore), compared with India’s $518 billion brick and mortar retail industry. according to a report published by Technopak. E-commerce sector has a potential to grow to as much as $76 billion by 2021.
In its 2012 diktat, the government had said it won’t allow FDI in any consumer facing retail business conducted on net. Nor would it allow private equity (PE) or venture capital (VC) funds to directly invest in e-commerce companies. Subsequently, the Enforcement Directorate began to probe Flipkart, India’s biggest online shopping site, funded by PE firms such as Tiger Global Management LLC and Accel Partners.
Flipkart is in compliance with all regulations, CEO Sachin Bansal said through a spokesperson.
“The industry, though in its infancy, is growing at the rate of 100% year on year. Flipkart... continues to support the authorities whenever approached,” he said.
Investors have turned cautious, said Rutvik Doshi, an e-commerce investor with Inventus Capital Partners.
“Up until last year, it was not explicitly mentioned that FDI in e-commerce was banned. But after the regulations were announced, some VCs, especially the foreign-based ones, have become extremely cautious,” said Doshi. “Now, it’s a serious issue and investors are doing all they can to make sure that their companies are compliant with the law of the land. Not just us, but all VC firms are doing this,” he said.
There is a workaround that some companies have adopted in order to allow continued FDI funding. That is to split the back, or wholesale, end of the business from the front, or customer-facing, end, which takes orders from shoppers. The orders are fulfilled by the wholesale entity. The FDI goes into this latter part of the business.
New investors are however wary of putting their money into the sector.
“They worry about returns and the future when a company may want to list. The current structures can complicate future investments,” said the chief executive of a New Delhi-based e-commerce website.
Alternatively, e-commerce firms can operate as so-called marketplaces. Orders are farmed out to independent merchants, who sell products directly to shoppers, the model that eBay and Amazon.in use in India. Some online retailers, including Flipkart, converted themselves to such a structure after the rules were announced.
“When you’re operating as a marketplace, you’re just a platform or meeting point for buyers and sellers. This is a service, so FDI regulations for retail don’t apply,” said Paresh Parekh, a tax partner at consulting firm EY.
But with companies burning cash on chasing customers, investors aren’t convinced the model is sustainable and are cutting back on investing in start-ups.
Out of the 53 e-commerce companies that got $853 million in venture capital over the past three years, only 11 have managed to raise further rounds of funding, said a May report by investment bank Allegro Capital Advisors.
Sites that haven’t been able to gain traction are having a hard time—many are just shutting down. In the six months to May, about 140 e-commerce start-ups folded up, primarily due to lack of funds, according to data collected by Ashish Sinha, who runs the NextBigWhat, an online platform for technology start-ups and investors.
Some small e-commerce retailers are approaching larger companies such as Flipkart and Myntra with buyout proposals at bargain-basement prices, according to industry executives.
“You sell only when you are in distress and if you don’t open FDI, all consolidation will go to the biggies,” said Manmohan Agarwal, executive chairman at Bigshoebazaar India Pvt. Ltd, that owns online portal Yebhi.com.
Online retailers have been meeting commerce ministry officials to persuade them to ease the rules, said Agarwal at Yebhi.com. Some investors said the government is under the impression that online retail will hurt local businesses.
“They think it will impact manufacturing and are trying to prevent foreign retailers to come into the market. There is also a fear of the unknown— that is, the political push backs and ramifications of opening of the sector,” said Bahl of Smile group, which has invested in e-commerce portals such as Fashion and You.com and beStylish.com.
Allowing FDI in retail has been a controversial decision with intense resistance to opening up coming from various political parties.
The lobbying effort is set to intensify over the next few weeks when Nasscom, the industry grouping for India’s $108 billion information technology sector, is expected to announce its newly created Internet Council, which will take up issues related to the e-commerce industry.
“Once we create the Internet Council, we’ll expand our policy agenda for that sector,” said Sangeeta Gupta, senior vice- president at Nasscom. She declined to comment on whether Nasscom would directly handle FDI-related issues as well.
Experts doubted the effectiveness of lobbying. The Indian government is still working on clarifying FDI rules on brick and mortar retail and insurance.
“The issue with opening up the policy is that, unlike traditional multi-brand retail that attracts huge capital investments, opening up of FDI in commerce does not swing the needle for the government materially,” said Arvind Subramanian, partner and director at The Boston Consulting Group (BCG).
The government’s focus on building greenfield infrastructure has been evident in the retail FDI strategy. E-commerce isn’t a critical part of this scheme. “From a government perspective, it’s not a priority sector at all. It’s too small and it neither creates much infrastructure or backend set-up. I don’t see the government’s outlook toward e-commerce changing any time soon. There are other sectors which are far bigger for them to sort out first,” said EY’s Parekh.
Subramaniam said that while investments in e-commerce would help in creating infrastructure such as warehouses and logistical networks, the scale will be much smaller that than of offline retail.
Meanwhile, representatives of US online retailer Amazon.com, which launched its marketplace portal in India last month, have been meeting with the Indian government to further understand the existing policy pertaining to e-commerce. In February this year, Paul E. Misener, global vice- president, Amazon.com Inc., met commerce minister Anand Sharma. “We talked about it. We talked to the government officials on all kind of different issues and..trying to find a better way to serve our Indian customers, both sellers and buyers,” Misener had then said.
Online retailers said they want the government to ease the rules to prevent a monopoly situation cropping up now or later.
“Right now, there are barely any big names in the sector. But if the Tatas or Reliance were to enter e-commerce in a big way then the government would have to take notice because of... their deep pockets,” said a former Flipkart executive who declined to be named. “Until then, I doubt if there will be a focused regulatory framework.”
(Source: Livemint)

Colgate sacrifices margin to protect toothpaste market share

 
Consumer sector results so far are pointing to a deceleration in volume growth. Colgate-Palmolive (India) Ltd’s results at first glance appear to confirm that trend. The oral care company’s volume growth in the June quarter came in at 9%, down from 12% in the March quarter. The surprise was that its core business of toothpaste managed to keep volume growth intact at 11%, which is a good sign. But that also points to pressure in its other business segments, chiefly toothbrushes and other personal care products.
The company’s market share (in volume terms) in the toothpaste market rose by 1.2 percentage points to 55.9% in the six months ended June from the year-ago period. In the March quarter, the market share of the toothpaste business was 55.4%, indicating that the June quarter’s share had risen on a sequential basis, too. In toothbrushes, Colgate’s share rose by 2.7 percentage points in the six months ended June to 41.4%. But the June quarter’s share appears to have been under some pressure sequentially, as market share in the March quarter was higher at 41.5%.
Investors will want to see if the softening trend in overall volume growth gets reversed. Competition in the toothpaste segment is building up and the much-awaited entry of Procter and Gamble Inc.’s (P&G’s) toothpaste brand took place in July. That will keep up the pressure on the market leader and the effects of the competition will become more visible from the September quarter onward.
Colgate’s financial results do reflect some strain of slower volume growth, as sales have risen by 14.7% compared with 18.3% in the March quarter. But Colgate said it managed to keep costs under control—a better product mix may have helped, too—contributing to a 1.9 percentage point increase in gross margins. Gross margin reflects the profit remaining for the company after deducting the cost of goods sold from sales.
Higher gross margins came in handy, as the company’s advertising costs increased by 21.11% and other expenses rose by 37.2%. Freight, promotion and royalty are the main components of other expenses. The increase was so high that despite better gross margins, Colgate’s operating profit margin declined by 2.3 percentage points over a year ago, and by 1.1 percentage points over the preceding quarter. That is a substantial decline but it could have been worse, if not for the increase in gross margins.
Colgate’s profit before tax rose by a measly 4.6% and it was only an exceptional income of Rs.70.6 crore—from the sale of a non-core business—that contributed to the 57.7% increase in net profit to Rs.185.2 crore. Colgate appears to be handling the macro situation quite well since its flagship toothpaste business appears unaffected. But if consumer demand continues to slow in this fashion, keeping that up will not be easy.
The immediate and more pressing worry for investors will be the impact of P&G’s entry. Colgate’s only priority will be to protect its market share in the toothpaste segment by stepping up advertising, promotions and new launches. This is a story that will play out over the course of many quarters, and will have its ups and downs depending on the success of P&G’s oral care business and its aggression in the market.
If Colgate has to keep marketing spends at these levels, or worse hike them further, then profitability may continue to remain under pressure. The toothpaste segment’s volume growth itself may be a result of higher market spends. If the market slowdown or pressure from competition hits volume growth in future quarters, then investors are likely to get more worried. On Monday, Colgate shares fell by 2.22%.

Monday, July 29, 2013

Hiring by TCS, Infosys and Wipro falls by more than half in June quarter

 
Hiring by TCS, InfosysBSE 0.18 % and Wipro, which account for a major chunk of job opportunities in the sector, slowed down by a hefty 60 per cent in the April-June quarter as the big three hired only around 3,400 persons.


In the April-June 2012, these three companies had hired over 8,700 persons on a net basis.

The country's largest IT company
TCSBSE 0.41 % added 1,390 persons in the June quarter this year, against net addition of 4,962 persons in the year ago period.

Infosys hired 575 persons during the quarter against 1,157 net additions in the same period last year.
WiproBSE 6.71 % added 1,469 people to its IT services division in June quarter compared to over 2,600 people in the year ago period.

In the January-March quarter, the three companies had hired over 16,500 persons.

While TCS and Infosys saw gross additions of 10,000 each during June 2013 quarter, net addition subtracts the number of people leaving the company from the gross additions.

Experts consider the net number as a better indicator of actual increase in staff count.

"IT companies are cautious in their hiring plans currently. They are hiring on requirement and project basis," Uday Sodhi of job portal Head Honchos said.

Hiring in the sunrise sector has been sluggish as the outsourcing industry is under duress amid clients cutting back on IT spends fearing a further weakening of the economic conditions.

TCS while announcing its results this month had said that its hiring had come down due to low attrition rate. The company witnessed a low attrition rate of 9.55 per cent for IT devision and 15.77 per cent for BPO segment.

A recent survey by IT industry body
Nasscom had said that attrition rate in the IT sector has come down to around 14 per cent in 2012-13 from 19 per cent in 2010-11 for IT and KPO segments.

The survey, which rated TCS, Infosys and Wipro among top five IT employers, also said that hiring by companies would grow at a slower rate this year.

Moreover, there has been a change in hiring pattern by software and services companies, which may lower net additions this year, it said.

Project based 'just-in-time' hiring is the dominant way at present, it added.
(Source: Economic Times)

Greece's Unemployed Young: A Great Depression Steals the Nation's Future

 
Outside an unmarked green metal door in the hallway of a suburban Athens high school, Tina Stratigaki waits for a job interview. It’s a Tuesday in mid-July. Stratigaki, 29, applied for the job as a social worker weeks ago and had taken an hour-long test the Friday before. Based on the list of applicants posted on the wall outside the exam, she estimates there were some 2,000 candidates for 21 open positions. This is the last interview she’s likely to get before Greece shuts down for the summer holidays. Her unemployment benefits—about €360 ($475) a month from her previous job working with disadvantaged women and children—have just run out. “I’m a little bit stressed,” she says.
Jobs of any kind are scarce in today’s Greece. Nearly six years of deep recession have swept away a quarter of the country’s gross domestic product, the kind of devastation usually seen only in times of war. In a country of 11 million people, the economy lost more than a million jobs as businesses shut their doors or shed staff. Unemployment has reached 27 percent—higher than the U.S. jobless rate during the Great Depression—and is expected to rise to 28 percent next year. Among the young, the figure is twice as high. Meanwhile, cuts to Greece’s bloated public sector are dumping ever more people onto the job market. In July, 25,000 public workers, including teachers, janitors, ministry employees, and municipal police, found out they would face large-scale reshuffling and possible dismissal. An additional 15,000 public workers are slated to lose their jobs by the end of 2014.
 
Greece’s jobs crisis is a window into a wider emergency that threatens the future of Europe. Across the continent, a prolonged slump has disproportionately affected the young, with nearly one in four under the age of 25 out of work, according to the European Commission. (In the U.S., youth unemployment is 16.2 percent.) That understates the severity of the situation in Italy and Portugal, where youth unemployment rates have soared above 35 percent; Spain’s is 53.2 percent, the second-highest after Greece, at 55.3 percent. European Union leaders have announced an initiative aimed at guaranteeing that all young people receive a job, apprenticeship, or more education within four months of joining the ranks of the unemployed. Governments have pledged €8 billion over two years to combat unemployment in Europe’s worst-hit countries, and the European Investment Bank is offering €18 billion in loans to encourage hiring by small and midsize businesses.
 
Such pledges of help come too late for Greeks like Stratigaki, who are already spending what should be the most productive years of their lives poring over notice boards and alternating long periods of unemployment with all-too-brief periods of work. Absent a rapid and dramatic economic turnaround, an entire generation in Southern Europe faces years, possibly decades, of dependency and disillusionment—with consequences that can’t be measured in economic terms alone. “Our generation has depression,” says Stratigaki. “We are at the best age. We have the power to do everything. And we can’t do anything.”

Personal happiness can often be measured in the difference between what was expected and what reality delivers. Stratigaki and her peers came of age as Greece seemed set to cement its place in the ranks of the world’s richest countries. The 2004 Summer Olympics were presented to the country and to the world as a coming out party for a nation that had long been seen as one of Western Europe’s stragglers. It didn’t last. The global financial crisis revealed deep corruption in the Greek economy and an unwillingness on the part of its fellow European states to continue to prop it up. Greece quickly turned from success story to pariah. Just when Greeks of Stratigaki’s cohort were looking to launch careers and start families, the floor fell away.
Photograph by Finn TaylorPatsa makes ends meet working for her ­sister’s startup and with help from her father
In Athens the crisis isn’t conspicuous. Family networks have kept the majority of the afflicted from landing on the streets. Empty storefronts are common, but so are cafes doing a brisk—if reduced—trade. Time has yet to work its fingers into the cracks and weaknesses of the city’s infrastructure. That said, it’s unusual to walk more than a few blocks in central Athens without encountering a knot of riot police, lounging on a street corner with their plastic shields and body armor. During the week of Stratigaki’s job interview, the trash collectors were on strike, leaving garbage piled around the bins. The local police, facing possible job cuts, were demonstrating, crisscrossing the city center in convoys of cars and motorcycles, sirens blaring.
 
Stratigaki’s struggle to find stable employment has lasted more than half a decade. In high school she was the top student in her class. She studied social work at the Democritus University of Thrace in Northern Greece, finishing her studies in 2007. While there, she held down three jobs, waitressing, bartending, and tutoring to supplement what her parents were able to give her.
Stratigaki’s first job after university was as a bank debt collector in Athens, calling people who owed money on loans or credit cards and haranguing them. She spent eight hours a day being cursed at and insulted; some of her co-workers turned to pills to fight depression. “It was the worst job I have ever done,” she says. Even so, Stratigaki excelled, bringing in payments with a calm and soothing sales pitch. In March 2009 she was finally offered a job in her field, and she leapt at the chance.
Stratigaki was hired by the municipal government of an Athens suburb to help people find jobs and arrange appointments with counselors and psychologists for individuals and couples. The position was perfect except for one thing: She wasn’t getting paid. When she asked, her bosses would tell her that the funds for her position, which were to come from both the local government and the EU, were tied up in red tape.
 
Desperate for the work experience, she stuck it out. She’d moved back in with her parents and worked nights tutoring students in ancient Greek and philosophy. After 13 months on the job she arrived at the office one day to find a letter telling her she was being fired. She hadn’t received payment for a single hour of work. “The crisis had begun,” she says. This time she was unemployed for more than a year.
 
In June 2011 she was hired to answer phones at a travel agency, using her French and English to handle calls from abroad. She worked there for six months before finding another job in social work—this time in a government center, working with women and children who were homeless, unemployed, or victims of trafficking. That job, like many in Greece these days, was given to her on a one-year contract. When it expired at the beginning of 2013, it wasn’t renewed.
Since then, Stratigaki has been out of work. She’s living on help from her parents, on her unemployment insurance, and on a partial payment of the money she says the municipality owes her, which she obtained after hiring a lawyer. Her mother has been unemployed since 2011, when she lost her government job. Her father is a clerk at a shipping company. Her brother, 25, studied nursing but works as a handyman, fixing air conditioners and installing car alarms and radios, pulling in about €200 a month.
 
Shortly after her government contract expired, Stratigaki tried to go back to her job at the travel agency, but there were no positions available. “I feel horrible,” she says. “I sit with my computer, searching, searching, searching.”


Studies of joblessness in the U.S. and Japan have shown that extended periods of unemployment in the early years of a worker’s career can depress earnings for decades. Nikos Kotsalos, 33, has been unemployed since November 2011, when he lost his back-office job at the national postal service. Until then he had never been without a job for more than a few months. In September he expects to finish an undergraduate degree in physics from the National University of Athens—a credential that’s barely sufficient to get an entry-level job. (To cite one example, the government recently announced it will be laying off all university security guards, except those with a master’s degree or a Ph.D.) “Sometimes we are angry. Sometimes we are sad,” says Kotsalos. “I’m 33. It’s not normal that I live with my parents. My father, when he was 33, he already had two children.”
 
For young Greek adults, the sense that their lives have been put on hold is palpable. Rare is the conversation that ends on a happy note. “It’s not only a financial crisis,” says Marianina Patsa, a 34-year-old Athens resident. “It also has a severe psychological impact. People feel like they’re losers.” Patsa, a successful freelance journalist before the crisis, watched her work slip away in the months following the crash. She now works in a media startup her sister co-founded called Doc TV, earning about €350 a month. “All the rest of the bills go to my dad,” says Patsa. “If my dad wasn’t around, I wouldn’t be around.
 
Many are already gone. A study by the Aristotle University of Thessaloniki last spring found that 120,000 professionals with advanced degrees had left the country since 2010. When young Greeks talk about another country, they might mention its weather, its culture, or its language. Almost certainly, they’ll note its rate of unemployment. In February, Elena Vourvou, 29, lost her job in the marketing department of a major pharmaceutical company. In June her boyfriend, Nikos Bogdos, 34, was let go from his position in the supply department of a marine electronics company. The two are moving to London, where they’ve been accepted in master’s programs. “We deserve a better future,” says Vourvou. Adds Bogdos: “My country is going to be where there is work. Wherever there is employment, that’s where I’m going to live.”
Greek society and the education system have done a dismal job preparing citizens to compete in a globalized, technology-driven economy. Up until the crisis, it was the dream of every parent to have their child become a doctor or a lawyer. Now the country has an excess of both. Meanwhile, with the public sector sweeping up many recent graduates, there was little incentive for universities to offer the technical skills companies now demand. The Greek government, prompted and assisted by the EU, has started to roll out measures intended to reduce youth unemployment, including training programs, grants for small businesses, and subsidies for companies that hire young people. But those policies are unlikely to do much as long as the economy continues to sink. “I admit there are structural problems in Greece,” says Theodoros Ampatzoglou, governor of the Greek Manpower Employment Organization, the government agency in charge of tackling unemployment. “But the basic problem isn’t matching labor supply and labor demand. The problem is that there’s very little demand.”
 
There are signs that the economy is beginning, if not to turn around, at least to plummet at a less alarming rate. After years of bleeding budgets followed by the shock therapy of austerity, the government says it expects to take in more revenue than it spends this year, not counting payments on its loans. “The progress is significant, but it has been achieved with blood,” says Aggelos Tsakanikas, research director at the Athens-based Foundation for Economic & Industrial Research (IOBE). The Greek central bank forecasts the economy to start growing again in 2014.
 
 
Some Greek analysts say 2012 marked the peak of the crisis, a year in which a Greek exit from the euro appeared plausible and roughly 30 percent of the country’s top companies slashed salaries or cut working hours, according to a survey by the ICAP Group, a Greek business services firm. In 2012 the average take-home pay for a company director dropped from €105,000 to €63,000, managers’ earnings plummeted from €55,000 to €29,000, and manual laborers’ from €16,000 to €7,000.
 
According to Alexandros Fourlis, managing director of Kariera.gr, a jobs site owned by Careerbuilder.com, firings still outpace hirings. But the gap is starting to close. In October 2012, after four years of decline, the number of job listings began to increase. At the height of the crisis, in January 2012, there were on average more than 330 applicants for every job posting on his site, compared with a little more than 80 in 2009. For popular jobs not requiring specific skills, such as a bank teller, the number could reach as high as 11,000. Today the average number of résumés a job listing receives is back down to about 160. “The picture is still negative,” says Fourlis. “But it’s vastly improving.”

 For her interview, Stratigaki has put on a white blouse and black pants. Gold-rimmed sunglasses hold back her red hair. Open sandals reveal pink toenails. On her left wrist she wears a chain with a tiny glass evil eye, a charm to ward off bad luck. The summer heat has penetrated the interior of the high school. Three young women sit near her outside the green metal door.
Another applicant in white slacks and a white linen shirt paces back and forth, from the hallway into the stairwell. He says his name is George but declines to give his last name. He’s 29 years old, holds a master’s degree in economics, and has been unemployed for a year and a half, not counting the five months he worked as a street cleaner.
 
It’s more difficult for the highly qualified,” he says. “The market thinks we will cost too much.” He’s applying for a position as a secretary, a job that requires a high school degree. For a couple of minutes, he and Stratigaki discuss whether his education will be an asset or a liability, and then their names are called.
The position Stratigaki is applying for, a social worker in an office distributing discounted groceries and medicine to the city’s rising numbers of disadvantaged, would be a coup. For one thing, it’s a two-year contract. The salary of €700 a month would be low by the standards of a few years ago but is considered generous in the current economy.
Stratigaki estimates she spends two hours a day looking for jobs, an effort that’s netted her nine interviews in six months. One was for a position as a secretary at an economics newspaper in Athens’s richer southern suburbs. It quickly went off the rails when the interviewer began mocking the working-class neighborhood where Stratigaki grew up.
In addition to three jobs sites, including Kariera.gr, Stratigaki regularly checks the home page of her university’s career office. She set e-mail alerts for positions in her field but has received only two notices. Another alert, for secretarial work, generates mostly spam from companies looking to staff call centers with young people working on commission. Increasingly, many postings are for unpaid internships. Two or three times a week she makes the rounds of the websites of nearby municipalities, checking in the evening, when she’s learned that they usually refresh. Sometimes, to break the monotony, she meets for coffee at the home of close friends to go through the listings together. “It’s expensive for us, as unemployed people, to go to a cafe,” she says.
With the rest of her time, she helps take care of her parents’ house and that of her boyfriend, Stelios Siderakis, 32, who moved back from London in 2010 to be closer to Stratigaki and to his father, who died of cancer last year. She recently began studying photography, shooting mostly landscapes but brainstorming with her classmates about earning some money shooting weddings and baptisms. The one thing she and her boyfriend don’t want to do is leave Athens, unless it’s to move to the island of Chios, where Siderakis has family. “I don’t know why,” says Stratigaki. “Maybe I’m afraid. Or maybe it’s the fact that I’ve always found something sooner or later.” Siderakis, a chef, has had relatively little trouble finding work, though his paycheck has shrunk with every new job. “I’d feel like I was betraying my country” by leaving, he says. “I have friends who have left, but they didn’t have any other options. The jobs they were doing were gone. I know that I can make it somehow or another.”
When Stratigaki, George, and two other women emerge from their interviews, all four say they’re happy with how things went. They compare notes on the way down the stairs. Greece shuts down in August, even in this time of crisis, so Stratigaki didn’t expect to hear back about the interview until September, but the interviewers tell her they plan to make their decision by the end of July. “Now it’s time to wait,” she says. “This is the hardest part.”
In the meantime, the job hunt goes on. Two days after the interview, Stratigaki drops by her old travel agency to book a couple of ferry tickets to Chios. She takes the opportunity to ask once more about getting rehired. The answer, again, is no.
  (Source: Bloomberg Business Week)

New Wireless Upgrade Plans Could Boost IPhone Sales

 
U.S. wireless carriers are making it easier for customers to upgrade phones more often. That’s welcome news for consumers and could also provide a much-needed lift for Apple Inc. (AAPL) and Samsung Electronics Co.
Verizon Wireless is following AT&T Inc. (T) and T-Mobile US Inc. (TMUS), which earlier this month gave users an option to replace devices as often as every six months, rather than the typical two years in the U.S. Smartphone makers could use the help as they grapple with falling prices and a maturing market.
 
The success of the carriers’ upgrade-friendly strategy, which lets consumers pay for a phone in monthly installments instead of an upfront fee, depends on the bulk of their customers reacting like Mona Khanna, a physician in Chicago.
“We live in an ADHD world, and I need it now and fast,” Khanna said. “The iPhones -- they are your cameras, phones, computers -- you need to have the latest technology.”
Khanna plans to soon switch from Verizon for a new, more flexible AT&T plan with calling from overseas. If enough consumers behave similarly, smartphone unit sales should increase by as much as 10 percent to 15 percent a year, said Roger Entner, an analyst at Recon Analytics LLC.
With the carriers’ new terms, “you’ll have people who go from upgrading every 24 months to 12 months, and people who used to upgrade every 12 months changing to six months,” he said.
Speeding up smartphone users’ buying patterns is just what device makers need right now. More than 60 percent of U.S. mobile subscribers already have smartphones, according to Nielsen Co. Average prices are likely to drop to $285 this year from $300 in 2012, said Chetan Sharma, an independent wireless analyst. And both the high-margin Apple iPhone and Samsung Galaxy S4 sales are showing signs of growth fatigue.

Samsung Struggles

In the quarter ended in June, iPhone sales advanced 20 percent to 31.2 million units. A year earlier, Apple reported unit sales up 28 percent over 2011.
Natalie Kerris, a spokeswoman for Cupertino, California-based Apple, didn’t respond to a request for comment.
Samsung’s flagship Galaxy S4 handset is also struggling with growth in a mature smartphone market. Samsung reported sales for the Galaxy S4 this month that fell short of analysts’ projections.
Jessica Redman, a spokeswoman for Suwon, South Korea-based Samsung, declined to comment.
U.S. smartphone shipments will reach 137.3 million this year, up 14 percent from 120.1 million units last year, said Kevin Restivo, an analyst at research firm IDC in Toronto, helped in part by the new wireless plans.

‘Mobile Enthusiasts’

“These plans appeal to people that are interested in the latest and greatest phones -- those that are real mobile enthusiasts and can think ahead and know that they need more than one upgrade in the two years,” Restivo said in an interview.
The extent to which the new policies ultimately benefit handset makers may hinge on how much inventory carriers already have ordered. Verizon Wireless, for one, may use accelerated device upgrades to reduce unsold iPhone inventory.
As prices fall, smartphone makers also aren’t getting as much revenue per phone. Device makers may see just a modest single-digit percentage gain in annual sales, according to Roger Kay, an analyst at Endpoint Technologies Associates.
Apple, which tends to release new iPhone models once a year in the summer or fall, stands to gain the most from the new policies because users wouldn’t have much difficulty timing contracts to qualify for replacements each time a new version comes out, Sharma said. Other device makers roll out new handsets on more sporadic schedules.
For some users accustomed to comparison-shopping, the new plans will only be enticing if they bring significant savings.
“If they’re charging you more to upgrade, I think it’s going to be a dismal failure,” said Gary Austin, an AT&T customer for two decades who got an iPhone right after the handset debuted in 2007. “If they didn’t charge me a fee to do it, I would maybe consider doing it.”

Argentine Housing Bust Has Government Dialing for Dollars

 
In a region where booming real estate markets have governments from Chile to Brazil to Colombia warning of potential property bubbles, Argentina stands out as a bust.
Two years after President Cristina Fernandez de Kirchner clamped down on Argentines’ purchase of dollars, the currency of choice for real-estate transactions, the housing industry is grinding to a halt. While prices soared to records in Sanhattan, a high-end strip in Santiago, Rio de Janeiro and Medellin, Colombia, in Buenos Aires they dropped an average 1.2 percent in the second quarter from the previous three months, the first decline in data that goes back to 2005.
 
The main issue in Argentina is that the real estate market has historically been transacted in dollars so when you make it impossible for people to source dollars liquidity gets disrupted,” said Bret Rosen, managing director of research at Jamestown Properties LLC in New York.
Fernandez’s foreign-currency curbs effectively put home purchases out of reach for many Argentines because they would be forced to buy dollars on the black market for 60 percent above the official rate. Sales in Buenos Aires plunged 34 percent in the first five months, the biggest decline since the 2001 financial crisis that culminated in the government’s $95 billion bond default, according to the Buenos Aires Notary College.

Tax Forgiveness

Now Fernandez is trying to revive the market by offering to forgive taxes owed on undeclared dollars if they’re invested in property. Argentines can exchange funds held abroad for central-bank issued certificates that can be used in real estate transactions and redeemed for dollars by the seller of a property.
The plan has only attracted $8.5 million since it began on July 1 because investors are wary the dollar-starved government will try to keep the greenbacks, according to Florencia Cecchini, real estate agent at Matty Pell & Asociados in Buenos Aires.
“My clients get an ulcer every time I bring up the subject,” she said. “They don’t want to hear of it because they don’t trust they’ll be able to get actual dollars.”
The Argentine government froze bank accounts and turned dollar savings into pesos at 30 percent of the value after the default.

Creditor Dispute

The country has been locked out of international credit markets since then, while decade-long cases in U.S. courts with holdout creditors from the country’s 2005 and 2010 debt restructurings demanding to be paid in full are contributing to making Argentine securities the riskiest in the world.
Reliant on local financing, the government has depleted international reserves and printed money at a rate of about 30 percent a year, fueling the fastest inflation in the Western Hemisphere. Price increases, tightening currency controls and unpredictable legislation -- including the nationalization of oil company YPF SA in April 2012 -- caused economic growth to fall to 2 percent last year, the slowest since 2009, as investment and production slumped.
Real estate is often paid for upfront as the double-digit inflation rate undermines banks’ ability to offer long-term loans. A five-year mortgage has average borrowing costs of 18 percent, according to the central bank, compared with the 24 percent inflation rate estimated by private economists. Official data, which have been challenged by the International Monetary Fund, says consumer prices are rising at half the rate.

Sales Tumble

Only 14.9 percent of all home purchases in the province of Buenos Aires used mortgages last year, down from 15.3 percent in 2011, according to Buenos Aires real estate research company Reporte Inmobiliario. The share hasn’t surpassed 21 percent in the past 10 years.
Property sales in Buenos Aires tumbled 27 percent last year from 2011, the biggest drop in Reporte Inmobiliario data that goes back to 1998, and the only the fourth annual decline after 2001, 2004 and 2009.
“The market was almost paralyzed with the currency controls because the great majority isn’t willing to accept pesos for their property,” German Gomez Picasso, a director at Reporte Inmobiliario, said in a telephone interview from Buenos Aires. “They would rather just hold on to their property instead.”
Some real estate companies are starting to price their projects in the local currency. Developer Alan Faena accepted pesos to finish selling about 25 percent of his apartment building in the Buenos Aires neighborhood of Puerto Madero, which he helped build into the most expensive in Argentina’s capital from old abandoned factories by the riverside in the 1990s.

Currency Controls

Currency controls make investing in Argentina “difficult,” he said, “You do whatever you can to adapt.”
Faena, developer of the Faena Hotel and Faena Aleph Residences, has no plans to invest more in Argentina.
Instead he is completing six projects in Miami -- a residential building, a hotel, an arts center, a shopping gallery a park and a marina -- with a $600 million investment from his partner, Ukrainian-born American billionaire Len Blavatnik. He said he’s sold 50 percent of his condominium building set to be completed in September.
Argentines seeking to escape currency controls, sluggish economic growth and rising inflation surpassed Brazilians last year and became the biggest Latin American buyers of property in the U.S. by spending $2 billion, according to a June 24 report by the National Association of Realtors.

Chilean Market

In Chile, home prices soared as much as 20 percent in December and were at record highs in April, according to the Chilean Construction Chamber. Colombia’s home prices grew an annual 5.1 percent in real terms in the third quarter, prompting Yale University’s Robert Shiller to say the boom resembles the emerging bubble in U.S. real estate a decade ago.
The government’s plan to replace dollars with central bank-backed certificates may help boost the industry, according to Juan Martin Olivera, a real estate broker and public notary at Escribania Olivera.
“We’re all waiting to see what happens with that first person who goes to the bank,” Olivera said in a telephone interview from Buenos Aires. “If all goes well, then it should bring some relief to the market.”
Sales in Buenos Aires rose an average 5.6 percent in the 10 years through 2011 as Argentines sought to store the value of their savings in real estate. The peso weakened every year since 2003 and is forecast to slide 14 percent against the dollar this year, the most in emerging markets, according to data compiled by Bloomberg.
Fernandez’s currency controls and the tax amnesty plan are set to fail as they offer temporary relief instead of focusing on slowing inflation and instilling confidence in the government’s policies, said Juan Pablo Fuentes, a Moody’s Investors Service economist in West Chester, Pennsylvania.
“They won’t be successful in attracting capital this way,” he said in a telephone interview. “Nobody will trust a government that repeatedly violates laws and doesn’t value contracts.”
(Source: Bloomberg)

Sunday, July 28, 2013

Lighting rural India: Out of the gloom

 
FLY by night over Uttar Pradesh in northern India, the country’s most populous state, and its cities appear as dazzling islands. In between, however, lies an inky sea. Perhaps two-thirds of Uttar Pradesh’s 200m people have no regular electricity. In India as a whole, 700m, or more than half of the population, suffer unreliable connections to the national grid, or none at all.
On paper, plans exist for linking the country’s northern and southern grids. That would help, yet nobody expects rural India to be properly plugged in for a long time yet. Meanwhile, villagers soldier on with paraffin lamps, which harm lungs and emit a dim light that is of little use for school homework. Darkness breeds danger, so women stay home after the sun goes down. A lack of electricity limits business, as markets and shops close early. Banks have been ordered to reach villages, but they need electricity. And though most Indians have mobile phones, many struggle to recharge them. Lots of India’s 400,000 mobile-phone towers are powered at least in part by diesel generators, which are noisy, dirty and costly. Power can account for two-fifths of a mobile-phone company’s operating costs.
The lack of grid power grows more severe as rural incomes rise and feed demand. Diesel prices are up by a fifth since September because subsidies have been cut, pushing up the cost of running generators. What is more, the government has told mobile-phone firms to switch half of their rural towers, and a fifth of those in cities, to green energy by 2015. Around 150,000 will need a new power supply.
With the state incapable of providing electricity, the good news is that aid donors, “social entrepreneurs”, NGOs and investors are rushing to promote rural off-grid power. Arunabha Ghosh of CEEW, a Delhi consultancy, counts 250 companies in the field, mostly relative newcomers. A few try mini-power stations that use hydropower or burn rice husks or methane from cow dung. The vast majority, however, bet on solar energy using increasingly cheap equipment, often made in China.
One approach is to stick panels on a village roof and run wires to a few dozen nearby homes, allowing each seven hours of light a day plus a phone charger. Brian Shaad of Mera Gao Power, a firm in Uttar Pradesh, says even poor households can pay for this, by switching spending from paraffin. The firm has so far wired up some 9,000 homes. Mr Shaad says he sees “kids studying, coming from the dark homes to the light ones to do homework”. He also tells of a woman who, thanks to being able to work later under LED lights, has tripled her overnight production of the samosas she sells at market each morning.
Others work on a bigger scale. Omnigrid Micropower Company (OMC) has built ten solar plants that power phone towers and sell electricity to around 3,000 nearby households, as well as to businesses. It plans 4,000 more such plants in the next three years, mostly in Uttar Pradesh. They will light millions of households. It begins by renting out charged lanterns, fans and battery boxes, laying cables to households and businesses later.
The impact is striking. In one Uttar Pradesh village with a solar plant a shopkeeper claims his income soared once he opened late, while his wife and other women took to making bangles in the evening. A tailor in a mud house says longer stitching hours lifted his monthly income by nearly half, to 7,000 rupees ($120).
Last year in nearby Atrauli village, on the edge of mango woods, OMC opened a solar plant to power two phone towers. Once a local businessman, Pradeep Singh, got electricity to his petrol station, he opened it 24 hours a day. Next he rented a dozen lanterns for his bar. Sales rose and costs fell.
For Mr Singh, in neatly ironed shirt and white trainers, the sky is now the limit. On July 1st he opened a college for 550 undergraduates, built on a field behind the plant. Mr Singh claims he will outshine the competition. Electricity means not only light: “I offer fans to the students,” he says. “No other college will offer that.” Some 165 students have enrolled. Now Mr Singh plans a rural mall for 20 small businesses, such as a motorcycle repair shop, restaurants and a cinema. A Swiss firm is mulling a water-purification plant. A state bank is moving in. OMC hopes to develop solar-run irrigation for farmers, plus a scheme to rent villagers cheap tablet computers to serve as televisions. Village leaders hope that electricity and the economic growth it brings will help slow the rush of youngsters to Lucknow, the state capital, 50 kilometres (about 30 miles) away.
If anything, the government’s lack of interest has fed the boom. With cheap land and little regulation in rural areas, OMC can set up a solar plant for just $165,000, which it can then run for decades at little cost. Unlike with grid-supplied power in India, no one blocks or diverts off-grid electricity for the sake of bribes or some sort of electoral gain.
Such schemes are of little help to industry or other heavy users of electricity. Nor is solar power yet as cheap as the grid. For all that, the rapid arrival of electric light to Indian villages is long overdue. When the national grid suffers its next huge outage, as it did in July 2012 when hundreds of millions were left in the dark, look for specks of light in the villages.
(Source: The Economist)