Friday, April 29, 2016

Media groups face up to how tech groups now call the shots

The threat of being disrupted by a couple of young technology entrepreneurs with a smart idea has long been something that keeps leaders of established industries awake at night. But what happens when those geeks from the garage have the power and wealth of the world’s most powerful companies at their disposal — and they are moving with the pace of a runaway freight train?
That is what the media industry is now facing. Most companies are manoeuvring uneasily, trying to find ways to co-operate with the digital platforms that are coming to dominate their world. But to judge by the discussion at events like the Financial Times’ digital media conference, held in London earlier this week, the challenges of adapting to the new world are only getting harder.
It fell to Adam Bird, a partner at consultants McKinsey, to deliver the wake-up call about how far the threat has shifted. As he put it: the disrupters are now operating at massive scale. The media industry had been used to operating in very localised markets in Europe, but it now suddenly finds itself dwarfed by global-scale digital platforms that are expanding globally from the US and, soon, China.
The sheer size is daunting. Revenues at AppleGoogle and Facebook — the three tech companies that have had the most direct impact on the media industry — jumped to $326bn last year, from under $100bn five years ago. Add in Amazon and Microsoft, and the total comes to more than half a trillion dollars. In market capitalisation terms, those same companies have seen their worth balloon from $800bn to $2.2tn. Even a phenomenally successful company such as Walt Disney is now worth barely half of Facebook. With that kind of wealth, the new competitors are not only starting to shape markets, but are also creating entirely new ones. Google and Facebook, for instance, account for about a third of all time spent on smartphones and are sucking up all the growth in the digital advertising business between them.
But it isn’t just the size that gives the huge tech companies influence. They have also built systems for innovating at a scale that most other companies can only dream of. Caught in a race with each other to invent the next big thing, they are bent on a level of experimentation that the media industry has not had to deal with before. Facebook gave a graphic display of this new age of ambition earlier this week at F8, its annual developer conference in San Francisco. This was a company out to show that it is firing on all cylinders, with new developments on all fronts.
New initiatives shown off at the event included Facebook’s latest infatuation, live video. By dangling the chance of appearing at the top of its news feed, Facebook was effectively issuing a demand to the media world to produce. There was also a 360 degree camera, to encourage the creation of more of the kind of content that will be suited to virtual reality headsets; Facebook also extended Instant Articles, its mobile news format, to a wider range of companies, including some outside the media business, and invited other companies to plug their “bots”, or intelligent agents, into its Messenger chat app. 

For media companies, the challenge from all this is twofold. One is to find ways to navigate all the new platforms to reach an audience that no longer comes to them direct. Engaging audiences in the world of Instagram, for instance, will be different from wooing them on Snapchat. Speaking at the FT event, David Pemsel, new Guardian chief executive, summed up the prevailing view. Media companies may be wary of dealing with these powerful new distributors, he said, but they have no choice.
The other challenge might be summed up as “innovation exhaustion”. How many companies have the ability to move fast enough — let alone find the resources — to keep up with all these new digital platforms? Virtual reality is a case in point. Facebook and Google can afford to view their current spending as a downpayment on their long-term futures. Most media companies, with shorter horizons for making a return, have to make harder choices about where they are going to place their bets.
The media industry once talked about the “transition to digital” as though it was a one-off shift: there might have been some false starts, but they would get there in the end. The transformation turns out to demand constant reinvention.

Wednesday, April 27, 2016

Be Afraid, Be Very Afraid If You're Investing for the Long Run: McKinsey

Turning 30 just got a lot scarier.
A coming collapse in investment returns means that people that age today will have to work seven years longer or save almost twice as much to end up with the same nest egg as those of roughly a generation ago. 
So says the research arm of McKinsey & Co. in a new report that argues that investors of all ages need to resign themselves to diminished gains.
The consulting company maintains that the last 30 years have been a “golden era” of exceptional inflation-adjusted returns thanks to a confluence of factors that won’t be repeated. They include falling inflation and interest rates, swelling corporate profits and an expanding price-earnings ratio in the stock market.
The next two decades won’t be nearly as lucrative, even on the optimistic assumption that the world economy snaps out of its recent funk and resumes growing at a faster clip, according to the McKinsey Global Institute report titled “Diminishing Returns: Why Investors May Need to Lower Their Expectations.”
“We’ve had a wonderful 30-year period in terms of returns, way more than the 100-year average,” said Richard Dobbs, a McKinsey director in London. “That era is coming to an end.”
Bond investors have already reaped much of the benefits from declines in inflation and interest rates from the sky-high levels that prevailed in the 1970s.

Tougher Road

U.S. and European corporations, meanwhile, will find it harder to boost profits in the face of stepped-up competition from emerging-market rivals and from smaller businesses able to tap into the global market through the Internet, Dobbs said.
It’s not only 30-year-olds and other individual investors who’ll be hurt if McKinsey is right about the outlook. Pension funds and university endowments also have reason to worry, Dobbs said.
The roughly $1 trillion funding gap confronting U.S. state and local retirement plans could triple if McKinsey’s more pessimistic projections pan out, he said. U.S. college endowments could be out as much as $19 billion per year, he added.

Two Paths

McKinsey sets out two paths for the economy and financial markets over the next 20 years in its report. In the slow-growth scenario, U.S. gross domestic product expands by an average 1.9 percent per year, while growth in other major economies is 2.1 percent. Returns in that case are well below the average of the 1985 to 2014 period.
In the recovery scenario, U.S. growth matches the 2.9 percent average of the last 30 years while non-U.S. GDP rises 3.4 percent. Returns still fall short of the golden era when inflation and interest rates were falling and profit margins were expanding.
The McKinsey study focuses on U.S. and Western European stock and bond markets and doesn’t take investments in emerging markets into account, largely because of a lack of reliable long-term data.
“We are entering a period of much lower returns,” Dobbs said. “That’s going to have some quite extreme consequences for all types of investors.”

India may become net importer of sugar as drought dries fields

India is likely to become a net importer of sugar in 2016/17 as back-to-back drought years dry irrigation channels and ravage cane fields, with output in the country's biggest producing state seen dropping over 40 percent. That would mark the first time the nation has been a net importer of the sweetener in four years, with the switch likely to support global prices that have already been rising this year. It would also give rival producers such as Pakistan, Thailand and Brazil the chance to boost shipments from their ports. "India will need to import next year due to a production shortfall," Ashok Jain, president of the Bombay Sugar Merchants Association (BSMA), told Reuters. "Drought has severely affected cane plantations in Maharashtra. The government should stop exports now to reduce import requirements in the next season." The El Nino weather phenomenon, which brings dry conditions to many regions, has stoked the worst drought in decades in some parts of India, with thousands of small-scale sugar cane growers in Maharashtra state failing to cultivate crops for the next marketing year, starting October. "Even for drinking water we are relying on water tankers. It wasn't possible for anyone from our village to cultivate cane," said Baban Swami, a farmer standing in a parched field in the Latur district of Maharashtra, around 500 km southeast of Mumbai. That could help push overall output below consumption for the first time in seven years. "Next year, Maharashtra's production could drop below 5 million tonnes. This may pull down the total output to 22.5 million tonnes," said B.B. Thombre, president of the Western India Sugar Mills Association. Next season's local consumption is pegged at around 26 million tonnes. The world's biggest sugar consumer is set to churn out 25.7 million tonnes in the current season, with Maharashtra contributing 8.5 million tonnes. Indian mills are contracted to export nearly 1.5 million tonnes this season. "I think there is a possibility we could see imports to India next year," said Tracey Allen, a commodity analyst at Rabobank in London. Indian imports have in the past boosted global sugar prices, traders said. "The global supply deficit is going to rise with the Indian shortfall. This could trigger a rally, although a lot depends on how much sugar India needs to import," said a Singapore-based dealer with a global trading firm. He declined to be identified as he was not authorised to speak with media. Meanwhile, analysts were divided over whether India would cut its 40-percent import duty on raw sugar. Some said mills would ask for the tax to remain unchanged so domestic prices would rise further, while others said the food ministry could push for a duty-cut to relieve inflationary pressures. "Duty free imports are required to arrest price rises," said Jain at BSMA.


In World Where Steel Is Money Loser, Russian Mills Find a Profit

As steel mills across Europe lose money and shed workers, business is booming in Russia.
The ruble’s plunge to a record low this year has helped alter the economics of making the alloy in Russia. The country exports about half its output for euros or dollars, which reduce the cost of labor and materials paid for with the weaker currency. At a time when the world has a surplus of cheap steel, Russian companies like Severstal PJSC remain profitable because they spend about 50 percent less than rivals in Europe and China to produce every ton.
Russian steelmakers also got a boost from stronger domestic demand and an unexpected rebound in export prices, which are having the best start to a year since at least 1994. Since the end of December, shares of Severstal, Novolipetsk Steel PJSC and Magnitogorsk Iron & Steel Works OJSC rallied at least three times as much as the Micex Index of 50 Russian companies. On April 20, Morgan Stanley labeled the industry a core holding, citing increased cash flows and dividends.
"As long as the ruble stays weak, they will be in much better shape than the majority of global steel mills,” said George Buzhenitsa, a Dubai-based analyst at Deutsche Bank AG.

Price Slump

Steel prices in Europe tumbled as much as 68 percent from a 2011 peak, mostly because of slowing demand in China, which is now exporting record amounts of surplus output. Supplies got so cheap, most producers can’t profitably compete. Luxembourg-based ArcelorMittal, the world’s largest producer, has reported four straight years of losses. India’s Tata Steel Ltd. is trying to unload U.K. operations it says have almost no value.
The situation was different in Russia, where slumping oil revenues and sanctions have sent the economy into a second year of recession and austerity. The ruble fell 23 percent against the U.S. currency over the past year, touching a record low of 86 per dollar in January. The decline was steeper against the euro, dropping 26 percent. That’s proved a boon to Russian exporters like the steel industry because foreign revenue covers more of their domestic costs.

2016 Rebound

In recent months, Russian producers also benefited as global prices rallied on signs of improved demand in China, the biggest user. Hot rolled coil, a benchmark for exports from former Soviet states, jumped 73 percent to $437.50 a metric ton, compared with a 12-year low in December of $252.50, Metal Bulletin Ltd. data show. Severstal said it cost $177 to make a ton of steel slab in the first quarter. BCS Global Markets, Russia’s largest brokerage, estimates costs are almost twice that in Europe and China.
Unlike some European companies, including ArcelorMittal, Russian companies haven’t had to tap shareholders for funds because they carry little debt. The ratio of Novolipetsk Steel, Magnitogorsk and Severstal’s net debt to earnings before interest, taxes, depreciation and amortization is below 1, compared with about 4 globally, data compiled by Bloomberg show. That helps them offer dividend yields more than double the industry average.
"Russian steel companies have global leading margins and the strongest balance sheets," said Wiktor Bielski, a London-based analyst at VTB Capital. “They have also made more operational efficiency improvements in the past three to four years than most of their peers.”

Domestic Prices

There may be more gains ahead. Producers will raise domestic prices by 20 percent next month, the most since 2008, to narrow the gap with the export market, where supplies are usually cheaper, according to BCS. Severstal said on April 18 domestic prices are about $30 below those of exports. Magnitogorsk said the following day that there will be a significant increase through May, also partly due to more Russian demand.
That doesn’t mean Russia is unaffected by rising supplies or costs. China, which produces half the world’s steel, is beginning to use more recycled cars and appliances to make new steel, a method that is cheaper than using iron ore in coal-fired blast furnaces. The Asian country will collect 120 million to 130 million tons of scrap in 2018, up from 70 million tons in 2015, said Viktor Kovshevniy, a director at lobby group
At the same time, iron ore prices in China are up 44 percent since the end of December, boosting the cost of making steel in blast furnaces. After three straight annual declines, the raw material is off to its best start to a year since 2010.

Scrap Impact

Longer term, melting more scrap in electric furnaces will lead to lower prices for the metal, including for Russian producers who use mostly iron ore, said Kirill Chuyko, chief of equity research at BCS.
For now, the weak ruble and efficient operations should keep Russian mills profitable, said Sergey Donskoy, a London-based analyst at Societe Generale SA. Severstal probably will have adjusted profit this year of $1.02 billion this year, while Novolipetsk Steel earns $727 million and Magnitogorsk reports income of $466 million, according to analyst estimates compiled by Bloomberg. That compares with an expected loss for ArcelorMittal of $423 million.
Even if steel prices fall back by the end of summer, when seasonal demand from builders slows, Russian producers should still see more gains in the next few months, according to Chuyko at BCS.
“Russian domestic prices are picking up," he said. "We are highly confident that the market will be focusing on the domestic steel-price momentum."

Monday, April 25, 2016

Follow the sun

RAED KHADER, a Jordanian driver, has an alarming habit of thumbing his mobile phone while at the wheel—albeit on a straight road cutting across the desert. But after scrolling back through almost two years of photos, he finds a picture that tickles him: of camels against a sandy backdrop. Today that same spot outside Ma’an, a poverty-stricken city in south Jordan, is crawling with workers in the final stages of installing five square kilometres (almost two square miles) of solar panels.
He is enraptured by the photovoltaic (PV) modules that shimmer in the desert sunshine. “It’s amazing. I love it. It’s good to see my country develop its own source of energy,” he says. “We have such good sun here. It’s free. Why don’t we use more of it?” In his enthusiasm, he has convinced his daughter to become one of the first Jordanian women to study for a solar-energy engineering degree. 
The 160-megawatt (MW) solar park, which is scheduled to open this summer, will mark the launch of Jordan’s effort to reduce its fossil-fuel imports, which generated 96% of its energy last year and cost about 10% of GDP. In a restive neighbourhood, it has good reason to become more self-reliant. Its liking for solar intensified after Egypt temporarily cut natural-gas supplies during the Arab spring in 2011.
The small steps sanctioned by Jordan’s cautious bureaucracy pale in comparison with the growth of solar energy in some other countries. But they illustrate the allure of the technology, as well as some of its teething problems.
Across the developing world, solar power is hitting its stride. Rather than the rooftop panels popular in Germany, countries where solar irradiance is much stronger than northern Europe are creating vast parks with tens of thousands of flexible PV panels supplying power to their national grids. Some countries, such as China, provide generous subsidies (though these are sometimes years overdue). But in other countries solar PV is becoming competitive even without financial support.
In 2015 China surged past Germany to become the biggest producer of solar energy, benefiting from its dominance of solar-panel manufacturing and policies to reduce dependence on dirtier fuels, such as coal. Solar power accounts for just 3% of the electricity mix, but China is now building its biggest plant, in the Gobi desert. Analysts expect the country to install 12 gigawatts (GW) of solar in the first half of this year. That would be one-third more than the record amount America plans to build for the full year. Coal, meanwhile, is in growing trouble (see article).
India is determined to keep up. Its government is targeting a 20-fold increase in solar-power capacity by 2022, to 100GW. Though this might be over-ambitious, KPMG, a consultancy, expects solar’s share of India’s energy mix to rise to 12.5% by 2025, from less than 1% today. It thinks solar in India will be cheaper than coal by 2020. (Even Coal India, a mostly state-owned entity, plans to contract 1GW of solar power to cut energy bills.) Such is the frenzy that officials in sunny Punjab are urging farmers to lease their land to solar developers rather than till it.
Led by big projects in these two countries, global solar-energy capacity rose by 26% last year. More remarkable is the decline in its cost. Studies of the “levelised cost” of electricity, which estimate the net present value of the costs of a generating system divided by the expected output over its lifetime, show solar getting close to gas and coal as an attractively cheap source of power. Auctions of long-term contracts to purchase solar power in developing countries such as South Africa, the United Arab Emirates, Peru and Mexico provide real-world evidence that such assumptions may even prove to be conservative (see chart).
In sunny places solar power is now “shoulder to shoulder” with gas, coal and wind, says Cédric Philibert of the International Energy Agency, a prominent forecaster. He notes that since November 2014, when Dubai awarded a project to build 200MW of solar power at less than $60 a megawatt hour (MWh), auctions have become increasingly competitive.
Some renewable-energy developers are gaining global reputations as record-breakers. The Dubai bid was won by Acwa Power, a Saudi company that is taking big strides across the Middle East and Africa, despite the oil-rich kingdom’s own half-hearted plans for solar development. In Morocco it has built the first phase of the world’s largest solar-thermal plant, which is using mirrors to generate heat to drive electricity turbines. Moody’s, a rating agency, says the completed plant will cut Morocco’s oil-import bills by 0.3% of GDP.
Let the sunshine in
Italy’s Enel Green Power (EGP) is also attracting attention. In February it won a tender to provide Peru with 20 years of power from solar PV at just under $48 a MWh. Just over a month later Mexico awarded it a similarly lengthy contract to generate solar power in the arid northern state of Coahuila at a price of about $40 per MWh. Bloomberg New Energy Finance (BNEF), a research firm, called it “the lowest subsidy-free solar contract we have ever seen”. EGP’s head of business development, Antonio Cammisecra, says there is a clear trend of falling prices. “We are trying to drive it,” he says.
The main factor behind the price drop is an 80% fall in the cost of solar panels since 2010, according to the International Renewable Energy Agency, an industry body. But Mr Cammisecra says that may now be close to ending. He travelled to China this week to persuade panel manufacturers to invest more in technological improvements, in order to increase the amount of solar energy that can be converted into electricity.
Analysts are also concerned that some providers’ auction bids may be over-aggressive, though companies can incur stiff penalties if they fail to complete a contract. Mr Philibert notes that some contracts may collapse because bidders are unable to raise finance.
Jenny Chase of BNEF says that in some cases “the model is being pushed to the absolute limit”. Indian firms, for example, are calculating development costs well below comparable global benchmarks. “I struggle to see how they will do this without cutting corners,” she says.
Jordan is a case in point. A Greek developer, Sunrise, last year agreed to charge $61 per MWh to build a 50MW solar plant north of Amman, which rival developers thought too cheap because of relatively high financing costs in Jordan. Last month Acwa Power bought the Jordanian unit in order to rescue the contract. Analysts say it is hard to see how Acwa will make money from it, but the gesture may help it win solar contracts in the future.
The kingdom offers more lessons on potential pitfalls. Like many developing countries, its national electricity company, NEPCO, has failed to expand its grid as quickly as private firms can erect solar parks, though it now has funding to build high-voltage transmission lines to connect the solar plants to Amman, the capital, where most electricity is consumed. (This problem is shared with China, which sometimes forces solar and wind plants to “curtail” their electricity output because the grid lacks the capacity to absorb it.)
But Jordan is blessed with geographical features that will let it expand its solar capacity once it has ironed out its problems. Engineers say that the area around Ma’an, with about 330 sunny days a year, has some of the best solar irradiance in the region. They add that, because of its altitude and terrain, heat and dust do not substantially lower the efficiency of the PV panels, as they do in neighbouring Saudi Arabia.
Support also comes from the top. King Abdullah has ordered solar panels to be installed on palaces and mosques, businessmen say. His most senior ministers drive Tesla electric vehicles. With more solar energy, the economic future of Jordan would be brighter and the country less at risk in a volatile region. All it needs is for the sun to energise its bureaucrats.

Sunday, April 24, 2016

Solar energy

THE sun is the world’s battery pack. Photosynthesis captured the energy that is burned in fossil fuels. The sun drives the wind and ocean currents. And in an hour and a quarter the amount of sunlight that threads through the clouds to the Earth’s surface could power all the world’s electricity, vehicles, boilers, furnaces and cooking stoves for a year.
Yet solar power produces less than 1% of the world’s commercial energy. For a long time it was dismissed as a luxury only the rich could afford; it spoke volumes that Germany, a place where the sun shines for less than five hours on an average day, used to lead the world in installed solar capacity. Now, however, solar is coming of age.
Solar power garnered $161 billion in new investment in 2015, more than natural gas and coal combined. A trend that began in northern Europe, where electricity demand is stagnant and clouds proliferate, is taking root in countries where power needs are growing fast and the sun shines brighter. For the first time last year, developing countries attracted more investment in renewable energy than rich ones. Poorer countries, from China to Chile, are increasingly getting their electricity from giant solar parks in arid places linked to their national grids. This year America hopes to triple the 3 gigawatts (GW) of solar capacity it added in 2015; China, the new world leader, and India each plan to add about 100GW in the next four and six years respectively.
Lower costs help explain this extraordinary expansion. The price of solar panels, which are produced almost exclusively in China, has fallen by 80% in the past five years. A new business model is proving just as beneficial. Grid providers are offering long-term contracts to private firms to produce large amounts of solar energy, which in turn helps those firms secure cheap finance and cut prices. A recent tender in Mexico will generate electricity at a record low cost of $40 a megawatt per hour—cheaper than natural gas or coal.
That is good news for almost everyone (oil firms may beg to differ). The industry is expanding in hotter climes mostly without lavish subsidies; China is an exception, but it plans to cut its feed-in tariffs in June. The sun provides power when it is needed most, during daylight hours when air-conditioning systems are running at full blast. And by reducing the need to import carbon-burning fossil fuels, solar power helps the planet as well as the balance of payments in such countries.
Flying closer to the sun
When industries sizzle like this, some caution is usually warranted. Bids to provide power may prove to be too ambitious. Two stricken renewable-energy providers, America’s SunEdison and Spain’s Abengoa, provide salutary lessons on the dangers of financial engineering and taking on too much debt in order to expand quickly.
Bottlenecks in energy infrastructure are another problem. Developing countries will need to invest more in building transmission lines to connect the solar power being generated in far-flung deserts with its users. Makers of solar panels should focus not just on slashing their cost but on improving the technology so that more of the sun’s energy is converted into electrical power. The intermittency of the sun will remain an issue. But if storage costs continue to decline, the possibility of combining batteries on land with energy from the giant battery pack in the sky could be unbeatable.

Business in Africa: 1.2 billion opportunities

FOR A LOOK at the African boom at its peak, do as a multitude of foreign investors have done and fly into Abidjan, the capital of Ivory Coast. Visitors arrive in an air-conditioned hall where a French-style café sells beers, snacks and magazines. There is advertising everywhere, for mobile-phone companies, first-class airline tickets and a new Burger King. The taxi into the city smoothly crosses over a six-lane toll bridge. On the way to the Plateau, the city’s commercial core, cranes, new buildings and billboards jostle for space on the skyline. In the lagoon, red earth piles up where yet another new bridge is under construction.
Just five years ago, Ivory Coast seemed like a lost cause. Having been defeated in an election at the end of 2010, the then president, Laurent Gbagbo, refused to leave office. The victorious opposition leader and now president, Alassane Ouattara, mounted a military offensive to force Mr Gbagbo out. French troops seized the airport to evacuate their citizens (the country used to be a French colony). Protesters were gunned down by troops, foreign businesses were looted and human-rights activists gave warning about mass graves being dug.
Ivory Coast still has problems, as shown by a terrorist attack in March that killed 22 people. But its economy is the second-fastest-growing in Africa (after Ethiopia, which is much poorer), expanding by almost 9% per year. Foreign investment is pouring in. As well as the Burger King, Abidjan now has a Carrefour supermarket, a new Heineken brewery, a Paul bakery and plenty of new infrastructure. Sharp-suited, French-educated ministers explain in perfect English what they are doing to “open up”, “improve the ease of doing business” and “sustainably grow the middle class”. Expensive hotels, such as the reopened $300-a-night Ivoire, are booked up; their bars are full of affluent people striking deals. The country’s three port terminals, the biggest of which is being expanded by Bolloré, a French industrial firm, are working at full capacity, importing cars and electronics and exporting cocoa, coffee and cashew nuts. 
This is the Africa of business magazines and bank ads: a continent that is rising at a prodigious pace and creating profitable new markets for multinational firms. But Abidjan also has plenty of reminders that it has been here before. For all of the new buildings springing up, its impressive skyline is still dominated by crumbling 1960s and 1970s concrete modernism. The roads may be new, but the orange taxis that ply them are still ancient fume-spewing Toyota Corollas, remnants of an earlier boom. For the two decades after independence from France in 1960, Ivory Coast enjoyed an economic miracle. Then, quite suddenly, the price of cocoa and coffee plunged and the boom faded as quickly as it had begun.
Reasons to worry
The deepest fear of today’s investors in Africa is that it may be happening again. In Ivory Coast’s neighbour, Ghana, thousands of government workers have been marching in the streets in the past few months to protest against their rising cost of living. Ghana relies on oil and gold, both of which have fallen in price, as well as cocoa. That, plus prodigious government borrowing, has caused a crisis. One US dollar now buys 4 cedi, the local currency; in 2012, it bought not quite two. Growth has halved since 2014, and Ghana is running a budget deficit of 9% of GDP and a current-account deficit of 13%.
According to the World Bank, in the year to April last year the terms of trade deteriorated in 36 out of 48 sub-Saharan African countries as the price of their commodity exports fell relative to the cost of their imports, mostly manufactured goods. Those 36 countries account for 80% of the continent’s population and 70% of its GDP. Eight countries, including two giants, Angola and Nigeria, derive more than 90% of their export revenues from oil, which has recently plummeted far below the price needed to draw in new investors. Growth across sub-Saharan Africa dropped to 3.7% in 2015, far below East Asia’s 6.4% and nowhere near enough to create enough jobs for the continent with the world’s youngest and fastest-growing population. The World Bank expects it to tick up again, but only to 4.8% in 2017.
Countries that happily borrowed from international investors over the past few years have now found themselves shut out of the markets. The stock of outstanding sovereign bonds in the region had risen from less than $1 billion in 2009 to over $18 billion in 2014. If growth continues at a decent clip, that should be manageable. But if it stops, interest rates of 10% or more on dollar-denominated bonds will make refinancing difficult.
The continent’s two biggest economies, Nigeria and South Africa, are already in deep distress. The reasons are different, but both have suffered from commodity-price falls as well as from atrocious economic management. The IMF, although loathed in much of Africa, is back, providing a $ 1billion loan to Ghana and preparing another for Zambia. Some fear a return to 2000, when this newspaper described Africa as the “hopeless continent”.
Yet despite that, Nairobi’s thriving malls and Abidjan’s humming ports show that there are plenty of reasons to stay optimistic. The economic conditions have got worse, but this is a very different continent from two decades ago, when troops from eight African countries were fighting in Congo alone. Wars still rage in South Sudan, Somalia, Mali and northern Nigeria, and violence bubbles in places like eastern Congo, the Central African Republic and Burundi. But broadly speaking, most of sub-Saharan Africa is now peaceful. Elections seem increasingly less likely to result in strife, even if they still generally return incumbents, and more and more often for unconstitutional third terms. The governments that come to power are still often corrupt and inefficient, but far less brazenly so than those of cold war despots such as Mobutu Sese Seko of Congo or Jean-Bedel Bokassa of the Central African Republic.
Africa’s 1.2 billion people also hold plenty of promise. They are young: south of the Sahara, their median age is below 25 everywhere except in South Africa. They are better educated than ever before: literacy rates among the young now exceed 70% everywhere other than in a band of desert countries across the Sahara. They are richer: in sub-Saharan Africa, the proportion of people living on less than $1.90 a day fell from 56% in 1990 to 35% in 2015, according to the World Bank. And diseases that have ravaged life expectancy and productivity are being defeated—gradually for HIV and AIDS, but spectacularly for malaria. Some of the gains may seem modest, but given that living standards across Africa declined during the 30 years after independence they are sufficiently established to prove lasting.
And for all that oil and metals have come to dominate economies such as Nigeria’s and Congo’s, the boom broadened beyond natural resources. Mobile telephones have transformed commerce across Africa, and now smartphones and feature phones (which are halfway between dumb and smart) are taking hold. In 2014, the latest year for which figures are available, 27% of Nigerians owned a smartphone. In many African countries 4G mobile-phone infrastructure is the only thing that works well, but it works at least as well as in much richer countries, and a lot can be built on it. What began with mobile-money systems such as Kenya’s M-Pesa is now branching into bank accounts, savings accounts, loans and insurance. That in turn is helping people rise out of poverty and invest in their future.
This special report will argue that despite some deep and entrenched problems, African businesses offer hope too. It is clearly risky to make sweeping judgments about an entire continent with 54 countries and 2,000 languages. This report draws on visits to various countries in sub-Saharan Africa, but four in particular: South Africa, Nigeria, Kenya and Ivory Coast, all coastal, urbanised and relatively rich. They certainly do not represent the whole of Africa, but your correspondent picked them because they each illustrate a different aspect of business across Africa as a whole. The businesses covered have not yet transformed the continent, but they show that African firms are capable of extraordinary innovation—if only they can be set free.

Tesla changed cars forever. Now it must deliver

It was the night of the unveiling. Nineteen minutes into his big talk, Elon Musk finally revealed what everyone had come to see. Three of Tesla Motor Inc.’s Model 3 prototypes rolled onto stage. But it was the next revelation that brought the house down: Tesla had already taken in more than 115,000 reservations that day, each with a $1,000 deposit—sight unseen. The crowd swooned. The media roared.
In the weeks that followed, reservations jumped to about 400,000—almost four times the total number of cars Tesla has produced over the last eight years. As the dust settles on this achievement—an affordable, practical, desirable electric car—we’ve been pulling together data to put it in historical context.
The Model 3’s unveiling was unique in the 100-year history of the mass-market automobile. The closest analog is that of the 1955 Citroen DS, which took in 80,000 deposits over 10-days at the Paris Auto Show. Much like the Model 3, the DS was lauded as an engineering marvel that was years ahead of its time. A more recent parallel among technological sensations is Apple Inc.’s iPhone.
The Model 3 represents the first time an affordable electric car doesn’t have to apologize for running on batteries. Conventional wisdom once held that electric cars would always run slow and would never be objects of automotive lust. Tesla flipped that on its head by clocking some of the fastest times from 0 to 60 miles per hour in the world with its Model S. The cheaper Model 3 is no slouch, either.
Affordable? Check. Desirable? Check. But how far can you go before having to charge it again? That’s always been a foundational question. Could this upstart really make a long-range car with the grace of the Model S—and deliver it at a reasonable price? Apparently, yes. The Model 3 offers the cheapest range available for any electric car, even though it retains some of the richest features. In the long run, this may be one of the most important contributions of the car, if it is to bring the electric automobile fully into the mass market. 
Battery cost makes up a third of the price of an electric vehicle—a fact that hasn’t been lost on Tesla. The company has been throwing a lot of its sweat and money at cutting this expense—including building the biggest battery factory on the planet and launching a standalone battery-storage business.
The strategy seems to be working: Tesla is now making finished battery packs at or below $220 per kilowatt hour, considerably less than the industry average, according to analysts at Bloomberg New Energy Finance (BNEF).
If Tesla can shave an additional 30% off its battery cost, it should be able to sell the Model 3 with a healthy 20% gross profit margin.
Tesla is also expanding range by eking more miles out of the same electricity.
Musk said on Twitter that he thinks the final Model 3 will have a drag coefficient of 0.21. That would make it one of the sleekest cars ever sold.
But even a long-range battery dies, and what happens then?
As it turns out, charging isn’t as big a hurdle as many drivers imagine. Sure, there are still roughly 13 gas stations for every public charging location. But that’s ignoring the most common type of charging station of all: your garage. About two-thirds of US homes have them. With an at-home charger and 215 miles of range, most customers rarely need to stop at a charging station. Looking at it that way, charging locations already outnumber gas stations by about 400 to 1.
Public charging stations are primarily needed for drivers who spend long stretches on the road at a time. For most of these drivers, it’s the speed of the chargers—not the absolute number—that matters most, so Tesla is focusing on building a charging network with the fastest chargers in the world.
Tesla Superchargers can provide 170 miles of driving range in 30 minutes; owners of the Model X and S can use them all without charge. The number of Superchargers will double this year alone, says Tesla.
So Tesla has the right chargers and it has the right car. The sky is the limit, right? Well, here is the biggest hurdle the company faces between now and the electric-car filled horizon: follow-through. First Tesla has to make all those Model 3s on order, and this is a company that’s known for delays. The chart below shows each of Tesla’s unveilings and the forecast for delivery Musk provided when he began taking reservations. Every car missed its deadline, most recently with the Model X overshooting by more than 18 months. Did we mention that those $1,000 deposits on the Model 3 are fully refundable?
Tesla can no longer afford such delays, for several reasons.
Earlier, Tesla relied on wealthy early adopters who weren’t in a rush. Many Model 3 buyers don’t have that luxury. The backlog of 400,000 reservations will probably grow before the launch slated for late next year.
Even if it doesn’t, this is a considerable number of cars to move. Delays for some in the queue are inevitable, but how long will buyers wait? The competition is arriving soon.
General Motors Co.’s Chevy Bolt is already going to beat Tesla to market with an electric car that can drive 200 miles on a charge for less than $40,000. While the Bolt doesn’t share the panache of a Model 3, it’s a practical option, and the luxury brands aren’t far behind.
Perhaps most pressing for Tesla is that the $7,500 US subsidy for electric cars, which brings the base Model 3 price to $27,500, is going to expire.
Everything must go right for the Model 3 to succeed: the battery factory must flourish, costs must come down, car-manufacturing capacity must scale at an astonishing rate, and all of it needs to arrive on time.
Musk says he can sell 500,000 cars a year by 2020 worldwide. Here’s what the US Tesla market would need to look like in order for that to happen: The high price of the Model S and Model X will put a cap on their total potential market, according to BNEF. For Tesla to meet its 2020 forecast, it will need to make up the difference with the rapid deployment of the Model 3. In fact, Tesla may need to sell more units than the class-leading BMW 3 Series.
Almost every major automaker—as well as tech firms such as Google Inc.—has an electric-car programme that’s moving ahead with new urgency. In addition to GM’s effort, Ford Motor Co. is investing billions of dollars in its programme and even paid $200,000 for an early Tesla Model X, presumably so it could tear it apart.
Competition from Detroit and abroad could spell trouble for Tesla, but it’s also necessary if electric cars are to replace the internal combustion engine. Being any later to this party will only hurt Tesla.
Earlier this year, BNEF analysts and I made some predictions about how quickly electric automobiles could begin to supplant gasoline-powered cars and upend oil markets. It was seen by some at the time as being overly optimistic for the electric-car industry.
But after looking at the anticipated specs and timeline of the Model 3, some the assumptions are beginning to look, if anything, a little bit conservative. Tesla can take credit for blowing the whole thing open, but it will have to keep up its remarkable pace to stay in the game.

IT biggies hit the slow lane on hiring

Increasing use of automation and artificial intelligence seem to have hit hiring in the Indian information technology (IT) services industry, with all the top-tier players hinting at lower recruitments in FY17 and beyond.

Tata Consultancy Services (TCS), India's largest IT services provider and also the largest recruiter in the industry, said lateral hiring for FY17 will go down and, subsequently over the years, campus hiring too will.

N Chandrasekaran, CEO & MD, TCS, in an interview toBusiness Standard said gross hiring for FY17 will decline as the company plans to reduce its lateral hiring. "Improved retention and increased productivity should result in reduced overall hiring next year. We expect around 32,000 trainees to join us from the campus offers made in FY16. Any other lateral addition will be very calibrated, but it will be a much lower figure, compared to FY16."

IT biggies hit the slow lane on hiring

The Indian IT industry is the largest employer of engineers in the country. The total employee base of the industry touched 3.7 million in FY16. Nasscom, the body representing the IT services industry has also hinted towards a low hiring trend. The industry added 200,000 employees in FY16, compared with 230,000 in FY15. For FY17, the industry expects the employee addition to be around 200,000.

The slowing hiring trend is also reflected when one analyses the data for the past five years. The combined headcount growth of the top five IT firms grew at 18-20 per cent year-on-year in FY12 which dropped down to six per cent in FY14 and 11.7 per cent in FY15.

It is not just TCS that is saying its gross hirings will come down. Infosys and Wipro, too, have been hinting at a similar trend over the past few quarters. The drop comes at a time when all three are projecting strong growth for FY17.

Vishal Sikka, CEO, Infosys, who has been talking about automation and design-thinking even as the company aims to increase revenue per employee to $80,000 by 2020 from about $50,000 currently, said: "We want to reshape the cost curve in a purposeful way. We do not just look at it as reduction of people and costs, but as unleashing the potential that is inside. We can bring more innovation per person through zero distance, bench initiatives and marketplace, and increase the revenue per employee."

Infosys expects around 20,000 freshers to join in the June-July timeframe. Pravin Rao, COO, Infosys, said the company wants to leverage the benefits of automation, particularly at a lateral level, and figure out how to do more of just-in-time hiring on a fresher level. "On an average last year, we did lateral hiring of about 2,500-3,000 every quarter (for Infosys standalone), but with more and more full-time employee equivalents being released through automation, and automation benefits kicking in, we would expect to see some part of reduction in the hiring numbers," said Rao.

The commentary from the third largest IT services company is also on similar lines. "It is very simple. The number of people that is required at the lower end of the pyramid is going off. Robots and bots are taking over. You will see a slowdown in hiring across the industry. Also, a lot of work earlier where you were sending people from India to onsite is changing by locally hiring onsite. Even if the company hirings are higher, the number of hirings in India will be lower," said Abidali Neemuchwala, CEO, Wipro.

The shift has been happening for some time now. It's only now that the companies are coming out and saying it. The top five Indian IT vendors (Indian top four + Cognizant) together added 77,265 employees in CY15, a 24 per cent decline year-on-year (YoY). Drop in hiring at Cognizant and HCL Tech contributed a lion's share to the decline. Vendors across the pack are focusing on automation and "we believe FY16 would be an inflection point," said a report from analyst firm Centrum.

Sagar Rastogi, IT analyst, Ambit Capital, said, "You will see revenue per employee for most IT companies trend up gradually. Automation tools now have reached a certain level of maturity, which was not true four-five years ago. Given that a lot of clients have got their first round of cost savings from just offshoring, they are now looking for the second wave of cost-cutting, which specifically comes from automation and code reuse. Improvement in margins from automation though will kick in only from FY18/FY19 onwards and will be gradual in nature."

The other upside to increasing use of automation is moderating the pressure of wage hikes. "Indian IT sector has persistently suffered from higher wage inflation and attrition. With automation enabling improved delivery-efficiency and productivity, the sector could be facing a scenario of lower net additions in FY17/FY18. Hence, an interesting moot point would be whether Indian IT vendors could wield the bargaining power and moderate wage hikes," said the report from Centrum.

Airlines clock good growth; carried over 78 lakh people in March

With the aviation sector continuing to see a spurt in traffic, many domestic airlines posted good growth as they ferried 78.72 lakh passengers in March with no-frills carrier IndiGo carrying most passengers during the same period.
While the overall passenger growth stood at around 5.3 per cent, the market share of IndiGo jumped to 38.4 per cent in March, followed by Jet Airways at 17.6 per cent and Air India (14.7 per cent).
Latest data from aviation regulator DGCA released today showed that local airlines carried 78.72 lakh passengers last month compared to 74.76 lakh in February.
Over the past several months, more number of people have been travelling by air.
In terms of Passenger Load Factor (PLF) — an indicator of filled seats — SpiceJetwas on top with 91.1 per cent, followed by GoAir (86.3 per cent), IndiGo (85.1 per cent), AirAsia (82.7 per cent) and Air Costa (82.1 per cent).
Among other airlines, the PLF of Jet Airways was at 79.1 per cent while that of JetLite and Air India stood at 77 per cent and 75.7 per cent respectively.
According to the Directorate General of Civil Aviation (DGCA), PLF of airlines slightly decreased last month, primarily due to the end of tourist season.
Except for IndiGo, GoAir and Trujet, rest of the carriers saw their market share either decline or remain flat in March.
IndiGo’s market share rose to 38.4 per cent compared to 36.8 per cent in February while that of GoAir rose to 8.3 per cent from 8 per cent during the same period.
Market share of Jet Airways fell to 17.6 per cent from 18.4 per cent.
Air India saw its share drop to 14.7 per cent last month from 15.4 per cent seen in February. In the case of SpiceJet, the market share slipped to 12.8 per cent in March from 13.1 per cent in the previous month.
Start-up carriers AirAsia and Vistara’s market share remained unchanged at 2.2 per cent and 2 per cent, respectively in March.
“Passengers carried by domestic airlines during January-March 2016 were 230.03 lakh as against 185.46 lakh during the corresponding period of previous year thereby registering a growth of 24.03 per cent,” DGCA said.
The figures are based on passengers carried by 11 airlines — Air India, Jet Airways, IndiGo, JetLite, SpiceJet, GoAir, Air Asia, Vistara, Air Costa, Air Pegasus, and Trujet.
Meanwhile, the overall cancellation rate of scheduled domestic airlines stood at 1.29 per cent in March.
“During March 2016, a total of 737 passenger-related complaints had been received by the scheduled domestic airlines. The number of complaints per 10,000 passengers carried for the month of March 2016 has been 0.9,” DGCA said.