Tuesday, September 30, 2008

Fed makes billions available to battle crisis - Dow plunges record 777 points, after US$700b bailout vote falters

Published: Tuesday September 30, 2008

The United States Federal Reserve and foreign central banks moved on Monday to pump billions of dollars to cash-strapped banks at home and abroad in a dramatic bid to break through a credit clog and spur lending.

The Fed said the action is intended to "expand significantly" the cash available to financial institutions, its latest effort to relieve the worst credit crisis since the Great Depression.

The goal is to boost the amount of quick cash available to banks and other financial institutions so that they will feel more confident and inclined to lend not only to each other, but also to people and businesses.


Credit is the economy's lifeblood.

The global credit clog - which started a year ago and grew much more severe in the past few weeks - has made it increasingly difficult for people and businesses to borrow money.

The crisis - if it persists - could plunge the economy into a recession, President Bush and Fed Chairman Ben Bernanke have warned.

The Fed action came hours before the House defeated a US$700 billion financial bailout plan, ignoring urgent pleas by Bush and Bernanke to move swiftly.

The plan was designed to break through a dangerous credit clog that has threatened to freeze up the entire financial system and throw the economy into a recession.

Rotten assets

At the heart of the plan, the government would buy bad mortgages and other dodgy debts held by banks and other financial institutions.

By getting those rotten assets off their books, financial institutions should be in a better position to raise capital and boost lending, supporters contend.

The Fed's action on Monday expands programmes already in place.

It is unclear whether it will break through the credit bottlenecks. Its previous actions - including steps along these lines - have provided relief, but haven't halted the crisis.

Against this backdrop, central banks will continue to work closely and are prepared to take "appropriate steps as needed" to ease the crisis and get banks lending again, the Fed said.

On Wall Street, stocks dropped sharply even after the Fed's announcement.

The Dow Jones industrials plunged 777 points - their largest point drop ever - or almost seven per cent.

The Standard & Poor's 500 index declined 8.51 per cent and the technology-heavy Nasdaq composite index fell 9.14 per cent.

Under one new step, the Fed will boost the amount of 84-day cash loans available to US banks.

Banks bid

The Fed is increasing the amount to US$75 billion, up from the current US$25 billion starting on October 6. Banks bid on a slice of the loans at an auction.

That move will triple the supply of 84-day loans to US$225 billion, from US$75 billion, the Fed said.

Meanwhile, the Fed will continue to make US$75 billion worth of shorter, 28-day loans available to banks.

All told, the total amount of cash loans - 84-day and 28-day - available to banks will double to US$300 billion from US$150 billion, the Fed said.

Moreover, the Fed made an extra US$330 billion available to other central banks.

That boosted to US$620 billion the total amount available to the central bank through currency "swap" arrangements, where dollars are traded for their currencies.

That total is up from US$290 billion previously being made available through such arrangements.

The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Swiss National Bank and the central banks of Denmark, Norway, Australia and Sweden are involved in those swap arrangements.

"We are experiencing a massive credit implosion," said TJ Marta, a fixed-income strategist at RBC Capital Markets.

The move comes as the US financial meltdown's tendrils have ensnared banks in Britain, the Benelux and Germany.

By pledging to provide "a very large" cash infusion, the Fed hopes the actions will "reassure financial market participants."

Source: Jamaica Gleaner

Monday, September 29, 2008

Costly business for GKC

Published: Monday September 29, 2008

GraceKennedy Limited

Jamaican Conglomerate GraceKennedy Limited (GKC) released its first half 2008 results a few weeks ago. For the six month period ended June 30, the Company reported an EPS (diluted) of $3.51, representing a 4.2 per cent increase from $3.37 in the first half of 2007.

Revenue for the first half of the year amounted to J$27.3B, a 19.1 per cent year on year increase over the previous comparable total of JA$22.9B. Unfortunately, Expenses grew in tandem with Revenue, increasing 19.3 per cent to J$25.8B, as the Group struggled with rapidly increasing operating costs. Other Income experienced negligible growth of 0.4 per cent to J$371M. The net effect was a 12.5 per cent improvement in Operating Profit from J$1.7B to $1.9B.

Interest Income from non-financial services grew by 7.7 per cent to J$203.2M, while Interest Expenses from non-financial services declined by 13.7 per cent to J$289.2M. Similarly, Share of results of associated companies also declined by 4.4 per cent to J$66.7M. These increases and declines led to an overall 16.7 per cent improvement in GKC's Profit before Taxation from J$1.6B to J$1.9B. After deducting the period's taxation charge, bottom line profit experienced a 13.4 per cent improvement from J$1.1B to J$1.3B. Minority Interest of J$109.2M compared to J$14.2M in the previous year, led to an overall 5 per cent increase in Profit Attributable to Shareholders from J$1.1B to J$1.2B.

During the six month period under review, the Jamaican economy, and by extension GKC, continued to feel the effects of escalating food and energy prices. The GK Foods segment experienced a testing second quarter as fuel and food prices were on a rapid upward spiral. Although the Food Trading segment continued to be the main revenue generating division over the period, the segment's pre-tax profit fell by 15 per cent year on year.

As depicted in the graph below, three of the Group's five segments experienced year on year declines in pre-tax profits. Despite this fall in profit, two of the three declining divisions, Food Trading, and Retail & Trading recorded healthy revenue growth of 26 per cent and 12 per cent respectively. However global food shortages and escalating food prices, which increased production and operating costs of these divisions contributed to the reduction in profit levels. In addition to rapidly escalating costs, tightened consumer spending also influenced top line revenue and overall profitability of the Retail & Trading segment.

The Insurance operations also saw a year on year deterioration in pre-tax profits of roughly 7 per cent, while the Banking & Investments division was able to maintain the same profit level of the prior year. The chairman indicated in his report that the performance of these two sectors was consistent with the Group's expectations.

The Money Services division saw the greatest year on year improvement in terms of pre-tax profit. On June 26, 2008, GraceKennedy Money Services (UK) Limited was appointed by Western Union as a master Agent in the UK. This move represents an important expansion outside of the Caribbean region.

Expansion during the first half of the year also took place in the GK Foods segment. The Group launched a line of porridge in the US market, while Grace Tropical Rhythms Refresher made in Jamaica, and Grace Snacks were launched in the UK. Given that the UK has also been significantly affected by the sub-prime crisis and has been suffering from a depreciating currency since the third quarter of the year, tightened consumer spending in the UK market could present a challenge to this new product line.

The Jamaican economy in which GKC primarily operates is still faced with many macroeconomic challenges such as slow GDP growth and high inflation. For the fiscal year 2008/2009, the Bank of Jamaica is now forecasting that the domestic economy will grow by a mere 1.2 per cent to 2.2 per cent. Among other things, higher than anticipated increases in international commodity prices led the Bank of Jamaica to raise its inflation estimate last month from 14 per cent to between 15 per cent and 17 per cent by year end 2008.

Financial executives in Jamaica have expressed the view that they do not expect any fallout in Jamaica as a result of the US financial crisis, and the recent collapse of the Investment Bank, Lehman Brothers. They indicated that local institutions are not overly exposed to the Wall Street crisis. So far, GKC has not been directly affected by this crisis with both its Banking & Investment, and Money Services divisions performing satisfactorily thus far for the year.

Despite the negatives associated with the Jamaican and UK economies in which GKC operates primarily, there is still value in this stock which is currently trading at a price of $6.60 and a forward P/E multiple of approximately 10 times. Historically, this stock has traded at an average multiple in the range of 11 to 12 times. However, given the outlook for the Jamaican economy and GKC's struggle with rising production costs, BOURSE maintains its HOLD recommendation at this time.

Trinidad Publishing Company Limited

Trinidad Publishing Company Limited (PUB) launched its new-look compact size newspaper on June 10 2008, and the chairman commented that this initiative has been favourably accepted.

For the six months ended June 30 PUB reported an EPS of $0.52 as compared to $0.40, representing a 30 per cent year on year increase.

At the top line, Turnover experienced a marginal decline of 0.6 per cent from $79.1M to $78.6M, which was partly as a result of a slowdown in television advertising demand over this six month period. Consequently, Profit before taxation deteriorated by 6.2 per cent from $24.3M to $22.8M.

It is important to note that for the half year ended June 30, the Group's effective taxation rate fell year on year from roughly 25 per cent, which has historically been the average rate, to around 7.8 per cent. This significantly reduced the Group's taxation charge which declined by approximately 71 per cent. As a result, Profit for the year was up 15.6 per cent from $18.1M to $21M.

Looking forward, the company's "free to air" television coverage is due to commence in the third quarter of 2008. In his statement, the chairman indicated that this will have a doubling effect on signal coverage, while increasing potential viewership, which should positively impact turnover and overall profitability.

PUB historically produces a stronger second half performance given higher advertising demand in the latter half of the year resulting from the number of religious holidays. PUB's growth in Revenue and profitability in the second half of the year will be dependent on this increase in advertising demand and the Group's ability to keep production costs under control.

Currently shares of PUB are trading at a price of $23.00 and a forward P/E multiple of 18.7 times, much higher than its five year historical average multiple of approximately 16 times. Year to date, shareholders have benefited from a significant 21 per cent run up in the share price of PUB. In considering these factors, BOURSE revises its recommendation to a SELL.

Source: Trinidad Express Newspapers

Friday, September 26, 2008

Jamaica not gaining enough from FDI - Samuda

Published: Friday September 26, 2008

Investment minister, Karl Samuda, has said that locals are not reaping enough benefits from the high levels of Foreign Direct Investment (FDI) Jamaica continually attracts, and has cited the need for an integrated approach to solve the problem.

Samuda made the observation while speaking at the global launch, in Jamaica, of the World Investment Report 2008, at the Knutsford Court Hotel in Kingston on Wednesday. According to the report, Jamaica facilitated US$779 million in FDIs in 2007; slightly down from the record US$882 million attracted in 2006, but still creditable.

Tourism attracts the most FDI

The tourism sector attracted the most FDIs last year with US$197 million, a six per cent increase over the prior year; but the largest gain was recorded in the information communication technology (ICT) sector, which saw inflows more than doubling to US$164.5 million last year.

"In all of what has been said, however, Jamaica still strugles with the inappropriate and deficient levels of economic growth," said Samuda. "We have had great achievements in attracting investments, but that has not translated in either growth or increased levels of employment.

"All of this requires an integrated approach whereby the focus must not only be on the notion of attracting foreign investments, as critical as that is, but the kind of investment that is going to create jobs,"
he emphasised.

Jamaicans ill-equipped to service foreign investors

The minister said that locals are too often ill-equipped or ill-prepared to service foreign investors, forcing a large number of them to import labour and expertise from overseas -- thus robbing the country of hard currency. He specifically noted that there is too big of a gap between the requirements of the tourism industry and the country's ability to service it, and urged local entrepreneurs to invest in that sector.

"The opportunities are there for persons with the commitment and determination to go more into productive enterprise and to invest in the type of activities that will close that gap so we will be able to maintain the foreign exchange that we earn through the tourism sector," said Samuda. "There is no point having a very impressive sales figure in terms of what the inflows are like through tourism, but equally we have a massive outflow because all the purchases and services have to be acquired from overseas."

More investment needed in infrastructure

Eleanor Jones, managing director and consulting principal at Environmental Solutions Limited, in her analysis of the Report, said that it highlighted that the quality of infrastructure makes a huge difference to the quality of life and the efficiency that is required by a country. She noted that, on average, there is less investment being put into infrastructure by governments in the developing world - an average of 3.4 per cent of Gross Domestic Product (GDP) while the optimal needs to be somewhere between seven and nine per cent on new projects as well as maintenance.

"The inadequacy of our investment in infrastructure has been described as part of the unfinished agenda of developing countries and certainly, in many ways, we fall into that," said Jones. "Economic growth and development is constrained by the quality and quantity of infrastructure; there are huge unmet investment needs, and the gap is exacerbated by the fact that we have more and more people that we need to provide for."

Source: Jamaica Observer

Caribbean leaders want reform of int'l finance system

Published: Friday September 26, 2008

Jamaica's Prime Minister Bruce Golding says the restructuring of the international financial system must move ahead more urgently, and he's getting support in his call from one other Caribbean leader.

Mr Golding has insisted that reform is necessary to ensure that more focus is given to countries like his which, although regarded as middle-income, are still challenged by poverty. He noted that while the emphasis is on poor countries, like those in Sub-Saharan Africa where there is intense poverty, leaders of the world economy seem not to acknowledge that 41 per cent of the poor live in middle-income countries like Jamaica.

"We can't talk about tackling poverty if you exclude the target group that you are trying to alleviate," he said.
His sentiments were shared by Guyana's President Bharrat Jagdeo who told the ongoing 63rd United Nations General Assembly that progress in reforming multilateral institutions, like the International Monetary Fund (IMF) and World Bank, has been slow and the results few and far between.

He reiterated that limitations in the mandate and functioning of these institutions were a contributory factor to the current financial crisis and suggested that the mandate of the IMF explicitly be the preservation of systematic financial stability as a global public good.

"In addition, the use of passive surveillance as a general instrument, and conditionality-based lending among the more vulnerable members, has clearly proven to be ineffective," President Jagdeo argued.

"This is so not least because the incentives associated with conditionality-based lending are almost invariably never applicable to countries of systematic importance and there exists no mechanisms to encourage larger countries to be responsive to policy advice."

He further suggested that the World Bank enact a revised mandate that focuses on certain key development challenges, such as protection of the environment, clean energy, and certain aspects of poverty reduction, instead of attempting to address every development challenge and undermining its own effectiveness.

"In addition, more needs to be done to democratise the institutions, align the interests of the management and staff with those of the countries they serve, and make them more accountable to the membership," the Guyanese leader emphasised.

Prime Minister Golding further expressed concern that the multilateral financial system does not have enough built-in signals to warn of danger ahead. He said the response mechanism seems to be isolated and disconnected.

"Something needs to be done. The world economy can't be managed on this roller-coaster approach," Mr Golding said.
The Jamaica prime minister will address the General Assembly tomorrow.

Source: Jamaica Observer

IDB offers grants to jump-start water and sanitation projects in the Caribbean

Published: Friday September 26, 2008

Caribbean and Latin American governments that want to improve water and sanitation services can now apply for grants from the Aquafund, a new source of financing approved by the board of the Inter-American Development Bank (IDB) on Monday.

The Aquafund is a fast-disbursing vehicle intended to help accelerate the development of projects in the water, sanitation and solid waste disposal sectors. It can be used to finance activities ranging from pre-feasibility studies to technical training and knowledge dissemination, depending on specific local needs.

"There are many innovative proposals for improving water and sanitation services in Latin America today," said IDB President Luis Alberto Moreno. "Aquafund was created to help make those proposals a reality by financing the early stages of project preparation, and also to help replicate successful experiences on a larger scale."

During the rest of 2008, the Aquafund could disburse up to $15 million in grants from the IDB's ordinary capital. Starting in 2009, Aquafund will also mobilise matching contributions from multiple donor countries, providing up to $35 million in grants during the calendar year. Aquafund will also be able to receive contributions from private sources.

Aquafund grants can be used to support projects that subsequently receive both loans with either sovereign or non-sovereign guarantees. It is expected to finance activities such as improvements in the legal and regulatory framework, water resource management, and capacity building at municipal, state and national level. Aquafund grants will also be available directly to water, sanitation and solid waste service operators.

"We expect Aquafund to be a catalyst for innovative approaches to these areas," said Federico BasaƱes, chief of the Water and Sanitation Division at the IDB. "We have set ourselves the goal of financing projects with 100 of the region's cities and 3,000 of its rural communities by 2011, and Aquafund is going to be a key resource for municipalities that need help getting projects off the ground."

Starting in 2009, the Aquafund will use contributions from donors to finance pilot investment projects that use new technologies and have potential for replication.

Donor funds will also be available for investment projects focusing on service expansion, low-income urban and rural communities, household connections to water and sanitation networks, wastewater treatment and solid waste disposal.

Source: Jamaica Observer

US stocks end up on bailout hopes

Published: Friday September 26, 2008

Financial markets grew more upbeat yesterday as political leaders said they struck an agreement in principle on a massive spending plan to revive the crippled financial system. The Dow Jones industrial average jumped about 200 points on optimism about the bail out, and demand for safe-haven assets remained high but eased slightly as some investors placed bets that a deal would help unclog credit markets.

Stock market investors got a lift when key lawmakers said they would present the US$700 billion plan to the Bush administration and hoped for a vote by both houses of Congress within days. Still, some resistance remained from House Republicans as the closing bell on Wall Street rang ahead of a meeting of congressional leaders at the White House.

Investors' mood has fluctuated this week as they watched the negotiations on the plan gain momentum, and trading is likely to remain difficult in the coming days.

"The market's going to experience volatility as the terms become known," said Doug Roberts, chief investment strategist at Channel Capital Research.

Urged to sign off quickly

The latest statements of support for the rescue effort came after Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke urged lawmakers Tuesday and Wednesday to quickly sign off on the plan, which they said would help prop up the economy by removing billions of dollars in risky mortgage-related assets from financial firms' balance sheets. Fear of heavy losses on these assets has made banks hesitant to extend credit, which in turn threatens the overall economy by making it harder and more expensive for businesses and consumers to borrow money.

Erased losses

The Dow rose 196.89, or 1.82 per cent, to 11,022.06. The gain helped the Dow erase losses from heavy selling earlier in the week, though the blue chips still remain down by more than 360 points, or 3.2 per cent.

Broader stock indicators also rose Thursday. The Standard & Poor's 500 index advanced 23.31, or 1.97 per cent, to 1,209.18 and the Nasdaq composite index rose 30.89, or 1.43 per cent, to 2,186.57.

President George W. Bush highlighted what he sees as the urgency in a national address Wednesday night. Major elements are still being worked out, including how to phase in the mammoth cost of the package and whether the government will get an ownership stake in troubled companies.

Source: Jamaica Gleaner

Alan Lancz, director at investment research group LanczGlobal, said stock market investors were encouraged that the rescue looked more likely than it had earlier in the week. He said the move could help unclog credit markets by allowing banks and investors to place values on assets tied to mortgages.

"How do you establish a floor? Well, this is the bazooka. This is how you establish a floor," he said of the plan's goal of buying up the toxic debt.

Still, some investors had their doubts. Demand eased but remained high for the 3-month Treasury bill, considered the safest short-term investment. Its yield rose to 0.75 per cent from 0.49 per cent late Wednesday. That means investors are still willing to earn the slimmest of returns in exchange for a safe place to put their money. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.84 per cent from 3.81 late Wednesday.

Roberts noted that the market's back-and-forth moves might be unnerving for investors but ultimately can leave stocks with little to show for all the volatility.

"Most of this is just oscillating around a straight line," he said, noting that last week's huge daily moves, which also included triple-digit moves in the Dow, left stocks largely unchanged for the week.

The dollar was mixed against other major currencies Thursday, while gold prices fell.

Light, sweet crude for November delivery rose US$2.29 to settle at US$108.02 a barrel on the New York Mercantile Exchange.

Meanwhile, disappointing readings on employment, housing and demand for big-ticket manufactured goods, as well as a sobering forecast from General Electric Co., underscored the difficulties facing the economy.

The Labor Department said the number of people seeking unemployment benefits increased by 32,000 to a seasonally adjusted 493,000 last week _ the highest level in seven years and well above analysts' expectations of 445,000. Hurricanes Ike and Gustav added about 50,000 new claims in Louisiana and Texas, the department said.

The Commerce Department said sales of new homes fell sharply in August to the slowest pace in 17 years. The average sales price also fell by the largest amount on record. New homes sales dropped by 11.5 per cent in August to a seasonally adjusted annual sales rate of 460,000 units, the slowest sales pace since January 1991.

The department also said orders for expensive manufactured goods sank in August by the largest amount in seven months as demand for both airplanes and cars sank. Durable goods orders fell by 4.5 per cent last month, far worse than the 1.6 per cent decline that economists expected and the biggest drop since a 4.7 per cent fall in January.

GE lowered its forecast for third-quarter and full-year earnings, citing unprecedented weakness and volatility in the financial services markets. The stock, which had declined in the early going, finished up US$1.09, or 4.4 per cent, to US$25.68 alongside the broader market.

Advancing issues outnumbered decliners by nearly 3 to 1 on the New York Stock Exchange, where volume came to a relatively light 1.21 billion shares.

The Russell 2000 index of smaller companies rose 7.97, or 1.14 per cent, to 705.74.

Source: Jamaica Gleaner

No Wall Street exposure filings by Jamaican firms on stock exchange

Published: Friday September 26, 2008

No listed Jamaican company has told the Jamaica Stock Exchange it was exposed from fall-out in the US financial markets - a development which the market's general manager Marlene Street-Forrest says she is taking to mean that none of her members is materially affected by the Wall Street meltdown that has sent asset values plummeting.

"We assume that those who have not sent out emails have no exposure," Street-Forrest told the Financial Gleaner.

Obliged to disclose info

Under Jamaica Stock Exchange rules, listed companies are obliged to disclose information which comes to the attention of management that could significantly affect the firms' market price or value or materially affect their business.

"If the company has material exposure to anything, whether in our market or markets abroad, they need to expose it to the JSE," Street-Forrest said. "Appendix eight sets out this, whether it's a financial institution or a non-financial institution."

There has been some speculation here over the past fortnight of how the turbulence of Wall Street might have affected Jamaican brokerage houses.

Courted fund managers

The investment bank Lehman Brothers, which filed for bankruptcy protection and has been selling off assets, and Merrill Lynch, which put itself up for sale, were known in the past to have courted Jamaican fund managers.

However, Jamaican officials, in their early assessment, said that exposure by Jamaican financial institutions appeared to have been minimal.

Jamaica Money Market Brokers told shareholders at that firm's annual stockholders' meeting last week that it was exposed in Lehman Brothers for up to three per cent of the company's $85 billion own-account investment portfolio. But CEO Keith Duncan said he did not expect more than one per cent of that risk to be realised.

Own-account funds exposed

Dennis Cohen, the deputy managing director of National Commercial Bank, hinted that some own-account funds of its brokerage subsidiary - NCB Capital Markets - may have been exposed, but provided no figures.

Other financial firms either said they were not exposed or appeared coy in answers.

For Street-Forrest, she takes the absence of filings at face value.

"I would use the silence to assume no other listed company was in fact affected by the collapse in any material way," she said.

Susan Gordon
Jamaica Gleaner

US$866m FDI in 2007 - But performance flat from previous year

Published: Friday September 26, 2008

Jamaica says that it pulled in U$866.5 million in foreign direct investment (FDI) last year, a flat performance when compared with 2007 after several years of steady growth.

In fact, the FDI figure released by Jamaica Trade and Invest on Wednesday was approximately 11 per cent below the amount reported by the United Nations in its annual World Investment Report released the same day. But JTI officials explained that their figures reflected up-to-date data, while the UN's used preliminary numbers.

"Theirs is a snapshot in time," said a JTI spokesman.

'Another outstanding year'

At the seminar Wednesday to unveil the World Investment Report, JTI's president Robert Gregory described 2007 as "another outstanding year" for Jamaica in attracting FDI.

However, the US$866.5 million which JTI said investors brought to the island last year was marginally below the UN's recorded figure of US$882 million in 2006 when FDI reached a crest after half a decade of rises.

Based on the UN numbers Jamaica ranked sixth last year in the Caribbean - after the Cayman Islands, the British Virgin Islands, the Dominican Republic, the Bahamas and Trinidad and Tobago - as a destination for FDI.

The Caribbean as a sub-group attracted US$25.4 billion in FDI, or a fifth of the US$126.2 billion that flowed into the wider Latin American and Caribbean region in 2007. FDI in the Caribbean grew by 39 per cent last year.

Gregory told Wednesday's function that tourism investment, at US$197 million, or roughly 23 per cent of overall inflows, accounted for the largest portion of last year's FDI inflow. The sectors nominal dollar inflow was, by the JTI's count, six per cent higher than the previous year's.

Investments in information and communication technology, nearly tripled last year, from US$58.2 million to US$164.5 million, according to Gregory's data. The other significant beneficiary of FDI was the mining, mineral and chemical sector, where investors put US$64 million.

The UN's preliminary figures put FDI outflows from Jamaica last year at US$45 million, down from US$85 million the previous year and its peak of US$101 million in 2006.

In its overview of the hemispheric performance, the U.N expected FDI to and from Latin America and the Caribbean to increase further this year, driven mainly by South America where high commodity prices and strong economic performances in some countries would boost profits.

"However, the level of future inflows into Central America and the Caribbean is uncertain, as the slowdown of the United States economy and a weak dollar could adversely affect their export-oriented manufacturing activities," the report said.

Dionne Rose
Jamaica Gleaner

How hurricanes are undermining Jamaica's coffee industry

Published: Friday 26, 2008

The competitiveness of Jamaica's agricultural sector and its ability to compete in the global marketplace have been the subject of intense debate in recent years.

Jamaica is world renowned for Bob Marley and reggae music, Jamaica Blue Mountain Coffee and fine rum. Our athletic ability has taken the spotlight recently with the world-class performances of our athletes in Beijing, China.

China's ability to produce goods at very competitive prices brings into sharp contrast Jamaica's inability to do just that. Jamaica Blue Mountain Coffee and its less known sibling, Jamaica High Mountain Supreme) have attracted prices ranging from six to 10 times higher than their competitors on the world market.

With such a price premium one would expect that any one involved in Jamaican coffee - farmers, processors, or the Coffee Industry Board itself - would be wealthy. The reality is that our coffee industry is reeling from a crisis of non-competitiveness.

It is relatively easy to ascertain the cause of the Jamaican coffee farmer's inability to make money consistently. The inflation rate since the year 2000 has outstripped the rate of devaluation by five per cent a year . This has resulted in an accumulated factor of 25 per cent, where the overvalued dollar is reducing the ability of the farmers and processors to earn sufficient revenue to pay their bills and generate a profit.

Crippling impact

Although there is the risk of pest and disease outbreaks, high labour inefficiencies and, the extremely high cost of fuel and fertiliser, the most crippling impact on the financial viability of the culture of coffee farming in Jamaica is the frequency of hurricanes and tropical storms.

The recent passage of Tropical Storm Gustav, which caused a loss of almost J$108 million, does not tell the complete story. The devastation of farm roads and drainage systems will be very expensive to repair. This is almost a twice or three-times-per year occurrence in the Blue Mountains. The cost of reopening the roads is very expensive, whether it is done by the government or the farmers. A recent assessment of the cost of clearing the roads just to provide access to the Blue Mountain regions was estimated at J$30 million, and this did not include all the roads.

The cost of repair for private farms road probably equals this figure, and the frequent recurrence of this cost item is quite a recent phenomenon. The estimated cost of repairing farm roads island wide was conservatively estimated at J$3.5 billion.

Due to the Government's severe financial constraints, only J$200 million was allocated to the cause. The cost of motor vehicle repair is exceedingly expensive.

Heavy investments in four wheel drive trucks and pick-ups that are needed to traverse the unfriendly roads are required for traversing the Blue Mountains, and indeed most coffee farms in the island. These units have a higher running cost per mile than their two-wheel drive counterparts.

Since Hurricane Gilbert in 1988, Jamaicans had have come to expect a major hurricane every seven years or so. Since Hurricane Ivan, in 2004 the islands has faced weather challenges from either hurricanes or tropical storms.

Hurricane Ivan wreaked severe damage to the crop, which was estimated at 45 per cent The severe damage to infrastructure - including a landslide which cut off communities near Claverty Cottage - has been covered by the news media; many farms remain inaccessible and have been abandoned.

This is only a portion of the story as the damage to the tree stock in the coffee sector has been extremely high. One farm costs, given the frequency of storms, is for replacement of damaged plants.

High maintenance cost

This has seriously impacted upon the cost of running the farms. The cost of maintenance per acre of Jamaica Blue Mountain coffee has jumped from an average of US$3,300 per acre in 2004 to US $ 5,500 per acre.

If the income of the grower is an average of US$45 per box, then the break-even yield of the coffee would have risen from 73 boxes per acre to 122 boxes per acre. These assumptions are based upon the input recommendations of the Coffee Industry Board. However, due to the weather disturbances average coffee yields have moved from 80 boxes per acre to an estimated 50 boxes per acre. Most farmers are unable to adhere to the level of inputs required for quick resuscitation.

Jackie Minott, the largest single grower of non-Blue Mountain coffee has been quoted as saying that if another hurricane hits the island, he will have to reassess his commitment to the business. This speaks to the severe impact of the cost of resuscitation after a storm and the inability of the entrepreneurs in the business to recover from the same.

There is no crop insurance available for either coffee farmer. For the coffee farmers, the insurance was previously carried by large re-insurers overseas who are unwilling to assume the high-risk exposure since Hurricane Katrina and, therefore, have offered the industry no coverage. Prior to this, the coffee insurance claim payment for Hurricane Ivan was US$3 million. After the settlement with the liquidators of Dyoll, this payment was even less.

The typical coffee crop generates some US$ 15 million in payments to growers. How can US$3 million and the balance of revenue from a seriously impaired crop - possibly US$6 million revenue replacements - deal with a shortfall of three years revenue while a coffee industry recovers from a storm?

The harsh reality is that the new frequency tropical storm activity is posing a severe threat to the viability of the Jamaican coffee industry .Decisive and coordinated private sector and public sector support will be needed to shape and implement strategies to deal with this new reality.

Christopher C. Gentles is director general, of Jamaica's Coffee Industry Board.

Source: Jamaica Gleaner

Global meltdown may require domestic investors to put up cash for public works

Published: Friday September 26, 2008

Economist Dennis Morrison has warned that the recent collapse of several financial powerhouses in the United States will make it more difficult for the country to raise capital to fund local infrastructural projects on the international market.

He suggested that some big Jamaican public work projects may in the future have to be packaged and placed before local investors for financing who have to be enticed into putting up their cash.

"… The international environment for private sector investment has changed profoundly in the last week," Morrison told a forum to discuss the United Nations' latest report on foreign direct investment.

"It is no longer going to be that easy to go overseas to raise capital, whether it is for the central government or investments," Morrison said.

Stint at the opm

Morrison, a recognised authority on the bauxite/alumina industry, recently completed a stint at the Office of the Prime Minister as director general of a unit dealing with development.

His prognosis of what is to be expected in the capital markets and what Jamaica will need to do to compensate came in the face of the fall-out from the sub-prime credit crisis and America's attempt to fashion a $700 billion rescue package for its troubled banks. This is in addition to the billions of dollars already put up by the American central bank, the Federal Reserve, to bail out firms.

"... Two things are going to have to be followed up," Morrison said. "One, the projects that we take have to be packaged in a way that you can sell it in what is going to be an increasingly competitive environment to attract capital here."

But in the context where the domestic capital market is not warm to investing in local projects, Morrison suggested a study "to get to the bottom of what it is about our situation that keeps our private sector investors shy of investment in this area".

Ruth Potopsingh, group managing director of the government's Petroleum Corporation of Jamaica (PCJ), concurred that it was difficult to attract Jamaican investors to large development or infrastructure projects.

Attempt at finding partners

She highlighted the experience of her organisation's recent attempt to find partners domestically for the doubling of the PCJ's 21 megawatt Wigton windfarm in Manchester.

A dozen potential investors showed interest, she said, but none came aboard.

Outcomes like the PCJ experience, Morrison stressed, underlined the need for Jamaica to understand why Jamaican investors stay out of domestic infrastructure projects and seek to address the concerns.

"... We need to study very carefully what you think that needs to be done to make our local private sector more willing to take the risk in this kind of endeavour, because we are not able to proceed on the old assumptions," he said. "And in any case, the Jamaican Government is heavily indebted."

Source: Jamaica Gleaner

American Home solid, says Codling

Published: Friday September 26, 2008

The Jamaican subsidiary of American Home Assurance remains strong and solid, capable of meeting obligations to its clients, despite last week's near collapse of its ultimate parent, America's AIG, local managers say.

"We are regulated by the Financial Services Commission," Earl Codling, the head of the Jamaica operations, told the Financial Gleaner. "It is AIG that is in problems and not the insurance companies which have their own operations."

Billion-dollar lifeline

AIG (American Insurance Group) is one of the world's largest insurance operators, but last week it had to be rescued with a US$85 billion lifeline from the US central bank, the Federal Reserve. It was one of the US financial institutions caught up in the American sub-prime mortgage crisis, being an issuer and buyer of the murky instruments, credit default swaps (CDS), that turned toxic on Wall Street.

But on Monday Eric Dinallo, the superintendent of insurance for the state of New York, issued a statement assuring that the problem with AIG was largely with its non-insurance parent company, rather than its insurance subsidiaries, including the New York American Home Assurance Company, of which the Jamaica operation is a subsidiary.

"... Unlike the troubled parent company, the property and casualty insurance company New York regulates has significant more in assets over and above the reserves required to cover all valid current and future claims," Dinallo said.

No comment from fsc

Jamaica's Financial Services Commission (FSC), which regulates the island's insurance industry, has up to now declined to comment on American Home, whose premium income last year of $1.9 billion was nine per cent of the market.

However, Codling insisted that the local company's balance sheet remained similarly strong, capable of meeting its projected claims this year of $220 million, of which it has already paid out $23.1 million. It expects between $20 million to $30 million in claims from Hurricane Gustav which brushed the island late last month.

Last year, American Home's claims totalled $348.5 million, including reinsurance liabilities. The net pay-out to local operations was $91.3 million.

$3.8 billion assets

At the end of June, Codling reported, American Home had assets of $3.8 billion, up 11.7 per cent on the $3.4 billion with which it closed out 2007.

But as the company's assets climbed, the converse happened with liabilities. These declined from $3 billion at at the end of 2007, to $2.7 billion at mid-year - a 10 per cent drop.

Such performance helped underpin Codling's upbeat assessment of his company, a confidence shared by Orville Johnson, director general of the Insurance Association of Jamaica.

"American Home Assurance Group operates independently and has a sound portfolio of business," Johnson told the Financial Gleaner. "It is regulated here by the FSC who would ensure that solvency is maintained and the interests of the Jamaican policy holders are protected."

Source: Jamaica Gleaner

Will conservative ideology let Wall Street destroy capitalism?

Published: Friday September 26, 2008

Un-American financial socialism! Confused and ill-advised! So claim Congressional representatives on both sides. Blogs, talk shows, many a forum refer to Wall Street operatives as 'a bunch of felons'.

Commentators, ironically describing a Republican government as socialist, are corrected as wrong: these developments aren't the socialism conservatives accuse Europe of practicing, this is 'organised crime'! Some commentary and cartoonist impressions are extreme and can't appear in a family newspaper. The situation changes hourly. Currently, as I write, FBI investigates potential fraud at 26 companies including, Fannie Mae, Freddie Mac, Lehman Brothers and AIG.

We knew this would be the fallout. Conservative philosophy denounces ideologically the practice of government regulation. Further, it sees bail-out intervention as wrong. The market must self-correct as part of capitalism's creative destruction. Yet, today President Bush supports a bail-out.

Republican presidential candidate John McCain supports government intervention in campaign speeches, attacking greed on Wall Street. Obama supports it too, with caveats. What's new? Politics gets inextricably intertwined with economics once financial sector crash and rehabilitation turn up. We have our own FINSAC debates to guide us - what's new indeed? A bundle.

The economic, or rather the intensity of financial integration of the world is new. Seek evidence of globalisation: find it in world financial markets. This isn't two billion dollars in a country of population 2.5 million as in Jamaica.

Credit Default Swaps

This is trillions of dollars, global exchange and trade system, pensions scattered across the world, insurance contracts covering pianists' fingers, coastal holiday homes and more, including the now infamous credit default swaps.

Innovative and risky new financial instruments, once hailed as remarkably elegant, now defined as toxic, once created and marketed worldwide, take on a life of their own. The US budget deficit, according to Congressional Budget Office analysts, is $486 billion. This does not include ad hoc commitments for Bear Stearns, Fannie Mae and Freddie Mac of $240 billion. Top this up with $85 billion for AIG and $700 billion for a comprehensive programme a la Resolution Trust Corporation for an unprecedented commitment of taxpayer funds and the yet unborn.

The blame game will continue and intensify. Yet the process is not new. Financial crises and their resolution evolve like this. Innovation and lax regulatory oversight, for whatever reason, are followed by ad hoc responses, which fail to contain the crisis. Comprehensive solution follows with appropriate recrimination, significant policy and legislative regulatory changes - the classic process.

The problem, however, is that this situation represents conditions underlying both the way the world economy now works and the way the international monetary system evolved haphazardly, to facilitate it. The US dollar is the world's currency despite the emergence of the euro and Britain's insistence on maintaining sterling in its effort to provide some independence for domestic economic policy and the place of the city of London as a major financial centre.

Despite phenomenal growth rates China chalks up annually, despite the emergence of Brazil, India and other less spectacular 'emerging economies', the USA remains the world economy's demand driver. Indeed, without American investment and consumption, these economies couldn't achieve current growth rates.

Toxic financial products

America's housing stock was the underlying source of demand through what are now dubbed toxic financial products. If rising house values allow American consumers to experience a wealth effect, converted through mortgage loans to consumption spending, a chain reaction follows.

Construction demand grows; so does the entire co-operating legal, financial and institutional infrastructure - mortgage brokers, real estate agents, legal offices, title companies and so on. Demand for 'white goods', microwave ovens, washing machines, lighting fixtures - all paraphernalia for the construction sector experiences an explosion and the economy grows.

China, India, Brazil and others in the globalised economy step up production as US trade deficit expands. As Wal-Mart squeezes margins, US companies relocate production facilities. These countries buy US Treasuries and securities of Fannie Mae and Freddie Mac with their growing surpluses. Wall Street investment banks fund mortgage debt creating 'toxic' securities that global investors purchase. The circular flow is thus maintained. Investors seek insurance against risk, purchasing credit default swaps that AIG provides. Everyone is happy. That is, until the underlying assets turn sour.

The world monetary system experiences turbulence. If major holders of debt instruments, the investment stream allowing this circular flow to continue, begin to lose confidence the system clogs up, approaching meltdown. This is why the US government must intervene.

If the US dollar is the world's currency, the US Federal Reserve system is its central banker. Cede authority to an unsupervised Wall Street and the much discussed 'greed' will cause collapse.

This is why the unprecedented $700 billion dollar bailout is being referred to as equivalent to the Patriot Act, the authority to make war in Iraq and organised crime. Secretary Paulson is, after all, formerly of Goldman Sachs, a potential beneficiary of the bailout.

Power grab

He wants a blank cheque with no oversight. Some see Paulson as making a power grab from an unpopular lame-duck President who must stay out of the public square. While Lou Dobbs calls the plan idiotic, its Liberal critics insist the bail-out should not simply hug up toxic assets no private entity would buy off Wall Street's books without potential taxpayer benefit. The bail-out must buy a stake in the business. Politically, the bailout as currently proposed - no possibility of judicial review, no relief for small banks, credit unions, homeowners - may prove more difficult to achieve than bi-partisan authority to make war in Iraq. This is why world financial markets continue to be spooked.

Source: Jamaica Gleaner

6% inflation rate not a short term reality

Published: Friday Septmeber 26, 2008

A six per cent inflation rate is not something that can be achieved over the next two years, Finance Minster Karen Nunez-Tesheira has said.

"The Government is committed to dealing with inflation but we certainly did not anticipate that we would bring it back to six per cent in the immediate future.

"So the six per cent is not for next year. I would like it to be for next year, but I don't think that is achievable in the shorter term," Nunez-Tesheira said at the Crowne Plaza Hotel in Port of Spain yesterday. She was speaking at the American Chamber of Commerce of Trinidad and Tobago's post-Budget panel discussion.

The Minister explained that the 2008/2009 Budget statement set out measures that are going to implemented to bring the inflation rate down to six per cent in the long term.

"As a matter of fact, I've had meetings with the Chamber of Commerce and, if my memory serves me correctly, we were looking at by 2010 to perhaps bring it down to about 8 per cent and what we needed to do to bring it down in the shorter term."

The measures outlined in the budget, she said, included dampening demand by encouraging persons to be less consumer oriented, because a lot of the inflation was driven by liquidity, "and at the same time continuing with the investment strategy and creating efficiencies in how we spend what we spend".

"When you are dealing with an emerging developing country and you are dealing with the accelerated growth rate, there are down sides to that," she noted.

Nunez-Tesheira pointed out that even the United States has a higher rate of inflation than its growth rate.

Source: Trinidad Express Newspapers

US stocks rise on hopes for bailout

Published: Friday September 26, 2008

Stocks rose yesterday as investors appeared more confident that lawmakers in Washington would move quickly to pass its bailout plan for the ailing financial system.

But at the same time, the anxiety gripping the credit markets refused to abate. Banks continued to hoard cash, clogging crucial financial arteries that keep money flowing to businesses and consumers for car loans, credit cards and payroll payments.

Interest rates on short-term loans jumped back toward the record levels seen at the end of last week, meaning that banks were reluctant to lend cash. The yields on Treasury bills continued to fall, a sign that investors were willing to accept small returns in exchange for a safer bet than stocks or corporate bonds.

The Libor rate, a benchmark gauge that measures how much banks are charging one another for overnight loans, jumped the most in one day in nearly a decade.

The moves in the credit market, if sustained over time, could have ripple effects on a wide swath of the economy. Many businesses depend on short-term loans to finance their day-to-day operations, like utilities and payroll.

Even big corporations are feeling a crunch: the General Electric Corporation said yesterday that it expected to earn less money this year than it originally expected.

Investors in the stock market, however, kept their focus locked on Washington, where lawmakers and Bush administration officials continued to negotiate the details of the government’s bailout package.

Hopes that the plan could be finished by the end of the day helped send the market higher. By noon, the Dow Jones industrial average closed up 196.89 points or 1.8 per cent, and the broader Standard & Poor’s 500-stock index gained 1.97 per cent. The Nasdaq composite was up 1.4 per cent.

The gains came despite three grim government reports on the economy. Orders for big-ticket manufactured goods fell 4.5 per cent in August, a sign that businesses were reluctant to make big investments, and the Labour Department said the number of new applications for jobless benefits rose by 32,000 last week to a seven-year high.

Source: Trinidad Guardian Newspapers

Climate shift's silver lining

Published: Friday September 26, 2008

CARBON TRADING SCHEMES could be used in Barbados and the region to enhance existing tourism products, especially among those travellers who are more socially conscious, says Minister of Tourism Richard Sealy.

Many people are now refusing to fly to long-haul destinations like those in the Caribbean because airline fuel gives off high levels of carbon emissions, but the minister said he believed the region should see climate change not as a challenge but as an opportunity to develop new tourism products and services to meet visitor needs.

He was speaking at the fourth annual multi-hazard disaster management symposium, Tourism In Barbados – Responding To Climate Change, at Sherbourne Conference Centre on Wednesday.

"If our northern neighbours and traditional source markets become more tropical, then we will have no choice but to adapt," he said.

"I think that climate change coupled with the existing environment is the impetus for us to start developing these new products and services. Included in these products and services is a more eco-type of tourism and the greening of various facilities and activities."

The minister said lifestyle changes could also help to reduce the carbon emissions which are causing global warming to worsen.

"Technical efficiency alone could reduce the region's carbon footprint by 36 per cent, while actually changing people's behaviour could result in an absolute reduction.

"Green Globe is an international programme that challenges companies, as well as communities, to improve their environmental standards over time. Blue Flag is a similar benchmarking programme for marinas and beaches."

Permanent secretary in the Ministry of Tourism, Martin Cox, said the seminar was seeking to raise the level of awareness within the sector.

He added they decided to focus on climate change this year especially in light of the flash flooding which Barbados has experienced.

Cox said they could not only concentrate on storms and hurricanes, but had to assess the impact of climate change on the industry.

Source: Nation Newspapers

C&W set for rebranding

Published: Friday September 26, 2008


The Cable & Wireless brand as Barbadians have known it is about to be put to rest after 125 years in the Caribbean, as the company tries to recreate itself and present a new public image.

Very reliable sources close to the company said the LIME brand, which represents (Landline, Internet, Mobile and Entertainment) should be rolled out next month.

They said the telecommunications company's rebranding was part of the overall transformation exercise that would improve service quality and emphasise the regional management structure allowing swift decision-making without confirmation from the British head office.

The rebranding exercise would also involve previously announced staff cuts throughout the Caribbean.

Sources said research undertaken by the company indicated the C&W brand had several negatives associated with it which hindered attempts to further penetrate the regional market.

They added C&W had examined successful rebranding efforts by companies such as BWIA to Caribbean Airlines, CIBC to FirstCaribbean International and The Mutual to Sagicor Financial Corporation.

C&W has lost market share to mobile phone rival Digicel in several Caribbean islands, with Jamaica experiencing the greatest loss.

Richard Dodd, chief executive officer of C&W Caribbean, could not be reached yesterday for comment. However, corporate communications consultant for C&W Caribbean Julian Rogers said in statement: "As we said in July we are transforming our business into a single, strong pan-Caribbean operator designed to deliver the very highest levels of service to our customers.

"We are currently talking to colleagues in our business about the next phase of our transformation programme and when we've finished this discussion, we'll be ready to talk publicly about what happens next"

He added: "We're very excited about the changes we're making to our business and hope that our customers will be excited too. However, it's our policy to talk to our employees first about any changes we make, so we will not comment further until we've done so."

Source: Nation Newspapers

Wednesday, September 24, 2008

US$8.3 billion budget for T&T - Port-of-Spain projects growth of 5.6%

Published: Wednesday September 24, 2008

The Trinidad and Tobago government on Monday presented a near TT$50 billion (US$8.3 billion) budget to Parliament, outlining a range of new taxes, providing more assistance to old-age pensioners and retired citizens and increasing education grants to students.

Finance Minister Karen Nunez Tesheira, who created history when she became the first female legislator to present a national budget since Trinidad and Tobago attained its political independence from Britain in 1962, said that the fiscal package was based on the theme 'Shaping Our Future Together'.

Projected growth

In a presentation lasting just over three hours, she said that the budget was calibrated on an oil price of US$70 per barrel, as well as a projected gross domestic growth (GDP) of 5.6 per cent.

"Based on these assumptions, total revenue is forecast at TT$49.2 billion (US$8.2 billion) comprising energy-sector revenue of TT$19.9 billion (US$3.31 billion) and non-energy revenue of TT$29.5 billion (US$4.91 billion)," she told legislators.

"Total expenditure to be appropriated from the Consolidated Fund is TT$44.2 (US$7.3 billion) of which TT$5.1 billion (US$850 million) would be transferred to the infrastructural development fund. In addition, we anticipate TT$6.7 billion (US$1.1 billion) as direct charges on the Consolidated Fund and TT$496 million (US$82.6 million) from the Unemployment and Green Fund.

"To summarise, total revenue is estimated to be TT$49.4 billion (US$8.23 billion), total expenditure, net offs, capital repayment and sinking funds TT$49.44 billion (US$8.24 billion) for a surplus of TT$19.5 million (US$3.25 million)," Tesheira added.

The finance minister said that the budget would be financed by a number of measures, including an increase in taxation on the importation of private vehicles that would result in revenue totalling TT$525 million (US$87.5 million). That measure goes into effect from Tuesday.

Moreover, the government has announced an immediate TT$1 (US$0.16 cents) increase in the price of a litre of premium gas to TT$4.00 (US$0.66 cents), noting that the measure would result in savings of TT$200 million (US$33.3 million).

Assistance, grants

She said that the government would also be providing free ferry passes to persons 65 years and older at a cost of TT$5 million (US$833,000), allowing them to use the bridge between Trinidad and Tobago as of October 1.

The Patrick Manning government has also announced an increase in disability grants to TT$1,300 (US$216) that would result in a cost of TT$40 million (US$6.6 million) and benefiting an estimated 17,000 people from October 1.

Public assistant grants will also be increased, as well as benefits to retired citizens and public servants that would cost an estimated TT$3870 million (US$63.3 million) and would benefit nearly 120,000 persons.

The finance minister said that contributions to pension would be increased from TT$25,000 (US$4,166) to TT$30,000 (US$5,000) to encourage savings, as well as an increase in the threshold on property taxes, as they relate to stamp duty.

She said that given the continued rise in domestic property value and government's objective of making housing affordable, there would be a further increase of property value from TT$450,000 (US$75,000) to TT$850,000 (US$141,666).

"That means that no stamp duty would be payable on the govern-ment's low-income housing pro-gramme," Tesheira said, outlining a scale on which stamp duty would be charged for properties in excess of the new figure.

She said the measure would cost an additional TT$30 million (US$5 million) and would take effect from October 1.

The finance minister said that while the Manning government had introduced new measures to ensure more citizens were taking advantage of tertiary education, it had decided to improve grants to students because the fees had increased significantly.

Education aid

She said the government would now provide grants of TT$20,000 (US$3,333) for master's level pro-grammes and TT$30,000 (US$5,000) for students pursing doctorate degrees.

Tesheira said the new measure would cost an additional TT$40 million (US$6.6 million) and would take effect from October 1.

The minister said the government would also provide scholarships to citizens, who had completed degrees with first-class honours and wanted to continue their studies up to the doctorate level.

But, in an immediate response to the fiscal package, former Opposition Leader Kamla Persad Bissessar, who will give the opposition's response to the measures on Friday, said the budget contained "no surprises whatsoever".

Source: Jamaica Gleaner

JP looks to Latin America - Banana producer examines option to expand Honduras, Costa Rica farms to supply UK market

Published: Wednesday September 24, 2008

Jamaica Producers Group, having announced that it will stop growing bananas here for export, is considering expanding its production in Central America to maintain a toe-hold for its own-grown fruits in the UK market.

We look at going forward and Costa Rica is an option," Charles Johnston, JP's chairman, told Wednesday Business. "We had land in Costa Rica years ago where we used to contract workers."

JP eventually pulled out Costa Rica, but two years ago it spent US$2.5 million to develop a 500-acre farm in Honduras, from where it exports bananas to the United States.

Johnston suggested that expanding that farm was also an option, although he stressed that any such discussion remained preliminary.

Jamaica Producers Group has been a major player in Jamaica's banana industry for more than half a century, but said it would stop growing the fruit here for export after a series of storms over the last four years destroyed farms.

Low-wage farms

Before Hurricane Dean, banana export from Jamaica was 30,000 tonnes, from annual average of around 50,000 tonnes. And even that was down from the island's heyday as a banana exporter when it sold more than 150,000 tonnes a year abroad. But even with preferences, Jamaica and members of the African, Caribbean and Pacific (ACP) group of countries found it difficult to compete with more efficient, low-wage farms in Latin America.

JP, which controls an estimated one-third of the British banana market, fetching premium prices for its Fair Trade-certified fruits, had just resumed exports last month when Tropical Storm Gustav, romping across the Caribbean, again destroyed its Jamaica plantations.

Local market

The precarious nature of the business in Jamaica, plus the increasingly successful challenges by Latin American producers at the World Trade Organisation to Jamaican preferences in the European Union influenced JP' decision to end export production in Jamaica.

JP intends to maintain some of its banana farms to grow the fruit for chips and other snacks, as well as the production of root crops for its agro-processing business.

Rolf Simmonds, JP' commercial director, said that the withdrawals of banana exports from Jamaica would not undermine the viability of the goup's UK-based logistics business, JP Fruit Distributors Limited, acquired last year from Dole Food Company.

Source: Jamaica Gleaner

JSE launches major outreach

Published: Wednesday September 24, 2008

Concerned that investor knowledge in Jamaica is "very low", the Jamaica Stock Exchange (JSE) and the Financial Services Commission (FSC) are launching what they hope will be a sustained education programme to lift public awareness of the opportunities and risks of financial markets.

"All persons who save and invest need to know about the different types of investment, advantages and disadvantages as well as the regulations that exist to protect investors," said Marlene Street-Forrest, the stock exchange's general manager, in explaining the reason for the week-long event, which starts on September with a service at the Kencot Seventh-day Adventist Church in St Andrew.

"In a scale ranging from low to high, the level of information about investment and the financial market was found to be very low," Street-Forrest said.

The week's activities will include radio broadcasts from the stock exchange's offices at Harbour Street in downtown Kingson, as well as public fora on investments and the markets in Kingston (September 30, Terra Nova Hotel) and St Elizabeth (STETHS, October 2).

But perhaps the major function will be a one-day exposition at the Hilton Kingston hotel on October 1, during which there will be displays as well as presentations by brokers and market analysts. It is at this expo that the stock exchange will launch a simulated game for high schools to be run every three months.

"It will be similar to what happens on the exchange from a broker's standpoint of buying, selling and the overall manage-ment of a portfolio of stocks," Street-Forrest said. "It has generated much interest so far and quite a number of schools has signed up."

Source: Jamaica Gleaner

Supreme Ventures files for cross-listing on T&T exchange

Published: Wednesday September 24, 2008

Supreme Ventures Limited (SVL) has now filed its application for the cross-listing of its shares on the Trinidad and Tobago Stock Exchange (TTSE).

Supreme Ventures is expected to receive official notification from the TTSE and the central depository within a few days, according to a notice from Jamaica's stock exchange last Friday.

The cross-listing of SVL is a follow-through on its commitment made at the launch of its initial public offer (IPO) in January 2006.

The IPO raised $220 million from the sale of 45,761,300 shares.

SVL will join the likes of companies, such as Scotia DBG Investment, GraceKennedy and JMMB in Jamaica, which have cross-listings on the TTSE.

The gaming and lotteries company run by president Brian George last traded at $3.08 on the Jamaican Stock Exchange, down from $4.81 at the IPO.

However, after-tax profits of $484.7 million for the nine month period ended July 31 was a 107.4 per cent increase over the corresponding period last year when net profit totalled $233.7 million.

Source: Jamaica Gleaner Newspapers

How does a bank terminate its relationship with a customer?

Published: Wednesday September 24, 2008

The relationship between a bank and its customers is one which is rooted in contract and, along with relevant legislation and regulations, it is this contract which governs not only the operation of the account but its termination. A customer terminating a contract with a bank and 'switching' bankers is an everyday occurrence, but what of a situation in which a bank no longer wants to have a relationship with a particular customer?

The classic description of the banking contract can be found in the case of Joachimson v Swiss Bank Corporation:
".a bank undertakes to receive money and to collect bills for its customer's account. the bank borrows the proceeds and undertakes to repay them. The promise to repay is to repay at the branch of the bank where the account is kept, and during banking hours. It includes a promise to repay any part of the amount due against the written order of the customer addressed to the bank at the branch, and as such written orders may be outstanding in the ordinary course of business for two or three days, it is a term of the contract that the bank will not cease to do business with the customer except upon reasonable notice."

Generally, the relationship of banker and customer is commenced by the customer signing the banker's standard form of contract as it relates to the operating of the client's account. This agreement should set out the provisions which govern the operation as well as the termination of the contract and which, when signed by the customer, becomes a contractually binding agreement.

There are three basic ways in which a banking contract can be terminated, and both parties should be able to look to the banking contract for this. They are:

(1) by agreement between the parties;

(2) by an unilateral act, that is, where the customer or the banker gives notice to terminate; and

(3) by death of the customer.

Even if there is no express term in relation to termination in the contract, it is accepted that there is an implied term in every banking contract that the contract can be terminated in these ways.

Of the three circumstances mentioned above, it is the second which requires some discussion, that is, the termination by notice. Where it is the banker who gives notice to terminate an account in credit, such notice must be adequate to enable the customer to make other banking arrangements. Neither common law nor statute provide any specific time period for what constitutes a reasonable time. However, there are a number of criteria which should be considered when determining what is reasonable in any given situation. Examples of these criteria are:

The kind of customer (ie whether personal or commercial);
The nature and frequency of the transactions associated with the particular account; and

The ease (or difficulty as the case may be) by which the customer can reasonably be expected to make alternative banking arrangements.

In other jurisdictions, regulations specifically provide that unless there are exceptional circumstances such as fraud, a bank should not close a customer's account without giving at least 30 days' notice. There is no such requirement here, however, but at least 30 days' notice seems to be an acceptable standard.

When it comes to the procedure that should be followed upon giving notice, at the most basic level the notice should be in writing and sent by means that would satisfy a discerning person that the notice would have reached the customer. The actual date of the closure of the account should be made clear in this notice.

The question of how a bank should proceed when closing its customer's account is one which is still not yet properly addressed by our local Courts. However, there is presently a case before the Court, which may soon be the subject of an appeal to the Privy Council, that could help us arrive at an answer. However, that appeal will be relegated to the issue of whether a customer is entitled to an injunction preventing a bank from closing its account(s).

Source: Jamaica Observer

Capital & Credit to launch Internet and debit card services

Published: Wednesday September 24, 2008

In a move aimed at increasing points of access for its members and consequentially increase its customer base, Capital & Credit Group has announced plans to launch internet and debit card services by March 2009.

"We have been increasing our branch network, we decided in order to support the brick and mortar access points that we needed to expand our reach for our customers," said Michelle Wilson-Renolds, senior vice-president group marketing and corporate affairs on the new services. "We are doing a suite of exciting products for our customers and they should be available between now and the first quarter 2009."
The bank is not disclosing the cost of implementing the services. But it is currently testing these products internally.

"I am unable to say at this time. But of course it is a huge investment that more," she said.

The bank has been steadily growing since its inception in the '90s. And these services will facilitate the growth of its customer base. The bank made $588 million for six months this year versus $499.8 last year. The merchant banking arm of the group contributed approximately 65.7 per cent of the group's profit, and its loan Income for the quarter grew by 20.3 per cent.

Source: Jamaica Observer

Tuesday, September 23, 2008

Stocks fall as investors await bailout plan

Published: Tuesday September 23, 2008

Financial markets pulled back in uneasy trading yesterday as investors awaited details of the government’s plan to buy $700 billion in bad mortgage debt from banks.

The Dow Jones industrial average fell more than 200 points while the credit markets remained nervous, but not showing the signs of panic that Treasury trading saw last week.

Investors are relieved that federal authorities are taking action to relieve the nation’s banks of their toxic assets. But Wall Street is not sure yet how successful the plan will be in thawing credit markets, which many businesses depend on to fund day-to-day operations, and for propping up the still-weak housing market.

Source: Trinidad Guardian Newspapers

Monday, September 22, 2008

We quit! Jamaica Producers exit UK banana export business

Published: Monday September 22, 2008

Jamaica Producers Group (JP) Limited, following the dilapidation of its banana farms by Tropical Storm Gustav, announced that it has ceased the production of bananas for export to the United Kingdom.

JP had just prior to Gustav resumed its banana export production after Hurricane Dean devastated the industry last year, but was dealt a major blow when the ferocious storm passed over the island three weeks ago. Damage to the banana sector is still being assessed, but most of the losses will be absorbed by JP, which controls over 80 per cent of the industry.

"JP had been called upon to make significant investment in recent years in rebuilding its banana farms following their destruction by Hurricane Ivan in 2004, Hurricanes Dennis and Emily in 2005 and Hurricane Dean in 2007," said JP in a release on Friday. "The frequency of hurricanes that Jamaica has been experiencing has been the major factor behind the decision of JP not to again re-invest in export production."

JP chairman Charles Johnston, said that the company remained committed to the production of bananas for the local market and banana based snacks for the local and international markets. In addition, Johnston indicated that the company was already implementing plans to expand its production of tropical snacks - to include cassava and breadfruit lines - at its factory in St Mary. This factory will rely on banana, cassava and breadfruit produced on its own farms in St Mary but will also continue to expand its procurement from small farmers in the Eastern parishes.

"JP is confident that it will be able to continue to show leadership in agri-business in Jamaica through its focus on the production of produce for the local market and its continued development of the tropical snacks business," said Johnston.

The chairman said that the decision to retreat from its banana export business would directly affect Eastern Banana Estates (EBEL) in St Thomas, which employs 460 persons - most of whom will be made redundant. Johnston explained that JP was prepared to explore other uses for its St Thomas farm, which he said has good quality soil and water and an excellent irrigation and pack house infrastructure.

"The board of Jamaica Producers took the decision to suspend export production after careful consideration of all options available to it and after a review of the impact on all stakeholders," said the chairman. "JP has expended considerable resources over many years to secure the viability of Jamaica's export banana industry. It is with deep regret that this decision has had to be made."

For the six months ended June 14, 2008, JP's Banana Division, which is comprised of banana production and sales in Jamaica and Honduras, plus the manufacturing and sale of banana chips, recorded a loss of $136.9 million, significantly more than the $15.7 million it lost last year. Revenues of $538.2 million over the period under review represented a 55 per cent decline.

Source: Jamaica Observer

Distillers does it again

Published: Monday September 22, 2008

Management of Trinidad Distillers Limited, the production arm of Angostura, has congratulated staff and heartily thanked workers for their on-going efforts to ensure the company’s success.

In a statement, the company said the employees were the proud recipients of the Prime Minister’s Exporter of the Year Award and were also fortunate to win an award in the Food and Beverage category of the competition.

The award ceremony was held on September 15 at the Diplomatic Centre, La Fantasie, St Ann’s. It was hosted by the Business Development Company Ltd under the sponsorship of RBTT.

It is the third time that the company has won this prestigious award over the past 12 years and the employees are very pleased with this recognition of their hard work and will continue their efforts to completely satisfy customers’ demands on time.

Robert Wong, senior manager of international bulk sales, who was on hand to receive the awards on the company’s behalf, said, “The company is elated to have won the overall award for 2007. This achievement shows that we work diligently, with quality and safety in mind at all times.

We aim to satisfy our customers, while providing them with the best rum and bitters every day.

Source: Trinidad Guardian Newspapers

Too early to know Wall Street fallout in Caribbean

Published: Monday September 22, 2008

ECONOMIC analysts in New York are saying that Barbados and other Caribbean islands have to wait to see how last week’s Wall Street stock market turmoil will affect their economies.

“It is much too early to say how it is going to impact on Barbados and other Caribbean countries,” said Richard Francis, a senior economic analyst at Standard & Poor’s, the major credit rating firm on Wall Street.

“We may have a clear indication in the next couple of weeks basically. There are some major financial institutions with question marks around them, such as AIG, the insurance giant, and Washington Mutual, the commercial bank. So, we have to wait and see what happens with those as well. As far as the Caribbean nations are concerned we simply have to be patient and see what the overall knock-down effect would be on the economies.”

Francis, who monitors the Barbados economy, said, “It's clear that many of the financial institutions are under pressure, their earnings were down and they need to raise a lot of capital. They have been somewhat successful in that.”

The analyst pointed out that the absence of many major American banks from the Caribbean may be working in favour of the island nations.

“This situation has happened pretty quickly and (US) banks don’t have a large presence in the Caribbean.

“So, it’s not going to have a direct impact that way. We believe the (US) is moving towards a recession but we have to wait and see how deep and long that recession is going to be. That ultimately is going to have the greatest knockdown effect on the Caribbean.”

Interestingly, he said another related aspect of the crisis, the fall in oil prices, could help Barbados and other regional countries, but may hurt oil-rich T&T.

The current situation was triggered with the collapse of Lehman Brothers, a major Wall Street investment bank for more than a century. Its decision to file for bankruptcy and the refusal of the US government to step in and save it created considerable uncertainty within the financial markets, triggering a massive sell-off in shares.

In addition, Merrill Lynch Pierce Fenner & Smith, perhaps the world’s largest stock brokerage firm that had sustained immense losses, was taken over by Bank of America.

Source: Trinidad Guardian Newspapers

Duprey cuts workload

Published: Monday September 22, 2008

Billionaire businessman Lawrence Duprey has resigned as chairman of several subsidiary companies that form part of his CL Financial conglomerate.

Over the past few weeks, Duprey has quit as head of three firms that call insurance, energy and real estate giant CL Financial their parent company.

He resigned his chairmanship at local insurance firm British American, as well as Port of Spain-based Clico Investment Bank (CIB). Duprey also recently appointed "others to the helm" of Clico Holdings in Barbados, another CL Financial subsidiary.

Sources close to CL Financial's operations told the Express yesterday that Duprey resigned for a number of reasons.

The first was to "shed his load" of responsibilities as head of CL Financial, which has business interests in more than 32 countries, a source said.

He remains head of CL Financial, its flagship insurance company Colonial Life, as well as spirits producer Angostura Ltd.

Duprey intends to focus on energy business overseas as well as promoting Angostura's worldwide thrust in the beverage industry, another source told the Express.

CL Financial operates a number of methanol plants at the Pt Lisas Industrial Estate and Duprey was at the forefront of a deal to develop energy plants in Oman. He has also spent much of this year developing a four-star hotel in Ghana, as well as other business deals in other African countries.

He is continuing the conglomerate's energy expansion business as well.

A source said Duprey, who turns 74 next week, was also interested in succession planning and was engineering the "next layer of management specialists" at CL Financial.

Duprey was out of the country yesterday and is expected to spend his birthday next week with close family in Ft Lauderdale, Florida.

Source: Trinidad Express Newspapers

C&W defends position against lashes

Published: Monday September 22, 2008

TELECOMMUNICATIONS company Cable & Wireless has come under fire from Barbados' lone Independent Parliamentarian Hamilton Lashley.

Speaking to the DAILY NATION in an exclusive interview, Lashley was fuming over reports he received that more than 2 000 workers region-wide would be sent home soon from the company.

"I am calling on all governments where C&W is operating to come together in an urgent meeting to stop them from currently going ahead to lay-off over 2 000 Caribbean people.

"I find it hard to believe a firm that has made over $90 million after tax could be at a serious time like this downsizing their staff to possibly just increase their profit margin," the former Barbados Labour Party MP said.

Lashley said that he had confidence in his source of information and further stated that Barbados would see over 200 workers on the breadline.

"They are not socially conscious at all. Sponsorship does not count . . . that simply balances back out to tax relief, and in my view, keeping people employed is what is really exhibiting that commitment to the people who have supported you," he said.

Corporate communications consultant for C&W Caribbean, Julian Rogers, while confirming job losses said he was not sure where Lashley got his figures.

"The matter of job cuts was confirmed ever since the discussion about transformation started in May.

"People know that cuts are coming but they do not know exactly how many or where. This has been communicated to the staff and they also know that it will happen over a period of time . . . 12 to 18 months.

"I want [to] reiterate as well that in addition to any cuts that take place, additional jobs will become available and current employees will have the chance and already have started applying.

'Better company'

"We also want to ensure that the jobs people have are sustainable over time. The emphasis here is not on just cutting jobs but making a better company, first for the customer, secondly for the colleagues and thirdly for the share-holder interest," Rogers said.

Initial reports on the situation were that the numbers cut would amount to 1 200 across the region, reducing C&W's workforce to 2 500 while the contact centre currently located here, in Barbados, would be moved to St Lucia.

The DAILY NATION also understands that a name change may also be in the works; but Rogers could not confiram this.

Source: Nation Newspapers

Friday, September 19, 2008

The Impact of high energy prices on the Jamaican economy - Part 1

Published: Friday September 19, 2008

High energy prices have had a deleterious effect on the Jamaica economy. Energy prices affect the domestic economy via its effect on the cost of production (high energy bill) which in turn affects all commodities. However, it is the effect of high oil prices on other commodities, particularly grains and wheat, which has hit home hard in terms of the immediate pass through effect to domestic inflation.

The act of "growing food for energy" has led to increased competition between those who would need wheat and grain for consumption (and animal feed) and those who would use grain (particularly corn) for the production of energy (ethanol). This increased competition combined with speculative trading by overseas brokers, adverse weather activity plus increased demand from the rapidly growing emerging economies of Asia (China, India) have led to massive increases in commodity prices.

For the September 07 quarter, oil prices (bench-mark West Texas Intermediate-WTI) increased by 16.2% followed by a 20.2% increase for the December quarter. In fact, since the 2006 pull-back, when oil prices declined to US$50.48, oil prices have surged by 187.6% to peak at US$145.18 before making a sharp drawback (-18.65%) to US$118.1 as at August 27. The prices of corn, wheat and soybean also reached historic highs in the December-07 quarter before showing signs of easing in the September 08-quarter. The average price of US hard and soft winter wheat rose by 24.4% and 21.9% in the December quarter alone. This followed respective increases of 33.6% and 43% in the September-07 quarter.

Jamaica felt the effect of these high energy and commodity prices via increased inflation. The pass-through of the increased costs to fertilisers and feedstock had an adverse impact on the prices of meat, dairy products, edible oils and other food items. The energy-related components of the CPI also felt the burden with the electricity, gas and other fuels (12.8% of index), transportation (12.8%) and restaurants and hotels (6.2%) sub-sectors feeling the major direct first round effects of the rate increases.

Inflation surged as a result of the commodity price increases with the inflation target consistently coming out at the upper band of Bank of Jamaica's (BOJ) quarterly inflation projections. As at July-08 the 12-month inflation rate stands at 26.2%, the highest since the index was adjusted with new weights for the different sectors. If we track back historically we see that (using the old index & weights) inflation last surged to these heights in 1996 when the country was entangled in the financial sector crisis. It is important to note however that the high inflation is not only due to international commodity prices but also weather related shocks such as hurricane Dean.

The text-book policy response to increased inflation is higher interest rates. The central bank obliged in an attempt to appease investor confidence because of negative real returns and to improve the competitiveness of open market instruments. The BOJ increased interest rates across the board by an average of 265 basis points. Rates were increased in January, February and June 2008.

The increased rates were positive in that investor confidence and appetite for holding local Jamaican dollar denominated debt improved. There was little currency depreciation as few investors followed the hoarding effect/sought to hold the US dollar as a store of wealth during the ongoing challenging period. Consequently, the currency has depreciated by a mere 2.11% year to date (September 3) compared to 4% for the similar period in 2007. With the central bank having little need to enter the foreign exchange market to defend the local currency, Net International Reserves (NIR) returned to the US$2 billion mark. The NIR is very important to international investors as it is used as a measure of the sovereign's external vulnerability indicator, which gives an indication of the country's capacity to meet its short term debt obligations in the event of a crisis.

While we believe that the BOJ's policy response to inflation has been timely and has calmed the market, we are also concerned about the fiscal side of the story. Every 100 basis point increase in interest rates adds between J$4 and J$6 billion to the debt based on internal estimates. The bench-mark six-month treasury bill rate (and the three-month T-bill rate) also acts as a point of reference for variable rate instruments. As the six and three month T-bill rate increases the cost of interest expenditure to the government also increases. This is of importance because in excess of 50% of all new GOJ instruments issued in 2007 were variable rate.

The interest rate increases will also pose a problem for the current fiscal deficit target. Note that a part (in June-approx-50 bsp across the board) of the rate increases were implemented after the fiscal deficit target (4.5% of GDP) was set. Thus the interest expenditure sub-section of the monthly fiscal numbers should see a deviation from budget going forward.

Source: Jamaica Observer

Cable&Wireless ponders rebranding to LIME

Published: Friday September 19, 2008

Telecoms giant Cable&Wireless (C&W) is considering yet another rebranding excersise for its Caribbean operations, this time mulling over the acronym, LIME, which stands for Landline, Internet, Mobile, Entertainment.

Cable & Wireless has already announced that it will be selling off its international operations and there is now a concerted effort to consolidate its Caribbean businesses.

An internal memo from a C&W executive read : "We spent the day talking about the transformation of our business and the journey that we've embarked on to create a strong pan Caribbean business, which customers want to work with and colleagues are proud to work for. More specifically, we spent out time looking in some detail at the next phase of our journey. The phase where we create and introduce a new version of our brand, a fresh approach that signals to colleagues and customers that we've changed, that we've transformed and that we're becoming the business they want us to be.

"We'll be taking this new version of C&W out to market before Christmas. We are going to rename our business. We're changing our name because the business we're becoming bears little resemblance to the business we were because we want to show the world how much we've changed. Ladies and gentlemen start preparing because Cable & Wireless Caribbean is going to become LIME- Landline, Internet, Mobile, Entertainment. A new name that says what we do, which stands for something, which tells the Caribbean that we're back and that we mean business."

Speculation is rife that America Movil who recently acquired MiPhone will look to establish a footprint across the region by snapping up C&W's Caribbean operations.

Commenting on C&W's likely new rebranding move, an industry insider said: "What this actually is, is an admission that the bmobile brand was a bust. It is another example of C&W rearranging the deckchairs while the ship sinks - wasting money on another branding exercise when the overall customer experience is still so poor."

Source: Jamaica Observer

US stocks surge on report of entity to absorb bad debt

Published: Friday Spetember 19, 2008

Wall Street rallied in a stunning late-session turnaround Thursday, shooting higher and hurtling the Dow Jones industrials up 410 points following a report that the federal government may create an entity that will take over banks' bad debt.

A report that Treasury Secretary Henry Paulson is considering the formation of an entity like the Resolution Trust Corp. that was set up during the savings and loan crisis of the late 1980s and early 1990s left investors ebullient. Investors hoped a huge federal intervention could help financial institutions jettison bad mortgage debt and stop the drain on capital that has already taken down companies including Bear Stearns Cos. and Lehman Brothers Holdings Inc.

Financial land mines

Worries about financial land mines on companies' books have hobbled the world's financial markets and led to the intense volatility in the markets this week.

"It's going to take a lot of the bad debt off the balance sheets of these companies," said Scott Fullman, director of derivatives investment strategy for WJB Capital Group in New York, commenting on the possibilities of an entity akin to the RTC. It could alleviate many of the pressures causing the credit crisis, he said, and open up the credit markets again. But Fullman noted, "the devil's in the details."

"Bear markets are very sensitive to news. And on a scale of one to 10, this one is a 13," he said.

The report gave direction to a market that had bolted in and out of positive territory for much of the session as investors shuttled between the safety of Treasury bills and gold and the bargains posed by stocks that have been pounded lower.

Source: Jamaica Gleaner