Arab states warned against complacency over debt

Jihad Azour, director of the IMF’s Middle East and Central Asia department, said higher oil prices should spur a change in the region’s fortunes. (AP)
Updated 02 May 2018
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Arab states warned against complacency over debt

  • Oil prices have reached around $75 a barrel from under $30 a barrel in early 2016
  • After the GCC saw their economic growth shrink by 0.2 percent last year, their economy is expected to return to growth in 2018

DUBAI: The International Monetary Fund on Wednesday warned Arab states against complacency over a looming debt crisis, urging continued economic reforms despite a rise in oil prices.
Crude prices have rebounded in the region thanks to a deal by producers to trim production, but the IMF said such a change in fortunes should not get in the way of overhauling state spending.
“Required reforms include further steps toward full elimination of energy subsidies, and changes to pension and social security systems — including revisions to retirement age and benefits,” the IMF said in its Regional Economic Outlook for May.
Jihad Azour, director of the IMF’s Middle East and Central Asia department, said higher oil prices should spur change.
“We should not be complacent ... oil prices are going up. That definitely does not mean that we should not introduce the reforms. On the contrary, the current environment offers the opportunity to accelerate some of these reforms,” Azour said.
Oil prices have reached around $75 a barrel from under $30 a barrel in early 2016.
Overall growth in the Middle East and North Africa (MENA) region, which includes all Arab countries and Iran, was forecast by the IMF to reach 3.2 percent this year compared to just 2.2 percent in 2017.
The partial recovery in oil prices will be a boost for the Gulf Cooperation Council states — Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE — which supply almost a fifth of global crude oil.
After the GCC saw their economic growth shrink by 0.2 percent last year, impacted by a 0.7 percent contraction by the Saudi economy, their economy is expected to return to growth in 2018.
The Council’s economy is forecast to grow by 2.2 percent this year and 2.6 percent in 2019, the IMF said.
Following the oil price slump in mid-2014, GCC members undertook fiscal measures and reforms to cut public spending and boost non-oil revenues.
Azour said that Saudi Arabia’s economic consolidation measures to cut a persistent budget deficit and diversify the economy away from oil remains the correct policy.
“The current strategy that is based on reaching a balanced budget by 2023 is the right one,” he said.
Despite the improved economic forecast, the IMF estimated cumulative overall fiscal deficits in the region to be $294 billion in 2018-22.
Around $71 billion of government debt is expected to mature during the same period.
“The rapid buildup of debt in many of them (MENA countries) is a cause for concern. Debt has increased by an average of 10 percentage points of GDP each year since 2013, with countries financing large fiscal deficits,” the IMF report said.
An impending increase in interest rates, making borrowing more expensive, will complicate the problem, it added.
According to the IMF, the economy of oil-importers should grow by 6.2 percent annually to maintain unemployment at the current rate of 10 percent.
MENA countries need to create 25 million new jobs over the next five years, Azour said, while warning of the negative consequences of unemployment coupled with rising debt levels.
“The average debt in the region for oil-importing countries exceeds 80 percent,” of gross domestic product (GDP), he said, stressing such a figure is “beyond what is acceptable.”


Huawei founder says company would not share user secrets

Updated 16 January 2019
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Huawei founder says company would not share user secrets

  • The statement was a response to accusations Huawei is controlled by the ruling Communist Party or is required to facilitate Chinese spying
  • He said the security concerns have yet to have a significant effect on Huawei’s business

SHENZHEN, China: The founder of China’s Huawei, the world’s biggest supplier of network gear to phone and Internet companies, says his company would not share secrets about its customers and their communication networks.
Ren Zhengfei spoke in a rare meeting with foreign reporters as Huawei Technologies Ltd. tries to protect its access to global telecom carriers that are investing heavily in next-generation technology.
His comments were the 74-year-old former military engineer’s most direct public response to accusations his company is controlled by the ruling Communist Party or is required to facilitate Chinese spying.
Huawei is China’s first global tech brand. The United States, Australia, Japan and some other governments have imposed curbs on use of its technology over such concerns.
“We would definitely say no to such a request,” said Ren when asked how the company would respond to a government demand for confidential information about a foreign buyer of its telecom technology.
Ren said neither he nor the company have ever received a government request for “improper information” about anyone.
Asked whether Huawei would challenge such an order in court, Ren chuckled and said it would be up to Chinese authorities to “file litigation.”
Huawei is facing heightened scrutiny as phone carriers prepare to roll out fifth-generation technology in which Huawei is a leading competitor. 5G is designed to support a vast expansion of networks to serve medical devices, self-driving cars and other technology. That increases the cost of potential security failures and has prompted governments increasingly to treat telecoms communications networks as strategic assets.
The company’s image suffered a new blow last week when Polish authorities announced one of its Chinese employees was arrested on spying charges. Huawei announced it fired the employee and said the allegations had nothing to do with the company.
Ren is the father of Huawei’s chief financial officer, Meng Wanzhou, who was arrested Dec. 1 in Canada on US charges related to possible violations of trade sanctions on Iran.
Ren said he couldn’t discuss Meng’s case while it still was before a court. But he said Huawei obeys the law, including export restrictions, wherever it operates.
Ren expressed gratitude to Canadian justice officials for their treatment of Meng, who was released on bail and is staying in a house in Vancouver. He also expressed thanks to her fellow jail inmates prior to her release “for treating her kindly.”
“After all the evidence is made public, we will rely on the justice system,” he said. “We are sure there will be a just conclusion to this matter.
Two Canadians were arrested by Chinese authorities on national security charges, prompting suggestions abroad they might be hostages to secure Meng’s release. On Monday, a Chinese court announced another Canadian had been sentenced to death in a drug case after he was ordered retried.
Asked how he felt that Huawei was linked to accusations Beijing took hostages, Ren said he saw no connection between the Canadians and Meng’s case.
Dressed in a blue sport coat and an open-necked light blue shirt, Ren was jovial and animated during the two hour and 20 minute meeting.
Ren said he became a Communist Party member in the early 1980s after the state press published reports about his development of a measuring tool for an engineering project. Earlier, he couldn’t join because his father was deemed a “capitalist roader,” but the party was trying to promote young, technologically capable people after the violent, ultra-radical Cultural Revolution in 1976.
Ren founded Huawei in 1987 to sell imported telecom switching gear to Chinese phone companies after the PLA disbanded his engineering unit, according to the company.
Despite his party membership, Huawei makes decisions based on its customers’ needs, Ren said.
“I don’t see a close connection between my personal political beliefs and our commercial decisions,” he said.
Huawei’s US market evaporated in 2012 after a congressional panel said the company and its smaller Chinese rival, ZTE Corp., were security risks and urged phone companies to avoid them.
But Huawei passed Sweden’s LM Ericsson to become the biggest supplier of network gear and its smartphone brand displaced Apple Inc. last year as the No. 2 global seller behind Samsung.
The company forecasts last year’s revenue will exceed $100 billion for the first time. Ren said this year’s target is $125 billion.
Huawei says it is employee-owned. Ren said no government entity or any other investor who isn’t a current or former employee owns “one cent of Huawei shares.”
Ren said Huawei has no research cooperation with China’s People’s Liberation Army and no dedicated unit for military sales and he knew of no PLA purchases of civilian technology.
Ren said the security concerns have yet to have a significant effect on Huawei’s business. The company has signed 5G contracts with 30 carriers and has shipped 25,000 base stations, he said.
Huawei has plenty of opportunities even if it faces higher barriers in some markets, he said.
“If we are not allowed to sell in certain markets, we will have a smaller operation,” he said. “So long as we can feed our employees, we are satisfied.”
Ren defended Huawei’s decision to remain privately held — a status that has fueled questions about its intentions and who controls it. He said that helped to preserve its long-term focus on customer service and product development.
Publicly owned companies care more about a “beautiful balance sheet” while Huawei is focused on a “strong industry structure,” he said.
“Capital tends to be greedy.”
Ren also warned against allowing security concerns to divide the globe into isolated markets with incompatible technology standards — a scenario some people have suggested might result from US-Chinese tensions.
“Arbitrarily dividing the world into two technology camps can only harm the interests of all society,” he said.
Asked about President Donald Trump’s suggestion on Twitter that he might intervene in Meng’s case if that facilitated a resolution of Washington’s tariff battle with Beijing, Ren said he would wait to see whether Trump takes action.
“As for President Trump as president, I still believe he is a great president,” Ren said. He said Trump was elected to cut taxes, which he believed was beneficial for American industry.
However, he said, “If companies are getting frightened by the detention of certain individuals, then investors might be scared away, and that is not in the interests of the United States.”
Ren said he didn’t believe Huawei would face US penalties similar to those that nearly drove smaller Chinese rival ZTE Corp. out of business. Washington barred ZTE from buying American technology over its exports to Iran and North Korea but restored access after the company paid a $1 billion fine, replaced its executive team and installed US-selected compliance monitors.
“What happened to ZTE, I don’t believe will happen to Huawei,” said Ren. However, he said, “if it did happen to Huawei, I don’t believe the impact would be very significant. I believe telecom operators would continue to trust Huawei.”
Ren said Huawei doesn’t want Beijing to retaliate for foreign restrictions by hampering market access for Apple Inc. and other rivals.
“In spite of setbacks in some countries, we are still supportive of China becoming a more open country.”