Swiss spooked by using debt to prop up economy

Swiss spooked by using debt to prop up economy
With Swiss firms struggling through another lockdown, the federal government last week finally loosened its purse strings a bit. (File/AFP)
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Updated 21 February 2021

Swiss spooked by using debt to prop up economy

Swiss spooked by using debt to prop up economy
  • Some 10 billion francs in debt will have to be paid off within six years according to a constitutional debt brake rule

ZURICH: Germany, which is known for strict budgets, has tapped debt markets to prop up its virus-hit economy, while neighboring Switzerland has consistently curbed borrowing despite calls to change course.
With Swiss firms struggling through another lockdown, the federal government last week finally loosened its purse strings a bit, doubling emergency aid to 10 billion Swiss francs ($11.2 billion, 9.3 billion euros) as part of a program to boost the economy.
But when he presented the package for companies worst hit by the latest Covid restrictions, Finance Minister Ueli Maurer again lamented that Switzerland had to borrow to boost the economy.
Some 10 billion francs in debt will have to be paid off within six years according to a constitutional debt brake rule, Maurer warned.
He promised to present various options to do so as soon as the economic outlook cleared a bit.
Despite mounting criticism that the wealthy Alpine nation isn’t doing enough to support companies, Maurer has repeated time and again that the Swiss government has “no money.”
The government is already borrowing “150 million francs a day, or six million per hour, or 100,000 a minute,” he notes.
In 2020, Switzerland’s federal government spent 15 billion francs ($16.7 billion, 13.8 billion euros) to support the economy, and preliminary data shows it ended the year with a deficit of 15.8 billion ($17.6 billion, 14.5 billion euros).

Some have called for Switzerland to put balanced budget dogma aside during the crisis, to protect against potential long-term economic damage.
“Switzerland could be much more generous,” said Michael Graff, an economics professor at ETH Zurich, a public research university.
He believes the country could borrow what it needed to boost business activity without a problem.
A study published by Graff in January argued the nation’s post-crisis finances would remain healthy even if borrowing rose, primarily because the country entered the pandemic with one of the world’s lowest debt ratios.
National debt stood at 25.8 percent of gross domestic product (GDP) at the end of 2019.
That was less than half the European Union’s widely breached target of 60 percent.
According to Graff, if the Swiss debt ratio rose by 10 percentage points, or even 20, and “if things take a turn much worse than expected” the country would still be at a level that is “extremely low, compared to other nations, once the crisis is overcome.”
If Switzerland is in some ways a very liberal nation, Graff pointed to a “public debt phobia” which he said was a cultural trait.
After debt soared at the end of the 1990s owing to a crushing real-estate crisis, Switzerland became a champion of fiscal rectitude, introducing a debt brake into its constitution in 2003.

“This fear of going into debt is something irrational,” argued Cedric Tille, an economics professor at Geneva’s Graduate Institute of International and Development Studies.
This is especially so, he said, because Switzerland currently benefits from negative interest rates, which means investors are willing to lose money to own Swiss 10-year bonds.
Former Swiss central bank vice president Jean-Pierre Danthine believes the country’s debt brake rule should be suspended when the economy is facing a crisis.
With negative rates, Switzerland can borrow “all it needs for its economy,” he said in a recent interview with Leman Bleu television.
The country did not suffer as badly as some European neighbors during the first wave of the pandemic moreover, and its economy has fared better.
It was able to ease restrictions faster and count on strong pharmaceutical exports.
The Swiss government rapidly implemented economic support measures and allocated 70 billion francs ($78 billion, 64 billion euros) to finance partial unemployment benefits for workers and short-term business loans.
After falling by 8.6 percent in the first half of the year, Swiss GDP rebounded with a 7.2-percent gain in the third quarter.
But after infections surged again, cafes, restaurants, theaters, cinemas, museums and sports clubs were closed in mid-December and all non-essential shops followed a month later.
Shops are slated to reopen on March 1, but some fear the shutdown will lead to a wave of bankruptcies at small- and medium-sized businesses.
“For the second wave, they should have distributed aid much earlier to cover lost revenue,” remarked Rafael Lalive, an economics professor at the University of Lausanne.


Microsoft buys game maker Activision Blizzard for about $70 billion

Microsoft buys game maker Activision Blizzard for about $70 billion
Updated 19 January 2022

Microsoft buys game maker Activision Blizzard for about $70 billion

Microsoft buys game maker Activision Blizzard for about $70 billion
  • Deal will turn Microsoft, maker of the Xbox gaming system, into one of the world’s largest video game companies
  • Microsoft CEO Satya Nadella vows to address issues of misconduct and unequal pay against Activision

Microsoft is paying nearly $70 billion for Activision Blizzard, the maker of Candy Crush and Call of Duty, to boost its competitiveness in mobile gaming and virtual-reality technology.
The all-cash $68.7 billion deal will turn Microsoft, maker of the Xbox gaming system, into one of the world’s largest video game companies. It will also help it compete with tech rivals such as Meta, formerly Facebook, in creating immersive virtual worlds for both work and play.
If the deal survives scrutiny from US and European regulators in the coming months, it could be one of the biggest tech acquisitions in history. Dell bought data-storage company EMC in 2016 for around $60 billion.
Activision has been buffeted for months by allegations of misconduct and unequal pay. Microsoft CEO Satya Nadella addressed the issue Tuesday in a conference call with investors.
“The culture of our organization is my No. 1 priority,” Nadella said, adding that ”it’s critical for Activision Blizzard to drive forward” on its commitments to improve its workplace culture.
Activision disclosed last year it was being investigated by the Securities and Exchange Commission over complaints of workplace discrimination and in September settled claims brought by US workforce discrimination regulators. California’s civil rights agency sued the Santa Monica-based company in July, citing a “frat boy” culture that had become a “breeding ground for harassment and discrimination against women.”
Wall Street saw the acquisition as a big win for Activision Blizzard Inc. and its shares soared 25 percent in trading Tuesday, making up for losses over the past six months since California’s discrimination lawsuit was filed. Shares of Microsoft slipped about 2 percent.

HIGHLIGHT

Acquisition to push Microsoft past Nintendo as the third-largest video game company by global revenue, behind Playstation-maker Sony and Chinese tech giant Tencent

Last year, Microsoft spent $7.5 billion to acquire ZeniMax Media, the parent company of video game publisher Bethesda Softworks, which is behind popular video games The Elder Scrolls, Doom and Fallout. Microsoft’s properties also include the hit game Minecraft after it bought Swedish game studio Mojang for $2.5 billion in 2014.
The Redmond, Washington, tech giant said the latest acquisitions will help beef up its Xbox Game Pass game subscription service while also accelerating its ambitions for the metaverse, a collection of virtual worlds envisioned as a next generation of the Internet. While Xbox already has its own game-making studio, the prospect of Microsoft controlling so much game content raised questions about whether the company could restrict Activision games from competing consoles, although Nadella promised the deal would help people play games “wherever, whenever and however they want.”
The acquisition would push Microsoft past Nintendo as the third-largest video game company by global revenue, behind Playstation-maker Sony and Chinese tech giant Tencent, according to Wedbush Securities analyst Daniel Ives.
“Microsoft needed to do an aggressive deal given their streaming ambitions and metaverse strategy,” Ives said. ”They’re the only game in town that can do a deal of this size with the other tech stalwarts under massive tech scrutiny.”
Meta, Google, Amazon and Apple have all attracted increasing attention from antitrust regulators in the US and Europe, but the Activision deal is so big that it will also likely put Microsoft into the regulatory spotlight, Ives said. Microsoft is already facing delays in its planned $16 billion acquisition of Massachusetts speech recognition company Nuance because of an investigation by British antitrust regulators.
Microsoft is able to make such a big all-cash purchase of Activision because of its success as a cloud computing provider. But after years of focusing on shoring up its business clients and products such as the Office suite of email and other work tools, Ives said Microsoft’s failed 2020 attempt to acquire social media platform TikTok may have “really whet the appetite for Nadella to do a big consumer acquisition.”
Pushback against the deal was immediate from consumer advocacy groups.
“No way should the Federal Trade Commission and the US Department of Justice permit this merger to proceed,” said a statement from Alex Harman, competition policy advocate for Public Citizen. “If Microsoft wants to bet on the ‘metaverse,’ it should invest in new technology, not swallow up a competitor.”

BACKGROUND

Activision was formed in 1979 by former employees of Atari Inc., a pioneer in arcade games and home video game consoles.

White House press secretary Jen Psaki had no comment on Microsoft’s announcement at her briefing Tuesday, but emphasized the Biden administration’s recent moves to strengthen enforcement against illegal and anticompetitive mergers.
Started in 1979 by former Atari Inc. employees, Activision has created or acquired many of the most popular video games, from Pitfall in the 1980s to Guitar Hero and the World of Warcraft franchise. Bobby Kotick, 59, has been CEO since 1991.
Microsoft said it expects the deal to close in its 2023 fiscal year, which starts in July. It said Kotick will continue to serve as CEO. After the deal closes, the Activision business unit would then report to Phil Spencer, who has led Microsoft’s Xbox division and will now serve as CEO of Microsoft Gaming.
Kotick survived a number of executive shakeups at Activision last year after a series of controversies stemming from allegations of a toxic workplace culture. A shareholder lawsuit in August said the company failed to disclose to investors that it was being investigated in California and that it had workplace culture issues that could result in legal problems.
Activision reached a deal in September with the US Equal Employment Opportunity Commission to settle claims that followed a nearly three-year investigation. The agency said Activision failed to take effective action after employees complained about sexual harassment, discriminated against pregnant employees and retaliated against employees who spoke out, including by firing them.
Microsoft has also been investigating its own practices toward sexual harassment and gender discrimination, opening an inquiry last week sought by investors at its annual shareholders meeting in November. The company committed to publishing a report later this year on how it handles harassment claims, including past allegations involving senior leaders such as co-founder Bill Gates.
 


Crude oil’s latest bull run puts spotlight on geopolitical events

Crude oil’s latest bull run puts spotlight on geopolitical events
Updated 18 January 2022

Crude oil’s latest bull run puts spotlight on geopolitical events

Crude oil’s latest bull run puts spotlight on geopolitical events
  • Having spent the last year fretting over supply, markets and investors appear suddenly more spooked by the ‘what ifs’ of global politics and its impact on still tight supplies

LONDON: Crude oil’s latest bull run, which saw Brent climb to its highest level since 2014 on Tuesday, has put geopolitics front and center of market concerns.

Having spent the last year fretting over supply, markets and investors appear suddenly more spooked by the what ifs of global politics and its impact on still tight supplies.

This week’s drone attack by Iranian-backed Houthi rebels on the UAE, along with fears that Russia’s aggression towards neighboring Ukraine will lead to war, are nudging crude prices higher. The spike comes despite a view in some circles that supply issues are abating when compared to last year. A consensus view from energy analysts suggests current geopolitical events, primarily increased Middle East tensions and Russia’s saber-rattling, have added almost 12 percent to the price of a barrel of crude oil.

Alan Gelder, vice president for refining, chemicals and oil markets with UK energy consultant Wood Mackenzie, said: “Broadly speaking, geopolitics currently accounts for around $10 of the oil price.” Following the UAE attack, Goldman Sachs upwardly revised its price forecast, warning on Tuesday that Brent could reach $90 per barrel in the next two months and hit $100 in the second half of this year. However, Gelder believes triple figure oil prices could prove wide of the mark.

He told Arab News: “We don’t believe the oil market will be as tight in 2022 as it was in 2021. We’re expecting US oil production to grow because the investment discipline of recent years will now enable companies to drill and increase investment supply while still achieving high returns for investors.”

He added: “One can never say never, but we think forecasts of $100 oil are slightly overrated. The rig count is increasing in the US, albeit modestly, so supply will increase this year. Geopolitical events are of course hard to predict and are capable of causing further price shocks, though it would take an extreme production outrage at a major supplier for the current fundamentals of supply and demand to be impacted.” That said, it is worth remembering geopolitical events were behind the first big jump in oil prices last year.

In March 2021, just after OPEC and its OPEC+ allies announced they would stick to their production cuts, the Houthi militia launched a failed attack on Saudi Arabia’s Ras Tanura oil-export terminals and refinery. 

FASTFACT

A consensus view from energy analysts suggests current geopolitical events, primarily increased Middle East tensions and Russia’s saber-rattling, have added almost 12 percent to the price of a barrel of crude oil.

There was no damage to Ras Tanura, but the attack sent Brent crude briefly above $70 a barrel.

The six-year war in Yemen, where Saudi Arabia is leading a coalition of countries fighting the Iran-backed Houthis, has seen a number of attacks on the Kingdom’s energy infrastructure and oil tankers in the Red Sea and the Persian Gulf.

Indeed, a report last month by a respected Washington-based think tank, the Center for Strategic and International Studies, said Houthi attacks on Saudi Arabia more than doubled during the first nine months of 2021 compared to the same period a year earlier. The report said Iran’s Islamic Revolutionary Guard Corps and Lebanese militia Hezbollah played a critical role in providing Houthis with weapons, technology and training.

Concerns about potential disruptions to Saudi output on prices should also be coupled with the unlikelihood of any easing of sanctions against Iran — a huge crude producer, but one whose meager exports are now reliant on smuggling.

Fast forward to today, and the bloody unrest in Kazakhstan — an OPEC+ member and second largest oil producer in the former Soviet Union with almost 2 million barrels a day — had already pushed Brent almost 5 percent higher in the early days of this month, to $83. Ironically, the initial protests against the government were sparked by an increase in the price of liquid petroleum gas, which many Kazakhs use to run their cars.

The UAE attack, which has nudged Brent a little closer towards Goldman Sachs’ $90, is the most significant strike by Houthis against the Emirates since its military withdrawal from the Yemen conflict in 2019, though it still supports forces fighting the Houthis.

Meanwhile, the buildup of Russian troops on Ukraine’s border and fears that Vladimir Putin will invade, unleashing a NATO response of economic sanctions, or in a worse case scenario, a wider conflict, are sending prices higher still.

Tensions linked to Gazprom’s Nord Stream 2 pipeline project have already played a large role in rocketing gas prices across Europe. Gas prices have fallen sharply so far this year, but Ukraine is a vital supply route for Russian oil and gas supplies to Europe, which is heavily dependent on Russia for its energy needs.

Giovanni Staunovo, energy strategist with UBS, said: “There is probably also a geopolitical risk premium related to tensions in Eastern Europe and the Middle East, which is however difficult to quantify. Historically, such risk premia only remained in the price if those tensions triggered some supply disruptions. That said, currently there are no disruptions.”

A more pertinent risk for oil prices perhaps lies in the fundamentals of the market, primarily concerns about OPEC’s ability to pump more crude if required by higher demand. Several OPEC members have struggled to raise output to required quota levels, and speaking this week, Saudi Arabia Energy Minister Prince Abdulaziz bin Salman said the Kingdom had no plans to make up for their production shortfalls.

Staunovo said: “Some oil demand concerns related to the omicron variant have not materialized, with oil demand holding up better than some feared back in December. But the oil market is tight, with petroleum inventories, and crude and oil products, standing at a multi-year low, and if oil demand keeps recovering back to 2019 levels, available spare capacity should also fall to low levels, which makes the oil market and prices very sensitive to any supply disruptions.”


Emirates, ANA cancel some US flights over 5G rollout

Emirates, ANA cancel some US flights over 5G rollout
Updated 18 January 2022

Emirates, ANA cancel some US flights over 5G rollout

Emirates, ANA cancel some US flights over 5G rollout
  • It said the destinations include Boston, Chicago, Dallas Fort Worth, Houston, Miami, Newark, Orlando, San Francisco, and Seattle
  • The decision comes into force on Wednesday and will continue until further notice, the airline says

CAIRO/WASHINGTON: Dubai’s Emirates on Tuesday suspended flights to several destinations in the US and carriers including Japan’s All Nippon Airways said they were canceling or changing the aircraft on some US-bound flights, citing uncertainty over the rollout of 5G services.
The move, which comes into effect on Wednesday and will remain until further notice, is “due to operational concerns associated with the planned deployment of 5G mobile network services in the US,” the company said. It said the destinations include Boston, Chicago, Dallas Fort Worth, Houston, Miami, Newark, Orlando, San Francisco, and Seattle.
Emirates flights to New York’s JFK, Los Angeles International Airport and Washington DC’s Dulles International Airport will continue to operate as usual, the company added.
“We are working closely with aircraft manufacturers and the relevant authorities to alleviate operational concerns, and we hope to resume our US services as soon as possible,” the carrier said.
ANA said on its website it was acting in response to a notice to airlines from Boeing over restrictions on the use of its 777 long-haul airliner amid industry concerns about radio interference. Boeing had no immediate comment. 
The White House said earlier on Tuesday that it wants to reach a solution on 5G deployment that protects air safety while minimizing disruption to air travel. 
AT&T and Verizon will delay launching new wireless service near key airports after the nation’s largest airlines said the service would interfere with aircraft technology and cause massive flight disruptions.
The decision from the telecommunication companies arrived Tuesday as the Biden administration tried to broker a settlement between the telecom companies and the airlines over a rollout of new 5G service, scheduled for Wednesday.
Airlines want the new service to be banned within two miles of airport runways.
AT&T said it would delay turning on new cell towers around runways at some airports — it did not say how many or for how long — and work with federal regulators to settle the dispute.
A short time later, Verizon said it will launch its 5G network but added, “we have voluntarily decided to limit our 5G network around airports.” It blamed airlines and the Federal Aviation Administration, saying they “have not been able to fully resolve navigating 5G around airports” although it is working in more than 40 countries.
The announcements came after the airline industry issued a dire warning about the impact a new type of 5G service would have on flights. CEOs of the nation’s largest airlines said interference with aircraft systems would be worse than they originally thought, making many flights impossible.
“To be blunt, the nation’s commerce will grind to a halt” unless the service is blocked near major airports, the CEOs said in a letter Monday to federal officials including Transportation Secretary Pete Buttigieg, who has previously taken the airlines’ side in the matter.
President Joe Biden said the agreements by AT&T and Verizon “will avoid potentially devastating disruptions to passenger travel, cargo operations, and our economic recovery, while allowing more than 90 percent of wireless tower deployment to occur as scheduled.” He said the administration will keep working with both sides to reach a permanent solution around key airports.
President Joe Biden said the agreements by AT&T and Verizon “will avoid potentially devastating disruptions to passenger travel, cargo operations, and our economic recovery, while allowing more than 90 percent of wireless tower deployment to occur as scheduled.” He said the administration will keep working with both sides to reach a permanent solution around key airports.
AT&T and Verizon say their equipment will not interfere with aircraft electronics, and that the technology is being safely used in many other countries.
However, the CEOs of 10 passenger and cargo airlines including American, Delta, United and Southwest say that 5G will be more disruptive than earlier thought because dozens of large airports that were to have buffer zones to prevent 5G interference with aircraft will still be subject to of flight restrictions announced last week by the FAA. They add that those restrictions won’t be limited to times when visibility is poor.
(With Reuters and AP)


Aramco signs 10 agreements during Saudi-Korean Investment Forum

Aramco signs 10 agreements during Saudi-Korean Investment Forum
Updated 18 January 2022

Aramco signs 10 agreements during Saudi-Korean Investment Forum

Aramco signs 10 agreements during Saudi-Korean Investment Forum
  • Agreements aim to accelerate downstream strategy and development of low-carbon energy solutions
  • Initial plans include a 60,000 ton-per-year casting and forging facility in Saudi Arabia

RIYADH: The Saudi Arabian Oil Company signed one agreement and nine MoUs with leading Korean entities, which aim to advance its downstream strategy and support development of low-carbon energy solutions, while creating new financing options for the company.

The signings took place at the Saudi-Korean Investment Forum in Riyadh, which was also attended by the President of the Republic of Korea Moon Jae-in, Aramco President and CEO Amin Nasser, and senior corporate executives from both countries.

The agreements seek to unlock new opportunities in the fields of advanced technology, manufacturing and finance, illustrating Aramco’s commitment to driving development through global partnerships, according to a statement.

Nasser said in the statement: “Our partnership with Korean companies spans decades and today we are pleased to broaden these ties in technology, manufacturing and finance. In addition to focusing on cutting-edge development in a range of areas, they also support our shared goal of finding climate solutions and lowering greenhouse gas emissions through the development of low-carbon hydrogen and ammonia production, as well as carbon capture and storage. Together, these initiatives with Korea’s industry leaders will further enhance our downstream expansion and integration strategy.”

Local manufacturing of industrial equipment

Aramco signed an agreement with Korea’s Doosan Heavy Industries & Construction Co. and the Saudi Arabian Industrial Investments Company, Dussur. This partnership aims to establish a casting and forging facility that could supply the Kingdom’s manufacturers with industrial and process equipment such as valves, pumps, compressors, wellheads, flanges, heat exchangers, and gas and wind turbines, with the objective to enhance local content.

The planned joint venture has a production target of 60,000 tons per year, primarily from sand-casting and open-die forging processes, complemented by machining capabilities. It also has potential to supply original equipment manufacturers in the rig, drilling, maritime and engine fields, with the possibility of expanding to the wider GCC market.

Low-carbon energy solutions

The agreements also include MoUs with Korean energy companies KEPCO, S-Oil, POSCO, Hyundai Oilbank, H2Korea and Lotte Chemical to explore potential collaboration in the supply, transportation, utilization and certification of hydrogen and ammonia. The companies also plan to study the feasibility of converting exported ammonia into hydrogen – a process known as ammonia back-cracking.

This represents a first step towards a potential large-scale production facility for hydrogen and ammonia in Saudi Arabia, which would also include a carbon capture and storage facility.

Finance solutions

Aramco also signed an agreement with the Export-Import Bank of Korea, known as K-EXIM, to explore strategic financing solutions in support of the Company’s business and investment activities involving Korean companies.


The following agreement in the field of construction was signed:

  • Doosan and Dussur – agreement for a casting and forging facility in the Kingdom.
  • The following MoUs in the field of technology were signed:
  • Korea Electric Power Corporation, or KEPCO – an intention to study the ammonia supply chain.
  • S-Oil – an agreement to explore potential collaboration in the field of ammonia offtake and logistics.
  • S-Oil – an agreement to explore opportunities in R&D collaboration on low-carbon energy solutions.
  • Two separate agreements with POSCO and Hyundai Oilbank to exchange information and explore potential collaboration in the field of blue ammonia and blue hydrogen.
  • H2KOREA – an agreement to exchange information on hydrogen certification and regulatory requirements.
  • S-Oil – an agreement to exchange information related to Aramco’s Thermal Crude to Chemicals technology and explore potential collaboration.
  • The following MoUs in the field of finance and investments were signed:
  • Export-Import Bank of Korea, KEXIM – Heads of Terms for strategic financing solutions.
  • S-Oil – an agreement to collaborate on venture capital investment and start-up financing.

Egypt raises minimum wage to $172 for public sector employees

Egypt raises minimum wage to $172 for public sector employees
Updated 18 January 2022

Egypt raises minimum wage to $172 for public sector employees

Egypt raises minimum wage to $172 for public sector employees
  • The directive issuance came during El Sisi’s meeting with prime minister Mostafa Madbouly and a number of ministers to review the draft state budget for the fiscal year 2022/23.

Egypt’s president Abdel Fattah El Sisi issued a directive to raise the minimum wage to 2,700 Egyptian pounds ($172), up from 2,400 Egyptian pounds, the presidency announced. 

The directive issuance came during El Sisi’s meeting with prime minister Mostafa Madbouly and a number of ministers to review the draft state budget for the fiscal year 2022/23.

New fiscal year’s budget seeks to reduce the total deficit to around 6.3 percent of the GDP and to achieve an initial surplus of 1.5 percent of the GDP, the finance minister stated.