Business

LONDON/DUBAI — As officials from the Organisation of the Petroleum Exporting Countries (OPEC) gathered last week to formulate a long-term strategy, few in the room expected the discussions would end without a clash. But even the most jaded delegates got more than they had bargained with.

"OPEC is dead," declared one frustrated official, according to two sources who were present or briefed about the Vienna meeting.

This was far from the first time that OPEC's demise has been proclaimed in its 56-year history, and the oil exporters' group itself may yet enjoy a long life in the era of cheap crude.

Saudi Arabia, OPEC's most powerful member, still maintains that collective action by all producers is the best solution for an oil market that has dived since mid-2014.

But events at Monday's meeting of OPEC governors suggest that if Saudi Arabia gets its way, then one of the group's central strategies –– of managing global oil prices by regulating supply –– will indeed go to the grave.

In a major shift in thinking, Riyadh now believes that targetting prices has become pointless as the weak global market reflects structural changes rather than any temporary trend, according to sources familiar with its views.

OPEC is already split over how to respond to cheap oil. 

Last month tensions between Saudi Arabia and its arch-rival Iran ruined the first deal in 15 years to freeze crude output and help to lift global prices.

These resurfaced at the long-term strategy meeting of the OPEC governors, officials who report to their countries' oil ministers.

According to the sources, it was a delegate from a non-Gulf Arab country who pronounced OPEC dead in remarks directed at the Saudi representative as they argued over whether the group should keep targeting prices.

Iran, represented by its governor Hossein Kazempour Ardebili, has been arguing that this is precisely what OPEC was created for and hence "effective production management" should be one of its top long-term goals.

But Saudi governor Mohammed Al Madi said he believed the world has changed so much in the past few years that it has become a futile exercise to try to do so, sources say.

"OPEC should recognise the fact that the market has gone through a structural change, as is evident by the market becoming more competitive rather than monopolistic," Al Madi told his counterparts inside the meeting, according to sources familiar with the discussions.

"The market has evolved since the 2010-2014 period of high prices and the challenge for OPEC now, as well as for non-OPEC [producers], is to come to grips with recent market developments," Al Madi said, according to the sources.

Orchestration

For decades Saudi Arabia had a preferred oil price target and if it didn't like the prevailing market level, it would try to orchestrate a production cut or increase in OPEC. 

It would contribute the lion's share of the adjustment and forgive smaller and poorer members if they failed to comply with the group's agreement.

Back in 2008, the late King Abdullah named $75 a barrel as the kingdom's "fair" oil price, most likely after consultations with the long-serving oil minister Ali Al Naimi.

When the Saudis orchestrated the last output cut in 2008 — to support prices during the global economic crisis — oil jumped fairly quickly back above $100 from below $40. 

Later Riyadh again made known its price preference on a few occasions but in recent years it has effectively stopped sending any signals.

This follows the fundamental changes on oil markets. In the past five years, the development of unconventional oil production from US shale deposits and other sources such as Canadian oil sands has made redundant the idea that crude is a scarce and finite resource. Russia, which is not an OPEC member, has also contributed to the ample global supply.

‘No free riders’

Dispensing with price targets represents a massive change in Saudi thinking. This is now being driven largely by 31-year-old Deputy Crown Prince Mohammed bin Salman, who took over as the ultimate decision maker of the country's energy and economic policies last year.

When oil was viewed as scarce, the kingdom thought it had to maximise its long-term revenues even if that meant pumping fewer barrels and yielding market share to rival producers, according to several sources familiar with the Saudi thinking.

With the importance of oil declining, Riyadh has decided it is wiser to prioritise market share, the sources say. It believes it will be better off producing more at today's low prices than reducing output, only to sell the oil for even less in the future as global demand ebbs.

On top of this, Riyadh has pressing short-term needs including tackling a budget deficit which hit 367 billion riyals ($97.9 billion) or 15 per cent of gross domestic product in 2015.

"The oil industry is, relatively speaking, not a growth industry anymore," said one of the sources familiar with the Saudi views inside the OPEC governors' meeting.

In the past, low oil prices used to push global demand much higher but today's rising efficiency of motor vehicles, new technology and environmental policies have put a lid on growth.

Despite record low prices in the past year, demand is not expected to grow by more than 1 million barrels per day in 2016, just one per cent of global demand.

One thing is guaranteed: the kingdom will not go back to the old pattern of cutting output any time soon to support prices for the benefit of all producers, Saudi sources say.

"The bottom line is that there will be no free riders any more," Al Madi said at Monday's meeting. "Some OPEC members should 'walk the talk' first," he told his colleagues.

Even Riyadh's rivals doubt it will perform any U-turn. "Saudi Arabia doesn't give a damn about OPEC any more. They are after US shale, Canadian oil sands and Russia," a non-Gulf OPEC source said.

AMMAN — Joint action is important to enhance economic cooperation between Jordan and Germany in the fields of trade, investment and technical assistance, Minister of Industry, Trade and Supply Maha Ali said Saturday.

At a meeting with Bavarian Minister for European Affairs and International Relations Beate Merk and an accompanying delegation, Ali highlighted the importance for the EU to simplify rules of origin procedures to allow Jordanian products to enter the EU market, a ministry statement said. Simplifying these rules would support the Kingdom's economic development through attracting more investments and creating more jobs, she added.

Ali also briefed the delegates on the challenges facing the Kingdom due to unrest in neighbouring countries, adding that border closures with Syria and Iraq led to a sharp drop in exports to the most important traditional markets for Jordanian products.

Merk praised Jordan's role in hosting refugees and expressed Bavaria's keenness to enhance economic cooperation with Jordan, the statement added.

AMMAN – The Amman Chamber of Industry (ACI) will host on Tuesday the Jordanian-Greek Business Forum that seeks to increase bilateral of goods. According to a statement issued by ACI, a delegation from companies in Greece will take part in the event, which will also see the participation of a large number of Jordanian manufacturers.

On Saturday JCI Chairman Ziad Homsi met with Greek Ambassador in Jordan Maria Louisa Marinakis to discuss preparations for the forum, which is organised in cooperation with the Amman Chamber of Commerce. Homsi stressed the importance of the Greek market to Jordanian products as the European country can be a gateway to the Balkan region markets.

Homsi described the current economic relations between the two countries as still less than expectations, indicating that Jordanian exports to Greece stood at $5 million only in 2015, while imports reached $41 million.  

AMMAN – Jordan's industrial production saw a decline in the first quarter of this year, except for phosphate production, which increased slightly by 1.6 per cent, the Finance Ministry announced Saturday. Ministry data said potash production fell by 14.5 per cent and fertilisers by 31.5 per cent. 

The Kingdom's electricity generation also dropped by 39.1 per cent, the ministry said in a statement carried by the Jordan News Agency, Petra. 

AMMAN — The Jordan Phosphate Mines Company's board of directors re-elected Amer Majali as chairman for the next term, the Jordan News Agency, Petra, reported Saturday. 

LONDON — European stocks and oil prices snapped a four-day losing streak and a rally in bond markets fizzled out on Thursday, as investors began to position themselves for US jobs data.

The pan-European FTSEurofirst 300 index, which had fallen 1.2 per cent to its lowest level in nearly a month in the previous session, rebounded 0.2 per cent as firmer oil prices helped the region’s big producers.

Wall Street was expected to start modestly higher too though trading was likely be low key given payrolls data on Friday, viewed as having the most direct influence on potential US interest rate moves.

There was a stark warning from Japan’s Prime Minister Shinzo Abe that the global economy could end up “plummeting into crisis”.

It came after Asian shares has seen a seventh straight day of falls overnight albeit tempered by relief that at least the yen appears to have stabilised having torn to an 18-month high this week.

Abe had said on Wednesday that Japan could act to weaken the yen if necessary. At the same time the dollar has been supported by optimism that the US economy could be finding some traction again having nearly stalling at the start of the year.

The dollar had climbed to 107.20 yen ahead of US trading, above the recent 18-month trough of 105.55 but a long way from last week’s peak of 111.88.

The euro changed hands at $1.1454, having been as high as $1.1614 this week from a low of $1.1213 in April. Against a basket of currencies the dollar was up 0.4 per cent at 93.573.

In commodity markets, industrial metals including copper and iron ore nursed more losses. Oil bounced as a huge wildfire in Canada disrupted oil sands production and escalating fighting in Libya threatened the North African nation’s output.

Brent crude was quoted 71 cents higher at $45.33 a barrel, while US crude added 89 cents to $44.67.

Bond markets had noticeably cooler feel, having seen one of their sharpest rallies of the year so far over the last week.

Yields on 10-year German Bunds and US Treasury notes hovered at 1.179 and 0.193 per cent, having both just hit their lowest in two weeks .

The gap between Italian and German government borrowing costs hit its widest level in nine weeks however, after Rome announced an unscheduled bond exchange and investors readied for a potentially sweaty series of political events in Europe.

Stalled talks between Greece and its international creditors over financial aid, as well as Spanish elections and Britain’s referendum on EU membership next month have led investors to reduce their exposure to riskier assets.

“We are cautious on the direction for the periphery and expect more volatility,” Mizuho strategist Antoine Bouvet said.

Talking Turkey

Turkish stocks fell and bond yields jumped after officials said overnight the ruling party was set to replace Prime Minister Ahmet Davutoglu at an extraordinary congress in coming weeks.

The decision came after a meeting of more than one-and-a-half hours between Davutoglu and President Tayyip Erdogan that followed weeks of public tension between the two men.

The lira then bounced over 2 per cent to 2.8975 per dollar in volatile deals in Istanbul as Davutoglu called for the ruling AKP Party to remain “strong”. That was preceded by a three-day pounding that was one of its worst in decades.

“The political environment is very unpredictable, and this will certainly have negative repercussions for Turkey’s risk premium, financial volatility and macroeconomic outlook,” Finansbank said in a note.

The seventh straight dip for Asian shares overnight followed mixed economic data that did nothing to assuage concerns about global growth.

The latest survey from China showed the service sector expanded at a slower pace in April, though firms did resume adding staff.

The Caixin/Markit services purchasing managers’ index (PMI) dropped to 51.8, from 52.2 in March, but at least stayed in growth territory. Hong Kong’s version of the PMI slid into a deeper contraction to touch an eight-month low.

The patchy outcomes left Shanghai stocks flat while trade across the region was stifled by a holiday in Japan.

MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.3 per cent, and has now shed 5 per cent in just two weeks.

Wall Street also slipped amid mixed data. The vast US services sector expanded in April as new orders and employment accelerated, offering hope that economic growth would rebound after a sluggish first quarter.

But other figures showed private employers hired the fewest workers in three years, sparking concerns the payrolls report might also disappoint. Friday’s jobs figures are forecast to show a solid gain of 202,000 in April with unemployment steady at 5 per cent.

“I think what has taken place more than anything else over the past 48 hours is the questioning of the reflation trade that was starting to be latched on by many, especially when you consider the recent price action in the USD, commodities and equities,” CitiFX analysts said in a note.

BERLIN/LONDON — European airports are racing to redesign terminals and offer new services to pull more passengers into their stores, in the face of online competition and militant attacks that have kept away some big-spending Asian travellers.

Seeking to boost the key measure of retail sales per passenger, airports are expanding and refurbishing shopping areas and ensuring routes to gates steer customers past — or through — as many stores and restaurants as possible.

Vienna airport, for example, plans to expand the shopping and food area in its Terminal 2 by about 50 per cent — including a duty-free store positioned right after security, which passengers must pass through.

London's Stansted has just completed an £80 million ($116 million) makeover that increased space in the departure lounge by 60 per cent, providing more room for shops.

"Airports now are basically shopping malls with runways," said John Jarrell, head of Airport IT at Amadeus, which supplies technology systems to the industry.

Retail accounts for almost a fifth of airports' revenue, a proportion that has grown steadily in the past decade, according to airports association ACI Europe, and is increasingly relied upon to help fund infrastructure and services.

But the lucrative business has been hit by falling numbers of Asian travellers, traditionally the biggest spenders. Major European airlines have reported falling demand from passengers from China and Japan this year as a result of the attacks in Paris and Brussels.

Airport retailers' advantage of a captive audience of travellers has also been undermined by people being able to shop and compare prices at will on mobile devices, so they are being forced to employ new strategies to court customers.

"Air travellers have become very discerning price-wise and impulse buying at the airport is becoming rarer," said ACI Europe spokesman Robert O'Meara.

Frankfurt Airport is trialling a scheme where passengers in the Lufthansa lounge can shop on their tablets and have goods brought to them, and another where passengers can order food from tablet-toting staff to be brought to the gate and eaten there or on their plane.

Stansted, Britain's fourth-busiest airport, is offering hand massages at the Jo Malone area in its duty-free store, while its bigger London rival Gatwick and Copenhagen Airport have thrown up temporary "pop-up" shops to tempt passengers into spending there and then, rather than waiting.

Many European airports, including Copenhagen, Gatwick, Stansted and London Heathrow, also now offer "collect on return" services that allow customers to buy goods and pick them up when they return from their trip.

Stansted launched the service at the beginning of the year and customers are leaving about 3,000 bags a week full of airport-bought goods and collecting them upon their return.

'They will spend more'

Heathrow, Europe's busiest airport, offers passengers not flying via Terminal 5 the chance to order items from the Chanel store there — a service much used by high-net worth customers flying to the Middle East from Terminal 4.

"If you give passengers good service, put them in control of their time, they will spend more with you," Heathrow CEO John Holland-Kaye told Reuters.

His airport completed a 40 million pound revamp of its luxury shopping area last year that added more shops, including Louis Vuitton and Bottega Veneta.

While the concept of duty-free was invented in Shannon, Ireland in 1947, it has since lost meaning for European travellers, which do not get the tax-free prices that passengers from outside the European Union enjoy.

Frankfurt Airport operator Fraport illustrated the importance of Asian travellers when it said that passengers from China, Russia, South Korea, Japan and Vietnam made up just 7 per cent of passengers in 2015, but 31 per cent of retail revenue.

Both Fraport and fellow operator Aeroports de Paris said this week that retail sales per passenger had dropped in the first quarter of 2016, partly due to the impact of the Paris attacks.

Faced with such hurdles, airports are trying to maximise the time available to customers to shop by reducing times spent queuing at security checks and giving people better directions via apps or touch-screens to find their way around often sprawling terminal buildings.

Fraport's app, for example, allows passengers to take a picture of a sign at Frankfurt Airport and have it translated into Chinese.

European airports relied on non-aeronautical revenue — sales earned from retail and car parking — for 40 per cent of their revenues in 2013, the most recent year for which data is available, according to ACI Europe.

Of that revenue, retail — including food and drinks sales — accounted for 46 per cent, up from just 28 per cent in 2008. That equates to about 18 per cent of airports' total revenue.

Typically, airports receive fees from retailers comprising of rent and royalties from sales. Citi analysts said of the airports they covered, Heathrow had the highest per passenger retail revenues.

The British hub increased its retail revenue by 9 per cent in 2015, about a fifth of its total annual revenues, representing per passenger retail revenue of £7.58, up from £7.14 the previous year.

ISTANBUL — After years of growth fuelled by credit and domestic consumption, bad debts and bankruptcies are rising in Turkey, squeezing banks and exposing a fragile real economy which risks denting support for the ruling AK Party.

In its first decade in power, the AKP, founded by President Recep Tayyip Erdogan, built its reputation on growing Turkey's wealth, overseeing a sharp rise in incomes and providing new roads, hospitals and airports in what was long an economic backwater.

But as he seeks support for an executive presidency to replace Turkey's parliamentary system, a decision that could be put to a national vote later this year, Erdogan may no longer be able to count on Turkey's rising prosperity to win him votes.

Growth is expected to cool to 3.5 per cent this year, the World Bank said last week, well below peaks of near double digits in the early AKP years. A sharp drop in tourism after a spate of bombings this year and unrest in the largely Kurdish southeast are also taking their toll.

Foreign investors are wary and banks are increasingly reluctant to extend new credit, squeezing the most indebted firms. So far in 2016, 240 companies have requested temporary relief from creditors, almost as many as in the whole of last year, according to sirketnews.com, which compiles the data.

Istanbul-based pulses producer Sezon Pirinc filed for bankruptcy postponement at the end of last year, hit by souring consumer sentiment at home and difficulties in some Middle East export markets.

"The main reason behind our bankruptcy postponement was banks calling their loans earlier than their maturities," Mehmet Erdogan, the company's chairman, told Reuters. "2016 will be another tough year."

Erdogan forged the AKP as Turkey slid into financial crisis in 2001. It won a growing share of the vote in three successive parliamentary elections as incomes rose sharply, winning loyal support from a class of industrialists whose businesses thrived.

The government has vowed reforms to boost productivity and investment in industry as the economic headwinds build. But many economists say they are too slow coming.

Bankruptcies jump

Dairy firm Aynes Gida, a household name for two decades, went to court in January for bankruptcy postponement after defaulting on payment of its 50 million lira ($18 million) bond, it said in a stock exchange filing.

Earlier this year supermarket chain Begendik was bidding to buy 10 stores from the Turkish unit of Britain's Tesco. It not only failed to do the deal, but later applied for bankruptcy postponement. And in April, a century-old clothing retailer, Atalar Giyim, applied for bankruptcy.

Smaller firms, long the engine of the Turkish economy, are also struggling to cope after the government hiked the minimum wage by 30 per cent this year.

In January, the number of registered workers dropped by 379,000 or 2.7 per cent, according to think tank TEPAV, with two-thirds of that decline at small and medium-sized companies.

Iron and steel companies as well as food and technology retailers are at particular risk, said Ozlem Ozuner, chief executive of credit insurance firm Euler Hermes Turkey, citing the impact of low commodity prices and recent over investment.

Ozuner believes around 14,800 companies will go bankrupt this year, an 8 per cent increase on last year.

Bad loan boom

The average NPL ratio rose to 3.3 per cent in the first quarter from 2.8 per cent a year ago, regulatory data showed, while the biggest jump in bad loans was those to small and medium-sized businesses, which rose to 4.4 per cent.

Fahrettin Yahsi, chief executive of Islamic lender Albaraka Turk, said he expects the sector average could rise to up to 4.8 per cent this year.

But some bankers and analysts think the actual rate of non-performing loans could be double that, as banks sell some of their bad portfolios, restructure loans and lengthen the maturities of some debt to keep the loans alive.

"My calculations show that the NPL ratio is more than 6 per cent," said one banking analyst, who declined to be named. "That creates a profitability problem for banks and reduces their appetite for new loans."

Hilmi Guvener, CEO of Turkasset, which buys distressed debt from banks, said he expects sales of bad loan portfolios to triple to 6 billion lira this year. Non-performing loans rose mainly in construction and tourism, he said.

While no-one is expecting a deep crisis in the financial sector, analysts say the debt problems will slow growth, as the economy has largely relied on domestic demand since 2012.

AMMAN – Investors from Gulf countries have offered to inject "unprecedented" large investments in Jordan, according to Jordan Investment Commission (JIC) President Thabet Al Wir. 

Wir was quoted by the Jordan News Agency, Petra, as saying on Wednesday that the commission received offers by Gulf investors, particularly from Saudi Arabia, to bring in "interesting and unprecedented" investments to the Kingdom in various sectors. 

Speaking at a meeting with investors from the industrial sector, he said the recent Royal visits to Saudi Arabia and the UAE resulted in "unprecedented" investment offers in several economic sectors.

Wir said the JIC is studying the priorities of these offers and their benefits, partciularly in the sectors of services, education, medicine, agriculture and industry, noting that the commission is concerned with involving the representatives of the industrial sector to draw visions, plans and strategies related to the investment process. 

The JIC president said the Investment Council has recently recommended several investment opportunities in the industrial sector by directing the investments to areas that still in need of development, adding investors will benefit from tax incentives and other benefits related to the labour force, Petra reported. 

"The Investment Law was made to meet the demands of growth and development," Wir said, indicating that the government appreciates the industrial sector's role and its contributions to the national economy.

DUBAI –– For more than 10 years Dubai property prices have been on a roller coaster, creating and wiping out fortunes, but recently they appear to have run out of steam.

The Gulf emirate shot to prominence as an attractive real estate market after opening up special freehold zones for foreign buyers in 2002.

Prices peaked in 2008, driven mainly by speculative investments, but later nosedived as finances dried up because of the global financial crisis, shedding half the sector's value.

Renewed demand boosted values and rents at breakneck speed between 2012 and 2014, stirring fears of yet another bubble until prices headed south again, though more slowly this time.

Last year, prices fell by an average of 12 per cent, according to Craig Plumb, head of MENA research at property consultancy Jones Lang LaSalle.

"The market is having something of a soft landing at the moment, so the prices have been now falling for over a year... We think the market will continue to drop a little bit more, but not as much as it already has," he said.

"We think that most of the decline we've already seen."

Dana Salbak, the head of MENA research at Knight Frank property consultancy, put the 2015 drop in residential prices at 10 per cent.

"We saw a slowdown in the residential sector. We saw prices dip about 10 per cent over 2015. Not so much in the first quarter of the year," she said.

Dubai's market is driven by overseas demand which has fallen as currencies weakened against the US dollar to which the UAE dirham is pegged, pushing up prices, Plumb said.

"Real estate in Dubai is now more expensive for buyers holding other currencies," Knight Frank said in its 2015 report.

Indians top the list of foreign investors in Dubai property. In 2015, they spent more than 20 billion dirhams ($5.4 billion) out of a total of 135 billion dirhams.

British and Pakistani buyers followed with 10.8 billion dirhams and 8.4 billion dirhams respectively. Iranians spent 4.6 billion dirhams, Canadians 3.7 billion dirhams and Russians 2.7 billion dirhams.

Indirect pressure from oil

The Indian rupee, the euro and the Russian ruble have all dropped significantly against the dollar.

Dubai property has also been affected by a slowing economy that has created fewer jobs, which in turn means not as many people arriving to demand housing, Plumb said.

And although its economy does not rely on Dubai's dwindling resources of oil, the plunge in oil revenues for the UAE and other Gulf states has exerted indirect pressure.

The drop in oil prices and the economic slowdown have "impacted investors' sentiment, their willingness and appetite to invest", said Salbak. "They adopted a cautionary approach."

But a collapse like the 2009 crash is probably not on the cards.

"We don't think there is very much likelihood of the market collapsing in a spectacular sense. Our forecast is for another decline of between five and 10 per cent in 2016," said Plumb.

He said the market would bottom out by the end of 2016.

"We see them [prices] stabilise at these new rates, which is a good sign, a sign that the market has reached the bottom of the cycle," said Salbak, adding that prices should pick up next year.

She argued that government pledges to maintain increased investments in infrastructure construction send "positive signs for the market that the government is still committed to this sector, to the real estate sector, to construction".

Mohamed Alabbar, the chairman of Emaar Properties which developed major Dubai projects including Burj Khalifa, the world's tallest tower, also sounded optimistic.   

"We are in the long-term business. Cycles come and go," he told AFP, adding that the current drop in prices is "OK".

"We are in business, it is not that bad," he said after unveiling plans to build an even taller tower.

Alabbar argued that it was good prices did not experience a "drastic [and] crazy 2007 increase" during post-crisis recovery.

"Everybody wants prices to increase, but I think they have to be affordable," he said.

"I think the balance between supply and demand... is very encouraging."

Salbak also said supply is "currently being controlled", with developers "more cautious and wary of the need to phase out their delivery of projects, in line with demand".