Business

JAKARTA — Indonesia on Thursday opened dozens of sectors to foreign investors in what President Joko Widodo has described as a "Big Bang" liberalisation of its economy, Southeast Asia's largest.

President Joko Widodo's administration loosened foreign investment restrictions on everything from restaurants and agriculture to transportation and movie theatres.

"Today's revisions represent our largest opening to international investment in 10 years," Trade Minister Tom Lembong told Reuters.

"More international investment will bring more capital, more world-class expertise, more technologies to Indonesia. Domestic players must seize those opportunities," he said.

Twenty-nine sectors including restaurants and the movie industry were removed from the "negative investment list" (DNI) altogether, meaning that foreigners can operate in those areas without restrictions.

The negative investment list sets out which parts of Indonesia's economy are partially or fully closed to foreign investors, who in recent years have complained of rising economic protectionism and nationalism as they look to expand into the market of more than 250 million people.

Widodo indicated in an interview on Wednesday he was opening up more room for foreigners in the latest of 10 policy packages since last September aimed at stimulating the economy, which grew 4.8 per cent last year, the slowest since the 2009 global crisis.

The investment revisions were supposed to come out in early January, but Widodo postponed the announcement because he was not satisfied that the reform was radical enough, Lembong said.

The president still needs to approve the new measures, which will be sent to him within days.

Thursday's announcement was not all about opening up Indonesia's industries, however. Twenty sectors, including low-tech construction, were added to the list of industries with foreign investment restrictions.

Although foreign direct investment into Indonesia has risen in recent years, it remains among the lowest in Southeast Asia in relation to total investment and gross domestic product.

Foreign investors have pushed for years for a greater access to opportunities in Indonesia's vast domestic market, valued at some $840 billion.

Foreign businesses applauded the latest move as a sign that Widodo was moving in the right direction.

"This will help restore confidence that Indonesia is open for business," said Adrian Short, chairman of the British Chamber of Commerce in Jakarta.

But he stressed that "implementation of the regulations will be key".

Others were not as impressed.

"Our initial impression is that this is not entirely broad-based and has fallen short of the 'big bang' moniker used to preview the stimulus package," said Glenn Maguire, chief economist at ANZ.

"They have clearly opened, but one or two gatekeepers have been added," he added.

CAIRO — Nahed Ibrahim has scoured Egypt in vain to find a regular supply of medication to help her mother to recover from a stroke she suffered four months ago. Since then the 75-year-old has struggled to follow conversations.

"I searched for the medicine everywhere, I travelled to several provinces but I still can't find it. My mother's condition is deteriorating day after day," said Ibrahim as she left, empty-handed, a pharmacy in the industrial town of Helwan, southwest of the capital.

Declines in the value of the Egyptian pound coupled with a shortage of foreign exchange have made it harder for Egyptian pharmaceutical companies to import active ingredients they need to make generic medicines millions of poor Egyptians rely on.

Though medicines are classed as essential goods, putting them high on the priority list at banks deciding how to allocate precious dollar rations, pharmaceutical companies say they still face serious problems that force them to slow or pause production.

A weaker currency has also made it more expensive to import raw materials while the price of finished medicines is fixed by the health ministry, forcing manufacturers to stop making some cheap generic medicines to staunch growing financial losses.

The result: people like Ibrahim find the medication they need is missing from pharmacy shelves for weeks at a time or is available at only a handful of outlets around the country.

Egypt has struggled to revive its economy since a 2011 uprising ushered in years of political instability, scaring off foreign investors and tourists, key sources of hard currency. 

Economic and political discontent has helped to unseat two presidents in the last five years.

Ahmed Al Sayed, a Cairo pharmacist, said he struggles to source basic medicines such as eye drops as well as anticoagulants and other drugs used to treat heart disease and high blood pressure.

A medical source at the El Salam Oncology Centre in Cairo said three important cancer drugs were currently in short supply.

Widespread shortages

Drug shortages are not new to Egypt, but have become so widespread in recent years that the health ministry set up a drug shortages directorate (DSD) in 2012 to minimise the impact. 

DSD began publishing a monthly table of medicines that were in short supply with suggested generic or branded alternatives.

In December, the ministry's tally showed 189 drugs were in short supply but had available substitutes and a further 43 drugs were in short supply with no substitute.

Walaa Farouk, who heads the DSD, acknowledged that the dollar crisis was exacerbating shortages and said the health ministry was looking at raising more prices to encourage production.

Medical professionals, however, said the shortages were more widespread and urgent than the official figures suggest.

"According to data provided by pharmacies, 180 out of 14,000 pharmaceutical drugs registered with the health ministry are in short supply with no substitutes," indicated Osama Rostom, commercial director at EIPICO, a leading manufacturer of generic medicines, and deputy head of the Chamber of Pharmaceutical Industries.

Egypt has introduced a series of measures in recent months aimed at cutting imports of non-essential goods to free up precious foreign currency for priority goods like medicine.

But manufacturers say limits on the amount of dollars companies can deposit in banks and difficulties opening letters of credit have resulted in payment delays, landing them with demurrage and storage costs for goods stuck at port.

"Before the dollar crisis, we used to pay for the cost of raw materials by writing letters of credit... We would then import the materials and pay the rest of the money after the shipment is received," Sabri Teweila, who heads the pharmaceutical manufacturers committee in the Pharmacists Syndicate, told Reuters.

"Now, it's obligatory to pay the entire cost before shipment. The economic crisis negatively affected agreements with foreign countries," he added.

With Egypt importing about 12 billion Egyptian pounds ($1.53 billion) worth of medicines and ingredients, according to Teweila, the crisis has hit the industry hard.

Pricing problem

The problem compounds a long-running price issue that has already caused ongoing shortages of certain medicines.

Though drug-producers say they are willing to keep medicine affordable, the prices of some drugs have not changed since the 1990s, when the dollar was worth between 2.7 and 3.4 pounds.

The official rate is now 7.73 to the dollar and the black market rate is about 8.72. On the eve of the 2011 revolt that ended Hosni Mubarak's 30-year rule, the rate was roughly 5.8.

Since they pay for imports of ingredients in dollars and price the medicines in pounds, producers say their losses are mounting, forcing some to cut output of certain cheap drugs.

A pharmacist who works for an international pharmaceutical company operating in Egypt said it was replacing loss-making drugs with more profitable lines to stay in business.

"We laid off 20 per cent of our employees at the beginning of 2015 because our profit went down ... We then had to minimise the production of drugs that did not bring in good money," said the pharmacist, who declined to be named as he was not authorised to speak to the media.

The central bank has moved in recent months to ease the dollar shortage that had seen shipments pile up at ports.

The health ministry also raised in recent weeks the price of about 30 medicines to encourage manufacturers to make them. But successive governments have been reluctant to raise prices of generic medicines overall, fearing the public backlash.

"Companies have presented requests for tariff changes... the ministry is working on it and we, in fact, raised the prices of some medicines," said the DSD's Farouk.

For Ibrahim, the main carer for her elderly mother, the endless quest for medicine has come to dominate life.

Occasionally, the 32-year-old chances upon a packet of the drug and is charged double the official 16-pound price tag.

"Not everyone does that. Some of them know I'm in need and if they can find me a packet, they don't profit," she said.

AMMAN — Jordan Investment Commission (JIC) President Thabet Al Wir  on Tuesday outlined economic reforms in the Kingdom to Tunisian Ambassador to Jordan Afifah Mallah and Confederation of Tunisian Citizen Enterprises President Tareq Sharif.

Both sides also discussed important issues of mutual interest at all levels, especially in the economic, commercial and investment fields. Wir said economic reforms resulted in signing agreements that opened new export markets.

Amended laws and the agreements contributed to having an investment-incubating environment characterised by good policies and regulations, according to a JIC statement. At a separate meeting with Brazilian Ambassador to Jordan Francisco Carlos Soares Luz, Wir called for increasing Brazilian investments in the Kingdom to achieve higher economic partnership, referring to the good geographical location of Jordan.

The ambassador highlighted the importance of exchanging commercial delegations' visits, noting that a Brazilian official delegation will visit the Kingdom in the first half of 2016, added the statement.

AMMAN — Royal Jordanian Airlines (RJ) announced on Wednesday in a press statement the successful closure of its $ 275 million dual conventional and Islamic secured syndicated facility. The syndicate, comprising seven banks based in Jordan, the United Arab Emirates and Qatar, were Mashreq,

Arab Bank, Al Khalij Commercial Bank (Al Khaliji), Dubai Islamic Bank, and Commercial Bank/Qatar acting as mandated lead arrangers, Arab Jordan Investment Bank as lead arranger and Bank Al Etihad as arranger.

Mashreq Bank acted as the sole book-runner for the loan. "The facility carries a tenor of 5 years and proceeds will primarily consolidate and refinance RJ’s existing debt and further support the company’s on-going strategic growth and turnaround plans on the short- and medium-run," the statement said.

“Having received an overwhelming response from the market, the facility exceeded the initial target amount, exemplifying the synergies developing between the Middle East and Levant region." RJ Chairman Suleiman Hafez said: “Royal Jordanian has successfully secured a hybrid structured debt instrument as part of the airline’s on-going strategic capital raising programme, to support its intensive turnaround and growth plans to evolve into one of the leading airlines in the Levant and Middle Eastern region.”

AMMAN — The government is keen to support various economic sectors in this difficult phase characterised by turmoil in Syria and Iraq, and its repercussions on the national economy, Industry, Trade and Supply Minister Maha Ali said on Tuesday. 

At a meeting with members of the Jordan Chamber of Industry (JCI) to acquaint them with  government measures to support the industrial sector, Ali said the government extended the programme of exempting profits of industrial exports from the income tax for three years until the end of 2018.

The government also exempted the service sector's exports from the income tax for 10 years, she added, noting that a committee of stakeholders was formed to draw an alternative programme for the industrial sector after 2018.

Ali told the industrialists that ministries and public institutions were instructed to remain committed to giving pricing preference for local industries by 15 per cent and to limit government purchases to national products in case there are three manufacturers until the end of 2016.

There are also deliberations with the Europeans to open their markets for Jordanian products through facilitating rules of origin to benefit from customs exemptions as stipulated in the EU-Jordanian partnership agreement and in light of the London Conference, the minister elaborated.

She also referred to the challenges the industrial sector has faced in the past few years, revealing that national exports during the first 11 months of 2015 declined by 6.1 per cent, by 41 per cent to Iraq and 38 per cent to Syria, compared to the same period of 2014.

The industrial sector is an investment-attracting business, which can be seen by the occupancy rates at the Kingdom's industrial estates, she said.

The minister noted that occupancy rate is 100 per cent at the King Abdullah II Industrial Estate, 98 per cent at El Hassan Industrial Estate, 60 per cent at Al Hussein Industrial Estate and 51 per cent at Muwaqqar Industrial Estate.

JCI figures showed that facilities registered at industrial chambers in the Kingdom increased in 2015 by 1,444, of which 400 were new factories and the rest were old institutions that renewed their memberships at the chambers.

Ali noted the industrial sector contributes around 24 per cent of the gross domestic product, employs 220,000 workers and houses 17,589 industrial institutions.

DUBAI — Some Saudi Arabian construction companies are struggling to pay their staff on time in a sign of growing pressure on the economy from low oil prices, which are causing the government to slow spending on building projects.

In an unusual move this week, the ministry of labour issued a public statement saying workers at a "major institution" had complained they had not been paid for months. It said it had established the complaints were true and taken remedial action.

The ministry did not name the institution or give details of its action; it did not respond to telephone calls seeking comment. But senior industry sources told Reuters that the firm was in the construction sector and that at least several other sizeable companies in the industry faced the same problem.

One executive at a large Saudi construction firm, speaking on condition of anonymity, told Reuters it had been having problems paying its employees for a few months. 

"It's not just us, it's several construction companies that work on government projects," he said.

As the government of the world's top oil exporter slows spending to reduce a budget deficit of around $100 billion, construction is proving to be the hardest hit sector, because firms depend heavily on government business for their cash flow.

"The pace of execution on some of the existing projects has slowed down, so a project that would take six months to complete may now see an extended execution time line," indicated Murad Ansari, analyst at EFG-Hermes in Saudi Arabia.

"Moreover, government payments have slowed down. As a result, contractors which normally rely on short-term funding for projects are feeling an impact on their working capital, so their ability to repay debt is not as strong as it was before," he said.

Construction accounts for only about 7 per cent of Saudi gross domestic product. But, in coming months, the sector's difficulties could have a wider impact as suppliers are hit and banks lending to the industry take more provisions for potential bad loans.

Payments

Delayed payments to staff, sometimes due to red tape and inefficient bureaucracy rather than financial difficulties, have been a feature of the construction industry in Saudi Arabia and the Gulf for years.

But the problem has worsened greatly in the last few months because of government austerity measures, industry executives said, speaking on condition of anonymity because of commercial sensitivities.

"Many contractors are awaiting payment from the government. It's an industry-wide problem," said an executive at another construction firm operating in the kingdom.

The 2016 state budget envisages total spending of 840 billion riyals ($224 billion); if the government keeps to that figure, it would represent a 14 per cent drop from last year's actual spending. 

Since the government has little political room to reduce spending on wages for civil servants, much or most of its cuts are believed to be in building projects.

During Saudi Arabia's last economic slowdown in 2009, also triggered by an oil price slump, the government raised advance payments to builders to support their cash flow and ensure that projects continued without interruption, Ansari said.

That is not happening now. The finance ministry has cut advance payments to firms doing state construction work to 5 per cent of contract value from 20 per cent, the Al Hayat newspaper reported.

"Money is not being paid at the top level," indicated one banker to the industry. "This has been going on since October and it is hard to know how long it will go on for."

The vast bulk of many big builders' business comes from the government.

At least several companies have begun talks to reschedule debts. Jabal Omar Development said last month it was in talks with creditors after failing to make the first repayment of 650 million riyals on a 3 billion riyal government loan.

"The continuity of the company and its ability to honour its obligations depends on its ability to obtain a new agreement on its finances,” Jabal Omar added in its statement. It did not answer telephone calls by Reuters to its offices on Tuesday.

Of nine Saudi banks covered by Reuters, seven indicated impairments for bad loans rose year-on-year in the fourth quarter of 2015. Analysts believe some of the new provisions were linked to construction.

Some banks are now shying away from new lending to the construction industry. Moody's Investors Service expects Saudi banks' non-performing loans to rise to 2.5 per cent of gross loans in 12 months from 1.4 per cent in mid-2015.

AMMAN — There is a need for Jordan and Algeria to activate the joint free trade agreement, increase commercial exchange volume and encourage establishing investments in both countries, Industry, Trade and Supply Minister Maha Ali said on Monday. 

At a meeting with an Algerian economic delegation, currently visiting the Kingdom, she added that both countries are interested to develop economic cooperation in different fields to serve joint interests, stressing that the importance of exchanging visits, expertise and organising commercial exhibitions.

Jordan has an attractive, competitive investment environment, which was boosted by a new Investment Law offering many incentives for investment projects, Ali continued.

She also acquainted the Algerian delegates, headed by Khobzi Abdul Madjid, president of Zibans Chamber of Commerce and Industry, with the Kingdom's bilateral and multilateral free trade agreements, such as those with the US and Canada, which gives Jordanian products access to major markets in the world.

The minister called on the Algerian private sector to benefit from the investment opportunities available in Jordan and to have a first-hand look on the investment environment, so as to work on developing bilateral economic cooperation.

The delegates expressed interest in the Kingdom's investment environment, the industrial development and the advanced technology it adopts.

Also on Monday, Amman chambers of commerce and industry signed a cooperation and twinning agreement with Zibans Chamber of Commerce and Industry aimed at developing bilateral commercial, industrial, investment and tourist relations.

Under the agreement, signed at the Amman Chamber of Commerce (ACC), signatories will exchange information on industrial activities, including commercial, economic and tourist fields, and legal aspects related to new procedures in both countries.

ACC President Issa Murad, Amman Chamber of Industry (ACI) President Ziad Homsi and Abdul Madjid signed the agreement.

Murad noted that the Kingdom's exports to Algeria in 2015 reached $150 million versus $12 million of Algerian exports to Jordan, and called for activating the Joint Jordanian-Algerian Business Council, which was established in 1997.

He said Jordan possesses enough skills and competencies that can be utilised in many sectors, stressing that the Kingdom provides a good opportunity for locally manufactured goods to penetrate many international markets.

Homsi, who is also a senator, expressed hope that the Algerian government would grant the Kingdom a preferential treatment to facilitate the movement of Jordanian exports.

He also noted that the ACI is currently considering establishing a Jordanian commercial office in Algiers to boost bilateral commercial, industrial and investment relations.

The Jordanian industrial sector in 2014 attracted some 40 per cent of foreign direct investment amounting to $636 million, which contributed to around 25 per cent of the gross domestic product, the ACI president highlighted.

Despite the challenges facing the sector, whose total capital exceeds $6 billion, its exports form 90 per cent of the national exports with a value of $7 billion reaching 120 countries.

Abdul Madjid noted that the Algerian market represents a "big opportunity" for Jordanian investors in light of customs and tax exemptions on production input manufactured in the country. 

He added his country could be a gateway for Jordanian merchandise to enter African markets, noting that Algerian imports reach $60 billion annually.

LONDON — London has ramped up its foreign exchange reserves in a move described by British media on Monday as a war chest against market chaos should Britain leave the European Union (EU).

Currency reserves jumped 34 per cent to $98.2 billion (87.9 billion euros) in January 2016, from $73.4 billion for the same month a year earlier, according to recent data from the Bank of England (BoE) which manages the Treasury's foreign exchange funds.

The nation's emergency "war chest" has been ramped up to guard against a "disorderly collapse" in the pound and equity markets if Britons vote in a key referendum expected later this year to leave the EU, The Times newspaper said on Monday.

The reserves are mostly held in dollars.

However, both the BoE and the government declined to comment on why the currency reserves have risen so rapidly over the past year.

"We do not entirely know what the government intentions are," said Scott Corfe, economist at the Centre for Economics and Business Research.

"But that certainly can be one explanation, accumulating currency reserves as a precaution, because there would be some volatility in the event of Brexit," Corfe added.

Economists warn that the pound could potentially collapse by 20 per cent in value, in the event of a British exit.

"Faced with a Brexit, we would expect the authorities to welcome a weaker pound," said David Owen, chief European economist at Jefferies.

A weaker British currency would likely boost the nation's exporters because it makes their goods cheaper for international buyers using stronger currencies.

"The key thing here is see a managed depreciation of sterling — with the [Treasury] still able to successfully issue gilts, rather than something more of a rout," Owen warned.

Support for Britain leaving the EU has risen since Prime Minister David Cameron unveiled plans for a deal to keep the country in the bloc, a poll showed Friday.

The survey showed 45 per cent now wanted to leave the EU, ahead of 36 per cent who wanted Britain to remain in the 28-member club.

That marked a three-point rise for those in favour of a so-called "Brexit" since a poll taken a week earlier.

Cameron has set a deadline of the end of 2017 to hold a referendum on whether Britain should stay in the EU, but sources say he is keen to push a vote through by June.

To get ready for a British exit from the EU and, with little idea of what that would look like, companies are spending millions of dollars and preparing for higher costs and moving their headquarters from Britain.

British business is keen to play down the possibility of a "Brexit" after a planned referendum to ease widespread uncertainty, mainly over how long it would take and how it would play out.

But with the government giving few hints as to how a possible departure could unfold, companies have begun to direct teams of lawyers and advisers to pore over different scenarios to try to determine where they could hurt the most.

Dominic Barton, global managing director at consulting firm McKinsey & Co., said he knew of one global bank which was spending $75 million "because you've got to think about [your] real estate footprint, moving people, tax implications".

"And even though you don't think it's going to happen, as a leader you've got to have a backup plan," he told Reuters.

The chief executive of a large financial institution with business across Europe, who spoke on condition of anonymity, said it could cost $50 million to work out how to shift certain operations from London to cities on the continent.

Companies could consider moving their headquarters due to the uncertainty that would immediately follow an exit vote over Britain's relationship with its former EU partners and the rest of the world.

The costs, he indicated, would include deciding how to take on office space, how to staff new outposts and how to best to manage the large expense of relocating executives and their families to different countries.

Complaints

Cameron has called on businesses to support him in his negotiation with the EU on winning better membership terms for Britain in the bloc and then to campaign alongside him to keep the country in it.

He received a sympathetic response from hundreds of business leaders, but they also called on him to do as much as possible to agree a deal in February and then hold the referendum as quickly as possible — in June.

"Timing is critical," Martin Sorrell, head of the world's biggest advertising group WPP, told Britain's finance minister, George Osborne.

Others wanted more direction from the government, which has refused to talk about a possible exit before Cameron's renegotiation ends, to judge where its departments see the main pressure points if Britain votes to leave.

One investment fund head said it was almost impossible to plan for because there were just too many "unknowns". 

Several big international banks think Brexit would be bad for Britain, while they could live with it.

Anne Richards, chief investment officer at Aberdeen asset management, said there would be some winners.

"We are checking to make sure that our existing arrangements could cope, and so far we think they could, so we think we are covered," she said Reuters' Global Markets Forum.

"We don't yet have a handle on costs, but I'm sure the one definite winner out of the referendum, whichever way it goes, will be lawyers and advisory firms we'd all have to hire to make sure we have every base covered," Richards added.

Separately, BoE cut its growth forecasts and the only policymaker who had been pushing for a rate hike reversed his position, suggesting rates will stay on hold for the foreseeable future.

BoE Governor Mark Carney said officials still expected the next move in interest rates to be upwards, but echoed downbeat comments from central banks around the globe, warning that global growth would be modest as emerging economies struggled.

Highlighting risks from China's economic rebalancing and the financial market turmoil, he added that risks to Britain were rising even if domestic demand remained strong.

"All of these developments pose downside risks to growth in the United Kingdom via trade, financial and confidence channels," Carney told a news conference. "The outlook for trade is particularly challenging."

The bank said its Monetary Policy Committee (MPC) voted 9-0 to keep rates on hold at a record-low 0.5 per cent, where they have been for almost seven years.

MPC member Ian McCafferty, who had voted for a rate rise since August, unexpectedly fell into line last week, citing a temporarily weaker outlook for wages.

Central banks around the globe have pared back growth and inflation expectations, openly discussing the need for more accommodation and erasing hopes that policy normalisation could start later this year.

The Bank of Japan last month cut rates into negative territory, the European Central Bank (ECB) hinted at a further cut in March and dovish comments from New York Federal Reserve (Fed) Governor William Dudley suggested that no US rate hike could come at all this year.

Britain has stood out from Europe's economic weakness with relatively healthy growth, little spare capacity and a jobless rate near the long-term equilibrium, for a while raising expectations that it would soon follow the Fed's December hike.

‘Next move is up’

Global market turmoil has since dashed those prospects but Carney noted that the next move was still more likely up than down. Moreover he said that if the BoE followed recent market bets for a rate hike only late next year, it would end up slightly overshooting its 2 per cent inflation target.

"We'll do the right thing at the right time on rates," he added. "More likely than not, the next move is up."

Asked if he stood by repeated remarks that the next rate move is likely to be up rather than down, he stressed: "Absolutely. The whole MPC stands by that."

Since the BoE finalised its forecasts a few days ago, markets have pushed out bets on a first rate rise until mid-2018. There was little change in pricing after Carney spoke.

Economists, however, still mostly expect a much earlier move and RBC's Sam Hill said Carney's comments strengthened his conviction that rates would start to rise in around a year.

"In the near-term, the MPC is more circumspect on the current vote but... a hike is being signalled as necessary some time before markets currently imply," he said.

Part of the reason markets appeared only to expect rates to rise in 2018 was because they were partly factoring in the risk of a rate cut before then, something Hill noted that Carney had dismissed.

Sluggish wage growth

The BoE forecast Britain's economy would grow 2.2 per cent this year and 2.3 per cent in 2017, down from forecasts of 2.5 per cent and 2.6 per cent in November and barely changed from 2015, when growth disappointed expectations.

Consumer price inflation is forecast to stay below 1 per cent through 2016, longer than previously thought, but then is forecast to rise to just over 2 per cent in two years' time, similar to the last set of forecasts.

The BoE also cut its wage forecasts, predicting wage growth of 3 per cent, a level officials had previously identified as supporting a rate rise, only at the end of 2016.

Few weeks ago, Carney said he would only back a rate rise once growth was faster than average, wages had picked up and underlying inflation was nearer 2 per cent.

Carney added that sterling's recent fall, the resilience of the financial system and solid growth in both household and corporate consumption supported the British economy, indicating the domestic economy could withstand increased global stress.

Sterling has weakened by more than 3 per cent over the past three months. The BoE said this reflected concerns about global growth, lower interest rate expectations and possibly uncertainty about Britain's referendum on leaving the EU.

LONDON/HOUSTON — As oil and gas companies cut ever-deeper into the bone to weather their worst downturn in decades, boards have adopted contrasting strategies to lead them out of the crisis.

Crude prices have tumbled around 70 per cent over the past 18 months to around $35 a barrel, leading to five of the world’s top oil companies reporting sharp declines in profits in recent days.

Executives at energy firms face a tough balancing act: they must cut spending to stay financially afloat while preserving the production infrastructure, and capacity that will allow them to compete and grow when the market recovers.

Companies have opted for differing approaches to secure future growth, often choosing to narrow focus to their areas of expertise and the geographic location of their main assets.

American firms Chevron ConocoPhillips and Hess Corp. are withdrawing from more costly deepwater projects to focus on shale oil fields on their home turf, for example.

Britain’s BP is betting on offshore gas in Egypt, while Royal Dutch Shell has opted for an alternative route as it seeks to safeguard its future: the $50 billion takeover of BG Group.

In the five years before the downturn began in mid-2014, when crude prices held above $100 a barrel, big energy firms had raced to expand production capacity, including buying stakes in vast, costly fields sometimes located thousands of metres under the sea, and kilometres from land.

Over the past year however, companies have slashed their overall capital expenditure, scrapping plans for mega projects that cost billions to develop and take up to a decade to bring online.

“Companies want to strike a balance between long and short-cycle investments while maintaining a robust balance sheet to fund their way through the down cycle,” said BMO Capital analyst Brendan Warn. 

Focusing on a specific set of expertise and geographies allowed them to offer investors a “unique value proposition”, he added.

US shale, Egypt gas

Chevron, the second-largest US oil firm after Exxon Mobil by market value, last week outlined plans to target spending on “short-cycle” investments, lower-cost projects that can take months, rather then several years, to come online.

In particular, it is focusing on its big presence in shale oil fields in the US Permian basin at the expense of high-cost, complex deepwater projects after cutting its 2016 capital expenditure, or capex, by 24 per cent.

“In terms of longer-cycle projects, we aren’t initiating. We aren’t initiating any. You are going to see us preferentially favour short-cycle investments, and if they don’t meet our hurdles, we won’t invest,” Chevron Chief Executive Officer John Watson said in an analyst call.

Even though developing shale wells can be more costly than some deepwater projects on a per-barrel basis, a much shorter development cycle and lower execution risks mean that companies can reap benefits quicker.

The short-term investment strategy is driven in part by the fact that, unlike for example BP, it already has a pipeline of longer-term projects, it is currently developing some of the world’s largest liquefied natural gas (LNG) projects such as the Gorgon and Wheatstone plants in Australia.

Smaller firms ConocoPhillips and Hess have also shifted away from deepwater projects to onshore shale production including in North Dakota’s Bakken Shale.

BP was one of very few companies that approved a major project last year, with its $12 billion investment decision in the West Nile Delta gas project in Egypt. 

The strategy is partly based on its plans to see a large part of its future production growth come from gas off the coast of the North African country.

But the company, which reported its biggest-ever loss last week, also does not have the line-up of long-term projects boasted by the likes of Chevron; the development is also driven by the fact it sold more than $50 billion of assets after the deadly 2010 Gulf of Mexico oil spill, leading to a significant decline in output, according to analysts.

“BP aren’t digging themselves through a hole. They are investing a little bit through the cycle,” said Warn.

Dealmaking

Shell, by contrast, opted at an early stage of the downturn to acquire Britain’s BG Group in the sector’s largest deal in a decade. It will make it a leader in LNG and offshore oil production in Brazil and increase its energy reserves by about a fifth.

The Anglo-Dutch group, which posted its lowest annual income for 13 years last week, expects to complete the deal this month.

US giant Exxon may need to take a leaf out of Shell’s book and seek a major merger and acquisition deal after it surprised many in the market last week by slashing its 2016 spending by a quarter to $23 billion, said Anish Kapadia, analyst at Tudor, Pickering, Holt and Co.

The capex cut signals the company, which reported its smallest quarterly profit in more than a decade, is not planning to invest in many new projects, he added.

“That is a signal that Exxon doesn’t have an attractive enough project queue to invest in and is not willing to invest in upstream, so if it wants to grow it will have to make an acquisition,” Kapadia continued.

“In this environment with the potential for higher oil price, Chevron are doing the right thing. They can survive over the next few years and have the option to grow. Exxon is at the bottom of the pile. It looks the most expensive but it is hard to justify given the lack of growth outlook,” he indicated.

Tudor, Pickering, Holt and Co. has a ‘buy’ recommendation on Chevron and Shell, a “hold” on BP and “sell” on Exxon.

Norway’s Statoil and France’s Total, meanwhile, appear to be sitting in the middle ground: both have indicated they will not invest in new projects this year but they also have big projects coming on stream in the coming years that will counter production declines.

LONDON/NEW YORK — Candy bars have shrunk and economic growth in Asia has slowed, meaning people are eating less chocolate and its key ingredient cocoa, which has seen its price fall this year after defying commodities trends to soar in 2015.

High prices for ingredients last year, including nuts and milk as well as cocoa, helped make chocolate a less affordable treat for consumers in emerging markets such as China and India. Chocoholics in North America and Europe, meanwhile, opted for quality at the expense of quantity.

Market research firm Nielsen has estimated there was a 3.7 per cent year-on-year decline in global chocolate confectionery demand in the September-November period.

With food retailers pressing manufacturers to minimise price rises, one response was "shrinkflation". Some companies put smaller bars in the pack but kept the price unchanged.

"It used to be you had 'fun sizes' and now it's bite sizes," said Judith Ganes-Chase, soft commodities expert and president of New York-based J Ganes Consulting. "Fun size" bars in North America are two or three bites big.

A much lower-than-expected crop in Ghana, the world's second largest producer, helped push global cocoa prices up by more than 10 per cent last year. 

The early weeks of 2016 have already seen prices fall back again by as much as 15 per cent, as production in Ghana rebounded and some investment funds reduced their holdings in commodities such as cocoa.

But those hoping for chunkier bars or cheaper chocolate are likely to be disappointed, with manufacturers likely to pocket most of whatever they save on ingredients.

Euromonitor analyst Jack Skelly indicated that most chocolate makers are focused on cutting costs at the moment, noting that cocoa prices are still much higher than a few years ago.

"Profit margins are at the forefront for companies at the moment due to global market slowdown," he said.

Consumers in more affluent countries have developed a taste for premium chocolate, with the extra cost partially offset by less frequent purchases.

Premium chocolate maker Lindt & Spruengli reported sales growth of more than 7 per cent in 2015, while mass-market rivals such as US-based Hershey Company have struggled.

The maker of Hershey Kisses and Reese's Peanut Butter Cups reported a bigger-than-expected 5 per cent drop in quarterly net sales last month, noting weak demand in China and North America.

"We believe the macroeconomic environment and competitive activity in the international markets where we operate will continue to be a headwind for the chocolate category and Hershey in 2016," John P. Bilbrey, president and chief executive of Hershey Co. said during a conference call.

According to Euromonitor analyst Skelly, price rises has stunted demand growth in Asia.

"In emerging markets like China and India I think affordability is a real issue which means chocolate isn't growing as quickly as it could," he said.

Grinding recovers

The fall in prices for cocoa has already begun to revive demand for grinders, who turn cocoa beans into ingredients like the cocoa butter used to make chocolate.

"We are seeing very keen demand and off-take which is unusual for this time of the year," indicated Jeff Rasinski, vice-president of procurement and risk management for Blommer Chocolate Company, the biggest cocoa grinder in North America.

Last year's rise in cocoa prices had made it less profitable to grind cocoa. In the 2014/15 (October/September) crop year, the International Cocoa Organisation estimated global grindings fell by nearly 5 per cent to 4.1 million tonnes.

Analysts and traders said the revival in demand for processed cocoa may be driven by manufacturers restocking inventory, and doesn't necessarily mean people will soon be eating more chocolate.

"There are a lot of people who delayed purchasing when prices were high. They're going to look to take advantage of the lower prices. That's going to help improve grind," Ganes-Chase said.

"It has nothing to do with how much chocolate is being sold on the retail level. This is more about inventory management and trying to lock in lower price levels for manufacturers, bakeries or confectionery manufacturers," she added.