Business

AMMAN — The Jordan Society for Scientific Research held its first economic conference on Saturday with the participation of experts and officials to discuss means to address the budget deficit and indebtedness.

The event, titled “The Jordanian Economy in a Variable Year”, was held under the patronage of Prime Minister Abdullah Ensour, according to society President Anwar Battikhi.

He noted that the conference would provide a platform to examine the impact of internal and external debts on economic growth, in addition to issues related to the knowledge-based economy, investments, public expenditure and the Islamic banking system. 

ALGIERS — Long held in suspicion in a largely state-controlled economy, Algerian businessmen are pouring cash into President Abdel Aziz Bouteflika’s re-election campaign, hoping to benefit from an expected fourth term for the incumbent.

By law, candidates are supposed to spend no more than $764,000 (600,000 euros) on their campaign unless the election goes to a second-round run-off.

But analysts say the legal limit is set impossibly low for a country which is Africa’s largest by area, paving the way for effectively unrestricted spending by the candidates, with the incumbent leading the way.

Because the spending is technically illegal, no public record is kept of where the campaign funds come from.

But there is no shortage of businessmen eager to smooth the way for public contracts, or cut through Algeria’s notorious red tape to secure loans from state-owned banks or planning permission from local authorities.

According to economist M’Hamed Hamidouche, the legal spending limit would not even cover the costs of renting the campaign booths the rival candidates set up.

“In reality, the candidates receive significant donations in cash, the origins of which are difficult to establish. There are no checks,” Hamidouche said.

Bouteflika’s campaign spending alone runs to at least 75 million euros, Algerian press reports say.

A team of top aides, led by former prime minister Abdel Malek Sellal, have been separately criss-crossing the vast North African nation to make the controversial case for the incumbent’s re-election as the 77-year-old is too sick to campaign himself.

First and foremost among his campaign contributors are the many businessmen dependent on public sector contracts in an economy driven by state-controlled oil and gas receipts, Hamidouche says.

Prominent among them is Ali Haddad, who is often seen with the ageing president’s brother Said.

His ETRHB construction company has experienced meteoric success in the 15 years since Bouteflika came to power, securing state contracts worth an estimated $2.5 billion, according to the Algerian press.

Haddad, who already runs the pro-Bouteflika Dzair TV, has launched a new channel, Wiam, dedicated to covering the incumbent’s re-election campaign.

Since stepping down as premier in March, Bouteflika’s campaign chief Sellal has shuttled around the country in a plane chartered from state energy firm Sonatrach’s Tassili Airlines, accompanied by some 50 invited journalists.

The president’s main rival, Ali Benflis, who is seeking to oust Bouteflika at the second attempt after failing 10 years ago, has chartered an aircraft from state-owned carrier Air Algerie.

Businessmen
‘invited’ to donate

Businessmen in the services sector who have flourished during Bouteflika’s rule are another source of campaign funding, Hamidouche says. 

Mahieddine Tahkout was a humble fruit and vegetable trader but now owns a fleet of buses which operate under contract to the higher education ministry, and also holds the distribution licences for several Asian and European car manufacturers.

There are also many other businessmen who may not be seeking state contracts but who are still eager for support from the president’s entourage in navigating Algeria’s bureaucracy.

Algeria’s main employers’ organisation, the Forum of Business Leaders (FCE), voted at a special meeting in March to support Bouteflika’s re-election.

Several FCE members said they were “invited” to make pledges of between 5,000 euros and 500,000 euros to Bouteflika’s campaign, according to the news website Maghreb Emergent. 

One member, food business boss Slim Othmani, charged that “threats” were made to extract donations from reluctant contributors.

“I have to choose my words carefully when I talk about threats, because some of us are getting seriously worried,” he said in remarks that were later leaked.

Othmani quit the FCE shortly afterwards, complaining in his resignation letter that an employers’ organisation ought to show more self-respect than to shower an incumbent with displays of support.

Separately, the winner of energy-rich Algeria’s presidential election must tackle a major problem facing the country — its dependence on hydrocarbon revenues, which are used by the government to defuse social tensions and which are in decline.

Sporadic protests over poor living conditions came to a head in early 2011, as the popular uprising in neighbouring Tunisia toppled a decades old-dictatorship.

Bouteflika responded by hiking public spending, raising wages and initiating a reform programme.

But discontent remains a real threat in the years to come, experts say, with official jobless figure of 9.8 per cent hiding a burgeoning informal sector, much higher youth unemployment and many people holding precarious, often illegal jobs.

“Despite high levels of spending in 2011 and 2012, and additional wage increases in 2013, social demands remain elevated and could further increase,” the International Monetary Fund (IMF) said in a report in February.

And a special committee of former colonial power France’s National Assembly said in December that Algeria’s hydrocarbons sector employed just 3 per cent of the active population but generated 40 per cent of gross domestic product (GDP) and 97 per cent of export earnings. 

Since Bouteflika came to power in 1999, Algeria has reaped vast revenues as oil prices have risen, enabling it to pay off its debts, amass $200 billion (144 billion euros) in foreign reserves and plough $500 billion into social spending schemes.

“From 1999 to 2012, Algeria has earned more from its resources than in the 36 previous years. Hydrocarbons exports brought in $751 billion in 13 years,” economist Abderahmane Mebtoul pointed out.

But as the IMF warned that the windfall has brought problems of its own, creating vulnerability to price fluctuations and holding back Algeria’s fledgling non-energy sector. 

“The economy’s vulnerability to developments in the hydrocarbon sector is worsening. Declining hydrocarbon production and surging domestic consumption are squeezing export volumes, compounding the longstanding risk of lower oil prices,” it indicated.

Meanwhile, Algeria’s import bill reached almost $55 billion last year.

Growing pressure to diversify

Bouteflika has launched huge spending programmes under each of his three five-year terms. There was one of $155 billion between 2005 and 2009, and another $286 billion between 2010 and 2014, of which $130 billion was earmarked for completing unfinished projects.

But the results have been mixed, at best.

“Tangible results have been registered in the social sector because of these public redistribution policies and from job creation, with a significant decline in unemployment,” said economy expert Mustapha Mekideche.

But he also lamented the “extensive reliance on foreign capability, on the inexplicable extra costs and on the quality of work, which could have been better.” 

A glaring example of the problems associated with major state-controlled projects in Algeria is the 1,200 kilometre East-West highway, which has been dogged by allegations of corruption and extended delays. 

Launched in 2007, it was originally due to cost less than half the current estimate of $13 billion.

Another economist, Abde Latif Rebah, believes the “vulnerability and structural handicaps of the Algerian economy have got worse” and that the country’s dependence on energy exports has not changed, despite repeatedly announced plans to diversify.

“The share of industry in GDP has gone from 25 per cent to five per cent in 30 years,” he indicated.

The ruling elite is acutely aware of the need for structural change. 

Sellal said last year that boosting industry was the only way to “break out of this vicious circle of dependence on hydrocarbons,” create sustainable employment and drive healthy economic growth.

“Getting the economy on the path to reindustrialisation and reducing the power of the lobbies will be one of the key tasks awaiting the future president,” said Mekideche.

WASHINGTON — US Treasury Secretary Jacob Lew warned the eurozone this week to pay heed to the risk of deflation, adding pressure on European authorities and the European Central Bank (ECB) to boost growth.

"The risk of low demand and the risk of deflation is something they need to be very alert to," Lew said on CNBC television.

Lew added that countries running strong fiscal and trade surpluses should do more to increase demand, to help deficit countries.

"In Europe as a whole, the growth rate is very modest, the risk of deflation is something that has a lot of people concerned," he said. "There is a demand problem in the world and  there is a demand problem in Europe." 

"There are a number of countries that could do more, and Germany obviously is one of the surplus countries in Europe," he indicated.

He suggested that more investment in infrastructure could help boost demand, in turn countering the deflationary pressures from slow growth.

Lew's warning came a day after the International Monetary Fund's (IMF) chief economist Olivier Blanchard urged the ECB to act "soon" to counter extremely low inflation, which some economist worry could reverse the euro area's rebound.

Blanchard said the ECB had studied its options already, including setting negative interest rates and embarking on a US-like quantitative easing stimulus.

"I think they should all be looked at, and I know that the ECB is looking at them," he said of the bank's various choices. "And we hope that they will implement them as soon as they are technically ready to do so."

"Everything should be done to try to avoid" deflation, he added.

According to an upgraded IMF forecast, the eurozone economy is recovering towards 1.2 per cent growth this year.

Warning that recovery in the 18 eurozone members was struggling up a slippery slope, the IMF raised the outlook for this year from 1.0 per cent, and forecast 1.5 per cent growth next year and in the medium term.

Although the eurozone had "finally emerged from recession" after a contraction of 0.5 per cent last year, "downside risks dominate", the IMF said.

The legacy of the financial and debt crises in the form of high unemployment, debt and tight credit still had to be tackled, but the recovery is underpinned by reforms already enacted, it added.

However dangers abound, notably a "relatively high risk" of deflation, which could set the recovery back, the IMF warned in its spring economic forecasts.

Countries in difficulties because of budget deficits must push ahead with economic reforms, the IMF said.

WASHINGTON — Public company and bank audits conducted around the globe by units affiliated with the world's six largest accounting firms are persistently riddled with flaws, a group of international regulators have found.

The finding, released on Thursday in a survey by the International Forum of Independent Audit Regulators (IFIAR), raises major policy questions about whether enough has been done by global regulators to improve audit quality since the 2007-2009 financial crisis.

Leading up to the crisis, many publicly traded banks portrayed a rosy financial picture of their corporate books, only to later suffer massive losses on sub-prime mortgage securities in their portfolios.

Critics have questioned why independent auditors tasked with reviewing the accuracy and quality of public company financial reporting failed to spot the problems sooner.

"The high rate and severity of inspection deficiencies in critical aspects of the audit, and at some of the world's largest and systemically important financial institutions, is a wake-up call to firms and regulators alike," said Lewis Ferguson of the Public Company Accounting Oversight Board (PCAOB), the body that polices auditors in the United States.

"More must be done to improve the reliability of audit work performed globally on behalf of investors," he stressed.

The global survey on audit performance comes at the end of a three-day summit in Washington, DC, that included audit regulators from around the globe.

Together, those 50 regulators comprise the IFIAR — a coalition that was formed in 2006 to improve information-sharing and coordination.

The findings discussed in Thursday's survey stem primarily from inspections conducted at firms affiliated with the six largest accounting firms in 2013.

That includes the "Big Four" — PricewaterhouseCoopers, KPMG, Deloitte and Ernst & Young, as well as BDO and Grant Thornton.

The survey looked at inspection results for audits of public companies and large financial institutions considered "systemically important" to the global economy.

It also looked at how well internal quality controls fare at audit firms themselves.

With public company audits, regulators found problems related to auditing fair value measurements, internal control testing and procedures used to assess how financial statements are presented.

The regulators said that audits of systemically important financial firms often had deficiencies stemming from allowances for loan losses and loan impairments and the auditing of investment valuation.

In all of these examples, IFIAR indicated that auditors did not always obtain sufficient evidence to support their audit opinions.

As for audit firms, the regulators added that they routinely encountered problems with independence and ethics, among other things.

The survey is IFIAR's second. Last year, similar types of problems were flagged, though IFIAR says the survey itself does not provide an adequate basis to make a year-to-year comparison.

Regulators in the United States and Europe have been exploring ways to improve audit quality since the 2007-2009 financial crisis.

Last week, the European Union approved some of the world's toughest new rules for accountants, after auditors gave banks a clean bill of health before they were bailed out by taxpayers.

Those rules would prevent accounting firms from also auditing the books of a public company client for more than 20 years, a reform designed to bolster auditor independence and end cozy relationships between accountants and company management.

The PCAOB has given up exploring a similar reform in the United States, after major business groups and accounting firms lobbied fiercely against it.

However, the board is working towards completing other reforms. One plan would require auditors to tell investors more details about "critical audit matters" they encountered during a review of the company books.

Another plan calls for auditors to disclose the names of individual partners who work on company audits, in an effort to hold them more accountable. 

TOKYO — Toyota on Wednesday recalled 6.39 million vehicles globally over a string of problems, dealing another blow to the world's largest automaker whose reputation for quality and safety has been dented in recent years.

Despite record sales and bumper profits, Toyota has been fighting to protect its brand after earlier recalls involving millions of vehicles.

Last month, it reached a deal to pay $1.2 billion to settle US criminal charges that it covered up a sticky pedal blamed for dozens of deaths.

US rival General Motors has also been sideswiped by accusations that it hid a decade-long ignition and air bag problem linked to 13 deaths. 

There was no apparent link between GM's woes and an air bag issue that Toyota announced Wednesday as part of its broad recall.

Toyota shares were among the biggest losers in Tokyo, falling 3.07 per cent to 5,450 yen ($53) by the close.

The company issued five recalls involving 26 Toyota models, as well as the Pontiac Vibe and the Subaru Trezia, with some models affected by more than one recall. 

The Vibe, based on Toyota's Matrix model, was produced at a US factory which was jointly owned by the Japanese automaker and GM. The Trezia is a rebadged version of Toyota's Ractis subcompact. 

Toyota said "we sincerely apologise" for the recall, adding that it has "re-dedicated itself to strengthening its commitment to safety and quality". 

"In part, this means re-focusing on putting customers and people first, by listening better and taking appropriate action," the firm added.

Among the other problems are a driver's seat defect, steering column problems and an engine starter glitch that posed a fire risk.

Toyota said it had received two reports about fires due to the starter defect, but added that none of the issues had caused any accidents to its knowledge.

The affected vehicles include the Corolla sedan, the RAV4 sport utility vehicle and the Yaris subcompact.

The vehicles were made over the past decade. Toyota said the recall affects 1.08 million vehicles in Japan, 2.3 million in North America, about 770,000 in Europe and 62,000 in China, with the rest from other regions.

WASHINGTON — Foreign profits held overseas by US corporations to avoid taxes at home nearly doubled from 2008 to 2013 to top $2.1 trillion, according to a private research firm's report, prompting a call for reform by the Senate's top tax law writer.

"The new numbers... certainly highlight what is one of the key challenges for tax reform. I do think there need to be some reforms in this area," Senate Finance Committee Chairman Ron Wyden told reporters late Tuesday on Capitol Hill.

Under US law, corporations do not have to pay income tax on most of their overseas profits until they are brought into the United States. These earnings can be held offshore for years if they are classified as indefinitely invested abroad.

Research firm Audit Analytics pointed out in a report issued last week that the total of such earnings was up 93 per cent from 2008 to 2013, citing federal financial filings for companies listed in the Russell 1000 index of US corporations.

Conglomerate General Electric Co. (GE) had the biggest pile of earnings stored abroad, at $110 billion, the firm indicated.

Next were software maker Microsoft Corp., with $76.4 billion; drugmakers Pfizer Inc., with $69 billion, and Merck & Co. Inc., with $57.1 billion; and high-tech group Apple Inc., with $54.4 billion, it said.

In response, GE said in a statement: "GE operates in more than 170 countries, and most of these overseas earnings have been reinvested in active business operations like manufacturing facilities and loans to non-US customers."

A Merck spokesman said the company files its tax returns in accordance with all applicable laws and regulations.

A Microsoft spokesman referred questions to 2012 congressional testimony, in which company officials said it abides by foreign and US tax laws.

In testimony in 2013 before Congress, Apple Chief Executive Tim Cook said the company is a large taxpayer and does not use tax gimmicks. Apple declined to comment on the new report.

Pfizer was not immediately available for comment.

Baucus and Wyden

Congress has quarrelled for years over the law that lets multinationals stash profits abroad tax-free. Some favour killing the law, known as offshore corporate income tax deferral, and some back a one-time tax holiday that would let companies bring foreign profits home, or "repatriate" them, at a low tax rate.

Debate over offshore deferral flared again in November when Wyden's predecessor as finance committee chairman, former Democratic Senator Max Baucus, proposed doing both. Baucus resigned weeks later to become US ambassador to China.

Wyden in the past has called for repeal of offshore deferral, along with a repatriation holiday, among other changes to the tax code, which he last month called "a rotten carcass that the special interests feast on".

No decisive action is likely for now, however, with Congress deadlocked over fiscal issues at least until after the November mid-term congressional elections, according to policy analysts.

Next year, lawmakers are likely to mount another push to overhaul the tax code, a politically difficult feat that has not been accomplished since 1986, when Republican President Ronald Reagan and a divided Congress managed to get it done.

The top US corporate income tax rate is 35 per cent, though few multinationals pay anywhere near that thanks to tax reducing loopholes written into the code in the past 28 years, including some that have enabled wider use of offshore deferral.

AMMAN –– “Positive” talks are currently under way with Australian, Korean, Venezuelan and Gulf investors to implement a variety of projects in Jordan,  Awni Rushoud, acting chief executive officer of Jordan Investment Board (JIB), told The Jordan Times over the phone on Tuesday.

"Talks are really positive and we are optimistic to translate such encouraging discussions into feasible projects on the ground," Rushoud said.

He did not provide details except to say that energy, among other sectors, stands out as the most attractive for foreign and local investors to implement a set of projects in the Kingdom.

Rushoud said Jordan is eyeing to attract more investments this year after exceeding the target set for the first quarter of 2014.  He declined to be more specific as exact figures will be published next week.

In previous remarks to The Jordan Times, Ruoshoud said Jordan's investment inflows rose by 19.5 per cent in 2013  “reflecting investors’ confidence in the Kingdom’s economy and business environment".

He added that the volume of projects that applied to benefit from the Investment  Promotion Law reached JD1.92 billion (around $2.7 billion) in 2013 compared to JD1.61 billion ($2.2 billion) in 2012.

DUBAI — Growth in Egypt's economy is expected to remain sluggish this year as political uncertainty keeps tourists and foreign investors away, the International Monetary Fund (IMF) said Tuesday. 

The economy of the Arab world's most populated country was forecast to grow by 2.7 per cent this year after expanding by 2.1 per cent in 2013, the IMF said in its World Economic Outlook.

"Growth in 2014 is expected to be broadly the same as in 2013, as political uncertainty will continue to weigh on tourism and foreign direct investment," it added.

The slow performance was likely despite the "fiscal stimulus" of support from Gulf countries, which promised billions of dollars in aid to Egypt after the army ousted president Mohamed Morsi in July.

Saudi Arabia pledged $5 billion in aid to the military-installed government in Cairo, with Kuwait and the United Arab Emirates (UAE) offering a combined $7 billion.  

"Large imbalances will persist unless structural reforms and fiscal consolidation are initiated," said the IMF, which was until last year negotiating a $4.8 billion loan to Cairo to help finance the government while it undertakes reforms.

Political changes in the country have set the talks back.   

Egypt's economy grew at 5.1 per cent in 2010, prior to the January 2011 uprising that forced president Hosni Mubarak to step down after ruling for nearly 30 years.

Separately, the IMF expects economic growth in Tunisia, cradle of the Arab Spring uprisings, to gather pace on the back of political and security improvements.

The economy of the North African nation grew by 2.7 per cent in 2013, but is expected to expand by 3 per cent this year, the IMF said.

Growth in gross domestic product (GDP) should reach 4.5 per cent in 2015, it indicated.

"Tunisian growth is expected to strengthen, spurred by improved confidence from a new constitution, reduced security tensions, and pre-election reforms," the IMF said.

Tunisia's central bank said last month that economic growth slowed in 2013 to 2.6 per cent from 3.6 per cent in 2012, citing negative political and security factors. 

Since the 2011 uprising that ousted dictator Zine Al Abidine Ben Ali, Tunisia has been hit by sporadic violence.

Elsewhere, the IMF warned that a rapid growth in US oil production combined with potentially weaker global demand present a downside risk to Gulf oil output and prices.

But despite an expected drop in their current account surpluses, most Gulf Cooperation Council (GCC) economies continue to have "substantial buffers" to cope with short-lived price shocks, the IMF said.

And economic growth in most of the oil-rich GCC economies is to hover near the rates registered last year, with Saudi Arabia's largest Arab economy expanding by 4.1 per cent in 2014, compared to 3.8 per cent in 2013, it added.

"Faster-than-expected growth in the US oil supply and lingering risks of weaker-than-expected global oil demand because of a slowdown in either emerging markets or advanced economies present downside risks to oil prices and GCC production," it elaborated.

The GCC comprises top oil exporter Saudi Arabia, as well as Bahrain, Kuwait, Oman, Qatar and the UAE.

US oil output has been rising fast on the back of the newly tapped shale-based reserves.

The Organisation of Petroleum Exporting Countries (OPEC) oil group said last month that supply from non-members is expected to increase by 1.31 million barrels per day this year, mainly from the United States, Canada and Brazil.

Large current account surpluses in Middle East and North Africa oil exporters are expected to decline in 2014 "because of lower oil revenues," the IMF indicated.

"Although fiscal positions have been weakening across the GCC economies over the past several years, most still have substantial buffers to withstand large shocks to oil prices, provided the shocks are short lived," it said.

Those countries adopted expansionary fiscal policies to fend off the impact of the global financial crisis in 2008, channelling some of the oil windfall into infrastructure projects.

Reduce dependence
on oil

"Policy priorities continue to be centred on diversifying these economies to reduce dependence on oil, increase employment opportunities in the private sector for nationals and enhance resilience to shocks," the IMF recommended.

"Reforms to foster entrepreneurship, along with public wage and employment restraint, are key," it stressed. 

Economic growth in the UAE is expected to be around 4.4 per cent and 4.2 per cent in 2014 and 2015 respectively, compared to 4.8 per cent last year, the IMF said.

Dubai's winning of the right to host World Expo 2020 has further strengthened growth prospects in the UAE where real estate prices are rising at a "fast pace", the IMF added.

Dubai's property sector had nosedived due to the global financial crisis, following five years of rapid growth. But the sector has made a strong comeback as investors flocked back in the emirate that is perceived as a safe haven amid regional turmoil.

Growth in gas-rich Qatar will ease slightly from 6.1 per cent last year to 5.9 per cent in 2014, picking up again in 2015 at 7.1 per cent.

The emirate is expected to spend billions of dollars on infrastructure projects in preparation for the football World Cup tournament in 2022.

Kuwait's economy will grow 2.6 per cent this year and 3 per cent in 2015 after growing by just 0.8 per cent last year.

AMMAN — Jordan Insurance Company (JIC) announced this week in a press statement that it will be distributing dividends to shareholders at a rate of six per cent following the approval of the general assembly during an ordinary  meeting held recently. According to the statement, shareholders discussed the 2013 annual report which showed that the company’s  technical profit reaching JD3 million last year. JIC Managing Director Imad Abdel Khaleq said in the press statement: “Although technical reserves increased exceptionally last year, we managed to achieve good technical profit in 2013 and enhance the overall financial position of the company. Because of the instability of the financial market and the subsequent setbacks in the stock prices, our net profit was slightly affected. Abdel Khaleq pointed to JIC’s diverse real estate portfolio as evidence of the company’s enduring financial strength, noting that although the book value stands at  JD17 million, the current market value comes at JD30 million.

AMMAN — Jordan Ahli Bank (JAB) on Tuesday announced that under a preliminary agreement signed this week, a Lebanese commercial bank will buy all the shares of JAB in the International Ahli Bank in Lebanon which accounts for 97 per cent of total shares. JAB disclosed its announcement on the Amman Stock Exchange website.