Business

LONDON — British finance and transport firms have struggled with particularly weak productivity since 2007, according to an official study which gave no details on why the problem was so acute in these sectors.

Productivity has been a major concern in Britain since the financial crisis and last year’s economic recovery has not boosted workers’ efficiency as much as the Bank of England (BoE) expected — potentially weighing on how much Britons can earn in the long term.

Service businesses account for more than three quarters of British output, and 79 per cent of total hours worked.

“Estimates of productivity in the services industry...  suggest that recent weakness is accounted for by several specific sub-industries — including finance and insurance, accommodation and food, and transport and storage services,” the report from the Office for National Statistics (ONS) said.

An ONS official said it was not clear why productivity was poor in those particular services.

But the report showed productivity has returned to pre-downturn trend rates in other types of services.

Many economists say low productivity is partly explained by lower-than-expected job losses during the recession that followed the financial crisis.

A business survey on Wednesday showed British companies hired staff at the fastest pace in at least 16 years last month.

Finance Minister George Osborne said last month productivity growth was disappointing, and put most of the blame on the slowness of a recovery in bank lending after the 2008 financial crisis.

Data on Monday showed lending to businesses declined again in January, and many small and medium-sized firms still complain of a lack of access to funding to pay for the investment that can make workers more productive.

An analysis from the ONS in January showed that while Britain enjoyed the strongest productivity growth among Group of 7 economies between 1991 and 2007, its performance was the weakest between 2007 and 2012.

BoE policy maker Ben Broadbent said last week that although there are grounds for optimism about an improvement in productivity, it may not approach US levels even if international headwinds recede. 

Separately, a study by a leading research institute said that a pledge by Britain’s government to slow immigration could make the economy 11 per cent smaller by 2060 and taxpayers would have to fund higher public spending.

Immigration has become a hot issue ahead of elections in 2015 and the end of restrictions on workers from Romania and Bulgaria.

Prime Minister David Cameron promised in the run-up to the last election in 2010 to slash net migration to the “tens of thousands” by 2015, down from the 200,000 a year expected under current trends.

But a halving of net migration over the period to 2060 would have “strong negative effects” on the economy, said the new study, published by the independent National Institute of Economic and Social Research.

“The level of both GDP [gross domestic product] and GDP per person fall during the simulation period by 11 per cent and 2.7 per cent respectively,” it indicated.

Furthermore, lower numbers of immigrants, who tend to be young, would add significantly to public spending, as a share of the economy, in order to care for a generally older population.

“To keep the government budget balanced, the labour income tax rate has to be increased by 2.2 percentage points in the lower migration scenario,” the report indicated.

That meant net wages would be 3.3 per cent lower in 2060 than if immigration flows remain unchanged, it noted.

Under pressure from the anti-immigration UK Independence Party, Cameron has said he wants to restrict the relocation of migrants from poorer European Union (EU) states to richer ones, challenging one of the central tenets of the EU.

Deputy Prime Minister Nick Clegg, whose Liberal Democrats share power with Cameron’s Conservatives, said curbing immigrant numbers would damage the economy.

LONDON — Turkey’s lira and South Africa’s rand will weaken more this year, caught in the crosshairs of emerging market capital outflows and an ascendant US dollar, according to a Reuters poll that also showed Russia’s ruble losing more ground.

Investors and speculators have sold off emerging market assets since the US Federal Reserve (Fed) made clear late last year that it would gradually taper its massive monthly bond purchase programme, which up until then had been propping them up.

As it became more clear the Fed intended to wind down the programme by year-end, emerging market currencies got hit hard, although there has been a let-up in the selling over the last few weeks.

The Turkish lira, which has lost about a fifth of its value over the past year is expected to get hit by a political scandal that has gripped the government in Ankara.

A graft probe which led to the resignation of three ministers in December 2013 and shook Turkish Prime Minister Recep Tayyip Erdogan’s government unnerved investors further, particularly with elections looming in March and August.

In January, the Turkish central bank raised all of its key interest rates in a dramatic move in an emergency policy meeting to defend a crumbling currency that is among the most vulnerable to another sell-off.

“We remain bearish on the longer term given our outlook on US yields, emerging market growth and the risk that the important election year in Turkey brings a renewed pressure once again later in the year,” Anezka Christovova, foreign exchnage strategist at Credit Suisse said.

The lira, which touched a record low of 2.39 in January and has fallen around 3 per cent so far this year, is expected to trade at 2.25 to the dollar in a month, 2.27 per dollar in three and settle at 2.25 a dollar in a year.

Like the lira, the rand also lost almost a fifth of its value last year due to its sticky current account and domestic labour strife.

It is expected to shed around 3 per cent in the next 12 months to trade at 11.02 against the dollar.

“The key concern for the rand is this current account deficit because even though the currency has been very weak already, the current account has not shown any significant signs of improvement,” said Barclays Africa analyst Mike Keenan.

South Africa’s current account deficit widened in the third quarter to a five-year high, increasing the economy’s vulnerability to external shocks, while trade figures for January reported last week point to a further deterioration.

“We think the rand will start to weaken soon because we have had a bit of profit taking by the rand bears, but the positioning is now well set for a renewed bout of weakness,” he added.

The Russian ruble, which has fallen nearly 10 per cent this year and hit a record low on Monday, will also fall a bit more, but not very much, so far shrugging off the biggest escalation in tensions between Russia and the West since the Cold War.

But all three currencies remained top picks by global currency strategists as most vulnerable to another emerging market sell-off.

Strategists in a poll taken over the last 48 hours predict the ruble will recover a little to 35.50 against the dollar in a month, 35.00 in three months before weakening to 36.17 in a year’s time.

But when asked how low it could trade in the near term, the consensus from nine strategists put it at 37 to a dollar.

“If you look at the ruble forecast, a lot of it is dollar strength. It’s not like I’m predicting isolated ruble panic but I think the ruble is faced with challenges,” said John Hardy, head of foreign exchnage strategy at Saxo Bank.

“The economy is underperforming and I think they [Russia] would like to see the ruble weaker anyway... in terms of making Russia competitive,” he added.

Separately, foreign exchange strategists polled by Reuters expect the dollar to easily outperform other major currencies in the coming year, driven by demand for US assets prompted by a shift in Fed policy.

By signalling its intentions of closing its quantitative easing programme this year, the Fed may raise interest rates in the second half of next year.

Wednesday’s poll of over 60 analysts conducted March 3-5, showed the dollar set to gain against the euro, yen and sterling over the next 12 months.

“Real interest rates in the US are going to rise and that is going to certainly decrease the (capital) flow outside of the US into other economies,” said Geoffrey Yu, a currency strategist at UBS.

“We have seen that trend in emerging markets already and are going to see it in other economies as well,” he added.

The poll showed the euro holding around $1.36 in a month’s time, just shy of Wednesday trading level around $1.37.

It is expected to weaken over the next year — to $1.34 in three months, and $1.28 in 12.

Similarly, the yen was forecast to hold near 102 per US dollar in a month, and then weaken to 104 in three months and 110 in a year.

A fall in the yen to 110 per dollar in a year, as the poll predicts, would take the currency to a low not seen since the depths of the financial crisis in 2008.

Divergence

Analysts also attribute the broad dollar rally to the divergence in monetary policies in developed economies.

While calls for the Fed tightening its policy have increased, expectations are for the Bank of Japan and the European Central Bank (ECB) to maintain an easing bias to support their economies.

Indeed, with eurozone inflation running well below the ECB’s target of just under 2 per cent, the central bank is under pressure to print money, something a separate Reuters poll showed a growing minority predicting.

“They [the ECB] have precious little ammunition left, but at the very least they will try and make as much dovish noise as possible,” said Kit Jukes, head of foreign exchange research at Societe Generale, referring to Thursday’s ECB rates meeting.

Over the past few years leading currency watchers as a group have repeatedly called for the euro to weaken, only to see it rise against the dollar.

However, if the ECB does ease in a substantial way by way of outright quantitative easing like its counterparts in other developed economies, that trend could reverse.

“There can be some justification for the euro strength like a reduction in risk premium and capital flows, but it probably has reached its peak and we expect it to weaken up ahead,” UBS’s Yu said.

The British pound was forecast at $1.66 in one month, and then to weaken to 1.65 in three and 1.62 in a year.

KUWAIT CITY — Kuwaiti telecoms giant Zain has secured a syndicated revolving credit facility of $800 million (580 million euros) from 11 international and regional banks for general corporate use. France’s Credit Agricole Corporate and Investment Bank acted as coordinator and the facility agent for the loan, it indicated. Other banks who contributed to the loan are Arab Bank, The Bank of Tokyo-Mitsubishi UFJ, National Bank of Abu Dhabi, National Bank of Kuwait, Natixis, Samba Financial Group and The Royal Bank of Scotland. “The response to this facility is a testament to Zain’s strong relationships with the banking community, and their confidence in the company’s financial health and future business plans,” said Zain Group Chief Executive Officer Scott Gegenheimer. In addition to Kuwait, Zain operates in seven other countries including Saudi Arabia and Iraq. It has around 46 million clients.

DUBAI — A diplomatic split between Qatar and its wealthy Gulf neighbours may disrupt billions of dollars of investment in the region and slow efforts to make economies more efficient through trade and transport reforms.

Qatar’s vast natural gas wealth means the tiny country, with a population of about 2.1 million, could probably continue operating indefinitely despite the displeasure of Saudi Arabia, the United Arab Emirates (UAE) and Bahrain.

But its growth may slow if its trade and investment ties with the big Gulf Arab economies are scaled back. All the economies in the region could suffer in the long term if diplomatic tensions stall projects such as construction of a Gulf railway network and development of a free-trade area.

That could also deprive foreign companies of billions of dollars worth of construction projects.

Saudi Arabia, the UAE and Bahrain said on Wednesday they were withdrawing their ambassadors from Qatar because Doha had failed to implement an agreement among Gulf Arab countries not to interfere in each others’ internal affairs.

John Sfakianakis, chief investment strategist at MASIC, a Riyadh-based investment firm, said the diplomatic dispute would not immediately affect business in the Gulf but there would be an impact in the coming months and years if tensions did not ease.

“Less investments, less capital transfers, fewer joint ventures, more negativity about Qatar” may be the result if the country becomes isolated from the region, he said.

Politics

The Gulf countries’ decision to withdraw their ambassadors was unprecedented in the three-decade history of the six-nation Gulf Cooperation Council (GCC), and stemmed from deep resentment among Qatar’s neighbours about policies such as Doha’s support of Islamist movement the Muslim Brotherhood.

There was no sign of any economic sanctions being imposed, and some officials and businessmen in the region predicted governments would keep business separate from politics.

“The countries in our region do not involve politics and business,” Akbar Al Baker, chief executive of state-owned Qatar Airways, told reporters in Berlin.

Economics does tend to be shaped by politics in the Middle East, however, partly because many top companies are state-controlled and Gulf governments have become used to using their oil wealth as a diplomatic tool.

Egypt has experienced this in the last few years; it was shunned by Saudi and UAE businesses under Islamist President Mohamed Morsi, but those states have given billions of dollars of aid to Cairo since Morsi was deposed last year, causing investment to resume.

As the world’s top exporter of liquefied natural gas, Qatar is so rich that it does not need trade and investment from the rest of the Gulf for its economic wellbeing, as long as it can continue selling its gas to international markets.

The government’s budget surplus was $27.3 billion, or a huge 14.2 per cent of the gross domestic product, in the fiscal year to last March. That means it can import the food, technology and labour it needs from south Asia, Europe and elsewhere.

Because Gulf countries are focused on energy exports, they have relatively few economic links between them, noted Farouk Soussa, chief economist for the region at Citigroup. He said non-energy trade between Qatar and the three other countries was only about 1 per cent of total Qatari trade.

But there would be some financial consequences from a prolonged period of diplomatic tensions. Citizens of the Gulf Arab countries are active investors in each other’s stock markets; these fund flows could start to pull back.

Analysts estimate non-Qatari GCC nationals may own 5 — 10 per cent of Qatar’s stock market, which has a capitalisation of about $175 billion. The main Qatar stock index fell 2.1 per cent on Wednesday as news of the diplomatic dispute emerged.

Nasser Saidi, president of Dubai consulting firm Nasser Saidi & Associates, noted that Qatar was a large investor in the UAE’s booming real estate market, which could lose that source of funds if the dispute were prolonged.

Some big Qatari firms such as Qatar National Bank  are keen to expand in the Gulf, escaping the limitations of their small home market, and they could find that more difficult in future.

Qatar Airways is set to start flying domestic routes in Saudi Arabia in the third quarter of this year, after being one of just two foreign carriers awarded rights to service the Saudi market of about 30 million people.

Vulnerable 

If tensions eventually escalate into economic sanctions, the single biggest point of vulnerability for the Gulf would probably be the Dolphin Energy pipeline carrying about 2 billion cubic feet of gas per day from Qatar to the UAE and Oman.

Soussa at Citigroup did not expect the gas supply to be used as an economic weapon, but it was a potentially major one. Analysts estimate the gas flow represents about 5 per cent of total Qatari exports and some 30 per cent of the UAE’s gas needs.

“If anything were to happen to the pipeline, it would be a difficult situation to manage on both sides but mainly on the UAE side,” Soussa said.

Qatar also has energy ties to the rest of the Gulf through the Organisation of Petroleum Exporting Countries (OPEC), where it has traditionally supported Saudi Arabia’s policies as the dominant producer in the oil group.

Self-interest may well prevent energy policy from becoming embroiled in the diplomatic dispute. 

“All gas projects and OPEC oil-related relations with the GCC will not be affected,” a source at state energy giant Qatar Petroleum said.

Other joint initiatives between Qatar and its Gulf neighbours — some of them important for the countries’ efforts to create more private sector jobs and diversify their economies beyond oil — could stall, however. This could deprive foreign firms of billions of dollars worth of construction contracts.

Bahrain and Qatar have for years been discussing the possibility of building a 40-kilometre causeway between them; it is hard to imagine that going ahead in the current climate. A project worth at least $15 billion to connect Gulf states’ planned railway networks in coming years might also stall.

Even before the diplomatic dispute erupted, a proposal for a GCC currency union appeared dead, since Gulf officials became suspicious of it after seeing the eurozone’s difficulties.

Other economic initiatives looked more likely but have now become less so. In 2003, the GCC launched a free-trade area with a common external tariff; this has largely removed overt trade barriers within the bloc, but its full functioning has been delayed by disagreements over how to share customs revenues.

A GCC customs union authority is trying to resolve the problems but may now find that harder. Adoption of a proposal to introduce a sales tax across the GCC — a key economic reform to cut governments’ dependence on oil revenue — also looks remote.

AMMAN — The first shipment of non-commercial raw phosphate is on its way to Indonesian ports, Jordan Phosphate Mines Company (JPMC) Chairman Amer Majali said on Tuesday. A Petro-Jordan project in Indonesia will be operated by a partnership between JPMC and the Indonesian Petrokemija to produce phosphoric acid by mid 2014. Majali added that the opening of Jordan India Fertiliser  Company (JIFCO) will be in May to produce 0.5 million tonnes of phosphoric acid annually. 1.8 million tonnes of non-commercial raw phosphate is consumed annually from Shidiyeh mine, with the marketing fully guaranteed by partners. According to international reports, demand is on an uptrend for fertilisers products, which in turn would bring up  prices. A recent report by the International Fertilisers Association mentioned that world phosphate market settled after a tough year for all companies. 

SINGAPORE — The soaring cost of cars and utilities as well as a strong currency have made Singapore the world’s most expensive city, toppling Tokyo from the top spot, according to a survey published on Tuesday. 

Tokyo’s weakening yen saw it slide to sixth place, the position previously occupied by Singapore, in the 2014 Worldwide Cost of Living survey by the Economist Intelligence Unit (EIU).

“Singapore’s rising price prominence has been steady rather than spectacular,” said a report accompanying the survey by the research firm. 

It said a 40 per cent rise in the Singapore dollar along with “solid price inflation” pushed the country to the top of the twice-yearly survey from 18th a decade ago.

The survey, which examines prices across 160 products and services in 140 cities, is aimed at helping companies calculate allowances for executives being sent overseas. The calculations are based on the cost of living in US dollars.

The report added that Singapore’s curbs on car ownership, which include a quota system and high taxes, made it “significantly more expensive than any other location when it comes to running a car”.

A new Toyota Corolla Altis costs $110,000 in Singapore compared to around $35,000 in neighbouring Malaysia. 

Overall transport costs in Singapore are almost three times higher than those in New York, it remarked.

“In addition, as a city-state with very few natural resources to speak of, Singapore is reliant on other countries for energy and water supplies, making it the third most expensive destination for utility costs,” the report indicated. 

It pointed out that Singapore is the priciest place in the world to buy clothes, as malls and boutiques in its popular Orchard Road retail hub import luxury European brands to “satisfy a wealthy and fashion-conscious consumer base”.

Singapore has one of the world’s highest concentrations of millionaires relative to its 5.4 million population. Its per capita income of more than $51,000 in 2012 masks a widening income gap between the richest and poorest.

In Europe, Paris rose six places to become the world’s second most expensive city, a trend the EIU saw as indicative of recovering European prices and currencies. 

“Improving sentiment in structurally expensive European cities combined with the continued rise of Asian hubs means that these two regions continue to supply most of the world’s most expensive cities,” Jon Copestake, editor of the report, which looks at over 400 individual prices, said in a statement.

“But Asian cities also continue to make up many of the world’s cheapest, especially in the Indian subcontinent,” he added.

According to the report, European cities were among the priciest in the recreation and entertainment categories, reflecting “a greater premium on discretionary income”. 

New York, which serves as the base city for the survey, was ranked 26th, while Sydney and Melbourne came in at fifth and sixth respectively owing to a strong Australian dollar. 

Caracas was tied at sixth with Melbourne, Geneva and Tokyo, but the EIU attributed the Venezuelan capital’s position to the imposition of an artificially high official exchange rate. 

“If alternative black market rates were applied Caracas would comfortably become the world’s cheapest city in which to live,” it said.

Mumbai was the least expensive major city in which to live, partly due to government subsidies on some products and low local wages, followed by Karachi, New Delhi and Damascus as the fourth-cheapest, which EIU said reflected the weakening of the Syrian pound due to the country’s civil war. Kathmandu came at the bottom of the pile. 

The five most expensive cities were judged to be Singapore, Paris, Oslo, Zurich and Sydney in descending order. Caracas, Geneva, Melbourne and Tokyo were tied at sixth place while Copenhagen was 10th.

London was ranked 15th most expensive city.

NEW DELHI — India’s trade minister on Tuesday accused the United States of excessive trade protectionism, launching a broadside that coincided with the visit of a top US official to patch up a stormy bilateral friendship.

Trade friction between the two countries has increased ahead of a general election in India, amid lingering tension over the recent arrest and strip search of a female diplomat in New York suspected of visa fraud.

The ruling Congress Party government of Prime Minister Manmohan Singh does not want to be seen as bowing to US pressure on trade issues ranging from the quality of Indian drug exports to software piracy. 

“There are issues which India has raised where we feel there is very high and unacceptable protectionism,” Trade Minister Anand Sharma told reporters, noting that Washington made it too hard for Indian nationals to obtain US visas.

He said that India’s patent law was compliant with the rules of the World Trade Organisation (WTO), while India would not agree to tougher rules to protect intellectual property.

India is furious about a decision by the Office of the United States Trade Representative to drag it before the WTO over the subsidies and local content rules it has set to promote solar power generation.

Trade ministry officials say India’s rules on local sourcing were fully compatible with the WTO, and they argue that 16 US states have similar local sourcing provisions.

Indian analysts say the Obama administration appears to be seeking trade advantages from a weak government as part of its wider drive to export away the US trade deficit, which despite narrowing last year still totalled $470 billion.

“The US seems to be looking at exports to India, China and other emerging markets to support its economic growth,” said N.R. Bhanumurthy, an economist at the National Institute of Public Finance and Policy, a Delhi-based think-tank. “These frictions are likely to continue until a global recovery eases the pressure.” 

The US embassy was not available for comment outside office hours.

Sharma’s prickly comments on US trade reflected concern about the sluggish pace of India’s own exports, which he forecast would grow by 4-5 per cent in the current fiscal year to the end of March.

India curbed imports of gold last year to narrow a worrying current account deficit, but with external pressures easing, Sharma suggested the curbs should be eased to discourage gold smuggling.

Only at WTO 

India has made clear it would prefer to see bilateral disputes reviewed under the auspices of the WTO, the global trade rules body, which is adjudicating on more than a dozen cases between the two countries.

The government had instructed its officials not to entertain any request from the United States International Trade Commission (USITC) — a quasi-judicial federal agency — to examine its trade practices.

Referring to intellectual property, Sharma said India was adhering to the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS), which is administered by the WTO.

India opposes any stricter agreements, known in the trade jargon as “TRIPS-plus”, that would assure greater patent protection for proprietary medications, potentially dealing a blow to its own generic drugmakers and making it harder for its citizens to get access to affordable medicines.

“India has protected its commitment to the TRIPS agreement. But what is being asked of India is TRIPS plus,” Sharma told reporters. “TRIPS plus, India has made it clear, India will never accept.”

Last month, global pharmaceutical firms pressured the United States to act against India to stop more local companies producing up to a dozen new varieties of cheap generic drugs still on-patent.

An Indian government committee is reviewing patented drugs of foreign firms to see if so-called compulsory licences, which in effect break exclusivity rights, can be issued for some of them to bring down costs, two senior government officials told Reuters.

The drugs that are part of the review process are used for treating cancer, diabetes, hepatitis and HIV, said the sources, declining to give details. No timeline has been given for completion of the review process.    

Emerging markets, from South Africa to China and India, are battling to bring down healthcare costs and boost access to drugs to treat diseases such as cancer, HIV/AIDS and hepatitis.

Western drugmakers, including Pfizer Inc., Novartis AG, Roche Holding AG and Sanofi SA, covet a bigger share of the fast-growing drugs market in India.

But they have been frustrated by a series of decisions on patents and pricing, as part of New Delhi’s push to increase access to life-saving treatments where only 15 per cent of 1.2 billion people are covered by health insurance.

India is currently on the US government’s Priority Watch List — countries whose practices on protecting intellectual property Washington believes should be monitored closely.

The US industry trade group Pharmaceutical Research and Manufacturers of America (PhRMA) believes Washington should take a tougher line by downgrading it to a Priority Foreign Country, a classification for the worst offenders, which may trigger possible actions, sources said.

“The multinational companies are exploring all options — from paring their investments in the country to forcing the US to take some actions,” said a source in New Delhi, who is directly involved in the situation.

“Companies feel something should be done at the earliest to check the violations of their intellectual property in the country. They want government-to-government pressure to change things,” he added.

All the sources declined to be named due to sensitivity of the matter. A PhRMA representative declined to comment.

If India gets relegated by the United States to Priority Foreign Country level, it will join Ukraine as the second country in that segment. Countries in the Priority Watch List include China, Indonesia, Pakistan, Russia, Thailand and Argentina.      

“PhRMA makes submissions to the US government every year on trade issues but this year they really want to ratchet up the pressure on India,” said one executive with a multinational drug company.

Politically sensitive 

Making medicines cheaper is a politically sensitive issue in India where many patented drugs are too costly for most people, 40 per cent of whom earn less than $1.25 a day, and where patented drugs account for under 10 per cent of total drug sales.

Picking a fight with an emerging economy like India, where millions of people cannot afford basic healthcare, will not be easy and without risks. 

The industry has recently run into fierce controversy in South Africa for taking on Pretoria over its plans to overhaul patent laws to favour cheaper generic drugs, leading some executives to urge a softer approach. 

“I don’t believe there is any need for any kind of more assertive stance. This is a situation where constructive engagement is the way forward,” GlaxoSmithKline Plc. Chief Executive Andrew Witty told Reuters.

With sales of patented drugs in Western countries slowing, emerging markets are a vital growth driver for companies. India, however, has so far failed to be much of a money-spinner for the world’s top pharmaceutical companies.

India’s $14 billion-a-year drugs market — driven these days by chronic diseases, such as diabetes, as well as infections — is expected to be worth $22-32 billion by 2017, which would rank it as the 11th largest globally, according to IMS Health.

“Any obstruction or action by the US government can have a very adverse impact on the trade relations between the two countries,” said D.H. Pai Panandiker, president of New Delhi-based RPG Foundation, an economic think tank.

“So, both sides will be cautious, but to protect their own  interests they won’t hesitate to take actions under the WTO [World Trade Organisation] provisions,” he added.   

In 2012, India issued its first ever compulsory licence to domestic drugmaker Natco Pharma Ltd. on a kidney and liver cancer drug, Nexavar, patented by Germany’s Bayer AG, in a move that it had said endangered pharmaceutical research.

AstraZeneca Plc. in January decided to shut its research and development (R&D) centre in Bangalore citing broader global business strategy. Some analysts expect a few other global drugmakers to pare R&D spending given the uncertainty about the patent regime.

“If the authorities are going haywire and looking to grant compulsory licences lock, stock and barrel, in that event you will lose the credibility in India as a system,” Ameet Hariani, managing partner at Mumbai-based law firm Hariani & Co., said.

“You are going to see much more litigation on this issue. People are going to be unwilling to introduce new drugs in the market,” he added. “You can’t expect to get a new drug at a price of an aspirin.”

LONDON — European equity investors took fright at Russia’s military intervention in neighbouring Ukraine on Monday, dragging the eurozone Euro STOXX 50  index to its biggest daily fall since June.

Companies exposed to the region, such as Austria’s Raiffeisen Bank International, were the worst hit.

“Investors had underestimated the risks of an escalation in Ukraine, so the events over the weekend are a wake-up call for the market,” said David Thebault, head of quantitative sales trading at Global Equities in Paris.

Banks were among the top fallers, led by a 9.6 per cent fall for Raiffeisen, which has the largest exposure to Ukraine among European blue chips.

Carmaker Renault and brewer Carlsberg, which have significant exposure to Russia, fell 5.4 per cent and 5.3 per cent, respectively.

The pan-European FTSEurofirst ended 2.2 per cent lower at 1,318.24 points, its steepest fall since January 24, when  economic and policy worries prompted a surge in anxiety over emerging market assets.

The Euro STOXX 50 index retreated 3 per cent to 3,053.99 points, its biggest fall since June 20, 2013.

The cost of insuring against further swings in eurozone blue chips, as measured by the Euro STOXX volatility index , rose 30.4 per cent, its biggest one-day rise since 2011, even though it remained at a relatively subdued level of 21.9 points, compared to a 2013 peak of nearly 27.

“[Emerging] markets remain a major concern for investors and will undoubtedly be source of higher volatility for the European equity markets over the coming months,” strategists at Societe Generale wrote in a note on Monday.

“We recommend protecting your European equity portfolio and even taking advantage of further volatility through derivatives,” they said. 

Pretext for setback 

Russian forces have taken control of Ukraine’s Crimea region, which has an ethnic Russian majority. Ukraine has stepped up its own military preparations while the United States has threatened to isolate Russia economically.

“This could be a pretext for a 5 per cent setback in the market,” said Francois Savary, chief investment officer at Swiss bank Reyl. He added that if the Euro STOXX 50 fell below the 3,000 level, it could represent a good entry point at which to buy into the index.

Savary and other investors expected an eventual political resolution to the Ukraine problems within the coming weeks, which they said should help equity markets maintain their upwards trend seen over the last year and a half.

A 50 per cent rally since mid-2012 has left the MSCI Europe index trading at roughly 14 times its earnings, above its 10-year average, Datastream data showed.

Toby Campbell-Gray, head of trading at Tavira Securities, also expected a political resolution soon to the problems in Ukraine and said equity markets would continue to be supported by the fact that they offer better returns than the bond and cash markets.

“We will see a mark-down for a few days, but people still want to buy this market — there’s nowhere else to put your money,” he said.

All but seven stocks in the FTSEurofirst 300 were in negative territory, one of the broadest selloff on the index over the past year.

A calmer macro-economic landscape over the past year and half has allowed investors to focus on the fundamentals of each company, bringing down stock correlation, a trend that many analysts expect to continue despite the recent, emerging market-related jitters.

“The ‘risk-on, risk-off’ phenomenon has become much less dominant since the end of 2012,” Peter Rigg, chief executive officer of HSBC Alternative Investments, said.

“Current P/E [price/earnings] multiples are above their 10 year average so individual company earnings growth is becoming a more relevant determinant of price moves than multiple expansion,” he added.

Separately, US stocks tumbled on Monday alongside other risky assets globally as Ukraine and Russia prepared for possible war after Russian President Vladimir Putin declared he had the right to invade his neighbour.

The S&P 500 had closed at a record high on Friday, and profit-taking was expected on Wall Street due to the political uncertainty. The index found some support when it fell to 1,840, but broke through it after the first attempt. 

The S&P 500 extended losses in early afternoon trading and then recovered slightly to hover near the support level.

“There’s been a very significant rally,” said Rick Meckler, president of investment firm LibertyView Capital Management in Jersey City, New Jersey. “If you need an excuse to sell, this is a good one.”

Energy stocks could lose if relations between the United States and Russia deteriorate further. Volatility is likely to spike alongside the uncertainty of the situation.

“Anything that involves a boycott of Russian supplies, which are very significant, could impact the energy sector dramatically,” said Meckler. “In situations like this, you see very quick reactions reverse as people understand the scenario and how things play out.”

Both Brent and US crude prices rose more than 2 per cent each. The S&P energy sector index, which opened higher, was down 0.6 per cent.

The Dow Jones industrial average fell 207.75 points or 1.27 per cent, to 16,113.96. The S&P 500 lost 19.45 points or 1.05 per cent, to 1,840. The Nasdaq Composite  dropped 58.584 points or 1.36 per cent, to 4,249.534.

Gold prices hit a four-month high as investors sought safe-haven assets, boosting gold stocks.  US-traded AngloGold Ashanti shares gained 2.5 per cent to $18.01.

Though the focus will likely remain on Ukraine, the economic calendar was busy on Monday. US factory activity rebounded from an eight-month low in February and consumer spending rose more than expected in January, suggesting the economy was regaining some strength after a recent slowdown.

MOSCOW — Investors in Russia reacted with panic Monday to the potentially disastrous economic consequences of Russian military intervention in Ukraine, with Moscow stock markets crashing up to 12 per cent and the ruble plunging to historic lows against the dollar and euro.

Russia’s central bank hiked its main interest rate in an emergency move to stem capital flight and the losses for the ruble, amid what risks becoming at least Russia’s worst economic crisis since 2009.

President Vladimir Putin on Saturday had won approval from Russia’s upper house for the sending of troops to Ukraine due to the stand-off in Crimea following the ousting of pro-Moscow president Viktor Yanukovych.

Economists warned the move risks creating a litany of further trouble for the Russian economy, which is already battling chronically slow growth.

Russia faces becoming an international economic pariah, with US Secretary of State John Kerry already warning Putin that Moscow faces losing the right to host the Group of 8 this year in Sochi and could even be expelled from the group of top nations itself.

Military intervention would drain further resources from a Russian budget already stretched by costs like the Sochi Olympics, alarm already nervous investors, limit Russia’s economic ties with the West and force Russian companies into huge write-offs in Ukraine.

“Sochi was already expensive. Military adventures and strained relations with the West can be much more expensive than that,” said economist Holger Schmieding at Berenberg Bank in London. “Russia cannot afford that in the long run.” 

Kerry himself gave a bleak assessment of the consequences for Russia, saying Putin may be hit by “asset freezes on Russian business, American business may pull back, there may be a further tumble of the ruble”.

Black Monday 

The MICEX stock market in Moscow was trading down 10.94 per cent while the RTS bourse had fallen by 12.03 per cent at around 1320 GMT.

It was also a Black Monday of carnage on the stock markets for some Russian blue chip shares.

Stocks in Russian gas giant Gazprom — which has a huge contract to export gas to Ukraine as well as banking interests in the country — fell 12.5 per cent. Russia’s biggest lender Sberbank was down 15.57 per cent.

The ruble has already been under major pressure in recent weeks due to investor nerves about emerging markets and Russia’s flimsy medium-term growth prospects.

But the Ukraine crisis Monday pushed it to levels not seen even in Russia’s 2009 financial crisis that followed the collapse of Lehman Brothers and the Georgia war.

The ruble plunged in value to trade at 50.22 rubles to the euro. On Friday it stood at 49.58.  

It was a similar story with the ruble/dollar trade, with one dollar worth 36.45 rubles. At close of play on Friday it was 36.28.

The Bank Rossii (Bank of Russia) raised its main interest rate to 7 per cent from 5.5 per cent in a clear bid to support the ruble and stem an already alarming capital flight amid the tensions between Russia and Ukraine.

“The decision is aimed at averting the appearance of risks for inflation and financial stability linked to the increased volatility on financial markets,” it said in a statement, adding the hike would take effect from 0700 GMT Monday.

Deputy Economy Minister Andrei Klepach admitted the decision was linked to the “hysterical situation” surrounding the pressure on the ruble.

The decision “is a clear attempt to stem outflows of capital from financial markets following the escalation of the crisis in Ukraine”, said Neil Shearing, chief emerging markets economist at Capital Economics. 

‘Worse than after
2008 war’ 

The economic consequences of intervention in Ukraine risk becoming a huge headache for Putin and have parallels with the 2008 war with Georgia over the region of South Ossetia, which fed into Russia’s 2009 financial crisis.

However the magnitude of the Ukraine situation means a Russian economic crisis in 2014 could be even more serious.

“Unlike the five-day war in South Ossetia, we are concerned that the tensions in Ukraine will very likely last considerably longer, having a prolonged negative effect on Russia’s economic environment,” economist Natalya Orlova at Alfa Bank said in a note to clients.

She added that not even the current depreciation of the ruble would support Russian gross domestic product while several Russian banks were hugely exposed to Ukraine.

Before 2009, Russia had enjoyed stellar average annual growth rates of 7 per cent under Putin’s rule. But with growth of just 1.3 per cent in 2013, economists now warn it risks being trapped in a cycle of low growth. 

Separately, the Russian central bank still has “lots of room” to raise interest rates and can further increase its involvement in the domestic foreign exchange market to stabilise the ruble, Central Bank First Deputy Governor Ksenia Yudayeva said on Monday.

“We still have lots of room to raise interest rates ... and we can further increase our presence in the currency market,” Yudayeva said in an interview on the Rossiya-24 news channel.

The central bank said on Monday it had raised the interventions allotment to be exhausted before it shifts the ruble’s trading corridor — to $1.5 billion from $350 million — and that it will decide daily on the currency’s trading policy.

“Due to increased volatility in the domestic foreign exchange market, the Bank of Russia moves to daily determinations of the parametres of each exchange rate policy, which will be based on an assessment of the current situation,” the central bank said in a statement.

“This measure was taken in order to prevent risks to financial stability by limiting exchange rate fluctuations,” it added.

The central bank keeps the rouble in a target exchange-rate corridor, which as of Friday extended from 35.40 to 42.50 rubles to the dollar-euro currency basket.

Under its managed float, the central bank increases its interventions as the ruble approaches the boundary of the corridor. Monday’s decision mean that it will automatically shift the corridor only after an intervention allotment of $1.5 billion is exhausted.

Traders said the central bank had spent at least $10 billion on Monday to prop up the ruble.

AMMAN — Jordanian Businessmen Association (JBA) President Hamdi Tabaa and the Iraqi Commercial Attaché in Amman Adeeb Fattah on Sunday discussed means to boost economic relations between the two countries and their private sectors, in particular. The two sides agreed that the Iraqi Commercial attaché office should inform and provide the JPA with public (government) tenders that are floated in Iraq in order to encourage Jordanian companies to apply for these tenders. Moreover, Fattah stressed the need to ensure the private sectors’ participation in implementing the fuel pipeline project and other joint ventures, including the railway project, whether directly or through taking part in related infrastructure companies. In 2013, Jordan’s exports to Iraq went up by 23 per cent, amounting to JD884 million while its imports from Iraq totalled JD269 million.