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The Irish Independent's Charlie Weston asks: Are we spending cash on things we don't want, with money we don't have, or are we a nation of savers, wealth gatherers in a tiger economy? Both are probably true, and there is a note of caution in the air. Are we being too cocky about the prospects for 2007? We appear to be optimistic despite the threats from higher interest rates, surging energy costs and a slowing property market. The five rises in interest rates since last December have meant that the cost of borrowing for a house (using the national average house price) has shot up by €430 a month, according to figures from economic consultants DKM. This means a huge amount of the spending power of consumers has been removed in less than a year. The higher mortgage costs come as gas has gone up by 34pc and electricity prices have shot up by 20pc. In fact, higher VHI charges, petrol prices, energy, and mortgage payments could cost the average consumer as much as €6,000 a year. (This is based on annual extra VHI charges on Plan B of €186, higher homeloan payments of €5,160 a year, petrol price rises of €300 and utility bills up €400.) Also likely to impact on consumers is a slowdown in house price growth. This could negatively impact on consumer confidence, especially as the economy is so dependent on construction. A quarter of jobs are now accounted for by construction. Davy Stockbrokers recently estimated that building 10,000 fewer houses a year would knock 1pc off our economic growth rates. And economist David McWilliams has warned that we are consuming like a drunken sailor at a party. "We are spending money on things we don't want, with money we don't have," he said on his RTE programme 'In search of the Pope's children'. McWilliams attacked our "overhyped, overspent and overdrawn" nation. His thesis is that the over-spending, over-borrowing Celtic Tiger economy is a hastily constructed house of cards. Seemingly giving credence to this line of argument, a new survey revealed last week that more than half of chief executives (52pc) at the biggest Irish companies are less optimistic about economic prospects in the short to medium term than they were last year. The annual survey of the top 1,000 companies in Ireland from property consultants CB Richard Ellis found that just 6pc of company bosses are more optimistic than they were a year ago. A total of 42pc don't expect any change in economic prospects. Little of this doom and gloom was in evidence when investment house Friends First recently surveyed investors on their feelings about the prospects for the economy. Nearly half of Irish investors feel they are better off this year than last year, despite rising interest rates and energy prices. And around 80pc of the ABC1 social category feel that they will be financially better off next year, and plan to continue the investment and savings habits formed over the past five years, the survey from Friends First and F&C Ireland revealed. The under-35 age group were the most optimistic, with almost 60pc saying they are better off than they were this time last year and more than 70pc expecting to be better off in 2007. "There is still a level of optimism out there," said Friends First chief economist Jim Power. "The world economy is reasonably good, the Irish economy is still flying, corporate earnings are still pretty strong, and there is a lot of mergers and acquisition activity going on. "There is still a positive dynamic there that is not going to disappear, but I think there are grounds for a little more caution over the next couple of years." However, mortgage costs and pensions do pop up in the survey as areas of concern. A total of 30pc indicated that a further 1pc rise in rates would have a major impact on their finances. Inflation, property price increases and energy prices were cited by more than 80pc of people as the factors most likely to derail the economy. The survey of 500 people found that 67pc have pensions, 68pc hold a regular savings, 44pc hold life assurance products, and 40pc hold shares. Among SSIA holders, 81pc are planning to continue to save once their SSIAs mature. The Irish fondness for property investment prevails, with nearly half of potential investors still feeling that it is a good time to buy a property in the Republic. Some 45pc said it was still a good time to invest in a buy-to-let property in Ireland. The research also reveals evidence of a waning appetite for foreign buy-to-let property investments, with seven out of 10 respondents feeling oversupply could make it difficult to let properties in many markets. Who knows who is right about the prospects for the next year. Investors are worried about property prices, mortgages and inflation. But they are generally optimistic, despite the warning signs. In such uncertain times, the best course of action is probably to prepare for the worst while hoping for the best. The Irish Independent also reports that consumers with large sums of money in short-term bank savings accounts have been warned that they could be losing out on returns.Independent brokers claimed that consumers were unintentionally assisting the banks in making profits rather than planning well for their own futures by maximising returns on their investments. Diarmuid Kelly, chief executive of PIBA, the Professional Insurance Brokers Association, said: "While a healthy banking system is important, nonetheless, it is the case that consumers have €61bn in short-term bank savings accounts. "Much of this money is attracting interest rates of about 2pc. With inflation running at 4pc, consumers are actually losing money on these accounts. Meanwhile, the banks typically lend this money on for interest rates of up to 9pc," he said. Mr Kelly said that bank savings accounts are generally advisable only where the resources need to be accessed by the consumer in the short term. "Consumers should analyse and separate out their needs from short to medium and long-term use and invest the latter in a way that will maximise their growth over the longer term. "Consumers in this country, unfortunately for themselves, historically have tended to be over-reliant on the banks."
The unannounced visits to the brokers came after a complaint was made to the authority that they had conspired to impose an industry-wide 1 per cent commission level on investors trading in Aer Lingus shares. It is understood the visits found no evidence of wrongdoing in setting the commission ceiling and the authority now views the matter as closed. After the authority received a complaint alleging collusion, its screening committee carried out a preliminary examination last month of commission charges levied on investors in the Aer Lingus IPO. Members of the authority's cartel investigation division carried out a field investigation into the allegation over the past fortnight. The authority initially held discussions on the issue with Aer Lingus management and with Goodbody Stockbrokers, which was the lead broker on the Aer Lingus flotation. The Competition Authority team doorstepped the remainder of the stockbroking houses last Friday afternoon to carry out interviews with senior staff. Industry sources said the brokers were questioned by the cartel team about how the commission agreement had been reached and about whether the 1 per cent commission had been applied universally to investors in the Aer Lingus IPO. It is understood the authority is now satisfied that the 1 per cent commission cap was set as a result of agreements between Aer Lingus, Government and nominated stockbrokers. The authority is also believed to be satisfied that the commission cap was designed to protect novice small investors punting on the Aer Lingus IPO and that many investors negotiated lower commission rates with their stockbrokers.
One broker described as "laughable" the idea that competitors in the stockbroking industry would collude in setting commission charges. A survey carried out by the Financial Regulator earlier this year found that 1 per cent was at about the midpoint of the commissions generally levied by Irish stockbrokers. The survey, which was the first of its kind undertaken by the regulator, found that charges for investing €10,000 in a company listed on the Irish or London stock exchange varied by as much as €100 from broker to broker, ranging from €75 to €175. The survey found that the minimum charge for investing €10,000 in the US stock exchange was almost €100, compared with €75 for the Irish and London exchanges. The differential between commissions became bigger when larger sums were invested, with charges for investing €35,000 in a company listed on the US stock exchange varying by more than €350. The Irish Times also reports that Tesco is preparing to move most of its Irish finance back-office administration to Bangalore, India, as part of a group-wide consolidation of that function. Of the 26 current jobs in Tesco's Irish finance back-office administration section, at least 16 back-office roles will move to Bangalore. The company is in discussions with the Irish staff and with Siptu over the possibility of retaining up to 10 finance back-office jobs in Dublin. It is understood that there will be no job losses in Ireland as a result of the reorganisation, with the remainder of the affected staff due to be redeployed elsewhere in Tesco's Dublin head office on their existing employment terms and conditions. The shift from Ireland to India of the Irish finance back-office administration roles is part of an ongoing centralisation of that function within the Tesco group. That reorganisation has already involved shifting about 200 group back-office finance roles from Britain to Bangalore. Tesco set up the Bangalore centre in 2004 and moved about 400 staff there that year from three British centres. The supermarket giant, which employs 390,000 staff in 16 countries worldwide, has outsourced both back-office IT and finance functions to Bangalore, where it now has a staff of about 500. The target date for the move of the Irish functions to Bangalore is April 2007. A spokesman for Tesco Ireland declined to comment on the rationale behind the move to the Indian city. "Tesco is planning to restructure its internal finance division, the company is in discussions with unions and staff and there will be no job losses," he said. Analysts including Forrester, Gartner and Deloitte have forecast that India will win between three and six million white-collar jobs from overseas over the next six years, most of them transferred from US multinationals.
The dollar has been hit by a combination of domestic and international factors in recent weeks. The outcome of the US mid-term elections is one of the latest problems for the dollar. Senior executives at the European aircraft group told the Financial Times that the company intended to increase the proportion of outsourcing on the airframe from about 30 per cent to close to 50 per cent. EADS has estimated that the A350XWB, Airbus’s response to Boeing’s popular 787 Dreamliner, will cost $12bn or more to develop, and is expected to decide whether to press ahead with the project in the coming weeks. A key factor in the decision will be the extent to which Airbus can cut development costs and prove that it has got to grips with the operational problems that have plagued its A380 superjumbo project, now running two years late. EADS’s core industrial shareholders – the Lagardere media conglomerate and DaimlerChrysler – have both indicated their desire to cut their stakes in the business and so are likely to be reluctant to stump up additional funds for the cash-strapped Airbus. Analysts said the decision to farm out such a substantial share of work on the A350XWB marked a “huge shift” in culture at Airbus, which for historical and political reasons has outsourced far fewer of its aircraft than US rival Boeing. The airframe is estimated to account for about 60 per cent of development costs. It is also likely to spark considerable political controversy, with governments in France, Germany, Spain and the UK already fearful of the impact on jobs of cost-cutting plans being drawn up by Louis Gallois, new chief executive. Many fear the increase in outsourcing will lead to job cuts and factory closures or disposals. Sash Tusa, aerospace analyst at Goldman Sachs, estimated recently in a note to clients that Airbus could in the longer term have to sell up to seven of its 16 European sites to remain competitive. Suppliers too will be hit. On Monday Dominique de Villepin, French prime minister, unveiled an €80m ($102m) aid programme for those expected to fall victim to the group’s plans to cut back drastically on its supply base. Airbus is also planning to use the A350XWB programme to shift a greater proportion of manufacturing to dollar zone countries. This would be a balance of developing and developed countries, said Oliveir Andriès, Airbus strategy boss, who also added that the weakness of the dollar had deprived Airbus of “20 per cent of our competitiveness, just like that”. However, one senior Airbus executive said that the future of the UK’s Broughton facility, which makes the wings for Airbus aircraft, would not be threatened by the decision. Nor would core specialities in each of the four countries that make up the Airbus manufacturing network. The FT also reports that Nato advisers have warned the military alliance that it needs to guard against any attempt by Russia to set up an “Opec for gas” that would strengthen Moscow’s leverage over Europe. A confidential study by Nato economics experts, sent to the ambassadors of its 26 member states last week, warned that Russia may be seeking to build a gas cartel including Algeria, Qatar, Libya, the countries of Central Asia and perhaps Iran. The study, by Nato’s economics committee, said Russia was seeking to use energy policy to pursue political ends, particularly in dealings with neighbours such as Georgia and Ukraine. On Monday night, Dmitry Peskov, deputy Kremlin spokesman, insisted there was “no substance at all” to the suggestion that Russia was seeking a gas cartel. “I think the authors of such an idea simply fail to understand our thesis about energy security,” he said. “Our main thesis is interdependence of producers and consumers. Only a madman could think that Russia would start to blackmail Europe using gas, because we depend to the same extent on European customers.” Although there is disagreement over whether Russia could create any such cartel, the report highlights the deepening tensions between Western Europe and Moscow over energy security. Energy company executives say the biggest threat to gas prices comes from Russia’s own investment shortfalls and possible moves by Moscow to convince other producers, such as Algeria, to limit investment. Russia supplies 24 per cent of Europe’s natural gas, with Norway selling 13 per cent and Algeria, a major exporter to Spain and Italy, supplying 10 per cent. Last week, the International Energy Agency warned of “the possibility of major gas-exporting countries co-ordinating their investment and production plans in order to avoid surplus capacity and to keep gas prices up.” But yesterday, EU foreign ministers failed to agree a line on Russian energy, with Poland continuing to seek a tougher stance in future talks with Moscow. Last month, before an EU summit with Russia, Javier Solana, EU foreign policy chief, highlighted a Russian deal with Algeria, which he said stopped Algeria selling majority stakes in gas projects to foreign investors. “We are witnessing some form of mutual agreement as Russia and Algeria restrain investment,” said one industry analyst. “Moscow has tightened the grip using Gazprom and Algiers has just changed its hydrocarbons law giving [Algeria’s] Sonatrach 51 per cent of every project instead of 30 per cent.” Big gas exporters such as Norway, Qatar and Nigeria appear reluctant to join any cartel. Gas is also traded very differently to oil, with long-term contracts – often linked to oil prices – still the norm. Analysts say Gazprom relies heavily on Europe, since domestic Russian prices are capped and there is no other market to enter at present.
The setback may be only temporary, however. The legislation embodies approval by Congress of what is known as “permanent normal trade relations” with Vietnam, which would make it easier for that country to join the World Trade Organization and would allow American companies to share in the benefits of the open market. The legislation received a majority vote but fell short of the two-thirds needed for passage under special rules that speeded its consideration in the House. The vote came on the first day of the lame-duck session in which the outgoing House, still controlled by a Republican majority, met to pass crucial bills by the end of this year. The legislation received 228 votes in favor and 161 against, but it needed 32 more votes to pass on Monday. House Republican leaders said they would bring the legislation back in the next couple of days under normal procedures, which require only a majority, or 218 votes, for passage. Though perhaps symbolic, the defeat in the House was an embarrassment not only for Mr. Bush but also for the departing Republican leaders, who had earlier in the day expressed confidence that they had the two-thirds needed for the bill to pass in the House. Republican leaders expect the bill to pass the Senate later this week, despite the misgivings from some lawmakers. The White House still hopes for the bill’s approval in the next couple of days so that President Bush can cite its passage as a milestone in relations with Vietnam while attending the Asia Pacific Economic Cooperation summit meeting in Hanoi. The loss, however temporary, was also a portent that trade bills could face tougher odds in the lame-duck session and in January, when Democrats take control of both the House and Senate. Many Democrats who won election last week pledged to try to block trade bills they viewed as threatening American jobs. It is not clear whether the preliminary defeat was spurred by anti-trade sentiment or lingering sentiment against Vietnam, which many conservatives still regard as an enemy three decades after the end of a war in which tens of thousands of Americans died. Trade bills for Peru, other Andean nations and a larger body of poor countries in Africa, Asia and Latin America are also on the schedule for the lame-duck Congressional session, and it is not clear whether the defeat of the Vietnam bill would damp the chances for these bills. There was no immediate comment on the defeat from the Bush administration. Susan C. Schwab, the chief United States trade negotiator, flew to Vietnam on Monday for what had been planned as a set of meetings to celebrate a step forward for a country that was a bitter enemy of the United States a generation ago. Ms. Schwab had called on Congress to approve the measure to “integrate this economically vibrant country into the global community of trading nations” and “open up exciting new trade and investment opportunities” for American companies. The Bush administration has argued that despite the past bitterness with Vietnam, and a Vietnamese economy that is still heavily influenced by the government, the best strategy to open it up to private investment from the West is to have Vietnam become a member of the World Trade Organization, which oversees trade rules. Trade negotiators last week approved Vietnam’s entry into the W.T.O. The legislation is necessary because a cold-war-era measure known as the Jackson-Vanik law requires an annual review of Vietnam’s political and economic practices and an annual granting of trade preferences, and that law must be rescinded under W.T.O. rules. The administration argues that giving Vietnam “normal” trade preferences is the best way of getting it to adhere to the rule of law in trade relations, including provisions that allow the United States to pursue its rights through the organization. Belonging to the trade organization also obliges Vietnam to end curbs on imports, eliminate certain subsidies and act to outlaw piracy of American software, videos and other copyrighted items. Even under the law, however, the United States still has the right to designate Vietnam a “nonmarket economy” — that is, a state-controlled economy that continues to operate under Communist principles. But the Bush administration sought the trade bill as a means to get Vietnam to change. The NYT also reports that Microsoft plans to unveil a technology industry alliance on Tuesday to make software from competing companies and partners work better together, company executives said. Bob Muglia, the Microsoft senior vice president who has led the company’s so-called interoperability efforts for the last year, will announce details of the alliance in Barcelona, Spain, at an event for European software developers. The move is Microsoft’s latest effort to move from being a company that insists on the advantages of its own products to one that can adapt when customers use other companies’ goods. Eleven days ago, for instance, Microsoft struck a deal with Novell, a longtime rival, to ensure that Novell’s version of the Linux operating system operates with Windows in corporate data centers. Analysts saw the partnership as a concession by Microsoft that open-source software like Linux was a rival it could not defeat. Others say Microsoft is trying to take the lead in interoperability so it can manage the relationships, rather than cede management to others. The new Interop Vendor Alliance, which is being financed by Microsoft and is starting with 22 corporate members, will work publicly and privately to share information to solve common problems faced by customers and test real-world situations. One example, company officials said, would be the not-so-simple task of letting a company’s employees sign on to multiple programs with a single user name and password, rather than using separate log-ons for each application. In Europe, interoperability is a bit of a loaded word when it comes to Microsoft. The inability of Microsoft’s crucial operating system, Windows, to work well with its rivals’ products was at the heart of a European Commission antitrust case that resulted in a record fine against the company in 2004. The commission found that by withholding vital information about Windows, the company deliberately restricted interoperability between personal computers using Windows and computer servers running software from Microsoft’s rivals. Mr. Muglia, in an interview, said the alliance was “much, much broader than what has been mandated by the European Commission.” He continued, “This is about the long term.” Bill Hilf, general manager of platform strategy at Microsoft, said business customers were telling the company interoperability was as important to them as security and reliability. Corporate and government technology managers are not buying from a single company, but they still need to share information from one system to another. The vendor alliance is one way to make it easier. Siemens, NEC, Business Objects, Software A.G., Novell and Sun Microsystems are among the alliance’s members. Membership is open to Microsoft partners, technology licensees or “platform vendors,” the company said. Jason Matusow, general manager of standards at Microsoft, said the companies would follow common rules governing the sharing of intellectual property, but Microsoft would not reveal any proprietary source code. “There will be no sharing of the secret sauce,” he said. Brian Stevens, chief technology officer at Red Hat, the leading seller of Linux products, said Microsoft was to be commended for “moving in the right direction since the judgments” against it in various countries. But he cautioned that what would come out of the agreements was not clear. “There’s so much lack of trust with Microsoft,” Mr. Stevens said. “We’re really looking for these agreements to be bidirectional, based on open standards. They’re a lot closer, but there needs to be more.” © Copyright 2007 by Finfacts.com |
