23 June 2016
Week In Brief: BUSINESS AND THE CITY
GO EAST, YOUNG PERSON: About a decade ago it was almost impossible to get a Business Class Flight to India. Many western businesses saw liberalisation by the then Indian government as an opportunity to get into one of the world’s fastest expanding economies. The tax regime was made more comprehensible, laws relating to business investment simplified, rules on ownership made more friendly towards external investment, foreign banks were encouraged to set up in Mumbai, Delhi, and other Indian cities. India had already seen great success with the growth of technology and service businesses, and was now welcoming other expertise to the country. A wave of money went east, especially from German, USA, and UK property investors, all seeking to buy in India. But it didn’t quite work out: some of the changes in law and tax were not as user-friendly as advertised; the price of properties shot up whilst property development boomed, inflating supply and damaging rental growth; and the 2008 recession caused many investors and banks to rapidly make for home.
In 2016 it looks as though the investment gates are opening again. The Indian economy is seeing growth rates which are the envy of European central banks. But bureaucracy has grown back and even some of the loopholes that were opened for incoming investors have been closed off. Indian businesses have become major investors in the west, but there have been increasing comments that reciprocal investment in India is almost impossible. This week the Indian government of Narendra Modi announced a whole package of reforms aimed once again at simplifying the rules for foreign investors, especially in the fields of defence, aerospace and drug manufacture, all areas in which the government feels India would benefit from foreign partnerships. The government is also easing the rules on local sourcing, making importing finished or part made assemblies easier. All this should be very helpful to British manufacturers, who have an advantage of language and legal understanding (derived from British systems), and are still usually given a friendly reception in India.
OR, GO NORTH WEST: It was George Osborne, the Chancellor of the Exchequer who began the promotion of the concept of a “Northern Powerhouse”, perhaps not surprisingly as he is one of the few cabinet members who represents a northern constituency – in his case, Tatton, the wealthy south west of outer Manchester. The northern city was his exemplar for the concept; a metropolis run by a moderate Labour council which dedicated itself to public/private partnerships in the rebuilding of central Manchester after the IRA bombing twenty years ago. Since then the retail district has been renewed and it is now the location of the most powerful retail offer outside London. An extensive networks of tramways has been built and links the city to its suburbs. BBC has moved to Media City in the adjoining city of Salford. An arts and cultural renaissance has made Manchester famous. New hotels have sprung up. Music and film businesses have relocated from the south, and the skyline is dominated by new office buildings and by city centre residential blocks – indeed the office market in 2015 saw more new lettings than the combined lettings of the next six northern cities. Recent figures have proved that this is no flash in the pan – Manchester’s growth rate was confirmed last week as the highest in the UK at 6.6%. To confirm that, the population of Greater Manchester has grown by 26% over ten years. Now the Chancellor hopes that he will still have his job after recent distractions and can encourage other northern cities to replicate this model to create a broader success encompassing Liverpool, Leeds, and Sheffield.
ALL BETS OFF: William Hill, the long established bookmaker, which has been migrating much of its business to on-line systems, has hit further problems with its new app based operations, which have not achieved the customer accessibility or reliability required. The bookie made major changes only a few months ago which it said solved the problems its customers were experiencing – and was back concentrating on growth in the UK and Europe. But the users are still not happy and so William Hill has now announced that it has hired KPMG, the accountants and business advisors, to review that aspect of its business. The last review ended with the resignation of Andrew Lee, head of William Hill Online. His successor, Crispin Nieboer, will be hoping that lightening does not strike twice.
NOT GROWING THEIR OWN: Tesco continues to retreat smartly and in good order to its core business of selling household goods and food in supermarkets. Following its sale of café chain Giraffe, it has now announced the sale of its garden centre business Dobbies. Dobbies operates from 35 centres, mostly remote from Tesco locations, and employs 180 people. The purchaser is a partnership of two private equity houses who intend to expand the business to become the UK’s largest garden centre specialist operator. Tesco have done well with this deal. The sale price achieved was £217 m – they paid £156m for it in 2007 – and the business is profitable, making £17m in the last financial year. The price paid suggests that the new owners see more value in the brand and business, so this could be one of those deals where everybody ends up happy.
READ ALL ABOUT IT: Not so much happiness round at the Kings Cross offices of the Guardian. The editor, Katherine Viner, and the board of the newspaper announced at the beginning of the year that they needed to further trim costs to control escalating losses in the group, caused by declining circulation and its inevitable accompaniment, declining print advertising revenue – which is falling much faster than newspaper sales revenue. The group called for 250 voluntary redundancies in March this year, and have accepted 257. However they have reconsidered their intended targets in the newsroom itself where they said they wanted to reduce the staff of journalists by about 100. Although they had 92 applications, they decided, in view of the number of voluntary job cuts achieved elsewhere, to keep the editorial side of the production process more staffed, and only 69 were accepted. Although the Guardian hopes that it will return to breakeven by 2019, the management say that the sales and advertising market are far from stable and that there may be a need for further cost cutting yet.
NAMING RIGHTS: Technology can give you all sorts of things you never even knew you wanted. Latest advances in printing technology make it financially viable to print your slogan, names or rude remark of choice, on almost anything. Team names for amateur footballers are almost old hat; personalised birthday cards will soon be de rigueur and the very latest, latest thing is personalised food – Coca Cola have led the way with personally named coke bottle labels and Oreo cookies have now taken to the fad – your friendly message on a bag of their cookies – “Eat Less, Move More” maybe?
KEY MARKET INDICES: (as at 21 June 2016; comments refer to changes on the week; $ is US$)
Interest Rates:
UK£ Base rate: 0.5%, unchanged: 3 month 0.59% (falling; 5 year 0.87% (rising).
Euro€: 1 mth -0.29% (steady); 3 mth -0.25% (falling); 5 year -0.19% (falling)
US$: 1 mth 0.47% (steady); 3 mth 0.62% (falling); 5 year 1.14% (rising)
Currency Exchanges:
£/Euro: 1.29, £ strengthening
£/$: 1.47, £ strengthening
Euro/$: 1.13, € steady
Gold, oz: $1,289, rising
Aluminium, tonne: $1,607, slight rise
Copper, tonne: $4,584, rising
Oil, Brent Crude barrel: $49.00, modest rise
Wheat, tonne: £108, steady
London Stock Exchange: FTSE 100: 6,204 (steep rise). FTSE Allshare: 3,409 (rising)
Briefly: After the dramatic weakening of the market last week on opinion polls suggesting “Leave” would win the referendum, the reversed polls this week dramatically reversed the market. Nearly every indicator was “up”, apart from sterling interest rates which fell as sterling strengthened. Even gold, often a safe haven which suffers in times of confidence, was marked up. Now the markets await the only poll which really matters – on Thursday.
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