Archive for the ‘Special Report’ Category

Lessons from the Rock for Europe’s banks

(Reuters) – In November 2010, rumors swirled through financial markets that Spanish bank BBVA (BBVA.MC) was suffering a run on its deposits. The share price fell before excitable traders realized they had made a mistake.

In fact the bank was holding a “fun run” in Madrid and customers had lined up outside its branches to get their T-shirts. In a jittery market, talk spread quickly and few things worry bank investors and customers more than talk of a run.

Nervous times have returned to the euro zone, and customers are worrying again about whether their savings are safe.

Banks, regulators and policymakers in Greece, Spain and across Europe are back on high alert to avoid a repeat of the most catastrophic risk for a bank — a loss of confidence among savers, or a run on the bank.

A run may start irrationally, but once it takes hold the panic can be entirely rational. No-one wants to be last in line if everyone else is pulling out their cash.

A run on Britain’s Northern Rock in September 2007 was one of the most sudden and shocking events of the financial crisis.

It was the first run on a British bank for more than 100 years and critics said it made the country look like a banana republic. Yet it is providing lessons on how to limit the damage in future.

“The key thing to learn is that runs can happen out of nowhere and once they start they are incredibly difficult to stop. And to stop them you have to do far more than you expect, and to do it far more quickly than you expect,” said Alistair Darling, Britain’s finance minister at the time.

“With what’s going on at the moment, it’s clear that many Greeks have taken their money out. If you’re not careful, a trickle can become a flow and it can then become an absolute torrent,” Darling told Reuters in an interview.

The dynamics have shifted, but there is now a greater risk that panic will spread to more than one bank.

“Northern Rock was a question about the soundness of the bank. Now the question is about the soundness of the government,” said Nicolas Veron at Brussels think-tank Bruegel.

“Then there is a related question – for countries that are at risk of leaving the EU, it could make sense to withdraw the deposits. It becomes a currency risk,” he said.

If Greeks fear their country could leave the euro, they may not want to keep their money in a local bank and risk seeing it devalued.

As a result, deposit insurance schemes can offer only limited support.

A guarantee helps, but not if there are doubts that the government can pay, and it doesn’t protect against currency redenomination, as in Argentina in 2001, when the value of deposits fell 20 percent.

Reassuring customers they will not lose money and strengthening the deposit guarantee scheme is nonetheless the biggest lesson learned from Northern Rock.

“It came as a bolt from the blue and people weren’t sure of their protection, and then there was some spectacular and sensational media coverage. It was difficult to control,” said a person involved with events at that time.


Northern Rock was caught on the back foot when news of its problems were reported by the BBC late one Thursday night.

The bank, which had grown rapidly to become Britain’s fifth biggest mortgage lender, had needed emergency funding from the Bank of England a few days before, having been frozen out of wholesale funding markets due to a reckless business model.

The BBC report caused panic among savers, which got worse when policymakers were slow to reassure them.

Thousands queued outside Northern Rock’s branches from early that Friday, over the weekend, and on the Monday. When Darling stood up to tell people their savings would be 100 percent guaranteed, the queues quickly disappeared.

Reassurance came too slowly and ministers were criticized for not doing enough to calm savers.

“Our lesson from Northern Rock is we let it run for three or four days, which was far, far too long,” Darling said.

“The problem was the government did not appear to be in control of events, and it wasn’t. It wasn’t until the Monday evening when I announced the formal guarantees that we were able to stop money leaving,” he said.

Although that slowed the visible run, deposits continued to be pulled from Northern Rock by online, postal and telephone customers in a so-called silent run.

About half of Northern Rock’s 24 billion pounds ($38 billion) of retail deposits were estimated to have been withdrawn.

Other banks also suffered silent runs during the crisis, including Belgium’s Fortis and U.S. lender Wachovia, and in the modern era that is seen as the biggest risk for banks.

It may lack the drama of a High Street panic, but big amounts can move quickly and easily at the click of a mouse.

Britain and other countries have made the rules on compensation less complex and more generous, and banks now regularly communicate that. Four years ago, only the first 2,000 pounds ($3,000) was fully guaranteed, and then 90 percent of the next 33,000 pounds ($52,000). Now it is 100 percent of 85,000 pounds ($133,000), and other European countries guarantee a similar amount.

Consumers are more financially aware. During Northern Rock’s crisis, a branch manager was barricaded in her office after refusing to allow one couple to withdraw 1 million pounds. Deposits are now typically distributed across more banks.

As well as being attacked for a poor communications strategy, British authorities were criticized for a lack of contingency planning, weak coordination between the Treasury, the central bank and the regulator, and lax supervision.

Risks at Northern Rock had been identified in “war games” held in 2005, but steps to address weaknesses were not taken.

But Darling said the Northern Rock crisis did mean the government acted sooner and more decisively a year later when Royal Bank of Scotland (RBS.L) was on the brink of collapse.

“We were determined that we would not let it happen again, and this time we were dealing with big global players … we had no hesitation in taking the action we needed to do,” he said.


Other banks have suffered runs before and since Northern Rock, and more will in future.

“If people think that their money might be at risk, it’s entirely rational for them to take it out,” Darling said.

In 1933, President Franklin Roosevelt took drastic action to halt a series of runs on U.S. banks, successfully calming savers with an effective 100 percent deposit insurance.

Greeks were last week rattled after the country’s president said savers had withdrawn 700 million euros ($875 million) in one day. That prompted a similar amount to be withdrawn the next day.

The exodus slowed, and there has been no sign of panic or queues at branches in Athens. But there had already been a slow run on Greek deposits — about 72 billion euros ($90 billion), or 30 percent, has been taken out since the start of 2010.

A bigger worry is that Madrid’s banking crisis or a Greek euro zone exit could prompt an exodus from Spanish banks.

Shares in Bankia (BKIA.MC) plunged last week after a report that 1 billion euros ($1.25 billion) had been pulled out by customers, forcing the government to deny the claim.

There has been no sign of panic in Spain, and the latest deposits data from its central bank showed a slight increase in March, although about 55 billion euros ($69 billion) has been withdrawn in the year to March, or 4.6 percent.

But Santander’s (SAN.MC) British arm did see 200 million pounds ($300 million) withdrawn last Friday after it was included in a Moody’s credit rating downgrade of Spanish banks.

Several local governments withdrew funds from Santander UK due to worries about its parent, Spain, or the euro zone, even though it is an autonomous subsidiary and is self-sufficient in capital and funding, showing the risk of a run is not just about retail customers.

Britain’s local authorities are risk-averse after many lost millions of pounds held in Icelandic banks.

Plymouth City Council told Reuters it removed funds from Santander UK on Friday, while Kent, Oxford and Waltham Forest said they had taken out deposits and were reviewing the situation. John Simmonds of Kent County Council said he was reassured that capital could not be drained by its Spanish parent, but he was now “waiting for the fog to clear a little”.

At least five more councils, including Westminster and Middlesbrough, told Reuters they had stopped depositing cash with Santander UK in the last two years, due to Spain and the euro zone concerns.

Unlike four years ago, there was a swift reaction to quell any panic, and the Financial Services Authority confirmed no money could be sent to bail out the parent. Santander UK said activity returned to normal the day after Friday’s withdrawals.

With the euro zone crisis likely to drag on, there have been calls for a pan-European deposit scheme to reassure savers in countries like Greece. But that would fail to protect against currency risk and would probably face opposition in Germany, which does not want to pay for more problems elsewhere.

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PFG – Mining Review




May 07, 2012                                            

Christian Flaherty
Mining Analyst

Xstrata Plc., has stated its copper production fell around 18% year on year over the January-April quarter, while coal production rose 9% and zinc output remained roughly constant.

Russia’s largest gold producer Polyus Gold International Ltd., has stated it would sell 7.5% of  the  company’s shares and would apply for a premium listing on the London Stock Exchange.

Iron-ore producer Metalloinvest has agreed to sell its freight rail arm LLC Metalloinvesttrans to Russian freight operator Globaltrans Investment Plc., for US$540 million.

Hong Kong-based copper producer CST Mining Group Ltd. said it would sell a 70% stake in the Mina Justa copper project to Peru-based base-metals firm Minsur SA, for a total US$505 million.

Anglo American Plc., has sold Scaw South Africa (Pty) Ltd., an integrated steelmaker, for R3.4 completing its US$1.4 billion divestment of Scaw Metals Group.

Rare Earth Elements (REE) product manufacturer Rhodia has signed a letter of intent with Madagascar focused developer Tantalus Rare Earths AG aimed at providing processing expertise and an exclusive off-take facility for up to 15,000t/y.

Mongolia’s mining ministry has suspended mining and exploration licenses for SouthGobi Resources Ltd., two weeks after the Aluminum Corporation of China Ltd., made a US$930 million bid for a majority stake in the coal producer.

Rio Tinto has stated its iron-ore production in the first quarter rose 10% from the year earlier, although shipments were 5Mt below output as ports in Western Australia were closed because of cyclones.

Gold exploration company Chaarat Gold Holdings Ltd., has stated it plans to enter into talks with the newly formed government in the Kyrgyz republic to seek to protect itself from what it considers to be likely changes to taxation, ownership structure and royalties.

Canadian gold producer Iamgold Corp., has stated it would spend around $608 million to buy fellow TSX listed Trelawney Mining and Exploration Inc., expanding its indicated resource base by 5%.

Mutiny Gold Ltd., has intersected extensions to mineralisation at its Deflector gold deposit in Western Australia with reverse-circulation drilling.

Ivanhoe Mines Ltd’s 59%-owned Australian subsidiary, Ivanhoe Australia Ltd., has intersected extensions to copper mineralisation at the Kulthor deposit in Queensland.

Lake Shore Gold Corp’s ongoing drilling programme at the Fenn-Gib gold project in Ontario has extended mineralisation.

Australian base metals producer Kagara Ltd., has stated it has temporarily suspended operations at the Baal Gammon polymetallic project in Queensland after a restructuring of the company’s banking arrangements affected its short term cash flow.

Australian coal producer Gloucester Coal Ltd., has stated its total output was up 273% year on year for the March quarter.

Aurico Gold Inc., has sold the El Cubo silver-gold mine and v silver-gold project to Endeavour Silver Corp., for US$250 million.

Shareholders at Pan American Silver Corp. and Minefinders Corp Ltd., have voted to approve the former’s US$1.5 billion takeover offer.

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Apple is an iconic brand. Now it is a totemic investment, too – PFG Special Report

April 14, 2012

Mathieu Armand
European Regional Managing Director – Asset Management

THE new iPad, which was released on March 16th, is the most popular version of the tablet yet. Apple sold 3m of them in just four days. But some buyers took to discussion forums to report that it has a tendency to heat up. A similar debate exists about Apple’s stock.

The company’s share price has risen by 83% in the past year, and by almost 50% so far in 2012. Apple is now easily the largest company in the world by market capitalisation, at some $565 billion. It looms over Exxon Mobil, which is worth a mere $408 billion. Since the start of this year it has added $187 billion to its valuation, roughly equivalent to the entire market caps of companies like Procter & Gamble, Johnson & Johnson and Wells Fargo. Apple is larger than the American retail sector combined.

It accounts for 4.5% of the S&P 500 and 1.1% of the global equity market (see chart 1). Some bank analysts have started to report America’s corporate earnings without Apple, because including the firm so skews results. Fourth-quarter earnings are expected to have risen by 6.7% from the prior year for companies in the S&P 500, but by a much more modest 3.6% if Apple is excluded, according to UBS.

Around a third of all hedge funds own it, including big names like SAC Capital and Greenlight. Some have made very big bets. Many hedge funds that have done well in the past year owe much to this single position.

The stock’s gains this year have not only boosted the spirits of shareholders but also brightened the whole equity market. Apple is responsible for more than 10% of the S&P 500’s rise this year (see chart 2), and for 39% of the NASDAQ 100’s gains. No other stock has ever grown to have such a significant impact on an index so quickly, says Howard Silverblatt of Standard & Poor’s, a ratings agency.

The share price keeps soaring. On March 20th, a day after Apple announced it would use some of its cash hoard (estimated at $97.6 billion at the end of 2011) on a quarterly dividend and a $10 billion share buy-back, its shares closed at a record high of $605.96. This is the first time in 17 years that Apple will pay a dividend. Dividend funds, which had not considered investing in Apple before, could pile in, potentially pushing the price higher still.

Most analysts remain committed fans of the shares. Some claim that a $1 trillion valuation could soon be possible. The bullish case runs as follows. Apple has low penetration in the personal-computer and smartphone markets, and can hook millions more customers in emerging markets like China and Brazil. Although questions remain over how much of Apple’s innovation was due to its magician-in-chief, Steve Jobs, who died last October, the launch of the new iPad has calmed nerves somewhat. Apple is poised to enter new arenas like television and mobile payments.

The firm still has a ton of cash to invest in new products and ward off emerging threats. Horace Dediu of Asymco, a data-analysis firm, has estimated that even after the dividend payout and any buy-back activity this year, Apple could still end 2012 with over $35 billion more in the bank than it had at the end of the previous year. With an historic price-earnings (p/e) ratio of 22, shares are not as dear as you might expect, and look even more attractive when the p/e is calculated based on forward earnings. Apple’s revenues are forecast to grow by at least 51% in fiscal-year 2012 and by 23% in 2013, according to Morgan Stanley.

Others reckon that the outlook for its business is not the only thing that has been driving the steep ascent of Apple’s shares. The stock has seen such heavy gains in recent weeks that many investors can’t afford not to have Apple in their portfolio. Fund managers that are judged against a benchmark where Apple is heavily weighted, like the NASDAQ 100 or the S&P 500 technology index, have to scramble to keep a heavy exposure to Apple. “The speed of the move and the size of the company scare people who haven’t got it,” says Andy Ash of Monument Securities. “The danger is that you end up with everyone buying it because they have to rather than because they want to.”

Some wonder whether the stock is headed into bubble territory. Apple’s p/e is much lower than that of stocks in the dot-com bubble; America Online’s was a ridiculous 154 in 1999. But contrarian thinking is thin on the ground. There is very little short interest in Apple. “Call” options, which give the right to buy Apple stock, are much more expensive than “puts”, which give the right to sell the stock, says Mark Sebastian of Option Pit, a consultancy. Of the 54 analysts who track Apple stock, only one has a sell rating, according to Bloomberg. Robert Shiller, a Yale economist and author of “Irrational Exuberance”, reckons that the “emotional attachment” to the Apple story and “wild” enthusiasm about its stock are reminiscent of a bubble. “You could play the bubble, because it might not be over yet, but I wouldn’t put money in Apple stock,” he says.

Even if bubble talk is over the top, a higher share price is justified only if Apple continues to meet earnings expectations. That usually gets harder. The stocks of market-leading companies historically underperform once they have reached the top slot, since they are less nimble and more vulnerable to attacks by regulators and the press. It is harder to continue impressive earnings growth on a large base. Even a modest earnings miss could have a big effect on the share price, since more of Apple’s shareholders today are fickle traders.

If there was a fall, it would ripple. Technology investors, which have a higher concentration of Apple in their portfolios, are the most vulnerable. Apple makes up more than 18% of PowerShares QQQ, an exchange-traded fund with heavy exposure to technology stocks, for example. More unsettling are funds that have strayed into buying Apple against their mandate, including some mutual funds that are supposed to focus on smaller companies. “If Apple has a wobble, you could see it dictate broader market movements,” says Alec Levine of Newedge, a broker.

Hedge funds could be among the biggest losers. They look clever now for buying a stock that has seen such a rise, but they will look dumb if they lose money when it falls. Some may question whether they should earn such high fees simply for buying into the world’s most valuable listed firm. Where’s the genius there?

Correction: The original version of this article wrongly said that Citadel had a $5.1 billion stake in Apple. This figure included stock held by its broker-dealer, as well as options. The amount held by Citadel’s hedge fund was $118m as of December 31st. Sorry. This was removed on March 29th 2012.

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Return of the euro crisis After the sugar rush – PFG Special Report


April 14, 2012

Mathieu Armand
European Regional Managing Director – Asset Management

Spanish bond yields have risen as the effect of cheap ECB cash wears off

THE high is over. The European Central Bank’s two long-term refinancing operations (LTROs) in December and February saw commercial banks borrow over €1 trillion ($1.3 trillion) of three-year money at the ECB’s main interest rate, which it had cut to 1%. Ostensibly a scheme to keep euro-area banks afloat, the LTROs also boosted flagging public-debt markets in the zone’s southern periphery, as banks used some of the cash to buy high-yielding bonds. That effect has faded.

Spain’s ten-year government-bond yield has been rising since the second tranche of three-year ECB cash was doled out. This week it reached almost 6%, the highest level since November (see chart 1). The U-turn owes a lot to the shifting dynamics of the euro-zone bond markets, which have also affected Italy. Missteps by Spain’s new government have not helped. Beneath all this lie deeper fears about Spain’s injured banks, the stringency of the government’s fiscal plans, and the impact of both on an already weak economy.

Start with the bond-market dynamics. With tacit support from regulators, the stock of government bonds held by Spanish and Italian banks rose by €122 billion between November and February. Prices

surged and yields fell. Hedge funds which had sold borrowed bonds in the hope that prices would fall were forced to buy them back. The rally lured others in.

This virtuous cycle turned vicious in early March. Some investors say the buying petered out once yields fell below 5%, when the bonds might no longer be considered cheap. But the conclusion of the second and last LTRO may have been the main trigger. Banks which bought periphery bonds have used up their ammunition. “The minute the ECB says ‘no more,’ the bank bidder is lost,” says a hedge-fund manager. Since there are few committed buyers of bonds beyond such banks, the smart money bet that yields would rise again. Brokers are less willing to take bonds off sellers’ hands in the hope that buyers eventually turn up, says Andrew Balls of PIMCO, a fund manager. In thinly traded markets, bond prices can suddenly shoot up if only a few investors take fright and start selling.

The clumsy handling of Spain’s 2012 budget may have persuaded some to sell. The newish Spanish government delayed it until after local elections in March; it also announced that its deficit target would be 5.8% of GDP, not the 4.4% agreed with European leaders (the compromise was a goal of 5.3%). The budget minister, Cristóbal Montoro, and the economy minister, Luis de Guindos, “contradict each other all the time”, complains a Spanish economist.

Yet Spain has deeper problems than muddled messages. The 2011 budget deficit was 8.5% of GDP, not the goal of 6%, in large part because of overspending by Spain’s autonomous regions. The economy is in recession—industry shrank by 5.1% in the year to February according to figures released on April 11th. Attempts to cut the deficit by 3.2% of GDP in a year will make things worse. Reforms to the jobs market, making it cheaper to fire workers and easier to set pay locally, will benefit Spain’s economy in time but not now.

Anxiety about Spain’s banks worsens the outlook further. A messy end to Spain’s long construction and mortgage boom means a lot of bank loans have already turned sour. More are likely to. Property prices have not yet fallen as far as in Ireland, the euro zone’s other housing black spot. Investors fear that the state will be called on to recapitalise Spain’s banks.

To complicate matters, much of Spain’s huge private debt is owed indirectly to foreigners via its banks. Spain’s net investment deficit—the sums owed to foreigners by firms, householders and the government, less the foreign assets they own—comes to 93% of GDP, the accumulation of a long series of current-account deficits. The increasing home bias of euro-zone investors makes it harder for countries with foreign debts to roll them over. Greece and Portugal have similar foreign debts but have higher borrowing costs (see chart 2).

Spain and Italy could not live with today’s borrowing costs for long unless the outlook for their economies were to improve dramatically. So they may have to look to outside help. But it would be hard for the ECB to sanction another LTRO so soon, reckons Laurence Boone of Bank of America. The ECB could restart direct bond purchases: Benoît Cœuré, a member of the bank’s six-strong executive board, suggested on April 11th that it might, which helped push Spain’s bond yields down a bit. But that would make existing investors worry more about subordination to the ECB in the event of a restructuring. In any case Mario Draghi, the bank’s president, has recently said high yields are the bond markets’ way of asking governments to implement promised reforms.

Spain could volunteer for the kind of support programme that Greece, Portugal and Ireland have signed up to. But Italy is scarcely in any less trouble and the euro zone’s meagre rescue fund could not stretch to a bail-out of both countries for long. A more likely outcome is that Spain is eventually forced to draw on the shared rescue fund to recapitalise its banks, which might in turn take pressure off its sovereign-borrowing costs. Meanwhile, some have turned to the next trouble spot. “France is our cheapest and biggest short,” says one hedge-fund manager.


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Exports and the economy Made in Britain – PFG Special Report


January 21, 2012

Mathieu Armand
European Regional Managing Director – Asset Management

JUST over a mile from Liverpool John Lennon Airport, named for one of Britain’s most successful exports, sits the Halewood operations of Jaguar Land Rover. Its foreign sales would make a Beatle envious. Over the December holidays the Tata-owned car factory ran extra shifts to keep up with demand. An expansion to the facility, which could create 1,500 jobs, is reportedly under consideration. JLR is already building a new engine plant in Wolverhampton. Other car firms are enjoying similar success. In 2010 Nissan invested over £400m in its state-of-the-art Sunderland factory, which produces for export to more than 90 countries.

As Britain’s economy stumbles toward a likely recession, hopes are pinned on exports, particularly to faster-growing parts of the world. George Osborne, the chancellor, flew to China this week and marvelled at that country’s hunger for goods and services. Since 2007 the pound has dropped nearly a quarter on a trade-weighted basis. A devaluation in the early 1990s helped Britain export its way out of recession. Can it repeat the trick now?

There are some encouraging signs. Britain’s trade deficit shrank from 4% of GDP in 2007 to around 1% of GDP by early 2011. But the economy might have been expected to do better after such a big depreciation. The obstacles have been many. Falling global demand blunted the impact of a cheap pound in 2008 and 2009. Once global trade recovered, so did Britain’s appetite for imports—despite a rise in relative import prices of roughly 20% since 2007. A decade of strong sterling has chipped away at the capacity of manufacturing industry—and factories cannot be rebuilt quickly. The financial-services industry, which accounted for a third of British exports in 2008, has been slow to recover.

A deeper concern is that Britain has become too dependent on moribund rich-world markets. The share of exports going to Europe has fallen in the past decade, but the continent still accounts for half of British exports (see chart). That market is shrinking; the Economist Intelligence Unit, our sister company, forecasts that the euro-zone economy will contract by 1.2% in 2012. One Conservative MP, Douglas Carswell, has complained that it is like being “shackled to a corpse”. America absorbs more British exports than any other single country and its economy still looks relatively robust. British exports to that country fell 4% in the year to September, but showed signs of recovery, along with America’s economy, in October and November.

The emerging economies of Asia and Latin America seem a better long-term bet than Britain’s established markets. But the combined share of British exports going to the three emerging-market giants—China, India and Brazil—is less than 5%. Britain can boast neither the large natural-resource endowments nor the focus on production of capital goods, like machine tools, that appeal to rapidly industrialising economies. And firms have been lamentably slow to build trade links with these fast-growing economies. That may be a legacy of Britain’s past imbalances: when the domestic economy was strong, there was little incentive for its firms to go to the trouble of finding customers in unfamiliar markets.

The recent success of Britain’s car industry suggests all is not lost. Domestic car sales fell by 4.2% in the year to November, but exports to China rose 23%, and sales to India were up by 67%. Foreign carmakers who built export-oriented operations in Britain in previous decades have taken advantage of the fall in sterling to expand market share, particularly in emerging markets. Luxury outfits like JLR, Rolls-Royce and Bentley hawk Britishness to the new rich. The car industry may, then, offer a blueprint for a rebalancing with “exports at its heart”, in David Cameron’s phrase. For that to occur, however, producers in other industries long battered by dear sterling must find a way to learn from and duplicate the success now on display in Liverpool. Let it be.


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Focus Russia’s economy – PFG Special Report

December 22, 2011

Mathieu Armand
European Regional Managing Director – Asset Management

Despite not seeing double-digit economic growth for over ten years, and been hit hard by the recession in 2009, Russia has had an average annual growth rate since 2000 of over 5%. And according to the OECD, a mostly rich-country think-tank, Russia’s economy will expand by 4% this year and next.

While inflation is set to be over 8% this year, high for a middle-income country, at the beginning of the 2000s, it was over 20%. The unemployment rate has followed a similar pattern and is now below the OECD average. Labour force participation rates are also high.

But perhaps Russia’s most striking achievement is its fiscal performance. In contrast to persistent budget deficits in the 1990s, up until recently Russia enjoyed a series of surpluses, thanks to high and rising oil prices, economic growth, fiscal reform and prudent management.

Revenues from oil and gas, which by 2008 accounted for a third of all government revenues (some $200 billion), were used to repay external debt and build up assets in a stabilisation fund, which was recently used to inject a fiscal stimulus. But Russia’s budget balance is dependent on the oil price. Strip oil out and its public finances have been deteriorating since 2005.

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The Growth of Azerbaijan

By Henry Martin

European Economic Analyst


Investments into Azerbaijan’s economy totaled AZN 9.776bn as of 1 November, 2011.

Of this, AZN 6.150bn were invested in national currency while AZN 3.525bn were invested in hard currency, according to the National Bank of Azerbaijan.

The average interest rate of loans directed into the country’s economy was 16.1%. Some AZN 8.302 of investments accounted for Baku.

So, investments into the economy increased 6.69% since the beginning of the year and 7.8% at an annualized pace.

In 10 months of the year, investment in Azerbaijan’s producing sector made up AZN 2.378bn ($3.025bn).

According to sources in the State Statistical Committee, compared to the same period of the last year investments have increased by 3.5% and their share in the overall volume of investments amounted to 27.5%.

In January-October 2011, enterprises of Azerbaijan’s producing complex manufactured commodity worth AZN 21.749bn ($21.67bn).

Compared to the same period of the last year, production in extractive sector in price equivalent has dropped by 5.8%.

Money in circulation and held in current and deposit accounts in Azerbaijan totaled AZN 9.748bn ($12.4bn) as of 1 November 2011.

This constitutes a rise of 17.5% since the beginning of the year and 33% over the past 12 months, according to the Central Bank.

The money supply was AZN 7.314bn as of 1 November last year and AZN 8.297bn at the beginning of the year.

This year, trade turnover between Azerbaijan and Belarus will reach almost $1bn.

The statement came from Belarusian Envoy in Azerbaijan Nikolay Patskevich. The ambassador noted that economic and trade cooperation between the two countries has become more dynamic recently.

“Our relations intensify year after year. This year, we plan to make trade turnover almost $1bn”.

Note that in the last five years, the trade turnover between the countries increased five times. Thus, over the first half of the current year, the figure made up $580m compared to $150m last year.

The Republic of Azerbaijan and the Republic of Turkey have signed a number of key gas export related agreements to enable Turkey to buy gas from Azerbaijan and to transit Azerbaijan gas through Turkey to Europe.

The documents signed in Izmir (Turkey) on Tuesday, October 25, included an Intergovernmental Agreement (IGA) between the Government of Azerbaijan and the Government of Turkey, Gas Sales Agreements between SOCAR and BOTAS and also between the Azerbaijan Gas Supply Company (AGSC) and BOTAS International Limited (BIL), a Gas Transit Agreement between SOCAR and BOTAS and a Framework Agreement (FA) setting the general terms and conditions for transit of gas sourced from Azerbaijan through the territory of Turkey. The IGA and FA contemplate transit through Turkey either via an upgrade to the existing BOTAS transmission network or via the development of a new-build pipeline across Turkey.

The execution of the documents was witnessed by the President of the Republic of Azerbaijan H.E. Ilham Aliyev and the Prime Minister of the Republic of Turkey Recep Tayyip Erdogan. The documents were signed by the Minister of Industry and Energy of Azerbaijan Natig Aliyev and the Minister of Energy and Natural Resources of Turkey Taner Yildiz, as well as SOCAR President Rovnag Abdullayev, the President for the Azerbaijan-Georgia-Turkey Region of BP and the Operator of Shah Deniz field, Rashid Javanshir and General Manager of BOTAS Fazil Senel.

The agreements provide a legal framework to regulate the sale of Shah Deniz gas to Turkey and its transportation to European markets through Turkey.

Shah Deniz Stage 2, or Full Field Development (FFD), is a giant project that will bring gas from Azerbaijan to Europe and Turkey. This will increase gas supply and energy security to European markets through the opening of the new Southern Gas Corridor.

The project is expected to add a further 16 billion cubic meters per year (bcma) of gas production to the approximately 9 bcma from Shah Deniz Stage 1. It is one of the largest gas development projects anywhere in the world.

Plans for the project include two new bridge-linked offshore platforms; 26 subsea wells to be drilled with 2 semi-submersible rigs; 500 km of subsea pipelines built at up to 550m water depth; additional export capacity in Azerbaijan and Georgia; expansion of the Sangachal Terminal.

Proposals for the transportation of gas from the Caspian Sea to Europe are now being evaluated by the Shah Deniz consortium with an award expected around the end of the year.

Proposals were submitted by October 1 from Nabucco, Trans-Adriatic Pipeline and IGI-Poseidon.

In addition, the Shah Deniz project team are also evaluating a fourth potential export option which would transport gas to markets in South-Eastern Europe through a system of regional existing and future interconnector infrastructure.

The partners in Shah Deniz are: BP Operator (25.5 per cent), Statoil (25.5 per cent), SOCAR (10 per cent), Total (10 per cent), Lukoil (10 per cent), NICO (10 per cent) and TPAO (9 per cent).

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