Editorial
Analysis
Two piles of junk?
A series of bad news for General Motors and Ford was capped last week with the
downgrading to junk status of their bonds by a leading credit-rating agency.
With no end in sight to their problems, what will become of the two giant
Detroit carmakers?
Like a car mechanic imparting the bad news with a tut, a shake of the head and a
sharp intake of breath, Standard & Poor’s, a credit-rating agency, last week
delivered its verdict on the roadworthiness of General Motors and Ford,
downgrading both carmakers’ bonds to junk status. The move will compound the
problems of the two companies, which were already looking seriously wobbly.
S&P’s decision to cut by two notches its rating for GM and its finance
subsidiary, and by one notch those of Ford and its finance arm, will affect a
vast pool of outstanding debt worth over $450 billion. While markets had
expected the move, its timing and (in GM’s case) severity were less well
anticipated—hence the shivers it sent through the credit markets. But it comes
after a pile of bad news for both car companies which could yet see Moody’s and
Fitch, the other big rating agencies, take a similar line. At present both rate
the firms’ debt at just above junk.
Most of the problems faced by GM and Ford stem from an obvious but crucial
weakness: an inability to sell enough cars. The competition has come mainly from
the Japanese—and to a lesser extent from a resurgent DaimlerChrysler. Honda,
Nissan and Toyota bumped up their combined North American market share from
24.8% to 29.1% in the year to April, selling some 438,000 light vehicles. And
they are hitting GM and Ford where it hurts most.
Worse still, the Japanese are also making inroads into the market for pick-up
trucks, a vehicle as ubiquitous in America’s heartland as the buffalo once was.
The Japanese are also gaining in the market for small cars, while luxury-car
buyers in America now generally choose models from Europe and Asia.
Ford and GM have responded to these problems with lay-offs, factory closures and
the odd rearguard deal. GM also revamped its top management structure recently
by appointing a senior executive to tackle two of the worst problems it faces:
employment and “legacy” costs.
GM and, to a lesser extent, Ford must also fund a vast and ever-growing pool of
pensions for former employees and health-care bills for current ones. Ford’s
unfunded pension liability stood at $12.3 billion at the end of 2004. In GM’s
case, legacy costs accounted for 2.3% of revenues in 1999.
Perhaps a deal with the unions over these costs is not far away. Indeed, it may
have been this prospect that nudged Kirk Kerkorian, a wily old American
investor, to announce, the day before the downgrade from S&P, that he intended
to more than double his stake in GM to 8.8%, at a cost of around $870m. Other
shareholders will no doubt be hoping that he uses his increased stake to force
management into making big strategic changes.
Both GM and Ford have sizeable cash piles ($26 billion in GM’s case) and credit
lines available, so the extra cost of financing resulting from the credit
downgrades should not hurt too much in the immediate future. But it remains to
be seen how long both firms can remain solvent if their core operations continue
to bleed money and their legacy costs continue to grow. Bankruptcy no longer
seems far-fetched. Indeed, the opportunity to emerge from Chapter 11 as smaller,
leaner operations, stripped of some burdensome liabilities and better equipped
to move back into the fast lane of carmaking, may be starting to look like an
appealing option.
Promote direct coffee exports
The issue of having middlemen in business has become a common phenomenon just
because it simplifies transactions.
But everything has its advantages and disadvantages; while middlemen simplify
business they add overhead costs and sometimes distort the real state of the
goods or services.
Coffee is one of the cash crops that have earned Tanzania a name in the world
market, but coffee exports have to go through auctions, serving as ‘middlemen’
in this case.
For the 2003/04 season, Tanzania Coffee Board (TCB) established what it termed
as Direct Export (DE) with an objective of enabling farmers to export coffee
without passing through auctions.
DE has two benefits to farmers: it encourages them to produce high quality
coffee hence get better prices. Better prices can also be realized owing to the
fact that auction fees are no longer there. Top quality coffee producers and
buyers meet without passing through the process of local traders or the auction
systems.
This creates a direct link with overseas importers. Price benefits are direct
and a seller tends to know the market. The new marketing system develops a
relationship between different stakeholders of the commodity.
DE can further be beneficial to farmers as it sometimes involves farmer groups,
associations or even individuals while entities may have special arrangements to
assist producers.
In this case, DE is the only alternative if coffee production in the country is
to improve. It is now time for the government and the TCB to sensitise, support
and encourage DE to all producers.
Analysis
Including
women in communication to tackle malnutrition
It is said that food and
nutrition security remains a major challenge in Sub-Saharan countries, including
Tanzania. But could better communication help improve the situation and if so,
how, asks Timothy Kitundu.
This was the main question that was posed at the Technical Centre for
Agriculture and Rural Cooperation (TCA) Annual Seminar held in Maputo Mozambique
last year.
If the goals of food and nutrition security are to be achieved, the crucial
issue of gender mainstreaming has to be addressed. Regarding women as
unproductive and ignoring them needs close scrutiny.
The seminar generally sought to examine the role of Information and
Communication Management (ICM) tools in achieving food and nutrition security
(FNS) and draw up recommendations for concrete action within the ACP (African,
Caribbean, Pacific) countries.
According to experts, women produce between 70 and 80 per cent of Africa’s food.
Women’s roles are well known but their rights are not known. The economies of
Africa are held together by women crossing borders to buy and sell; to do the
housework, and work on the farm. All is unseen and unrecognized and doesn’t
appear in the statistics.
As far as FNS deficiencies in Africa are concerned, one third of African
countries are below the recommended calorie intake and millions of children die
of nutrition-linked diseases every year.
Female literacy must be a priority and it is vital to choose the right mix of
information and telecommunication technologies (ICTs) for different target
groups.
Women have continued to be ignored not only in the agricultural sector but also
in the formal and informal economies which are directly linked with FNS. It is
believed that a better job with better pay greatly contributes towards enhancing
the nutrition status of households.
Women constitute only 32 per cent of the total employees in the formal economy
and are concentrated in low skilled and low paid jobs. Similarly, about 80 per
cent of the labour force (women) is engaged in the informal economy, but more
men than women are in the salaried jobs.
Hazardous working conditions affect women more than men, especially when they
are pregnant and breast feeding, and the unpaid labour in the care economy at
household level negatively impact on women in the competitive labour market.
Case studies from a number of African countries showed how ICT’s linked with
rural radio (including few women) were transforming rural people’s access to
vital market and agro-meteorological information – a major lesson being that
knowledge is power.
Speaking during the seminar, Graca Machel who served as Mozambique’s first
post-independence Minister for Education stressed the need of paying more
attention to women. “Before we talk about communication, let’s ask, who is
growing the food?
It is the women who grow the food and women who are illiterate…they cannot
count. But they are excellent managers. Despite this, they cannot grow enough
for their families for the whole year.
Most of these women who ‘feed the world’ are isolated in their horizons but they
live where there is no infrastructure, no roads, no electricity and poor or no
schools. There is a dire need of breaking the ‘rural apartheid’ in so many rural
areas:-
Infrastructure must be provided.
More schools needed to improve female literacy.
We need communication channels that are accessi ble and affordable.
In general, there is need to manage nature, particularly water, there is also
need to diversify the crops grown with more and better processing.
However, the major challenge that remains to be addressed as far as ICT is
concerned are access and cost. Africa has only two per cent of telephone lines
and less than one per cent of Internet hosts, 0.2 per cent of fax machines and
0.4 per cent of the content of the Web.
Progress at
last
After months of deadlock, the Doha round of global trade talks has taken a
big step forward, thanks largely to an abstruse but important deal over
agricultural tariffs.
Just as it seemed time to declare the Doha round of world trade talks dead,
the negotiations have seen an infusion of energy. Thanks to a new face, a
new partnership and an important technical breakthrough in the crucial talks
on farm trade, last week’s gathering of trade ministers in Paris marked a
big step forward.
The new face is Rob Portman, a Republican congressman from Ohio, who was
formally confirmed by the Senate as America’s trade representative on April
29th. Three days later in Paris, Mr Portman had his first official meeting
with Peter Mandelson, the European Union’s trade commissioner and a man who
had a notably strained relationship with Bob Zoellick, Mr Portman’s
predecessor. Messrs Portman and Mandelson, in contrast, were all smiles and
both were pointedly focused on getting Doha going again.
To underscore that determination, the two trade supremos helped push a
breakthrough on the calculation of agricultural tariffs, dispute over which
had held up the farm-trade talks for months. On May 4th, negotiators from
America, the European Union, Brazil, India and Australia hammered out a
formula for converting specific tariffs on agricultural goods, such as 10
cents per pound in weight, into percentage (or so-called ad valorem)
tariffs.
Measuring all tariffs as a percentage of the goods’ value is a prerequisite
for further progress in talks about reducing trade barriers for agricultural
goods. Under the broad outline for the farm-trade talks agreed last summer,
countries pledged to divide their tariff barriers into different tiers.
Higher tariffs will be cut more than lower ones. Not surprisingly, those
countries that protect their farmers most wanted a conversion formula that
translated specific tariffs into lower percentages, as that would imply
smaller cuts down the road. In the end, the deal was based on a compromise
proposal made by the European Union.
Last-minute breakthroughs after seemingly interminable deadlock are a
hallmark of all trade talks. Nonetheless, the ministers gathered in Paris
this week gave the Doha talks exactly what they needed: a concerted
political shove. But there is still much to be done by the time the full
crowd of World Trade Organisation (WTO) member states meet for their
“ministerial” in Hong Kong in December. It is conventional wisdom that Doha
can only succeed if the big political bargains are struck in Hong Kong. That
is because George Bush’s fast-track negotiating authority—which limits the
ability of America’s Congress to unravel any trade agreement—runs out in
July 2007. Mr Bush barely won initial congressional approval for fast-track.
Given rising protectionist sentiments among America’s lawmakers, another
renewal two years from now looks extremely unlikely. That suggests any Doha
deal will need to be formally signed by early 2007. Since it takes trade
negotiators around a year to wrap up a deal once the big political
breakthroughs are made, Hong Kong is widely viewed as a crucial deadline.
And there is still a huge amount of negotiating to do. In farm trade, last
week’s breakthrough on the technicalities of tariff conversion merely opens
the door to the real haggling over how to structure tariff cuts for farm
goods. And in the other areas of farm trade—such as export subsidies and
domestic support—the horse-trading has barely started.
Elsewhere, too, there is much to do. The services talks—to free up trade in
areas from telecoms to legal work—have made scant progress. According to the
official timetable, all WTO members, except the very poorest, were supposed
to have made initial offers on what services they would liberalise two years
ago. By the end of May, countries are supposed to have submitted their
revised—and improved—offers. In fact, almost 40 countries, including several
large emerging economies, have submitted nothing at all. Talks on reducing
industrial tariffs, too, have a long way to go. Again, many large emerging
economies are proving reluctant liberalisers. For months, the blockage in
agriculture has given negotiators an excuse for intransigence elsewhere.
With luck, last week’s breakthrough will prompt a change of heart.
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