MONDAY, FEBRUARY 2, 2015 BUSINESS Global deflation is the main concern By Hayder Tawfik O ver the past few months falling inflation or in some places an outright deflation has again reared its head as a problem in the developed economies. Deflation has gathered momentum in Europe more than anywhere else in the world. Now it is official that the eurozone registered a -0.6 percent inflation for the month of January or an outright deflation. The statistic office blamed the negative inflation on the sharp fall in oil price. Indeed it is a fact but how and when this can be reversed, is something they are all worried about it. In most countries, headline Consumer Price Index has been falling significantly since the end of 2011. The emerging economies are more vulnerable to falling inflation than the developed economies. These economies need positive rate of inflation to encourage investments and economic growth. The sharp decline in headline inflation has been accompanied by a similar decline in core inflation rates, which are also hovering at worryingly low levels in most countries. The vast majority of developed countries are currently reporting a headline inflation rate of below 1 percent per cent, with the trend in virtually all of them headed downwards. Few countries all in Europe are experiencing outright deflation. Germany, Spain, Greece, Denmark and Switzerland are all in deflation. It is hard to remember a period, other than in the months immediately following the financial crash in 2008, when core and headline inflation has been so low in so many different economies. Also it did happen in the late 1990’s and early 2000 when collapsing oil prices drove inflation rates temporarily as low as present levels. Why suddenly inflation rate has started falling significantly? Falling energy prices have as usual been a factor. Not only do they have a major direct effect on headline inflation, they also affect the core rate, as the lower costs of energy inputs feed through the non- energy sectors of the economy. Apart from falling energy prices there are other factors are clearly at work. More widely, labor market recessions have resulted in very low rates of increase in wages in almost all economies, with no sign of any reversal yet apart from the US and the UK. But even in those two countries unemployment has been falling but this has not put any pressure on wages. The stubbornness of inflation over the past few years has suddenly collapsed. We can say that the sharp fall in oil price was the trigger but not the full reason. I believe that deflation did not take place much earlier because of the tendency for wages settlement that got stuck at positive levels rather than going negative and the unrealistic inflation target of 2 percent set by major central banks. Their targets were relied on a massive and rapid expansion in the monetary base and reducing interest rates to below zero. Historically speaking this might have caused inflation to rise but the fall in oil price has ruined the plan. Nevertheless, outright deflation has been experienced in several economies since 2011, including Japan, Switzerland, Spain, Portugal, Cyprus, Ireland and Greece. It would therefore been unwise to rule out such a development in other economies. The Fed has succeeded at least for the time being in stopping an outright deflation in the US. The late action by the European Central bank to stimulate the euro-zone economies by massive measures of Quantitative Easing might have come too late to prevent deflation taking hold in Europe overall rather than just the euro-zone. But the risk of deflation taking hold seems much lower in the US than in the euro area, and that is certainly reflected in the Federal Reserve’s thinking at present. Not only is the US economy forecast to grow above its trend rate in the coming years, but also inflation expectations seem to be fairly well anchored at around 2 per cent. On the opposite side of the Federal Reserve the European Central Bank, however, has much bigger and serious problems than anything faced by the Federal Reserve. The economies of the euro-zone are very weak and the hope of economic recovery is very remote. The biggest problem facing the euro-zone economies is the highly indebtedness of some of its countries. Inflation is nose-diving further into negative territory, taking effective real interest rates to levels that are clearly undesired by the European Central Bank. Furthermore, inflation projections for 2015 and 2016 are being revised downwards, so that the central bank is no longer expected to hit its objective of inflation “below but close to 2 per cent” at the end of the forecast horizon. I am not sure if their forecasts can be achieved. If this is going to be the case then the euro-zone economies could become trapped in an environment of zero or negative inflation and therefore, bigger struggle when comes to servicing those rising real debts. —Dimah Capital VIVA announces net profits of KD 40.3 million in 2014 Revenue of KD 239 million reflecting revenue growth of 31% KUWAIT: VIVA, Kuwait’s fastestgrowing telecom operator, yesterday announced operational profits of KD 45.1million at the end of the 2014, and net profits of KD 40.3 million, a 66 percent increase compared to 2013. Adel Al Roumi, Chairman of the Board, said: “2014 was a major milestone for the company after it was successfully listed on the Kuwait Stock Exchange, where investors trust in the company was reflected on the share price, which resulted in a return higher than 600 percent at the inception of the company. Post listing, the company continued to build itself and with God’s grace, fulfilled its promise to its stakeholders.” “Our strong performance in 2014 reflects our consistent hard work and dedication in an exceptionally competitive market. During the year we delivered a solid performance with revenues of KD 239 million, which reflects strong revenue growth of 31 percent, when compared to the year before. This has resulted in a net profit of KD 40.3 million, (earnings per share of 81 fils) in comparison to net profit of KD 24.2 million in 2013, earnings per share. These results illustrate our continued ascending direction, which enables us to achieve positive shareholder equity at 421 percent.” “These excellent results represent a great leap in the company’s development, and reflect the Adel Al-Roumi many other record breaking achievements VIVA consistently delivered over course of the year,” concluded Al-Roumi. Eng Salman Bin Abdul Aziz AlBadran, VIVA’s Chief Executive Officer said: “VIVA was able to gain 33 percent of the market share as the second largest operator in Kuwait in 2014, with a customer base of 2.4 million, and network coverage of more than 99 percent of Kuwait’s residential areas and other geographically equipped areas. As we continued to invest in our infrastructure and new technologies that differentiate our company from the competition, VIVA was able to achieve growth in operating income before interest, tax, depreciation and amortization (EBITDA), by 72 percent in 2014.” “In response to the increase in our customer base, we also expanded our commercial presence across Kuwait to 53 outlets by the end of 2014, to be closer to our customers and to meet the growing demand for our products and services. Our success and achievements were also recognized by our industry peers in 2014 as we won several awards for excellence, including the ‘Best 4G Package’ award at the 2nd Annual Teknotel Awards, the ‘Best Mobile Operator’ Award from Service Hero, the ‘Editor’s Choice Award’ from Network World Middle East, the ‘Best Speech Analytics Implementation’ from INSIGHTS - Middle East Call Centre Awards 2014, and last but not least, the ‘Best Middle Eastern Operator’ at the 2014 Telecom Review Summit Awards.” “A consistently important Eng Salman Bin Abdul Aziz Al-Badran aspect is investing in our human capital, and our commitment to the government’s Kuwaitization program remains one of the main pillars of our strategy. As a result of this, 66 percent of our work- KAMCO wins ‘Kuwait Asset Manager of the Year’ Award KUWAIT: KAMCO, a leading investment company with one of the largest AUMs in the region, announced today that it has won the prestigious Kuwait Asset Manager of the Year Award from MENA Fund Manager Magazine (MENA FM), specialized in asset management in the MENA region. KAMCO’s success was recognized at the MENA FM award ceremony held in Dubai, for its strong performance in the asset management sector in addition to its large AUM in the region. KAMCO’s MENA Asset Management team, Talal Al-Nafisi, Vice President and Ljubomir Krispinovic, Assistant Vice President, accepted the award on behalf of the Company. KAMCO CEO Faisal Sarkhou said, “The growth of KAMCO’s AUM by 24% played a big role in winning this award reaching around $12.1 billion as at the end of Q3 2014 $10 billion at the end of Q3 2013. KAMCO managed to remain unwavered during challenging times due to its strategic approach and distinct investment performance levels.” Salah Al-Wuhaib, KAMCO’s MENA Asset Management’s Senior Vice President also said, “ This award reflects KAMCO’s robust position in the local and regional asset management markets, and one which can be attributed to the team’s efforts and expertise. The award will serve as a motivation to continue offering optimal services to our investors and clients.” Al-Wuhaib added, “Despite geopolitical circumstances and the drop in force is now Kuwaiti, which is comparatively high when compared to other major companies in the private sector in Kuwait. In addition to our commercial operations, we have a long-standing commitment to supporting the local community. We are consistently involved in the development of many areas in Kuwait’s society, including social, health, sports and education.” Al-Badran concluded: “I would like to express my appreciation to the whole VIVA family, including all our employees, our business partners, customers and shareholders, to whom we owe our success.” Abdulaziz Abdullah Al-Qatie, Chief Financial Officer said: “VIVA’s performance has exceeded all expectations in terms of attracting more customers and achieving revenues, which enhanced the financial performance of the company. This reflected positively on the record-breaking growth of VIVA’s revenues and profits. VIVA’s net profits growth reached 521 percent in 2013 and 66 percent during 2014.” He added: “We will continue the hard work in order to achieve further growth and success next year.” News i n b r i e f Dollar stable against dinar at 0.294 KUWAIT: The exchange rate of the US dollar against the Kuwaiti Dinar was stable yesterday at KD 0.294, while the Euro remained at KD 0.332 compared to Thursday’s exchange rates, said the daily bulletin of the Central Bank of Kuwait (CBK). The sterling pound exchange rate went down to KD 0.444, while the Swiss franc dropped to KD 0.320, and the Japanese Yen remained unchanged at KD 0.002. Jordan’s Arab Bank 2014 net profit up 15% AMMAN: Jordan’s largest lender, Arab Bank Group, posted a 15 percent rise in 2014 net profit to $577 million, saying its diversified portfolio helped it offset the impact of foreign exchange falls. Chairman Sabih Al-Masri said deposits rose to $35 billion, up by 2 percent from the end of 2013. “Despite the challenging environment and devaluation of several major currencies the bank managed to see growth in loans and deposits,” said Masri. CEO Nemeh Sabbagh said its diversified model helped the bank succeed in expanding its operating income. Arab Bank, which has a $45.6 billion balance sheet spread across 30 countries and five continents, saw no increase in nonperforming loans last year, something which had hurt its profitability in recent years, Masri said. oil prices, KAMCO continues to hold a solid position within the asset management sector backed by a skilled team. He also mentioned that the position of strength prepares KAMCO for achieving many more awards in the future. KAMCO successfully launched the KAMCO Real Estate Yield Fund in March 2014 which focuses on investing in unique low-risk real estate assets that have attractive returns in the GCC and MENA regions. KAMCO is also in the process of promoting the KAMCO MENA Plus Fixed Income Fund which aims to offer investors attractive levels of absolute income with potential for capital gains over the medium term, and achieve relatively high returns as compared to returns of the bank short term interest by primarily investing in a portfolio of MENA Conventional bonds and Islamic Sukuk. DI approves 60% buy of Al-Mal Capital DUBAI: Dubai Investments said yesterday its board had approved the acquisition of a majority stake in investment firm Al-Mal Capital. DI will purchase 60 percent of the financial firm that manages assets and offers investment banking services. Al Mal shut down its brokerage unit in the fallout of the 2008 financial crisis. In January, DI said it was close to two acquisitions, worth a combined value of 400 million dirhams ($109 million). This included a financial and a real estate firm. The board proposed a higher dividend for 2014 - 12 percent cash and 6 percent bonus shares. This compares with a 7 percent cash dividend and 7 percent bonus shares in the year earlier period. EXCHANGE RATES Al-Muzaini Exchange Co. Japanese Yen Indian Rupees Pakistani Rupees Srilankan Rupees Nepali Rupees Singapore Dollar Hongkong Dollar Bangladesh Taka Philippine Peso Thai Baht Irani Riyal transfer Irani Riyal cash Saudi Riyal Qatari Riyal Omani Riyal Bahraini Dinar UAE Dirham ASIAN COUNTRIES 2.519 4.788 2.928 2.218 3.012 219.930 38.159 3.795 6.713 9.068 61.555 121.740 GCC COUNTRIES 78.754 81.297 768.910 785.970 80.588 ARAB COUNTRIES Egyptian Pound - Cash 39.349 Egyptian Pound - Transfer 39.041 Yemen Riyal/for 1000 1.381 Tunisian Dinar 153.580 Jordanian Dinar 417.270 Lebanese Lira/for 1000 1.985 Syrian Lira 2.109 Morocco Dirham 31.468 EUROPEAN & AMERICAN COUNTRIES US Dollar Transfer 295.800 Euro 337.210 Sterling Pound 448.370 Canadian dollar 334.420 Turkish lira 120.970 Swiss Franc 325.050 Australian Dollar 232.790 US Dollar Buying 294.600 20 gram 10 gram 5 gram GOLD 238.100 121.740 61.560 UAE Exchange Centre WLL COUNTRY Australian Dollar Canadian Dollar Swiss Franc Euro US Dollar Sterling Pound Japanese Yen Bangladesh Taka Indian Rupee Sri Lankan Rupee Nepali Rupee Pakistani Rupee UAE Dirhams Bahraini Dinar Egyptian Pound Jordanian Dinar Omani Riyal Qatari Riyal Saudi Riyal SELL DRAFT 219.49 236.45 326.46 337.06 296.00 448.76 2.56 3.797 4.781 2.219 2.982 2.927 80.43 785.62 38.93 420.58 767.63 81.51 78.85 SELL CASH 216.49 237.45 324.46 338.06 299.00 451.76 2.58 4.067 5.081 2.654 3.517 2.790 80.90 787.69 39.53 426.23 774.93 82.06 79.25 Syrian Pound Nepalese Rupees Malaysian Ringgit Chinese Yuan Renminbi Thai Bhat Turkish Lira Bahrain Exchange Company COUNTRY Belgian Franc British Pound Czech Korune Danish Krone Euro Norwegian Krone Romanian Leu Slovakia Swedish Krona Swiss Franc Turkish Lira Dollarco Exchange Co. Ltd Rate for Transfer US Dollar Canadian Dollar Sterling Pound Euro Swiss Frank Bahrain Dinar UAE Dirhams Qatari Riyals Saudi Riyals Jordanian Dinar Egyptian Pound Sri Lankan Rupees Indian Rupees Pakistani Rupees Bangladesh Taka Philippines Pesso Cyprus pound Japanese Yen Selling Rate 295.750 234.575 446.970 335.350 272.710 786.690 80.895 82.060 79.060 417.445 38.889 2.220 4.774 2.925 3.795 6.711 725.940 3.515 2.565 3.980 82.205 47.700 10.005 121.335 Australian Dollar New Zealand Dollar America Canadian Dollar US Dollars US Dollars Mint Bangladesh Taka Chinese Yuan Hong Kong Dollar Indian Rupee Indonesian Rupiah Japanese Yen Kenyan Shilling Korean Won Malaysian Ringgit Nepalese Rupee Pakistan Rupee Philippine Peso SELL CASH Europe 0.007707 0.440486 0.004078 0.041049 0.329643 0.034240 0.084848 0.008700 0.031865 0.316867 0.121372 SELLDRAFT 0.008707 0.449486 0.016078 0.046049 0.337643 0.039440 0.084848 0.018700 0.036865 0.327067 0.128372 Australasia 0.221853 0.209571 0.233353 0.219071 0.228188 0.291700 0.292200 0.236688 0.296400 0.296400 Asia 0.003499 0.046174 0.036053 0.004466 0.000019 0.002436 0.003280 0.000260 0.078661 0.003024 0.002691 0.006565 0.004099 0.049674 0.038803 0.004867 0.000025 0.002616 0.003280 0.000275 0.084661 0.003194 0.002971 0.006845 Sierra Leone Singapore Dollar South African Rand Sri Lankan Rupee Taiwan Thai Baht 0.000065 0.215787 0.019614 0.001880 0.009283 0.008719 0.000071 0.221787 0.028114 0.002460 0.009463 0.009269 Bahraini Dinar Egyptian Pound Iranian Riyal Iraqi Dinar Jordanian Dinar Kuwaiti Dinar Lebanese Pound Moroccan Dirhams Nigerian Naira Omani Riyal Qatar Riyal Saudi Riyal Syrian Pound Tunisian Dinar Turkish Lira UAE Dirhams Yemeni Riyal Arab 0.778155 0.036603 0.000082 0.000196 0.413157 1.000000 0.000147 0.022718 0.001206 0.762292 0.080538 0.078243 0.001754 0.149705 0.121372 0.079554 0.001336 0.786155 0.039703 0.000083 0.000256 0.420657 1.000000 0.000247 0.046718 0.001841 0.767972 0.081751 0.078943 0.001974 0.157705 0.128372 0.080703 0.001416 Al Mulla Exchange Currency US Dollar Euro Pound Sterlng Canadian Dollar Indian Rupee Egyptian Pound Sri Lankan Rupee Bangladesh Taka Philippines Peso Pakistan Rupee Bahraini Dinar UAE Dirham Saudi Riyal *Rates are subject to change Transfer Rate (Per 1000) 294.250 348.000 448.650 247.700 4.738 41.135 2.222 3.770 6.590 2.928 783.450 80.150 78.600