NEWS,03.06.2013

Apple e-book price-fixing trial opens

The US government's trial against Apple, accused of leading a conspiracy to fix prices of electronic books, opened in the US on Monday.
The California technology giant is on its own in its fight against the US Justice Department, after five of the world's biggest book publishers named in the suit settled the charges and paid fines.
US antitrust watchdogs say Apple orchestrated a collusive shakeup of the electronic book business in early 2010 that resulted in higher prices.
Attorneys for both sides appeared in the courtroom of Judge Denise Cote, discussing procedural matters ahead of opening arguments.
The civil trial is expected to last three weeks and comes with Apple under pressure for its slumping share price, eroding market share for its iPhones and iPads and accusations in congress it avoided billions in taxes.
Apple chief executive Tim Cook has rejected the idea of a settlement because it would call for the company to sign an admission of wrongdoing.
"We didn't do anything wrong there," Cook told a recent California conference.
"We're going to fight."
Commission
The government's case centres on a period when Amazon dominated the e-book business, offering most bestseller titles for $9.99.
Leaders of the major publishing houses held "CEOs dinners" in "private rooms at upscale restaurants" at which they discussed the threat from Amazon.
Into this environment stepped Apple, which was readying the launch of its iPad.
Rather than following the Amazon "wholesale" pricing model in which the retailer sets the price, Apple favoured the so-called "agency model" where the publishers set the price and the seller - in this case Apple - received a 30% commission.
The result was an increase in price to $12.99 or $14.99 for most books.
Apple throughout the negotiations informed the publishers of the status of its dealings with other publishers. Apple was the "ringmaster" of the "conspiracy," the complaint alleges.
The government is expected to use emails and comments from the late Apple CEO Steve Jobs, which indicated that as part of a deal to force a new pricing model, publishers should "hold back your books from Amazon."
Apple dismisses the "conspiracy" charge and said its negotiations with the publishers were "difficult and contentious."
Among the publishers named in the lawsuit last year, Penguin settled for $75m, while Hachette, Harper Collins and Simon & Schuster created a $69m fund for refunds to consumers and Macmillan settled for $26m.

Global airline profits under pressure

In 2012 the profits made by airlines around the world amounted to $2.54 per passenger. That means airlines make only about R40 profit on every air ticket they sell.

"The global aviation industry registered a combined net post-tax profit of $7.6bn. This was generated on the back of revenues of $680bn globally," said Brian Pearce, chief economist at the International Air Transport Association (Iata).

"The profits are thin and fragile. The numbers seem high but the reality is that the margins are incredibly thin."

Iata has released its latest set of financial forecasts for the industry. The outlook for Africa for 2013 is a profit of $100m for the year.

"The aviation industry is linked to global economic growth. It's clear that the global economy is still under severe pressure," said John Slosar, CEO of Hong Kong-based carrier Cathay Pacific.

Slosar said cargo is still under great pressure, especially in regions such as Europe. "I suppose this is indicative of the economic state of some areas."

Iata is hosting its 69th annual general meeting in Cape Town.

N Korea surrenders to foreign currencies

Chinese currency and US dollars are being used more widely than ever in North Korea instead of the country's own money, a stark illustration of the extent to which the leadership under Kim Jung-un has lost control over the economy.
The use of dollars and Chinese yuan, or renminbi, has accelerated since a disastrous revaluation of the North Korean won in 2009 wiped out the savings of millions of people, said experts on the country, defectors and Chinese border traders.
On the black market the won has shed more than 99% of its value against the dollar since the revaluation, according to exchange rates tracked by Daily NK, a Seoul-based news and information website about North Korea.
North Korea is one of the most closed countries in the world, so it is difficult to determine what impact this could ultimately have on Kim's regime.
But experts said the growing use of foreign currency is making it increasingly difficult for Pyongyang to implement economic policy, resulting in the creation of a private economy outside the reach of the state that only draconian measures could rein in.
For now Pyongyang appeared to be capitulating, rather than trying to stamp out foreign currency use, they said.
Estimates of how much hard currency is in circulation vary, but an analyst at the Samsung Economic Research Institute in Seoul put it at $2bn in an April study, out of an economy worth $21.5bn, according to some assessments. Pyongyang doesn't publish economic data.
The use of dollars and yuan is now so pervasive there is little Pyongyang can do about it, said Marcus Noland, a North Korea expert at the Peterson Institute for International Economics in Washington.
The government would increasingly have to force people to provide goods and services to the state and get paid in won, added Noland, who closely studies the North Korean economy.
"It's been a tug of war for 20 years where the state would like to get control of the economy, to quash the market and to get everyone to use the North Korean won, but it just doesn't have the capacity to do any of those things," he said.
"It just makes it harder and harder for them to govern. Nobody wants what they're selling."
Secret video
In the Chinese town of Changbai in Jilin province, just across the border from the hardscrabble North Korean city of Hyesan, one Chinese trader said North Korean officials he dealt with wanted yuan more than anything else, even food.
The yuan they earned from doing business quickly gets circulated into Hyesan, a city of roughly 190 000 people whose industry-based economy has slumped since the 1990s.
"The only thing they want is foreign currency," said the trader, who sells products including medicine and tea in Changbai. He declined to be identified because he did not want to jeopardise his business or endanger his North Korean partners.
In April, Daily NK posted video it said was shot secretly in February at an open-air market in Hyesan. The shaky footage showed vendors openly quoting prices in yuan for products like gloves and jackets, and one accepting payment in yuan.
Pyongyang has waged periodic campaigns to try to stop the use of foreign currency but with no success.
North Korea made circulating foreign currency a crime punishable by death in September 2012, the Paris-based International Federation for Human Rights said in a report last month.
Another group, Human Rights Watch, recently interviewed more than 90 defectors who had fled North Korea in the past two years about punishment they had received for economic crimes. None said they were penalised for using or holding hard currency.
Nevertheless, ordinary North Koreans are very careful.
"I have heard multiple stories of people hiding foreign money under the floorboards in the house, or burying it up the hill in the woods out back," said one person in northeastern China who has lived in Pyongyang and regularly interacts with North Koreans.
"Nobody puts it in the bank because nobody trusts the government."
The worthless won
Faith in the North Korean won crumbled when Kim's father, Kim Jong-il, ordered the sudden revaluation of the currency in November 2009.
The government chopped two zeroes off banknotes and limited the amount of old money that could be exchanged for new cash. The move, seen as an attack on private market activity at the time, spurred a rush to hold hard currency.
It also quickened inflation and according to South Korea's spy agency, sparked rare civil unrest in one of the world's most entrenched authoritarian states after North Koreans realised the won was not a safe store of value.
The government is widely believed to have executed the economic official who oversaw the revaluation.
Dollars have circulated in North Korea for decades, partly because of the cash siphoned off from official foreign trade.
The rise in the use of yuan is a more recent phenomenon and reflects a surge in trade and smuggling between North Korea and China along their 1,400 km (875 mile) land border, where a lot of the currency changes hands. Official trade with China is worth $6bn annually.
Black market rates illustrate how far the won has fallen since the revaluation. It has plunged from $30 to one US dollar to about 8 500, according to exchange rates tracked by Daily NK. The current official exchange rate is about 130 won per dollar.
Daily NK has sources in North Korea who report every fortnight on rates in Hyesan, the city of Sinuiju opposite the Chinese border city of Dandong and also the capital Pyongyang.
In border areas some 90 percent of transactions occur in hard currency, said Christopher Green, Daily NK's manager of international affairs. Elsewhere, foreign cash accounts for 50 to 80 percent transactions in private markets, he estimated.
North Koreans increasingly did not refer to prices in won, Dong Yong-Sueng, senior fellow at the Samsung Economic Research Institute in Seoul, wrote in the April study on the use of foreign currency in the country.
Prices were marked in US dollars for beer, university preparation courses and apartments, Dong wrote.
South Korea's central bank estimated foreign currency in circulation at $1bn in 2000. Dong reckoned $2bn in foreign cash was now sloshing around the economy. Around half was in US dollars, 40% in yuan and 10% in euros, he told Reuters.
Dollars seeped into the market because trading firms exploited government quotas for exports and imports, making profits when prices diverged from those set by the state, Dong said.
It was not possible to estimate the amount of North Korean won in circulation, Dong added.
He said the North Korean informal economy was now bigger than the formal, state-led economy.
"Without foreign exchange, the economy would stop functioning," Dong said.
US officials have previously accused North Korea of making extremely high-quality counterfeit $100 notes. This money is believed to have been used to raise real cash for the regime abroad rather than get cycled into the economy.
"Juche" in name only
Despite purporting to follow an ideology of "juche", or self-reliance, Pyongyang did not have the will to stop the circulation of hard currency even if it had the means to do so, said Yang Moon-soo, an expert on the North's economy at the University of North Korean Studies in Seoul.
Ordinary North Koreans wanted yuan while the elite preferred dollars, said Yang, who has carried out a study on the use of both currencies based on interviews with North Korean defectors.
One official at a European embassy in Pyongyang, who has been visiting North Korea for more than a decade, said the most noticeable change had been the increased use of yuan. Most shops carried prices in dollars, yuan or euros, said the official.
"People ... pay in yuan at the market for rice and other daily necessities," said Ji Seong-ho, a defector living in South Korea who stays in touch with friends in the North.
An estimated 70% of defectors in South Korea also send cash back to family in North Korea, according to the Organization for One Korea, a South Korean support and research institute on North Korean defectors.
A Reuters report last year showed how this money was getting to North Korea via underground agents in China, mostly Chinese of Korean descent. They use ties on both sides of the border to funnel around $10m into the North each year, usually in yuan given the defectors send money to banks in China where it is collected by agents.
Use of the South Korean won is unheard of in North Korea. Even in the recently closed Kaesong industrial zone between the two Koreas, which employed 53 000 workers from the North, wages were made to a North Korean management committee in US dollars, not the South's legal tender.
There are small signs some in the North Korean government may be coming to grips with the hard currency reality.
In the Rason special economic zone in the far northeast of the country on the border with China, the government-run Golden Triangle Exchange Bank changes yuan into North Korean won.
The rate - according to people who visited the bank recently - was 1 200 won per yuan, or 7 350 won per dollar. That's a long way from the official rate of 130 won for one dollar. 

Australia's minimum wage rises

The minimum wage in Australia was raised 2.6% Monday, pushing the lowest weekly wage to AU$622 ($597)
The decision by The Fair Work Commission affects 1.5 million people and will take effect July 1.
It was half the increase unions wanted but three times higher than the level employers wanted.
Commission president Iain Ross said an expected increase in unemployment and a steady inflation rate led to the decision.
"If not addressed these trends may have broader implications both for our economy and for the maintenance of social cohesion in Australia," Ross said.
Australian Chamber of Commerce and Industry chief executive Peter Anderson called it a blow for small businesses.
"This is $1.5bn of increased wages that have to be funded by Australia's small and medium business community," Anderson told the Australian Broadcasting Corporation.

US shale poses challenge to Opec output

The Organisation of the Petroleum Exporting Countries' (Opec's) halcyon days of high prices and high production may be drawing to a close as soaring US output opens a new era for world oil markets.
After a comfortable ride since the 2008 price crash and record revenue of $1 trillion last year, it may have to be more proactive on output policy.
The rise of US shale oil and slack demand will eventually force Opec either to support oil at $100 a barrel by cutting output - offering higher price support to rival producers - or protect market share by keeping the taps open and allowing prices to fall.
Opec's Friday meeting was content to simply agree, as expected, to retain the group's 30 million barrels per day (bpd) output target for the rest of the year.
It will meet again on December 4. Ministers also agreed to set up a committee to investigate the impact of shale.
Oil is just above the $100 level favoured by the group that pumps a third of the world's oil. Opec's leading producer Saudi Arabia says the world oil market is in "good shape".
For now, maybe. But Opec has little room to pump more due to the US oil boom that has shifted the existing competition for marketshare once and for all to Asia, and intensified a rivalry between Opec's top two producers Saudi Arabia and Iraq there.
Core Gulf producers think Opec will still be able to pump at least 30 million bpd, provided US shale grows at a moderate pace. While that does not leave much room for growth, it implies that Opec will not need to scale back significantly.
"This is not the first time new sources of oil are discovered, don't forget history," said the influential Saudi Oil Minister Ali al-Naimi. "There was oil from the North Sea and Brazil, so why is there so much talk about shale oil now?"
There has not been such a surge in flows from outside Opec in decades and that has rung the alarm with some members - particularly Nigeria and Algeria - that feel squeezed.
"The rapid ramp up in US shale bears a striking resemblance to the situation in the early 1980s when North Sea oil production from the UK and Norway was rising very quickly," said Neil Atkinson, director of energy research at Datamonitor.
"This presented Opec with an enormous challenge because at the time demand growth was very weak. Nobody's saying that will happen again, but all the ingredients in that brew are starting to come into place."
Oil above $100 has freed vast quantities of US shale oil in North Dakota and Texas that helped boost US output by 850 000 bpd by the end of 2012.
That is more than each of Opec's two smallest producers, Qatar and Ecuador, pump in total. Light, low sulphur shale poses no threat to Opec's Gulf members that sell heavier crude - but is a headache for Nigeria and Algeria, which produce oil of similar quality.
The surge may even push the United States closer to the Saudi mindset, thinking more like a producer than a consumer keen to keep oil cheap.
Levels of price pain
Last year's surge in US output came with a hefty price tag as the rush to produce drove the cost of pumping marginal crude to $114 a barrel, according to a Bernstein Research report.
While Riyadh welcomes the rise of US shale, the Saudi oil minister himself has said the kingdom would be lucky to go beyond current production rates of about 9 million bpd by 2020 due to new global supplies.
But during that period, Iraq's production will have doubled from current rates of around 3 million bpd, if all goes to plan - a concern for Riyadh.
At some stage, Saudi Arabia may decide to open the taps to shut in the marginal barrel and make Iraq feel some pain, said analysts. The kingdom has done this before - early last decade it let the price fall to punish non-Opec producers. There are no signs of that now.
Oil at $70-$80 could start to impact the economics of some shale oil plays. Iraq's breakeven budget price is well above $100 a barrel.
With no pressure on its budget, analysts say Saudi Arabia could easily pump 8 million bpd at $80 without breaking sweat. After pumping 10 million bpd with oil at $110 last year and 9 million bpd with oil at $110 this year, it has built up formidable financial reserves.
Analysts' estimates for Saudi Arabia's break-even oil price this year vary from around $65 a barrel to $85, depending on projections for its spending.
"For Saudi Arabia, there's plenty of room on the downside in terms of price and quantity before they start to panic," said Yasser Elguindi of Medley Global Advisors.
"North Dakota will cut before anyone in Opec if oil falls to $70."
Others in Opec - including Iran, whose revenue has been sunk by Western sanctions directed against its nuclear programme, Iraq and Algeria - need oil well into triple digits to balance budgets.
This may lead them to call on Saudi Arabia to cut supply in order to support prices. But Riyadh may be thinking counter-intuitively.
"Saudi Arabia's challenge will be to convince Nigeria and Algeria that higher prices will encourage the economics (of US shale) that are their undoing," said Elguindi.
The group will choose its next secretary general when it meets again in December, said the Saudi oil minister. The issue has stalled on competing candidates from Iran, Iraq and Saudi Arabia.
Friday's meeting continued to adjust the criteria for prospective candidates to come forward.

Indian banks to get tough on defaulters

Fed up with a profitable textile company's failure to repay its loan, India's UCO Bank has taken its grievance public, placing newspaper ads last month that brand the industrialist owner of S Kumar's Nationwide Ltd a defaulter.
State Bank of India (SBI), Bank of India  and Bank of Baroda are also preparing to name and shame corporate borrowers which are not paying them back, bank executives told Reuters.
This aggressive tactic for dealing with bad debt marks a major departure from the traditional laid-back approach of Indian state lenders.
Weighed down by stressed loans of nearly $150bn equivalent to more than 10% of bank assets in the country and against a backdrop of the slowest economic growth in a decade, Indian banks are bringing an unprecedented intensity to their recovery efforts.
"We are going hammer and tongs to recover loans," said M S Raghavan, executive director at Bank of India, which last year began opening debt recovery branches to pursue defaulting borrowers.
In the banks' arsenal of debt recovery tools are the power to seize and sell assets, take deadbeat borrowers to court, sell loans to investors, and beef up debt recovery teams, although a slow-moving legal system and the lack of a bankruptcy process limit their effectiveness.
Officials at state banks, which account for about three-quarters of lending in India, expect the push will cut bad loan ratios by at least 1 percentage point.
Bank of India's non-performing loan (NPL) ratio improved slightly to 2.99% of total assets at end-March from 3.08% at end-December.
"If we don't intensify, nothing is going to come to us," Raghavan said.
Traditionally Indian lenders, especially those controlled by the government, have tried to nurse customers through tough times by easing terms or "evergreening" loans - giving new loans to pay old ones  an unlawful practice that many in the industry say is common.
In a country where businesses thrive on personal relationships, Indian banks have typically avoided involving the courts or liquidating assets - time-consuming efforts which often yield only minor results.
Even the so-called fast-track courts for banks, formed in the last decade, can take more than two years to resolve a case.
The central bank has called for better management of bad debts, and wants to strengthen oversight by lenders.
Indian banks tried to recover on $10.9bn in bad loans but managed just a quarter of that through liquidation and lawsuits in the year ended March 2012, the latest data from the central bank shows.
Banks are particularly needled by business chiefs who sit on huge personal fortunes, but whose companies fail to repay loans.
In March, Finance Minister P Chidambaram asked state banks to move against rich "promoters" to recover loans from failing companies after a $1.4bn default by Kingfisher Airlines, controlled by liquor baron Vijay Mallya.
Targets and texts
S Kumars and its Reid & Taylor clothing brand, well-known in India thanks to its endorsement by Bollywood superstar Amitabh Bachchan, owes $19m to UCO Bank, according to the Kolkata-based lender's newspaper ad.
Another lender, SBI, in May sent a liquidation notice to S Kumars and Reid & Taylor, said Soundara Kumar, head of the bank's stressed assets management division.
S. Kumars and Reid & Taylor founder Nitin Kasliwal did not respond to several phone calls from Reuters.
S Kumars earned net profit of 865m rupees ($15.47m) in the nine months to December, according to a stock exchange filing.
"What we are now beginning to see is incidents of such prosperous promoters and sick companies are increasing.
"What we have tried to do is simply send a message across," said a senior executive at UCO in Mumbai, speaking on condition of anonymity because they were not permitted to talk to the media.
There is some evidence that public outing as debt dodgers can goad a company into action.
United Bank of India took out a newspaper ad in April to say pharmaceutical packaging firm Bilcare's outstanding 515m rupees loan was in default. Bilcare later said in a stock exchange statement that it was in touch with lenders and was trying to restructure its loan.
Such methods are likely to become more popular, given the absence of a formal bankruptcy law, and the great time and cost of pursuing collection in court.
"Our legal systems move very slowly. We have such a huge number of pending cases in the courts that we are unable to lay our hands on assets that we can recover from," said Shubhalakshmi Panse, chairperson of state-run Allahabad Bank .
Bankers say errant borrowers often manage to get stay orders from various courts, slowing down the recovery process, and most cases take over two years to be resolved.
Panse said she has given daily loan recovery targets to bank officers and branch managers across India. They send her a text message each day apprising her of the status of those targets.
If borrowers want to stay out of court, they can try the Corporate Debt Restructuring (CDR) Cell, where banks sought to restructure a record $16.6bn in loans in the year that ended in March 2013, an increase of 38% year-on-year.
Worried that CDR enables both borrowers and banks to escape from bad loans too lightly, the central bank has asked lenders to set aside more money in reserve against restructured loans and begin classifying them as bad, starting in 2015.
In a rare case, lenders recently rejected a proposal by outsourcing firm Spanco to restructure a 13bn rupee loan through CDR.
Even the powerful Vijay Mallya could not hold Kingfisher's creditors at bay forever. After threatening to do so for months, banks began liquidating collateral for the airline's loans in March, more than a year after its initial default.
"Trying to be tough is a good step given that whatever they have been doing in the past has not been working," said Ismael Pili, banking analyst at Macquarie Securities in Hong Kong. ($1 = 55.9250 Indian rupees)