Diamond Motors and Classic may have caught the market by surprise but seasoned foreign used car dealers are countering with a move of their own. Both Diamond and Classic Motors may be in for unexpected competition on their own turf. Used car dealers, sources say, are thinking about entering the new car market to compete with automotive giants like Neal and Massy, Toyota and Ansa McAL automotive. According to the Vice President of the Pre-owned car dealers association, Barry McKenzie, this move may be in the works to level the playing field. “Used car dealers may decide to get into the new car market soon,” he said. “Traditionally we stayed in used cars, but with new car dealers entering the foreign used car market, we might need to even the playing field and import new cars from our suppliers. But obviously this market will not be a major focus for us,” said McKenzie.

His expectation is that other new car dealers will opt to enter the used car market because of the tremendous potential. “More parts will become available to our clients making it easier for us to sell the cars,” he said. In the past Mitsubishi and Honda parts were hard to find for roll on roll off cars because Diamond and Classic refused to sell to used car owners. Now that they are in the business, they have no choice. “It is a win-win situation for us,” said McKenzie. However, McKenzie felt the trend of new car dealers leaping into foreign used would not last long. He said big conglomerates cannot survive on the small mark up that the smaller dealers are accustomed to making. As a result, McKenzie said those who decide to enter, will not stay long. “Only the strong will survive, the market is becoming very saturated,” said McKenzie.

But Borde has a different view. He feels that coupling the expertise and the experience of a well-established group like Ansa McAL, will give people the re-assurance that they are getting good quality. “People were skeptical of the foreign used from our experience because they were not sure of the legitimacy of the people they were buying from. Now that we are involved in it, I am sure that will change,” said Borde. Ian Arrindell, CEO of the Neal and Massy Automotive group, said his company has been giving the foreign used market serious consideration for some time. He was quick to add that they had no plans to enter the market in near future, however. Borde’s philosophy is, “If you must lose sales, then it is better to lose sales to yourself.” As far as Borde is concerned, the used cars will hold the larger market share for some time, since lower and middle income earners are still unable to purchase new cars.

WTO countries have voiced differences in Geneva over the latest compromise plan for freeing up global trade and breaking a deadlock in trade negotiations. The 21-page blueprint declaration attempts to narrow gaps over cuts in subsidies and tariffs in areas such as farming, industrial products and services. It was drawn up by the chairman of the general council of the World Trade Organisation (WTO), Carlos Perez del Castillo, for ministers to sign at a conference in Cancun, Mexico in two weeks. That meeting is designed to give a boost to the flagging Doha round of trade talks, launched in the Qatari capital in 2001 and aimed at achieving a new global accord by January 1, 2005. “It does not purport to be agreed in any part at this stage… In other words, the whole text is in square brackets,” Perez del Castillo, who is also Uruguay’s ambassador to the trade body, told delegates.

Behind closed doors at the organisation’s lakeside headquarters, WTO Director General Supachai Panitchpakdi urged envoys of the 146 member states to assume their responsibility to make the trade body work. “The choice is clear, either we continue to strengthen the multilateral trading system and the world economy, or we flounder and add to the prevailing uncertainties,” Supachi said. David Spencer, Australia’s ambassador to the WTO, told reporters as he headed into the talks that he would voice concerns about parts of the draft declaration, adding: “Overall the ambition in agriculture is very disappointing.”

Asked for his reaction, Brazilian ambassador Luiz Felipe de Seixas Correa said he preferred the farming proposal put forward by Brazil, India and a group of other developing countries. India’s ambassador, K M Chandrasekhar, voiced disappointment over parts of the latest draft text on agriculture, saying: “The distortions will remain substantially, with the result that not enough progress may be achieved in that sector, which is crucial.” Japanese Farm Minister Yoshiyuki Kamei said that Japan opposed the draft declaration and wanted it changed ahead of the September 10-14 Mexico meeting.

The US $60 million Point Galeota project, PLIPDECO’s latest port development undertaking in south-east Trinidad, is moving ahead with two of the key preparatory works competed — the Environmental Impact Assessment (EIA) study which was sent to the Environmental Management Authority (EMA) in the middle of June; and the technical feasibility study completed by Lee Young and partners in early June.

The two public consultations with residents of the area mandated by the EMA have been completed and yielded significant local information to assist in formulating the EIA report. The financial feasibility study being done by Ernst and Young, was due to be ready by the end of June, and further action on the project will have to await the Certificate of Environmental Clearance from the EMA.

But the move by ANSA McAl into the used car market still came as a surprise to some local used car dealers. The dealers, who spoke under condition of anonymity, said they never expected this. “The Ansa McAL automotive sector was always associated with new cars and had in the past opposed the used car market,” one dealer said. Another said that it will definitely shake up the market, noting that the company already had the infrastructure in place to deal with the additional imports.  

Van Maharaj, a representative of the pre-owned car dealers association, said they welcomed the competition from new car dealers. “We believe healthy competition is good for industry,” he said. By these dealers getting into the industry, he said it will assist both dealers and the customers in getting parts. He is of the view though that companies like ANSA McAL will serve to legitimise the foreign used market, said Maharaj. He added that with it customers will now have increased options for service.

Trinidad and Tobago’s George Gobin, Microsoft’s Territory Manager, Eastern Caribbean has won the coveted award for outstanding performance “The Outstanding Contributor Award: Sales Roles” presented by Microsoft Corporation. The award, part of this year’s Microsoft Global Briefing, was one of 52 presented in the area of sales worldwide. A total of 211 awards were presented to Microsoft employees in various categories for outstanding achievements over the past year.

Mr Gobin’s award was based on several key factors, all embracing the Microsoft vision. He achieved successful business results, excelled in Customer/Partner satisfaction, acted as an individual team leader to enhance performance and deployed resources according to Customer/Partner needs. Of paramount importance, he exemplifies Microsoft’s key values; Integrity and Honesty. Mr Gobin’s achievement is beyond the boundaries of revenue and business. It is passionately reflected in his role as a key contributor to achieve success in one of Microsoft’s most important areas, community affairs and outreach.

A major Jordanian Hospital, the Prince Hamza, as well as the Home and Huts resort in Nairobi, Kenya, and the Kyushu Upper Express railway station at Shinamota in Japan, have recently joined the long and growing list of customers of the Cleopatra Group of Egypt, world-famous manufacturers of floor and wall tiles, decorated tiles, sanitary ware, porcelain stoneware, acrylic and hydromassage bath tubs. Viliana Ramoutarsingh, Director of Cleopatra Caribbean Limited, sole regional representative for the Egyptian firm, said that examples of Cleopatra’s popularity include homes, hotels and commercial buildings in Korea, Saudi Arabia, the United Arab Republic, Oman and China.

The Caribbean thrust is expected to preface marketing and sales initiatives in North America in the near future. Group Cleopatra, headquartered in Cairo, recently opened two large manufactories in Suez, one of three hectares for sanitary ware, and another for ceramics covering four hectares. They employ cutting-edge technology and highly sophisticated machines and equipment. Products are made to European Commission standards.

A summer time swagger is being seen among the markets and economic figures suggest scope for optimism. It’s not boom time yet, but the furtive rumblings of a rebound are being felt. Yet that longstanding economic banana skin, the oil price, has unexpectedly reappeared. On Friday the price of a barrel of Brent crude oil crept above $30. “Crude oil prices are likely to stay higher than we thought for some time, and might not decline as much as we hoped next year,” said Eric Chaney, economics analyst at Morgan Stanley. Despite relatively slow GDP growth, the end of the main hostilities in Iraq has done nothing to bring down oil prices.

The 1991 Gulf conflict saw oil prices collapse to $16 as soon as it was clear that Saddam Hussein’s troops would be leaving Kuwait. But crude oil, and petrol pump prices, have stayed remarkably high — and that may not be a temporary phenomenon. Opec, the oil producers’ cartel often fingered as the chief culprit, will only shoulder a small part of the blame. During the nineties Gulf conflict Saudi Arabia turned the taps on, helping the oil price collapse by more than half. This time the Saudis were more conservative. Saudi oil production went from 8.5 million barrels a day (bpd) in January, up to 9.6 million during the war in April, but then dropped again, to 8.7 million, in June. This replaced Iraqi oil lost from global production. After the sabotage of the key Ceyhan pipeline, production is unlikely to top 700,000 bpd this month. In February it was 2.5 million bpd. “After the military side went well, markets thought Iraqi production would be back onstream rapidly, so other producers cut back quickly, probably a little too early,” said Leo Drollas of the Centre for Global Energy Studies.

But security problems, sabotage, smuggling and power failures have left official exports at just 300,000 barrels a day, a blip on the global market. At the same time, the threat of Iraq’s oil — it could be pumping 8 million bpd within a decade — has prompted an unusual discipline among Opec members. At the start of the year the cartel was beset with quota busting amounting to more than 3 million barrels a day. The latest Reuters survey shows that total Opec production is within half a million barrels a day of its quotas, keeping prices at the high end of its $22-$28 target range. The lack of Iraqi oil may have pushed it higher still, but the real reasons for the longevity of high oil prices are not in the Middle East but in Louisiana and China. In that southern US state and in neighbouring Texas lie huge salt-lined caverns that house America’s strategic petroleum reserves. After 11 September 2001, President Bush said he wanted to increase the oil in the reserve from 600 million barrels to 700 million barrels by the end of 2005.
This huge cache of black gold would serve as emergency stocks should any unfriendly country choose to halt exports, or should there be a repeat of Venezuela’s political turmoil, which hoisted oil prices above $35 in December.

Then President Bush stopped adding to the reserve to alleviate pressure on the oil price. In May, he turned the taps back on again and the US administration has been paying top dollars — of more than $30 a barrel — for 11 million barrels of oil. Democratic senator Carl Levin accused the Bush administration of foisting high oil prices on the world. “This administration’s actions to fill the (reserves) regardless of the price for oil available to the commercial sector, is a major reason for these high prices,” Levin said in a letter to the US Energy Secretary, Spencer Abraham. But the administration has stuck to the plan, despite a slump in oil inventories at refineries to within 3.4 per cent of the 28-year-lows reached in February. “In effect, the Department of Energy’s (reserves) programme has transferred 10 million barrels from private sector inventories into the (reserves) over the past two-and-a-half months at significant cost to taxpayers,” said Levin. Those low, private-sector inventories feed directly into hikes in the price of crude. Yet the plan, proving a political football in the gas-guzzling belt of America, is being copied all over the world.

The European Commission is attempting to coordinate a European strategic reserve, though Britain points out that the International Energy Agency (IEA) already does this. The US has also been urging India to create a similar reserve in salt-lined caverns that can hold 45 days of emergency stocks. Extra stores of crude oil could help the US keep Opec in check. Large oil consumers have been lobbying the mainly Middle Eastern cartel, but Opec kept quotas stable at its last meeting. Ironically, however, the very act of boosting the reserves has added considerable buoyancy to oil prices in the short term. “They’ve continued filling the reserve — which is crazy, putting the oil under ground when its needed in refineries,” said Drollas. But this is not the only development. Last week’s IEA monthly report raised baseline 2001 non-OECD demand by 260,000 bpd. “The IEA is indeed acknowledging that demand from developing economies, such as Iran and India, is structurally higher than generally assumed. The same can be said for China,” said Morgan Stanley’s Chaney. Imports of oil into China were up a third, year-on-year, in the first half of this year, as the country shrugged off the economic effects of the Sars virus far more quickly than had been expected. Robust economic growth and a craze for cars have fanned demand for crude. 

China is increasingly relying on imported oil, and is in talks with Russian firms over a possible pipeline. This year it initiated its own strategic oil reserve programme to insulate its economy from any supply disruptions. Extra demand for the winter season has kicked into the market far earlier than expected. The key variable now is the weather. If the freak heat waves in Europe continue, oil prices should fall. But a winter as cold as last year will see refiners and producers under huge pressure, and it will be down to the oil producers’ cartel. “But Opec’s in a jam because they can’t anticipate how Iraq will go, so they’ll be cautious at the next meeting on the 24 September,” said Drollas. So for now oil prices are expected to remain buoyant, casting a dark shadow over the nascent signs of recovery.

 Q. What is meant by capital appreciation?

Tony, Cantaro

A: There are two types of income, which can be earned on a financial investment. Firstly, interest income refers to that earned on a fixed income type of investment and would be a function of the rate on the investment and the time over which it is held. For example, the income earned on a fixed deposit held at a fixed rate of return for a fixed time period is referred to as interest. However, there are other types of income, which can be earned on an investment. Capital appreciation is one of them and refers to the increase in the value of the capital invested in the financial instrument. For example, if one purchases 100 shares at $6 per share and over a month the price of the share increases to $7 per share, capital appreciation over that month is measured as the increase in value, which in this case is $1,000 ($7000-$6000). Similarly if the price of the share fell to $5 the decrease in the value of the investment is $1,000 ($6000-$5000) and is referred to as capital depreciation, the opposite of capital appreciation.

The key difference between interest as opposed to capital appreciation is that interest is a function of the time held, whereas capital appreciation can occur irrespective of the time held and is impacted by a number of factors. For example, the level of capital appreciation on a share would be related to the level of interest rates, growth rate of the company, it’s level of profitability and the cost of capital in the economy. Fixed income instruments are not impacted by these external variables and hence the returns are quite conservative. However, in equity type instruments where there is room for capital appreciation (or its downside – depreciation) the returns are much higher as the risk arising from the impact of many variables is also much higher.

Q. I’m getting mixed messages from commercial banks. On the one hand they are almost begging people to come in and borrow money and on the other hand bank charges keep inching up. What’s going on?

Beverly, Valsayn

A: Banks serve an extremely important purpose in the economy. They mobilise capital by bringing together parties which have excess funds with other parties who have borrowing needs. They are in essence intermediaries and so are serving different needs on both sides of the market. Banks first have to source funds by engineering investment vehicles and advertising the rates thereon. They therefore must target individuals and corporations who may have excess funds to invest by offering a good risk-adjusted rate of return, flexibility and safety. On the other hand they also have to invest those funds, which they are paying for from depositors, in order to generate income. They would therefore want to loan these funds out to individuals and corporations who have borrowing needs.

Currently, the banks have an excess level of funds due to the high level of liquidity in the financial system. As with any commodity, once the level of supply increases, suppliers become aggressive in trying to push their own inventory. Similarly banks, which are suppliers of money, are all trying to loan out as much of their funds as possible in order to increase their income. Remember, once the banks are paying depositors for money and have no way to invest this money they are making a negative carry on the funds which they have taken in. This explains why the banks may be so aggressive to lend funds in the market, hence the increased incidence of loan sales and specials. On the other hand, if liquidity in the financial system had been tight, the banks would be looking for money rather than trying to increase loans. They would have therefore been targeting depositors rather than borrowers. It all depends on the level of liquidity in the financial system. So there is no contradiction here. As regards the level of bank charges, these are determined by market forces. If the level of competition in a market is increased, prices would naturally fall. This is a question for the regulators.

Questions can be sent to PO Box, 1830, Wrightson Road, Port-of-Spain
E-mail : cmmbsecurities@mycmmb.com

ON WHAT criteria or calculation is the Minimum Wages Board basing its recommendation for a $27-an-hour minimum wage for workers in the heavy construction industry and related sectors of the economy? We ask the question because an arbitrary and steep increase in the minimum wage for workers in such a vital sector of the economy without a careful study of its impact and viability is likely to do more harm than good. We must express our convern over the Board’s recommendation since the reaction of stakeholders in the energy sector indicates not only a rejection of the entire idea of a minimum wage in this area and how irrelevant it is but also an apparent lack of consultation by members of the Minimum Wages Board. Increasing the minimum wage, no matter how well-intentioned or politically advantageous it may be, cannot be an arbitrary exercise not even at the national level.

The cost of labour is a major factor in the operation of any enterprise and an unexpected increase in this expenditure can trigger off all kinds of counter-productive repercussions including a reduction in the employment of workers, a contraction of the job market, a withdrawal of fringe benefits, an increase in prices to the consumer, a decline in competiveness and profitability, a disincentive to investment and, even in the longer term, a negative impact on the economy as a whole. Several months ago, the Government raised the national minimum wage from seven to eight dollars an hour and while that increase appeared minimal, no assessment has yet been made of its overall impact. The minimum wage proposed by the Board for heavy construction workers, however, appears to be more ill-considered with a greater potential for hurting the economy. Examining both sides of the issue, we tend to be skeptical of the case made out by Labour Minister Larry Achong who had indicated earlier this year that Government was looking to double the minimum wage paid to workers in major energy construction projects from $12 to $24 an hour. The Minister said labour workers on the LNG project were currently paid $16 an hour and noted when the first ammonia plant was being built 20 years ago, labourers were earning $15 an hour.

If that was the whole truth, then it would seem unethical to argue against the increase being recommended. After all, the energy sector is gearing to push the economy into another boom and workers who are helping to lay the infrastructure for such developments should be among the country’s best paid labourers. But it seems there are other important considerations which Mr Achong somehow failed to mention and apparently did not take into account. In response to the Minister, Atlantic LNG officials flatly deny that any of their workers earn basic pay as low as $16 per hour. They explain that wages at the ALNG site are set by a Memorandum of Understanding drawn up by the main contractor and is attached to all contracts awarded. The MOU outlines the minimum levels of wages to be paid in respect of some 27 categories of workers. But, in addition, they paid allowances based on a 50-hour work week ranging from $24.85 per hour in the lowest range to $36.49 in the highest range of “tank welder.” Annual increases in the course of the project also apply.

The ALNG people also argue that there is really no need for a minimum wage in the industry, since market forces have effectively driven up wages in this area to more than 200 percent above the national minimum wage when incentives are considered. Other stakeholders in the industry point out that fixing a minimum wage should be based on sound sensitivity analyses as to what the market can bear and should also be linked to increased productivity and the acquisition of new skills that are knowledge-based and subscribe to energy standards. While setting a reasonable minimum wage for the entire nation may be economically and socially acceptable, jacking up such a wage in the heavy construction industry in an arbitrary fashion can be inimical to the economic interest of the country. Think again Mr Achong.

I can remember as a primary school child the pre independence excitement in 1962 when we learned the National Anthem, patriotic songs such as Marjorie Padmore’s God Bless Our Nation, and the new National Watchwords: Discipline, Tolerance and Production. We were eager to meet the future, and confident that we could rise to the challenge. How things have changed. In spite of our good fortune in terms of natural resources and a harmonious environment, we have sunk in the Human Development Index ratings. The only one of our watchwords that is widely followed now is tolerance, especially of lack of discipline and lack of production.

We tolerate a deterioration in parenting leading to lack of discipline in our young that has caused a rapid increase in crime. We tolerate a system of government that has not been able to produce the required quality of education and health services. Reaching our full potential seems to be an elusive goal. Another memory from my days in primary school was our school (Belmont Boys RC) motto: “It all depends on me” As I remember this, my mind trips across to Lloyd Best’s frequent exhortations for us to take responsibility for understanding our situation, and devising and implementing the solutions required to take us to our goals. Though this has been long in happening, Lloyd is confident that the stream of graduates produced over the years by UWI has the necessary “ration of intelligence, industry and commitment” for us to meet our responsibilities to ourselves.

I am not sure that UWI has provided us with a cadre of professionals up to the task. Ten years after Independence I was a student at UWI, and the mindset of many of the students was, to use Lloyd’s phraseology again, proletarian rather than proprietorial. Most of us expected someone to give us a job after we graduated, one to which we could wear a nice shirt jack with pens in our pockets. I do not think we had an idea of how we could contribute to national development other than the general feeling that things would improve once we were in charge. I hasten to add that the faculty at UWI did not encourage this attitude, and several of our lecturers such as Gordon Draper and Ainsley Mark challenged us to get out there and start our own businesses. I suspect that many did not feel up to that task.

Did our professionals ever really understand the Watchwords? There is considerable evidence that we are capable of Discipline. Just look at our steelbands playing on stage in a competition final and you can see focus and discipline. Off stage though, players reach late for practice sessions, and some are disruptive when the tune is being taught.  Essentially the bands revolve among a small core of disciplined players, while the band leadership has to struggle to maintain a semblance of control over the rest. What about Production? I never cease to be amazed by the amount of people who are satisfied to do their best without thought as to whether they have achieved what is required. Workers in some service environments (such as banks) see customers as people who hold them back from doing their work. Not only is there a complete lack of understanding of the purpose of their jobs and what their organisation exists to produce, but also a complete unawareness of their responsibility.

Someone once said that the height of irrationality is to expect a change in outcomes while continuing to do the same things. We have embarked on an exercise to make Trinidad and Tobago a developed country by the Year 2020, and if this goal is to be achieved changes have to be made in the way we do things. Everyone who has been involved in development for says that all the studies necessary to tell us what we have to do have been done. We do not have to reinvent the wheel. Our problem in the past may have been not having the resources to implement what is needed, but this is about to change. We need to re-commit ourselves to the Watchwords, especially Discipline and Production. We need Discipline to maintain our focus on the difficult issues we need to grapple with, and Discipline to maintain the required level of commitment to see the process through to the end. We need Production to ensure that we complete all of the steps we have to take in an expeditious and satisfactory way. Above all, we need to maintain our sense of responsibility to future generations to do what has to be done, as well as a positive attitude to knowing that we will achieve it. May God bless our Nation on the 41st Anniversary of our Independence.

The views expressed in this column are not necessarily those of Guardian Life. You are invited to send your comments to guardianlife@ghl.co.tt