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Cotlook A Index - Cents/lb (Change from previous day)
06-11-2018 86.50 (-1.50)
06-11-2017 79.50
07-11-2016 77.50
New York Cotton Futures (Cents/lb) As on 09.11.2018 (Change from
previous day)
December 2018 79.21 (+0.25)
March 2019 80.76 (+0.19)
May 2019 82.12 (+0.27)
09th November
2018
Exporters get back 94% of GST refund claims
Meghalaya | SLRD to run largest apparel
manufacturing unit in the state
CBIC to daily monitor MSME grievance on GST, sets
up help desks to resolve queries
China's exports still soaring despite trade war
Cotton and Yarn Futures
ZCE - Daily Data (Change from previous day)
MCX (Change from previous day)
Nov 2018 22430 (+130)
Cotton 14460 (+5) Dec 2018 22590 (+140)
Yarn 23600 (+85) Jan 2019 22800 (+130)
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2 CITI-NEWS LETTER
-------------------------------------------------------------------------------------- Exporters get back 94% of GST refund claims
CBIC to daily monitor MSME grievance on GST, sets up help desks to
resolve queries
Rajiv Luthra appointed to govt committees to deliberate on CSR and
international trade
Steel, Commerce Ministries differ on challenging WTO panel ruling
Illicit products adversely affect Indian industry: Report
Can India capitalise on US-China trade war?
18% GST applicable to Job Work Service to Foreign Customer: AAR Meghalaya | SLRD to run largest apparel manufacturing unit in the
state
Menswear designer Suket Dhir’s foray into womenswear is as organic
as anything he’s ever done
Arvind: Re-rating subject to an improved performance in textiles
The rich tapestry of Tripura
------------------------------------------------------------------------------------------------- Japanese firms see U.S. trade talks boosting exports despite Trump
rhetoric
China's exports still soaring despite trade war
WEAR2018: The consumer in the circular economy and disruptive
technologies for social change
Why Ethiopia’s Export Income Declines While Incentives Increase
Will US-China trade war ruin Africa or offer new opportunities?
National leaders must decide
------------------------------------------------------------------------------------------------
NATIONAL
----------------------
GLOBAL
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3 CITI-NEWS LETTER
NATIONAL:
Exporters get back 94% of GST refund claims
(Source: Gireesh Chandra Prasad, Live Mint, November 08, 2018)
Finance ministry says up to October-end ₹82,775 crore had been given as refunds to
exporters by Union and state authorities
Exporters have been given about 94% of the over ₹88,000 crore tax refunds demanded
under the goods and services tax (GST) till October-end, the Union finance ministry said
on Thursday.
Clearing pending refund claims removes a major cause of liquidity crunch that exporters
have been complaining about since the launch of the new indirect tax system in July 2017.
The settlement of tax dues to exporters comes as a result of a drive to help them rectify
errors in their claims. Rules were eased in October 2017 and some self-policing features
of GST were suspended to help exporters.
Taxes on raw material and services used in export production are refunded to keep
exports competitive. ₹82,775 crore has been refunded to exporters by Union and state
authorities up to the end of October, the ministry said. Pending claims worth ₹5,400
crore are being processed quickly to give relief to exporters, it added. “Refund claims
without any deficiency are being cleared expeditiously,” it said.
A large number of exporters are in the small and medium enterprises category, which the
central government is keen to give relief to, considering their role in job creation.
In the case of businesses at large seeking refund of input taxes, the pendency is only
₹2,305 crore of a total claim of ₹42,145 crore. In case of refunds claimed on integrated
GST, which is applicable on inter-state transactions, more than 93% of the ₹46,032 crore
claims have been cleared, the ministry said.
Several safety features were suspended as businesses across the board faced difficulties
in compliance during the initial months of the GST roll out. The authorities had also taken
a lenient approach in enforcement. However, stagnation in tax revenues in recent months
forced the central and state authorities to tighten enforcement measures. This, together
with festive demand, helped GST receipts cross ₹1 trillion in October, the second time
since the tax reform was introduced.
In April, collections had crossed ₹1 trillion because of the spillover tax payments due in
FY18. The shortfall so far this year from the targets has been at least ₹21,000 crore.
Home
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4 CITI-NEWS LETTER
CBIC to daily monitor MSME grievance on GST, sets up help desks to
resolve queries
(Source: The Business Standard, November 05, 2018)
The Central Board of Indirect Taxes and Customs (CBIC) will monitor on a daily basis the
grievances of the MSMEs relating to the GST as part of efforts to resolve issues being faced
by small businesses in the new indirect tax regime.
The move comes at a time when the government has initiated a major support and
outreach programme for MSMEs to ensure growth and expansion of the sector.
The GST help desks have already been set up in all the 80 districts where a 100 day
support and outreach programme for the micro, small and medium enterprises (MSMEs)
have been launched by the government on November 2.
The CBIC has now decided to set up a Feedback and Action Room (FAR) under
the Directorate General of Goods and Services Tax (GST) to record and process all
grievances raised by MSMEs, an official said.
The GST help desks will have nodal officers for trade facilitation who would guide the
small businesses on their queries surrounding the GST.
These nodal officers would report all the grievances on a real-time basis to the FAR, which
would then provide the solution.
"The FAR would comprise of officers from Delhi and NCR. They would compile a master
record of all grievances at various stages of resolution, and send a summary report to the
Board on daily basis," an official told PTI.
Prime Minister Narendra Modi had on November 2 launched a slew of measures for the
MSME sector, including faster sanction of loans and easier compliance with
environmental rules.
Also, GST-registered MSMEs will get a 2 per cent subvention or subsidy on a new loan or
incremental loan of up to Rs 1 crore. The MSME sector constitutes a vast network of over
63 million units and employs 111 million people, contributing around 30 per cent to the
GDP. It accounts for about 45 per cent of manufacturing output and around 40 per cent
to total exports. The GST Council, chaired by the Union Finance Minister and comprising
state ministers as members, had in July allowed companies with turnover of up to Rs 5
crore to file GST returns quarterly, up from the Rs 1.5 crore threshold fixed earlier. The
move benefited about 93 per cent of the GST registered taxpayers.
Home
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5 CITI-NEWS LETTER
Rajiv Luthra appointed to govt committees to deliberate on CSR and
international trade
(Source: Legally India, November 08, 2018)
Erstwhile Luthra & Luthra (recently rebranded as L & L Partners)_managing partner
_Rajiv Luthra has been appointed as member in the Ministry of Corporate Affairs (MA)
high level committee (HLG) on corporate social responsibility (CSR) and the Ministry of
Commerce and Industry’s (MCI) High Level Advisory Group for Trade (HLAG),
reported Bar & Bench.
The HLC is to review the existing CSR framework, recommend enforcement of CSR
provisions, monitor and evaluate CSR, examine and recommend CSR audit, while the
HLAG is to examine the current international trade dynamics and it may also suggest a
practical approach to India’s future involvement in international trade.
The HLC also includes as members Tata Sons chairman N Chandrasekharan, Bain Capital
Private Equity managing director Amit Chandra, additional solicitor general PS
Narsimha, Apollo Hospitals executive vice chairperson Shobha Kamineni.
Home
Steel, Commerce Ministries differ on challenging WTO panel ruling
(Source: Amiti Sen, The Hindu Business Line, November 08, 2018)
The panel had ruled that safeguard duties on steel goods imposed by India did not adhere
to the trade body’s norms
India is yet to decide whether to challenge the World Trade Organization’s recent ruling
against safeguard duties imposed by the country on imports of hot-rolled steel flat
products as the Steel and Commerce Ministries have adopted opposing views on the issue.
“While the Steel Ministry is in favour of contesting the WTO ruling, the Commerce
Ministry believes that there is no need for such a move as the safeguard duties that have
been found violative of existing rules do not exist anymore,” an official told BusinessLine.
India imposed safeguard duties — penal duties to protect vulnerable domestic industry
against a surge in imports — on hot-rolled steel products in March 2016 fixed at 20 per
cent which were tapered off and totally removed in March 2018.
On Tuesday, a WTO dispute settlement panel, set up at the request of Japan, gave its
ruling and mostly upheld Tokyo’s contention that the safeguard duties imposed by India
did not adhere to the WTO norms. The WTO verdict, however, was not all against India.
There were several claims made by Japan which were struck down as well. “The Steel
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6 CITI-NEWS LETTER
Ministry believes that the decisions going against India could be challenged at the WTO
with the country submitting more evidence to establish its case. It feels that getting the
verdict changed could help India score a larger point,” the official said.
But the Commerce Ministry is of the opinion that there is no point in doing so as the
safeguard duties had already been rolled back in March and the challenge would lead to
a waste of effort and resources, the official added.
New Delhi does not have to decide immediately on the issue. Members have 30 days to
appeal against a panel decision once it is made public.
Home Illicit products adversely affect Indian industry: Report
(Source: The New Indian Express, November 08, 2018)
Illegal trade is also affecting the government revenue and loss to the exchequer in these
industries is Rs 39,239 crore, says the FICCI CASCADE report.
Illicit products are adversely affecting the Indian industry, risking millions of legitimate
jobs and resulting in an estimated loss of Rs 1,05,381 crore in just seven sectors, according
to industry body FICCI CASCADE.
Citing latest figures, FICCI CASCADE -- industry chamber FICCI's anti-smuggling and
anti-counterfeiting arm -- said illicit trade is also affecting the government revenue and
loss to the exchequer in these industries is Rs 39,239 crore.
The trade in illicit goods is highly pervasive across countries and sectors.
It is estimated that 8-15 per cent of global GDP is impacted due to illicit trade and criminal
activities, FICCI CASCADE said in a statement.
"Illicit products are adversely affecting Indian industry, risking millions of legitimate
jobs," it said.
Citing a report prepared by it, the industry body said the estimated "total loss to the
industry in just seven sectors - auto components, alcoholic beverages, computer
hardware, FMCG - packaged goods, FMCG - personal goods, tobacco and mobile phones
is Rs 1,05,381 crore".
High tariff rates, brand consciousness, lack of awareness, difficult enforcement, cheaper
alternatives and demand-supply gap are among the major reasons for smuggling in India,
FICCI CASCADE said.
Home
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7 CITI-NEWS LETTER
Can India capitalise on US-China trade war?
(Source: N Madhavan, The Hindu Business Line, November 08, 2018)
While China’s cost advantage is formidable, there are select sectors where India can be an
alternative supply source for US firms
The US-China trade war has reached unprecedented levels. After having levied tariffs on
imports worth $250 billion, US President Donald Trump has not toned down his rhetoric.
He has threatened to impose tariffs on another $267 billion worth of imports, which
should pretty much cover all of China’s exports to US. Either side is determined not to
blink first. Trump wants China to capitulate while Beijing has made it clear that it does
not intend to do so. The global economy is consequently feeling the chill. Amidst this
development, is there a real opportunity for India to warm up to?
To answer this question, one needs to understand the evolving US-China relationship.
Over the last few decades, the nature of their relationship was one of ‘nether friends nor
foes’ and all they wanted was a ‘win-win economic engagement’. In other words, they were
‘co-operating rivals’. But that changed post the 2008 global financial crisis, which
narrowed the gap between their economies.
In 2007, the US economy was four times that of China but by 2012, thanks to the great
recession, it reduced to two-times. There is growing anxiety in the US about China’s
growth. The Chinese, on their part, believe that the US is actively working to prevent their
country from taking the rightful place in the world order. It is not just economic growth
that has sowed seeds of discontent. China has been flexing its muscle militarily by
spending heavily. China’s military, vexed at the US control over trade routes, has been
trying to test its strength in the South China Sea. The two nations have had their share of
skirmishes there. Also, President Xi Jinping’s Belt and Road initiative has unnerved the
US which sees it as an attempt by China to play a larger role in the world. It is clear that
China does not like the idea of a uni-polar world but the US wants to keep it that way.
That apart, the two nations do not see eye to eye when it comes to political values nor do
they have common security interests. So this trade war is not just about trade. Going
forward, their relationship would at best remain frosty.
De-risking operations
This puts US companies in a piquant position. Over the years, taking advantage of low
costs, they have increased their dependence on China for their supply chain needs and
manufacturing. Such is the depth of the arrangement that over 50 per cent of the products
HP, IBM, Dell, Cisco, Microsoft and Intel or their suppliers use come from China. It is the
second largest exporter of auto parts to the US auto giants (after Mexico). The list of
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8 CITI-NEWS LETTER
sectors heavily dependent on China is long and US companies are realising the need to
de-risk their operations — supply chain as well as manufacturing.
The US is already pushing ICT players to reduce their dependence on China. Investors are
also beginning to question US companies on their fall-back plan if US-China relationship
goes into a spiral.
This situation presents a clear opportunity for Indian companies. After all, the US and
India see each other as natural allies. Former US President Barack Obama even described
the relationship as ‘one of the most defining partnership of the 21st century’. Trump too
wants a close relationship with India, a democracy with shared values. Not surprising that
US companies have already started making enquiries about sourcing from Indian players,
especially in the auto-component space.
But taking a share of China’s supply chain or manufacturing is easier said than done. Over
decades China has invested a lot in upgrading its infrastructure. Also, the scale of
manufacturing is such that it will be difficult for India to match in terms of cost. But the
silver-lining is that the recent imposition of tariff by the US has levelled the playing field,
at least in select sectors.
Competitive enough
These sectors have certain common traits that help them to be as competitive as those in
China. They have good scale thanks to a strong domestic market in India. They have also
built a solid supply-chain network (this is critical as India cannot grab a share of the ICT
exports from China as it lacks proper supply chain, especially in semi-conductors). They
also export a fair share of their production and, consequently, their quality is tested and
is as good as anywhere in the world. Auto components, leather and textiles are some
sectors that top the list.
The government must direct its ‘Make in India’ initiative on these sectors with suitable
incentives. However, low manufacturing cost alone is not enough. Logistics cost, to move
the manufactured goods from the factory to the destination, is critical. China excels here.
India has been building roads, improving port infrastructure/connectivity to the
hinterland through Sagarmala and Bharatmala programmes.
It is also trying to enhance coastal shipping and boost transportation through inland
waterways. To rival China on logistics costs, it has to redouble its efforts. In developed
markets, companies outsource 70 per cent of their logistics operations that can be
outsourced to lower costs. In India it is just 35 per cent. Even though India’s steep climb
in the recent ‘ease of doing business’ ranking is noteworthy, it still has a long way to go in
reforming labour laws and the land-acquisition process which are essential for lowering
costs further.
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9 CITI-NEWS LETTER
Indian entrepreneurs, for their part, must take advantage of the situation and invest
aggressively. De-risking from China will remain a long-term strategy for the US and
European companies. Higher exports will also help in neutralising domestic cycles that
plague some sectors such as auto components.
It will be a difficult call for Indian entrepreneurs to make as many of them have been
investing abroad to de-risk their investments in India. It is a leap of faith.
If they take it, India will not miss the manufacturing bus, as it did in the 1980s and 1990s
that saw emergence of East Asian Tigers and China as manufacturing hubs for the world,
yet again.
Home
18% GST applicable to Job Work Service to Foreign Customer: AAR
(Source: Tax Scan, November 08, 2018)
The Andhra Pradesh Authority of Advance Rulings in an application led by M/s. Synthite
Industries held that the process of providing job work service to foreign customer is
taxable at 18% under the Andhra Pradesh GST Act.
HTH Hamburger Teehandel GmbH lm. & Export, Hamburg is a foreign company which
entered into an agreement with the applicant job worker for the work of processing Tea,
the other way round called removing Caeine from Tea. The raw material/ packing
material is supplied by the foreign Principal and after the process has been undertaken,
the de-caeinated tea will be exported to the Principal. The applicant sought for a ruling
on whether the process of providing job work service to foreign customer is taxable under
GST.
The Authority referred to Section 2(68) of the Central Goods and Service Tax Act, 2017
(CGST) dening ‘Job Work’. It is ‘any treatment or process undertaken by a person on
goods belonging to another registered person’. Further, the one who does the said job
would be termed as a ‘Job Worker’. Also, the ownership of the goods does not transfer to
the Job Worker but it rests with the Principal. The Job Worker is required to carry out the
process specied by the Principal, on the goods.
The bench constituting of Sri. J.V.M. Sarma and Sri. Amaresh Kumar as members held
that the process of providing ‘Job Work’ service to the foreign customer as in the present
case in the premises of the applicant as per the specications of the recipient of services is
taxable under the Andhra Pradesh GST Act at a rate of 18%.
Home
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10 CITI-NEWS LETTER
Meghalaya | SLRD to run largest apparel manufacturing unit in the state
(Source: North East Today, November 08, 2018)
The School of Livelihood & Rural Development (SLRD) has ramped up its activities with
the acquisition of the largest apparel and garment manufacturing unit in Meghalaya.
Located at Hatisil village near Ampati, the district headquarters of South West Garo Hills
and covering an area of 45,000 sq. ft., the unit was originally set up at a cost of
approximately Rs. 14.26 crore, by the Ministry of Textiles of the government of India
under the North East Region Textiles Promotion Scheme (NERTPS), an umbrella scheme
for the development of various segments of textiles, i.e. silk, handlooms, handicrafts and
apparels and garments.
However, the factory remained idle for a year and a half while the two different agencies
that the unit was allocated to in that duration failed to meet their commitment to start
production.
It was hoped that that the Centre would soon bring about economic development by
creating employment for at least 1500 people of the region after its establishment, the
dream has only come closer to being realised with the acquisition of the unit by SLRD.
SLRD recognised the potential of the manufacturing unit in achieving its own aims of
rural development and actively worked on acquiring the factory.Where other bidders did
not consider it a feasible business venture, SLRD was left standing as the only applicant.
As of today, under SLRD, production work has finally begun and will be ramped up in
sages to meet the market demand.
“Most skill development initiatives have not resulted in sustained livelihoods due to
absence of a market linked approach, monotonous products and uncompetitive pricing.
The apparel factory has the required infrastructure to initiate manufacturing activities for
apparel and accessories which will link with our other interventions in weaving and
embroidery. The entire activity was initiated to ensure sustained livelihoods on an
industrial scale,” said Abhijit Sharma, Mission Director, SLRD.
The sprawling centre has three units, two of them housing 105 sewing machines each, and
the third one having seventy machines. This would not only require skilled individuals to
operate machinery but also people for various aspects of productions, packaging, and
market linked activities.
The centre was inaugurated early in 2017 by Union Textiles Minister Smriti Zubin Irani,
former Meghalaya Chief Minister Mukul Sangma, and Union Minister of State for Home
Affairs, Kiren Rijiju.
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11 CITI-NEWS LETTER
The project was an example of the convergence of efforts of Central and State
Governments and was aimed at affecting economic growth in the area.
SLRD was finally awarded with the project in September 2018 due to itsactive
participation, and experience in rural livelihood. Through this initiative, SLRD hopes to
take Meghalaya to an industrialised category.
The set-up of the factory comes at an ideal time with the presence of international market
in neighbouring Bangladesh, as it offers a great opportunity in forging business
partnerships with investors of Bangladesh.
Meanwhile, the unemployed semiskilled youth of the region serve as a ready workforce
only with the requirement of advanced training to operate the state of the art machinery
present at the unit. The activity can also potentially develop existing sectors such as like
sericulture and weaving complementing them by creating a demand for woven fabric,
particularly where the government and different agencies have spent years on training
weavers.
SLRD itself is active in the weaving sector with its weaving and handloom centres which
currently engage 300 women providing them a sustainable livelihood option. The centres
are equipped with facilities for Designing, Hank Dyeing, Warping, Jacquard Weaving,
Fabric Finishing and Sewing which make it sustainable in long run.
Initially, SLRD is looking at catering to local consumers and armed forces, and later
venture out to national and international markets. Packaging and finishing of products
will also be supported by SLRD adding to the number of locals employed. About 300
individuals were looked at being absorbed immediately and the numbers are expected to
grow to 2000 artisans by the time production goes to maximum capacity.
“Rural life in Meghalaya is full of opportunities untapped – some more than other. I was
extremely delighted to see the SLRD team working in South West Garo Hills District. They
have a plan, they have proven it to be successful in other areas of the country and they are
pretty focused on getting this right here as well. Ultimately, this shall increase the average
per capital income of the family in a proud manner. Many women have actively taken part
in various initiatives with a hope. I am sure the hope will be sustained by such efforts,”
Deputy Commissioner, South West Garo Hills District Ramkumar said. The Apparel and
Garment Making Centre was set up as part of a landmark initiative announced by the
Prime Minister NarendraModi in Nagaland, on 1st December, 2014.
The Prime Minister had announced that an Apparel and Garment Making Centre shall be
constructed in all North Eastern states. Each Apparel and Garment Making Centre set up
under the initiative is estimated to generate direct employment for 1,200 people.
Home
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12 CITI-NEWS LETTER
Menswear designer Suket Dhir’s foray into womenswear is as organic as
anything he’s ever done
(Source: Pramod Kumar, Elle India, November 08, 2018)
Amidst the inner landscapes of his mind, Suket Dhir’s natural
proclivity is to turn towards the painted visions of an idyllic
world, subtle contouring of figures, and the animated
playfulness of characters, as imagined by celebrated Pahadi
masters of yore. While this might seem a tangential take-off
point for a fashion designer, Dhir has taken the ultimate
plunge by outing his inner, and laying it bare for the world. As
his debut capsule collection for women launches, this low-key
designer, on perpetual slow mode, is still wondering what the
fuss is all about. “I have been trying these garments on
Svetlana [his wife and muse] for seven or eight years. With the
opening of the store, the time felt just right to launch this collection.”
Dhir reminisces about how Anita Lal of Good Earth mentored him to take the plunge,
despite being aware that he was never going to be part of the proverbial fashion cycle, and
the subsequent launch of his eponymous menswear collection in 2011. Since then, his
streak of individuality has only taken stronger root, and is perhaps today borne of a
supreme confidence in being aware of what he is not. So, when stores and buyers ask for
the forthcoming season’s take-off point, he happily answers that there isn’t one, since he
doesn’t know quite what that means. Slow fashion couldn’t have asked for a better
ambassador.
Winning the 2015/16 International Woolmark Prize for menswear was to cast him in the
spotlight, compounding expectations about a prodigious talent about to set the runway
aflame. But nothing could have been further from the truth, for Dhir is perfectly happy to
stick to his comfort zone of innovative textiles and prints, and unprecedented detailing,
much of which is invisible to casual observers. Details like dissimilar threads that fasten
buttons, or a slender velvet line concealing the joint that attaches a mandarin collar to a
Nehru jacket are purely within the realm of the wearer’s world.
Post Woolmark, in his own words, his aim was to milk the experience rather than the
success of the award. What emerged from this was a change in his world view, and a
rigorous understanding of the need for ruthless processes and systems. A nuanced
understanding of the importance of merchandising, evolving a brand strategy, and
bringing on a CEO as his company moved away from a proprietorship to a private limited
entity—all steps to inform and guide his growth in the long run, and a far more pragmatic
utilisation of opportunities that came his way, rather than the low hanging fruit of short-
term visibility and hype.
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13 CITI-NEWS LETTER
His continued preference for masculine silhouettes with a tinge of androgyny, rounded
shoulders and a softening of the line is what traditionally drew in a large number of
women buyers to his menswear. Consequently, when he decided to create a line for
women, it was an extension of his menswear collection. Could a man’s sherwani become
a long trench coat that women could team with a sari? Did playful night suits only have to
be for men? And what if brocaded fabrics were treated as a canvas for his aforementioned
print designs? Does wedding wear need to be confined to the wedding day and the family
album, or could it possibly have an afterlife? These are the questions he seeks to answer
with this womenswear initiative.
Make no mistake, however, for amidst these intellective departures, a strong sense of
craftsmanship and a keen understanding of textiles inform Dhir’s production. Pant suits,
bomber jackets and even playful pyjama suit silhouettes come with the requisite fabric
weight to even out the ethereal quality of the imagery they portray. Colours and textures,
from naturals to patterned ikats, brocades, cashmere and merino blends to the extensive
use of khadi are precise, with no scope for excess. Ruthless editing of the line seems an
obsession and less is more defines his racks as he steers clear of stories in his garments.
Forecasters looking forward to Dhir’s next collection should be prepared to enjoy his
clothes for a little bit longer, as adding to an urban landfill is not part of his agenda.
However, catering to women who share an understanding of selfhood and are not hesitant
to show it, very much is. Oh and this range seems to have excited a lot of men too—did we
just see fashion go on a round trip?
Home
Arvind: Re-rating subject to an improved performance in textiles
(Source: Krishna Karwa, Money Control, November 08, 2018)
We remain enthused about the company's branded apparel, advanced materials and
engineering businesses given their revenue visibility and ability to perform consistently
well
Arvind, one of India’s biggest conglomerates, is engaged in businesses across verticals
such as textiles (fabric and garment manufacturing cum sale), branded apparel retailing,
engineering, advanced materials (home textiles for infra, healthcare, energy, aviation and
automotive clients) and water treatment.
Recently, the NCLT (National Company Law Tribunal) allowed Arvind to demerge the
branded retail and engineering divisions into Arvind Fashions and Anup Engineering,
respectively. The effective date of demerger and record date for allotment of shares is
likely to be November 29.
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14 CITI-NEWS LETTER
The demerged companies (Arvind Fashions, Anup Engineering) are likely to be listed on
the bourses in February next year.
Q2 FY19 snapshot
As far as continuing operations are concerned, Arvind’s Q2 numbers pertain to businesses
such as textile (fabric and garment manufacturing cum sale), advanced materials and
water treatment only.
Segment-wise review
Textiles
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15 CITI-NEWS LETTER
Revenue growth in this segment was largely driven by sale of garments and woven fabric.
Reduced drawback rates and high operating costs (pertaining to new garmenting
capacities) led to a margin reduction.
Advanced materials
Higher realisations per unit in connection with value-added products (such as carbon
fibre variants), coupled with efficiencies in processing and economies of scale, helped
deliver a positive set of numbers.
Branded apparel
Weak consumer sentiment, subdued Onam sales and delay in festive purchases
(postponement of Diwali to Q3 this fiscal) took a toll on like-to-like sales growth in this
segment. Online sales continued to gain momentum on the back of discounting and
improved market penetration.
Engineering
Despite flattish revenue traction YoY, margins witnessed an upmove because of good
project execution and cost control initiatives.
What lies ahead?
Textiles
To move up the value chain, Arvind is gradually transitioning itself from a fabric
manufacturing company to an apparel maker-cum-retailer. Moreover, the management
is adding garmenting units in Jharkhand, Ahmedabad, Andhra Pradesh and Ethiopia
(exports to North America and Europe) to nearly triple its existing garment
manufacturing capacity (of 30 million pieces per annum) over the next 3 years.
To save costs and reduce dependence on external suppliers, Arvind aims to increase the
captive consumption of fabric (i.e. fabric manufactured and used internally to
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16 CITI-NEWS LETTER
manufacture garments) from 10 percent at present to 25-30 percent over the next 2-3
years.
Currency benefits (owing to Rupee’s depreciation vis-à-vis the US dollar) in respect of
garment export orders will start accruing from Q4 FY19. Arvind’s cash flows are hedged
till then.
Branded apparel
Power brands, which have been registering double-digit growth YoY (in the range of 10-
20 percent) steadily over the quarters, will be crucial in determining this segment’s
revenue trajectory. Growth prospects in the branded innerwear category (Hanes, Calvin
Klein, US Polo Association) also appear promising.
To capitalise on this uptrend, marketing spends are likely to increase in due course.
Benefits of operating leverage, network expansion, brand extensions and product
positioning should augur well in terms of margin.
Advanced materials
Arvind has entered into a tie-up with a European firm for cured-in-place-pipe technology
(CIPP). Going forward, the management expects sales growth of 20-30 percent YoY. As
the company’s portfolio of mature products gain scale, margin should gradually move
upward too.
Engineering
This segment designs and manufactures critical process equipment (heat exchangers,
pressure vessels, reactors, columns/towers, centrifuges, etc) for industries such as
petrochemicals, fertilizers and power, among others.
Anup Engineering, India’s third largest heavy fabrication player and an entity with a cash
positive balance sheet, aims to tap opportunities in global markets, while simultaneously
strengthening its operational capabilities domestically. The management’s ambition is to
reach the Rs 1,000 crore turnover mark over the next 5-7 years.
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17 CITI-NEWS LETTER
Major hurdles for the textile segment
Slowdown in denim fabric offtake has resulted in an oversupply situation, thus placing
downward pressure on realisations. Stiff competition from unorganised players only adds
to the difficulties.
A 3-6 month delay in setting up new garmenting capacities (to the tune of 44 million
pieces) will keep sales growth fairly modest (at 5-6 percent YoY, versus 8-10 percent that
was initially guided) for FY19.
Is Arvind investment-worthy?
Business reorganisation in the aftermath of the demerger should unlock value for
investors. We remain enthused about Arvind’s branded apparel, advanced materials and
engineering businesses, given their revenue visibility (attributable to favourable industry
factors) and ability to perform consistently well.
However, a lot would depend on how quickly the textile arm’s proposed capex of Rs 1,500
crore (over the next 3-5 years) begins to contribute noticeably towards improving Arvind’s
overall returns on capital.
In the branded apparel segment, it will be equally important to watch out for the financials
of ‘Unlimited’ (erstwhile loss-making stores that have been going through a restructuring
phase of late) and the pace at which brands maximise their sales potential to facilitate
margin accretion.
After the demerger is effected, Arvind Fashions and Anup Engineering will, in all
likelihood, list at a premium. In comparison, Arvind (excluding branded apparel and
engineering) may continue to trade at lower valuation multiples till there are indications
of a visible improvement in performance.
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18 CITI-NEWS LETTER
Nevertheless, after a sharp correction over the past year, the stock offers decent upside
from current levels.
Home
The rich tapestry of Tripura
(Source: Madhur Tankha, The Hindu, November 09, 2018)
Tripura: Time Past and Time Present’ explored the
rich cultural history of the State
A mesmerising portrait of Maharaja Bir Chandra
Manikya with his better half was the first thing that
struck visitors at the Kamladevi Complex of India
International Centre where an exhibition on
Tripura, showcasing old paintings, photographs and
new textiles was organised as part of The IIC
Experience: A Festival of Arts 2018. “Maharaja Bir
Chandra painted this portrait from a photograph.
With wife in tow, he took an intimate selfie using a
methodology of long wire shutter control. And then
made this painting,” said M.K. Pragya Deb Burman,
convenor of INTACH Tripura Chapter, and a direct
descendant of the late Maharaja. “He was a pioneer
in giving a fillip to arts and photography and so was
his better half, Manmohini Devi. In fact, the duo laid
the foundation of Tripura’s historical bond with
arts,” she added.
Professional approach
The Maharaja constructed his own dark room and learnt the coating process. His
passion for photography and its dissemination also got his family involved. “Maharaja’s
wife was an amateur photographer, whom he tutored to develop prints. In fact, he was
responsible for introducing daguerreotype photographs in East India,” Burman
informed.
This portrait and other pictures connected with him were highlighted to show Manikya
dynasty’s contributions in enriching Tripura’s vibrant art scene. The pictures on display
were captured by Deb Mukharji, B.M. Pande, V.N. Prabhakar, Vivek Dev Burman and
Rudra Pratap Debarma.
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19 CITI-NEWS LETTER
Titled Tripura: Time Past and Time Present, the exhibition made one understand the
rich legacy of Tripura in the arts.
Talking about the current art scene in the state, Burman said, “It is still flourishing but a
lot needs to be done. Tripura was once a massive kingdom that stretched from the
Sunderbans in Bengal to Northern Myanmar. But it lost a huge territory to East Pakistan
(Bangladesh). The private estate of the Maharajas, the Zamindari of Chakla Roshanabad
was lost in Partition.”
On display were textiles handcrafted by members of Tripuri tribe. Rignai, a cloth used
for covering lower part of the body, was showcased in multiple designs. It is normally
joined and stitched in the middle as the weave is done using loin loom. So two pieces are
joined to make one Rignai. In olden days, a woman's IQ was judged by her woven design
of Rignai.
Next to it was Risa which is used as a blouse. It is colourful with fine intricate designs.
“These days it is worn over a blouse and on festive occasions only,” said Burman.
To an outsider, the weaves on display look identical. But a closer look explains that the
patterns and designs are different. “Most of the handloom work is done on loin loom.
Earlier, Maharanis used to weave Rignai in silk and cotton. And natural dyes were used.
It is now made by using raw cotton done during shifting cultivation.”
Fillip to handloom
Burman said Tripuri handloom needs to be given a push. In the past, natural dyes made
of indigo and flowers colours were used.
“We need to preserve and protect them. Now, we are also getting colours and threads
from outside. Weaves are coming mostly from Thailand and other states such as Punjab.
The local production has decreased as cotton cultivation has gone down.”
The connection of the past to the present could be seen from the fact that the young
generation actively participated in capturing pictures of tribal communities wearing
their traditional attire and jewellery. “I made sure that the new generation
photographers did this work to let the world know about these rich diversity of our
land,” she said.
Home
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20 CITI-NEWS LETTER
GLOBAL:
Japanese firms see U.S. trade talks boosting exports despite Trump rhetoric
(Source: Tetsushi Kajimoto, Business Standard, November 08, 2018)
Half of Japanese companies expect new trade talks with Washington to boost their U.S.-
bound exports, a Reuters poll found, despite President Donald Trump's intensifying drive
to cut the trade gap between the two major economies.
There are, however, concerns among more than half of the respondents that the talks,
which Japan and the United States agreed to in September, will lead to higher U.S. tariffs
and other restrictions on Japanese exports, the monthly poll showed.
Since taking office nearly two years ago, Trump has repeatedly blasted trading
partners Japan and China for running big trade surpluses with his country.
After the U.S. midterm elections this week, Trump said trade was one area in which he
hoped to work with Democrats, who won control of the House of Representatives. Trump
also criticised Japan for not treating the United States fairly on trade.
"They send in millions of cars at a very low tax. They don't take our cars," he said
Wednesday.
U.S. Trade Representative Robert Lighthizer has called for greater access for American
beef and rice and targeted what he calls non-tariff barriers to the Japanese car market.
Despite the trade hostility, Japanese companies seem confident that Tokyo will resist U.S.
pressure, the Oct. 24-Nov. 5 survey showed.
"Japan must firmly resist unfair demands from the U.S.," a manager of an electric
machinery maker wrote.
"We hope the trade talks will result in a way that serves the best interests of Japan," wrote
a manager of a transport equipment maker.
When asked to pick the expected outcome from the trade talks, 50 percent of companies
polled chose "an expansion of exports." Just 19 percent believe Japan will open up its
domestic farm market, where products like rice and beef are protected by high tariffs, or
remove supposed barriers to the car market, the survey showed.
Japanese authorities argue the country's car market faces no barriers and that U.S.
companies have done poorly in Japan because they haven't invested in the market.
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21 CITI-NEWS LETTER
Asked about their biggest concern regarding the talks, 53 percent said they feared
the United States would impose import restrictions or higher tariffs on Japanese
products.
Twenty-two percent said they worry about the adoption of currency provisions in any
trade pact and how that could impact monetary policy. Underlying such concerns are
fears that Washington might link trade with foreign exchange policy and monetary easing
and accuse Japan of keeping the yen artificially weak.
In January 2017, Trump alleged that Japan used its "money supply" to weaken the yen
and give exporters an unfair trade advantage. Such criticism could create currency
diplomacy problems for Tokyo if it responds to a spike in the yen with a devaluation.
"We're watching what the two countries may settle for if currency provisions are
introduced, and how that would affect the currency and stock markets," a manager of a
manufacturer wrote.
Companies responded anonymously to the survey, conducted for Reuters by Nikkei
Research. It polled 482 large and mid-sized non-financial firms, about 240 of which
responded to the questions about trade.
U.S.-CHINA FRICTION
Japanese businesses are pessimistic about the outlook for the U.S.-Sino trade war, which
they worry will indirectly hurt export-reliant Japan, the survey showed.
Japan's role in the global supply chain makes it vulnerable to a decline in Chinese exports
to the United States. Chinese manufacturers use parts and equipment from Japan, and
Japanese companies also have factories in China that export to America.
Already, the U.S.-China trade friction is prompting companies such as Yaskawa Electric
Corp <6506.T>, Fanuc Corp <6954.T> and Canon Inc <7751.T> to issue conservative
earnings forecasts, reflecting their customers' cautious stance on capital expenditure
plans.
Washington and Beijing have imposed tit-for-tat duties on each other's goods over recent
months, with neither side backing down from an increasingly bitter trade dispute that has
jolted financial markets and cast a pall over the global economy.
In the survey, about three quarters of Japanese firms expect the U.S.-China trade war to
last until end-2019 or beyond, with a majority anticipating the trade dispute to become
worse over the next one to two years.
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22 CITI-NEWS LETTER
"The impact won't be limited to the two countries," a manager of a construction
company wrote in the survey. "They must become conscious as world leaders and mend
their ways by taking account of harmful effects from prioritising their own country."
Home
China's exports still soaring despite trade war
(Source: Daniel Shane, CNN Business, November 09, 2018)
China and the United States are locked in a trade war, but you wouldn't know it from
looking at Chinese exports.
They leaped almost 16% in October compared with the same month a year earlier. That
was significantly higher than analysts had forecast and even stronger than last month's
growth.
The performance is surprising because October was the first full month during which new
US tariffs on $200 billion of Chinese goods were in effect. Economists and Chinese
government officials said recently that they expected export growth to slow in the final
months of the year.
One reason for the surge is companies are eager to avoid even higher duties in a few
months' time: The US tariffs on $200 billion of Chinese goods that kicked in on
September 24 are set to rise from 10% to 25% at the end of the year.
This "encourages exporters to rush through orders to the United States," Louis Kuijs, head
of Asia economics at research firm Oxford Economics, wrote in a client note Thursday.
But he added that it's "obviously not the whole story."
The downward slide in China's currency is also playing a role. The yuan has
slumped almost 10% against the dollar since February as investors have become more
concerned about the health of China's economy and the potential impact of the escalating
trade war.
A weaker currency makes Chinese goods more competitive compared with those of rival
exporters and offsets some of the impact of the US tariffs.
China was also helped in October by strong exports to big markets such as the European
Union and Japan.
"Global demand may be holding up better than feared," Kuijs said.
Economists are still predicting that the good times for China's huge export industry won't
last.
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23 CITI-NEWS LETTER
Investment bank ANZ said Thursday that it expects the real difficulties to start after the
US tariffs on the $200 billion of Chinese goods rise to 25% at the end of the year.
US President Donald Trump has said he's prepared to expand the tariffs to effectively
cover all Chinese exports to the United States, which topped $500 billion last year.
Trump is due to discuss trade with Chinese President Xi Jinping on the sidelines of the
G20 summit in Buenos Aires later this month, but experts are doubtful the two leaders
will be able to agree on a swift resolution to the conflict.
Home
WEAR2018: The consumer in the circular economy and disruptive
technologies for social change
(Source: Marie O'Mahony, Innovation in Textiles, November 09, 2018)
The role of the consumer in the circular economy and disruptive technologies for social
change in the clothing industry were two of the big themes in this
year’s WEAR2018conference in Toronto, Canada. The World Ethical Apparel
Roundtable (WEAR) conference is now in its fifth year with organisers Fashion Takes
Action bringing together a mix of global and local best practices for innovative solutions
for the industry that are both sustainable and ethical.
A combination of keynote presentations and panel discussions dissect the many ways that
innovation can become a key driver towards finding more sustainable practises for the
apparel industry. While there are some recurring themes such as waste, new topics appear
each year with this year including technological drivers of supply chain traceability and
shifts occuring in consumer attitudes towards sustainability.
Sustainable development goals
In a keynote presentation Karen Newman, an independent consultant to the United
Nations (UN) set the scene with the discussion of fashion role in the seventeen sustainable
development goals (and 169 targets) set by the UN in their Transforming our World: the
2030 Agenda for Sustainable Development launched in September 2015 and described as
“a plan of action for people, planet and prosperity”.
The fashion industry is one of the largest employers in the world according to Newman,
with women comprising around 80% of the supply chain. Helping businesses to achieve
these goals, the UN Global Compact supports companies to do business responsibly
aligning those strategies and operations with ten principles on human rights, labour,
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24 CITI-NEWS LETTER
environment and anticorruption in addition to taking strategic actions to advance broader
societal goals such is the UN sustainable development goals.
Newman discussed progress and issues with a representative from one of the fashion
brands involved, Charline Ducas who is leading the development of C&A’s Circular
Economy strategy. Ducas acknowledges that there are a lot of moving parts to the
sustainability conversation. A member of UN Global Compact since 2016, C&A are
focusing on issues such as gender equality from farm to retail, also achieving clean water
and sanitation. “We have done a lot around water footprint, especially around cotton and
water quality from form to processing and end of use”, according to Ducas. But bringing
the customer on-board is essential, as she acknowledges this is a slow process so that for
the moment at least the brand has to position their sustainable products at the same price
point as alternatives.
Consumer attitude
The consumer’s attitude towards sustainability was the focus of Anerca’s Ellen Karp, with
data taken from their 2017 report on textile sustainability commissioned by Oeko
Tex/Testex. Highlighting the difference in responses from those in textile and clothing
producing countries (China, Pakistan etc) and consuming countries (North America,
Australia etc) did not yield any surprising results, but it did serve as a very stark reminder
of just who is paying the highest environmental cost.
Where asked which industries they consider the worst polluters 42% of respondents from
clothing producing countries named the textiles and clothing industry, which was cited as
the worst polluter by just 14% of respondents from consuming countries. Asked if they
were extremely concerned about the harmful substances in their clothes 72% of people in
producing countries said that they were, by much lower figure of 22% showed from
respondents in North America and the other consuming countries.
Questioned whether in the future they would like to have fewer and better quality clothes
the survey showed that a demographic shift is occurring with 22% of baby boomers in
North America answering in the affirmative with the figure rising to 37% of millennials.
Karp suggested that we will likely see a move towards healthier, more ‘authentic’ textiles
coupled with the respect for the values associated with small batch production and greater
transparency throughout the production and consumption chain.
New sustainable and ethical opportunities
Digital and blockchain technologies are offering new sustainable and ethical
opportunities to the apparel and footwear industries. Vera Belazelkoska, Director of
Programs at Ulula offered a vision of how digital technologies can amplify the voice of
workers and communities worldwide in the advancement of transparent, responsible and
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25 CITI-NEWS LETTER
more ethical business practices. Ulula brings together stakeholders from businesses,
workers, communities and governments with the objective of de-risking operations and
creating value across global supply chains.
This falls in line with the needs to include value within social, ethical and sustainable new
business models. What is meant by the term ‘value’ is subject to a very fluid interpretation
in the clothing industry that can range from the purely financial to the fully philanthropic.
Ulula provides companies with global auditing supply chain management, with
customisable analytics that can be integrated with third party systems to streamline the
auditing business process. They strive to offer data as well as protection so for instance
worker insight are collected on a continuous basis with the use of automated surveys
enabling two-way communication whilst guaranteeing anonymity to workers and
communities.
ConsenSys is a venture production studio that is focused on building and scaling tools,
disruptive start-ups and enterprise software products specifically using the Ethereum
network with the aim to use these solutions to power emerging economic, social and
political operating systems of the planet. Ethereum is a blockchain app platform that is
designed to function as decentralised platform to run smart contracts.
The intention is that the applications can run exactly as programs, eliminating the
possibility of downtime, censorship, fraud and third-party interference. Venessa Grellet
was involved in the setting up the Enterprise Ethereum Alliance (EEA), she also sits on
the Board of the Accounting Blockchain coalition (ABC) and is the President of the
Blockchain for Social Impact Coalition (BSIC). Her role at ConsenSys is focused on
Enterprise and Strategic initiatives and leads the luxury goods, lifestyle and arts as well
as its social impact activities.
She sees an important role for the use of blockchain to achieve full transparency in supply
chain management for the apparel and footwear industry. Luxury goods tagged on
blockchain allow them to be authenticated. There are still limits though, and as yet it is
not possible to verify if child or slave labour has being used in the making of a garment
for instance.
Checks and balances
However, as the digitisation of trust and agreements form the core there is the checks and
balances system in place to incentivise proper behaviour by member participants. As
Grellet put it “reputation can be established and people ejected if they don’t meet that”.
The responsibility to operate in sustainable and ethical manner ultimately rests with the
individual brand. Adhering to industry standards or applying an environmental label is
now just one part of the conversation. The development of new technologies is leading to
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26 CITI-NEWS LETTER
novel business opportunities, which in turn is causing brands to look once again at where
their value proposition truly lies.
Home
Why Ethiopia’s Export Income Declines While Incentives Increase
(Source: Andualem Sisay Gessesse, NBE, November 09, 2018)
Thought value of Ethiopian government’s incentives for investors have been increasing
over the past years, on the contrary the export performance of the country has been
declining, report shows.
One of the main objectives of the government to
provide incentives for both local and foreign
companies is to boost export earnings of the
country. Meanwhile the annual total export
earning of Ethiopia has declined to $2.857 billion
in 2015/16 from $3.152 billion in 2011/12,
according to the date from the Ministry of Trade
and Industry of Ethiopia.
On the contrary the financial value of duty free incentives Ethiopian government has
provided to investors has increased to $3.261 billion in 2015/16 from $1.116 billion in
2011/12, according to the date from Ethiopian Customs and Revenue Authority.
“There could be many reasons for the failure of Ethiopia’s incentives to boost its foreign
currency earrings. But in general these figures tell us that the incentives have been
misused,” says Melaku Kinfegebriel, Business Consultant at Noble Consulting.
“Either those engaged in the manufacturing sector and got those incentives are not
exporting as they promised. They could be focusing in the local market. Or even if they
are exporting they are maybe engaged in under-invoicing and contraband border trading,
which reduce the amount of foreign currency coming to Ethiopia. Or the companies didn’t
go operational at all, which means some were fake established only targeting the
incentives. In my opinion, the reasons could be the sum of all these and other factors,” he
says.
Last Ethiopian calendar which is concluded July 7, 2018, Ethiopia’s government plan was
to generate $5.23 billion. Meanwhile the country exported only $2.84 billion worth
products. Out of the annual planned earnings, the country’s aim was to generate $998
million from manufactured goods export.
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27 CITI-NEWS LETTER
But the achievement for the year (2017/18) was only secured $458.65 million (45%).
Some of the major export earing manufactured goods of the country includes, textiles,
shoes and leather products, medicines,
Investors engaged or plan to be engaged in the manufacturing sector in Ethiopia have
been enjoying incentives from the government. Those incentives include tax free
machineries and related capital goods import as well as exemption from export tax when
they began producing locally and export. Among others, they have also been enjoying 70%
now increased to 85% banks loan from state banks without collateral.
“Though there are benefits in terms of job creating from those who are genuinely investing
using the incentives such as job creation, providing $3.7 billion duty free per within one
year for an industry that generates less than 345 million is not acceptable by any
standard,” Melaku says.
Around 80% of Ethiopia’s export commodities are still raw agricultural products and
minerals. The raw products Ethiopia export ranges from tomatoes, fruits, garlic, milk, tea
and coffee to live animals, equilaptus, wax and oil seeds, as well as several types of cereals
and spices. The country has also been exporting raw minerals such as tantalum,
gemstones and emerald, among others.
Though power outage is still a problem in the country including the capital Addis Ababa,
Electricity is also the new export generating product of Ethiopia. Gas, which the country
started production at small scale in Ogaden area Eastern part of Ethiopia in of Somali
region is also expected to generate additional hard currency for the country.
Of the total $2.84 billion the country earned from export in 2017/18 fiscal year, 238,466
tons of coffee has generated $838.15 million.
The ministry of trade in its report stated that
the decline of the price of coffee in the
international market has reduced the
income from coffee export. The report has
also stated that the other reason for the
decline of income from coffee export is
because the regulators have failed to take
punitive measures (beyond warning)
against those who sell coffee for less than
the global price.
During the same period, oil seeds, spices and Khat (addictive stimulant plant) have
respectively generated $418.4 million, $268.12 million
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28 CITI-NEWS LETTER
Reports show that dependence on raw agricultural products, minerals and other primary
goods export is making African countries vulnerable to global commodity price
fluctuations. Experts’ advice these countries to focus on value addition to their raw
commodities, which will enable the countries to create more jobs at home and increase
their export revenues.
In addition, others also suggest for the need of a dedicated export promotion agency and
a strong well integrated regulatory agency that helps to boost export performance of these
countries based on research as well as deal with issue such as under-invoicing and
following on fake investors engaged in money laundering and contraband trade, among
others.
Home
Will US-China trade war ruin Africa or offer new opportunities? National
leaders must decide
(Source: The Conversation, November 08, 2018)
As China and the US continue their trade war, what will be the outcome for Africa?
This trade war should not be seen in isolation, and the new year will bring a changed
world. China and Russia will cooperate as the new Silk Road begins to join Asia and
Europe with a transport and communications corridor Marco Polo could not even
imagine.
Russia, Turkey and Iran – once unlikely partners in the Syrian conflict – will form a new
Middle East axis to rival that of the US, Israel and Saudi Arabia, with none of the latent
instabilities of the latter with its Zionist and Islamic ingredients.
And the US, under Donald Trump, is likely to continue to view Africa – in all but name –
as that collection of “shit hole” countries derided by the American president at his
undiplomatic, offensive and unthinking worst.
After two years without one, the US will have a permanent assistant secretary of state for
Africa – the highest State Department official with an Africa portfolio. Tibor Nagy also
comes with a sound reputation as a seasoned diplomat. But will he have any clout on
Capitol Hill? And can any official be effective in a State Department that Trump and the
former US secretary of state, Rex Tillerson, have slashed and burned?
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29 CITI-NEWS LETTER
May’s dancing and used clothes
If the US doesn’t care much for Africa, neither really does the UK. Theresa May’s dismal
efforts at dancing on her Africa tour summed up a clumsy view of what the continent
needs.
The UK posture is summed up by the position of minister of state for Africa – now held
by Harriet Baldwin – with responsibilities in two departments: the Foreign Office and
International Development. These are two very different departments and the joint
position is both a money-saving device – two ministers for the price of one – and also a
confusion of policy as to how the UK should approach Africa. Indeed, perhaps the
beleaguered minister’s main responsibility is the search for new UK trading partners in
the wake of Brexit.
The US approach to Africa, meanwhile, was summed up in measures launched between
May and September 2018: basically, the suspension by the US of trade benefits to Rwanda
because of Rwanda’s refusal to import used clothes from the US. In continental terms, the
sums are tiny, but the principle enunciated by Rwandan president, Paul Kagame, was
stark.
If the volume of used clothes continues or increases, there can be no development of a
Rwandan textile industry. In effect, the US is dumping textiles on Rwanda in much the
same way as it once dumped grain so cheaply that African farmers could not even begin
to compete and agriculture could not develop. For Trump, in his trade wars not just with
China but with the world, blue collar manufacturing in his heartland is more important
than good relations with anyone.
For a populist president this is dangerous but perhaps understandable. But who has
drawn first blood in this US-China standoff? Chinese economic growth has slowed – but
only to 6.5% a year, a growth figure for which most other countries would die. The value
of the Chinese yuan against the dollar seems destined to fall, but Chinese reserves, divided
almost equally between foreign and domestic reserves, of about US$60-$70 trillion, are
more than enough to weather the storms to come. Added to what the Chinese did during
the US financial crisis of 2007 to 2010 – buying up huge quantities of US toxic debt –
China has far more leverage on the US economy than the US has on China’s.
China and Africa
For Africa, it means business with China remains a reality. This relationship has, however,
taken on two key new characteristics of late. The first is that China expects its loans to be
repaid. Indeed, there is no doubt that a new fiscal propriety is now expected by the
Chinese.
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30 CITI-NEWS LETTER
The second, very closely connected development – and one which curiously seems not to
have been noticed or taken seriously by African leaders – is that increasingly Chinese
liquidity is made available not on a state-to-state basis but on a Chinese bank to African
state basis.
They may be Chinese state banks – but a bank is a bank, and a bank needs to ensure its
loans are repaid and its lending to assets ratio is robust. The use of banks reflects a global
Chinese turn to the creation of international and regional banks and funds, most
noticeable in Asia-Pacific. The Chinese capitalise these regional funds to the tune of about
US$50 billion a time. But this means the beginning of a new Chinese global financial
infrastructure that seems deliberately designed to rival the IMF and the World Bank. It’s
not just a trade war but a war over who will control the world’s financial flows in the long
term.
For Africa, the choice is between growth with borrowed liquidity and growth without –
the latter being very difficult. Investment doesn’t come out of nothing, so wise spending
of borrowed liquidity is key. It cannot be just for standby budgetary support without
product and without exportable value – which is why the Chinese turned down
Zimbabwe’s desperate pleas for exactly that.
An uncertain future
The future will embroil Africa even more in the trade wars to come. What Africa needs to
do is to industrialise – to add manufacturing to its raw materials. The long awaited oil
refinery in Nigeria is the perfect example. How a significant oil-producing country could
spend so many years exporting crude and then reimporting it as a refined product beggars
description. The revenue streams would have always been greater if it had been exported
refined. Trouble is, African industry will create jobs in Africa but take away blue collar
jobs elsewhere. And the West won’t like that.
But what about China? African governments must navigate the attractions of the quick fix
via Chinese loans, and seek the development of long term industrial capacity. Or will the
next decade be another of missed opportunities – with trade wars steamrollering an Africa
whose response will be to plunge again deeper and deeper into debt.
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