ATN drove hard bargain over telecoms deregulation
By Gitanjali Singh

The government's negotiating team made key concessions to ATN/GT&T in a bid to break its monopoly and liberalise the telecommunications centre but in the end the proposed agreements were vetoed and the two sides remain at a stand-off.

Liberalising the telecommunications sector, especially the data market, is key to Guyana making strides in the information technology sector. The latter would have included the government providing almost every Guyanese with access to the internet, whilst simplifying the ways in which government services are accessed.

Stabroek News was told that the government negotiating team agreed that for the data market to the fully liberalised, agreement had to be reached with Atlantic Tele Network (ATN) the parent company for GT&T on final rate re-balancing for GT&T as well as having the proposed legislation reforms implemented, within a year of the memorandum of understanding (MOU) being signed.

Failing this, the competitive data market was to be closed and licences granted to competitive data operators terminated. The team also agreed to the government working with GT&T to enforce its "exclusivity rights" on the data market in the event the competitive data market had to be closed.

The negotiating team, headed by attorney-general, Doodnauth Singh, SC, also agreed to local rates being increased from the current 60 cents per minute during the day to $2 per minute and from 30 cents per minute at nights to $1 - a 233% increase. Internet calls, now free via most Internet Service Providers (ISPs), were to be charged at the new local rates for telephone service, with discounts promised for educational institutions.

Sources tell Stabroek News that the team also consented to residential main line rentals moving from $500 to $1000 per month and the third and subsequent lines moving from $750 to $4000. Monthly business mainlines (the first four) were to move from $1500 to $2000 per month.

In return, GT&T offered to decrease international rates to all countries except the main international outbound traffic destinations - the UK, the US, Canada and the Caribbean. GT&T was to calculate the rate decreases.

Additionally, the government and ATN were to decide on legal means to implement these interim rate increases to bypass the Public Utilities Commission (PUC) jurisdiction over rate setting for GT&T.

However, President Bharrat Jagdeo is reported to have thrown the conditions and the draft MOU (the outcome of the negotiations) out of the window and has still to make a public pronouncement on the issue. Sources say the government team went into the negotiations with ATN without the benefit of an operational audit of GT&T or a financial audit and also agreed to drop such audits as an issue for the MOU.

The MOU was to be binding on both sides on the way forward to liberalise the telecommunications sector and a draft was prepared by the government team and submitted to Cabinet.

However, GT&T got wind of the President's position on the MOU and its attached conditions. ATN, GT&T's parent company, then moved to block the government's Information and Communications Technology project (ICT), claiming bad faith on the part of the government. The ICT project hinges on data liberalisation and a US$18M loan from the Inter-American Development Bank. The project has been stalled by US court action by ATN.

But it was the understanding of the negotiating parties that actions agreed to during the negotiations were to be ratified by the Government of Guyana and ATN's Chairman Cornelius Prior.

The draft agreements were never made public nor the contents discussed but have been referred to in passing by GT&T. The phone company found favour with its contents and was more recently amenable to having the talks resumed from where they broke off in Trinidad. However, Judge Thomas Penn Jackson of the Washington District court is still to rule on the motion brought by ATN to block the IDB loan.

Data and voice markets
The MOU would have bound the parties to reach final agreement on issues such as interim rate rebalancing, a schedule to open up data, international voice and other aspects of the telecom markets to competition. It would have also had in place a framework to resolve issues such as long term rate rebalancing.

The data market was to have been opened soon after the MOU was executed and once the interim rate increases were implemented but once remaining open would have been subject to the final rate rebalancing and reform legislation in place within a year.

The opening up of the international voice market including the Voice Over Internet Protocol was to be opened three years after the completion of rate rebalancing.

In return, ATN would not have objected to the government licensing call centres not connected to the public switch telephone network and opening the domestic telecom markets to competition subject to legislative changes.

The government team took the position that a three-year delay in opening up the international voice market was inconsistent with international practice. The practice has been that the voice market is opened at the time of rebalancing or before.

However, ATN's team said an earlier consideration to terminate its international voice monopoly would depend on the treatment of rebalancing, bypass and other issues.

The government team, the sources said, recognized the need for interconnection tariffs for competitive data providers using GT&T's public switch telephone network as well.

Compensation and the government 20% stake
During the negotiations, ATN sought compensation for an early termination of its monopoly as well as for past "under-earnings" estimated at US$31M for both wire line and cellular services. The firm says that compensation should be based on the net present value of the difference between its projected earnings for the remaining 29 years of its monopoly and projected earnings without its monopoly. The company licences guarantee it a 15% rate of return.

ATN did not provide an estimate of compensation and, faced with the government's opposition to cash compensation, offered as alternatives: lower tax rates, the sale of the government's 20% shares to ATN, the terms of future price cap regulation, voice monopoly or other regulatory concessions.

The firm was to provide calculations in details of its under-earnings while the government team was to review the tax issues and current tax assessments.

Expansion programme
The government and ATN's negotiating teams agreed that any expansion commitments were to be subject to the implementation of a satisfactory rate-rebalancing programme.

The sources said ATN proposed an expansion of 10,000 lines per year and estimated total unserved demand at cost-base rates of 40,000 lines. The firm argued that rate rebalancing would make it profitable for it to invest in new wireline services. It was agreed, assuming rate rebalancing, that GT&T install the 40,000 lines in three years with a minimum rollout of 10,000 lines per year, the sources said.

The teams also agreed to support the establishment of the Universal Access Fund to subsidise provision of telephone service to remote and uneconomic areas. GT&T estimates that there are some 10,000 to 20,000 households in such areas, suggesting that some of these areas could use public access lines. Such a Fund is part of the government's ICT project.

Further benefits
ATN wanted further concessions. It wanted to benefit from the tax exemptions provided to Cell Star (a five-year tax holiday) and the government team agreed that steps should be taken to level the playing field between GT&T and other cellular service providers.

The company also wanted the government to allow it to maintain its accounts in US dollars to guard against the devaluation of its earnings in Guyana dollars. This has already occurred with the bulk of GT&T's earnings now in Guyana dollars given that its earnings in US dollars have declined as a result of the reduced settlement rates.

The government team said the request could be considered but legislative changes would be required to allow this.

ATN also sought a licence and a tax holiday for a multimedia service and the government team said the licence, if the MOU is completed satisfactorily, could be considered but the tax holiday was an issue for Go-Invest.

Additionally, ATN wants a continuation of its exemption from duty and consumption taxes and an extension of its exemption to purchase vehicles. The government team said that this would be considered but said as well that this would have to be considered in the context of a level playing field in tax treatment for all telecommunications operators, the sources said.

ATN also wanted the Central Bank to act as an intermediary for its foreign exchange requirements but the team said that the Bank is not so authorised and ATN would have to continue to purchase its US dollar requirements in the open market.

Advisory fees
The government team wanted the six per cent advisory fees reduced to three per cent of gross revenues but ATN said it should be changed to three per cent cash and three per cent issued shares, the latter, which could be sold to local purchasers at appropriate times. Nothing conclusive was decided on this issue. ATN also wanted these fees deductible for telecommunications and taxation purposes.

The teams were to consult with their principals on the advisory fee issue.

The sources said that the purchase agreement of GT&T as well as its licence would have had had to be amended to implement the terms of the MOU.

And once the MOU was in place, GT&T would have enforced compliance by users of its own network, using filtering technologies and other means. The government team agreed to best endeavours to enforce compliance and to have the fines increased for unlicenced telecommunications operations.

The government's negotiating team also comprised Canadian Hank Intven as advisor, Director of Budget, Ashni Singh, Gita Raghubir and Michael Welch. ATN's team comprised Sonita Jagan, Lewis Stern, Miles Fitzpatrick SC, Godfrey Statia and Gene Evelyn.

Forestry sector getting training help in key areas

The Forest Products Association (FPA) has delivered training in collaboration with the Caribbean Regional Human Resource Development Programme for Economic Competitiveness (CPEC) to companies and agencies involved in Guyana's forestry sector.

A report from CPEC said that the downturn in the forest industry in Guyana had affected the pace of the industry's growth, hence participation in the project. CPEC identified the following production issues in Guyana's forestry sector:

1. Local-owned firms are undercapitalised and the state of equipment is poor. These factors hinder production of export quality lumber.

2. Recovery of lumber from logs is low (35%) and there is a high degree of wastage.

3. Lack of skilled management and technicians.

4. Increased harvesting costs because of specific species of trees being sparsely spread out, and not in one stand (all in one place).

5. Short leases reduce the ability to raise capital.

Policy issues were also identified. Some of these were:

1. Lack of a forest industry to facilitate planned harvesting.
2. Chainsaw operators not well regulated.
3. Intense competition for concessions with apparent preference for foreign-owned companies.
4. Low levels of added value.

This CPEC project has a total value of Cdn $306,848. CPEC's contribution to the project is Cdn $166,832 - 54%.

There is also proposed another sub-project to be run in collaboration with the Guyana Forestry Commission, according to the CPEC report.

Acting in the capacity of co-ordinating agency to CPEC, the FPA has overseen training to a number of agencies in the following areas: Forest Industry, Preparing Management Plans, Forest Engineering, Cartography, Sawmill Layout, Sawmill Technology, Forest Management, Chainsaw Maintenance, Millwright, Saw Doctoring and many other courses.

The Executive Director of the FPA, Mona Bynoe, has received training in Forest Association Management in Malaysia. She is now able to pass that knowledge on to persons in the local forest industry through the FPA. She told Stabroek News that her association works in collaboration with Iwokrama and Conservation International in the implementation of some of the projects.

The CPEC report outlined that 30 Chief Executive Officers (CEOs) have been sensitised to the costs and benefits of implementing Forestry Management. Twenty-five persons in the sector benefitted from Middle Management training.

Since December 2000, over 200 people received training with the forestry programme. The total number of persons to be trained is 417.

In addition to training, there was an analysis done of Guyana's forestry sector. Further, a publication of comparable statistics of Guyana's timber to that on the international market was produced. A report was also completed on feasibility of value-added forest activity, such as kiln-drying, in the industry. This report included recommendations of market availability.

CPEC's efforts in the forestry sector is geared towards strengthening the capacity of the FPA and the Woods Producers of the Guyana Manufacturers' Association (GMA) with the aim of enabling them to:

1. Conduct market research on market availability and access.
2. Promote their products.
3. Develop trade information databases.
4. Prepare project documentation.
5. Conduct research and development of lesser known species wood.

CPEC said that in the area of technical skills, it was necessary to improve the following:

1. Sawmilling techniques (including welding, brazening and metallurgy).
2. Application and maintenance of value-added machinery, such as, kilns.
3. Felling techniques, sawing techniques, recovery and safety.

The Caribbean Regional Human Resource Development Programme for Economic Competitiveness directly addresses the growing pressure of global competition faced by small Caribbean economies. As such, through its funding agency, the Canadian International Development Agency (CIDA), CPEC is focused on improving the quality of products and services of Guyana's forestry sector.

Gershom Hunter who received training in cartography is attached to the Guyana Forestry Commission. He took a three-month course in 2000 which was administered by the Department of Geography, University of Guyana. He said that the Forestry Commission's capacity is enhanced as it is now better able to perform Aerial Photo Interpretation (API), also called Forest Type Analysis, for individual concessionaires. The training, Hunter said, has also augmented his knowledge of map arrangements and geographical information systems.

Amazon Caribbean, a food-processing company, says it has seen significant improvement in its management since Jean Francois Gerin completed a one-year Executive Diploma in Management through assistance from the FPA-CPEC.

This University of the West Indies (UWI)-administered course encompassed training in Human Resources, Finance, Marketing among other disciplines. Gerin told Stabroek News that the programme was a very comprehensive one and that he and his company benefited from the quality of what was learnt. "It [the course] has helped me to restructure the way I work and perform problem solving."

Pension deficits to depress global market recovery
LONDON, (Reuters) - Global corporate pension underfunding is set to slow any recovery in stock markets, weighing on corporate earnings growth and hitting debt ratings.

Falling stocks, sliding bond yields and low inflation have left corporate pension funds with an estimated $2.5 trillion gap between the assets they own and the liabilities they face.

Analysts say many companies face having to divert billions of dollars to plug the shortfall, hitting their balance sheet, cutting into profits and muting any rebound in equity markets.

``Without a doubt, this will have a dampening effect on earnings this year,'' said Morgan Stanley analyst Leon Michaelides. ``It is going to start triggering cash calls. The difficult thing is predicting the timing and the extent.''

The stark figures prompted credit rating firm Standard & Poor's to warn on Friday it may downgrade 10 European companies including French tyremaker Michelin, German steelmaker ThyssenKrupp, Dutch logistics firm TPG and British defence group BAE Systems.

Its rival, Moody's, issued a similar warning earlier in the week. In a note covering the U.S. market, it said further declines in stock markets could lead to ``significant pressure on companies' cash flows and weakening of their balance sheets.''

This ``could lead to rating downgrades,'' it said.

U.S. pension assets alone declined $900 billion last year, according to consultants Watson Wyatt, with pension funds worldwide losing $1.4 trillion. The cumulative global corporate pension shortfall is around $2.5 trillion.

ACCOUNTING FOR PENSIONS
Although ratings agencies have yet to downgrade any firm over unfunded pension liabilities, companies are already being forced to take action.

U.S. auto firm Ford Motor Corp said it will inject $1 billion this year into its pension fund, which has a shortfall of $14.5 billion. Rival GM said its pension costs will triple to $3 billion this year as it tries to plug a $19.3 billion hole in its fund.

In Britain, hundreds of companies, including blue chip names such as Marks & Spencer are withdrawing from schemes providing guaranteed pensions in order to cap liabilities caused by slumping stock markets and exposed by new accounting rules.

Others, like British Tele-com - with a pension deficit of around 1.6 billion pounds by some estimates but much higher by others - have had to pump more cash into schemes. Estimates vary, but Watson Wyatt recently pinned the current shortfall in British pension funds under new accounting rules at 150 billion pounds. Corporate Britain will have to fork out an extra 10 billion pounds a year over the next 10 years or so to make up the deficit, at current stock prices, Watson Wyatt said.

Friday's warning from S&P shows that the problem extends to continental Europe, although funded pension schemes are less common there.

OVER OPTIMISTIC
There is a further cause for worry. Not only have pension funds shrunk in value, but future returns are likely to be lower - a factor many companies have yet to take on board.

According to Japanese banking group Nomura, companies with traditional pension schemes are often over-optimistic about the returns they expect on pension assets. Assuming higher returns means companies have to stump up less cash now to meet future liabilities, boosting profits.

Greater scrutiny of actuarial assumptions and new accounting rules could force companies to be more realistic. Nomura analyst Peter Wyatt predicts an average five percent downward adjustment in profits.

Add these two problems together and you have a balance sheet squeeze with cash injections into pension funds or higher pension costs hitting dividend payments, shrinking shareholder funds and eating up cash needed to repay debt.

The knock on effects will differ from company to company. But investment bank HSBC estimates restoring pension funds to a fully funded level globally will cost two to four percent of future annual earnings if shortfalls are made up over 15 years.

``The combination of the end of the bull market in equities, low inflation and falling bond yields, plus changes in accounting treatment of pension funds means that corporate pension funding looks set to have a negative impact on both company balance sheets and earnings growth for many years to come,'' HSBC analyst Steve Russell said in a recent report.

``This reinforces our view of only a subdued earning recovery in 2003 and continued low growth in the years to come,'' HSBC's Russell noted.

Some warn of latest U.S. bubble: real estate
SAN FRANCISCO, (Reuters) - On 10 occasions over the past year, Deirdre Nurre has offered to pay more than the list price in her intense search for a San Francisco area home. Yet only in recent days has a seller accepted her bid.

By contrast, renters are finding landlords ready to slash prices in what was once the country's hottest housing market, a difference some economists say suggests a dangerously expensive real estate market.

Nurre, 42, who works at the Environmental Protection Agency, has seen the San Francisco property market at its most frenzied, where crowds turn out during open-house viewing hours and later bid up prices against each other.

``The first time it felt very dicey to be making a bid for what then was $45,000 over the asking price. It felt really risky. (But) very quickly you become inert to this inevitability that your bid is not going to succeed,'' she said.

As a modern-day Gold Rush made San Francisco as hot in the 1990s for the ambitious Internet generation as it was to hippies in the 1960s, rental property prices shot up to new heights.

Those looking for apartments brought brownies, bagels or other goodies during packed showings to curry good favour with would-be landlords. Some went as far as to butter up the owners with tickets to Hawaii or other pricey gifts.

A popular saying went that anyone could get a job in San Francisco and nearby Silicon Valley, but it was impossible to find housing.

Then the tech boom went bust, and tens of thousands lost their jobs as investors realized that the new Internet companies could not, in fact, walk on water and defy traditional business models. Dot-com millionaires started selling or renting their upscale homes, lowering prices at the top end of the market.

``We did have a bubble in the Bay Area and it popped,'' said Leslie Appleton-Young, chief economist for the California Association of Realtors group.

``The very high-end homes of three, four and eight million-dollar homes, those prices came down, but the entry-level prices are holding firm because there is more than enough demand for the very limited supply.''

FRENZIED BUYERS
The market for what brokers call starter homes remains robust, with record low mortgage rates acting as a fuse for continuing propulsion. The California Association of Realtors says the median price of existing California homes continues to rise. The median price statewide for a detached, existing, single-family home in California in December rose 20 percent to $338,110 from $281,330 a year earlier.

In the San Francisco area, the median price of homes was more than half a million dollars, up more than 9 percent from a year before. By contrast, the national median price of an existing single-family home in December was $164,000, according to the National Association of Realtors.

The buying atmosphere is sometimes so frenzied that caution is sometimes thrown to the wind. Nurre recalled the time her bid tied with that of another prospective buyer, but she and her husband, Tim Ereneta, a museum administrator, still did not get the house.

``We tied once but the other bidder waved the right to inspect the property,'' she said. ``It blew me away that someone was willing to take that chance.''

RENTS FALLING
Bay Area renters, on the other hand, can take their time and often watch prices fall.

``A significant percentage of the people who lost their jobs, rented,'' Realtors chief economist Appleton-Young said. ``You have had a huge increase in the vacancy rates in apartments and a downward pressure on rents in the Bay Area and Silicon Valley, Santa Clara, which is unusual. You are not seeing that in other parts of the state.''

Broker Sam Anagnostou said one of his friends rented a home that was originally on the market for nearly $7,000 a month for a little more than $3,000 in an upscale area of Silicon Valley.

Few rentals see that dramatic a fall, although brokers say rentals are routinely 10 percent or 20 percent cheaper than what they were a year ago.

Demand for office space has also fallen dramatically.

The San Francisco Bay area ended 2002 with one-fifth of its office space vacant, a near tenfold increase from the peak during the Internet boom when vacancy rates were as low as 2 percent, a recent study found. Rent in Silicon Valley for high-tech commercial real estate fell almost 30 percent.

Some analysts say because real estate is something physical rather than paper such as stocks, it represents a stable long-term investment. In the Bay Area, many homeowners repeat a mantra that sale prices have never and will never go down.

But others say the falling rental prices indicate dark clouds. Edward Leamer, director of the UCLA Anderson Forecast, measures real estate values by comparing home prices to the rents those homes could command. He says that sale prices are out of proportion with rents and indicate real estate may be overvalued nationally.

Malaysia tries to climb value ladder - in a hurry
By Alan Wheatley - Asian Economics Correspondent

PENANG, Malaysia, (Reuters) - With clear instructions and a good screwdriver, most people can put together a flat-pack desk without too much trouble.

But imagine having to design the desk from scratch, then manufacture and assemble it to world-class specifications - all at a lower cost than the do-it-yourself version.

That more or less is the task facing hundreds of small and medium-sized electronics firms that have sprouted up to serve the big multinational companies that have clustered in Penang since the 1970s, turning the island into Asia's own Silicon Valley.

Unable to compete with China in low-margin, high-volume manufacturing, these suppliers are now scrambling to clamber up the value ladder into the more lucrative areas of design and development while increasingly shifting production to China.

The problem is summed up by Boonler Somchit, executive director of the Penang Skills Development Centre, a joint effort of government, industry and academia launched in 1989 to address a shortage of skilled manpower.

``Through this 30 years of growth we've been very good at volume manufacturing but we've been terribly bad at being innovative and coming out with our own designs and products - not because we're not clever but because during that time the need wasn't there.

``We relied on the multinational companies to tell us what to do. But now they no longer come to you and say 'copy exact'. They want you to look at their needs and design for them something that fits their requirements,'' he said.

The challenge of meeting the multinationals' changing needs is immense. And so are the economic stakes: foreign firms accounted for more than 90 percent of Penang's total direct investment in 2001 and 2002, while electronics made up sixty percent of exports, the same as for Malaysia as a whole.

SKILLS MISMATCH
Intel Corp Vice-President Wong Siew Hai said Penang was still suffering a skills shortage that would prevent a multinational firm from opening a 500-strong operation at short notice. As a result, business was being lured to India and China.

But Wong, who is general manger of the chip giant's worldwide assembly test manufacturing, said enough smaller companies were raising their game quickly to ensure China would not suck the lifeblood out of Malaysia.

``We may lose some, but we might win some. If you have integrated solutions, which a lot of customers like, then you have a competitive edge,'' he said.

``I think Malaysia has a good chance to revive its industry,'' Wong added. ``We have 30 years of experience and that means something in terms of people, knowledge, technology and so on.''

The federal government has promised a set of measures later this month to hone the economy's competitiveness, and Wong said he would like the package to include speedier roll-out of broadband access to the Internet as well as incentives to lure specific industries to Malaysia, such as software development.

But topping Wong's wish list was a human resources masterplan so that in five years' time industry was still not lacking skilled professionals in areas like information technology.

``If we don't fill that gap I think we'll be at a disadvantage down the road,'' he said.

Anna Ong of the Socio-Economic and Environmental Research Institute, a Penang government think-tank, put the blame on an ill-adapted education system that she said left thousands of Malaysian graduates unemployed while companies were crying out for design and development engineers.

``We have our policies and our strategies, but implementation is still very slow,'' she said.

IMMIGRATION BOTTLENECK
A frequently heard complaint is that Malaysia, unlike say Singapore, does not roll out the welcome mat to skilled expatriates. And if they are admitted, the prospect of gaining permanent residence status so they can put down roots is remote.

Manu Bhaskaran of economic consultants Centennial Advisors in Singapore acknowledged that the issue was politically sensitive after a generation of affirmative action policies aimed at boosting the status of ethnic Malays.

``But the challenge at the end of the day for political leaders is to make politically possible what is necessary for the betterment of society,'' Bhaskaran said.

Critics say the coolness toward attracting foreign talent risks stunting a $7.4 billion Multimedia Super Corridor (MSC) of high-technology firms taking shape south of Kuala Lumpur.

Prime Minister Mahathir Mohamad's hopes the project will help vault Malaysia to developed-country status by 2020. But Nikolai Dobberstein, principal at the McKinsey office in Kuala Lumpur, said Malaysia lacked foreign scientists and business leaders who could generate new ideas for growth.

``The MSC is 10 to 15 years away from developing critical mass, with self-reinforcing cycles,'' Dobberstein said. McKinsey helped to draft the MSC's blueprint in 1996.

``I don't think there is any risk for the short term for Malaysia. But it has to figure out new ways of growing domestic companies, encouraging start-ups and shifting away from foreign direct investments,'' Dobberstein said.

Boonler, the head of the Penang skills centre, sounded a more urgent alarm. Malaysia's immigration policy, he said, showed the government was in denial about the severity of its problems. (Back to top)

Greenhouse gases rise to exchange-traded status
CHICAGO, (Reuters) - The greenhouse gases that companies pump into the atmosphere will soon go the way of soybeans and pork bellies - the right to pollute the air is about to become a tradeable commodity.

Officials from the Chicago Climate Exchange announced on Thursday its Internet-based market for greenhouse gases, such as methane and carbon dioxide, will begin trading in the spring of this year. The four-year pilot programme aims to reduce greenhouse gas emissions by 50 million to 60 million tons by 2006.

CCX currently has 14 members, ranging from the City of Chicago to Ohio-based American Electric Power (AEP.N), the largest carbon dioxide emitter in the United States. Exchange officials are hopeful they will attract more members and will be able to extend the pilot program beyond 2006.

Currently, U.S. companies are not required to cap their emissions of greenhouse gases, released by burning fossil fuels. Greenhouse gases are thought by many scientists to cause global warming by trapping the sun's heat in the atmosphere.

Most industrial nations, with the notable exception of the United States - the world's largest polluter - have ratified the so-called Kyoto Protocol, penned in 1997. It requires signatories to reduce gas emissions below 1990 levels by 2012.

Buyers and sellers on CCX will commit to a 4 percent mandatory reduction of their emissions based on 1998-2001 levels. The plan allows companies that cut emissions more than they initially pledged to sell credits to firms unable to meet required reductions.

Companies trading on CCX also can earn credits for emission reductions programmes, such as reforestation projects.

WRITING ON THE WALL?
Some companies have signed on to trade on CCX with the expectation that greenhouse gas emission reductions will eventually be mandatory. An exchange-type system, rather than government regulations forcing an absolute reduction of emission levels for companies, would benefit those which emit especially high levels of gases, such companies said.

``Because we're the leading emitter of carbon dioxide emissions, we have significant exposure on this issue,'' said Dale Heydlauff, senior vice president of governmental affairs at American Electric Power, adding that his company would almost certainly be a net buyer of other companies' emission credits.

``We want to be proactive so we can help shape the policy debate, and hopefully come out with policies that not only allow us to survive it, which was an initial fear, but to prosper under it,'' he said.

CCX is the first exchange of its kind in the United States. Britain, Denmark, Japan and the European Union have already ramped up emissions trading, as companies that curb emissions of greenhouse gases try to cash in. The European Union has a plan to cap a trade 45 percent of its greenhouse emissions which is targeted to begin in 2005.

Emissions of greenhouse gases are seen as a global problem, especially because the gases mix evenly around the world rather than stay near the same area from which they were released.

Environmental groups said that while any reduction of greenhouse gas emissions is a positive step, the difficulty is in convincing companies to cut emissions voluntarily.

``The fact that it's 14 companies illustrates that some companies are willing to step up over the threshold, and the problem is there are not enough volunteers,'' said David Doniger, policy director for the Climate Center of the Natural Resources Defense Council. ``This shows how the cap-and-trade program can work, but voluntary programs don't substitute for the need for a national program.''

Republican John McCain and Democrat Joseph Lieberman introduced Senate legislation that would slash emissions spewed by U.S. utilities and industrial plants that are linked to global warming. The bipartisan legislation comes amid data showing that 2002 was the second-warmest year on record and is expected to be opposed by the Bush administration.

Trading oversight for CCX will be provided by the National Association of Securities Dealers, but the organization is self-regulated, CCX officials said. The rules of the exchange are designed by exchange members, and violators will be subject to peer review. (Back to top)

Food price hikes enrage South Africans
SOWETO, (Reuters) - Conversations about the cost of food make Soweto resident Margaret Moloto very angry.

Like many South Africans, she has found rampant food price inflation crippling her spending power, and inflicting worse pain on others with lesser resources.

Government figures measuring a range of products set food price inflation at 16.1 percent for the year to December, 2002. Basic foodstuffs, staples for most of the population, have gone up much more.

``When we talk about food, we get mad. We don't know what is going on...It is very difficult for people. In Soweto you can see the poor people, they are thin, they are not looking good,'' said Moloto.

Small road-side kiosks, the easiest places for Soweto residents to shop, have become the most expensive places to buy food. Moloto's local vendor used to sell a five kilogram (11 lb) bag of maize meal for just under 13 rand ($1.55).

One year on, that same bag costs almost double that price.

A five kg bag of sugar costs 19 rand, more than double the seven rand price tag it used to carry. Rice and flour have also risen drastically.

These shops, serving Johannes-burg's poorer residents, are more expensive than their counterpart hypermarkets in the city's plush suburbs, which have been able to offer shoppers loss-leading subsidies on flagship products to lure them away from smaller competitors.

Maize costs 19 rand in the well-heeled suburb of Sandton, where water features and marble floors amuse rich diners in expensive restaurants - a discount of up to five rand compared to Soweto stores.

Thami Bolani, chairman of the National Consumers Federation, says consumers have had little shielding from inflationary pressures running through the economy, attributed mainly to a dramatic fall in the value of the rand just over a year ago.

``Prices for mealie meal have gone up by more than 100 percent over the past 12 months,'' he said. ``Quite a number of people are going without a proper diet these days. The impact is really quite severe.''

In December 2001 the rand plunged to its lowest value ever, when it was worth as little as 13.85 to the dollar.

That external pressure, together with rand-denominated crop futures prices that soared upwards on expectations of unhelpful weather and regional shortages, quickly worked its way down to low income consumers.

PRICE HIKES
Food prices rose by 16.1 percent in metropolitan areas in the year to December, 2002, and jumped 17.7 percent in the broader metropolitan and other urban areas category, according to Statistics South Africa.

Bolani says maize used to cost 1.90 rand a kilo in retail chain stores in June 2001, and has now reached 4.28 rand a kilo. In smaller shops the rise is greater, and in remote rural areas the hike is higher still.

Complaints led the government to roll out an industry-sponsored subsidised maize initiative, and establish a food price monitoring committee to investigate sharp price rises.

The subsidy deal, which provided a set amount of branded maize every month at a discount of just over 40 percent, was a hit for rural retailers but has done little to assuage hunger, Bolani said, adding that the maize was snapped up so quickly that it was seldom seen in shops.

HOPE FOR LOWER PRICES
But some say hope is in sight, at least for a slower rate of food price inflation, if not for a fall in prices themselves. ABSA economist John Loos says food prices are unlikely to rise much further.

``They could maintain high levels, but not the level of inflation that we saw last year...Even if (forecasts of unhelpful weather) carried on it would be difficult to see the food price inflation rate continuing,'' he said.

Crop prices, particularly of maize, rose on the back of fears that weather patterns would cut off seasonal rains and decimate the crop.

Now, free falling rain in maize growing areas has sent dealers scurrying to sell, and the prices are falling rapidly.

Jannie de Villiers, head of the National Chamber of Milling, has said he expects prices to start coming down for consumers by March. Bully Botma, head of the farmers' group Agri SA, says consumer prices should start falling even sooner, following the plunge in producer prices.

Eric Levine of Investec Securities says inflation should be down to single digits in July, and down to 3.2 percent by the end of the year.

He adds that although it might take some pressure from government or civil society, prices could conceivably come down for lower-end commodities.

Bolani says this is just what the country needs. He doesn't see retailers discounting the price of basic foods on a non-promotional basis unless consumers raise their voices.

``I doubt that the retail stores are going to reduce their prices now,'' he said. ``If there is no pressure from government, no pressure from civil society, then we don't feel that anything will be done. ``Unless we embark on an aggressive campaign people will continue to suffer.''

Brazil's stock market seeks investors at the beach
SANTOS, Brazil, (Reuters) - Where do you hunt for investors in a country that boasts more than 5,000 miles (8,000 km) of pristine coastline? Try the beach.

That is precisely what Brazil's Bovespa, Latin America's mightiest stock market, is doing this summer.

For the past month, representatives from the bourse have been scouring Sao Paulo's most popular beaches in search of would-be investors in a colourful van dubbed the ``Bov-mobile,'' a sort of billboard on wheels manned by Wall Street types in shorts and pretty young women in skimpy summerwear.

The strategy is part of a larger push by the Sao Paulo stock exchange to spread the gospel of share ownership across Brazil by teaching the ins and outs of the market to everyone.

The goal, says Bovespa's president Raymundo Magliano, is to democratize the stock market in a country where just 2 percent of the population owns shares, compared with about half of all American adults.

``Our stock market has always been elitist. It's time to change that and bring democracy to the market,'' said Magliano, a former broker starting his third term as Bovespa chairman.

Getting Brazilians to put their hard-earned money in the stock market is no easy task. Nearly a third of the population lives in poverty and millions can barely make ends meet.

Those who do have some spare cash often prefer a simple bank deposit, which can be a safer bet in an economy haunted by years of hyperinflation and sky-high interest rates.

Local investors and some Brazilian blue-chip companies have flocked to Wall Street in recent years, listing their shares in New York because a financial tax in Brazil made transaction costs in the U.S. as little as one tenth of those in Brazil.

Successive financial crises have also taken their toll on the Bovespa, battering it to three straight years of losses and sapping its trading volume. Five years ago, the Bovespa's average daily turnover was around $1 billion. Today, about $150 million changes hands on a given day at the bourse.

While that's still better than most other Latin American markets, it's peanuts by U.S. or European standards, a comparison that even Magliano acknowledges as sad but true.

PEOPLE'S CAPITALISM
But the Bovespa, and Magliano, aren't down for the count.

After nine months of intense lobbying, the Bovespa convinced Congress to pass a law last June exempting stock transactions from a crippling 0.38 percent financial tax levied on everything from cash withdrawals to personal checks.

Before that, legislators had passed a law strengthening minority shareholders' rights, though the issue remains far from resolved, and last February, the Bovespa started a new bourse called the Novo Mercado, modelled on Germany's Neuer Market, seeking to boost liquidity and provide smaller Brazilian companies with an alternative source of capital.

So far, though, only two companies have listed on the Novo Mercado. Most smaller firms have been scared away by an adverse global investment climate and high interest rates, which make fixed-income investments more lucrative.

But the Novo Mercado's slow start hasn't discouraged Magliano, who is now taking what he proudly calls ``people's capitalism'' to the masses. And, of course, the ``masses'' in Brazil hang out at the beach.

In just over a month, tens of thousands of curious sunbathers have approached the Bovespa's own ``Baywatch'' crew to learn how to invest in shares, with hundreds deciding to take the plunge for the first time.

For many of the beachgoers, the stock market is a complete mystery, a surreal arena where a bunch of screaming men spend their days playing with other people's money.

``Most people that I talk to don't have the slightest idea of how the stock market works,'' said Paschoal Buonomo, a broker at Sao Paulo investment firm TOV who recently spent a day wooing potential investors on Gonzaga beach in Santos.

``Some think it's a haven of sorts for dishonest speculators, but we're here to explain that there are many opportunities for the small investor to profit too.''

INVESTMENT CLUBS
The strategy appears to be making some headway, and not only at the beach. With the help of more than two dozen brokerages, the Bovespa has also taken its campaign to factories, universities and athletic clubs, setting up investment groups to help welcome newcomers to the market.

So far, 17 investment clubs have been formed in Sao Paulo alone, grouping close to 400 first-time investors. Joining a club requires a minimum investment of 29 reais a month, which works out to just over 25 cents a day.

Each club invests in a portfolio combining stock in blue-chip Brazilian companies with a track record of paying dividends and low risk fixed-income securities.

One of the fastest-growing clubs, called Forca 1, was formed at a Sao Paulo metalworkers union. In just three months, more than 80 people have signed up, setting aside a small chunk from each paycheck to invest in the fund.

``Just a few years ago, I couldn't have imagined investing in the stock market,'' said Tadeu Moraes de Souza, one of the union leaders. ``But this is a way to plan for the future. I'm thinking of a college education for my eight-year-old son.''

Souza, 43, says what first drew him to the stock market was a recent government decision allowing workers to use some of their social security deposits to invest in two of Brazil's largest companies, mining giant Companhia Vale do Rio Doce and state-run oil firm Petroleo Brasileiro SA, or Petrobras.

In all, more than a million workers subscribed to the offerings, including Paulo Pereira da Silva, the president of one of Brazil's largest labor unions, Forca Sindical.

Silva invested half of his retirement fund at the time, or about 9,000 reais ($2,500) in Petrobras shares. In two years, the value of his investment has almost doubled, while the money he left in his retirement fund accrued less than 1,000 reais.

Magliano says the strong demand shown in the share offerings is proof that his efforts will pay off.

``People want to buy stocks,'' he said. ``Nobody wants to be excluded from the chance to make money anymore.''

($1-3.6 Brazilian reais)

History says war fears the time to buy - Fisher
LONDON, (Reuters) - Equity investors worriedly eyeing a potential U.S.-led war with Iraq should ignore their fears and buy into a historical trend which forecasts a rally as soon as hostilities begin, a senior U.S. fund manager said on Thursday.

``War scares are a time to buy not sell. You can't find an example of a war where the market didn't rebound,'' Ken Fisher, Chief Executive of Fisher Investments, a California-based firm with $12 billion under management, told Reuters.

Fisher said the bottom of the stock market may have already been reached last autumn and he is bullish about prospects. He is overweight U.S. and Japanese stocks and in particular likes the technology, capital goods and natural resources sectors.

Fisher is perhaps best known as the son of legendary stock market investor and author Philip Fisher. Fisher senior was a significant influence on America's most successful investor, Warren Buffett, through his book ``Common Stocks and Uncommon Profits,'' first published in 1958.

Ken Fisher said one of his father's tips - don't be afraid to buy on a war scare - has been proved by more recent history, such as the Gulf War, to be thoroughly accurate.

Wall Street stocks racked up their second-best daily gain ever when U.S.-led forces launched a devastating air and missile attack on Iraq in 1991. The Dow Jones industrial average ended the year up 20 percent.

``(My father) didn't make the statement strong enough. You have to put it in the context that he was writing in the late 1950s so didn't have the benefit of recent history. He said the bottom is sometimes well after the fighting has begun but with most wars the bottom is before the fighting even begins.''

Global stocks have trended lower prior to every major conflict of the past 150 years, moving higher once hostilities began.

LESSONS NOT LEARNED
But while history and stock market theory make the case so clear, Fisher said his recent research into behavioural finance theory - in conjunction with Meir Statman of Santa Clara University, California - showed that a failure to learn lessons from the past explained why more fund managers were not buying stocks.

``The overall lesson of behavioural finance is that people tend not to learn,'' said Fisher.

``They only see what their emotions let them see. People react to war and terrorism in the same way they used to react to witchcraft. These are concepts they can't conceive...so they engage in mass hysteria,'' he said.

Fisher said many Americans overestimated the significance of Iraq's military power and the effect a nuclear arsenal would have on the planet.

He said massive environmental and human damage has already occurred in the former Soviet Union that makes the potential effect of Iraqi chemical and biological weapons look miniscule.

He also played down the effect of a war with Iraq on the $9.5 trillion U.S. economy, arguing a war was unlikely to be inflationary. The latest U.S. defence budget runs to $364 billion for the 2003 fiscal year, including some US$40 billion of spending earmarked to cover the costs of a possible Iraq war.

``Over here we have a saying 'making a mountain out of a mole hill', that is what people tend to do about secondary or tertiary wars. This is not World War II,'' Fisher said. ``We have a hard time understanding that (Iraq's) economy is two tenths of one percent of the US economy and its army is no bigger than Afghanistan's. This is not a big scary foe.''