COMMODITY PRICE
Strategic steps suggested
for stable market
Staff Correspondent
Economists, commodity traders and business leaders have suggested some strategic measurers for keeping the supply and prices of import-dependent commodities stable.
At a discussion on Saturday they suggested government to make buffer stocks of major commodities, reduce bank interests and charges further, and to support importers in buying forward stocks.
The meeting, organised by the Federation of Bangladesh Chambers of Commerce and Industry, found that prices of some commodities including cooking oil, pulses and sugar increased sharply in recent weeks.
Cooking oil importers at the meeting cautioned that prices of the commodities might increase further in the coming weeks in line with global prices rise.
Fazlur Rahman, chairman of the city group of industries, told the meeting that price of soyabean oil at import sources rose to $915 per tonne at the end of last week against around $750 a couple of months back.
‘Costlier procurements will force oil traders to raise prices rationally,’ argued Rahman whose Teer brand command at least one-thirds of the Bangladesh’s market.
He regretted that during price hike, which was even rational to the increased import cost, the government and others blamed the oil traders. ‘The government can withhold all taxes on edible oil at least for the period when sharp rise on edible cooking prices at import sources take place.’
A Rouf Chowdhury, leader of the edible oil millers, suggested that the government should import and stock at least one-forth of the country’s 12 lakh tonnes of annual edible oil consumption.
Gulam Mostafa, general secretary of the Bangladesh Sugar Industries Association, told the meeting that increased import cost of raw-sugar raised price of white sugar in the local market recently.
‘Disruptions in supply chain like halts in productions due to interrupted supply of gas and electricity often raise production cost so as the prices,’ he said.
He said misleading news often pushed commodity markets into further volatility.
Farid Uddin Ahmed, chairman of the economics department at Dhaka University, suggested that the government should help commodity importers in purchasing forward stocks.
‘Single digit bank interest rate has become essential for financing commodity import,’ said Farid suggesting government to take steps in this regard.
Professor Ali Taslim, CEO of the Bangladesh Foreign Trade Institute, categorically disagreed with the recent practice of the commerce ministry in fixing prices of commodities, especially of sugar.
‘Price restriction really invites slowdown in supply,’ said Taslim who argues that free market competitions kept supply stable and prices in favour of the consumers.
FBCCI president Annisul Huq urged the traders to keep supply smooth, reduce their profit margins so that low-income consumers got little respites.
He announced that the FBCCI would continue interactions with market stakeholders and monitor price and supply situation in market to keep prices of essential commodities stable during Ramadan.
Leading banker puts SME
on high hopes
Staff Correspondent
He dose not like to put small and medium enterprises together in one acronym — SME as it is commonly said — because he thinks difference between these two categories of ventures is enormous.
Muhammad A (Rumee) Ali, chairman of BRAC Bank, the country’s premier bank in financing such enterprises, says medium entrepreneurs have access to loans of both better quality and higher quantity, but small enterprises are still lagging behind in terms of getting supports. Thus, he explains, the gap between the two areas is significant that needs to be addressed with a special focus on small entrepreneurs.
And this is the brief background of BRAC Bank’s endeavours in pioneering SME financing in a dynamic approach from the very beginning. The bank has so far channelled 65 per cent of its total loan portfolio to small ventures while the rest 35 per cent goes to retail and corporate customers, according to the bank’s data that shows SME financing has been put on the top of its lending agenda.
The country’s banking sector was least interested in financing SMEs before BRAC Bank started giving collateral-free loans to small and medium enterprises in 2002. Now many banks, apparently encouraged by the success of BRAC Bank, are focusing on SMEs.
‘SMEs also stand on the forefront of the country’s economic activities that have the potential to accelerate growth,’ Rumi Ali confidently told New Age in an interview in the past week.
He added that an economy like Bangladesh needed clear focus on poverty eradication, and ‘SMEs can pilot us to achieve the target of poverty alleviation.’
Explaining this role of SMEs, he said one of the effective tools that major economies had applied to accelerate growth was increasing domestic demands. ‘The internal demands will increase substantially with healthy expansion of small and medium enterprises that create huge job opportunities.’
BRAC Bank alone has so far helped create six lakh employments through SME financing, reveals the data.
The bank chairman suggested more lending to the small entrepreneurs. ‘In most cases the small entrepreneurs do not have easy access to the financial market because they are not able to give lenders any sort of security that is a prerequisite for getting loans through conventional process,’ he pointed out.
BRAC Bank in this area provides collateral-free loans. It is said to have distributed so far Tk 8,000 crore among 1.5 lakh SME customers of which 90 per cent are collateral-free.
Distribution of collateral-free loans involves certain amount of risks, but Rumee Ali said the bank, looking at the potentials of the borrowers, helped them to make their businesses a success.
The bank has some 2,500 officers at the field level to render advisory services to its clients. It also has a dedicated SME division and a Women Entrepreneur Cell to provide its clients with services to meet their special needs.
‘In this way we have established an intimate relationship with the clients to manage all the risks of the security-free lending process,’ Rumi Ali said.
Percentage of the bank’s non-performing loans with the SMEs is shown at below five, thanks to its unique risk management process. This efficiency has also contributed to significant increase in its profit to Tk 105 crore in 2008 from Tk 64.6 crore in 2007.
The bank chairman admitted that the interest rates and other charges of security-free loans were high. But he claimed that the operational cost of small loans was also higher than the cost of managing bigger loans.
Rumi Ali, who was a deputy governor of the Bangladesh Bank, appreciated the central bank’s role in helping the country’s small and medium enterprises and expressed the hope that the regulator would extend its support to these sectors with due importance.
Also he expected more focus on SMEs by the central bank as, he believes, the new governor, Atiur Rahman, has a ‘better understanding of the needs and importance’ of the small and medium enterprises.
‘SME Foundation is also doing well and it can do more to foster the growth of small and medium ventures.’
He has identified some areas that need to be addressed and recommended a number of measures to this effect. His suggestions includes more training to small entrepreneurs on managing every day business and accounts, providing better and updated knowledge about the market and facilitating easy market access.
‘BRAC Bank is working in these areas, but active role of the central bank, SME Foundation and other banks will faster SMEs growth’.
Briefing about his bank’s future plan, the chairman said BRAC Bank would keep its focus on small ventures and at the same time would continue its efforts to provide modern and efficient services to its retail and corporate clients.
UK-Bangladesh trade delegation
arrives today
Staff Correspondent
An 11-member delegation of the newly formed UK-Bangladesh Business Council is arriving in Dhaka today (Sunday) to promote further the bilateral trade and investment between the two countries.
The delegation comprises of leading business and investment personalities, finance and investment professionals as well as journalists from among the non-resident Bangladeshi community in the UK.
During the visit, the UKBBC team, led by its chairman Syed Belal Ahmed, will call on prime minister Sheikh Hasina and the ministers for finance, civil aviation and tourism, commerce and education and the governor of Bangladesh Bank and some trade partners, said a British High Commission release on Saturday.
Welcoming the UK-Bangladesh Business Council, head of Trade and Investment at the British High Commission in Dhaka Kevin Ringham said, ‘Opportunities for UK exporters and investors to do business with Bangladesh do exist and it is important that such opportunities are explored at this time.’
Bashundhara accelerates
CSR initiatives
Staff Correspondent
As part of its enhanced corporate social responsibility programme, Bashundhara, country’s leading business group, is building a researcher centre to help increase rice production by inventing high-yielding varieties.
Bashundhara has also undertaken a number of social development projects in different areas of the country that include interest free loans, free Friday clinic, eye and heap operation, blood bank, eye bank, stipend, construction materials for the poor, distribution of sanitary latrines, helping people affected by disasters.
The group is currently conducting eight free Friday clinics – five in Brahmanbaria and three in Manikganj. Each month, these clinics treat some 8,000 patients who also receive free medicine.
A 200-bed hospital that will be equipped with modern equipment is under construction in Manikganj. The hospital, especially for mothers and childcare, will be operational soon.
Ten schools in Manikganj are run by Bashundhara while some other schools, colleges and madrashas receive monthly donations and scholarship for poor and meritorious students.
Apart from the existing programmers under CSR, the group is planning further contributions to the education sector by establishing primary and high schools, colleges, university and madrashas. It is also planning to construct multi-purpose technical institutions and training centres for providing young people skills that would make them self-reliant.
BB governor for humanitarian banking
Business Desk
Bangladesh Bank governor Atiur Rahman has called upon the country’s commercial banks to stand by the poor with some sort of ‘humanitarian banking.’
‘Bangladesh Bank wants every bank to appear with a humanitarian face,’ he said, addressing a stipend distribution ceremony of Dutch-Bangla Bank Limited in a city hotel on Saturday, a news release said.
Atiur distributed stipends among 102 students, who passed HSC last year, for bearing their academic expenses in the graduate level. Each of the students will get a monthly stipend of Tk 2,000 plus a lump sum amount of Tk 5,000 for reading materials.
Since beginning of the student’s stipend programme in 2003, DBBL’s annual expenditure on this head stood at around Tk 4 crore while the number of beneficiaries stood at around 1,700.
The central bank governor called upon all the banks to come forward with similar programmes as a corporate social responsibility to help poor students complete their academic activities.
‘The country will move forward if we can utilise unitedly our humanitarian strength and social capital,’ he said.
DBBL chairman Sayem Ahmed and managing director Yesin Ali also spoke on the occasion.
Union Capital elects chairman
Business Desk
Kazi Golam Rahman has been elected chairman of Union Capital Limited at the 130th meeting of the board held in Dhaka on Tuesday.
He is a retired secretary to the Bangladesh government, a news release said.
He worked as the director general of National Security Intelligence, secretary, Special Affairs Division, Prime Minister’s Secretariat, chairman, Power Development Board, additional secretary, Ministry of Finance, and additional inspector general of police.
Wall Street sees spring with
stress tests over
Agence France-Presse . New York
Wall Street is seeing more economic ‘green shoots,’ helping fuel its extended rally as investors grow more confident in a recovery from recession.
The release of the so-called ‘stress tests’ on US banks with no major surprises has also eased fears about a financial system meltdown that could deal a further blow to a weak economy.
‘The green shoots are sprouting fast and furious these days,’ said Sal Guatieri, economist at BMO Capital Markets, citing a string of better-than-expected economic reports.
‘The recent stream of less-bad data suggests that, at the least, the economy is no longer in freefall, and is likely bottoming. If it is the latter, then the historical record suggests a recovery can’t be too far off.’
The optimism helped push up the main market indexes in the past week, the eighth weekly gain in the past nine weeks and a sizzling 37 per cent rally for the broad market since lows in early March.
The Dow Jones Industrial Average of blue chips leapt 4.4 per cent in the week to Friday to end at 8,574.65, and is up a whopping 30 per cent from its low on March 9.
The technology-laden Nasdaq composite advanced 1.1 per cent to 1,739.00 and the broad-market Standard & Poor’s 500 index vaulted 5.9 per cent over the week to 929.23.
Banking shares led the rally with a stunning 33 per cent weekly gain for the S&P bank index.
Liz Ann Sonders, chief market strategist at Charles Schwab & Co, echoed the ‘green shoots’ theme first evoked by Federal Reserve chairman Ben Bernanke.
‘Much is being made of the ‘green shoots’ story that the economy, if not in recovery mode, is in less-dire shape than it was late last year,’ she said.
‘With each passing day, the idea that a recovery is forming is gaining credibility.’
She argued that if the data continue to improve, ‘we may already be out of the ‘great recession.’
The market has found a silver lining in what would normally be bleak economic news.
The US labour market lost 539,000 jobs in April, but the pace of layoffs is slowing appreciably, fuelling hope that the economy is on the mend.
Joel Naroff at Naroff Economic Advisors said the downward spiral of the economy and financial markets appears to be giving way to newfound confidence.
‘As long as we continue to see the silver lining in the black clouds that overhang the data, then confidence will build,’ he said.
‘It does look as if we are falling more slowly and we are likely to hit bottom reasonably soon, at least when it comes to economic growth.’
Aaron Smith at Moody’s Economy.com said the stress tests of the major US banks, showing a need for a capital boost of 74.6 billion dollars, offered a ‘reassuring picture.’
‘If the economy erodes further, most lenders are deemed to have adequate capital to remain solvent,’ he said.
But the labour market, Smith said, needs to improve to keep the economy from relapsing.
‘If the economy continues to lose 500,000 to 600,000 jobs per month, stabilisation in consumer spending and housing will quickly give way to renewed weakening,’ he said.
In the coming week, the market will digest new data on US retail sales, inflation and industrial production.
But Avery Shenfeld at CIBC World Markets said he does not believe newly confident investors will be deterred.
‘If neither hundreds of thousands of job losses nor tens of billions in capital requirements for banks can’t scare away the optimists, nothing in the coming week ought to,’ he said.
Marc Pado at Cantor Fitzgerald said he believes the market will consolidate, having rallied in anticipation of positive news.
‘We’ve passed the stress test, we’ve passed the jobs report, we get to take a breather,’ said Pado.
But he said that the rally may continue after the consolidation because many portfolio managers still have large cash reserves.
‘If we can hold through May and don’t give up a lot of ground, it will put a lot of pressure on portfolio managers to put their cash to work,’ he said.
Bonds were the main victims of the stock rally. The yield on the 10-year US Treasury bond jumped to 3.293 per cent from 3.174 per cent a week earlier and that on the 30-year bond leapt to 4.274 per cent against 4.088 per cent. Bond yields and prices move in opposite directions.
Accounting tricks boost
bank profits
Associated Press . New York
There’s nothing like a little magical math to make banks’ financial woes go away.
Bank stocks have surged in recent weeks, a sign that investors are betting the worst of the financial crisis is over. But in reaching this conclusion, the market has chosen to ignore some creative accounting banks are using to bolster their finances.
Lots of fuzzy math was trotted out during the just-ending earnings season to goose profits or narrow losses, and it will show up again as banks look to shore up their capital to meet requirements under the government’s ‘stress tests.’ The tactics are perfectly legal, but they make the banks look healthier than they really are.
‘Investors who have been pleasantly surprised by the recent results could find themselves equally bothered later on when they discover plenty of unpleasant things,’ said Martin Weiss, who runs the investment firm Weiss Research Inc.
After a year and a half of frightful declines, the Standard & Poor’s Financials Index of 80 banks, insurers and investment firms bottomed in early March and has since more than doubled from a 17-year low, according to S&P.
Momentum behind the rally grew in April as large banks began reporting mostly better-than-expected first-quarter results. Earnings for the companies in the S&P Financial Index have come in nearly 11 per cent ahead of analysts’ estimates.
That could just be the start of turnaround for the banks, said Kent Engelke, chief economic strategist at Capitol Securities Management in Glen Allen, Va. He thinks there is a 25 per cent probability that there will be positive economic growth by the end of the second quarter, which will benefit banks’ loan portfolios.
‘In order to have a healthy economy, we need a healthy banking system,’ said Engelke, whose investment firm owns bank stocks. ‘I believe the government will do anything to ensure that will happen.’
But the recent strength seen in bank earnings didn’t come from significant improvements in their core businesses. Instead, accounting manoeuvres helped bolster bottom lines.
Some banks reduced the amount of money they set aside to cover loan losses, which some analysts say conflicts with the reality of deteriorating loan portfolios. That means if the economy doesn’t recover and troubled assets continue to rise, in coming quarters banks might have to boost loss reserves again — which could hurt future earnings.
Wells Fargo saw its non-performing assets as a percentage of total assets jump by 40 per cent over the previous quarter, yet it only increased its reserves by 5 per cent. So even though more of its loans are past due or face foreclosure, it isn’t setting aside significantly more cash to deal with potential losses.
Earnings at several banks also benefited, counter intuitively, because the value of the banks’ own debt was reduced to reflect a decline in the market value of that debt.
In accounting-speak, a ‘credit-value adjustment’ allows the banks to book a gain. The logic is that they could buy back the debt for less cash than they received when they issued the debt, so they get to claim a benefit, which many analysts say is illusory.
Say a bank had issued debt at 100 cents on the dollar, and it now trades at 60 cents on the dollar. The bank can mark down the value of the debt on their books to 60 cents on the dollar, and take a gain on the 40-cent difference.
For Citigroup, that debt adjustment totalled $2.5 billion, which helped narrow its losses for the quarter. The New York-based bank posted a first-quarter loss of $966 million, smaller than analysts expected.
‘It’s not the kind of stuff you’d point to in earnings and say, ‘now that’s sustainable income,’ said Jack Ciesielski, who writes the newsletter The Analyst’s Accounting Observer. ‘You would want to exclude it from earnings in evaluating how well a company performed.’
A separate accounting rule change for valuing banks’ assets that are available for sale also helped boost bank earnings. Until recently, they were ‘marked-to-market,’ meaning they were adjusted to reflect current market prices. But that has become increasingly difficult during the current financial crisis since there has been no trading of the most troubled assets.
Under pressure from politicians and banks, accounting rulemakers reversed course in early April and gave corporate managers more discretion in valuing assets in cases when markets are frozen.
That helped Wells Fargo cut its unrealised losses on certain securities in half, from $9.9 billion on Dec 31 to $4.7 billion on March 31. That helped boost profits as a result. San Francisco-based bank reported first-quarter earnings of $2.38 billion compared with a loss of about $3 billion in the final quarter of 2008.
Accounting manoeuvres also will play a big role in what happens to banks that failed the government’s ‘stress tests,’ which were done to gauge which financial institutions need more capital to survive a deeper recession.
When the government invested billions in US banks over the last six months, it received convertible preferred shares. That gave the banks funds for day-to-day needs, but those preferred shares are counted as debt, not as part of ‘tangible common equity,’ the government’s currently favoured tool for assessing the strength of a bank.
If the government converts its preferred shares into common stock, those funds would count as equity capital, making the banks look stronger.
Here’s the hitch in that plan: The government would have greater influence since common shareholders have voting rights. The conversion would also dilute the ownership of current stockholders.
One way around this issue would be to convert the government funds into another kind of preferred share that could also be counted as ‘tangible common equity.’
However the bank equity dance plays out, investors don’t seem to care about any of the technicalities. They are stuck on the idea of a banking turnaround. They better hope they’re right.
Commodity prices climb
on recovery hopes
Agence France-Presse . London
Commodity prices rallied this week, with oil striking 2009 highs on growing optimism about an economic recovery, as traders also tracked the results of key ‘stress tests’ on troubled US banks.’
Financial markets appeared unruffled by the stress tests, which found that 10 major US banks need to raise a total of 74.6 billion dollars in new funds to shield against the risk of a further economic downturn.
Oil prices rocketed to near six-month highs above 58 dollars per barrel as stock markets gained on increasing signs of economic recovery in the United States, the world’s biggest energy consumer.
Prices have posted solid gains this week on hopes of a recovery in energy demand, but they remain far below last July’s record peaks above 147 dollars a barrel.
Precious metals sparkled, with gold hitting 925 dollars per ounce on Thursday, drawing strength from the weak US currency.
A struggling greenback makes dollar-priced commodities cheaper for foreign buyers using stronger currencies — and therefore tends to stimulate demand.
Silver advanced to 13.90 dollars an ounce from 12.15 dollars.
Three-month aluminium jumped to 1,564 dollars a tonne from 1,518 dollars.
Three-month lead rose to 1,484 dollars a tonne from 1,356 dollars.
Three-month tin surged to 14,214 dollars a tonne from 12,475 dollars.
Three-month zinc increased to 1,557 dollars a tonne from 1,475 dollars.
Three-month nickel rallied to 13,303 dollars a tonne from 11,725 dollars.
Wheat for July advanced to 5.80 dollars a bushel from 5.70 dollars.
Sugar prices surged close to a three-year peaks, stretching as high as 452.20 pounds in London and 15.60 cents in New York — the highest points since July 2006.
‘Sugar prices have shot higher on an anticipated tightening of stocks in India and on supportive developments in the biofuel industry in the United States,’ said Standard Chartered analysts.
Sugar is used to make ethanol, a cheaper alternative to gasoline used to power road vehicles.
Obama makes push for credit
card legislation
Associated Press . Washington
Putting himself on the side of fuming consumers, US president Barack Obama is pushing Congress to send him legislation by Memorial Day that would put a tighter rein on the credit card industry.
‘Americans know that they have a responsibility to live within their means and pay what they owe,’ Obama said in his weekly radio and Internet address released Saturday. ‘But they also have a right to not get ripped off by the sudden rate hikes, unfair penalties and hidden fees that have become all-too common.’
Obama has prominently lobbied for a bill calling for a credit card crackdown. It already has cleared the House and awaits action in the Senate.
‘I’m calling on Congress ... to pass a credit card reform bill that protects American consumers so that I can sign it into law by Memorial Day,’ Obama said. ‘There is no time for delay. We need a durable and successful flow of credit in our economy, but we can’t tolerate profits that depend upon misleading working families. Those days are over.’
But there’s no certainty Congress will deliver by the end of the month.
The banking community is fighting back. Credit-card executives maintain that new restrictions could backfire on consumers, making it harder for banks to offer credit or put credit out of reach for many borrowers. They also contend that the sweeping rules already ordered by the Federal Reserve, beginning next year, address many of the consumer-protection concerns expressed by the president and members of Congress.
The bill’s boosters are tapping into public anger over corporate excesses and the conduct of companies receiving billions of dollars in taxpayer money.
The House measure, called the Credit Card Holders’ Bill of Rights, passed on a bipartisan vote of 357-70 following lobbying by the Obama administration. It would prohibit so-called double-cycle billing and retroactive rate hikes and would prevent companies from giving credit cards to anyone under 18.
If they become law, the new House provisions won’t take effect for a year, except for a requirement that customers get 45 days’ notice before their interest rates are increased. That would take effect in 90 days.
Obama spoke to the public’s frustration with credit cards.
‘You shouldn’t have to fear that any new credit card is going to come with strings attached, nor should you need a magnifying glass and a reference book to read a credit card application,’ Obama said. ‘And the abuses in our credit card industry have only multiplied in the midst of this recession, when Americans can least afford to bear an extra burden.’
Asia recovery by mid 2010: IMF
Xinhua . Hong Kong
Asia, excluding the Chinese mainland, was experiencing larger-than-expected impacts from the global financial turmoil via trade links, and was likely to see economic recovery by mid-2010, said an IMF official on Friday.
‘We expect that the recovery will come for Asia, excluding China, by the middle of next year,’ Joshua Felman, assistant director of Asia and Pacific Department of the International Monetary Fund, said in an interview with Xinhua in Hong Kong.
Felman, who made a presentation on IMF’s latest regional economic outlook report for Asia and the Pacific, said the economic situation in Asia, generally speaking, had stabilised, and things would gradually improve, although recovery would take much longer.
‘China will start to rebound much more quickly. In fact, it maybe rebounding even now, because the government is spending so much money to help lift the economy,’ he said.
But Vivek Arora, senior resident representative of IMF in China, was quick to sound a cautious note, saying that it was still too early to make a definite judgment that the China was already on the way to a full recovery, although there had been signs that the worst might have been over.
In fact, the IMF report cautioned against over optimism and even adjusted its forecasts for the regional economy downward significantly.
The impacts from export slowdown on the Asian economies had been larger than expected, it said.
Emerging Asia, including China’s Hong Kong and Taiwan, as well as South Korea, Singapore, Thailand, among others, suffered a decrease of no less than 15 per cent in the fourth quarter of 2008 on a seasonally adjusted annualized basis, said the IMF report.
Moreover, the impacts were likely to carry into the next couple of years, dimming the medium economic outlook to some extent, the report argued.
Stephen Roach, chairman of Morgan Stanley Asia, said he agreed with the views of IMF, adding the situation at present for China was largely different from the export slowdowns followed by quick rebounds in 1997-1998 and 2001-2002.
The drive from export growth was likely to remain weak over the medium term and it remains to see whether domestic demand growth was sustainable, he added.
Hyundai plans shifting from
India over labour woes
Agence France-Presse . New Delhi
South Korean car giant Hyundai Motor said Friday it might shift production of its premium i20 hatchback to Europe from India due to serious disputes with local workers.
Such a move would mark the first shift of operations by a foreign car company out of India due to labour problems since the country first started to open up to overseas investors nearly two decades ago.
The production move from the company’s manufacturing complex in the southern Tamil Nadu town of Sriperumbudur would also cast a shadow over India’s ambitions of becoming a major exporting hub for the global car industry.
‘This (shift) is an option we’re considering,’ Hyundai Motor India corporate communications head Rajiv Mitra told the AFP.
It would be ‘partly be prompted by the labour problems because if shipments are getting delayed it’s difficult to meet customers’ demands,’ he said.
Mitra’s comments came as employees resumed work Friday at Hyundai’s complex in Sriperumbudur, which makes the i20, following an 18-day strike.
Hyundai Motor India Ltd, a unit of Hyundai Motor, is India’s second-largest car maker.
The strike over workers’ demands for union recognition and pay hikes was the latest in a series of recurring labour problems at Hyundai’s manufacturing complex near Chennai.
A shift to Europe would involve moving production of 70,000 to 80,000 units of the i20 that are made at the Indian plant, which employs around 10,000 workers, said Mitra.
The company hopes that this year it will roll out 120,000 of the five-door i20, which was launched late last year and is made only in India.
Mitra said there was still a ‘cost advantage’ to making the i20 in India ‘but that is going away with the labour situation not being very friendly.
‘We’ve a lead time of two months (for exports) so if they get delayed it’s a problem and 90 per cent of the i20 exports are to Europe so there’s a lot of sense to do it (manufacture) there,’ he said.
He added that infrastructure problems — India is known for its dilapidated ports and roads — and currency fluctuations were also ‘eating into margins.’
‘It’s not a very bad option to manufacture in Europe,’ he added.
However, he said the move of i20 production would not affect output of the Santro, Accent, Getz and other models that Hyundai makes at the plant, which has a total annual production capacity of 600,000 units a year.
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