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.

Home

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