Author: Ben Debski

The City of Tshwane, which incorporates among other districts, Pretoria, is the administrative capital of South Africa which hosts 138 diplomatic corps, although government plays an import role in the city’s economy. The city is having six priority sectors of economic importance such as Aerospace, Agro-processing, Automotives, Creative industries, Tourism and Manufacturing. The City of Tshwane has adapted to globalisation remarkably well because of its competitive and comparative advantages, and has all the elements of a Smart City. It is:

• The home of the Automotive and Aerospace  industries with the new Centurion Aerospace village;

• Strategically situated to be accessible to South Africa and the SADC  market;

• It has a well-developed economic infrastructure  and communication network;

• A centre of 138 embassies, diplomatic corps and government in South Africa with all the national government departments located in it;

• It is part of Guateng Global Region, the wealthiest and fasted growing economic region on the African continent;

• The City is a national centre of research and learning with four major universities and seven of eight national Science Councils, i.e. CSIR (Council for Scientific and Industrial Research, HSRC (Human Science Research Council), ARC (Agricultural Research Council), NRF (National Research Foundation), MRI (Medical Research Institute), VRI (Veterinary Research Institute), and SABS (South African Bureau of Standards).

The City of Tshwane takes into account the broad economic and spatial strategies and goals of Gauteng Province, which include the re-alignment of the manufacturing sector away from traditional heavy industry input markets and low-value-added production towards sophisticated, high-value-added production, as well as the development of other high-value-added production activities in the Automotive, Aerospace, agricultural and mineral sectors.  Influenced by both global pressures and regional trends, the Gauteng Trade and Industry Strategy and the GDS identify six growth sectors and clusters for increased support and investment in the province, namely:
 
• “Smart” industries (including ICT, pharmaceuticals);

• Automotive Supplier Park;

• Centurion Aerospace Village;

• Trade and services (including finance and film);

• Tourism;

• Agriculture (agri-processing and bio-tech);

• Manufacturing (specifically of steel-related industries, automotive parts and components, beer and malt), and;

• Infrastructure expansion and investment.

Gauteng is the economic powerhouse of South Africa. The province covers 1.4 percent of the total area of South Africa, but is home to 17.1 percent of the country’s inhabitants. It is by far South Africa’s most densely populated province. Gauteng is highly urbanised. The adult literacy rate in the province (people 15 years and older who can read and write their home language) is 92.9 percent. Given the fact that the City of Tshwane falls within Gauteng, it enjoys the advantage of access to large urban markets and new technologies due to its relative proximity to well-developed nodes such as the Johannesburg CBD and Ekurhuleni. It is evident that the Finance and Business Services Sector (followed by the Manufacturing Sector) contributes proportionally the largest segment towards the economies of South Africa and Gauteng, revealing not only the strong nature of this sector, but also the economy’s dependence on finance and business activities. In Tshwane, however, the economy is dominated by the Government Services Sector, followed by the Finance and Business Services Sector.

Almost 30 percent of Tshwane’s economy is dependent on Government Services activities, followed by Finance and Business Services (22.6 percent), Manufacturing (15 percent), Wholesale and Retail (13.1 percent) and Transport and Communication (10 percent) activities. The relatively low level of diversification of the Tshwane economy has the potential to impact on economic growth rates, especially when sectors with high growth are not well represented in the area.

Innovation Hub
These assets are being used to speed up the city’s economic development strategy. One of the initiatives that is having a positive impact is the creation of The Innovation Hub, which contributes to the city’s positioning of itself as a “knowledge economy”. The Innovation Hub is South Africa’s first internationally accredited science park. It is located on a 60ha site in the eastern suburbs of the city. It is strategically located between the CSIR and the University of Pretoria – allowing synergistic interaction between these institutions and the Hub. For foreign companies entering South Africa, the hub offers a gateway to high-tech resources and new developments in the local market. It is also a transition zone – similar to “incubators” in the US – where investors can gain local knowledge and expertise. 

“Tshwane has established itself as a seat of government and a preferred residential location in the province. The future lies in growing, in parallel, a thriving business community with a strong knowledge economy base.” says Dr Gwen Ramokgopa, the Executive Mayor of the City of Tshwane. The rapid growth in the uptake of a number of hi-tech companies in the Innovation Hub’s Enterprise Building has confirmed that there is significant potential for the city of Tshwane to become an active player in the knowledge economy.

The City is also playing a critical role in enhancing itself as a smart city by providing infrastructure required. In particular, connectivity and specifically communication is vital. The City of Tshwane manages a vast electrical grid and an Information and Communication Technology (ICT) network infrastructure. This technology as presently deployed can fruitfully be applied to render additional communication services. It will generate revenue for the City whilst at the same time bringing about many cost savings for business and support the quest of “bridging the digital divide” in the city generally.

Tshwane owes its healthy local economy mainly to the strong presence of service industries in the central business district and manufacturing industries in the Rosslyn and Silverton industrial areas.

 “Tshwane offers unequalled business opportunities and a well-developed, dynamic infrastructure that allows all types of businesses to prosper and grow.”

A strong entrepreneurial spirit is also evident in the city – more than 50 percent of the economically active population are privately employed. It is also encouraging to note that knowledge-based service industries that have international links are gaining prominence, with technological innovation forming the cornerstone of their programmes.

Interesting trends have emerged regarding employment patterns, decoupling and decentralising functions and increasing importance being given to the second economy, which includes hawking, home crafts and activities in manufacturing, services and trade. The city has been adapting to these changes through local development planning that has resulted in the City Development Strategy. It is also promoting public-private partnerships and developing small, medium and micro enterprises by identifying linkages, niches and outsourcing opportunities.

Entrepreneurial Culture
The city is creating an even stronger entrepreneurial culture through its many initiatives and links with business and development institutions, the Council for Scientific and Industrial Research, the University of Pretoria, the Tshwane University of Technology and the University of South Africa.

“Tshwane does not have the sea like Cape Town, nor gold like Johannesburg to attract visitors and investors, but it does have the highest concentration of intellectual property in the country.”

Local economic development not only promotes economic growth and employment, but also increases the tax base of the city. Tshwane’s corporately inclined residents and its good, dependable workforce are meeting the challenges of globalisation head-on. The greatest challenge in the future lies, however, in ensuring further innovative and creative development so that the creation of jobs keeps pace with the population growth of the city. This can only be achieved by investing in the city’s economic development programmes, which offer investors ample opportunities in the trade and manufacturing industries.

Although the City of Tshwane is the Capital of South Africa and has therefore traditionally been an administrative city, a number of research and academic institutions have been established in the city during its history. A number of strategic investments have also been made in the city by both the public and private sectors. In 1925 ISCOR was established as a public entity to produce steel.  Although steel production has stopped in the city, its presence stimulated the investment of other manufacturers. These include a number of multinational corporations such as Ford, BMW, Nissan, TATA, Mahindra etc.  The city has therefore had a long history of working very closely with both SMEs and multinational corporations. 

The automotive and aerospace sectors are two of the sectors driving the city’s growth (7.8 percent in 2006). Both these sectors are well linked to the global value chain and many finished products are exported to discerning consumers across the globe. The ICT sector, although small by global standards is growing and finding its niche. Government has recognised the value of these sectors and has created specific infrastructure to meet their competitive goals. An Aerospace village is being developed adjacent to Waterkloof air force base.

This will enhance the competitiveness particularly of Aerosud which is a first tier supplier to both Boeing and Airbus. The Tshwane Auto Supplier Park has not only contributed to BMW’s success of the three series and also Nissan, but has also caught the eye of Tata and other Auto companies that are in the process of negotiating with the city. Tshwane’s location and infrastructure make it an ideal location to support the African Market, particularly SADC.

There are a number of high value added products that make up the City’s export basket. These include various service exports, automotive products, food and beverages, defence products, aerospace, ICT and Bio-Tech products (particularly veterinary products). A number of leading Multinational Corporations have made their base in the City of Tshwane not only because of the positive environment, but also because of the availability of critical inputs including a highly skilled workforce, and the access it provides to key markets.

Ajay Piramal is just the sort of big fish every Indian private banker would love to land. With businesses ranging from healthcare to glass and property, the 56-year old Piramal has a net worth of $1.4bn, according to Forbes, good for 39th on its India rich list.

The problem, at least for the swelling ranks of wealth managers in India, is that Piramal doesn’t need them, putting his millions instead in his own companies and  extensive property ventures.

“These are only two areas I invest in, and therefore we don’t need any advisor,” said Piramal, who is approached by private bankers “all the time”. India may be churning out millionaires, but that is failing to translate to profits for the banks that have set up teams of well-dressed, well-paid bankers to help manage those riches.

A narrow product range, falling advisory fees and billions of dollars in wealth hidden from tax officials has stifled profits for private banks, which have aggressively ramped up operations. At the same time, expenses – mostly salaries – are growing by as much as 20 percent a year, meaning many private banks must absorb potentially heavy running costs for years before they are profitable.

The industry’s difficulties in India come as more established wealth management centres in Hong Kong, Singapore and elsewhere are buffeted by poor markets. Profit margin pressure on the sector that serves the wealthy is “partly driven by a plain vanilla product platform available for clients,” said Atul Singh, head of global wealth and investment management for India at Bank of America Merrill Lynch , among the biggest players in the country.

The challenge is made greater by a poor market performance, with Indian shares sliding about 17 percent this year. A spate of corruption scandals embroiling the country’s business and political elite has also soured sentiment among the rich.

The tough conditions are exacting a toll, even as many banks such as Morgan Stanley, Royal Bank of Scotland, Barclays and Bank of America Merrill Lynch continue to add staff, with an eye to the long-term potential of the fast-growing economy. Credit Suisse, one of the largest global private banks and a player in India since 2008, is cutting its India wealth management staff by 12 people, or 20 percent, as part of a global reduction. Credit Suisse is unlikely to be the last to trim staff over the medium term, industry players said.

A dearth of fee-spinning alternate investment vehicles such as hedge funds and private equity, a $200,000 cap on overseas investments by onshore Indians, and an underdeveloped corporate bond market means most investments are channelled into run-of-the-mill equity products, bank deposits, and government bonds.

Investments in exotic assets such as art and wine are rare in India. Instead, the homegrown rich keep their money in property and gold, which doesn’t require the services of polished bankers of the sort that cater to the rich in places like London, New York and Singapore. “When product platforms are largely undifferentiated, then prices get driven down,” said Singh. “Making money is certainly tough for players in the sector, especially ones without scale.”

Many tycoons like Azim Premji, chairman of the third-largest IT services exporter Wipro and the third-richest person in India, with net worth estimated by Forbes at $16.8bn, continues to use in-house staff to manage his vast personal wealth.

In neighbouring China, wealth managers also contend with tight regulations and limited product offerings, but they also face less domestic competition. Many rich mainland Chinese invest in property or stash their wealth in Hong Kong or Singapore. Many of the richest Indians also have substantial wealth overseas and do their private banking in Singapore, Zurich, London or Dubai, where there are more investment options and where some banks cater specifically to non-resident Indians.

Cost pressure
Private banks in India charge between zero and 0.5 percent advisory fees to wealthy clients, which barely covers costs, compared to about two percent in more developed markets.Pressure on fees and rising costs have dragged down most wealth management firms’ margins to 40-50 basis points now from one to two percent a few years back.

The gradual shift from charging transaction-based fees to an advisory fee model, amid a global move to discourage selling of risky exotic instruments, has added to margin pressure. “No one is making money in private banking in India,” said the head of India wealth management at a US bank. “Margins are so very low here because very few people want to pay money for advice and your cost of operations is going up.”

To woo clients, some banks will send the adult children of entrepreneurs for short training courses at US universities on preserving and growing family wealth, giving them an opportunity to rub shoulders with the sons and daughters of rich Americans. Closer to home, private banks coddle prospective and would-be customers with wine tastings and live music and dance performances by Bollywood stars.

In 2010, the population of high net worth individuals – those with more than $1m in investable assets – rose nearly 21 percent in India to 153,000 – making it the 12th largest such market, ahead of Spain and just behind Brazil, according to a report by Capgemini and Merrill Lynch.

Black money
A large chunk of Indian wealth goes undeclared. Tax authorities say billions of dollars in funds have been deposited by Indians in Swiss bank accounts and other tax havens. A government panel in 2009 found Indian illicit funds to range between $500bn and $1.4trn, which is now nearly the size of India’s economy. Global Financial Integrity, a Washington-based think-tank, estimated illicit outflows of about $16bn a year from 2002-2006.

Technology consultancy firm Cognizant said in a report that the Indian wealth management sector in the short-term would remain fragmented with a large number of brokers, financial advisors, insurance agents and tax consultants offering services.

Bank of America-Merrill Lynch, Kotak Mahindra, and HSBC were cited by Cognizant as strong players in the sector in India because of their reach, potential for cross-selling banking products and focus on domestic equities. Big banks that have yet to take the full plunge on Indian private banking may end up looking prescient, or lucky. UBS, a global leader in private banking, is in the early stages of providing onshore wealth management services in India.

Goldman Sachs’ private wealth management arm serves high net worth Indians from Singapore but does not have an onshore presence in India, while JPMorgan has pushed back plans to launch onshore services to late 2012, according to a source with knowledge of the situation.

Rising salaries, poaching of talent and wafer-thin margins have made it tougher for smaller home-grown wealth managers to compete with the global rivals. However, while western banks bring brand cachet and global expertise, they also tend to be saddled with higher costs.

The unity government formed last year by President Robert Mugabe and his rival, Prime Minister Morgan Tsvangirai, has stabilised the economy but has yet to implement many of its agreed political reforms.

The fragile coalition has been marred by policy differences between Mugabe’s ZANU-PF and Tsvangirai’s Movement for Democratic Change (MDC) but its new programme sets a target of the end of this year to repeal and amend contentious security and media legislation.

Mugabe’s critics say the president, who has ruled since 1980, has used the laws to keep opponents in check and extend his stay in power and foreign donors have withheld funding until the new government implements political reforms.

The government plans to introduce at least 17 amendments to laws including the Public Order and Security Act, which police have used to ban protests by the opposition and unions, a document released recently shows.

The changes will also repeal the Access to Information and Protection of Privacy Act, used to ban foreign journalists from working permanently in the country.

Access to information

A Freedom of Information Bill allowing journalists greater access to official information will be introduced, while a Media Practitioners’ Bill will be tabled in Parliament to regulate the conduct of journalists.

Cabinet ministers will now be required to make monthly reports to the council of ministers chaired by Tsvangirai, who is in charge of government policy.

“The programme sets clear targets on which the government’s performance can, and should, be judged,” Tsvangirai said in a foreword to the document.

“This document is also intended to help members of parliament … in their task of holding government ministers to account for their performance.”

The government also plans a land audit to establish cases of multiple farm ownership.

The MDC has previously said Mugabe’s land seizure drive that started in 2000, in which white-owned commercial farms were redistributed among blacks, largely benefited the 86-year-old veteran leader’s allies, an allegation he denies.

“Timely implementation of this critical dimension (land audit) is likely to promote accountability and directly enhance productivity in the agricultural sector. It is therefore one of the critical targets under the government work programme,” the document said.

The Economist Dambisa Moyo’s arguments, set out in her new book, fly in the face of warnings from some African leaders, global financial institutions and campaigners that the world’s poorest continent needs more donor money to survive the downturn.

“In a way, the crisis actually provides the African governments with the situation where they cannot rely on aid budgets coming through from the West,” she told Reuters in a television interview.

“There is a real opportunity for policymakers to focus on coming up with more innovative ways of financing economic development,” said Moyo, a Zambian who until recently worked for Goldman Sachs and has just published Dead Aid.

Moyo believes Africa not only has little to show for more than $1trn in well-meant development aid over the past 50 years, but is worse off because of its effects in distorting economies and encouraging bureaucracy and corruption.

As alternatives she seeks an increase in trade, particularly with Asia, more foreign direct investment, more microfinancing and more efforts to raise money through capital markets.

The global financial crisis appears to have made all those avenues much harder, however. Kenya, Uganda and Tanzania are among states that recently shelved bond issue plans. Foreign funds have been leaving African markets.

But Moyo, who lives in London, said she was not discouraged.

“If you focus on traditional markets like Europe and the United States, you come to the conclusion that markets are really damaged and it’s very hard to raise money,” she said.

“But if you start to look towards China for example, which has $4trn or reserves, all of a sudden you could see there might be another opportunity to do a bond issue in the Chinese market for example.”

Risk
Moyo pointed to the fact that after successful Eurobond issues by Ghana and Gabon in the past couple of years, at least 15 African countries now have credit ratings that would allow them to raise funds when market conditions improve.

Africa’s economies have averaged annual growth of 5.8 percent over the past decade, but that is likely to slow to 3.5 percent or less this year as investment and prices for the continent’s commodity exports shrink, the World Bank estimates.

The bank, for which Moyo used to work, has urged developed countries not to let up in commitments to Africa to ensure that fragile groups are protected. But Moyo said any increase in political risk as a result of cutting aid could be exaggerated.

“I can’t envisage that things are going to get much worse because aid is taken away,” she said.

“It actually tends to pool at the top so it’s not like the average African is going to suffer. They don’t see the aid anyway. Essentially it’s going to really affect the bureaucratic processes at the top and would really impact on corruption.”

Moyo is unimpressed by celebrity campaigners such as rock stars Bob Geldof and Bono calling for more aid for Africa.

“I fundamentally object to the notion that Africa needs more aid and I do think it’s time to have many more Africans speak out, especially the policymakers, because many of the policymakers actually don’t support aid,” she said.

Tshwane has adapted to globalisation remarkably well because of its competitiveness. The city focuses on six economic centres as priorities for development, namely aerospace, agro-processing, automotives, creative industries, tourism and manufacturing. It is indeed a smart city by virtue of the following:

• It is the home of the automotive and aerospace industries with the Rosslyn plants and the new Centurion aerospace village respectively.

• It is readily accessible to the South African
market and the SADC.

• It has a well-developed economic infrastructure and communication network.

• It is home to 138 embassies, diplomatic representatives and national government departments.

• It is part of the Gauteng global region, the wealthiest and fastest-growing region on the African continent.

• The city is a national centre for research and learning with four universities and seven of eight national research councils, namely the Council for Scientific and Industrial Research (CSIR), Human Sciences Research Council (HSRC), Agricultural Research Council (ARC), National Research Foundation (NRF), Medical Research Institute (MRI), Veterinary Research Institute (VRI), and the South African Bureau of Standards (SABS).

The City of Tshwane follows the broad economic and spatial strategies and goals of the Goateng Province, namely repositioning the manufacturing sector towards more sophisticated, high value∞added production, which includes development in the automotive, aerospace, agricultural and mineral sectors.

Sector Breakdown
Almost 30 percent of Tshwane’s economy is dependent on Government services, followed by finance and business services (22.6 percent), manufacturing (15 percent), wholesale and retail (13.1 percent) and transport and communication (10 percent). The relatively low level of diversification in the Tshwane economy could impact on economic growth, especially when sectors with high growth are not well represented in the area.

The City of Tshwane’s Local Economic Development Department aims to accelerate higher and shared economic growth and development and fight poverty by:

• facilitating higher economic growth through investment, business retention, industrial development and trade linkages

• facilitating higher economic growth through the development of SMMEs and cooperatives, skills development and jobs creation; and

• fighting poverty through facilitating access to economic opportunities.

The Future
The greatest challenge for the future is to ensure continued innovative, value-added development so that the creation of jobs keeps pace with the population growth of the area.

This can only be achieved by investing in the city’s economic development programmes, especially in the trade and manufacturing industries.

Local Economic Development
Caiphus Chauke
+27 12 358 1361
caiphusc@tshwane.gov.za

Investment Promotion
Reginald Pholo
+27 12 358 1377
reginaldp@tshwane.gov.za

Trade Promotion
Riaan Labuschagne
+27 12 358 4563
riaanl@tshwane.gov.za

Trade Development
Joe Motshabane
+27 12 358 1425
joemo@tshwane.gov.za

Iranian authorities have been jamming foreign satellite broadcasts into their territory since late last year, affecting broadcasters such as the BBC and Deutsche Welle. Access to the internet for Iranian citizens has also been interrupted.

“The European Union expresses its grave concern over measures taken by the Iranian authorities to prevent its citizens from freely communicating and receiving information through TV, radio satellite broadcasting and the internet,” ministers said in a statement adopted at a meeting in Brussels.

“The EU is determined to pursue these issues and to act with a view to put an end to this unacceptable situation.”

The ministers said they were determined to ensure Iran lived up to its commitments to the International Telecommunications Union.

Nuclear reseach
It is not clear what measures the EU could take, but diplomats have indicated it could involve blocking European manufacturers’ export to Iran of equipment that makes it possible to intercept email and mobile phone conversations.

The French newspaper Le Figaro said that could involve equipment made by companies such as Siemens and Nokia.

It could also involve putting limitations on Iran’s broadcasting of satellite programming into Europe.

EU diplomats said the move should be seen in the context of keeping pressure on Iran over the freedom of its citizens and its uranium enrichment programme, on which the US is leading efforts to impose tighter UN sanctions.

Iran denies accusations that it is developing atomic weapons under its nuclear programme.

Finnish Foreign Minister Alexander Stubb said the EU remained committed to securing a UN Security Council resolution backing another round of sanctions on Tehran.

If that was not possible, he said, the EU should be prepared to push ahead with unilateral sanctions. They are expected to target Iranian banks and insurance companies, as well as senior members of the Revolutionary Guard Corps.

“Time is running out with Iran and time is running out really fast,” Stubb told reporters.

“We should now work on real sanctions through the Security Council. Failing that, we should move to unilateral EU sanctions. I think everyone is fed up with the Iranian government and the way in which they are conducting these negotiations.”

In its “World in 2009” feature the British news magazine The Economist  predicted, “At last, 35 years after the division of Cyprus into a Turkish-Cypriot north and a (legally recognised) Greek Cypriot south, there will be a settlement, based on the notion of a bi-communal, bi-zonal federation.” The publication must already be ruing its forecast.

True, when Mehmet Ali Talat and Demetris Christofias, the leaders of the Turkish and Greek Cypriot communities, first sat down last September, prospects looked better than at any time since 2004, when the Greek Cypriots overwhelmingly rejected the painstakingly negotiated UN Annan Plan that the Turkish Cypriots had earlier endorsed.

The UN, which has handled the “Cyprus problem” since the collapse of the unified state in 1963, three years after independence, and the EU, which made the tactical mistake of allowing the divided island to join in 2004 without insisting on a prior solution, were hopeful. There was the fact that Talat and Christofias, who had ousted his now-deceased nationalist predecessor Tassos Papadopoulos in March presidential elections, share leftist credentials as well as the belief time is running out if there is ever to be a deal to pull the island together.

“The big problem was Christofias saying the Annan Plan was off the table as it had actually sorted out much of the nitty-gritty. Both leaders have essentially had to start from scratch on everything from constitutional issues to property,” says James Ker-Lindsay, a long time Cyprus watcher currently working for the London School of Economics.

Cynics might ask – why bother about Cyprus at all? Over the years, both sides have proven themselves so resistant to reason and compromise that for international diplomats, the problem is second only to the Israel-Palestine dispute for its intractability.

Yet the investment benefits that would accrue from a solution are considerable. Indeed, the best thing that could happen to Cyprus’s economy right now – both south and north of the Green Line – would be a deal. Analysts say it could generate a peace dividend of Euro 1.5bn, benefiting tourism, construction and financial services – without factoring in any benefit from better relations between Turkey and the Greek Cypriots, and Ankara and Brussels, between whom relations have recently been strained (largely because of Cyprus)  A deal would also enable serious off-shore exploration for oil and gas, efforts at which have to date been stymied by Turkish objections that the Greek Cypriots have no authority to take decisions affecting the well-being of all Cypriots.

It would also enable the Turkish Cypriots to open up their relatively fledgling tourist industry to large-scale foreign investment (currently Turkish firms are the main investors). The north could also maximise gains from its six high quality universities that currently – despite their excellence – suffer a lack of international students.

Dimitris Hatziargyrou, the Greek Cypriot deputy high commissioner in London, remains confident. “Both leaders have demonstrated they can talk and are prepared to get down to the nitty gritty,” he says.

Others are not so sure. Talks have already moved onto property – which was always going to be the most divisive area of discussion – without resolving constitutional questions. Divisions have emerged with the Greek Cypriots arguing that Turkish Cypriot demands are essentially confederal, implying the coming together of two states – quite unacceptable given the Greek Cypriot refusal to extend any implied recognition of the TRNC. 

And the endless talking has done nothing to resolve the Catch-22 which has simultaneously been holding back a solution, intensifying northern Cyprus’s isolation and undermining the efforts of Turkey, the north’s only sponsor, to join the EU.

In violation of EU law, Ankara refuses to allow Republic of Cyprus traffic into its ports and airports until Brussels honours its 2004 promise to lift north Cyprus’s isolation by allowing direct trade and direct flights with EU member states. Brussels, in turn, has not been able to overcome the Greek Cypriot refusal to countenance anything conferring legitimacy on the “Turkish Republic of Northern Cyprus,” a state that has received official recognition from only Turkey during its 25-year life.

The deadlock infuriates Huseyin Ozel, official representative for the Turkish Cypriot’s London office, who says the EU should extend direct trade rights to the Turkish Cypriots in recognition of the fact they are the only side to have been actively looking for a solution over the past five years.

“For me as a Cypriot, the fact we cannot export our hellim cheese – almost identical to the halloumi the Greek Cypriots make – is absurd. Is the EU saying that cows from the south are European, but ours are not?”

There is little doubt that the biggest losers have been the island’s estimated 200,000 Turkish Cypriots. The paradoxical legal position of northern Cyprus – within the EU but not subject to its acquis communautaire, or body of laws – has stymied its efforts to close the income gap with the south. A spurt of growth between 2002∞2007, fuelled by construction and tourism initially increased living standards quite dramatically. Figures from YAGA, the north’s independent investment development agency, show that per capita GDP increased from around $4000 to $14,000 – still below the Republic of Cyprus level of around $21,000 but not bad for a state that still depends on the $800m Ankara gives it every year. However the economy has slowed thanks to the Greek Cypriot∞sustained block on external trade (although intra∞sland trade has increased) and to Turkey’s own economic slowdown. Construction has almost halted in the wake of the Greek Cypriot legal case against a British couple, the Orams, which has re∞ignited the many legal uncertainties surrounding property purchase in the north. 

Meanwhile, the south’s membership of the eurozone (the Turkish lira remains the main currency for the north, although the euro also circulates freely) is deepening the divide. Last year the north’s economy contracted by 1.7 percent after a 2.8 percent rise in 2007, with agriculture hit by drought and manufacturing by the lira’s fall against the euro, which has increased import costs.

However the south could also do with the stimulus a deal would bring. The EU recently suggested that along with the Czech Republic, Slovakia and Poland, (south) Cyprus would be one of only a few EU countries to enjoy positive growth, of 1.1 percent, rising to two percent next year. However critics have accused the government of being slow to respond to fears of a business slump, rising unemployment (probably to 5.1 percent by end-2009) and falling confidence. 

“We are expecting a slowdown rather than a recession,” says Dimitris Hatziargyrou, pointing to the latest government forecast of 2.1 percent (the third in as many months, after 3.7 percent and then three percent).

However the recent appreciation of the euro against sterling – by 20 percent in six months – will make 2009 a tough year for tourism and housing, as holidaymakers and homebuyers look to non-euro destinations such as Turkey and Croatia. Construction may be even worse hit, although Hatziargyrou says the expectation is for a “slide, not a crash.”

But time is beginning to run out if a deal is to happen. Parliamentary elections in the north in April benefitted the nationalists, who may slow negotiations, whilst next year Talat himself faces re-election. 

“What’s really needed is a time limit imposed by the international community; otherwise, we could go on talking forever, without any result” says Huseyin Ozel.

Others agree, pointing out that despite his enthusiasm for a deal, Christofias remains politically beholden to Greek Cypriot nationalists in Diko, the party of the late Tassos Papadopoulos. Meanwhile the UN is keeping a very low profile after getting its fingers burned five years ago, when the Greek Cypriots rejected the Annan Plan.

It is possible that the precedent set by the international recognition of Kosovo last year could encourage the Greek Cypriots to be accommodating, through fear that disillusioned Turkish Cypriots push for official recognition, particularly from sympathetic Islamic countries.

“The truth is that neither side wants to be blamed for talks breaking down. The Turkish Cypriots, because they would then be on a road to nowhere but also the Greek Cypriots, who cannot afford a repeat of the international opprobrium they received in 2004, when they rejected Annan but then swanned – without the Turkish Cypriots – into the security of the EU,” says Ker-Lindsay.

Against the backdrop of deep recession and unemployment, Ireland’s per capital alcohol consumption fell by 9.6 percent in 2009 and is now 21 percent below an all-time peak in 2001 when Ireland’s economy was booming.

“It was the worst year for our industry in living memory,” Kieran Tobin, chairman of the Drinks Industry Group of Ireland (DIGI), told a news conference in a central Dublin pub.

Pubs have been closing at the rate of around one a day, he said, and 15,000 jobs had been lost across the sector over the last 18 months.

Last year’s drinking decline follows a 7.7 percent decline in per capital consumption in 2008, while in volume terms consumption declined 8.9 percent in 2009 after a 5.9 percent drop in 2008, the report by Anthony Foley of Dublin City University Business School for DIGI, which represents the on-trade – pubs, hotels, restaurants – and off-licence sector.

“Everything in drinks has two edges,” Foley said when asked about the health benefits of the decline in drinking.

“The average has been reduced, but no-one would argue all the problems have gone away. What ideally you’re looking for is that everybody drinks moderately and the industry sustains itself without any bad press.”

Foley’s report found prospects remained “very weak” for 2010 when the total volume of alcohol consumed could decline by a further five percent.

Last year’s decline was to an extent exaggerated by the combination of a strong euro and comparatively low excise duty on spirits in Northern Ireland.

That drove many over the border to buy their drinks in a shift the industry has estimated costs the Irish government 100 million euros ($135.1m) a year in lost revenue.

Taking Northern Ireland sales into consideration, Foley’s report found the 2009 decline was still seven percent, but the excise gap – of 24.7 percent on spirits – could narrow following the British budget this week.

The former Yugoslav republic is not bound for a Greek-style meltdown of public finances, as its public debt is below 50 percent of GDP compared to almost 120 percent in Greece, but nor is it heading for an economic rebound.

“If the government wants to do something, they have until the summer. After that we are effectively entering an election year, when nothing is ever done,” said Ante Babic of the Centre for International Development think-tank.

Regular parliamentary polls are due in late 2011.

The most pressing reforms sought by employers and analysts include urgent cuts in public spending, taxes and subsidies and a start to reforms of the public administration and labour market. The overall aim is to shift the economy from borrowing and spending towards production and exports.

“We are not going to fold like Greece, but without reforms we face a prolonged stagnation,” Babic said.

Vladimir Gligorov of the Vienna Institute for Economic Studies said unemployment, which hit a four-year high of 17.7 percent in January, would rise further without solid growth.

“EU membership will help. It makes available new funds and helps decrease the perceived risk, but it will not solve Croatia’s structural problems,” Gligorov said.

Capital still available
Katarina Ott of the Zagreb-based Institute for Public Finances, said the government could be lulled into inaction by the availability of capital on foreign markets, which it regularly taps to foot the budget deficit bill.

This year’s deficit is set at 2.5 percent of GDP, or roughly 1.2 billion euros.

“I am afraid things can carry on like this for a longer time. There is a lot of capital out there and investors actually like countries like ours, which carry a solid yield.”

Croatia’s credit default swaps are currently at 199.5 basis points, above fellow EU candidate Turkey at 163, but level with those of EU members Bulgaria and Hungary.

Zagreb is well ahead of other Balkan countries in terms of EU prospects but its socialist-era industry has collapsed and exports have dwindled, with the only major revenue boost coming from summer tourism on its pristine Adriatic coast.

“Another problem is that Croatia has little export potential apart from tourism, so even if external demand picks up, it may not help considerably,” Gligorov said.

The former Yugoslav republic, which hopes to join the EU in 2012, is unlikely to attract huge foreign investment in the next few years as its tax burden and labour costs are relatively high and incentives for investors are few.

Velimir Sonje of Arhivanalitika consultancy said the economy was set to return to growth in 2011, after a 5.8 percent decline in 2009 and a milder fall this year, but lack of reforms means that, even with EU membership in hand, growth will be lower.

“It will be much slower than in the past decade, when we had cheap capital and a huge construction and tourism boom, all of which is exhausted now. There will be no major green field investments and growth can only be driven by small and medium-sized firms,” he said.

Although conservative Prime Minister Jadranka Kosor announced recently that the government would “initiate one new measure to boost the economy every week”, analysts doubt the cabinet had the courage to tackle key reforms soon.

“There is not enough political will to have a go at structural reforms. The key here is reform of the public sector which spends way too much because all governments have pampered it to win votes,” said union leader Ozren Matijasevic.

However, he said large-scale social unrest was unlikely, judging by the farmers’ protests which took place at the start of March. Hundreds of farmers blocked roads with tractors in protest at plans to cut subsidies but eventually reached a compromise with the government.

Damir Kustrak of the national employers’ association (HUP) said HUP had impressed upon Kosor the need for urgent reforms.

“Now is our ‘to be or not to be’. The autumn is the end of story. That’s why we’re putting huge pressure [on Kosor] now.”

Despite a long internationalist tradition rooted in centuries of sea trade, the European country of 16 million has turned inwards in recent years as the economy has stagnated and political and social tensions have risen. A reduced Dutch presence in European affairs and Afghanistan could make it difficult for the continent to unite around a bailout for Greece, and could also affect troop deployments by other Western states nearing the end of their mandates.

“The Netherlands will be more sceptical about European integration,” said Philip van Praag, political science professor at Amsterdam University.

After months of simmering discord over how to tackle the financial crisis, a NATO request for the Dutch to extend their deployment of nearly 2,000 troops triggered the split of the fragile left-right coalition recently.

Local elections will offer an early glimpse into how the break between Prime Minister Jan Peter Balkenende’s centre-right Christian Democrats and his deputy Wouter Bos’s Labour Party will play out with voters.

Any new government, which would be installed after expected mid-year parliamentary elections, will also have to submit a budget by September that can reign in spending, even as voter discontent rises over proposals such as raising the retirement age and income taxes.

“We are in the middle of a financial crisis and holding elections now would lead to a lot of insecurity for the public and investors,” said Andre Krouwel, professor of political science at Vrije Universiteit in Amsterdam.

Ripple effects?
The Dutch troops, deployed in Uruzgan province since 2006, are almost certain to be brought home this year, at a time when the US is stepping up its offensive against the Taliban and urging other Western nations to do the same.

The Netherlands is among the top 10 contributing nations to the NATO mission. Twenty-one Dutch soldiers have been killed in Afghanistan.

German Chancellor Angela Merkel is pushing forward with plans to increase troops in Afghanistan, despite strong opposition to the Afghan conflict at home. Polls show that the Afghan war is also deeply unpopular in Britain.

The Dutch withdrawal will hurt Europe’s image as a partner in foreign and security issues, said Edwin Bakker, a senior research fellow at the Clingendael Institute.

The roots of Dutch unease over sending troops to Afghanistan lie in the 1995 Srebrenica massacre when lightly-armed Dutch UN soldiers, lacking international air support, were forced to abandon the enclave to Bosnian Serb forces who then killed up to 8,000 Muslims who had sought protection from the Dutch.

A damning 2002 report on Srebrenica triggered the government’s collapse and ushered in Balkenende’s first administration. Dutch politics – once known for its stability and consensus – has been unpredictable ever since.

That has coincided with a gradual slide towards isolationism. Dutch voters rejected a draft constitution for Europe four years ago.

Many are also concerned about Muslim immigration, the growing influence of Brussels over Dutch laws and Dutch taxpayers’ contributions to the EU budget.

A poll shows that 55 percent of the Dutch want highly-indebted countries to be kicked out of the EU. Another poll also showed strong support for Greece to leave the euro.

The Netherlands was one of the six founding members of the EU that signed the Maastricht Treaty in 1992, leading to the creation of the euro currency.

Swing to the right?
Geert Wilders and his anti-immigration Freedom Party are likely to be the main beneficiaries of Saturday’s government collapse and gain a more influential voice in policy.

During European Parliament elections in June 2009, the Freedom Party won enough votes to be the second-biggest Dutch party represented in Brussels after the Christian Democrats.

Opinion polls tip the party to become the largest or second biggest party in parliament by siphoning votes from Labour.

The political heir to populist anti-immigrant politician Pim Fortuyn, who was murdered in 2002, the bleach-blonde Wilders has challenged the country’s traditional tolerance of immigration and has called for lower taxes, a ban on immigrants from Muslim countries and the influence of the EU to be reduced.

“People want a new fresh party with good new views, tough on crime, tough on mass immigration and this is really what people look forward to,” Wilders told reporters. “I believe indeed we can have excellent results in the next few months and it can only change the Netherlands for the better.”

Few expect Wilders to join a coalition, but a big victory would put him in prime position to support a minority government – most likely the Christian Democrats – and drive his agenda.

“Wilders will be an outsider. He’s very clever and knows he’ll lose a lot of votes if he joins a coalition,” said Van Praag. “He has much more freedom from the outside.”

He told reporters in an interview that investor interest would rise once the Balkan country had put in place a better funding structure for hospitals, with extra money likely to come from people paying more into both public and private health funds.

Moves by the centre-right government, elected last July, to close down 21 state-run communist-era hospitals and to raise contribution levels have triggered protests in towns across the Balkan country.

Crowds including doctors and nurses have demonstrated, saying while reforms were badly needed they feared thousands of people living in remoter areas could be left without access to hospital treatment.

Another 130 hospitals will also be shut or converted to smaller centres, as part of the government’s plan, which Nanev said would be carried out, despite public opposition.

“Privatisation is the way to go,” Nanev, 47, a former surgeon said. “There must be privatisation of both hospitals and the services provided by hospitals”.

Most of Bulgaria’s 350 hospitals are state-owned, of which 71 were on a list of assets banned for privatisation. Nanev said this could be changed through legal amendments once the government had a clear strategy on sell-offs.

He said the reforms needed to show results so as to showcase the investment potential to investors.

Years of post-communist neglect and lack of political will for reforms have left many hospitals understaffed, heavily indebted, lacking contemporary equipment and even medicines.

Corruption in the sector is widespread and paying bribes to doctors for services due to be covered by insurances is the norm. Opinion polls show Bulgarians are the most dissatisfied with their healthcare system in of the 27-member EU.

To secure money for the planned reforms, Sofia is considering obliging Bulgarians to pay extra private health insurance and to raise by 2 percentage points to 10 percent of gross income, payments to state health funds as of 2011. An existing voluntary scheme to contribute to private funds has failed to work.

The ministry was also working on a new methods of calculating prices of medical services to reflect the market reality, he said.

“Reforms needs money. We cannot make reforms by saving money, this must be clear,” Nanev said but did not give figures.

The budget of the state health fund for hospitals fell 24 percent to 709 million levs ($503.2m) in 2010, data showed. Hospitals’ debt stood at some 350 million levs by end-November last year.

The poorest EU country cut total health spending this year by 350 million levs to 2.25 billion, or some 4.2 percent of GDP, nearly halve the proportion spent in many Western nations.

French nuclear firms should stop pushing expensive state-of-the-art reactors to developing countries and instead market the EPR – Areva’s flagship nuclear reactor – to rich countries where top-notch safety systems are politically key, they added.

Countries such as India or the Gulf states should be offered older, cheaper technology, analysts said, adding Areva should also work on quickly finalising a smaller type of reactor with new technology to broaden its range of products.

A consortium led by EDF and GDF Suez, and including Total and Areva, were dealt a blow in December when the United Arab Emirates picked a South Korean group to build four reactors.

Two sources close to the deal told Reuters that Abu Dhabi chose a South Korean consortium, led by Korea Electric Power Corp (KEPCO), because the 1,650 megawatt (MW) EPR was too expensive.

While the Korean consortium offered to build four 1,400 MW reactors for $20bn, the French offered to build its bigger and more modern reactors for $36bn.

The emergence of a powerful new player has turned up the pressure on French groups, which still hope to secure orders for a third of all new reactors to be built worldwide by 2030.

Other rivals bidding to stop them include Toshiba unit Westinghouse Electric, Mitsubishi Heavy Industries and General Electric Co..

The loss of the high-profile UAE deal raises the question of whether the French consortium was flexible enough to present a range of options to Abu Dhabi or simply presumed the oil-based nation had deep pockets and would pay for the EPR.

“This was not simply a question of cost,” French Economy Minister Christine Lagarde told the Les Echos paper on Tuesday.

“The French offer was probably not the best calibrated.”

EPR sale hopes
Analysts said France had to change its nuclear bidding strategy, with some asking why the French consortium did not offer Abu Dhabi existing technology, such as one of the second-generation nuclear power plants operating in France.

“They will have to wonder if they need to offer Rolls-Royces all the time,” said Jefferies analyst Alex Barnett.

France offered the EPR – a third-generation reactor developed after nuclear accidents at Three Mile Island in 1979 and Chernobyl in 1986, and which offers enhanced safety systems by better isolating the core reactor in case of a meltdown.

“The obvious response to the Koreans would have been to offer a second-generation reactor. Some of the latest ones are relatively young. They’re also proven,” said UBS analyst Per Lekander.

Sources with direct knowledge of the situation, however, said Areva was unlikely to change its strategy.

“(They are) never going to sell second-generations again. (They are) now aiming for higher safety standards, and as they stand, second-generations cannot be sold anymore in the US or Europe, which are (its) key markets,” one of the sources said.

Areva declined comment on the loss of the Abu Dhabi deal, but pointed to a smaller 1,100 MW reactor – Atmea – that it is developing and which is set to be ready by 2011, and another 1,250 MW model – Kerena – whose design is not yet defined.

Both reactors are also third-generation models, but until they are ready, France will pin its hopes on sales of the EPR.

This export drive, however, could be hampered by recent bad publicity.

The first EPR, currently under construction in Finland, has been beset by cost overruns and delays that caused Areva to take a charge of €2.3bn ($3.29bn) for the project last year.

A second unit being built in France is reportedly behind schedule, sources said, although EDF and Areva deny this. More importantly, three nuclear regulatory bodies chastised both Areva and EDF for a design fault in November.

Marketing error?
Another source insisted cost issues were behind the UAE loss. Asked whether the French nuclear consortium should have modified its offer when it appeared that the EPR was losing ground to the Koreans’, the source said: “No, Abu Dhabi asked for an EPR.”

“They wanted it but at the price of (KEPCO’s winning design) APR1400, and this was simply not possible. They had to make a choice between a product that was too expensive and a product they liked less but at a price they were willing to pay.”

“They wanted a Mercedes but at the price of a Kia,” he added, referring to the German luxury car maker and the South Korean manufacturer of smaller and less expensive autos.

These smaller and less glamorous reactors, however, have worked for decades in South Korea with a good safety record.

For a Wrapup on the UAE nuclear deal click on For an Analysis on French nuclear export hitches see For more on the EPR.