Connect with us

Emerging Markets

Jeff Bezos squares up to Mukesh Ambani in India ecommerce battle



Amazon chief executive Jeff Bezos is squaring up against Reliance Industries founder Mukesh Ambani over the Indian retailer Future Group, drawing battle lines between two of the world’s richest men over the country’s lucrative ecommerce market.

On Sunday, the Singapore International Arbitration Centre granted an emergency interim order in Amazon’s favour, after the US tech group filed a complaint connected to a $3.4bn deal that Reliance struck with Future Group in August.

Amazon, which acquired an indirect minority stake in the retail and fashion conglomerate last year, alleged that Future’s sale of its retail, wholesale, logistics and warehousing businesses to Reliance breached its pre-existing contract, which included a right of first offer and a non-compete clause. The deal is now on hold until a final decision is given.

The legal fight comes as Amazon and Reliance are set to go head to head in a battle for dominance in India’s booming ecommerce market, which will be worth $86bn by 2024, according to research firm Forrester. The stakes are particularly high for Amazon, which believes India is a big growth market after shutting its online store in China last year.


Amount Mukesh Ambani’s Reliance Retail has raised from marquee investors

Reliance, which is already India’s biggest offline retailer, with more than 11,000 stores and revenues of $18.5bn last year, has a small presence in ecommerce. But it is embarking on a strategy to dislodge Amazon and Walmart-owned Flipkart, which together control about 70 per cent of the online market in India.

After raising $20bn from global investors for Reliance Jio, his telecom and digital services business, Mr Ambani has since begun another fundraising blitz for his retail arm. Raising more than $5bn from marquee backers so far, his vision is to digitise Reliance Retail and its enormous offline network.

“Now, with the kind of funding Reliance has got, it’s evident that they will play in the same [online] markets as Amazon and Flipkart,” said Bernstein’s Rahul Malhotra in Mumbai. “This is the start of a more competitive era.”

‘Ambani is after what Bezos has got’

The battle over Future Retail comes as Amazon and Flipkart are seeking partnerships with bricks-and-mortar retailers in India, part of a push to expand while complying with new regulations limiting foreign players in the ecommerce sector.

Amazon, Reliance and Future Group declined to comment for this article.

The skirmish is the latest setback for Mr Bezos in India after a high-profile trip in January flopped, with the commerce minister saying that the Amazon head’s pledge to invest $1bn to digitise small and medium-sized businesses across the country was no “great favour to India”.

Mr Bezos — who has invested billions in India since starting operations there in 2013 — had been unable to secure a meeting with Mr Modi when he came to New Delhi, said a person close to Amazon. Mr Bezos later had breakfast with Mr Ambani and other industrialists in Mumbai.

“They are big rivals, obviously. Ambani is after what Bezos has got,” said a Mumbai banker. “A typical middle-class Indian kid wants to shop online and he thinks of Amazon, he doesn’t think of Reliance Retail or JioMart,” he said, referring to Reliance’s online grocery delivery store.

Despite on-and-off talks this year over the possibility of Amazon taking a stake in Reliance Retail, analysts said Mr Bezos was wary of forming a partnership with the powerful Indian tycoon. Mr Ambani, too, was reluctant to hand over any majority stake or control to his rival, people close to Reliance said, hindering any genuine effort to make a deal.

Mr Ambani has been a magnet for investment as he seeks to transform his energy conglomerate into a homegrown tech superpower. He has made no secret of his plans to make Jio Platforms the next internet giant.

“Jio wants the maximum amount of household spending to come to them,” said Satish Meena, a New Delhi-based analyst at Forrester. “They are doing the same thing that they did with telecom, and if they are able to control grocery purchases, they have captured the majority of household spending.”

Future operates some of India’s most high-profile retail brands, such as supermarket chain Big Bazaar and premium grocery shop Foodhall. If Reliance’s tie-up with the group went through, Mr Ambani’s empire would control 40 per cent of the country’s formal grocery market.

‘Why should a foreign company dominate?’

Despite lagging Amazon and Flipkart in its online user experience, analysts say Reliance has the advantage of being on the right side of a growing tide of protectionist policies in India.

“In Mumbai business circles, Amazon is viewed as the new East India Company of sorts,” one person close to Reliance said, referring to the private British corporation that ruled large swaths of the Indian subcontinent in the 18th century. “Why should a foreign company dominate when we have homegrown giants — from Ambani to Tata and Birla?”

The shifting ecommerce regulations in the country have raised familiar questions over New Delhi’s treatment of its biggest foreign investors, with Vodafone spending years fighting a €3bn tax dispute with Indian authorities related to an acquisition of a local operator.

After Walmart paid $16bn for Flipkart in 2018 — the largest single foreign investment in the country — New Delhi changed its rules for the sector just months later, banning foreign companies from keeping their own inventory and allowing them only to operate as online “marketplaces” connecting sellers to buyers. 

To work around these rules, Amazon and Flipkart have been picking up stakes in Indian retailers to deepen their supply chains. Amazon holds stakes in department store Shoppers Stop and grocery chain More, part of the Aditya Birla Group. Flipkart on Friday announced that it paid $200m for a 7.8 per cent stake in Aditya Birla Fashion and Retail Limited, which has more than 3,000 stores in the country. 

The outcome of Amazon’s legal battle with Future was difficult to predict, analysts said. Reliance said in a statement it “intends to enforce its rights and complete the transaction . . . with Future group without any delay”.

At the very least, however, the arbitration would buy the US group some time, said Neil Shah, analyst at Counterpoint in Mumbai.

“Amazon might put a spanner in the wheel to try and slow down the Reliance expansion,” said Mr Shah. “But Reliance is making big moves and is a big threat. The ball is in Mr Ambani’s court.”

Source link

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Emerging Markets

Petrobras/Bolsonaro: bossa boots | Financial Times




“Brazil is not for beginners.” Composer Tom Jobim’s remark about his homeland stands as a warning to gung-ho foreign investors. Shares in Petrobras have fallen almost a fifth since President Jair Bolsonaro said he would replace the widely respected chief executive of the oil giant.

Firebrand Bolsonaro campaigned on a free-market platform. Now he is reverting to the interventionism of leftist predecessors. It is the latest reminder that a country with huge potential has big political and social problems.

Bolsonaro reacted to fuel protests by pushing for a retired army general to supplant chief executive Roberto Castello Branco, who had refused to lower prices. This is politically advantageous but economically short-sighted.

Fourth-quarter ebitda beat expectations at R$60bn (US$11bn), announced late on Wednesday, a 47 per cent increase on the previous quarter. This partly reflected the reversal of a R$13bn charge for healthcare costs. Investors now have to factor the cost of possible fuel subsidies into forecasts. The last time Petrobras was leaned on, it set the company back about R$60bn (US$24bn at the time). That equates to 40 per cent of forecast ebitda for 2021.

At just over 8 times forward earnings, shares trade at a sharp discount to global peers. Forcing Petrobras to cut fuel prices will make sales of underperforming assets harder to pull off and debt reduction less certain. Bidders may fear the obligation to cap prices will apply to them too.

A booming local stock market, rock bottom interest rates and low levels of foreign debt are giving Bolsonaro scope to spend his way out of the Covid-19 crisis. But the economy remains precarious. Public debt stands at 90 per cent of gross domestic product. The real — at R$5.40 per US dollar — remains near record lows. Brazil’s credit is rated junk by big agencies.

Rising developed market yields will make financings costlier for developing nations such as Brazil. So will high-handed treatment of minority investors. It sends a dire signal when a government with an economic stake of just over a third uses its voting majority to deliver a boardroom coup.

If you are a subscriber and would like to receive alerts when Lex articles are published, just click the button “Add to myFT”, which appears at the top of this page above the headline.

Source link

Continue Reading

Emerging Markets

South Africa’s economy is ‘dangerously overstretched’, officials warn




South Africa is pushing ahead with plans to shore up its precarious public finances as officials warn the economy is “dangerously overstretched” despite the recent boom in commodity prices.

Finance minister Tito Mboweni hailed “significant improvement” as he delivered the annual budget on Wednesday and said that state debts that will hit 80 per cent of GDP this year will peak below 90 per cent by 2025, lower than initially feared.

But Mboweni warned that President Cyril Ramaphosa’s government was not “swimming in cash” despite a major recent tax windfall. The Treasury now expects to collect almost 100bn rand ($6.8bn) more tax than expected this year after a surge in earnings for miners. This compares with a projected overall tax shortfall of more than 200bn rand. Still, the finance minister made clear that spending cutbacks would be necessary.

“Continuing on the path of fiscal consolidation during the economic fallout was a difficult decision. However, on this, we are resolute,” Mboweni said. “We remain adamant that fiscal prudence is the best way forward. We cannot allow our economy to have feet of clay.”

The pandemic has hit South Africa hardest on the continent, with 1.5m cases recorded despite a tough lockdown. An intense second wave is receding and the first vaccinations of health workers started this month. More than 10bn rand will be allocated to vaccines over the next two years, Mboweni said.

‘We remain adamant that fiscal prudence is the best way forward’ – South African finance minister Tito Mboweni © Sumaya Hisham/Reuters

Even before the pandemic’s economic hit, a decade of stagnant growth, corruption and bailouts for indebted state companies such as the Eskom electricity monopoly rotted away what was once a prudent fiscus compared with its emerging market peers. 

Government spending has grown four per cent a year since 2008, versus 1.5 per cent annual growth in real GDP. The country’s credit rating was cut to junk status last year. Despite this year’s cash boost, the state expects to borrow well over 500bn rand per year over the next few years. The cost to service state debts is set to rise from 232bn rand this year to 338bn rand by 2023, or about 20 cents of every rand in tax.

The fiscal belt-tightening will have implications for South Africa’s spending on health and social services. On Wednesday Mboweni announced below-inflation increases in the social grants that form a safety net for millions of South Africans. “We are actually seeing, for the first time that I can recall, cuts in the social welfare budget,” said Geordin Hill-Lewis, Mboweni’s shadow in the opposition Democratic Alliance.

The finance minister is also facing a battle with union allies of the ruling African National Congress over a plan to cap growth in public sector wages. South Africa lost 1.4m jobs over the past year, according to statistics released this week. The jobless rate — including those discouraged from looking for work — was nearly 43 per cent in the closing months of 2020.

The South African treasury expects the economy to rebound 3.3 per cent this year, after a 7.2 per cent drop last year, and to expand 2.2 per cent and 1.6 per cent next year and in 2023 — growth rates that are widely seen as too low in the long run to sustain healthy public finances.

“The key challenges for South Africa do however persist, clever funding decisions aside,” Razia Khan, chief Middle East and Africa economist for Standard Chartered, said. “Weak structural growth and the Eskom debt overhang must still be addressed.” 

Source link

Continue Reading

Emerging Markets

Turkey’s Uighurs fear betrayal over Chinese vaccines and trade




For five days this month, Jevlan Shirmemmet and other Uighur activists protested outside the Chinese embassy in Ankara, where they demanded to know the whereabouts of missing family members in China’s Xinjiang province. But on the sixth day, Turkish police stepped in.

They prevented the activists from gathering outside the diplomatic mission, positioned themselves outside their hotel and accompanied them wherever they went.

The stand-off reflects the difficult balancing act that Turkey, which is home to tens of thousands of exiled Uighurs, must perform with Beijing, not least because it wants closer ties and investment and is reliant on China for supplies of coronavirus vaccines.

President Recep Tayyip Erdogan, who casts himself as a champion of oppressed Muslims around the world, has in the past been a vocal critic of China’s actions in Xinjiang, the north-western region where the Chinese Communist party has interned more than 1m Uighurs, Kazakhs and other Muslims.

“On the one hand, Turkey wants to stand up for us, we know that, we feel it,” said Shirmemmet, 29, whose mother has been detained in Xinjiang since early 2018. “But they aren’t able to. We feel like their hands are tied.”

Jevlan Shirmemmet’s mother has been detained in the Chinese province of Xinjiang since early 2018
Jevlan Shirmemmet protesting in Ankara. His mother has been detained in the Chinese province of Xinjiang since early 2018 © Jevlan Shirmemmet

Analysts say that the plight of China’s Uighurs poses a problem for Erdogan, who is seeking alternative global partners at a time when relations with the west are deeply strained. “They are Muslims, they are Turks, and Turkish voters are sensitive about the issue,” said A Merthan Dundar, director of the Asia-Pacific Research Centre at Ankara University. “The government cannot establish very close relations with China. But it doesn’t want to cut all ties.”

In years past, Erdogan was one of the most outspoken global Muslim leaders concerning the plight of Uighurs, who are seen in Turkey as part of a broader global family of Turkic peoples whose rights Ankara has a responsibility to defend.

But opposition parties have accused Erdogan’s government of toning down its criticism to avoid upsetting Beijing. “Europe and America have spoken out against the oppression of our Uighur brothers in China . . . But there is still not a sound from Ankara,” Meral Aksener, leader of the opposition IYI party, said last month. Turkish officials insist that they continue to raise their concerns with Beijing behind closed doors.

Some figures in Erdogan’s government have advocated for stronger ties with Beijing in order to lure Chinese capital at a time when foreign direct investment from western countries has dwindled.

Investment so far has been limited, with the value of Chinese investment in Turkey standing at $1.2bn in 2019 in terms of equity capital, according to central bank data, compared with more than $100bn from Europe.

A woman in eastern Turkey receives the CoronaVac vaccine. Turkey has ordered 100m doses of the Chinese-made jab
A woman in eastern Turkey receives the CoronaVac vaccine. Turkey has ordered 100m doses of the Chinese-made jab © Chris McGrath/Getty

Ankara is eager for more. The country’s sovereign wealth fund has been courting Chinese investment, and plans to open an office in China in the first half of this year. Ankara also has a swap agreement with China’s central bank that helped to boost the appearance of Turkey’s depleted foreign currency reserves by an estimated $2bn. 

The pandemic has added an extra complexity to the relationship. While Turkey has struggled to procure European-made vaccines, it has a deal in place for 100m doses of the CoronaVac jab made by Chinese drugmaker Sinovac Biotech. Delays to the shipments in December coincided with a decision by China’s parliament to ratify an extradition treaty between the two countries. Turkey has yet to ratify it.

Yildirim Kaya, a member of parliament from the opposition Republican People’s party, said that the ratification of the treaty by Beijing had created “a great deal of panic among Uighur Turks who have escaped from China to Turkey”. In a set of questions posed to the Turkish health minister, he demanded to know if Ankara had faced pressure to ratify the deal to speed up the delivery of the vaccines. Turkish foreign minister Mevlut Cavusoglu reacted angrily to such suggestions. “We don’t use Uighurs for political purposes,” he said. “We defend their human rights.”

Analysts are also sceptical that China would use the vaccine, of which Turkey has already administered 6.2m doses, as such crude leverage. Ceren Ergenc, an associate professor of China studies at Xi’an Jiaotong-Liverpool University in Suzhou, believes it is more likely that Ankara was doing Beijing a favour by signing a deal for a vaccine that had yet to be approved in China — and that still has question marks over its efficacy.

“It happened at a moment when China needed not necessarily the money but the prestige in the international system about the credibility of its vaccines,” she said. “There’s a kind of indebtedness or reciprocity — Turkey still needs financial support from China so it did this act of buying the Chinese vaccine that had at the time not yet undergone all phases of testing.”

In response to questions from the Financial Times, the Chinese embassy in Ankara said the recent protests had sought to “smear” China and that their actions had threatened the safety of the diplomatic mission. It strongly rejected the notion that it had used Turkey’s need for vaccine doses as political leverage as “absolutely unfounded conjecture and malicious misinterpretation”.

Still, the episode has left many members of the Uighur diaspora feeling deeply nervous about their place in Turkey. “China sees us as criminals,” said Mirzehmet Ilyasoglu, who joined this month’s Ankara protests to demand information about his missing brother, brother-in-law and four friends. “We hope that this [extradition] agreement won’t come before parliament, but if it is signed then our concern will grow.”

Source link

Continue Reading