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Blacklisting of China’s DJI in US threatens to scramble drone industry

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Anyone who has already ordered a Mavic 2 as a Christmas present for the drone enthusiast in their lives should consider themselves lucky. The aircraft, which sells for about $1,500, contains a top-of-the-range camera and is one of the flagship consumer models sold by its maker DJI.

But on Friday the US commerce department added DJI to a list of sanctioned Chinese companies which it says have been involved in helping carry out human rights abuses. The move will make it far harder for the company to secure American supplies, and threatens to scramble the global market for camera drones, which the Chinese manufacturer dominates.

A commerce department official said on Friday that DJI was being added to the list because its products had been used in human rights abuses in China and elsewhere.

In 2017 the company reportedly announced a deal for “strategic co-operation” to provide police drones to the public security bureau of Xinjiang, the northwestern Chinese region that is home to a network of internment camps built to hold people deemed to be a threat to the state.

DJI said on Friday it was “disappointed” about the commerce department’s decision, adding: “Customers in America can continue to buy and use DJI products normally.”

In the past DJI said it believed it was being targeted for commercial reasons because it dominated the global market for commercial camera drones.

Brendan Groves, head of regulatory and policy affairs at Skydio, a rival drone maker based in the US, said “it’s surprising that DJI wasn’t on the list sooner”.

Mr Groves, a former attorney who used to lead the justice department’s drone efforts, said that DJI had profited “to the tune of hundreds of millions of dollars a year on the horrific surveillance state that the Chinese have established over the last four years in Xinjiang”.

Since DJI was founded in 2006, it has successfully seen off almost every other competitor thanks to its almost unique ability to manufacture high-end technological equipment at prices ordinary consumers can afford.

It does not release its sales figures, but industry estimates calculate DJI makes somewhere between 70 per cent and 80 per cent of the world’s commercial drones, and over three-quarters of those sold in the US.

These box-shaped, remote-controlled flying objects have attracted enthusiasts from model aircraft flyers to serious photographers, who bought an estimated 7m of them in the US this year.

DJI is now trying to work out what effect the move will have on its supply chains, but many of its models do rely heavily on US equipment. Its Zenmuse XT thermal camera accessory, for example, uses a camera built by the Californian company Flir, while its Spark mini drone uses a processor made by Intel.

Intel declined to comment. But Flir said it would “continually align our strategy to reflect future public policy changes, as they are adopted”.

The sanctions are similar to those the commerce department imposed on Huawei, the Chinese telecoms company last year, although the department said on Friday it would review any licence application to supply products deemed necessary to tackle infectious diseases. DJI’s drones have been used to deliver critical supplies during the coronavirus pandemic without having to risk human contact, and to spray surfaces with disinfectant.

Apart from that narrow group of products, however, the US government said on Friday it would treat any application to sell sensitive technology products to DJI with a presumption of denial.

Spencer Gore, founder of the US start-up Impossible Aerospace, said: “This move most likely makes many DJI products impossible to build today without a major redesign.”

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Some close to the company believe it will be able to survive the immediate effect of the sanctions, since it can secure many of its supplies from outside the US. But they worry the reputational damage done will deter other customers — especially public bodies such as fire and police departments which often use DJI drones — from buying the company’s products.

Mike Winn, chief executive of DroneDeploy, which supplies software used to create aerial maps, said: “The biggest thing here could just be the confusion and uncertainty in the markets. [DJI drones] are used in San Diego by the police to respond to crime scenes more quickly.”

He added: “Four of the five biggest seed companies rely on DroneDeploy and fly hundreds of drones over their customers’ crops.”

For DJI, even bigger threats loom on the horizon. Earlier this year, the White House drew up a draft order that would have prevented federal agencies from using drones made with Chinese parts. And in an even more significant move, it would also have banned such drones from flying over federal lands, which account for 28 per cent of the US.

Some in the industry believe White House officials are now trying to resurrect that order, especially after Congress balked at including similar terms in its recently-passed National Defense Authorization Act.

Others believe, however, that an incoming Joe Biden administration is likely to take a less confrontational attitude towards the Chinese technology industry, and will be more likely to listen to the warnings of US suppliers who say they are being caught in the crossfire.

Biden officials could decide to issue enough export licences to American companies to ensure DJI continues to function, or even try to remove it from the sanctions list altogether.

Paul Triolo, a China technology policy experts at Eurasia Group, said: “The Biden administration is certainly more likely to listen to those in Silicon Valley who say the Trump administration has been too scattershot.”

One section of Silicon Valley was celebrating on Friday, however.

American drone manufacturers are small in comparison with DJI, but in recent years companies such as Skydio and Impossible Aerospace have found an emerging niche for first-responder and commercial applications.

“It’s hard to imagine a bigger action that would be more impactful to the benefit of American drone makers,” said Mr Gore of Impossible Aerospace.

“The best avenue [now] for risk reduction is to buy American.”



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Emerging Markets

Bond sell-off roils markets, ex-Petrobras chief hits back, Ghana’s first Covax vaccines

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The yield on the benchmark 10-year Treasury exceeded 1.5 per cent for the first time in a year and the outgoing head of Petrobras warns Brazil’s President Jair Bolsonaro against state controlled fuel prices. Plus, the FT’s Africa editor, David Pilling, discusses the Covax vaccine rollout in low-income countries. 

Wall Street stocks sell off as government bond rout accelerates

https://www.ft.com/content/ea46ee81-89a2-4f23-aeff-2a099c02432c

Ousted Petrobras chief hits back at Bolsonaro 

https://www.ft.com/content/1cd6c9fb-3201-4815-9f4f-61a4f0881856?

Africa will pay more for Russian Covid vaccine than ‘western’ jabs

https://www.ft.com/content/ffe40c7d-c418-4a93-a202-5ee996434de7


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Petrobras/Bolsonaro: bossa boots | Financial Times

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“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.

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

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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.” 



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