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News Clips 6 August, 2013


[ Rs1.27 billion TDAP scam sent to FIA ]
[ Draft of textile law moved to Cabinet ]
[ India eases foreign investment rules in retail sector ]
[ Insight: Carrefour in the trenches of the hypermarket war ]

Rs1.27 billion TDAP scam sent to FIA   [ top ]

DAWN, Mubarak Zeb Khan, August 6, 2013
ISLAMABAD: Prime Minister Nawaz Sharif referred on Monday a scam involving ‘misappropriation’ of Rs1.27 billion in an export promotion organisation, a subsidiary of the commerce ministry, to the Federal Investigation Agency to collect evidence and initiate criminal proceedings against officials, exporters and companies allegedly involved in it.

He also accepted recommendations of the commerce ministry and cancelled the contract of chief executive of the Trade Development Authority of Pakistan (TDAP), Abid Javed Akbar Ali, for his involvement in the scam.

According to an official statement, the prime minister ordered disciplinary proceedings against the officials responsible, including former TDAP secretary Abdul Kabir Kazi, a DMG officer currently working as joint secretary (administration) in the commerce ministry.

Disciplinary action has also been ordered against TDAP director general (facilitation) Abdul Karim Daudpota, an officer of the commerce and trade group, also involved in the scam.

The prime minister ordered special audit of last two years’ accounts of the organisation.

The orders have been issued on an inquiry report prepared by the commerce ministry. It was submitted to the Prime Minister Secretariat last week.

According to the report, senior officials of the TDAP withdrew Rs767.67 million on April 5, which was disbursed in single day. It said 96 cheques had been issued for the payment of subsidies in back dates by the officials in an attempt to evade the April 8 order of the commerce ministry asking the TDAP to stop further payments for the time being.

DG facilitation Daudpota had initiated the cases, secretary Kazi referred these to chief executive Abid, who gave approval the same day. Of the Rs767.67m disbursed, Rs694m (90 per cent) went to 32 companies under three incentive schemes — opening retail outlets abroad, exporters’ offices abroad and freight subsidy for live seafood.

According to the inquiry report, some of the payments were second or third instalments of the claims for which earlier instalments were paid in 2011 and 2012 by the TDAP.

The finance division had released Rs1 billion in 2011 and Rs2bn in 2012 for the three schemes. Of the 32 companies, 25 have been found to be fraudulent. They were paid Rs594m in April this year, Rs140m in 2012 and Rs147m in 2011.

In another scheme for setting up warehouses abroad, an amount of Rs28m has been paid fraudulently.

The incentive schemes were announced in the first three-year strategic trade policy framework (STPF-2009-2012) by the previous government. The policy carried a string of proposals for providing subsidies in cash to exporters for promotion of trade and exports.

This is the second biggest scandal after the multi-billion-rupee National Insurance Company Limited scam, another subsidiary of the commerce ministry. But the ministry did not initiate internal investigation into the NICL scam.

According to the inquiry report on the TDAP scam, most of the payments were made on conspicuously fabricated documents, violating the criteria laid down in public notices and business procedures.

“The writing and signing of backdated cheques, endorsement of the AGPR on uncrossed cheques and encashment of uncrossed cheques by the bank in favour of beneficiary companies smack of an active collusion between the cheques’ writers, their signatories, AGPR Karachi and officers of the National Bank’s FTC branch in Karachi,” the report said.

A source in the commerce ministry said it had constituted a three-member committee, headed by additional secretary Sajjad Ahmad, to investigate the disbursements made under the three incentive schemes in 2011 and 2012.

Draft of textile law moved to Cabinet   [ top ]

BUSINESS RECORDER, Tahir Amin, August 4, 2013
Textile division has moved summary of the first-ever proposed textile "textile industry development, promotion and standard Act" to the cabinet which will empower the division to form regulations and standards for achieving sustainable growth, increase productivity and value addition throughout the textile chain, it is learnt.

Sources revealed to Business Recorder that the draft of the proposed textile law, which remained pending for last three years, had also been sent to the stakeholders including Ministry of Commerce and Industry. They were bound to submit their input within two weeks, said sources, after which the bill would be presented in the parliament for approval. The bill would require simple majority in both the houses to make it law, official added.

It will be the first-ever law pertaining to the textile industry, which will empower textile division to take final decision on every issue. Presently the Division has no power and can not even issue an SRO notification. A federal board of textile industries would be constituted under the new law for regular interaction between the industry and the policy makers to ensure development and promotion of the textile industry. The Board will comprise 28 members including 14 members each from private and public sectors.

The proposed textile law would require all the functioning textile units to register with the Division as only registered textile units would get incentives announced in the textile policy. Currently textile division lacks complete information about the textile units and their production data to make appropriate plans regarding the implementation of textile policy. The new legislation aims at implementing the textile policy, strengthening the structure of textile industries and to maintain complete data on production of these units.

Presently, there is no textile export and import law in the country. In the proposed textile bill rules would be laid down and growth and activity of the industry would be monitored, sources added. The proposed law would empower the textile division to monitor the implementation of the textile policy and to ensure accurate statistics of production capacity, exports and total number of textile units in the country.

India eases foreign investment rules in retail sector   [ top ]

BBC NEWS, August 2, 2013
India has eased key rules on foreign direct investment in multi-brand retail in an attempt to attract foreign firms as it looks to boost economic growth.

Rules governing sourcing of products, infrastructure investment and selection of cities have been relaxed.

India had opened up multi-brand retail to foreign investors last year, but no foreign supermarket chain has yet entered the country.

The move also triggered a series of protests in India.

The previous rules made it mandatory for foreign supermarkets to source 30% of their products from small Indian firms. The government has retained that requirement, but said foreign firms will be given five years in which to reach that target, giving them the option of importing goods from overseas initially.

Global chains will also have to put 50% of their initial investment in to building back-end infrastructure such as cold storage facilities.

Foreign retailers will also be allowed to set up shop in cities with a population of less than one million, which they had been barred from earlier.

'Stumbling blocks'

India, home to more than one billion people, is seen by many foreign investors as a key growth market, not least because of the sheer size of its population.

A rise in incomes and a growing middle class has further added to the country's appeal.

As a result, when the government announced that it was opening up the multi brand retail sector to foreign firms - many had hoped that foreign companies would jump on the opportunity.

However, the conditions set by the government had prompted many chains to hold back on their plans.

Some analysts said that the move to ease some of these rules was likely to generate more interest among foreign firms. "The new rules have removed some major stumbling blocks and should encourage foreign retailers to enter India," said Devangshu Dutta, who heads retail consultancy Third Eyesight.

Political uncertainty?

However, the move has also faced opposition in India.

There have been concerns that the arrival of big name supermarkets may hurt the small retailers in the country.

Critics have argued that given their purchasing power, and the scale of the sales, big players may be able to secure supplies at a much lower rate the smaller shops.

As a result, they may be able to sell those goods at a lower price and hurt small scale retailers.

Some of India's opposition parties also have voiced their concerns against the move.

Analysts said that with national elections in India due next year, foreign firms may still hold back on any potential investment amid concerns that a change in government may see derail the opening up of the sector.

"Most retailers are still likely to wait for the outcome of the elections next year before they make a decision," said Mr Dutta.

Insight: Carrefour in the trenches of the hypermarket war   [ top ]

REUTERS, Dominique Vidalon, August 2, 2013
PARIS (Reuters) - Fifty years ago, on June 15, 1963, two French families opened Europe's first hypermarket in Sainte-Genevieve-des-Bois near Paris. Stocking 5,000 products over 2,500 square meters, it was three times the size of most grocery stores.

Today, owned by retail giant Carrefour, it has tripled in size and offers 19,000 different products.

The store's growth mirrors Carrefour's global expansion, but the format - an out-of-town warehouse offering cheese, lawn mowers and almost everything in between - is shrinking as online vendors, convenience shops and discounters bulk up.

Some fear the decline could be terminal.

Not Carrefour, which pioneered the stores across the globe, making it the world's second largest retailer after Wal-Mart, but its attempts to revive the hypermarket in France have ended the tenure of a string of chief executives.

Not long ago, ballooning debts, falling profits and strategy U-turns such as a failed merger in Brazil led to concerns the company might be broken up. Now, with the French economy slowly crawling out of recession, it is trying again.

"I was happy when Georges Plassat took the helm at Carrefour, because he has no doubts the hypermarket has a future, so now at least two of us think that way," said Vincent Mignot, managing director for France of rival Auchan.

Plassat, who became CEO in May 2012, is streamlining an empire that sprawled from China to Brazil. He has sold assets in Colombia, Malaysia and Indonesia to reduce debt, and pledged to invest up to 2.3 billion euros to renovate or expand stores, mostly in France, which accounts for nearly half of group sales.

Plassat wants to offer shoppers low prices and simpler products, renovate aging stores and give managers more autonomy after decades of central planning.

Even one of its biggest investors, property tycoon Thomas Barrack, concedes that reviving the firm was "like moving an aircraft carrier".

THE CHALLENGE

Earlier this year, Carrefour for the first time lost its market lead in France, as Leclerc, a cooperative of independent store owners, took 19.9 percent in the four weeks to May 19, pipping Carrefour's 19.6 percent.

It was back on top in the period to July 14, but it has little wiggle room on margins to give shoppers the low prices they want when unemployment is at a 14-year high. In 2012, it made just 2.6 percent profit on sales, compared with 3.7 percent for smaller rival Casino and 4.7 percent for Britain's Tesco in its home market in 2012/13.

The head of a big food supplier in western France, who asked to remain anonymous, said recent negotiations with Carrefour were "extremely tough and combative". The company was asking for price cuts of 2-5 percent despite higher raw material costs. "We got a flat to 1 percent increase, and that is far from what we need to cover operating costs," he said.

Plassat has cut debt and plans to use part of the cash raised from selling international operations to fund renovations and price cuts in France.

Carrefour has said about 150 of its 220 French hypermarkets need remodeling over the next three years, and it will work on 50 this year.

The 8,770 square meter hypermarket at Brive-La-Gaillarde, a rural town in southwest France, was last renovated in 2002 and is in line for a makeover.

One spring Saturday afternoon, its 33 checkouts not very busy, shoppers described it as shabby.

Alice, a 34-year old social worker who lives nearby, said she preferred two rival stores a 30-minute drive away; Leclerc was cheaper, and Geant Casino was "clean and well designed".

"It can be hard to find staff, and labeling is not great," said Sylvain Mathevet, 53, a construction worker.

"Our stores lacked investment in recent years. We have started a renovation and upgrade plan over two years, and the Brive hypermarket is part of that plan," said Noel Prioux, Executive Director for France.

"At national level, there has been a very sharp improvement in over eight months on a variety of criteria such as cleanliness, quality, fresh products, staff friendliness, waiting time at checkouts, price image," he added.

The smaller Leclerc store, also last renovated about a decade ago, had long lines at each of its 22 checkouts. Banners trumpeted the Leclerc slogan - "At Leclerc you know you buy cheaper".

Leclerc, which has 560 stores in France, mostly hypermarkets, compared with Carrefour's 4,635, likes to remind customers of the benefits of its co-operative status.

"Our members own their stores," its CEO Michel-Edouard Leclerc recently told reporters. "The difference with a listed group is that our shareholders are in for the long-term."

Casino, Carrefour's other main rival, is listed, smaller, and more heavily indebted. It joined the price war in the last quarter of 2012. In Brive, a farming town of 50,000, Casino found a direct way to convey its low-price message - two trolleys at the store entrance, both filled with 41 identical staple products. One, marked Casino, cost 88.85 euros, the other, Leclerc, cost 94.57 euros. Inside, every aisle carried direct price comparisons.

DEMOGRAPHICS

The hypermarket is also bumping up against a demographic trend. In the 1960s and 70s, at least half of French households were of three people or more. That has dropped to a third. With more single and older consumers - and petrol bills rising - fewer people want to drive to out-of-town emporiums for a big weekly shop, and more convenience stores are popping up to cater to their needs. Even so, new hypermarkets are opening up every year, and they still account for more than half of all food purchases in France. But their market share has shrunk from 20 percent at end-1990 to 18.2 percent in 2011, according to the national statistics institute INSEE. Average size has also fallen over 12 years to 5,400 square meters from 5,800.

Carrefour has been here before. Previous boss Lars Olofsson started to revamp its hypermarkets with a program dubbed Planet, which aimed to treat customers to "theatrical" retail.

Some stores, like at Auteuil in Paris, renovated in 2009, got Sushi bars, low lighting and wine cellars, before Planet, slated to cost 1.5 billion euros, was dropped as too costly and ineffective.

Carrefour's capital expenditure then fell 27 percent to 1.547 billion euros in 2012. Though Plassat has bumped it up to 2.3 billion this year, he says he's not planning anything fancy. It is likely to include space for traditional butchers and organic goods, plus improved lighting and signage as in the Charenton Le Pont hypermarket near Paris, renovated last summer.

Plassat's budget may be bigger than his predecessor's, but others are spending more. Carrefour's forecast capital expenditure for the next 12 months is 2.8 percent of sales, according to Thomson Reuters data. That compares with 3.24 percent for Casino and 4.28 percent for Tesco.

"The retailers with the highest capex to sales ratio are those who lead," Plassat told the annual shareholders meeting. Carrefour's second-quarter sales showed the first fruits of Plassat's efforts; the decline in same-store sales at French hypermarkets slowed to 1.1 percent from 2.9 percent in the first quarter, and store traffic increased.

The stock has risen 73 percent since Plassat's arrival, in anticipation of improvement. It trades at 13.64 times forward earnings, a premium to Casino and Tesco.

"We have the right leadership," Barrack said. "We are on the right road. Everything takes time. We are quite enthusiastic with the long-term prospects of Carrefour."