Lula backs replacing US dollar in foreign trade

Brazil’s Luiz Inacio Lula da Silva called on BRICS nations to come up with an alternative to replace the US dollar in foreign trade, supporting China’s crusade against US global dominance just as he prepares to meet with President Xi Jinping in Beijing. 

Lula’s remarks were made on Thursday during a visit to the Shanghai-based New Development Bank, an institution created by BRICS countries, which, along with Brazil and China, include Russia, India and South Africa. Former Brazil President Dilma Rousseff is the bank’s new chief executive. 

 “Why can’t an institution like the BRICS bank have a currency to finance trade relations between Brazil and China, between Brazil and all the other BRICS countries?” he said. “Who decided that the US dollar was the (trade) currency after the end of gold parity?” 

Beijing has ramped up efforts to boost the use of its own currency in foreign trade. Last month, Brazil and China took steps to make it easier to settle their foreign trade operations in yuan or reais, with the stated goal of reducing costs by eliminating a third currency from the transactions. 

Brazil’s Finance Minister Fernando Haddad, who’s accompanying Lula in his trip to China, said local currencies are already used in bilateral trade through instruments such as credit receipts. The goal, he added, is to expand mechanisms that allow trade operations to be settled without the intermediation of a third currency. 

“The advantage is to avoid the straitjacket imposed by necessarily having trade operations settled in a currency of a country not involved in the transaction,” he told reporters in Shanghai.

 Courtesy: Bloomberg

Saudi Arabia launches Special Economic Zones

According to Saudi Gazette, Crown Prince and Prime Minister Mohammed bin Salman, who is also chairman of the Council of Economic and Development Affairs, launched on Thursday four new Special Economic Zones in Saudi Arabia.

The announcement about the new economic zones, which are located in Riyadh, Jazan, Ras al-Khair and King Abdullah Economic City, north of Jeddah, is line with the Crown Prince’s commitment to strengthening Saudi Arabia’s prime position as a global investment destination.

In a statement carried by Saudi Press Agency, the Crown Prince said, “Saudi Arabia is open for business, and welcomes investors from all around the world to see first-hand the historic opportunities we have to offer. The new Special Economic Zones, launched today, will significantly impact how business is done in the country, create tens of thousands of jobs, and contribute billions of riyals to our GDP.”

The new zones draw on Saudi Arabia’s strategic location at the heart of global trade, creating new hubs for businesses across key growth sectors to launch and scale the companies and technologies that will shape the future. The Special Economic Zones (SEZs) will support existing national strategies and create new linkages with international frameworks, building on the competitive advantages of each region to support key sectors including logistics, advanced manufacturing, technology and other priority sectors for the Kingdom.

Benefits for companies operating in the new SEZs include competitive corporate tax rates, exemption from customs duties on imports, production inputs, machinery and raw materials, 100 percent foreign ownership of companies, and flexibility to attract and hire the best talent worldwide.

The new SEZs will provide tremendous opportunities to develop the local economy, generate jobs and localize supply chains. They represent a continuation of the Kingdom’s long-running initiatives to transform into a global investment destination, and a vital hub for global supply chains, capitalizing on its position at the heart of global trade routes, at the crossroads between East and West. With a detailed program of regulations and incentives, these SEZs offer rewarding and attractive offers for foreign investment. This program will allow for the acceleration of the required reforms to facilitate doing business in all parts of the Kingdom.

These four SEZs build on previous free zone initiatives in the Kingdom, including the recent launch of the integrated logistics special zone at King Salman International Airport in Riyadh. Together, they represent the first phase of a major, long-term program aimed at encouraging foreign direct investment, attracting the most talented professionals from around the world, and promoting entrepreneurship and economic development within the Kingdom.

The Special Economic Zones, regulated by the Economic Cities and Special Zones Authority, provide new solutions to the challenges facing many global businesses as they look to localize and strengthen their supply chains. They will help the Kingdom take advantage of key macroeconomic shifts to create a truly differentiated business environment, activating new sectors and value chains, the SPA reported.

Pakistan Stock Exchange average daily trading volume posts 24.1%WoW decline

The benchmark index of Pakistan Stock Exchange closed the week ended on April 13, 2023 with a dip of 0.47%WoW. Despite Pakistan’s completion of all prior actions, the resumption of the IMF program is still awaited. According to news sources, the pain point between Pakistan and the IMF of late is commitments from friendly countries.

Furthermore, the circular debt of power sector increased by PKR419 billion during 8MFY23, taking the total circular debt to PKR2.67 trillion despite increasing electricity tariffs.

With the interest rates at 21% and uncertainties regarding the country’s economic position, participation remained lackluster during the week, with daily volumes averaging at 83 million shares during the week, as compared to 110.18 million shares in the prior week depicting a decline of 24.1%WoW.

Other major news flows during the week included; 1) IMF drastically cuts Pakistan’s FY23 growth forecast to 0.5%, 2) IMF projects fall in GoP gross debt to 73.6% of GDP, 3), March workers’ remittances hit 7-month high of US$2.5 billion, 4) RDA inflows cross US$6 billion mark, 5) SBP raises via auction for PIBs, and 6) Banks’ deposits increase by 15% YoY to PKR23.56 trillion.

The top performing sectors were: Commercial Banks, Technology and Communication, and Closed-End Mutual funds, while the least favorite sectors were: Vanaspati & Allied industries, Textile Weaving, and Tobacco.

Top performing scrips were: FABL, LOTCHEM, KOHC, SCBPL, and MUGHAL, while laggards included PSEL, EPCL, GLAXO, AIRLINK, and PAKT.

Flow wise, individuals were the major buyers with net buy of US$0.21 million, while companies were major sellers, with a net sell of US$0.35 million.

Any news flow regarding materialization of the commitments from friendly countries will put the IMF program back on track and will support the market sentiment.

According to recent news flow, Pakistan is likely to receive US$ one billion financing commitment from UAE. NEPRA has approved positive tariff adjustment of 47 paisas to recover PKR15.45 billion from customers during 2QFY23 under QTA—likely to keep the circular debt in check.

With this backdrop, the market is expected to remain range bound, with any news regarding the IMF program, including an Staff Level Agreement, would lead to a euphoric move in the market.

Saudi Arabia breaking away from the US orbit

The geopolitics of oil has been upended in just three years, with the emergence of a Saudi Arabia-Russia link that has the potential to cause a raft of problems for the US economy.

This month’s OPEC Plus decision to cut crude output — for the second time since US President Joe Biden flew to Saudi Arabia last summer seeking a boost — may be just the start, says Ziad Daoud and Courtney McBride report.

The April 02 announcement lifted oil prices by about US$5 a barrel and crude on Wednesday went on to hit the highest closing price this year. It was already clear last week that recession risks were bigger than they otherwise would have been — because consumers spending more on energy will have less cash left for other stuff — and inflation would be higher. 

But even more significant is what the OPEC Plus move says about the likely path of oil prices over the coming years. The bigger takeaway is that Saudi Arabia is breaking away from Washington’s orbit.

Saudi Arabia sets oil production levels in coordination with Russia. And there’s a newly tight relationship with the other giant US strategic rival — China. That was on display when Beijing brokered a deal to ease tensions with the Saudis’ regional rival, Iran, with the US out of the loop.

In other words, Western influence over the oil cartel is at its lowest point in decades. Most analysts now anticipate that crude prices will average above US$80 a barrel over the coming years — well above the US$58 seen over the 2015-21 period.

For the global economy writ large, lower oil supply and higher prices is bad news. The major exporters are the big winners, of course. For importers, like most European countries, more expensive energy is a double blow — dragging on growth even as inflation rises.

The US falls somewhere in between. As a major producer, it benefits when prices rise. But those gains — unlike the pain of higher pump prices — aren’t widely shared.

 

Ukraine asks Pentagon for fighter jets

Ukrainian Prime Minister Denys Shmyhal on Wednesday directly appealed to Defense Secretary Lloyd Austin for US fighter jets and longer-range missiles in its fight against Russia, echoing the country’s repeated calls for modern weaponry.

“We will win this war,” Shmyhal said at the top of a meeting between the two at the Pentagon. “But to achieve it faster and with fewer casualties, Ukraine still needs intensive military support — more air defense systems that minimize the impact of Russian airstrikes, more heavy artillery, mortars and ammunition for them. We also ask you for reconsider the possibility of providing Ukraine with longer range missiles.” 

Austin, while not commenting on the request, committed to investing in the US defense industrial base to further ramp up production for weapons sent to Ukraine. 

Ukraine since the start of Russia’s invasion a little more than a year ago has pressed the United States and NATO for advanced fighter jets to protect the country’s skies. 

While some NATO states including Slovakia and Poland have agreed to send Soviet-era MiG-29 fighter jets to Ukraine, Western countries have so far held off on sending the more advanced F-15 and F-16 fighters Kyiv is asking for.  

The Biden administration has not been swayed by Slovakia and Poland’s pledges to send its own jets, saying that the choice is a “sovereign decision.” 

Kyiv has also asked for longer-range missile systems in the fight, though the US government has held off on supplying such weapons over concerns Ukraine may use them to strike targets within Russia, which is against US policy.  

At Wednesday’s gathering, which marked the second Pentagon meeting between Austin and Shmyhal, the Ukrainian official thanked Washington for its significant military support, including sending Abrams tanks and Bradley and Stryker infantry fighting vehicles, according to a readout of the meet up. 

But he also asked Austin for more heavy equipment and aircraft.  

“In modern warfare, air superiority is crucial,” Shmyhal said. “That is why Ukraine is initiating the building of a new, so-called fighter jet coalition. And we are inviting the United States to become its most important participant. America can once again demonstrate its leadership by providing Ukraine with F-15 or F-16 aircraft.” 

Austin, in turn, thanked Ukraine for making sure US lethal aid already provided is accounted for. 

 

Jeddah Talks: Comprehensive settlement of Syrian crisis and its return to Arab fold

Signaling that Syria’s decade-long regional isolation is nearing an end, Damascus agreed with Saudi Arabia on Wednesday to initiate the necessary steps to achieve a comprehensive political settlement of the Syrian crisis, reports Saudi Gazette.

In a joint statement issued at the end of the official talks between Saudi Minister of Foreign Affairs Prince Faisal bin Farhan and Syrian Minister of Foreign Affairs and Expatriates Dr. Faisal Mekdad in Jeddah on Wednesday, the two countries decided to secure humanitarian aid access to all Syrian territories.

Mekdad arrived in response to an invitation extended by Prince Faisal bin Farhan. It is the first visit by a senior Syrian diplomat to the Kingdom in more than a decade, following a recent agreement between Riyadh and Damascus to re-establish bilateral ties and reopen their embassies.

The foreign ministers’ talks focused on adopting the measures to be taken to realize comprehensive settlement of the Syrian crisis that would end all its repercussions, achieve national reconciliation, and contribute to the return of Syria to its Arab fold, apart from the resumption of Syria’s natural role in the Arab world.

During the talks, the two sides discussed the efforts exerted to reach a political solution to the Syrian crisis that preserves Syria’s unity, security, stability, Arab identity, and territorial integrity, in a way that promotes the welfare and prosperity of the Syrian people.

According to the statement, Saudi Arabia and Syria agreed on the importance of resolving humanitarian difficulties and providing a suitable environment for aid to reach all areas in Syria. They also agreed to create the necessary conditions for the return of Syrian refugees and displaced persons to their areas, ending their suffering and enabling them to return safely to their homeland, and taking further measures that would contribute to stabilizing the situation in the entire Syrian territories.

The two sides stressed the importance of strengthening security and combating terrorism in all its forms and organizations. The two countries also underlined the need to enhance cooperation in combating drug smuggling and trafficking, and the need to support the Syrian state institutions, to extend their control over its lands to end the presence of armed militias as well as the foreign interference in the internal affairs of Syria.

Saudi Arabia and Syria welcomed the start of procedures for the resumption of consular and diplomatic services and flights between the two countries.

On his part, the Syrian Foreign Minister Mekdad appreciated the efforts made by Saudi Arabia to end the Syrian crisis, and its provision of humanitarian and relief aid to those affected by the devastating earthquakes that struck Syria in February this year.

Russia starts fuel supplies to Iran by rail

According to a Reuters report, Russia has started fuel exports to Iran by rail this year for the first time after traditional buyers shunned trade with Moscow.

Russia and Iran, both under Western sanctions, are forging closer ties in order to support their economies and to undermine Western sanctions which both Moscow and Tehran cast as unjustified.

Western sanctions on Russian oil products over what Moscow calls its special military operation in Ukraine have reshaped global fuel markets with tankers taking longer routes and suppliers choosing exotic destinations and ways of transportation.

Iran has been under Western sanctions for decades with limited access to global markets.

Last autumn Russia's Deputy Prime Minister Alexander Novak announced the start of swap supplies of oil products with Iran, but actual shipments only started this year, Reuters sources said.

In February and March Russia supplied up to 30,000 tons of gasoline and diesel to Iran, two sources familiar with the export data told Reuters. A third source confirmed the trade but was not able to confirm the volumes.

All the volumes were supplied by rail from Russia via Kazakhstan and Turkmenistan. One of the sources said that some gasoline cargoes were sent on from Iran to neighbouring states, including Iraq, by truck.

Iran is an oil producer and has its own refineries, but recently its consumption had exceeded domestic fuel production, especially in its northern provinces, a trader in Central Asian oil products market said.

Russia had supplied small volumes of fuel to Iran by tanker via the Caspian Sea, as was the case in 2018, two traders familiar with the matter said.

Russian oil companies are currently interested in exporting diesel and gasoline to Iran by rail as exports by sea face high freight rates and a price cap imposed by the G7 countries.

However the rail exports face bottlenecks along the route, the sources said.

"We expect fuel supplies to Iran to rise this year, but we already see several issues with logistics due to rail congestion. That may keep exports from booming," one of the sources familiar with supplies to Iran said.