Business Supplement Vol-1

DT
VOL1, ISSUE 1 | Sunday, February 19, 2017
Business Tribune
Software and IT
to drive growth
Syed Zakir Hossain
4
‘Promote non-traditional products
US shale oil braces for the
to diversify export sector’ 7 unfamiliar in 2017

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Sunday, February 19, 2017
DT
Week in Review
Bangladesh moves up nine notches on the
Index of Economic Freedom
Bangladesh moved nine notches up in the Index of Economic Freedom this year despite concerns about the rule of law and
property rights. The 2017 Index of Economic Freedom report was published by Heritage Foundation on Thursday. The country
scored 55 points and ranked 128th among 186 countries in terms of economic freedom, up 1.7 points compared to the last
year’s ranking. In 2016 Bangladesh ranked 137th among 178 economies with 53.3 points. Among other South Asian countries,
Nepal ranked 125th, Sri Lanka 112th, Bhutan 107th, India 143rd, Pakistan 141st and the Maldives 157th. Globally, Hong Kong tops
the list scoring 89.8 points followed by Singapore, New Zealand, Switzerland and Australia. “Bangladesh has made notable
success in government spending, fiscal and tax policy, while the concerns remain regarding rule of law, freedom of doing
business and openness of market. But in economic freedom status it is mostly not free,” said the report.
Geo-economic talks focuses on
India’s anti-dumping duty
India’s anti-dumping duty on Bangladesh’s
jute and demonetisation
of rupees have made a big dent in
the export of jute products to the
neighbouring country. The issue came
up while Bangladesh State Minister
for Foreign Affairs Shahriar Alam met
Indian State Minister of External Affairs
MJ Akbar on Monday on the sidelines
of the “Indian Geoeconomic Dialogue”
being held in Mumbai. The two ministers
noted that tremendous progress was
made in almost all sectors of cooperation
between Bangladesh and India,
including connectivity, power, trade and
commerce, security, cultural exchange,
tourism and people-to-people contact, a
press release said.
Govt to procure two LNG carrier
vessels
The government has decided to procure
two new Liquid Natural Gas carrier vessels
for transporting LNG after launching
the country’s first ever LNG-import
terminal at Moheshkhali in Chittagong.
A non-binding Memorandum of
Understanding (MoU) has been signed
between the representatives of Bangladesh
Shipping Corporation and Chinese
Institute of Maritime and Offshore
Engineering HB Co LTD at the secretariat
on Tuesday. After the signing ceremony
Shipping Minister Shajahan Khan said:
“The capacity of each carrier vessel is to
be 40,000 cubic metre which will help
ease transportation of LNG.”
Tofail urges India to drop trade
barriers
Commerce Minister Tofail Ahmed
on Thursday called upon the Indian
government to take necessary measures
to remove tariff and non-tariff barriers to
boost export to the neighbouring country.
Despite a duty-free market access to
India, Bangladesh’s export to the country
is very small when it comes to imports.
According to the latest data, in the fiscal
year 2015-16, Bangladesh earned $690
million from India, exporting several
products while Bangladesh imported
products worth $5.45 billion. “India offers
Bangladesh duty-free market access
for all products except tobacco, arms and
alcohol, but due to tariff and non-tariff
barriers, Bangladesh’s exports to India
have not reached a desired level,” Tofail
Ahmed said while addressing the inaugural
of Indo-Bangla Trade Fair in Dhaka.
Traders: Red meat to sell at Tk300
per kg, if demands fulfilled
Red meat traders in Dhaka have promised
that they will sell meat at Tk300
a kilogramme if the government eases
complications over importing Indian
cattle, and stops extortion and unsanctioned
taxes at cattle markets, especially
Gabtoli. They made the commitment at
a press conference jointly organised by
Dhaka Metropolitan Meat Merchants
Association (DMMMA) and Bangladesh
Meat Merchant Association in Dhaka on
Friday, the fifth day of their week-long
strike enforced on February 13. The
announcement came just two days
before a meeting between the traders,
Commerce Ministry and Dhaka North
City Corporation (DNCC), when they will
decide about the strike.
Tourism park planned on island in
Naf River
BEZA has targeted to bring 2.8m tourists
by 2020 to the island located at Teknaf
upazila under Cox’s Bazar. As part of the
government initiative to boost tourism,
Bangladesh Economic Zones Authority
(BEZA) has planned to develop a new
tourism park in the island of the Naf River.
The new venture – Naf Tourism Park – will
come into being in the middle of the river
that divides Myanmar and Bangladesh.
BEZA has targeted to bring 2.8m tourists
by 2020 to the island located at Teknaf
upazila under Cox’s Bazar.
Demand for plastic goods
industrial park in Keraniganj
While Industries Minister Amir Hossain
Amu said the work of an industrial park
for the plastic sector in Munshiganj is
to be completed by 2018, the industry
people demanded another in Keraniganj
near Dhaka. “We are working on a project
at Sirajdikhan, Munshiganj at a cost
of Tk133 crore on over 50 acres of land,
to be completed by 2018,” said Amu at
the inauguration of the International
Plastic Fair 2017 in Dhaka on Wednesday
as the chief guest. The fair is being
held at Bangabandhu International
Conference Centre. The proposed park
in Sirajdikhan is expected to create jobs
for about 18,000 workers, Amu said.
He emphasised the need of eco-friendly
green industrialisation in the country.
Petrobangla seeks $1.4bn govt
support to buy LNG from Reliance
Petrobangla has sought assurance from
the government to pay US$1.4 billion
annually as it is going to purchase 390
MMCFD LNG daily from India’s Reliance
Power Limited, says a source in the
Finance Division. The ministry of Power,
Energy and Mineral Resources yesterday
forwarded a letter to Petrobangla
Chairman in this regard. According to the
official, Treasure and Debt Management
Department under the Finance Division
will look into the matter for giving
assurance to pay the amount to Reliance
Power Limited. “We have to calculate the
county’s total credit and debt before taking
the decsion,” an official said, asking
not to be named. According to the letter,
Petrobangla has no financial capacity to
pay $1.4 billion annually to Reliance.
Abul Hashem new DSE chairman
Professor Abul Hashem has been
elected the new chairman of Dhaka
Stock Exchange (DSE). The premier
bourse, in a media release today, said
he had been elected at a meeting of the
DSE board of directors. Earlier, he had
served as a director of DSE from 2010.
Dr Abul Hashem is working as an honorary
professor of the Dhaka University
Accounting and Information Communication
Department.
NBR: Variations in tax card system
likely
The National Board of Revenue (NBR)
is working on bringing variations in the
tax card system, which it delivers for
honoring top taxpayers in different
sectors recognising their contributions
to the national exchequer in coming
days. “We need revenue for implementation
of vision 2021 and 2041 set by the
government. To mobilise revenues and
encourage honest taxpayers, the NBR
has already increased the number of tax
cards and brought variations in the criteria.
More variations will be brought in future,”
NBR Chairman Md Nojibur Rahman
said on Wednesday. Remittance earnings
saw 2.50% growth in the year 2015 from
$14.94 billion in the year 2014. •
Corporate News
REHAB has recently awarded Sanmar Properties Limited for its contribution to real estate industry, said
a press release. The company’s chairperson, Mashuk Huck received a crest from Engineer Mosharraf
Hossain, Minister for Housing and Public Works
Walton has recently opened a new plaza at BCS Computer City, said a press release. President of BASIS,
Mostafa Jobber and film actor Ilias Kanchan have inaugurated the plaza

International
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Sunday, February 19, 2017
DT
Emerging market funds get rare bit of good news
• Reuters Breakingviews
Ashmore is giving emerging market
funds a spot of good news. The
developing economy specialist is
seeing rising profits and demand
for its products. That’s heartening,
given the triple threat of Trumpian
protectionism, Federal Reserve
rate rises and the steady pressure
on fees.
Ashmore’s results come at a
tough time for rival Aberdeen Asset
Management, which saw 10bn
pounds of outflows in the three
months to December. Emerging
market assets look particularly
fragile: US President Donald
Trump’s election and promise to
“make America great again” should
make funds flow from emerging
markets to developed ones, if protectionist
policies and a rising dollar
spur faster rate rises.
So far this isn’t happening. Ashmore’s
assets under management
were relatively flat for the sixmonth
period to the end of December
but up 5% in the year, while operating
profit rose 33%. Although
Trump’s presidency has generated
A man seen walking past a stock brokerage
a lot of alarm, returns on the $9tn
of negative-yielding developed
economy debt are still ghastly. EM
debt isn’t massively expensive: the
spread on the JPMorgan EMBI hard
currency index is still more than 1
percent above its level in 2013. And
the premium offered by EM debt
over developed ones could fall as
risk-free rates rise.
Reuters
Ashmore also looks resilient to
the other big threat - the onslaught
of passive management and investor
preference for low-fee products.
Some 91% of its funds beat
benchmarks in the six months to
the end of December. The range of
investments and performance in
emerging economies should make
outperformance easier. And, even
as passive managers eat their way
into developed assets, less than
10% of emerging ones are yet captured
by benchmark indices.
How much longer can such
trends last? Trump is unpredictable,
and may reverse course if
cornered – though the pain of the
fallout will depend on the speed
of tightening. As passive funds
reach saturation point in developed
economies, they will train
their sights more on the untapped
pool of emerging ones. Smart beta
funds, a halfway house been active
and passive management, may be
better at matching active manager
performance.
Ashmore is now trading at
nearly 17 times forward earnings,
versus a sector average of 13,
according to Eikon. That reflects
Ashmore’s relative strength, but
ignores the first rule of investing:
past performance is no guarantee
of future results. •
Corporate News
IPDC Finance Limited has recently announced the winners of its Valentine’s day offer, said a press
release. The lucky winners were Nabila Esha, Promi Faria, Mashroor Faiyaz Khan, Adiba Samantha
Parvez and Tazrian Binte Zaman
Biman has recently held a daylong training workshop for the journalists covering aviation sector, said
a press release. Director (Administration) of Biman, Md Belayet Hossain was present at the workshop
among others
Microtrade Food and Beverage Limited has recently been launched in Dhaka, said a press release. The
company’s managing director, S Md Jashimuddin Chisty was present on the occasion
Robi has recently hired Havas Media Bangladesh as its media agency, said a press release. CEO of Robi,
Mahtab Uddin Ahmed and chairperson of HAVAS Media Bangladesh, Faridur Reza Sagar were present
on the occasion

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Sunday, February 19, 2017
DT
Interview
‘Promote non-traditional products
to diversify export sector’
Abdus Salam Murshedy, president of Exporters Association of Bangladesh (EAB),
discusses the merits of promoting the export of non-traditional products in an exclusive
interview with the Dhaka Tribune's Ibrahim Hossain Ovi
How can Bangladesh diversify
export products?
The government has to offer
lucrative options to promote
export of non-traditional products
to diversify the sector as well
as reduce the dependency one
particular product.
In order to do so, the first step
would be identifying the products
and industries that have export
potential. Following that, the government
has to formulate policies
and create the environment – proper
infrastructure, incentives, reinvestment
facilities, tax holiday,
special rates, etc – in which those
industries can flourish.
The ready-made garment
(RMG) is a great example of
how government support and
incentives can develop an industry
with tremendous export potential.
The RMG industry currently
contributes to around 82% of
the country’s total annual export
and employs nearly 4.4 million
people.
But that means our export sector
mostly dependent on a single
industry. To overcome that
dependency, the government is
giving high priority to the diversification
of export products in the
Seventh Five-Year Plan.
Creating employment requires
investment, but we are not seeing
any new investments being made
in the country.
Yes, especially in the manufacturing
sector, even though the
current political environment is
stable. This is because there is no
specific policy to ensure power and
gas supply in the industries. That
has to be ascertained to bring in
new investments in the manufacturing
sector.
Does our monetary policy favour
the export sector?
Not really. As a leader of the export-oriented
industries in the
country, I expected a separate direction
for the sector to be set in the
monetary policy, but that did not
happen. The policy should have a
higher target for credit growth as it
makes getting the expected funds
for investment easier.
To bring in more investment, we
need a monetary policy that would
make funds available for the manufacturing
sector.
Abdus Salam Murshedy discussing the prospects of non-traditional products
I expected a separate direction for the sector to be set in the
monetary policy, but that did not happen. The policy should
have a higher target for credit growth as it makes getting the
expected funds for investment easier
What should the government do to
encourage new investment?
Investors – whether they are small
or big, experienced or new – want
all the resources and facilities
that they need available within a
certain period of time at a certain
place when they invest in an industry.
The government has to ensure
precisely that; in order to bring in
both local and foreign investments,
the government must ensure onestop
services within a short span of
time.
What are the major challenges
here in running a business?
Compared to our competitors, the
infrastructure cost is higher in
Bangladesh. The major challenges
are the unavailability of uninterrupted
gas and power supplies to
the industries, higher gas and
power prices, and the current port
capacity which requires improvement.
What should we do to explore new
market?
Both the manufacturers and the
government have to concentrate
on market exploration. The
manufacturers have to take part
photo: Courtesy
in different trade shows around
the world to attract buyers and
brands. The government has to
engage commercial counsellors in
different countries to promote our
products.
Does Bangladesh have enough
skilled workers to produce highend
products?
No. We need more skilled workers
in the export-oriented industries
to produce high-end products, particularly
in the RMG sector where
currently there is a 25% shortage of
skilled workers.
In order to train more skilled
workers, our education system has
to be upgraded and made industry-oriented.
The government can
also invest in research and training
to develop skilled manpower, as
can the manufacturers. •

Special
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Sunday, February 19, 2017
DT
Software and IT-enabled services
to drive Bangladesh's growth
We have the
ability to develop
international
standard
software and
provide the
best quality of
services, but it is
very unfortunate
for the sector
that it does
not get proper
cooperation from
Bangladeshi
businesses
or sufficient
support from the
government
• Ibrahim Hossain Ovi
Bangladesh software and information
technology enabled services
(ITES) industry has emerged as a
very potential sector to enlarge
the export basket as well as create
more jobs for young graduates.
The software and info tech industry
is one of the key sector that
can help achieve a middle-income
status by 2021.
Bangladesh has set the target to
upgrade its status to a middle-income
country by 2021. In achieving
the target, employment generation
is key which will ensure employment
for the fresh graduates.
Software and ITES, the emerging
industry, can act as a catalyst
for the purpose. In Bangladesh,
there are about 17,00 IT companies
working on software development
for both local and foreign clients.
By exporting software and computer
services, Bangladesh earned
A man working on his computer at a tech show in Dhaka
$154 million last year. However, the
BASIS data showed that the actual
earnings from the export stood at
$598 million, while outsourcing
injected over $100 million into the
country.
Looking into the Bangladesh
export basket, it is seen that clothing
products have largely occupied
the export volume. The sector employed
over 4.4 million people, of
which 80% are women, mostly
from rural areas.
In the last fiscal year, RMG sector
earned over $28 billion, which
is over 82% of Bangladesh’s total
export earning of $34 billion.
The sector enjoys policy support
including cash incentives and
duty-free import of raw materials
from the government for its significant
contribution to the national
export. On the other hand, it created
dependency on the single sector
for forex.
Now the question is how Bangladesh
can enlarge the export basket
to achieve its $60 billion export target
by 2021, riding on RMG, and how
far it is possible to reduce dependency
on the single sector despite
the fact that the government has
emphasised product diversification.
Economists, trade analysts as
well as the sector people stressed
the need for promotion of new and
potential sectors as they would create
jobs and earn more money for
Bangladesh to raise the per capita
income to get the middle-income
status.
According to the latest data,
Bangladesh’s per capita income
stands at $1,466.
The Bangladesh government also
set the goal of making “Digital Bangladesh”
through digitising all services
online. It has created an opportunity
for software and ITES sector.
But the question remains how
Bangladesh as well as the sector
people can tap the opportunity? Is
Syed Zakir Hossain
the policy support well enough at
present when it comes to boosting
the business?
As the size of Bangladesh economy
is becoming larger, the demand
for software and ITES would
increase every day, paving the way
for new employment.
The uses of software are on the
rise since the government and private
sector are going to digitise all
their services online.
On the other hand, E-commerce
is getting boosted, which would
open up a new horizon of opportunity
for the software sector.
Software developers provide
business application solutions
including accounting software,
human resources software, office
management and security solutions
to the private sector as well
the government.
To tap the opportunity of software
and ITES sector, the government
should ensure effective and
investment friendly atmosphere
while the financial sector has to
provide easy and low rate loan to
run business.
Since the sector is gaining momentum,
skilled manpower needs
to be created in the best interests
of the industry while need-based
education curricula introduced.
There is a strong need for research
to know about the market
demand and the latest trend of the
industry, where the government
along with the sector people have
to work together.
Talking to the Dhaka tribune,
Shamim Ahsan, former president
of Bangladesh Association of software
and Information Services
(BASIS) expressed the prospects
and problems.
“We have the ability to develop
international standard software and
provide best quality services, but
it is very unfortunate for the sector
that they are not getting proper
cooperation from the Bangladeshi
business people and sufficient support
from the government.”
The government policy support
will make the sector vibrant and
materialie the dream of a middle-income
country, Shamim said,
adding that today’s RMG industry
is the best example.
The BASIS has over 1,000 members,
of which 70% work for developing
software for local and global
clients. About 100 companies make
mobile apps.
“Our mission is clear and it is
making Bangladesh a digitised one.
And software and ITES can be another
vehicle to upgrade Bangladesh’s
status to a middle-income
country,” added the software expert.
Recently, State Minister for ICT
Zunaid Ahmed Palak stated that
around 10 lakh people will be engaged
in the sector by 2021 and the
government is working together
with the private sector to create a
business-friendly environment for
the technology sector to achieve $5
billion export target from ITES export
by 2021.
For the current fiscal year 2016-
17, the government has allocated
Tk8,306 crore for the sector. The
sector had Tk6,107 crore in the last
fiscal year.
According to the Export Promotion
Bureau (EPB) data, in the
last fiscal year, Bangladesh earned
$151.83 million, a 14.55% up over
$132.554 million a year ago. While,
in the first six month of the current
fiscal year, Bangladesh earned $97
million, 34.94% up compared to
$72 million in the same period a
year ago. •

6
Sunday, February 19, 2017
DT
Stocks
WEEKLY Market Overview
5590.7
SUMMARY Points Change (%) Turnover (BDTmn) Volume (mn) Advanced issues Declined issues Unchanged Issues
DSEX 5,590.7 (+) 1.42% 53,504.0 1,458.4 186 126 20
CSE ASI 17,309.4 (+) 1.55% 3,180.7 104.1 186 80 27
Rise in turnover signals confidence boost
DSE NEWS
DSEX (+) 1.42%
5,520
• Ibrahim Hossain Ovi
The Dhaka Stock Exchange (DSE) experienced
a sharp rise in turnover last week as investors
poured in funds expecting gains from the
year-end dividend declaration of companies.
Four out of five trading sessions of the
week showed positive movement. During the
week, the DSE added 80 points to the previous
week’s close with average daily turnover
increasing to over Tk1,000cr last week.
According to DSE data, weekly turnover
stood at Tk5,350cr, up by 45.12% compared
to Tk3,686.6cr the previous week. Average
daily turnover increased to TK1,070cr from
Tk737.3cr. Weekly data of DSE moved up by
78 points or 1.42% to close at 5,591 points.
DS30, known as the blue chip index, gained
25 points or 1.26% to end at 2,028 points,
while DSE Shariah index added 21 points to
previous week’s closing point at 1,306 points.
“Broad index of the Dhaka Stock Exchange
Most Traded Price Weekly Cng
LANKABANGLA 57 9.8%
BARAKA POWER 49.4 12.0%
APPOLLO ISPAT 23.9 4.8%
IDLC FINANCE 73.4 3.2%
CENTRAL PHARMA 33.5 13.2%
BEXIMCO PHARMA 92.1 3.1%
ACI FORMA 219.5 9.0%
RSRM LTD 75.5 - 3.9%
DOREEN POWER 123.1 10.0%
BEXIMCO 32.4 0.0%
gained close to 80 points with increased
turnover showing increased confidence from
investors, said LankaBangla Securities in its
weekly market commentary.
Most of the major sectors this week provided
positive price returns. Cement, engineering
and food demonstrated the largest
positive movements, it added.
“The market is recovering from the adjustments
in prices, restoring confidence of investors,
which pushed weekly turnover up,”
Mohammed Rahmat Pasha, CEO of the UCB
Capital Management Ltd told the Dhaka Tribune
yesterday.
In the last couple of weeks, the market
went through massive price corrections following
the release of Bangladesh Bank’s
monetary policy statement which cautioned
banks and financial institutions about loan
diversion to capital markets. The cautionary
remark referred to past instances where loans
taken out on the pretext of purchasing new
WEEKLY MOVEMENT OF DSEX INDEX
5,620
5,600
5,580
5,560
5,540
homes or cars were in fact invested in the
stock market. Stock market regulators urged
investors to be rational following the upward
trend that started at the end of last year.
Financial disclosure, which showed better
earning per share than the previous year’s
earnings, is another reason behind the good
performance in the last year, said Rahmat.
However, the merchant banker said the
investors’ behaviour is not rational as they
are investing funds into some companies that
have not been paying dividends regularly.
He urged the investors to take investment
decisions based on the companies’ financial
performance and transparency.
The large cap sectors showed mostly positive
performance throughout the week. Banks,
down by 0.29%, were the only losers. Telecommunications
gained by 3.26%, the highest gainer
of the week, followed by Fuel at 2.14%, Engineering
at 1.98%, Pharmaceuticals at 1.79%,
NBFIs at 1.56% and Food Allied 1.29%. •
DAY 1 DAY 2 DAY 3 DAY 4 DAY 5
Dhaka Tribune has accumulated the stock market related data primarily from Dhaka Stock Exchange website. The basis of information collected was primarily from daily stock quotations and audited/
unaudited reports of publicly listed companies. High level of caution has been taken to collect and present the above information and data. The publisher will not take any responsibility if any body uses this
information and data for his/her investment decision. For any query please email to news@dhakatribune.com.
BSC: The Board of Directors has recommended
12% stock dividend for the year
ended on June 30, 2016. Date of AGM:
19.03.2017, Time: 11:00 AM, Venue: Shaheed
Mohammad Fazlur Rahman Munshi Auditorium,
Chittagong Port Area, Chittagong. Record
date: 06.03.2017. The Corporation has
also reported EPS of Tk. 4.94, NAV per share
of Tk. 610.00 and NOCFPS of Tk. (7.71) for
the year ended on June 30, 2016. EPS was
Tk. 3.16 for July-September, 2016 as against
Tk. 2.91 for July-September, 2015. NOCFPS
was Tk. 4.62 for July-September, 2016 which
was Tk. (7.72) for July, 2015-June, 2016. NAV
per share was Tk. 608.00 as of September
30, 2016 and Tk. 610.00 as of June 30, 2016.
LANKABAFIN: The Board recommended
15% cash, 15% stock dividend for the
year ended on Dec 31, 2016. Date of AGM:
30.03.2017, Time: 11:00 AM, Venue: will be
notified latter on. Record Date: 09.03.2017.
The Company has also reported Consolidated
EPS of Tk. 2.87, Consolidated NAV per
share of Tk. 24.16 and Consolidated NOCFPS
of Tk. 9.02 for the year ended on Dec 31,
2016 as against Tk. 1.53 (restated), Tk. 22.63
(restated) and Tk. 10.72 (restated) respectively
for same period of the previous year.
RNSPIN: The Company has informed that
Hon'ble High Court Division of the Supreme
Court of Bangladesh has passed a judgment
allowing the petition of the Company to hold
the Annual General Meeting within March 31,
2017 and also orally directed to proceed with
all the functions relating to Annual General
Meeting. Based on that the Company has
informed that a meeting of the Board of
Directors will be held on February 22, 2017
at 3:30 PM to consider, among others, the
matter of dividend and to fix pending AGMs
date of the Company for the financial year
ended on December 31, 2012, 2013, 2014
and June 30, 2016. •
Buffett drops Walmart, signalling the death of retail
• Agencies
Warren Buffett’s Berkshire Hathaway
just sold off $900m of Walmart
stock, choosing to invest billions
in airline stocks instead.
The sale, which leaves Buffett
with nearly no shares in Walmart,
comes as America’s largest traditional
retailer has been rushing
to catch up to Amazon and other
online competitors. Amazon’s
market value is now $356bn, compared
with Walmart’s $298bn. Buffett
last year acknowledged that
traditional brick-and-mortar retailers
were struggling in the face
of competition from the e-commerce
giant.
“It is a big, big force and it has
already disrupted plenty of people
and it will disrupt more,” Buffett
said at his annual shareholders’
meeting in 2016, according to
Bloomberg. Buffett’s been paring
his stake in Walmart since then.
He first bought shares in the retailer
back in 2005.
He also noted that Amazon’s
competitors, “including us in a
few areas, have not figured the
way to either participate in it, or to
counter it.”
Since the end of 2014, Walmart
shares have fallen 21% compared
with a 119% jump in Amazon.
Former Walmart CEO Mike
Duke admitted in 2012 that his biggest
regret as CEO was not investing
more in e-commerce to better
compete with Amazon.
'Retailing is like
shooting at a
moving target'
“I wish we had moved faster.
We’ve proven ourselves to be successful
in many areas, and I simply
wonder why we didn’t move
more quickly. This is especially
true for e-commerce,” Duke said at
the time. “Right now we’re making
tremendous progress, and the
business is moving, but we should
have moved faster to expand this
area.”
While Walmart has since invested
billions in e-commerce, it
still holds a tiny share of the market
compared with Amazon.
Walmart’s online sales were
$13.7bn in 2015, compared to Amazon’s
$107bn.
Buffett’s retail instincts have
proven correct before when he
correctly predicted the downfall
of Sears and Kmart in 2005.
“Retailing is like shooting at
a moving target,” Buffett said.
“Turning around a retailer that has
been slipping for a long time would
be very difficult. Can you think of
an example of a retailer that was
successfully turned around?”
Sears has since closed hundreds
of stores and seems to be headed
for bankruptcy. Macy’s and JCPenney
are also closing hundreds of
stores across America.
While Walmart’s footprint
hasn’t shrunk, many analysts say
America is still over-stored.
The US has 23.5 square feet of
retail space per person, compared
with 16.4 square feet in Canada
and 11.1 square feet in Australia —
the next two countries with the
highest retail space per capita,
according to a Morningstar report
from October. •

Analysis 7
DT
Sunday, February 19, 2017
US shale oil braces for the unfamiliar in 2017
• Reuters
Pump jacks drill for oil in the Monterey Shale, California, US
US shale producers are facing their
first production cost increase in
five years in 2017 as industry activity
picks up and energy service
providers hike fees to take a bigger
share of the profits generated by
higher oil prices.
Drilling innovations over the
past decade have generated a
dizzying reduction in the cost of
pumping oil from shale formations
across the United States - the
world’s largest energy consumer -
triggering an energy revolution and
a production boom.
When that boom ended with the
onset of a two-year global price war
in 2014, shale producers responded
with even deeper cost cuts. Technological
breakthroughs allowed
producers to wring more oil from
the rock and halved the per-barrel
price needed to turn a profit.
But for the first time since 2012,
shale producers will see a rise in
break-even production costs this
year, according to data from Rystad
Energy, which surveys producers.
The per-barrel costs will rise an
average of $1.60 across the shale
patch to $36.50.
The drive to lower costs has run
its course for now, and service firms
are leveraging power in the more
crowded oilfields, such as the Permian
basin in West Texas, to eke out
higher payments from producers.
Firms that supply rigs, crews,
technological expertise are clamoring
to take back discounts they
extended during the slump, in
some cases asking for between 10
percent and 15 percent more as the
number of rigs and crews deployed
in the fields rises.
Producers expect that to continue.
“In the Permian, activity has
picked up, and going forward we
would expect to see some pressure,”
Chevron Corp’s Chief Executive
John Watson said on an earnings
call last month.
Oil service providers acknowledge,
however, that their price
hikes may not stick until drillers
generate enough demand to burn
through the remaining spare capacity
in the oil service sector.
In a securities filing on Feb 8,
service provider Baker Hughes
Inc cautioned that drilling “activity
needs to increase meaningfully
before excess service capacity
can be substantially absorbed and
meaningful pricing recovery takes
place.”
Permanent cost savings
Service inflation represents only a
fraction of the expected rise in international
crude prices this year. A
Reuters poll of 31 analysts and economists
forecast benchmark US oil
prices will average $56.08 per barrel
in 2017, up from $43.47 last year.
Between half and two-thirds of
the cost savings achieved during
the oil price slump are likely to become
permanent even if oil prices
tick higher, according to industry
experts and company estimates.
Shale companies deployed more
rigs than they have done in sixteen
months last week, and have steadily
increased the number in the field
to take advantage of crude prices
that have mostly held at more than
$50 per barrel since the world’s top
oil exporters, both OPEC and non-
OPEC, agreed to cut supplies in late
November.
A further rise in the oil price
could quickly stir drilling activity
across the United States, which
would in turn accelerate service
Reuters
fee and labor cost inflation. That
is a worrying development for an
industry that has lately gotten used
to costs heading only down.
There were 207 hydraulic fracturing
fleets at work in January
across the US, up 20% from last
June, according to data from Houston-based
Primary Vision, which
tracks oilfield service equipment
usage.
Pioneer Natural Resources Co
has its own fracturing crews, which
it hopes will help offset rising service
costs elsewhere.
“I believe we will be able to keep
our inflation numbers down to more
like approximately 5%, but the internal
plan is to make sure that cost
inflation is offset by our efficiency
gains,” Pioneer Natural Chief Executive
Tim Dove said on a post-earnings
call earlier this month.
Hedging against inflation
Other companies have locked in
contracts to insulate themselves
from the rise in service and labor
costs. WPX Energy, a leading
shale oil producer in North Dakota
and Texas, has sought to protect
against price inflation through contracts
for sand, stimulant, equipment
and services, said CEO Rick
Muncrief in an interview.
Other companies including Hess
Corp hope to beat the inflation forecasts
with yet more efficiency gains.
Hess hopes to wring more barrels
out of each well with new techniques
that allow it to conduct hydraulic
fracturing at 60 spots along
a well, up from the usual 50, president
Greg Hill said on a conference
call last month.
In addition, using more sand
and other proppants - used to keep
fissures in shale rock open - in the
wells should help boost production,
Hill said.
Oil producers can already count
on many cost savings achieved in
recent years, such as reductions in
the time it takes to drill wells, said
Gürcan Gülen, an energy economist
at the Bureau of Economic Geology
at the University of Texas at Austin.
“Once you know better how
to do things, you’re not going to
change that when oil prices move
higher,” said Gülen.
But the possibility of more deep
cost reductions are, for the most
part, gone.
A number of companies saw
break-even costs at the wellhead -
the price required to profit from oil
at a new well - stagnate between
the third and fourth quarters, data
from Rystad Energy showed.
“To certain producers, there’s
a little bit of opportunity to lower
costs more,” said Bill Costello,
a portfolio manager at Westwood
Holdings Group. “But those are few
and far between.” •

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Sunday, February 19, 2017
DT
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