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Quest Means Business
Future of Europe; US Presidential Debate; American Quest; Wall Street Choppy; European Markets Up; Nike Drops Lance Armstrong; Nike Sponsorship Scandals; Euro Rising; Bank of America Boost; US Housing Rebound Continues
Aired October 17, 2012 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
MAX FOSTER, HOST: Relief on the eve of the EU summit. Francois Hollande says the end of the crisis is in sight.
Lance Armstrong is dropped by sponsor Nike. It says it was misled by the former cycling champ.
And Starbucks packs strategy to British politicians crossing over.
I'm Max Foster, this is QUEST MEANS BUSINESS.
Well, on the even of a summit of Europe's leaders, clear differences remain between the two most powerful nations in the block. The French president is openly pushing an agenda that is at odds with Germany's.
Now, Francois Hollande told newspapers he favored stimulating growth over strict austerity, pooling some of Europe's debt and going easy on Greece, none of which will go down particularly well in Berlin. Mr. Hollande says an end to the crisis is now in sight, thanks to the commitments made last -- at Europe's last leader meeting when they got together.
(BEGIN VIDEOTAPE)
FOSTER (voice-over): When Europe's leaders last met, there were new faces, a new bailout for Cypress, and an air of panic.
JOSE MANUEL BARROSO, PRESIDENT, EUROPEAN COMMISSION: Standing still is not an option. A big leap forward is now needed. It may not be simple. It will require ambition, vision, and determination to enact far-reaching reforms.
FOSTER: Spanish yields were nudging 7 percent, and Italy wasn't far behind.
(CROWD SHOUTING)
FOSTER: From Madrid to Athens and even Paris, discontent on the streets was rising with the summer heat. Three months on, yields have tailed off slightly. Temperatures have cooled, and the tone has changed to one of controlled optimism.
HERMAN VAN ROMPUY, PRESIDENT, EUROPEAN COUNCIL: People realize that we are -- that we are heading somewhere new. And even if the exact destination will depend on many factors, there is an increasing confidence in the future of the eurozone, a growing sense that we will get there.
FOSTER: And this isn't just a political line. Some economists agree.
MOHAMED EL ERIAN, CEO, PIMCO: Compared to where we were three months ago, a lot of progress has been made. In terms of design, Europe has agreed on the four legs to the stool to make monetary union sustainable. In terms of what the ECB has done, it has reduced the chance of a very disorderly outcome. But now, we need to move in Europe from design to implementation.
FOSTER: First, the southern front: Spain and Greece. Spain continues to deny rumors it's close to applying for a bailout, whilst Greece is still putting the finishing touches on a deal with the troika on austerity cuts. Clarity is needed on both, and soon.
Next, leaders must further discussions on creating a banking union, supervised by the ECB. Germany says quality is more important than speed. France's president says time is short.
And from banking union to budgetary union: a proposal for a separate eurozone budget has been tabled, though plans are still in their early stages.
BARROSO: We in the European Commission believe this is necessary to enhance, of course, capacity to respond to the current and future crisis, but it has to be done in a way that, of course, does not put in question the basic principles of unity of all the European Union.
FOSTER: Last week's Nobel Peace Prize win is still hanging in the Brussels' air, but it's unlikely much euphoria will filter into the summit. Tensions are rising, especially between those wielding the most power. This summit may not yield big decisions, but it may expose dangerous divides.
(END VIDEOTAPE)
FOSTER: Well, President Obama and his presidential opponent, Mitt Romney, are back on the campaign trail after Tuesday night's televised debate. When it came to foreign policy, Obama and Romney agreed that too many jobs would go to China, but of course they differed on how to fix it.
(BEGIN VIDEO CLIP)
MITT ROMNEY (R), US PRESIDENTIAL CANDIDATE: We can compete with anyone in the world as long as the playing field is level. China's been cheating over the years, one, by holding down the value of their currency.
Number two, by stealing our intellectual property, our designs, our patents, our technology. There's even an Apple Store in China that's a counterfeit Apple Store selling counterfeit goods. They hack into our computers. We will have to have people play on a fair basis.
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: I want to close loopholes that allow companies to deduct expenses when they move to China, that allow them to profit offshore and not have to get taxed, so they have tax advantages offshore. All those changes in our tax code would make a difference.
Now, Governor Romney actually wants to expand those tax breaks. One of his big ideas when it comes to corporate tax reform would be to say, if you invest overseas, you make profits overseas, you don't have to pay US taxes.
(END VIDEO CLIP)
FOSTER: Well, CNN's Ali Velshi joins us now. Ali, they're playing a dangerous game, aren't they, when you consider that China holds more than a trillion dollars-worth of US debt? But they have to address this issue if they're going to keep their voters happy, I guess.
ALI VELSHI, CNN CHIEF BUSINESS CORRESPONDENT: Yes, look. This plays big in elections, it always plays big in America, it plays big in Ohio, and nobody has won the White House without winning Ohio. Ohio is a state in play. It's leaning toward President Obama at the moment, but it's got a lot of electoral college votes.
Ohio is the rust belt, it's the midwest, it's where manufacturing jobs used to be, and many people identify the loss of those jobs with the shipment of those jobs to China. So, they're both playing a very close to this -- the edge on China.
Bottom line is, people campaign with tough talk about China, and then when they get into office, they understand that China holds the biggest portion of new US foreign debt. They understand that American prosperity is often very tied to the cheap goods that are bought in China.
And as President Obama said in response to a question from Candy Crowley about Apple and these goods that are bought in the United States and manufactured elsewhere, Max, that we don't necessarily want to repatriate those types of jobs.
A lot of low-value jobs have gone away, and what America needs to do is retain its manufacturing heft, but at a higher value, more technologically-advanced level.
So, a lot of this is noise around the edges. There are angry voters. There are people who feel they've lost their jobs to China, and the tough talk on China is sort of a necessity, de rigueur, as you would say, Max, to get elected.
FOSTER: But Obama has to live with what he commits to, and in a way, you can see him being able to live up to that. When Romney starts labeling China a currency manipulator --
VELSHI: Right.
FOSTER: -- that's a -- potentially a real problem, isn't it? And how --
VELSHI: Yes.
FOSTER: -- is he going to live up to that if he becomes president?
VELSHI: So, there are systems by which, if you have trade problems with another country, you file them with the World Trade Organization. That's very different than saying, "On my first day in office, I'm going to label China a currency manipulator." That's probably not a good practice.
But the bottom line, Max, is that China knows it needs America to do well so that it can continue to pay its debt and buy the products that it manufactures, and America knows it needs the low-price China goods.
So, even if that were to happen, if Mitt Romney were to get elected and get inaugurated in January and on the first day pass something or put something to Congress that China was a currency manipulator, you're probably not going to see relations between the two countries fall apart.
China is very aware of what the complaints are against it with respect to intellectual property, with respect to human rights, and with respect to the currency.
President Obama did say under his watch, the renminbi has appreciated about 11 percent. Our fact-checking indicates that it's probably closer to 9 percent. But the fact is, it has slowly been happening. Both parties to this little spat know what's going on, Max.
FOSTER: And as the expert here watching this debate, who do you think did win the business, the economic debate last night?
VELSHI: Well, I have to say, these debates get peppered with sort of half-truths and half-falsehoods. Nobody makes baldfaced lies in the era of the internet, but they both stuck to their guns.
The problem is, Barack Obama, you can extrapolate from what he's done over the last four years as to what he's going to do. With Mitt Romney, we're still lacking some details.
So the big issue with Mitt Romney remains what he would do, how he would reduce taxes by 20 percent across the board and yet somehow not add to the deficit. That remains the big question. But I think they both did pretty well on the economic side, Max.
FOSTER: Ali, thank you very much, indeed.
He's not the only person in the United States. Of course, Richard is there as well, across -- across the US, he's traveling by train, testing the political atmosphere ahead of the presidential election.
Now, today, he's making his way from Provo, Utah, to California. And he's en route, and here's his update.
(BEGIN VIDEO CLIP)
RICHARD QUEST, CNN INTERNATIONAL: Good morning from the dining car of the California Zephyr. We're on the last leg of our journey to San Francisco. Here, people are talking about last night's presidential debate, and what a tight, close election this has become.
Many people are undecided and say they won't make up their minds until the final days before voting, and that's what makes election 2012 so different.
We'll be in San Francisco in a few hours, so time for breakfast. I mean business!
(END VIDEO CLIP)
FOSTER: And there, you can follow Richard's progress on Twitter, @RichardQuest is his handle. And you can read his latest blog at cnn.com/business.
Now, stocks on Wall Street are having a choppy session today. Right now, the Dow is barely unchanged. It has been up and down, up -- or down, rather, 0.2 percent currently.
Most Dow-listed companies are trading higher but a more than 5.5 percent fall in IBM is holding the index back right now. Investors are worried -- or impressed, rather, with its dip in Q3 sales. Aluminum producer Alcoa is currently the top performer, up more than 2 percent.
Here in Europe, stocks ended the session with solid gains. In London, the top-ten performing shares were all commodity-related. Kazakhmys and Eurasian Natural Resources gained more than 7 percent each. Anglo-American rose more than 5 percent.
In Paris, ArcelorMittal gained 5 percent. It's the third session of gains to the main indices in London, Paris, and Frankfurt. Zurich's SMI has risen for the last five. So, it's been good news here in Europe.
Now, he's been the face and sometimes the voice of Nike for years, now.
(BEGIN VIDEO CLIP)
LANCE ARMSTRONG, CYCLIST: Congratulations. You've reached your goal of burning five calories.
(END VIDEO CLIP)
FOSTER: Now, Nike is ending its relationship with Lance Armstrong. We'll explain why next.
(COMMERCIAL BREAK)
FOSTER: Lance Armstrong's empire is slowly crumbling around him. The cyclist, accused of a huge doping conspiracy, has been dropped by Nike, one of his biggest sponsors. Just moments earlier, he'd announced he's quitting as chairman of LIVESTRONG, the charity he founded. Isa Soares has more.
(BEGIN VIDEOTAPE)
(CROWD CHEERS)
ISA SOARES, CNN INTERNATIONAL CORRESPONDENT (voice-over): Whether he was racing or raising money for charity, Lance Armstrong always had Nike on his side. But it seems this relationship has run its course.
After more than a decade, Nike's cutting all sporting ties with the cyclist. In a statement to CNN, Nike said, "Due to the seemingly insurmountable evidence that Lance Armstrong participated in doping and misled Nike for more than a decade, it is with great sadness that we have terminated our contract with him.
(BEGIN VIDEO CLIP - NIKE AD)
ARMSTRONG: They can say whatever they want. I'm not back on my bike for them.
(END VIDEO CLIP)
SOARES: The U-turn comes after Nike spent millions of dollars on brand Armstrong. They made him the face of many Nike commercials, including this one against doping.
(BEGIN VIDEO CLIP - NIKE AD)
ARMSTRONG: Everybody wants to know what I'm on. What am I on? I'm on my bike.
(END VIDEO CLIP)
SOARES: At Nike product launches, he was a spokesman for the brand. Off his bike, the cancer survivor convinced Nike to launch and back his cancer charity LIVESTRONG, with its distinctive yellow products, still for sale on Nike's online store.
All the while, Lance Armstrong has been cashing in. In 2005, the cyclist made about $17.5 million in endorsements. That's the last year his earnings were tracked by "Fortune" magazine. But an annual report by Nike shows commitments totaling more than $3.2 billion-worth of endorsements deals for the next five years.
But Nike's move won't leave Armstrong shortchanged. After all, other sponsors continue to back him. Electronic retailer Radio Shack says it recognizes the serious nature of the situation and continues to monitor these events closely as the process unfolds.
Drinks giant Anheuser-Busch did not have an immediate reaction to the news. For now, they're standing by him, but it's a long road ahead.
Isa Soares, CNN, London.
(END VIDEOTAPE)
FOSTER: Now, when it comes to how Nike deals with scandals in sport, every episode, it seems, is different for the company. Tiger Woods is the one everyone remembers. When the world found out about his sexual scandals, he lost several sponsors, including Gatorade, Buick, Gillette, and AT&T. But crucially, his biggest sponsor, Nike, stood by him.
Nike also stuck with Wayne Rooney, the British footballer in 2010 after allegations he had slept with a prostitute whilst his wife was pregnant. That scandal did, however, cost Rooney his relationship with Coca-Cola.
Nike did drop NFL quarterback Michael Vick after he went to prison for getting involved with illegal dog fights, but later, they signed a new deal with Vick after he returned to the game.
And Kobe Bryant, well, another story there. He was dropped by McDonald's and Nutella after he was charged with sexual assault in 2003. But Nike kept its own deal with the LA Lakers star intact.
Joining me now is Nigel Currie. He's director of the marketing agency brandRapport. How does Nike make its decisions?
NIGEL CURRIE, DIRECTOR, BRANDRAPPORT: Well, I think they're quite a cutting-edge brand, so they'd like to stay with their athletes if they can. But I think what's happened with the Lance Armstrong case, it's just become too big a story and too scandalous for them to stick with.
FOSTER: Is there something in the fact that Armstrong's scandal surrounds his sport, and actually Tiger Woods's didn't? It was about his private life.
CURRIE: Yes. That's exactly right. Woods didn't cheat on the golf course. Lance Armstrong has been -- they're pretty certain he's been cheating in his cycling career. Nike is the biggest brand in the world, one of the, if not the leading sports brand in the world, certainly. And they cannot afford to be associated with an athlete who's been -- looks like he's been cheating at his sport.
FOSTER: What about the timing? Because they didn't leave a long time, and they didn't react straightaway. It seems a bit of halfhearted effort.
CURRIE: I think initially they were trying to avoid the main storm that was going on, and all that's happened over a period of a few days is that the storm hasn't gone away and, in fact, the storm got bigger, so they're now in -- really in the midst of something which is going to be a big story.
FOSTER: If they'd done it in the storm, they would have had their sort of announcement diluted somewhat. Instead, today, we're talking about Nike as the top line.
CURRIE: Exactly. I think they were hoping it would become a lesser story over the days, and that by the time they'd made a decision and looked at things in the cold light of day, they would sort of creep under the radar. But that's certainly not happened.
FOSTER: And what's their legal case here? Because there are contracts, and Lance Armstrong would have had some pretty hefty lawyers working on his contract with Nike. How can they just pull out like this?
CURRIE: Well, I -- most sponsorship contracts have morality clauses in them, now, which protect sponsors against wrongdoings by athletes, such -- in particularly drugs and sexual cases and things like that.
So, they will have a pretty good contract. This will be a huge contract, so that their lawyers will have looked over it pretty carefully, as well.
FOSTER: Their current deal with Lance Armstrong is as a celebrity, though, isn't it? Not as a sportsman, because he's not a sportsman anymore. So, could they not have got away with this, because they could dissociate with other parts of his character?
CURRIE: Yes, I think there is that issue, and obviously the charity side of it came into it and slightly clouded the issue. But at the end of the day, he's intrinsically linked with Nike, and I think Nike have probably decided this is only going to go one way, and they had to get out of it.
FOSTER: Has the whole sponsorship world been quite surprised about how this has blown up?
CURRIE: Well, I think that they weren't surprised initially when Nike stuck with him, because that's what they tend to do. I think as the story went on, it became pretty clear that this was going to be quite damaging to their brand if it went on any longer.
FOSTER: Is cycling going to suffer, in terms of sponsorship, in the future?
CURRIE: Well, I think cycling will suffer full stop, because effectively about ten years of the sport's history has been erased. We don't know who's won the Tour de France for the last -- a big chunk of years in the 90s and 2000s. So, cycling definitely will struggle to recover from this, and sponsors will be even more careful and look at their clauses a little bit more carefully.
FOSTER: OK, Nigel Currie, thank you very much, indeed, for joining us.
The Currency Conundrum for you, now. On the eve of the EU summit in Brussels, my question to you is, which European country uses the euro as its currency despite not being a member of the EU? Is it A Liechtenstein, B San Marino, or C Malta? We'll have the answer for you later in the show.
The euro is rising slightly, currently, against the dollar this session. Right now, 1 euro is trading at just over $1.31. That's a gain of around 0.1 percent. The pound's up by a similar amount. The Japanese yen is unchanged.
(COMMERCIAL BREAK)
FOSTER: Showing you some earnings news for you this Wednesday. The second-largest bank in the United States, Bank of America, is reporting a better-than-expected third quarter. Profit of $340 million, that's a sharp 95 percent drop from the same time last year. Nevertheless, analysts were expecting a net loss.
On the plus side, the company is reporting rising consumer demand for new mortgages and mortgage refinancing. Mortgage revenue rose 18 percent from the same time a year ago.
The owner of American Airlines has posted a $238 million third quarter loss. AMR is blaming the result largely on costs related to its ongoing bankruptcy. The company says it would have been profitable this quarter if not for those expenses.
The future is looking brighter. AMR says it's making more money per passenger and is planning on hiring an extra 1500 flight attendants over the next year.
Alison Kosik is monitoring all of this at the New York Stock Exchange. So, some interesting corporate results coming through, Alison.
ALISON KOSIK, CNN CORRESPONDENT: Certainly. And those Bank of America shares right now are falling about a half a percent, Max, on those results that beat expectations.
The broader market not gaining much momentum. That's after two tech giants reported after the closing bell yesterday. IBM reported a profit in line with expectations but a dip in sales. Intel posted a decline in both profits and sales, but both topped forecasts.
Home builders are going the other way, though. They are certainly surging at the moment, that's after a report shows that the recovery in the housing sector here in the US continues to have momentum. New home construction surged in September to the highest level in more than four years, jumping 15 percent. The same with building permits. They rose almost 12 percent.
That rise in building permits is especially good because what that does is give an indication of future building activity, and also gives some big implications for the broader economy, because when a new home is built, it puts construction workers to work, it gives businesses -- it gives business to home improvement and furniture stores.
And the fact that building a new home costs more than buying an existing one, what that shoes is that buyers are confident and have money to spend. The report has home builder shares, as I said, jumping today. Hovnanian is leading the charge, up more than 8 percent. Pulte, DR Horton, and Toll Brothers are all sharply higher as well. Max?
FOSTER: Alison, thank you very much, indeed.
Well, next, Africa's second-largest oil producer aims to block an oil shock. We'll hear from the man behind the plan after the break.
(COMMERCIAL BREAK)
FOSTER: Welcome back. I'm Max Foster, these are the main news headlines this hour.
In the US presidential debates, round two goes to US president Barack Obama. A snap poll showed 46 percent of debate-watchers chose Mr. Obama as the better performance over Mitt Romney's 39 percent. The third and final debate before the election is set for next Monday.
Nike has ended its sponsorship deal with Lance Armstrong. The cyclist is accused of a huge doping conspiracy by US regulators. The company said evidence Armstrong was "insurmountable." Armstrong is also standing down as head of the LIVESTRONG Foundation, which he founded.
A Syrian opposition group says rebel fighters have downed a regime helicopter in a strategic town in Idlib province, and this video appears to bear that out. The town has been under rebel control since last week, preventing the regime from deploying reinforcements to Aleppo.
Doctors say 14-year-old Pakistani activist Malala Yousufzai is responding well to treatment at a hospital in Birmingham, England. They say her condition remains stable. Malala's online blogs criticize extremists who don't believe girls should go to school. The teenager has received an outpouring of support from around the world after being shot by Taliban gunmen a week ago.
In cities across Spain, thousands of students have marched against austerity. Spain's government has cut public spending on education by more than $1.3 billion this year. The drastic cuts are part of efforts to trim the country's deep budget deficit.
Angola has launched a $5 billion sovereign wealth fund to ease the impact of fluctuating oil prices. Africa's second biggest oil producer is heavily reliant on the commodity. Oil contributes almost 95 percent of Angola's export revenue and around 45 percent of its GDP.
CNN's David McKenzie has been speaking to the man behind the new fund, the son of Angola's president, in fact. And David joins me live from the capital, Luanda.
So, David, what sort of investments will the fund be making?
DAVID MCKENZIE, CNN CORRESPONDENT: Well, Max, the fund is going to be making a diverse set of investments. Basically they're looking to move away from the dependence on oil revenue, as you say, a massive deal of the budget here is coming from oil, more than 90 percent.
And in fact, as you say, we spoke to exclusively to the son of the long-serving president of Angola. And here's what he had to say about this $5 billion investment which will help to diversify their economy here.
(BEGIN VIDEO CLIP)
JOSE FILOMENO DE SOUSA DOS SANTOS, FUNDO SOBERANO DE ANGOLA: It's easy to have oil money and spend it. But it's very difficult to be able to have a positive impact and to improve people's lives on a daily basis continuously.
That requires a lot of -- a lot of research, of continuous search for know-how and improvement of skills. And that's an area that we aim to invest on a lot within the sovereign wealth fund and within the Angolan society.
MCKENZIE: How can you avoid some of the pitfalls that you've had in the past in terms of the perception and the realities of corruption in this country?
DOS SANTOS: We are familiar with the fact that this perception exists. And we are taking a lot of care to make sure that all of our investments are within the -- an approved investment policy. And our accounts will be audited annually by an independent renowned auditor.
MCKENZIE: As someone completely disconnected with Angola sees that yourself as running this fund partially with a board of directors and you are the president's son, some alarm bells will ring in capitals around the world.
DOS SANTOS: Sure. What I studied at first, I was going to be an architect. But then I decided to be a -- to be a businessman and study finance. And in the last few years, before I took over this post, this function, I have been working as an investment banker. So I think all of the paths which I've chosen led to me being here. And I think that I'm as good a candidate as anybody else.
MCKENZIE: So the difference might be, with this fund compared to a fund in, say, Singapore, is that it -- there is a explicit charter, as it were, in it for social responsibility.
Is that correct?
DOS SANTOS: Yes, that is correct. And I think that I -- the Singapore fund is a -- is a -- it's a very well-known fund and how you rate it. But it's constituted in a different jurisdiction, in a different environment.
Here, if you look around, you know, the life, the life conditions of the people, you realize there are a lot of investment is needed on improving the living conditions and improving the capacity of people to better their lives. So we felt that it's a must to make this type of investment for the future.
(END VIDEO CLIP)
MCKENZIE: Well, Max, they assure the public that this investment fund, this sovereign wealth fund, will be very transparent (inaudible) signing up to several voluntary acts that allow opening up the books.
Angola hasn't been known for very transparent accounting in its revenues from oil, certainly, actually, the opposite has been true.
But they say that they need time to show that they're willing to be transparent and open and get a dual dividend, as it were, one which will help diversify the economy for future generations, in their words, as well as push some of the social aspects of infrastructure, education, that they will also be investing in, which is a slightly different take on some other sovereign wealth funds of more wealthy countries, Max.
FOSTER: And in terms of ordinary Angolans, they're going to be asking the question, aren't they, how is this going to benefit them, because they don't have a huge amount of trust in the system and the hierarchy always, do they?
MCKENZIE: Well, certainly ordinary Angolans might not know immediately what the purpose of this fund is. Also, there has been a lot of criticism leveled from groups like Human Rights Watch and others that the transparency or lack of has caused -- has been caused by the kind of ruling elite not opening up the books.
There is a sense, though, from the government, at least, that the crash in 2008, which pushed the government to ask for IMF assistance and a large fund, a large loan of more than $1 billion was given to the government, has helped sort of push open the boundaries and open up, which is often a very obscure revenue source.
Obviously, oil, within the continent, they're trying to really avoid the oil curse that has plagued many countries, particularly in Africa. Ten years or so after a devastating conflict, a civil conflict here in Angola, previously an independence conflict, there's a lot of work to be done to build up this economy.
When you look around Luanda, the capital, there's a huge amount of progress made, at least visually. But out in the provinces, even here in the capital, that wealth gap has increased and not decreased in the last few years.
So there will be pressure on the politicians here in Angola to deliver to the ordinary Angolans. And they hope that this fund will be one way to secure future revenue and not depend entirely on oil, which is really the main source, almost the only source of major revenue for the budget right now.
FOSTER: OK, David. Thank you very much indeed for joining us from Luanda.
"Business Traveller" is up next. We're looking at Chile's plan to (inaudible).
(MUSIC PLAYING)
(COMMERCIAL BREAK)
FOSTER: On this week's "Business Traveller," immigrant entrepreneurs are a hot commodity in Chile, once in. It's on a talent drive, actually, hoping to lure brilliant young minds with $40,000 and a visa. Rosie Tomkins reports on Chile's ambition to build his own Silicon Valley.
(BEGIN VIDEO CLIP)
(MUSIC PLAYING)
ROSIE TOMKINS, CNN CORRESPONDENT (voice-over): Open plan office, focused faces hunched over state-of-the-art laptops, a typical scene perhaps to San Francisco's Silicon Valley, but this is Santiago in Chile, and the offices of Startup Chile, a government program which sponsors entrepreneurs to come and bootstrap their business to six months.
JOHN NJOKU, FOUNDER, KWELIA: There's still some little -- around the corners and on the margins, there's still some room for improvement. We had very limited expectations. We came here, we needed to build; we put our heads down and we built.
(MUSIC PLAYING)
TOMKINS (voice-over): Successful candidates get $40,000, a work visa and office space. In turn, Chile gets an international community of entrepreneurs, something that the president himself values highly.
SEBASTIAN PINERA, PRESIDENT OF CHILE: I think that being able to import and bring to Chile people that have good ideas, entrepreneurship capacity, to be here and start a business here, they -- what they will learn and what they will teach to our people is very, very valuable.
(MUSIC PLAYING)
TOMKINS (voice-over): The goal is to turn Chile into South America's innovation and entrepreneurial hub. By 2014, the government will have spent $40 million on grants for a thousand companies, an investment that the president believes is key for Chile to move forward.
PINERA: We have to build the new pillars of the government: education, science and technology, innovation and entrepreneurship and more equality. And we are fully committed in building those four new pillars in Chile.
TOMKINS (voice-over): It's a direction that Chile's been moving in for decades, becoming the first South American nation to join the OECD in 2010, an international organization established to stimulate democracy and free markets.
MARIANO KOSTALEC, FOUNDER OF UNIPLACES: Looking at what's happening in Argentina at the moment, my expectations were actually quite low, in a sense. So I came here and here I've been actually quite impressed with the country, with the way you can come here.
You can set up your business and you know that things are actually going to work the way they tell you. So you can actually trust people. And that's something that's very important.
TOMKINS: Roughly one-quarter of those taking part are likely to stay on in Chile after their time is up. That's (inaudible) good indication. Of course, for the country, it's a win-win either way. If they stay, they help build an ecosystem here in Chile. If they go, they help spread the word. Chile is open for enterprise and innovation.
TOMKINS (voice-over): It's a message that goes right to heart of the president's vision for Chile.
PINERA: We have realized that we have to be integrated to the world. We have to compete with the world. And I feel that's the right path for Chile to be (inaudible).
(MUSIC PLAYING)
TOMKINS (voice-over): Integrate and compete, not just through free trade, but also here by building ties with other countries through business -- Rosie Tomkins, CNN, Santiago, Chile.
(END VIDEO CLIP)
FOSTER: Now the U.K.'s second largest airport says it wants to double its passenger capacity within a decade. Meanwhile, Gatwick's chief executive is looking at building a second runway, meaning it could handle 70 million people a year, passengers at least. Stewart Wingate told Ayesha Durgahee the plan would make Gatwick into a serious rival to London's Heathrow.
(BEGIN VIDEO CLIP)
STEWART WINGATE, CEO, GATWICK AIRPORT: Well, it's three years since the acquisition of Gatwick by a consortium led by GIP. We've invested over 650 million pounds transforming the facilities at Gatwick, offering better service to passengers and bringing in new routes, many of which go to the emerging markets, to China, to Vietnam and to Korea.
So the time feels right for us now to start planning for the longer- term future. (Inaudible) land since the change of ownership for a new runway here at Gatwick in the future. We're certainly going to commit ourselves to the 2019 agreement. We've said that since the change of ownership. So any new runway proposal would be, at the earliest, in the mid-2020s.
AYESHA DURGAHEE, CNN CORRESPONDENT: Right. And the issue of capacity has been an impassable over 10 years. How confident are you that you'll be able to get your second runway here?
WINGATE: Well, I think for us, we see ourselves as being the best option for trying to get the connectivity that London requires into the future. We think we're the most deliverable solution for additional runway capacity. That can create the connectivity for passengers who are traveling either on leisure or passengers who are traveling on business.
DURGAHEE: And are you trying to compete with other European hub airports or possibly overtake Heathrow?
WINGATE: Well, certainly, we see the opportunity that a second runway brings to Gatwick. It's the opportunity to rival Heathrow and to compete fully with Heathrow. That will the first time that Heathrow would face stiff competition from a similar-sized airport in London and in the southeast.
So we've made good progress in the first three years of our ownership. This would really take Gatwick up to rival Heathrow in the future.
DURGAHEE: But the likes of area direct (ph) and Hong Kong Airlines pulling their routes because of high fuel prices and the government (inaudible) tickets (inaudible), are you finding it, are you struggling to keep hold of the business that you have, let alone attracting new business?
WINGATE: Well, if you look at the last three years, we've steadily grown the volume of passengers using Gatwick. And we've steadily grown the available choice of routes that passengers can enjoy from Gatwick.
So some of the successes that we've had will be the likes of Turkish Airlines coming in and operating at the airport, Korean Air, Air China, Vietnam Airlines. We'll always have some routes which start and then fall away. But we've had many more successes over the last three years.
DURGAHEE: And what challenges do you foresee encountering when you do come up to actually getting down to the nitty-gritty and discussing plans?
WINGATE: Well, the sorts of areas of work that we'll be exploring will be looking at the traffic forecasts that a second runway would enjoy, looking at the economic benefits, not only to the airport, but to the southeast and, indeed, London, that a second runway would bring, as well as balancing that with the environmental impacts.
So looking at the noise impacts and the air quality impacts as well as any upgrades that would be required to the surface access, i.e., the roads and the rail networks that Gatwick enjoys today.
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FOSTER: We're going to bring you an update on our top story about Lance Armstrong and the trouble he's in with his sponsors. We talked about Nike ending their relationship with Lance Armstrong. Now Anheuser-Busch says it will not renew its relationship with Lance.
There is -- he had a contract until the end of 2012. That stays in place. But they're not going to renew it. They are going to continue to support his charity, though, Livestrong. So difficult day for him.
Next, Starbucks tax avoidance tactics, how the coffee giant's business model has allowed them to keep their tax bills relatively small.
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FOSTER: The U.K. tax office hasn't had a bean from Starbucks in the last three years, according to an investigation by Reuters. Unions are calling for a boycott of the coffee giant. British MPs want an inquiry, and all despite the fact that there's no suggestion that Starbucks has done anything wrong.
Its accounting isn't illegal, just very, very complicated, as Isa Soares explains.
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ISA SOARES, CNN CORRESPONDENT: The report says Starbucks has avoided tax for one key reason: since opening in the U.K., it has reported a loss every year. That's despite having opened 735 outlets. Take the last three years, for example. During this period, Starbucks racked up almost $2 billion in sales but said it made no profits, so it paid no tax.
In comparison, McDonald's sales totaled $5.8 billion and its tax (inaudible) more than $100 million. KFC is also in the same bucket. Since 2009, its sales came to almost $1.8 billion. And it paid taxes of $58 million. So it's no suggestion Starbucks has done anything illegal.
Its books confirm the company has not actually been (inaudible) in the U.K. for 10 years, meaning it's not liable for corporation tax. But in transcripts of investor calls over several years, executives said repeatedly that its U.K. business is profitable. This is how Starbucks has structured its business.
It buys coffee beans for Europe from Jamaica, Panama, Brazil, among others. The beans, however, are bought not in the U.K. but for a firm based in Switzerland. After this, the beans are shipped to Amsterdam to be roasted. And then they finally reach the U.K.
Now it's a complicated maneuver, but this supply chain has a way of pushing profits around the world and reducing its tax bill in a particular country. Very important to know here yet again that all practices employed by Starbucks are indeed legal.
Now in a statement to CNN, Starbucks says it is, quote, "totally committed to the U.K." It went on to say, "We will continue to pay our fair share of taxes to the letter of the law in the U.K. as we always have.
"This is in keeping with our values as a business, holding ourselves to the highest ethical standards, be it in the way we source our coffee or pay our taxes."
Starbucks is not the only company under attack. Last week Facebook also faced criticism for its low tax bill. Both companies are understandably trying to maximize profits. Their methods, though, could well leave a bitter taste in the mouths of consumers and, indeed, rivals -- Isa Soares, CNN, London.
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FOSTER: Well, British lawmakers now want to investigate Starbucks' tax arrangement and Margaret Hodge is an MP. She chairs the U.K.'s Parliamentary Public Accounts Committee. She told me earlier this is a moral question as well as a legal one.
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MARGARET HODGE, CHAIR, U.K. PUBLIC ACCOUNTS COMMITTEE: Every ordinary person watching this program pays their tax unquestioningly. And I think what will really make them totally furious and extremely frustrated is to see that yet another global profitable company that is making money but avoiding paying tax, and that's my problem. It may be legal, but is it fair and is it moral?
FOSTER: It is legal. That's the problem here, isn't it? And you want the tax authorities to look into this. But what are they going to discover? Nothing, because they're not doing anything illegal as far as anyone's aware.
HODGE: Well, let me just put something to you. I think, first of all, what I would like to see is much greater transparency, because it is odd, isn't it, that when Starbucks filed their accounts in company sales (ph), they show a loss.
But the -- but when they talk to their shareholders about investing and keeping their money in Starbucks, they claim a 15 percent profit. Now one of those stories is not right and I think, in that context, if we have much better transparency and we had much tougher rules, I think, on what you lodge (ph) the company has, that would (inaudible).
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FOSTER: Most people will be saying fair enough. If they're working within the law, it's fine. And actually, you're to blame as a lawmaker, because the law's not correct and the law's not strong enough and you haven't put the correct laws in place; they're just working around what you have put in place.
HODGE: Well, I think there is both a moral perspective to this -- this is a company that pretends (ph) to have corporate social responsibility and your first bit of corporate social responsibility is that you should pay your fair share of tax. It's no good throwing a little money at a number of volunteer organizations if you then undertake schemes to avoid tax. That's the first thing.
The second thing is I accept -- and so do you, just earlier -- we should have a much simpler tax regime, so it's much easier to find out where people are avoiding tax.
And the third thing I would say to you is I think we need more skilled people to go after companies like Starbucks, like Amazon, like Facebook, all these companies that have been in the news here over the last few days, to make sure that they are actually living within the law, that that dividing line between legitimate tax avoidance and tax evasion is always very, very fine.
And, anyway, put all that aside, I think we all of us have a moral duty to pay our fair share.
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FOSTER: Margaret Hodge, speaking to me a little earlier on.
Speaking to me now is Jenny Harrison. She's got some good news for Europeans, I gather.
JENNY HARRISON, CNN METEOROLOGIST: Yes, just not you, Max. (Inaudible).
It depends where you are. We've had these severe storms across the central Med and now just as I was saying yesterday, we've actually got high pressure beginning to build in. So what that means is not only is it going to start to dry up, but in fact, it's going to warm up as well. You can already see in the last few hours things beginning to clear up.
But what it does mean, of course, is all these systems coming in from the west, they are going to take this sort of same track. So central and certainly northwestern Europe, you are going to see the brunt of these storms over the next few days.
Look at the last 12 hours across the U.K., more very heavy rains across northern England, (inaudible) into Scotland as you can see the white and the pink there, so some sleet and some snow. And in fact, some very heavy rain as well working its way through northern France, the Low Countries and on towards Germany, all of that, as I say, in the last 12 hours.
But across central Europe, in Poland, 27 millimeters of rain has come down on Tuesday. At the monthly average is only 38 and this certainly caused a problem for Poland's World Cup Group H qualifier match against England.
It was actually postponed because the pitch was so waterlogged. So as I say, the rain causing all sorts of problems, but it's not about to disappear any time soon, not from the northwest and the southwest. Now having said that, this rain could be very heavy at times. And so a bit of a double-edged sword.
We need the rain, certainly across Portugal and Spain, but rain as heavy as this could well lead to some localized flooding and no real break across the northwest. But there is that area of high pressure across the central and eastern areas.
The winds have been pretty strong across the southwest of the U.K. in particular in the last few hours. Those are sustained winds at nearly 45 kilometers an hour; that means some gusts at about 60-65. But what you'll see in the next 48 hours -- this is the wind forecast -- everything really does begin to die down. So that's the slightly improving picture.
And then I mentioned that high pressure and look at this. This is the temperature trend for the next couple of days, and things really are warming up again. But that high pressure, forcing all those systems to stay to the west, to the north and there's some more snow in the forecast, too, with that cooler air. But a little bit (inaudible) Stockholm (inaudible) on Thursday.
But look at this, for Paris 20 Celsius is your high on Thursday. Now not so good weather for stargazing, obviously, but there's been another new planet that has been discovered. Now this one is considered very close to us. It's only 4.3 light years away from our solar system.
You can see there's a couple of stars, Alpha Centauri A, Alpha Centauri B. There's another, Proxima Centauri, and there's three of them, this trio of stars, they are -- this is where this planet is orbiting around.
It doesn't have a name just yet, this one. But this is the one that's been discovered. It just takes 3.2 days to orbit around its star. This is what it would look like if you looked through a telescope, which is why, Max, even though it's relatively close to us, it has only been found just recently.
FOSTER: OK, Jenny, thank you very much indeed. We'll be back after the break.
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FOSTER: Time then for today's "Currency Conundrum" answer. Earlier we asked you which country uses the euro even though it's not in the E.U.? The answer is B, San Marino. It is the first (inaudible) in Europe after Vatican City and Monaco. All of them use the euro even though none is in the E.U.
Lichtenstein is also an outsider, but it uses the Swiss franc. You can use the euro in (inaudible) member of the E.U.
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FOSTER: That is QUEST MEANS BUSINESS. Thank you for watching. I'm Max Foster in London. The news is next.
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FOSTER (voice-over): These are the news headlines this hour.
In the U.S. presidential debate round two goes to U.S. President Barack Obama. The (inaudible) poll showed 46 percent of debate watchers chose Mr. Obama as the better performer over Mitt Romney's 39 percent. The third and final debate before the election is set for next Monday.
Nike and Anheuser-Busch have ended their sponsorship deals with Lance Armstrong. The cyclist is accused of a huge doping conspiracy by U.S. regulators. Nike said evidence against Armstrong was insurmountable.
Armstrong is also standing down as head of Livestrong Foundation, which he founded.
A Syrian opposition group says rebel fighters have downed a regime helicopter (inaudible) in Idlib province. This video appears to bear that out. The town has been under rebel control since last week, preventing the regime from deploying reinforcements to Aleppo.
Doctors say 14-year-old Pakistani activist Malala Yousafzai is responding well to treatment at a hospital in Birmingham, England. They say their condition -- or her condition remains stable. Malala's online blogs criticized extremists who don't believe girls should go to school. The teenager has received an outpouring of support from around the world after being shot by Taliban gunmen a week ago.
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FOSTER: And that's a look at the stories we're watching for you this hour on CNN. "AMANPOUR" is next.
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