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Quest Means Business
US Spending Cuts Loom; Wall Street Up Despite Sequestration; Effect of Cuts; Impasse Impact; Mixed European Markets; Outgoing Groupon CEO's Parting Words; Fired Founders; Groupon's Ousted CEO; Pound, Euro, Yen Down; US Spending Cuts; National and International Ramifications
Aired March 01, 2013 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, HOST: This time it's really coming. The United States is about to butcher the budget.
(BEGIN VIDEO CLIP)
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: The greatest nation on Earth does not conduct its business in month-to-month increments.
(END VIDEO CLIP)
QUEST: We're live in Washington as the US counts down to the midnight cuts.
It's a case of Motown misery. The city of Detroit is out of cash.
And eccentric to the end. Groupon's chief exec, it's a candid goodbye.
I'm Richard Quest. Of course it's Friday, and I still mean business.
Good evening. The cuts, they are a-coming. Tonight, short of an 11th hour agreement, which seems most unlikely, President Obama must approve $85 billion of across-the-board spending cuts. You've got to go back in history 19 months, when lawmakers failed to agree on a plan to raise the US debt ceiling.
Since then, cascading decisions and results have all meant we got to this position. The president admitted it should never have go this far.
(RINGS BELL)
(BEGIN VIDEO CLIP)
OBAMA: We shouldn't be making a series of dumb, arbitrary cuts to things that business depend on and workers depend on, like education and research and infrastructure and defense. It's unnecessary, and at a time when too many Americans are still looking for work, it's inexcusable.
Now, what's important to understand is that not everyone will feel the pain of these cuts right away. The pain, though, will be real.
(END VIDEO CLIP)
QUEST: With such a drastic prognosis, you might think the markets would be in turmoil.
(RINGS BELL)
QUEST: Have a quick look at the Dow Jones Industrials. It's just up 35 points at the moment, 14,090. So, the Dow is holding its nerve. It's holding its nerve as things get seriously more depressing on the budgetary front. At the super screen you'll see what I mean.
The economic shockwave will start at the White House. By law, at midnight, or by midnight, the president must sign the order. From here, the effects start to ripple out across the country. So, an order by midnight is essential. It's legal. It must happen.
Then you go across to the Pentagon. Now remember, cuts are divided between security and non-security. Defense, non-defense. Mandatory and discretionary spending. So, the Pentagon get smacked with a 13 percent cut for defense programs. That's effective for the seven months left in this financial year.
But come back in as we go across and start flying again from Washington to the United States and you see non-defense spending across all programs of 9 percent. That's medical research, disaster response, education, border security. The list goes on.
There's lots of things that are exempt, such as Medicare. Lots of programs for the poor, but the core will be a hit to the GDP of about half of one percent to the US GDP.
Come back in as we go out. From Washington to the United States to the world, the international impact. The IMF is now saying the US trading partners will be affected. That half a percent reduction of US GDP on an economy that's about to grow maybe 2 percent of GDP will trim global forecasts, and we'll see that in the months ahead if that continues.
So, that's the situation. Steven Latourette is a former US congressman. He's now president of the moderate Republican Main Street partnership. With such a prognosis, he says the political impasse is simply unacceptable, but it was always inevitable.
(BEGIN VIDEOTAPE)
STEVEN LATOURETTE, REPUBLICAN MAIN STREET PARTNERSHIP: If you go back in time when the president and the speaker were not able to come to terms in August of 2011 on the debt ceiling increase, they first set up the super committee, and that was supposed to be our salvation.
And then they said, well, if the super committee can't, we'll have sequestration, and that was going to be something so obnoxious, so horrible, the end of the world, that certainly members of both parties wouldn't let it happen. Well, we're about 12 hours away from exactly that happening.
So, I think you're exactly right. This is the only way to get things done in this moment in time until members in each party reach the conclusion that they're going to be leaders and stop worrying about the next election so much.
QUEST: If you were still in Congress, what would you be doing to try to facilitate that? And I know, now, you represent, obviously, Main Street in some respect, but what would you be doing to try and facilitate what some say is going to be disastrous?
LATOURETTE: What I would have been doing now is the same thing that I was doing up until January the 3rd when I left the House of Representatives, and that is convincing 100 Republicans and 100 Democrats to rise above the partisanship and enact something like Simpson-Bowles or Rivlin-Domenici.
That, rather than sort of creating these false crises every 60, every 90 days, that actually looked out over 10 years and accommodate things like the cuts that need to take place, tax reform, and entitlement reform.
QUEST: Now, you see, you've skated quickly, sir, to platitudes, the very platitudes that lead to kicking the can down the road, leading the can down the road to the state that we're in.
LATOURETTE: Well, that's exactly right. And it's really time to stop saying, well, we're going to fix this for 60 or 90 days. Because people talk about the economy.
Forget about sequestration for just a second. If you're in business in America, how can you plan if you don't know what your taxes are going to be, what the regulations are going to be, what your health care costs are going to be because it changes every 90 days? It's a horrible, horrible way to treat people that are trying to make a living in this country.
QUEST: Are you glad you left Congress?
LATOURETTE: Oh, my gosh, I haven't looked back one day.
(END VIDEOTAPE)
QUEST: That is an honest admission if ever there was one. So, I showed you very briefly what was happening on Wall Street, because you do need to look and see how the day progressed. Wall Street has held its nerve.
You're aware that 14,160 and change is the all-time high for the Dow. We've never really -- well, we never really, we haven't got there at all this week. We flirted around it, but it's an indication of the fragility of what's going on that it can't make any more progress. So, this gain of just a quarter of one percent is perhaps quite remarkable, all things considered.
Quick look at the European markets and how they have traded. I want to bring it -- if we just actually look at something like the DAX, because I think it shows the way in which the market is so unsettled. A sharp fall-off, largely on the back of bad European numbers, the market trades in a sort of nonsense position, and then just moves up again towards the end of the day.
Similarly again, it's that -- that's New York's effect. That's New York and the whole question of that coming into whether it's the FTSE or any of the markets. Best gains of the day came at the end of the session for the FTSE. So, that's the way the markets are trading.
Coming up in a moment, fired from the company that he helped set up. It's a frank admission from a departing chief executive who's decided he doesn't want to spend more time with his family, but he's going to anyway.
(COMMERCIAL BREAK)
QUEST: "I want to spend more time with my family." Well, that is how the departing Groupon chief exec Andrew Mason started his final memo, and then he was extremely honest. The memo said, of course, "Just kidding. I was fired today."
Mason ousted. It was a dismal fourth quarter earnings and a miserable run for Groupon shares. So far from being -- spending time with his family, he was given the boot.
Not the first company founder to feel the full effect of somebody's rubber sole. At the super screen, you can see Jerry Yang resigned from the internet search giant Yahoo early last year. He co-founded the company in 1995.
Oh, Eduardo Saverin of Facebook, the personal business manager and chief -- CFO in the early days. He sued Zuckerberg after he was sidelined from the site. Steve Jobs, of course, the late Steve Jobs. He was forced out in 85, but talk about poetic justice: when the company failed after he was forced out, in 96 he comes back, turns it around, and of course he stepped down in 2011.
The leaders, if you like, who took their companies, led them, and then were fired. Felicia Taylor is in New York. So, Mason. Look. I suppose you could say it's not terribly fair. He did start the thing. But I guess the truth is, Felicia, once you sell to the market, it's no longer your toy to play with.
FELICIA TAYLOR, CNN INTERNATIONAL CORRESPONDENT: That's absolutely right. And you're talking about the IPO that happened. The man is still worth some $200 million, and he is responsible to his shareholders, and that stock, after losing $81 million in the last quarter, was down 24 percent in one day. The stock is down some 77 percent total.
Granted, it's regaining some ground now, but nevertheless, you have to answer to policyholders, and he basically said, and quite frankly, the events of the last year and a half speak for themselves, "As CEO, I am accountable for those."
QUEST: Right.
TAYLOR: So, he's admitted that he didn't necessarily run the company that well. And the problem has to do with growth and margins. The companies that were part of the Groupon offering --
(CROSSTALK)
QUEST: Well --
TAYLOR: -- basically said they wanted a greater share of the margins, and he wasn't really going to be able to --
(AUDIO GAP)
QUEST: Oh. Well. Well, that -- Felicia Taylor in -- it's not often you see Felicia Taylor in full flight removed from your very moment. Did we not pay the bills or something? I have little doubt that a woman of her fortitude will come back. Oh! There -- see, I told you. Felicia Taylor. I -- can you hear me, Felicia? No? We're still having some --
TAYLOR: I can hear you. Whoops. Nope, that's not me.
QUEST: Well, no, you're right, it's not. We're having a couple of -- somebody's pushed the wrong button. Oh, no, there you are! I knew a woman like you! I knew you wouldn't let me -- it takes more than a bit of nonsense to keep Felicia Taylor off the television, I can tell you that much. Now, where were we? Here's the next question for you.
(LAUGHTER)
TAYLOR: OK.
QUEST: If I can remember what the question was. It was something -- oh, yes. Look, the point is this. Was he just incompetent at running a company and -- what he did?
TAYLOR: Well, he's -- to say the very least, this man is quirky. He would sort of punt things out there and see if it would sort of stick to the wall or if it really wouldn't. And he would do odd things.
Like, for instance, Mayor Bloomberg from New York was visiting the mother ship in Chicago and he was going to give him a pony named Spice. The guy evidently was in a punk band, he was an accordion player. He even did a video that has him doing yoga in his underwear.
He was a quirky kind of a guy, and not always does that translate when people really need you to get these strategic reasons back into place when it comes to, as you pointed correctly, your shareholders and getting the company to actually make money again.
Keep in mind, though, that this is -- at one point, it was quoted by Forbes as being the fastest-growing company ever. And he is still worth $200 million, even though he's getting a severance payout of -- what is it? -- $378 or something.
QUEST: Yes, we can't --
TAYLOR: But that's unusual. This man did put Groupon on the map, and there are two co-CEOs that are now in place, and they were there from the beginning as well. We don't know who's going to take --
QUEST: All right.
TAYLOR: -- his place -- Mason's place, but that's still to be decided.
QUEST: Thank you very much, Felicia Taylor.
TAYLOR: You're --
QUEST: What?
TAYLOR: You're cutting me off!
(LAUGHTER)
QUEST: Somebody has to. She battled her way back on again. As I said earlier, hell hath no fury like Felicia Taylor in a broadcasting studio. Have a lovely weekend. There you are, off she goes.
We will move onto a Currency Conundrum. What's all -- where's all these women's questions coming from? Felicia Taylor battles on, now we've got who was the first woman to appear on a US coin? Was it Queen Isabella of Spain, the author Helen Keller, or Susan B. Anthony, the civil rights leader? The answer later in the program.
The pound is down, the euro's down, the yen's down. Those are the rates --
(RINGS BELL)
QUEST: -- this is the break.
(COMMERCIAL BREAK)
QUEST: So, the midnight deadline is nearly upon the United States. The cuts will start to take effect. They will be slow before they actually really are noticed by most Americans or the rest of the world. Ali Velshi is in Washington where he's joining us.
Ali, I -- look. I understand your position, which basically says it's a blunt rather than the surgeon's knife.
ALI VELSHI, CNN CHIEF BUSINESS CORRESPONDENT: Right.
QUEST: But it is only half a percent of GDP, the economy's going to be growing at 2, 2.2 percent, cuts are coming anyway, and they can't agree.
VELSHI: Yes, I'd love to have what you're drinking to suggest the economy's growing at 2 or 2 percent. You saw the remarkable slowdown at the end of the fourth quarter, at the end of the year in 2012. I'm a little worried that those might be optimistic.
I've been working off of the same numbers. Now, I'm actually worried that it introduces a whole new level of uncertainty. We're talking about $85 billion in cuts. Everybody says you can find $85 billion in cuts, but we're looking at ten years, $1.2 trillion in cuts, and you know what happens if you take the US debt and you take it out decades? It still doesn't solve the problems.
So, not only are cuts coming, as you say, not only are taxes going to be increased, regardless of what Republicans say, we actually need to do all that while encouraging greater economic growth, which means putting people back to work.
None of this helps this circumstance. This is just outside of the realm of the stuff that we're supposed to be doing.
QUEST: All right. So, in that -- well, I don't -- I would take issue on a lot of what you just said.
VELSHI: OK.
QUEST: On the grounds that they've been at it for two to three years and beyond, they've failed to do so, they've always had this gun, if you like, to the head --
VELSHI: Yes. Yes.
QUEST: -- of the political process, and they've consistently ignored that --
(CROSSTALK)
VELSHI: Richard, if you're a --
QUEST: -- something has --
VELSHI: -- if you're a drug company --
QUEST: Something has to give!
VELSHI: -- and you're trying to find a cure to a disease and you've been at it for three or four or five or ten years, you're going in, you're doing experiments, you're doing all these things --
QUEST: No --
VELSHI: When you say they've been at it for two or three years, they've been at nothing. They've had deadlines. They've been saying they've got deadlines. They've been pushing deadlines back. But nobody's actually done it.
QUEST: Right.
VELSHI: You know what we need to do? Only two -- there's only two things that need to happen in American.
QUEST: Yes.
VELSHI: One is we need to reform taxes and two is we need to reform entitlements.
QUEST: No, come on!
VELSHI: That's it!
QUEST: You can't have it -- you can't have it as simple as that, because that's exactly the sort of panacea that every politician comes out. We've heard them on this program --
VELSHI: It's their only job.
QUEST: We heard it from the president.
VELSHI: When you get into a taxi, you finish your show and you get a taxi in London, that dude's only job is to get you to where you need to go in exchange for the money he gets paid. The government's only obligation - - the government's only obligation is to create a budget and spend their money according to their priorities.
You know when the last time we passed a budget in the United States was? 2009. Americans have gall looking over to Europe and criticizing what goes on over there. We haven't had a budget -- we run on something called a continuing resolution --
QUEST: Right, but hang on --
VELSHI: -- which is an extension of the last budget for four years, five years now.
QUEST: I could go on for much longer, and I guess you could, too, and there'll be plenty more opportunities for that --
VELSHI: I'll be right here, just bring the camera back --
QUEST: Ali Velshi in Washington.
VELSHI: If Felicia's shot goes out, just come -- click back to me, I'll still be talking.
QUEST: Well, there's always -- there's Poppy Harlow, as well. Listen, if they have their words, you and I will never get a chance to say anything. All right, many thanks, Ali Velshi, who's in Washington.
Jeffrey Sachs says America's automatic spending cuts won't have much economic impact internationally or even nationally. Put that in your pipe, Ali Velshi. I spoke to the director of Columbia University's Earth Institute and asked him whether it's better to start this process now.
(BEGIN VIDEOTAPE)
JEFFREY SACHS, DIRECTOR, THE EARTH INSTITUTE: I think the process of getting the deficit under control is a good one. I would prefer to get it under control by more revenues rather than spending cuts, but the truth is that neither the White House nor Congress really talked about any alternatives to this for the last year and a half until the last couple of weeks, when the blame game started.
So, this is just about the most predictable thing that's happened in Washington for a very long time. I think it is a -- it's not a good result for the White House or the Congress. It is time to get the deficits down, step by step, but I personally think --
QUEST: Right, but --
SACHS: -- the US would be wiser --
QUEST: -- but hang -- but you see -- but you see, this is the problem. Everybody says a better way should be found. Well, since 2011 and beyond, they've failed to find that better way. This is what happens if you paint yourself into the corner.
SACHS: Well, you're absolutely right. And I think that while it's easy for Democrats to point fingers at Republicans and Republicans to point fingers back at Democrats, the truth is that President Obama campaigned in 2012 on making almost all of the Bush tax cuts permanent.
Those tax cuts were not affordable when George W. Bush introduced them a decade ago, they were not affordable when they were extended in 2010, they were not affordable when President Obama campaigned to extend them again, so we arrive in 2013 with a big deficit, without adequate revenues. Well, what do you think is going to happen? You're going to have to cut spending.
QUEST: OK.
SACHS: So, I don't really appreciate everybody pointing fingers at each other, either. I'm with you on this, Richard, that if you don't tax, you have to cut spending.
Of course, I think the big mistake was that politicians on both sides, because their populistic, because they're appealing to the American voter, to here's more money, here's more money, end up without the money to fund a basic level of government services for a lot of important programs like education, like infrastructure, things that are falling apart in America.
QUEST: But with that in mind, are you worried that the -- that the economic effect of the sequestra will translate into ripple effects internationally? Is this going to have ramifications outside of the United States?
SACHS: I doubt it. I don't think it's that big. I think the consequences are in the US. I doubt that it's going to have big effects in the short term in the US. I think it's just another step of America not investing in its future.
In other words, I don't see this as a major short-term macro-economic calamity, I just see it as sad that a rich country chooses to cut taxes and then not spend on education, on infrastructure, on clean energy, and so on.
Now, I do believe, by the way, that the cuts in the military side are long overdue. I'm more concerned about the civilian investment side in our infrastructure and in our kids. The budget for the Pentagon easily can absorb these cuts, I say bravo on that.
(END VIDEOTAPE)
QUEST: Jeffrey Sachs, who always makes such good sense, and we're always delighted to have him on this program. As the day moves on, of course, we will continue to watch and follow these cuts.
On Monday, Detroit was named America's most miserable city. Now, it's been declared a state of fiscal emergency. Michigan's Motor City finally has run out of fuel, gas.
(COMMERCIAL BREAK)
QUEST: Hello, I'm Richard Quest. There's more QUEST MEANS BUSINESS in a moment. This is CNN, and on this network, the news always comes first.
It is now virtually certain that President Obama will be forced to sign an order by midnight tonight mandating $85 billion in across-the-board federal budget cuts. At a last-ditch meeting with congressional leaders, they failed to arrive at any solution to the budgetary crisis.
A man is dead and -- presumed dead and missing after a sink hole opened up under his Florida home, swallowing the bedroom. Rescue workers have been unable to enter the home because they fear it will collapse. The victim's brother desperately tried to save him when the sink hole opened up.
Eight South African police officers have been arrested on suspicion of murder in connection with the brutal death of a taxi driver. Cell phone video surfaced this week, which showed the driver being tied to the back of a police van and then dragged down the road. The man later died of his injuries.
RICHARD QUEST, CNN HOST (voice-over): The man later died of his injuries.
(MUSIC PLAYING)
QUEST: The WTO, the World Trade Organization, is looking for a new boss; a new director-general is to be appointed in the next few weeks, and he will have the difficult -- or she -- will have the difficult task of completing the Doha round -- ha! Just don't hold your breath for that. And at least trying to keep world trade on the move.
Herminio Blanco is (inaudible) former trade minister and running as one of the candidates for the DG.
Good of you to see us, sir. There's nine of you -- nine of you -- in the running. So a very simple question: why should you get the job?
HERMINIO BLANCO, CANDIDATE, WTO DIRECTOR-GENERAL: First, thank you for having me here.
QUEST: Thank you.
BLANCO: I think I'm the best candidate. And if you allow me, two reasons ,very fast: number one, I'm from Mexico, one of the most successful traders in the world. Every day we're exporting $1 billion, every day. That trade has generated prosperity, growing middle class. In that sense, Mexico has the experience of the developed country and (inaudible) and in that sense we are rich (ph).
Number two, I am the most experienced negotiator in the world. I was the head of the negotiations of NAFTA, as you recall; very difficult politically, very difficult in a technical sense. I headed the negotiations with the European Union. And then I am now, for more than a decade, in the private sector. That experience is very relevant to bring a new vision in the World Trade Organization.
QUEST: What is that vision? Because you've got bilateral talks which are taking over from the multilateral process; the E.U.-U.S. want to do a deal; the U.S. and Asia, the E.U. and all -- everybody wants bilateral. Nobody wants the WTO.
BLANCO: Let me tell you why. First of all, the WTO is the most relevant organization. It regulates the trade of 158 countries.
QUEST: I'm sorry. You end up with the obscenity of the Airbus-Boeing litigation, which lasts for years. And you get these results that no one understands.
BLANCO: That is not absurdity at all. It's because the WTO exists that the tsunami that was anticipated of (inaudible) through in the crisis that we live (ph) did not happen. I tell you, it is key -- it's a key organization in the world.
QUEST: Can you make it relevant?
BLANCO: I can make it relevant. And I think that you pointed out a very clear element. The challenge that is posed by the negotiation between the E.U. and the U.S. is enormous. How do you make relevant --
(CROSSTALK)
QUEST: Would you rather they didn't -- would you rather they didn't do their own negotiations?
BLANCO: I think it could be a call for action in Geneva for several countries. I think NAFTA was a call for action that managed to end the (inaudible) round. I think this could be a very good incentive to finish the negotiations.
QUEST: If you get elected, will your first task be to abandon the fiasco that is the Doha round?
BLANCO: Not at all. Not at all.
QUEST: It should be. It should be.
BLANCO: (Inaudible) at all. The Doha round is fundamental for the world, especially --
QUEST: Bilge!
BLANCO: -- especially has (inaudible) at all. That's -- you know, maybe you have to put some things back in, more things. Maybe you have to take something out. But my experience with very difficult negotiations is that everything has a solution. It has a human part; it has something of being creating, something of being constructive and I am that.
QUEST: Minister, when you get -- if you get -- assuming you get elected, your first interview will be on QUEST MEANS BUSINESS.
BLANCO: I would appreciate that opportunity.
We'll see you then.
QUEST: Thank you, Minister. Thank you very much indeed.
Right.
Now imagine maneuvering down the River Thames.
(BEGIN VIDEO CLIP)
QUEST (voice-over): The first of a flock of cranes arrive aboard London's superport. We will give you a bird's eye view, the sort of view of trade that the minister would appreciate. QUEST MEANS BUSINESS (inaudible).
(MUSIC PLAYING)
(COMMERCIAL BREAK)
(MUSIC PLAYING)
(BEGIN VIDEO CLIP)
QUEST (voice-over): The answer to tonight's "Currency Conundrum," I - - even I know this one. Who was the first woman to appear on a U.S. coin? It -- oh, no! I got it wrong. I went for Susan B. Anthony. I was wrong. It was A, Queen Isabella of Spain in 1893, although she is not American, she did sponsor Christopher Columbus' voyages to the New World.
I would have put money on the Susan B. Anthony dollar.
(END VIDEO CLIP)
QUEST: Just as well I didn't.
Giant cranes as high as the London Eye have arrived in the U.K. capital. They were shipped over from China for a new container port for the world's largest vessels. Jim Boulden was at the London Gateway as they arrived.
(BEGIN VIDEO CLIP)
JIM BOULDEN, CNN CORRESPONDENT (voice-over): The mist and rain lifted just in time for an historic arrival early Friday. These massive cranes made their way up the Thames estuary to their new home, a massive container port and logistics park being built near London.
The site is owned and operated by Dubai's DP World, and the $2 billion project is some 10 years in the making.
SIMON MOORE, CEO, DP WORLD LONDON GATEWAY: This is the biggest consumer market in the U.K., on our doorstep. And we're trying to get the biggest ships in the world as close as we can to the biggest points of consumption. That's going to save British industry huge amounts of money.
BOULDEN (voice-over): London Gateway will be one of the few U.K. ports that can handle the extra-large container ships soon to hit the high seas.
The three massive gray cranes left Shanghai on January 7th. And two more are on the way. Once those five are in place and the upgrades to the rail and road network are complete, this massive port is expected to open by the end of the year.
Britain's busiest dock is currently Felixstowe on the east coast; a much smaller container terminal for London is in Tilbury. Gateway will soon handle about the same number of containers as Felixstowe and being closer to London will cut road and rail transport costs and traffic, though it will open at a time the U.K. economy is struggling.
CHRIS GOSLING, SHIPPING TV: But they certainly won't get new trade because the container industry is flat; it's not going anywhere exciting. So they'll have to take it from somewhere else.
MOORE: We've been made to feel very, very welcome here in the U.K. We're not just building a port; we're also building the biggest logistics park in Europe, zero cost to the U.K. taxpayer, completely private investment.
BOULDEN (voice-over): Once these cranes made it portside, it's easier to see just how big they are. The London Eye could for instance fit under the arms of each, which stretches 138 meters into the sky -- Jim Boulden, CNN, London Gateway port.
(END VIDEO CLIP)
QUEST: I love stories of industry and manufacturing like that.
Talking of industry and manufacturing, a place that used to have it still has it, but has failed miserably. As the deadline for enforcing spending cuts, a state of financial emergency has been declared in Detroit. The governor of Michigan has appointed a manager to oversee the city's finances.
Poppy Harlow is with me to talk about this.
Are things that bad that they've got to basically take over the city at the state level?
POPPY HARLOW, CNNMONEY.COM CORRESPONDENT: Pretty much. I mean, after the Republican governor, Rick Snyder, announces that he will do today -- I mean, Detroit's been deteriorating for decades and the governor made the announcement today, saying I'm not going to wait.
He does not believe that city council or the mayor -- basically the democratic process -- can handle this. A stunning statistic came out this week, Richard, which exemplifies the problem. "The Detroit News" found that nearly half of property owners in the city of Detroit are not paying their property tax.
So when you have a city that has gone from 1.4 million people to 700,000 people in just a few decades, and you have the problem of people not paying their taxes and not enough jobs and the downfall of the auto sector, you don't have the revenue needed to keep the city on solid footing.
They have $14 billion in long-term liabilities because of unfunded pensions and health care costs. Here's how the governor explained it today.
(BEGIN VIDEO CLIP)
RICK SNYDER, GOVERNOR OF MICHIGAN: If you think about it, over the last few decades, the current system has not been working. We have not stopped the decline.
It is time to say this is the time for us not to argue or to blame, but to come together as Detroit, Michigan, not Detroit versus Michigan, and bring all our resources to bear to say let's just solve the problem. Let's solve the financial issues. Let's solve the service issues and let's grow Detroit.
(END VIDEO CLIP)
HARLOW: This would mark the largest basically state takeover of an American city ever in U.S. history, Richard.
QUEST: Poppy, is it feasible what they're planning to do? I first went to Detroit when some of our viewers were probably at school. We're talking about in the late 1980s. It was a renaissance center was there; people were talking about Detroit over white flight, all those sort of things. It's over.
HARLOW: I don't think it's over. I mean, I'm a big proponent of Detroit. There is -- there is a spirit there and a work ethic that is unmatched in many, many places.
But I will tell you, Richard, that what this emergency manager could do would be one step short of bankruptcy, because this person, whomever it is, when the governor names that person, will have the power to throw out or renegotiate union contracts, lay off government workers without the consent of city council or the mayor.
So they'll have this sort of almost ultimate authority to do that. They can even talk about selling assets of the city if they get that approved by Treasury. So they're going to have this power that can -- the idea is reduce the costs so much that you get to a more stable place.
But then you have the issue, Richard, how do you attract people to Detroit to come in, live there, work and pay taxes? That's going to be the real challenge.
QUEST: Poppy Harlow, I should just clarify when I say -- when I say it's over, of course, I don't say that with any pleasure or anything like that. I mean, but it does seem to be that we've been talking about the demise of Detroit for as long as I can remember.
Poppy Harlow is in New York for us tonight.
The weather forecast for this weekend, Jenny Harrison, I've only got one word, Ms. Harrison. It's parky.
JENNY HARRISON, CNN METEOROLOGIST: Oh, no, it's not that bad. It's colder here, I think, you know. We've got a bit of a cold snap across the eastern U.S. But let's concentrate on Europe. You've actually got high pressure in control across the northwest. It does mean you could see some foggy mornings.
This is sort of one of the main systems pushing away from Spain into the western and central Med as we go through the weekend and then to the north, quite a bit of snow across Scandinavia, Latvia Lithuania, pushing into western Russia. So these two main areas of weather, snow to the north, where it is a bit colder; rain in the south.
It's actually about average across the northwest. But as I say, because that high pressure, very light winds -- so fog a bit of a problem - - this shows you the temperature trends over the next couple of days.
So the green does indicate temperatures either at average or even a little bit above. But eastern Europe, still those temperatures are way below the average. You can see that snow piling down across the Baltics and pushing into western Russia.
And then that system across the Med, it'll move fairly swiftly and then head towards western Turkey, really by the time we go through Sunday. So moving quickly, shouldn't see some huge accumulations, but there is some more piling into the southwest, as you can see, and quite a lot of low cloud across much of the U.K., for example.
Does mean Brussels for a start, but also London, Glasgow, could have some delays Saturday morning early hours because of that fog, just delay things a little bit. And then we've also got quite a lot of low cloud in Moscow, but that's also where the snow is heading as we head through the weekend.
But there are the temperatures, 7 in London, 8 in Glasgow; still cold in Berlin at 3 and then pretty good across the south, 16 in Rome, 11 in Madrid, but be prepared for more cloud and a few passing showers as we head to the latter part of the weekend.
Mr. Quest, you have yourself a good one.
QUEST: And you, too. I was just looking at your jacket, which matches marvelously the green of the map.
HARRISON: I try to coordinate.
QUEST: (Inaudible) I'll remind you of that next week, Jenny Harrison. Have a lovely weekend yourself.
And it's time for me to thank you for making time to join us for our nightly conversation on business and economics -- I'm very grateful -- because that's QUEST MEANS BUSINESS for this week. I'm Richard Quest in London. Whatever you're up to in the hours ahead, I hope it's profitable. MARKETPLACE AFRICA is next.
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ROBYN CURNOW, CNN HOST: You're watching MARKETPLACE AFRICA. I'm Robyn Curnow in the small mountainous kingdom of Lesotho. Now this is one of the highest countries in the world, elevated over 1,000 meters above sea level.
But unfortunately, Lesotho is also struggling with high food prices and it's not just here in southern Africa where people are trying to cope with the rising cost of food. It's also a problem in the northern part of the continent, as Ian Lee now reports.
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IAN LEE, CNN CORRESPONDENT (voice-over): Nine-year-old Yusef Nageh (ph) arrives home from school and like most growing boys, he's hungry. His mother, Howeida Nageh (ph), dices some tomatoes for him and his two older brothers, Ahmed (ph) and Mohammed (ph). This will be the boys' only meal for the day, a plate of tomatoes and a piece of bread.
HOWEIDA NAGEH, EGYPTIAN RESIDENT (through translator): I used to take two onions and cut them over two tomatoes, then cook and eat them. Now the price of onions has increased. Instead of using two, three or four onions, I now just take one and choose the smallest one. Things are too expensive.
LEE (voice-over): Food prices in Egypt are (inaudible) sharply, leading families in poverty scrambling. Howeida's (ph) husband left her to raise her three boys alone. The $30 she receives a month from the government is her largest source of income.
Howeida's (ph) eldest son, Mohammed (ph), sees his mother struggle to put food on the table. He's studying to be a banker. But being the man of the house brings greater responsibilities.
MOHAMMED NAGEH (PH), EGYPTIAN RESIDENT (through translator): I might not be able to coordinate between work and studies. Sometimes I study, but other times I have a lot of work and I can't coordinate between them. Sometimes I work and I'm so tired that I can't go to school the following day.
LEE (voice-over): Outside of Cairo, green fields stretch across the Nile Valley, the once breadbasket of the Roman Empire. Farmers here tend to their herds and the harvest. But just as the Roman Empire crumbled, so is the state of Egyptian agriculture.
LEE: Skyrocketing prices of fertilizers and feed, combined with an increasingly dysfunctional government have exacerbated the situation for farmers. And this is reflected in food prices and availability.
LEE (voice-over): Drastic action needs to be taken, says economist Angus Blair (ph).
ANGUS BLAIR (PH), ECONOMIST: If you look at the growth in population, 1980, (inaudible) between 83 million and 87 million people in Egypt, that's growing relatively quickly. The agricultural sector is going to need a new revolution of its own to be able to feed the increasing number of people and increasing demands for food that Egypt requires.
LEE (voice-over): Then there's water. Despite being close to the Nile, farmers complain water access can be cut off for months on end, limiting what they can grow. Even then they say it's so polluted that it poisons their land and animals.
UNIDENTIFIED MALE (through translator): First of all, if the water comes clean and regularly, the farmers' job will be easier. Cattle feed will be a high quality. But what the alfalfa (inaudible) now is irrigated with polluted water. Therefore, the cattle get a lot of diseases and in less than a year, we've seen many cattle die.
LEE (voice-over): Larger farms are one solution, as the majority of Egyptian farms are small, only a few acres. Most farmers can't afford modern equipment or techniques.
UNIDENTIFIED MALE: The World Bank estimates around half of all food that reaches the final market in Egypt is spoiled. That's partly due to the farming methods, the picking, the packing, the distribution in terms of the general logistics.
LEE (voice-over): The food that does make it ends up in markets like this, where farmers' problems are passed onto the consumer. But the country importing 70 percent of its food and its currency devalued, Egyptians are as picky as ever.
UNIDENTIFIED MALE (through translator): People complain. They complain because vegetables are expensive. There is no demand like before. Before the revolution, there was demand and money. We used to have money. They were buying and selling and we had income. The revolution made people with no money.
LEE (voice-over): Minister of Agriculture Salah Abdul Momin is tasked with revising 60 years of bad management. A technocrat, he admits a lot needs to be done, but is optimistic.
SALAH ABDUL MOMIN, EGYPTIAN MINISTER OF AGRICULTURE: Looking forward to have the strategy in this issue, I guess we have learned in all government land, we still have lands, new, reclaimed land. You know, I'm looking for, you know, having about, let's say, 1 million acre and the -- in five designated areas to make new communities in these areas.
LEE (voice-over): In the short term, Abdul Momin is focusing on putting a dent in wheat imports. Egypt is the world's largest importer. This is just part of a 20-30 plan to revolutionize Egypt's agriculture. But a 17-year plan is too late for those who live day by day. For Mohammed (ph), he aspires to break the chains of poverty, in turn feeding his family.
MOHAMMED NAGEH (PH) (through translator): I want to be something. I want to be something that brings joy to my family, to make my mother happy first, and make me happy, to feel that I'm doing something good, something where I can make something of myself.
LEE (voice-over): But for now, the sad truth is that food prices here will continue to rise. And for the Nageh (ph) family and millions of other Egyptians, their situation will get worse before it gets better -- Ian Lee for MARKETPLACE AFRICA, Cairo.
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CURNOW: From Egypt's rising food prices to Africa's rising stock interests: after the break, we'll speak to a man from one of the world's largest stock exchanges. Don't go away.
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CURNOW: Welcome back to MARKETPLACE AFRICA. We're in the small landlocked and mountainous kingdom of Lesotho. Now what does it take for an African like this to attract more investment from outside the continent? Well, Ibukun Adebayo (ph), he's head of business development for Africa at the London Stock Exchange says the answer is simple: keep it African.
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CURNOW: Give us a sense of how many African companies there are on the London Stock Exchange.
IBUKUN ADEBAYO (PH), BUSINESS DEVELOPMENT FOR AFRICA, LONDON STOCK EXCHANGE: There are over 110 companies from various African countries, from sub-Saharan, indeed North Africa (inaudible) represented on the LSE.
If you combine all the value of those businesses together, comes to around about $70 billion U.S. And that's the second largest concentration of African companies anywhere behind the JSE.
CURNOW: Which is the Johannesburg Stock Exchange.
ADEBAYO (PH): The Johannesburg Stock Exchange, yes.
CURNOW: And what is the city of London, what are investors there want from African companies, from African business people? What do they want more of?
ADEBAYO (PH): Well, there's no real rocket science there, I think companies need to be exposed to growth opportunities. And I think Africa has that in abundance. The most important thing, however, for investors in London is that they mimic or the companies in Africa mimic those companies that are existing currently on advanced markets.
So that's very high standards of corporate governance, management teams that have been there and done it, have survived through downturns and how their business plans have been structured for the future, and but also just good old-fashioned African resourcefulness and talent.
CURNOW: And what is it about African companies now that are attracting more investment? And is it different from five years ago?
ADEBAYO (PH): It's very different. I think the idea is that a lot of people have seen that the African story is a 20-year cycle at the moment in time. We've seen 10 years of growth, sustained growth and constituency. And I think the IMF is looking at the next five years of growth of 5.5 percent per year for the next five years.
You have a look at Middle East and North Africa region growth there about 4.8 percent expected over the next few years. But, indeed, for advanced economies, it's about 1.8 percent according to IMF statistics. So it gives you a very clear indication as to why Africa is very much on the market and very much of interest to the investors that exist in London.
CURNOW: When I speak to African business leaders, they always say, listen, we need more capital and we need it faster. But everybody's saying that. Doesn't matter where you are.
ADEBAYO (PH): That's a good point, actually. I think the reality is the capital is becoming more selective.
I think big investors -- and we're talking about the large pension funds and hedge funds -- they're all very intent in terms of making or reducing their risk, reducing the risk, happens slightly more easier in a place like London, because it's been very used to investing in Africa over many, many years through very -- through numerous types of asset classes.
And but over time, what we're finding is that there is a genuine need to find investors and equity stories to buy into it. But shall we say less risky but more opportunity?
CURNOW: We all know, of course, that Africa is made up of many different markets, many different countries. But there's a different risk and reward ratio, depending where you go. So the key, isn't it, is local knowledge?
ADEBAYO (PH): That's absolutely right. We had a listing from Nigeria very recently, which was a company that had assets in the Niger Delta.
Five years ago, it would have been inconceivable to have an investment being put into assets in that particular part of the world for numerous reasons. And investors have done a lot more work; has been a lot more diligence, has been plenty of site visits, interaction, opportunities for the investors to really understand Africa more.
CURNOW: So what is it, then, that African companies, business leaders, government, even, should do more of? What are they doing right? What are they doing wrong?
ADEBAYO (PH): I think that the key for Africans is to remain African.
CURNOW: So the trick is more African? That's the key?
ADEBAYO (PH): That's the key.
It's not to change; it's not supervised hybrid model of governing their businesses. It's absolutely to ensure that the essence of the continent and how it's developed and grown, despite all of the catastrophes, despite all of the issues that remain around corruption, how it still managed to emerge as a -- as a thriving economy, it's very important that that continues.
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CURNOW: Well, you can watch that interview and many more on our website, which is CNN.com/MarketplaceAfrica. I'm Robyn Curnow in Lesotho. Thanks so much for watching and please do join us again next week, when we explore another African marketplace.
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