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Quest Means Business
Protester Confetti-Bombs ECB President; EU Files Antitrust Charges Against Google; US Stocks Rise; European Markets Make Gains; Nokia Buying Alcatel-Lucent; Segway Acquired by China-Based Ninebot; IMF Warns Fed Over Interest Rates. Aired 4-5p ET
Aired April 15, 2015 - 16:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[16:00:03] (NEW YORK STOCK EXCHANGE CLOSING BELL)
RICHARD QUEST, HOST: Now is the closing bell on Wall Street as trading comes to an end. It was a wimpy gavel at the end of trading, although a
strong session, where the Dow was up some 70 points, a gain of nearly half a percent. It's all over. It's Wednesday, it's the 15th of April.
Look at this: it is a paper tantrum. The head of the ECB is attacked with confetti.
Then there's a taper tantrum. The IMF's warning of a looming economic shock.
And we also have a Brussels tantrum. The EU accuses Google of abusing its position.
I'm Richard Quest back in New York, where of course, I mean business.
Good evening. There was confetti, there was shouting, and there was wrestling, and it was not what you would expect from a press conference at
the European Central Bank. The ECB president Mario Draghi was talking about monetary policy when he was literally cut off mid-flow.
(BEGIN VIDEO CLIP)
MARIO DRAGHI, PRESIDENT, EUROPEAN CENTRAL BANK: The firm --
(CONFETTI BOMB GOING OFF)
(WOMAN YELLING)
(END VIDEO CLIP)
QUEST: The woman you see there managed to get past the security by falsely registering as a journalist. She'd passed an ID check, a metal detector,
and an x-ray of her bag. The women's group Femen has claimed responsibility for the protest. She was shouting "End ECB dictatorship!"
Now, all this follows violent demonstrations at the ECB's new headquarters in Frankfurt in March. Police detained hundreds of anti-austerity
protesters on that occasion.
Brian Blackstone covers the European Central Bank for the Wall Street Journal and was at that press conference. He joins me now via Skype. That
was a most extraordinary outburst. And for that split second, Mario Draghi not surprisingly, he looks very concerned and alarmed, shocked.
BRIAN BLACKSTONE, ECB CORRESPONDENT, "WALL STREET JOURNAL": Yes, he did. I've been covering these press conferences for about five and a half years
and this is the first time I've seen anything like that. He looked shocked at the beginning, but he got his footing and he seemed pretty unfazed by it
afterwards.
He came back after a few-minute interruption and proceeded with his introductory statement, took his usual questions, and even added ten
minutes to the press conference to make up for the lost time.
QUEST: How did she get in? At the end of the day, the ECB press conference -- it's important to you and me, but it's not the most riveting
of events to most people. How does somebody like this get in and manage to create this disturbance?
BLACKSTONE: Well, that's the tricky thing. She -- you have to pass through a metal detector, you have to pass through an x-ray, you have to
have identification, you have to have accreditation from a press agency. So, she managed to do all those things to get the ID that you need to get
into a press conference, because these are limited to accredited journalists. So, she was able to pass the various --
QUEST: Right.
BLACKSTONE: -- steps that the ECB puts in front of us.
QUEST: Brian, I noticed from the press conference -- I won't say that the ECB's on autopilot, but there is an element of that now, isn't there? As
the QE of the $60 billion a month or whatever it is gets spent, there's very little now for the ECB to do other than to wait for its potions to
work.
BLACKSTONE: Exactly. Mario Draghi was pretty clear that this -- that it's going to be full-steam ahead, 60 billion euros a month, until September
2016. And he kind of pushed back at some concerns in the markets that given that the eurozone economy is starting to do better, maybe they'd
taper early. Maybe they'd end it early.
But he really showed that the ECB is determined to see this thing through the end, so that does kind of put the ECB on autopilot for the next 18
months or so.
QUEST: Brian, thank you for joining us. I'd appreciate a late evening for you in Frankfurt, we appreciate you talking to us.
In Brussels, European regulators -- we'll stay in Europe where regulators have begun a new attack on an American internet giant. The EU has charged
Google with abusing its dominant position --
(RINGS BELL)
QUEST: -- in Europe. It's a violation, they say, of antitrust rules. And it's alleged that Google distorts search result to favor its own business.
Look at this. A familiar page to us all, particularly in Europe, where 90 percent of searches are done through Google.
[16:05:03] After three failed attempts at a deal, the EU is now looking at a deep and lasting solution. So, imagine if we're talking about the Google
antitrust inquiry. Well, this is what you're going to be sorting out.
The companies that pay Google listed first. Now, the most relevant results may be pushed further down. The argument goes those who are paying are
getting a much better, higher prominence than others.
Google has a near monopoly in Europe, 90 percent share. Its ranking is exceptionally important for businesses. Google is way above Bing, Yahoo!,
Baidu obviously, and the others. Google faces enormous fines if this comes to fruition or if the commission manage to prove their case.
Microsoft discovered this some years ago. It will be 10 percent of global revenue. In the case of Google, that 10 percent could be as much as $6
billion. That would dwarf the settlements so far with Intel and Microsoft.
Google in response to all of this says it respectfully but strongly disagrees with the complaint, and as Clare Sebastian now reports from
London, the EU has been building this very case for years.
(BEGIN VIDEOTAPE)
MARGRETHE VESTAGER, EU COMPETITION COMMISSIONER: Today, we have adopted a statement of objection to Google.
CLARE SEBASTIAN, CNN PRODUCER (voice-over): With that, the European Commission ended five years of speculation.
VESTAGER: It outlines our preliminary view that Google's favorable treatment of its comparison shopping service -- you probably know it as
Google shopping -- is an abuse of Google's dominant position in general search.
SEBASTIAN: The EU also launched a parallel investigation into whether Google's Android operating system offers unfavorable terms to smartphone
makers. Google has responded to the allegations.
In a blog post, the company says, "While Google may be the most-used search engine, people can now find and access information in numerous different
ways, and allegations of harm for consumers and competitors have proved to be wide of the mark."
The company says there's more choice than ever, and competition is thriving. It says it looks forward to making its case in the coming weeks.
SHIVAUN RAFF, CEO, FOUNDEM: Consumers are no longer being directed at the most relevant, best products and services on the internet.
SEBASTIAN: Shivaun Raff runs UK-based price comparison website Foundem, a tiny but direct competitor to Google. It was her complaint in 2009 that
first triggered EU action against Google.
RAFF: There's no question that Google's search manipulation practices have caused us serious, serious harm. And when you're excluded or demoted out
of contention from Google search results, you're effectively disappeared from the internet.
SEBASTIAN: The case has become politically charged. Last year, the European Parliament voted that Google should be broken up, a non-binding
but symbolic vote against the US tech giant.
The EU competition commissioner was at pains Wednesday to deny that this latest decision was a case of Europe versus the US.
VESTAGER: Definitely my case or myself consider for a minute that this is a US company or a European company. The reason why we use it is that
Google has very good products.
SEBASTIAN (on camera): Google's sheer scale is what makes this case unique. Here in Europe, it has an estimated 90 percent of the web search
market while its operating system has 70 percent of the mobile market.
SEBASTIAN (voice-over): The EU's message: with that kind of dominance comes serious responsibility.
Clare Sebastian, CNN, London.
(END VIDEOTAPE)
QUEST: Fair Search hailed the European Commission's charge as significant steps. The group is made up of Google's biggest competitors. Amongst
them, of course, Microsoft, Expedia, TripAdvisor, because what, of course, we're seeing is the way in which Google has moved into other areas, such as
travel and advisory services.
Fair Search has spoken out against Google's search practices for nearly five years. Thomas Vinje is Fair Search's Europe legal counsel and
spokesman, joins me now from Brussels. This is what you wanted, isn't it? This is -- you've go the investigation that you say that you've been
seeking.
THOMAS VINJE, LEGAL COUNSEL AND SPOKESMAN, FAIR SEARCH EUROPE: This is, indeed, an important step on the road. Certainly more important steps are
to come, but this is a vital one.
QUEST: The Commission now has to investigate and Google has the right to defend itself. What do you hope is the outcome? Is it just monetary
damages, or are you looking for enforcement action?
[16:10:00] VINJE: We are not interested in fines being imposed upon Google, frankly. That does not really matter. What we are after is a
change in Google's conduct. A requirement that Google provide unbiased search results so that competitors can compete with Google on a level
playing field and consumers are provided the best, most relevant results.
QUEST: Why should we be any more optimistic about this process that the commissioner has launched when, as I said in my introduction, this has been
going for five years at least. So, what gives you hope that something will come out of this that didn't happen before?
VINJE: That's a very good question. As of last November, we have a new Commission, an overall new Commission, and a new competition commissioner.
You just saw her, Ms. Vestager from Denmark. She has proven to be extremely dogged, effective, rapid, and determined, and the entire
commission is a very strong one.
And it seems to be taking a very different approach to this case and to other matters. And so, we're optimistic that the days of delay are past
and that this commission will move forward rapidly on this case.
QUEST: Sir, thank you for joining us tonight from Brussels. We appreciate it. And the European competition Commissioner Margrethe Vestager is
traveling to the United States -- beg your pardon -- for the IMF's spring meeting. We'll be speaking to her tomorrow from Washington, DC. The
commissioner will be joining us.
To the stock markets, and -- look at how they traded. Very strong open, bit of a dip in the middle of the morning, maybe a bit of indigestion. But
at the close of the session, the Dow was up 75 points.
Delta Airlines was up more than 2.5 percent, at 44.18. Delta's cutting international flights and it's blaming the strong dollar. Bank of America
shares were down one and a bit percent. The bank returned a profit. It still missed expectations.
Now, Netflix is to report earnings this hour. We'll bring the Netflix results as soon as we get them. And also you'll be looking up with Netflix
is subscribers, number of hours, you're looking at the, if you like, the amount of Netflix activity, not just the sheer raw data on subscribers.
In Europe, it was the substance of what Mario Draghi had to say that pushed the markets higher. And the best gains were in Paris. Smallish gains both
in Helsinki and in the Xetra DAX market. Mario Draghi said he's seeing results from the ECB stimulus program.
Alcatel-Lucent shares fell 15.5 percent in Paris. The company's being bought by Nokia for more than $16 billion, and that's why you're seeing the
Helsinki market just up a tad and the Paris market not perhaps as much as others.
You're going to hear from Alcatel's -- Alcatel-Lucent's chief executive in a moment. It's QUEST MEANS BUSINESS.
(COMMERCIAL BREAK)
QUEST: Good old-fashioned corporate M&A activity. In this case, a telecoms takeover that sounds like something from the mid-1990s. Nokia is
buying Alcatel-Lucent in an all-stock deal that values Alcatel at $16.5 billion.
[16:15:02] The four-way handshake that was involved pretty much says it all. Executives from both companies are hoping that this deal will help
them to compete with larger rivals like Ericsson in Finland and Huawei in China. Huawei is the largest, Ericsson the second.
This new deal between these two companies puts them pretty much on a par in terms of gross revenues with Ericsson. The Nokia chief exec Rajeev Suri
stressed the value of Alcatel's presence in Europe and the United States.
(BEGIN VIDEO CLIP)
RAJEEV SURI, CEO, NOKIA: It's an honor to stand before you today and announce that we have reached an agreement to combine with Alcatel-Lucent,
a company with a history that is as long, proud, and storied as that of Nokia.
A company with deep roots here in France and strong presence in the United States and in many other countries. A company that we are proud to bring
into the Nokia family.
(END VIDEO CLIP)
QUEST: The Nokia that has done the deal today is very different from the Nokia that many people know. Gone, of course, is the handset and consumer
products division. That was sold off some years ago to Microsoft.
The Nokia of today is a good, strong, telecoms business, but at the wholesale manufacturing level. Nina Dos Santos spoke to the Alcatel-Lucent
chief exec on the line from Paris, and she asked Michel Combes why he thinks it's a good deal for Alcatel to marry Nokia.
(BEGIN VIDEOTAPE)
MICHEL COMBES, CEO, ALCATEL-LUCENT (via telephone): It will be an (inaudible) group with a very strong portfolio of assets with a very strong
balance sheet, which should perform extremely well in the future with huge synergies potential.
NINA DOS SANTOS, CNN INTERNATIONAL CORRESPONDENT: Will there be job cuts? The French government has approved this merger. Why have they approved it
unless you've guaranteed that you won't be cutting jobs?
COMBES: The French government is supportive because they say the new group has stated the intent to grow R&D capabilities in France. And so they
recognize that the project makes sense. They recognize that Alcatel will be a European champion, and they recognize that there will be some French
investments by the new group due to the friendly environment in terms of R&D.
DOS SANTOS: Right. Let me just ask you again, are there going to be job cuts? Do you envisage job cuts, or can you rule that out at this point?
COMBES: The commitment which has been taken by Nokia group is to maintain the level of employment in France as it will exist at the end of the shift
plan. So, that's the commitment in terms of global level of employment.
DOS SANTOS: Alcatel-Lucent -- the clue's in the name -- is also the product of another merger itself, which wasn't viewed as successfully as
you're pitching this tie-up with Nokia. Why do you think this particular takeover by Nokia will work for Alcatel-Lucent as a company?
COMBES: I am absolutely convinced that his one will be successful because we learned from the past. I agree with you that the previous one failed.
In this case, timing is right, meaning that the industry is shifting to 5G, so a new cycle of investment.
Timing is right because the two companies, Nokia and Alcatel-Lucent, have done their own turnaround and so are healthy companies. So, it's always
easier to combine two healthy companies rather than two weak companies.
Second, governance is right. Because I recognized from the beginning that Nokia is bigger than Alcatel-Lucent, meaning that the chairman and CEO
comes from Nokia, and so there will be no second-guessing, no politics in order to play in between the chairman and the CEO, which is a condition to
win.
The third is a proper execution. I give that both companies have proven in the past few years their ability to execute turnaround plans. And I can
tell you that we've already worked with Rajeev and we have announced that we will implement in both companies starting now integration teams in order
to be ready day one.
(END VIDEOTAPE)
QUEST: An honest assessment from the chief execution. From a takeover -- telecom takeover out of the 1990s to a self-balancing scooter merger that
may sound like it's from the early 2000s. Now, Segway has been acquired by its Chinese rival Ninebot.
Segway's electronic scooters took the new millennium by storm after their release. The hype has been faded. You do see tour group using them in
some cities, and some police forces have bought them. They zoom around on patrol, it gives a new meaning to walking around.
[16:20:05] The Segway president, Rod Keller, joins me now to talk about it. Sir, so, the deal that has been done to sell Segway as such, what was
the driving force here that you felt it was time to move on, time to sell on?
ROD KELLER, PRESIDENT, SEGWAY: Richard, there's this complementary benefits to both Segway and Ninebot. Ninebot being a company headquartered
in China, the benefit to Segway immediately is it gives us better access to the Chinese market.
In addition to that, it gives us better ability to leverage many of the component suppliers that we buy from in China for two reasons. One,
because Ninebot has those relationships already with the same suppliers.
But also because one of the major investors in Ninebot is Xiaomi. Xiaomi is the third-largest cellphone manufacturer in the world, and you can
imagine the volume of components they buy for their cellphones.
QUEST: Right.
KELLER: So, that leverage has been passed on to Ninebot and will be as well. And of course, the last reason is most of the products that Segway
has sold over the last few years have all been for commercial applications like tour operators, law enforcement, private security. We'll almost
instantly have an expansion of our product portfolio with more consumer price points than we've had before.
QUEST: Right. Now, that's a fascinating -- because that's a good, solid strong business reason. But it doesn't necessarily talk to this particular
deal as to how you would grow your business in, say, for example, the United States or in Europe. Or are you resigned to the fact that you have
reached the peak of what you could expect to do without radical reform?
KELLER: No, not at all. I'll give you an example. The least-expensive product that Segway has for sale in the United States or in Europe is
$6500. You wouldn't call it exactly a consumer price point.
The products that Ninebot already has in the market today are under $1000 up to $3000. We believe they're different applications. They're
complementary, not competitive.
So, we believe that the robust distribution footprint that we already have in the Americas and already have in Europe, Middle East, and Africa, can be
leveraged by Ninebot with the help of the team and the channels that we already have in place today. So, it should be incremental revenue. By no
means shouldn't cannibalize us at all.
QUEST: Right. And in terms of Segway itself, what are your plans within your existing markets? You see them with tour groups, you do see them with
police forces. But have you got something up your sleeve?
KELLER: Well, we're always looking for more applications beyond tour operators, law enforcement, and private security. One of the things that
we do believe is that we'll be able to hit lower price points with the Segway-branded product, as I said, by leveraging the supply relationships
that Ninebot has.
As a result of that, we think we'll be able to reduce the price, which means tours can replenish their fleets sooner, law enforcement and private
security organizations can turn over their fleet sooner, and as a result, we should see revenues increase.
At $6400 to $7000 and even higher price points than that, it's a little bit tough for tour operators and some of these --
QUEST: Right.
KELLER: -- public safety organizations to replenish them as quick as they want.
QUEST: It's a great device. Sell me one at $1500. Get the price down, sir, and --
(LAUGHTER)
QUEST: Thank you very much for joining us.
KELLER: Well --
QUEST: Go on.
KELLER: Thank you very much. Thank you.
QUEST: I've tried a Segway. Marvelous. Nearly killed myself in doing so. When we come back, Jose Vinals from -- talked about the taper tantrum that
the IMF now says could well happen once the Fed decides rates are rising. How fast and what will the effect be on other countries?
(COMMERCIAL BREAK)
[16:25:32] QUEST: The International Monetary Fund is warning that a rise in US interest rates could expose markets to bigger shocks and increased
volatility. The US Fed is expected to start raising rates sometime later this year, and for the first time in a post-financial crisis world.
Jose Vinals is the IMF's financial counselor. He joins me now from Washington. We talked more about this, but your super temper tantrum or
taper tantrum is the first time that, really, anybody's saying let's watch out here, this could be very serious for other countries.
JOSE VINALS, IMF FINANCIAL COUNSELOR: Well, this is a risk, but it's not our central scenario. Our central, most-likely scenario is that the
normalization of monetary policy in the United States would be a smooth one in that this would be rather easily digestible by the rest of the world.
But of course, there are two other alternative scenarios. One where the decompression of long-term interest rates will happen very fast. And this
is the scenario that you're alluding to.
QUEST: Right.
VINALS: But there is also another scenario, which is that capital keeps coming into the United States, capital flows, and the long-term interest
rates do not increase as fast as the Fed would like. So, these risks come on both sides, either too fast --
QUEST: Ah!
VINALS: -- or too slow
QUEST: Ah! Right, but the risk on the US side of rates not rising as fast, there are other ways that the Fed can handle that. If you remember
when we saw the first taper tantrum, the other countries that lose out, particularly in the developing world, they are in a worse position to
handle it, other than by managing the currency, aren't they?
VINALS: Yes. I think that if you were to have the scenario where you have a rather rapid increase in long-term interest rates, this is something that
would lead to capital outflows out of particularly emerging markets.
QUEST: Right.
VINALS: And this is something that would hurt those economies which have more domestic vulnerabilities and less strong domestic fundamentals.
QUEST: And we've also got this very unusual situation where we have negative interest rates in many countries. So, it all -- it couldn't
really be much worse in the sense that an exit -- we always knew the exit strategy was going to be very difficult, but what you're saying, if I see
you correctly, is that if not handled with care, this could be a disaster.
VINALS: Well, I think that the Fed knows what is at stake. And from the point of view of the timing of the Fed policy decisions, I believe the Fed
is likely to be very cautious and very careful and only exit the official interest rates at a pace which is consistent with the improvement in
economic conditions --
QUEST: Right.
VINALS: -- and evolution of inflation. So, the communication needs to be very clear in order to maximize the probabilities that the scenario will be
a smooth one.
QUEST: And we've seen a perfect example of all of these issues, not only with bond yields, negative rates, but with the falling price of oil. Here
you have a net benefit to consuming countries, but you'd agree, it complicates the entire exit strategy and geopolitical economics.
VINALS: Well, oil is a net benefit for the global economy, low oil prices. At the same time, low oil prices and low commodity prices are a challenge
for economies which are oil and commodity exporters, and also for the energy sector.
So, this is an area where risks need to be monitored and countries and sectors which are in these circumstances need to take appropriate measures.
QUEST: Sir, thank you for joining us from Washington tonight.
After the break, we're going to be talking to the finance minister of exactly one of those countries badly affected by the falling price of oil.
Ngozi Iweala will be joining us from Washington, the outgoing finance minister of Nigeria. Her views on oil and legacy. QUEST MEANS BUSINESS.
(RINGS BELL)
(COMMERCIAL BREAK)
[16:32:17] QUEST: Hello, I'm Richard Quest. There is more "Quest Means Business" in a moment when Nigeria's outgoing finance minister Ngozi
Okonjo-Iweala tells me her economic legacy is intact despite last month's election defeat.
Also, when China sneezes, the world catches a cold. So what does the weakest growth in six years mean for the global economy?
And before all of that, this is CNN and on this network the news always comes first.
Europe is facing a migration crisis. More than 10,000 people have been rescued from the Mediterranean Sea in the past few days. Italy's coast
guards have seen a growing number attempting the dangerous journey now that Spring has arrived. Most of the migrants are from Syria, Somalia and West
Africa.
(BEGIN VIDEO CLIP)
WILLIAM SWING, DIRECTOR-GENERAL, INTERNATIONAL ORGANIZATION FOR MIGRATION: I mean I think we have to recognize that we are in a period of
unprecedented human disasters and emergencies. From the West Coast of Africa and the Gulf of Guinea across to South Asia, we have a series of
conflicts like we've never seen before -- at least in my 50 years in diplomacy -- and there are not political processes or active negotiations
right now that offer us any hope of short to medium-term solution. Therefore we have to find a way to save life.
(END VIDEO CLIP)
QUEST: A confetti-throwing protestor has attacked the president of the European Central Bank at his weekly press conference. The woman jumped in
front of the ECB president Mario Draghi and shouted, "End ECB dictatorship" before she was carted off by security. The feminist group FEMEN has
claimed responsibility.
The EU's charged Google with abusing its dominant position in Europe in violation of antitrust laws. The allegation is Google distorts search
results to favor its own business. The EU competition commissioner said the charges were not an attempt to hurt U.S. companies.
(BEGIN VIDEO CLIP)
MARGRETHE VESTAGER, EU COMPETITION COMMISSIONER: Dominant companies have a responsibility not to abuse their powerful market position by restricting
competition either in the market where they are dominant or in neighboring markets.
(END VIDEO CLIP)
QUEST: An Iraqi official says the city of Ramadi could fall to ISIS within hours if help doesn't arrive. Many civilians are fleeing the terrifying
advance. Officials say militants are closing in on several fronts and security forces may not be able to hold out much longer.
An unusual flying machine landed on the west law of the U.S. Capitol today in Washington. The pilot of the gyrocopter you see here is now in police
custody. The pilot Doug Hughes is a postman who planned the flight as a protest over money in politics.
[16:35:23] Nigeria's finance minister says falling oil prices must motivate the government to speed up economic diversification. Ngozi Okonjo-Iweala's
second term is coming to a close at the end of May. While in office, Nigeria's budget deficit came down, growth inched higher.
Under her watch, the country's economy made some progress in diversification. However, 70 percent of government revenues still come
from one source -- the price of oil.
And you'll be aware as we were just talking a moment ago, the prices are falling and that's meant a serious cash crunch. The Nigerian government
recently pulled back on crucial investments in infrastructure. So, a friend of this program who's always been willing to come and talk to
us about what's happening in global economics and in Nigeria, I asked Ngozi Okonjo-Iweala how successful she was at expanding revenues and
opportunities for growth.
(BEGIN VIDEO CLIP)
NGOZI OKONJO-IWEALA, NIGERIA FINANCE MINISTER: Under the administration we began the work of truly diversifying the economy, and the proof of that is
that much of the growth in these past few years that has come to the country has come not from the oil sector but actually from non-oil sectors
like agriculture, like telecommunications, like manufacturing, like the creative industries --
QUEST: All right, but -- so related to that, one of the problems of being in government is that you're -- no matter how strong and good your
policies, -- you are at the -- you're the victim if you like -- of events, and perhaps none more so than this dramatic cut in oil prices which
frankly blew a hole in the finances.
OKONJO-IWEALA: Absolutely, Richard. I mean, the fact that oil prices fell by 50 percent makes it very difficult in terms of cash flow. But Nigeria
is asset rich and that is why when people say the country's broke, I say no, in economic terms with the kind of assets we have, we should be able to
realize some of them to improve our cash flow.
But it is true that this will be a very difficult year because of the cash crunch. However, we need to see this drop in oil prices as an opportunity.
And today I gave a talk on Nigeria beyond oil. I really think that with the growth of the country based on non-oil sectors, we ought to see the
falling oil prices as an opportunity to further the diversifications started under this administration.
QUEST: The institutions you put in place, the anti-corruption measures that you put in place, you obviously have hope that they have deep roots
and will take hold. Why do you believe that to be different this time?
OKONJO-IWEALA: Well, like I said, I think we -- to fight corruption and improve transparency, I think the use of technology is key. And that's
what has tried to put in place. I know it's not sexy, you know, and it takes a long time. But I believe that the fact that the systems are
plugging leakages, saving the government money gives them --and have been institutionalized -- means that they --
QUEST: Right.
OKONJO-IWEALA: -- and I hope they are likely to be continued under the new administration. I think they're embedded in the way we work now, and that
is very good. We still have not completed the work of fully embedding all these --
QUEST: All right.
OKONJO-IWEALA: -- new ways. And I think continuing them unending will be a plus for the country.
QUEST: All right, the most difficult question of all -- what will you do next?
OKONJO-IWEALA: (LAUGHTER).
QUEST: Go on -- what -- I mean you've been in the international bodies, you've been finance minister -- what would you like to try your
hand at?
OKONJO-IWEALA: Richard, I've been very privileged as you said to be the in the international community and people are asking me right, left and
center, you know, for to join them to do things. But right now I haven't had a real holiday for four years. I want a holiday without a phone,
without an iPhone, an iPad or any technology. And after that, then I'll move on. There are lots of things I want to get done.
(END VIDEO CLIP)
QUEST: Ngozi Iweala Okonjo joining me from Washington.
As the IMF prepares to hold its annual Spring meetings, there were signs of a slowdown in China's economy. Now look at that -- the Chinese
government announced that GDP grew at an annual rate of 7 percent in the first quarter of this year, annualized. Now that's down from 7.3 at the
end of 2014. [16:40:03] You may think, well, that's a very nice large figure, but real
estate investment growth weakened to 8 and a 1/2 percent, and that's the lowest rate in some six years. National power output fell by 3.7 percent
over 12 months. It's the biggest drop since the financial crisis.
Put all this together and you've really got to be asking should we be concerned or is perhaps there's something that is a good thing since it's
moderating. Good to see you, sir.
PATRICK CHOVANEC, CHIEF STRATEGIST, SILVERCREST ASSET MANAGEMENT: Hello.
QUEST: Patrick Chovanac is here to talk about what these numbers mean to the chief strategist with Silvercrest Asset Management.
We know 7 percent is a low number for a country like China. But the country that does have a debt issue -- a debt problem -- a banking
potential crisis -- isn't that -- is this good?
CHOVANEC: Well first of all, you can't necessarily take these numbers at face value --
QUEST: All right.
CHOVANEC: Because there are a lot of economists, a growing number of economists, who question whether the slowdown is actually a lot deeper than
this -- maybe down to 4 percent or even lower. And if you look around the Chinese economy, there's the real estate sector which has been a big
driver of growth is pretty much in a state of paralysis right now.
QUEST: Right. But the debts that banks have got in the shadow banking sector --
CHOVANEC: Right.
QUEST: -- and the dark pools that exist which we don't really know the fault. So what I'm asking you is, is a moderating growth good because it
allows a bubble to evaporate rather than explode?
CHOVANEC: It's -- this is an adjustment that needs to take place.
QUEST: Right.
CHOVANEC: It's going to be -- but that doesn't mean that it's not going to be a very bumpy road, and it's a journey that China needs to go on but
not everybody's going to survive that journey. So this is going to be very painful for a lot of sectors that are used to driving growth in China.
That being said, for the global economy, it really depends on -- if you're looking at China from the outside and you're saying how does this
affect the global economy? --
QUEST: Yes.
CHOVANEC: -- it really depends on where you stand relative to the Chinese economy.
QUEST: So if you're in Australia with your commodities, it's a negative.
CHOVANEC: Right. If you're Germany selling machinery to feed China's investment boom, it's a negative. But China has had this investment binge
that has really had a deflationary effect by creating overcapacity on a whole host of different industries.
And so relieving that --
QUEST: So who's -- but who's the positive then? Where do you see a positive (inaudible).
CHOVANEC: -- well, so relieving that overcapacity, --
QUEST: Right.
CHOVANEC: -- reigning that in, is actually going to be positive because China is in a unique position. It's a surplus country. It has $4 trillion
worth of reserves. That means that it's produced more than it's consumed for years -- it can consume more than produce. It can support
consumption even if it goes through a very difficult economic adjustment.
QUEST: Well, but if China does slow down production therefore demand could be picked up elsewhere by other producers, except demand reduces. If China
reduces demand, that has a knock on effect.
CHOVANEC: So certain kinds of demand are going to decrease from China. Obviously demand for iron ore -- for the things that are feeding the
investment mill (ph), but China has the capacity -- I mean, I think they're going to have to draw on it -- to use their FX reserves to support
consumption and which --
(CROSS TALK)
QUEST: If they're prepared to do it.
CHOVANEC: They're going to have to do it because they're facing such a deep slowdown. The alternative is to see Chinese living standards
deteriorate. So they're not going to have much of a choice.
QUEST: Good to see you, sir. Thank you for putting all this into perspective. Come back again. We need to have you on more often.
This sort of discussion helps illuminate what's happening with China. Talk about illuminating, illuminating the screen -- Netflix shares are up 12
percent after hours (RINGS BELL). In the first three months of the year, the company added five million subscribers. That's more than expected and
that's what investors were focused (ph) upon.
EPS missed expectations. Netflix is investing heavily in content and international expansion.
When we return, Cuba and building the cruise business back into Cuba.
(COMMERCIAL BREAK)
[16:46:20] QUEST: A live picture coming to us from CNN in Havana. This is a picture of Havana Harbor. Of course as President Obama's recommended
that Congress remove Cuba from the White House list of state sponsors of terrorism, so the entire tourism industry, as relationship improve between
the U.S. and Cuba, the tourism industry to this beautiful island will grow quickly. And perhaps none more so and none more so quickly than in the
cruise industry.
The Havana Harbor is relatively shallow. So the big U.S. ships will have to park many miles away. But there are some ships which can dock in the
narrow harbor -- the shallow waters of Havana's harbor itself. Well what ship was there? The cruise industry Cuba Cruises found out.
(BEGIN VIDEO CLIP)
QUEST: They're soaking up the sun, eating the bottomless buffet and enjoying al fresco dining. You can get all of that on any cruise. The
passengers aboard this ship are charting a new course.
DUGALD WELLS, PRESIDENT, CUBA CRUISE: Cuba wasn't known as a cruise destination. Tour operators didn't know how to sell it. So the first time
we operated, the people who came on that first cruise were real pioneers because we couldn't show them a picture of what it would be like because we
hadn't done it.
QUEST: Is it a cruise, is it Cuba? Which is it?
WELLS: We're all about the destination. Instead of ship's (ph) destination, it's Cuba's destination.
QUEST: And that's a core difference, isn't it?
WELLS: It absolutely is. We dock right in the middle of the old cities where you can walk literally across the road and you're right in the middle
of that picture postcard UNESCO World Heritage site.
QUEST: Getting a cruise business into Cuba in the first place required old-fashioned tenacity. It was straight out of the bureaucracy of a by-
gone era. Something tells me it must have been almost a (inaudible) of (KNOCKS ON
TABLE).
WELLS: (LAUGHTER).
QUEST: Who do I talk to about bringing a ship in here?
WELLS: That's how it worked. Absolutely. We knocked on the door and this passenger terminal was sitting here, there were no ships. We came down
here for two years. Every time we had a meeting, there might be one or two extra people. But there was one day we came in for a meeting, there were
30 people in the room and that's when we knew they were paying attention.
QUEST: Now, the newly relaxed American regulations are being felt.
WELLS: I'd say our total American numbers for the season doubled in the last four weeks.
QUEST: What happens when the U.S. embargo is lifted as most believe it will be and suddenly you've got Royal Caribbean and you've got Carnival
with their vast resources?
WELLS: They won't be able to sail in here to this pier right in the middle of Old Havana. They will have to build new infrastructure and new
facilities. Probably it'll be 20 miles outside of town and people will shuttle in and have a mojito at something spice (ph) and they can take (ph)
Cuba. I'm absolutely confident that there's room for niche operators and folks
(ph) on the destination using smaller ships.
QUEST: There is without doubt pent up demand to see this long-time off- limits country. And one thing is certain, tourists are ready to come onboard.
[16:50:01] Cuba Cruise is now two more new frontiers on the factory floor. In one facility, 75 percent of the workforce isn't human. When we come
back, the smart production lines of the future.
(COMMERCIAL BREAK)
QUEST: There's a factory in Germany where almost nobody ever makes mistakes. Accuracy at the Siemens Electronics plant in Hamburg is said to
be greater than 99.99 percent. You want to know why? Three quarters of the work is done by machines like these at the Hanover Industrial Trade
Fair. Rosie Tomkins reports from Germany.
(BEGIN VIDEO CLIP)
ROSIE TOMKINS, CORRESPONDENT AND SENIOR PRODUCER FOR CNN INTERNATIONAL: Well there's all sorts of things on display here at the Siemens stand which
is absolutely huge. They are of course one of the major corporations really pioneering this concept at Industry 4.0 -- the smart factories of
the future where everything is interconnected wirelessly.
What about today though? We want to find out what some companies are doing to put these ideas into action.
At Phoenix Contact near Hanover, it's the machines that are increasingly doing the talking to each other. This producer of electronic components
and automation systems is taking small steps toward what some are calling a fourth industrial revolution.
This, we are told, is a vision of future industries -- hardly any people, a self-contained, fully-automated, integrated production line of the
future.
FRANK STUHRENBERG, CEO, PHOENIX CONTACT: Things that were splintered in the past like engineering, manufacturing, logistics are now getting
seamlessly together. That is I believe Industry 4.0. The data is coming directly into the machine and then whenever an order is started, then the machine knows, OK, this is the printing for this specific
article.
TOMKINS: There's a huge amount of communication going on, and it's all happening internally.
STUHRENBERG: That's it. Industry 4.0 is a lot of -- a lot of networking. The machine is communicating with the operator. This is
telling her that chass (ph) and printing was completely OK and now she can again (ph) finish the process.
And you see sometimes it is switching from green to yellow. The machine is telling her please wait. There should be a further clarification before we
go on with the specific step. Simple (ph) interaction. It's a man/machine interaction.
TOMKINS: That interaction is being pioneered at the industrial giant Siemens which has put its manufacturing muscle into showcasing the digital
factory.
ANGELA MERKEL, GERMAN CHANCELLOR, VIA INTERPRETER: I have come here today to see for myself what the industrial production of the future looks like.
JOE KAESER, PRESIDENT AND CEO, SIEMENS: We are especially happy that you've come here to a factory where we don't just talk about industrial
production 4.0 but where it's actually done.
TOMKINS: Machines handle 75 percent of production processes at the Siemens Hamburg plant and momentum is growing among smaller companies like Phoenix
Contact as they take their first steps into the world of advanced automation.
STUHRENBERG: It's not just because we like this technology and we think it is fancy. We need it for more productivity and efficiency.
TOMKINS: And you do believe that this is what we can expect factories of the future to look like -- a lot less people, a lot more machinery, a lot
more integrated?
[16:55:03] STUHRENBERG: I believe that is -- that is the way it is going. Less people perhaps but also people with a different skill set,
that's for sure, and a lot more collaboration between one factory and another, between one machine and another, between one supplier and another.
TOMKINS: It seems the voices controlling the smart factories of the future will increasingly come from a digital workforce silently choreographing
production lines. Virtual reality meets industrial manufacturing. Well tomorrow we find out
what happens when you use technology like this to build a car.
(END VIDEO CLIP)
QUEST: All from Hanover tomorrow. A "Profitable Moment" after the break.
(COMMERCIAL BREAK)
QUEST: Tonight's "Profitable Moment" and about time too for these two companies -- Nokia and Alcatel-Lucent. Let's start with Alcatel-Lucent
-- a dog with fleas that was brought together by a merger of Lucent Technologies -- the old Bell Labs -- and Alcatel of France.
This was a merger that never worked. You can dress it up any way you like, but the truth is it has not been a success. Now you take Nokia and you
talk about the smaller Nokia since phones have gone to Microsoft. This might make sense. Why? Because Nokia has good, strong areas and
Alcatel-Lucent has strong areas and markets in its own right. So you don't have two drunk men trying to prop each other up with Nokia and Alcatel-
Lucent.
Here you actually have two companies that make sense that bringing them together with provide formidable competition to Ericsson and Huawei.
That's why it's a profitable thought. And that's "Quest Means Business" for tonight. I'm Richard Quest in New York. Whatever you're up to in the
hours ahead, (RINGS BELL) hope it's profitable.
END
