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Quest Means Business

U.S. Economy Stronger Than Expected; Rosneft's Deal With BP

Aired March 25, 2011 - 14:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

RICHARD QUEST, HOST, QUEST MEANS BUSINESS: Ready, set, grow, the U.S. economy, stronger than expected.

The cost of RIM's tablet is proving difficult to swallow.

And there is a block in the pipeline and Rosneft still wants to push through its deal with BP.

It's Friday. I'm Richard Quest and I still mean business.

Good evening.

Tonight, QUEST MEANS BUSINESS and we are all about the economy. Across the globe we will be looking at different aspects of economic growth. For instance, in Europe where EU leaders have finished their summit, once again overshadowed by debt fears. We'll also be talking about Japan, where not the IMF is more confident about the economic impact that the earthquake and tsunami will have long-term.

And in the United States, where the economy is looking stronger and it is in the U.S. where we must start our coverage tonight. An encouraging sign on the economy as it grew slightly faster at the end of 2010 than first thought. GDP as you can see here, rose in Q4 3.1 percent in the last of last year. Now that compares with an initial estimate of 2.8 percent. If you look right the way through from the recession, and those very sharp falls. And then in 2010, as economic growth built up faster and faster, that was inventory build up, the rebound if you like. There had been fears just about here that things were winding down. But now Q4 does look as if it has had a somewhat of a boost.

We need to talk more about this. Let's go to Boston. I'm joined by Nariman Behravesh, the chief economist at IHS.

So, one hesitates to say the U.S. economy is out of the woods because Nariman, it is all predicated on very low interest rates and fiscal spending and quantitative easing.

NARIMAN BEHRAVESH, CHIEF ECONOMIST, IHS: Well, that certainly is part of the picture but we do actually expect things to slow down a little bit. Not because of what you just said, but because of two shocks that are hitting the global economy, including the U.S., which is higher oil prices, and of course, the disruption to supply chains that is likely to-sort of the likely outcome of the Japanese situation. I think that will slow growth to maybe 2.5 percent in the first and second quarters. So, from that perspective I think the U.S. is set to slow down a little bit going forward.

QUEST: We look at the rate of growth in 2010, which over 2 percent, was encouraging, this year what do you expect, overall, for 2011 growth to be.

BEHRAVESH: Initially we had thought it might be as high as 3.5 percent, but we revised that down to about 3 percent, because of the sort of headwinds, this double shock, if you want to call it that. So still pretty decent, but slower than what we had originally thought.

QUEST: At 3 percent, unless something structurally changes within the economy, of which there is no evidence of that, that really isn't sufficient to make sizable inroads into the U.S. 9.7, 8 percent unemployment.

BEHRAVESH: You are absolutely right about that. We will see declines but they are going to be very, very gradual. It will take a long time, for example, maybe another four years to get back down to around 6 percent. So you are right that it will be very slow going.

QUEST: At these levels, 3.1 in Q4, 2.5 to 3 percent throughout the course of '11. At these levels, does the Fed keep its foot on the monetary gas?

BEHRAVESH: The answer is yes, in the sense that-in one sense, yes, because we don't expect them to raise interest rates until say early 2012. In another sense though, they are going to let QE 2 the quantitative easing second round, wind down in June of this year. So they won't renew that, but they will keep interest rates, essentially at zero, through the beginning of next year.

QUEST: And the other side to that equation is the fiscal stimulus, the fiscal spending. Now we have not seen the bond market take out its wrath on a 7-8 percent U.S. deficit. Can they continue-is it wise to continue that spending level for the next 12 to 24 months?

BEHRAVESH: Well, as you know a lot of the fiscal stimulus that was put in place, let's say at the beginning of-end of last year, beginning of this year, will wind down. Already, in fact, if you look at the GDP numbers, government is a big drag on growth, not so much at the federal level, although some, at the state and local level as well. So there is a lot of de facto fiscal contraction going on in the United States. And that is probably going to continue for awhile.

QUEST: Nariman, many thanks, indeed on this Friday. I do hope we can invite you, a new contributor here on QUEST MEANS BUSINESS. But I do hope you will accept my invitation to come back again and help us understand what is happening in the U.S. economy. Many thanks, joining us from Boston.

Now that other part of economic equation, that I was talking about. It is in Europe tonight, where European leaders have finally settled the terms of their new permanent bailout funds. So now the hard work begins on solving the most pressing economic problems. Those problems overshadowed this week's summit in Brussels. Our correspondent Jim Boulden is in the Belgium capital and reports on the deal and what it means for Europe's economy.

(BEGIN VIDEOTAPE)

JIM BOULDEN, CNN FINANCIAL CORRESPONDENT (voice over): It was said for weeks this European Union leaders summit would set the state for major reform to European economies and confirm a structure to try and end worries about the euro.

Thanks to domestic concerns in several countries, ambitions were lowered before anyone arrived.

ENDA KENNY, PRIME MINISTER OF IRELAND: All and all it was a tamer meeting than the last one, shall we say. It did bring about conclusions in what it is about to do (ph).

BOULDEN: On Thursday, the meeting went late into the night because Germany wanted a change to how countries contribute money to the permanent rescue fund, that goes into play from 2013. Problems at home ahead of elections meant that Germany wanted to put money into the $700 billion fund, over five years, instead of three. Still, European leaders say, signing off on this new rescue fund, and also commitments from all 27 EU countries, to report back in April on the economic reforms, should show markets that Europe is serious about a comprehensive response to the recent economic crises and attack on the euro.

JOSE MANUEL BARROSO, PRESIDENT, EUROPEAN COMMISSION: The overall proposals, the proposals made on the basis of the task force shared by the president of European Council, and those what we have put forward in the six legislative proposals, it will reinforce in a very, very clear, way the possibility of a insuring fiscal discipline in the member states. And I think this is critically important for the stability of growth pact, for overall confidence in our governance and also in our economy.

BOULDEN: Leaders said Friday's brief meeting was taken up by the talks and an agreement on further economic sanctions against the Libyan regime, and a new trade pact with Japan to help its economy rebuild. They have also agreed to examine all nuclear power plants in Europe.

HERMAN VAN ROMPUY, PRESIDENT, EUROPEAN COUNCIL: We therefore decided that the safety of nuclear plans should be urgently reviewed, in the so- called stress tests. The commission will report on the stress tests to the European Council before the end of this year. Because the danger does not stop at our borders we encourage and support neighboring countries to do similar stress tests. A worldwide review of nuclear plans will be best and we ask the commission to review existing EU rules for safety of nuclear installations and propose improvements if necessary.

BOULDEN: What was not resolved, will Portugal need a bailout during its political mess? Will Ireland get what it wants, a cut in the interest rate attached to last year's bailout?

KENNY: On the basis that the banks stress tests in Ireland are not yet available, we don't have clarity of figures, I thought it better not to pursue the Irish situation, until that actually happens.

BOULDEN (On camera): At this summit, Portugal continued to insist it does not need economic aid from its fellow EU countries. The sky high interest rates on Portuguese bonds shows the markets aren't convinced. Jim Boulden, CNN, Brussels.

(END VIDEOTAPE)

QUEST: Now one of the people who sees a bailout for Portugal as being inevitable and unavoidable is the country's former finance minister, Luis Campos Cunha. Earlier I spoke to him from Lisbon and I asked when he thought they would make a formal request.

(BEGIN VIDEOTAPE)

LUIS CAMPOS E CUNHA, FMR. PORTUGUESE FINANCE MINISTER: For the next couple of months Portugal will need to refinance about almost $10 billion of its debt, public debt. So, it is going to be relatively short I presume. That is a question of weeks, at most.

QUEST: Isn't it somewhat difficult, because unlike Greece or Ireland, who although may, particularly Ireland, had governmental difficulties, the government in charge was able to make austerity commitments to the EU and the IMF. Now, in Portugal the government can't do that.

CUNHA: Well, in a democracy you have early elections, it is not a big problem, it is just we're going to have elections, probably by the end of May, early June. And we will have a new government in place before-well, before the new measures are necessary. These measures that were not-did not pass in parliament, were measures for next year, not for this year. So I presume that before the fall we will have a new package of measures that will make public finances in order, or closer to order, for the next-for the next year.

QUEST: Is there a feeling that Portugal's politicians are playing politics whilst the economy burns?

CUNHA: Well, I presume that politicians play politics everywhere. That is my guess. But so it is not so much different over here I guess. Furthermore I think that, as I said, these measures are due for-for the budget for next year. And so there is still time in that respect. I think that the external assistance that we will need in a few week's time, it is a little bit independent of what is going on in terms of government.

QUEST: The people in Portugal, are they-do you get the feeling that they are ready for the austerity that inevitably is going to come their way?

CUNHA: Well, it is already there. I mean, most of the measures were already taken. And they are already taking a bite on the pockets of very Portuguese. I mean, that is certainly is the case at this very moment, already. Secondly, I should emphasize that Portuguese, when they get squeezed, they don't get mad or angry, they get depressed.

(END VIDEOTAPE)

QUEST: Now these are the numbers that really tell the tale. Portugal's bond yield is at 7.7 percent. Ireland's nearly 10 percent. And everything compares to the German bunde, at 3.25 percent. And it is that differential that is causing such a problem at the moment. Portugal's bonds were downgraded, two notches by S&P, to Triple B. Fitch, you'll know, downgraded them yesterday. And this is very much the problem at the moment. How long and how sustainable can they maintain a rate of 7.7 percent, on relatively short yield or short-term bonds.

European markets, though, had a stonking session. Just look at that. Up 4 percent, 4 percent, 4 percent, up 3 percent; they were all, those were the week's gains. Which all showed extraordinary bullishness-a lot of that, of course, is the ba-doing, the rebounding effect after what happened in Japan, and of course, the worries about Libya and Middle East unrest. But past, over the week, that is the way things are looking. And, onto the New York market, which is up nearly 65 points, 12,235. It is a gain of just some half a percent.

All in all, if you are long in the market, especially this week in Europe, it was a week that you saw gains. Of course, they were just erasing some of the losses that you had experienced in the previous week.

When we come back, in just a moment, we'll turn our attention to Japan. The IMF believes the economic recovery there might be stronger than first thought, after the break.

(COMMERCIAL BREAK)

QUEST: The International Monetary Fund is confident that Japan will be able to withstand the cost of rebuilding the damage caused by the earthquake and tsunami two weeks ago. The IMF expects a short-term drop in the economy, no long term impact.

On Wednesday the Japanese government put damage estimates as much $300 billion. That is roughly twice the cost of the Kobe earthquake, four times the damage caused by Hurricane Katrina. It represents about 5.6 percent of Japan's total economic output last year.

Clearly, of course, no discussion of the economic matters should in any way be allowed to get over the awfulness of the death toll, which is now more than 10,000. But Japan is a major exporting economy and we need to do look at that side of the equation.

The IMF's confidence in Japan's ability. John Lipsky joins me now, the IMF's first managing director, first deputy managing director.

John, lovely to have you, as always, on our program. A treat and a pleasure for us.

But, John, why-I mean, are we going to see a classic V-shaped disaster in that sense? A very sharp down from the economic dislocation, but a recovery just as fast?

JOHN LIPSKY, FIRST DEPUTY MANAGING DIRECTOR, IMF: Yes, that is our expectation. I should say, Richard, there is still lingering uncertainty about the implications of the problem at the nuclear reactors there, in the north, that were affected and are still being restored and controlled. So we are assuming that that will come under control, that we will not see broader implications. If that is the case, then as you describe, we'll see, obviously, very important near-term impact on economic activity, to be followed by a ramping up of recovery activity and the restoration of economic growth. Parenthetically we have been looking for about 1.6 percent growth this year, before the event.

QUEST: OK, but the ability of Japan to finance that reconstruction, when debt to GDP over 200 percent. Now, I suppose at this time, in a crisis, you don't really worry about how you are going to do it. But eventually the bond market is going to worry about how that financing takes place.

LIPSKY: Indeed, now there are some contingency reserves in the Japanese budget, certainly, they will be used for this purpose. We have penciled in-remember the damage estimate that you cited, isn't for to be replaced all at once. We have penciled in a notion (ph) of about 1.5 percent of GDP in recovery spending this year. That should be financeable through the markets given the very high rate of Japanese savings. And as you can see, bond yields in Japan, government bond yields remain very low, even though it is well understood that there will be a supplementary budget and recover spending.

QUEST: We are in slightly uncharted territory, though, John. Because the transmission effects in the supply chain, you know, each time globalization gets greater, we learned this in the financial crisis, that the transmission effects of a financial crisis was very far and fast. Do we fully understand the transmission in this case, for the supply chain?

LIPSKY: Well, your point is very well taken. The interlocking nature of the global economy is very clear and Japan has a very important role at exporting memory chips, some high equipment and autos, other things. Our expectation is that the disruptions to production in those sectors is going to be a rather temporary affair. They will ripple out, but given our expectations about the direct effect of the earthquake and tsunami, we don't expect to see a significant impact for example in U.S. economic activity.

QUEST: You nicely and gently take me to the United States. That 3.1 percent Q4 number, better than expected, but obviously that can't survive into-throughout 2011. Are you satisfied at 3.1?

LIPSKY: Well, yes, in the sense that that is in line with our expectations. That is about what we think growth will be this year, although we think it is probably running, right now, a little bit slower than that. But frankly, Richard, the problem for the U.S., like the other advanced economies, is we see a continuation of moderate growth, but moderate growth that is not making a dent in the high unemployment rate and margins of excess capacity that they suffer from today.

QUEST: All right. But finally, John, as we have on in the U.S. slowing down because of oil prices, we have in Europe, Euro Zone sovereign debt. Is the IMF tonight prepared to say now is not the time for monetary tightening.

LIPSKY: I think this has to be taken on a case-by-case basis. Certainly in the emerging economies, where the economies are running faster and inflation is rising, in many cases monetary tightening will be appropriate. And in those advanced economies, where inflation expectations look like they may deteriorate, then action may be appropriate. Remember, monetary policy is very expansionary right now. But in general you're quite correct, that we need to see faster growth in the advanced economies, before it is time for significant monetary action.

QUEST: Treat and a pleasure to have you with us on this Friday evening, many thanks indeed for joining us.

LIPSKY: See you, Richard, thanks very much.

QUEST: John Lipsky joining me there from the IMF in Washington.

Research In Motion has got hammered on Wall Street. The Blackberry maker is gearing up to launch its answer to the iPad. And on a day when iPad 2 arrived in the stores worldwide, who has got the motion sickness? After the break.

(COMMERCIAL BREAK)

QUEST: There was so much happening today in the world today, in the world of smart phones, iPad, all sorts of gadgetry, that really got us all terribly excited. Shares in Research In Motion, that is maker of Blackberry, they were down more than 10 percent, right now they are after RIM, Research in Motion gave a weaker than expected quarterly earnings forecast. RIM to some extent, well, it is caught betwixt and between. Because the maker of the Blackberry predicts a $1.47 to .55 a share below analysts forecasts; the risks of course, for RIM is all in the supply chain as a result of what we were talking about a moment ago, with John Lipsky.

The supply chain from Japan, the demand for chips, all of that is taking its toll, and they see a very dramatic, about 10.6 percent. But there is another aspect to RIM's problems and it comes from the tablets war. Now the Playbook is going to cost more it is going to be longer before it comes out. And for RIM, although they are bullish about its prospects, PlayBook is going head-to-head with the industry leader the iPad, and now, of course, the iPad 2.

In the face of mounting competition Apple is putting on a show. Today was a global launch of the iPad 2. And fans queued for many hours, whether it was Wellington in New Zealand, or the West End in London. Nina Dos Santos was in London when one of the world's most hyped gadgets went on sale, an hour ago.

(BEGIN VIDEOTAPE)

NINA DOS SANTOS, CNN INTERNATIONAL CORRESPONDENT (on camera): So, I understand you are number one in the queue?

UNIDENTIFIED MALE: Yes, that is right. I've been here since yesterday morning at 7:30.

DOS SANTOS: How much does it mean to you to be number one?

UNIDENTIFIED MALE: Well, like I said, (UNINTELLIGIBLE) as a competitor you always want to be number one. Get the gold medal, and this year I've got it. So, it has been quite good.

DOS SANTOS: Here at Apple's flagship store in London, as you can see the atmosphere is electric. As the first few buyers are being allowed through the doors for their chance to purchase one of these. It is the iPad 2, which is Apple's most (UNINTELLIGIBLE) tablets so far.

UNIDENTIFIED MALE: It is quite exciting whenever Apple bring out a new product, everyone, I mean, the hype and everything.

DOS SANTOS: Was it worth it?

UNIDENTIFIED MALE: Definitely, definitely, it was a good banter amongst the crowd. And made some friends, got some e-mails, yes, definitely.

UNIDENTIFIED MALE: Actually it started with Asian neighbors, so we are here specifically for the iPad 2, for sure.

DOS SANTOS: Where are you from?

UNIDENTIFIED MALE: From Russia, from Moscow.

UNIDENTIFIED MALE: I decided to prolong my stay here for one day.

DOS SANTOS: It must have been cold.

UNIDENTIFIED MALE: There is just one possibility to warm up, it is the public toilet over there.

(LAUGHTER)

DOS SANTOS: These iPad 2s went on sale here in London about half an hour ago. And as you can see by the crowds behind me, there is about 300 people waiting for their chance to buy one. The question is, when they get to the front of the queue, will there be any left. Nina Dos Santos, CNN, London.

(END VIDEOTAPE)

QUEST: And this is what the two of them look like. This is my iPad 1, and this is the loan iPad 2. It does feel a bit light. I can honestly say if you held one against the other you would be able to tell. And the camera works pretty impressively. But we need to go behind the statistics. Because you have all heard about iPads a gazillion times.

If you look at the people who are buying iPads at the moment. How many of them are iPhone, Android, or using some other form? 75 percent of the iPad purchasers are iPhone users. Of course, look at that, just 10 percent come from the Android family, whilst, 15 percent, Windows Mobile 7, PALM, whatever else it might be, Symbian, I suspect. Those numbers probably likely to change as Android increases is markets presence, in the years ahead.

But if you look at the ages of people who are buying this iPad 2, well, pretty much there were a couple of kids outside London. And if you look at the rest of them, you start to see most of them in this crucial 18 to 25 year old area.

Now, let's talk about this in some more detail. Joining me now is Sam from New York. Sam Grobart at the-the personal technology editor of "The New York Times".

The battle for iPad versus all the other various different tablets that are coming out, how much of it is iPad's to loose?

SAM GROBART, PERSONAL TECHNOLOGY EDITOR, "THE NEW YORK TIMES": Well, at this point it is pretty much a neck and neck battle between iPad and Android. We have seen that already in the smart phone market. We are going to see a lot more android tablets coming out in the months ahead. And it is expected that those two will really battle back and forth, and then there will be sort of a grand race for third place among all of the other manufacturers and other operating systems that will try to get apiece of that pie.

QUEST: So to that extent -- and we're just looking at my chart, again, which shows Android -- iPhone at 75 percent -- how does iPhone or how does Apple keep, if you like, people within this Apple iGarden?

GROBART: Well, I think one key element of that would be iTunes, which, of course, is the software that many people use to manage all of their media -- their music, their movies, as well as things like iPhoto. And once you've invested all of your content into a system like that, it becomes very difficult and very laborious to have to move it into an entirely different ecosystem. It's a bit like changing your bank and having to rearrange all of the bill payments that you had originally set up. Most people aren't going to want to do that and they'll stay right where they are.

QUEST: Sam, you and I will talk more about this, I hope, in the future. It's the -- it has a phenomenal potential for all of us in our everyday lives.

Sam joining me from "The New York Times" in New York.

It's a very busy day.

QUEST MEANS BUSINESS.

I'm back after the break.

(COMMERCIAL BREAK)

QUEST: Hello, I'm Richard Quest, QUEST MEANS BUSINESS.

This is CNN. And on this network, the news always comes first.

There are new reports of gunfire and violence in Southern Syria, a human rights activist has been telling CNN. Nine people were killed today when security forces opened fire on demonstrators in Daraa's main square. That's in addition to the 15 people reportedly killed when they tried to march toward the town. CNN is now allowed to report from Syria.

Clashes also broke out in the Jordanian capital between government loyalists and demonstrators. Protest organizers say several members were wounded after being hit with rocks and sticks. Officials say police tried to separate the two groups but were initially overrun.

We must stay in the region. A seventh day of air strikes against the Libyan regime, as NATO prepares to take control of the no-fly zone effort and considers whether to broaden that role.

Meanwhile, humanitarian agencies say the situation is growing more dire for Libyans caught in battle zones.

The U.N. says nearly a million people have fled the commercial capital of Ivory Coast because of escalating violence. More than 460 people have been killed since a post-election dispute began last November. There are now reports Liberian mercenaries are pouring in to take advantage of the upheaval.

So, BP and Rosneft. Rosneft isn't giving up. Russia's state-owned and controlled oil giant says it will try to push through its joint venture with BP, a deal that has been blocked by the U.K. company's Russian billionaire partners. Big money is at stake. The bigger picture, as you can see, BP wants to do a -- BP basically wants to be in bed with both, at least that's the way it seems to me.

Senior international correspondent, Matthew Chance, joins me to talk about this.

So BP has already got a deal with...

MATTHEW CHANCE, CNN SENIOR INTERNATIONAL CORRESPONDENT: TNK-BP.

QUEST: TNK-BP. And it's got a deal with Rosneft. TNK-BP is not happy. Arbitrators have said that the Rosneft deal can't go ahead.

CHANCE: That's right. And TNK-BP is a crucial part of BP's global output. It accounts for nearly 30 percent of its oil production. So it's a huge part of BP. They have a 50 percent stake in this -- in this TNK-BP joint venture with these billionaire partners.

And one of the agreements that they've made, it's part of the shareholder agreement, is that they won't do business with any other -- anyone else in Russia or the Ukraine, except through the vehicle of TNK-BP.

They went ahead, though, and talked to the Rosneft directly. The billionaires have objected.

QUEST: Look, you study Russia daily. They -- BP didn't do this deal with Rosneft if they didn't think that putt and the government would support it.

CHANCE: It -- it's not clear. You know, we don't know what discussions were had behind the scenes. But clearly, there's been a miscalculation on the part of BP. They thought they could go in and, you know, kind of basically trump their Russian partners and deal directly with the Kremlin. They've been proved wrong. This Swedish court has upheld the billionaires' objections.

QUEST: But the billionaires of TNK-BP, are they friends with -- with the administration in Moscow?

Or would they be considered -- as much as anyone knows these things -- would they be considered to be Putinesque?

CHANCE: You know, I think that if you're a billionaire in Moscow, then I would -- frankly, then you're, you know, someone the Kremlin approves of. All the -- look, the billionaires it didn't approve of are all already either in prison or living somewhere else in the world.

And so, yes, they have a good relationship, I think, with the Kremlin, as far as I know.

But, you know, that doesn't mean that if they go up against the Kremlin on a strategic issue, the Kremlin isn't going to change their mind about these billionaires and perhaps, you know, who knows what will happen?

QUEST: You...

CHANCE: What happened the last time, remember Yucos and Mikhail Khodorkovsky?

He's still sitting in jail right now.

QUEST: And, of course, Bob Dudley, of course, had to leave Russia in a hurry on T -- on the TNK-BP deal in the first place when he was involved with that. Fascinating stuff.

How is it going to play out?

And I'll take a don't know on that one.

CHANCE: OK, I don't know. But, you know, it's going to be very interesting over the next couple of weeks...

QUEST: Yes.

CHANCE: -- because if you do see them coming up against the Kremlin, you know, who knows what the Kremlin will do?

QUEST: Matthew, you'll be back.

The weather is turning nice today now, isn't it?

CHANCE: It's snowing.

QUEST: It's turning nicer.

CHANCE: Nicer?

A little snow.

QUEST: It won't be long.

To New York now, with had rather pleasant weather when I was there last week. Now, where this rather large diamond is apparently the trendiest thing in town. It's dazzling one group in particular. I'm not going to ask how much it costs. I can't afford it.

(COMMERCIAL BREAK)

QUEST: Some people these days put their cash into something with a bit more sparkle than shares. At Harry Winston Diamond Corporation, revenues doubled last year. People bought more gems and prices soared.

Now, Felicia Taylor in New York, who likes a bit of a sparkly thing herself, she met the boss of Harry Winston and discovered there's a whole new set of buyers. They love diamonds. And there's only one requirement - - big.

(BEGIN VIDEOTAPE)

FELICIA TAYLOR, CNN CORRESPONDENT: This is a 25 carat diamond, one of the prized pieces at Harry Winston jewelers.

And I'm here with Frederic de Narp, who is the CEO of Harry Winston.

Clearly, this is a very special piece.

FREDERIC DE NARP, CEO, HARRY WINSTON, INC.: Yes.

TAYLOR: One of the larger diamonds, probably, that you have in-house.

What's the price?

DE NARP: Well, at Harry Winston, we don't talk about the price, we talk about magic, about symbol, about eternity, beauty. This is...

TAYLOR: But this might be emblematic of sort of a -- a trend right now. There's...

DE NARP: Yes.

TAYLOR: -- there's tremendous interest...

DE NARP: Yes.

TAYLOR: -- in these larger pieces.

DE NARP: Yes.

TAYLOR: Why is that?

DE NARP: Well, larger pieces are very in demand in -- in America, in the Middle East and above all coming from China. The Chinese are today extremely educated, very quickly educated. And they simply want the largest pieces and the best pieces, with no compromise.

TAYLOR: There are more billionaires in China than there have ever been before.

DE NARP: It's growing exponentially. We are learning from them every -- every day, I will tell you, because what I can tell you is that the -- the wealthiest Chinese are probably, on average, 10 to 15 years younger than the wealthiest Americans.

TAYLOR (voice-over): One key area of growth for the company, tailor- made diamonds. Demand has expanded and the company reports sales of diamond jewelry worth more than $3 million have tripled. Harry Winston has just reported a 60 percent rise in year-over-year quarterly sales. Its shares are near their highest levels in a year and the firm is dismissing rumors that it's up for sale.

(on camera): And are you expanding into China to -- to further that marketplace?

DE NARP: We decided this year to put 100 percent of the capital investment in bringing new stores for Harry Winston into China. We are building (INAUDIBLE). We're building three stores in China, two already in coastal China, in Shanghai.

TAYLOR: Something else that seems to be a trend, though, are the -- the tiny diamonds that are seen in some of the watches.

Why watches?

Why does seem to be something that's a little bit more portable than other things?

DE NARP: It's a little bit more portable. It's a symbol of -- of success, as well. It's a statement. And -- and it's something you can enjoy. You know, when you look at time, you enjoy something absolutely magnificent.

But again, only the best quality. They don't compromise.

TAYLOR: Did you see business hurt by the recession?

I mean almost everything was.

But was the diamond industry hurt, as well?

DE NARP: You know, the recession has hurt many -- all the Western countries, but not China. And it is very new. As I was telling you, in China, it's only three years ago we saw this emerging demand for diamonds.

So, of course, the recession has hurt. We -- we were hurt by -- by the recession. But out of the recession, at this moment, there is a big sustained continuous demand for diamonds, especially at the very high end and for the biggest diamonds.

TAYLOR (voice-over): A sparkling picture for now, but with so much uncertainty in the global economy, diamonds may not be forever. Japan alone made up 18 percent of total sales last year.

Felicia Taylor, CNN, New York.

(END VIDEO TAPE)

QUEST: Felicia Taylor.

And, of course, we're still investigating whether she actually managed to get out of the place with a diamond. And I'm not sure we ever found out the full, real time costs. I suspect we'll see it on her expenses before we are finished.

Finally tonight, while this machine has been making so much of the running around the world, after all, when you think it is only just a year since the first one came out and made such a hoopla and a buzz, it's pretty remarkable that they can do it all over again, at a time when the competition is really not even out of the gate.

But that's really what it's all about when it comes to gadgets and new ways of thinking about technology.

It's often the case, is it not, he who gets there first, he or she who gets there first, wins the prize?

And until somebody else builds a better mouse trap, well, everybody else is really playing me, too, catch up, look out, I've got one, as well.

But frankly, it does take some doing before anyone will go along with the new product.

A final look at the Dow Jones Industrials as we close our week out. Up 53 points, 12223.

But that is QUEST MEANS BUSINESS for this week.

I'm Richard Quest in London.

I thank you for your time and attention and for joining us each evening.

Whatever you're up to in the hours ahead, I do hope it's profitable.

MARKETPLACE AFRICA is next.

(COMMERCIAL BREAK)

ROBYN CURNOW, HOST: You're watching MARKETPLACE AFRICA and I'm Robyn Curnow here in Johannesburg.

Now, go anywhere and you'll find friends, meetings, discuss ideas on how to save money. But in Kenya, those groups have taken it to a whole new level. Social gatherings have become a big business. And the women are running the show.

David McKenzie has this In Focus look.

(BEGIN VIDEOTAPE)

MAUREEN MARUNGA, UNATHI INVESTMENTS: And we'll buy from you. The title is ready.

DAVID MCKENZIE, CNN INTERNATIONAL CORRESPONDENT (voice-over): It's like any other property sales pitch -- potential investors examining plots and eyeing bargains.

MARUNGA: If we start announcing, can we get a better price?

MCKENZIE: But there's something missing in this Kenyan boardroom -- men. These are members of Unathi Investments, a woman's only investment corporation, or Chama. And in just 24 months, they've pooled their money to buy land, secure loans and invest in equities.

MARUNGA: We look out for something.

MCKENZIE: Maureen Marunga, an entrepreneur who owns a sassy hairdresser chain in Nairobi, is one of Unathi's founders. She says keeping the men out came naturally.

MARUNGA: I think it happened more default. It -- it wasn't intentional when we set out in the beginning. But we found that the kind of people we attracted to come on board and to share this vision tended to be women.

He's our best (INAUDIBLE), actually.

MCKENZIE: But women also face specific financial challenges in Kenya.

MARUNGA: The bank will -- will limit its financing to the security I have available. And for most women in this region (INAUDIBLE) is a challenge to have security, because that would involve things like land, which traditionally families would give that to men.

MCKENZIE: Unathi has helped Marunga secure her growth.

(on camera): Groups like these have been in Kenya for a long time. And analysts believe that three in five Kenyans pool their money in some way. So now the banks are getting involved.

(voice-over): Chamas began as simple revolving funds for women to save for funerals or weddings. But modern Chamas can be worth tens of millions of dollars.

With Kenya's women in the lead, banks are now offering Chamas accounts, with favorable interest rates and sizeable loan potential.

JOSEPH OKUMU, BANK OF AFRICA: I think people are moving from the mind set of just saving to the mind set of investing. People want much more return from what they are accumulating, what they are in -- they are saving. So people are moving to the next level of saving to invest.

MCKENZIE: Men are also getting into the game, typically with larger and more aggressive investments. But some analysts believe that Chamas groups made up of women are more strategic.

And they're juggling family and work has given them an advantage.

NANCY KANYANGO, UNATHI INVESTMENTS: We hold each other accountable in terms of the use or our resources, ensuring that we have something put aside for our retirement, but also just knowing what challenges we all have as working women.

MCKENZIE: Unathi's members say it's not just about tasting profits, their common experiences and goals make them a tight-knit group, in it for the long haul.

KANYANGO: I believe it will have grown us and shown us we're able to do beyond what we would have done individually.

MCKENZIE: David McKenzie, CNN, Nairobi.

(END VIDEO TAPE)

CURNOW: Let's take a closer look at the Chamas. Women more than men tend to participate. In fact, about 60 percent of all Chamas members are women. About nine million Kenyans belong to these groups. And if you think that each of those people probably has about three dependents, that means about 27 million people are affected by their work.

Now, coming up after the break, he's outspoken and he openly criticizes the government that he served.

(BEGIN VIDEO CLIP)

TENDAI BITI, ZIMBABWEAN FINANCE MINISTER: We will never, never betray the people of Zimbabwe.

(COMMERCIAL BREAK)

CURNOW: Our guest this week inherited an economy that had been battered by record hyper inflation and 90 percent unemployment. The Zimbabwean finance minister, Tendai Biti, though, is trying to steer his country down a path of economic stability. But he's always been known to speak his mind and it was no different when I sat down with him recently for a bit of (INAUDIBLE).

(BEGIN VIDEOTAPE)

CURNOW: About 18 months ago, we -- we had an interview and I asked you if you had the worst job in the world. And you said you did.

Have things improved?

BITI: Well, I think -- I still think that the job is horrible and easily the worst job in the world.

CURNOW: Being the Zimbabwe finance minister?

BITI: Absolutely. But in terms of the impact that the inclusive government has met on our people, I think it's also incontrovertible that we have made and impact.

CURNOW: This year, I think, 2011 is going to be critical on -- on all levels, political and on the economic front.

BITI: Yes.

CURNOW: But as in Zimbabwe, as anywhere else, I mean those two issues are so inextricably linked.

How do you see this year panning out?

BITI: I think we need to put a clear demarcation between the vagaries of politics and the obligation of making people eat, making people have jobs, making people have clean water, making people have a good health delivery, making people go to school. We need to put a wall between that.

CURNOW: And when we talk about 2011, have you budgeted for an election this year?

BITI: Well, I think the most important thing is clearly the constitutional referendum. And we have budgeted for that. It is also important that we create an environment that makes Zimbabwe ready for a free, fair and uncontested election.

CURNOW: For many people looking in, foreign investors are very nervous about this indigenization, but which many people see as just expropriation, really.

BITI: There's a lot of mistrust in the Zimbabwean economy. But the mistrust comes out of ignorance. You have to understand what you are dealing with. And a lot of people don't understand what they are dealing with, because there's a lot of negativity that is churned out in the -- on the Internet and in the newspapers.

CURNOW: But I mean I think what it boils down to, Robert Mugabe is not helping. At his last speech that I saw, where he -- he threatened revenge on foreign companies who came and -- and invested in -- in Zimbabwe.

That's -- I mean there's an element of risk in terms of investing. But that's -- that's just not helpful.

BITI: Well, nobody can deny the fact that that Zimbabwe needs to get its politics right, which is why an election is inevitable in Zimbabwe. So that part is indisputable.

But what is also indisputable is that despite the political shenanigans, it is still a place where one can actually invest and actually get returns.

CURNOW: I mean, obviously, you want to sell your country. You want to say listen, doors are open...

BITI: I'm not...

CURNOW: -- come and invest.

BITI: I'm not -- I'm not underestimating the political difficulties that the -- the, still troth country and sitting around the -- the global political agreements, the -- the -- the hangover of violence and all the madness that took place in 2008. I am not sweeping it under the -- the carpet, which is why we need a new constitution, which is why we need the rule of law, which is why we need respect for each other and giving respect for -- for property rights.

CURNOW: One of the things that you've been quite verbal about is the issue of diamonds, the Kimberly Process and those very controversial Marange diamond fields.

How much money did you earn -- did Fiscus (ph) earn -- from the sale of diamonds?

BITI: As far as the contribution of diamonds to the Zimbabwean economy, it is still very negligible. Last year, the con -- the direct contribution to the coffers was less -- was $1.5 million U.S. So diamonds are not the Eldorado that many people had thought they would be. And part...

CURNOW: What about...

BITI: -- part of the problem lies in the illegal smuggling that we think is still happening.

CURNOW: So this smuggling, this illegal black market in the sale of Zimbabwe diamonds has been said to help facilitate the -- Robert Mugabe's party.

BITI: These diamonds are alluvial. So you can literally mine them with a spoon or with the sole of your -- of your heel. They are located in a place that is six to 6,000 hectares. So that's -- that's, you know -- you know, half the size of the United Kingdom.

So, what it means is that there is porousness and one can literally walk in there, pick stones and (INAUDIBLE)...

CURNOW: Walk across the border and sell them in Mozambique.

BITI: Yes. And the border is a -- is a few minutes away. And this is the longest border that Zimbabwe shares with any country. The border between Zimbabwe and Mozambique is over 1,000 kilometers long.

CURNOW: From what I understand, it's the army and elements of Robert Mugabe's party that are using the funds from those diamonds to -- to -- to fill up their own coffers.

BITI: Look, I -- I have no evidence of that. But what I can tell you is that this is such a fund -- a fungible mineral, found over a huge space of land close to a very long border in a very inaccessible mountainous region. So anyone and anybody can -- can -- can smuggle.

(END VIDEO TAPE)

CURNOW: We're having a discussion on our Facebook page about when is it a good time to invest in Zimbabwe?

We'd love to hear what you think.

But for now, here's what's trending this week.

(BEGIN VIDEOTAPE)

QUEST (voice-over): While Western companies debate the political risks in Zimbabwe, China's unveiled its biggest loan package to Zimbabwe, nearly $700 million. The funds will support farming projects, health care and water systems, but the credit comes with a request the Chinese businesses be protected from Zimbabwe's controversial drive to seize foreign companies.

And Walmart will have to wait before finalizing it's $2.4 billion purchase of South Africa's retailer, Massmart. A government regulatory hearing into the bid has been postponed until May. Trade unions requested the delay to prepare better for their case. The unions oppose the deal, claiming it will result in job losses and unfair competition.

(END VIDEO TAPE)

CURNOW: Any stories or people you think we should interview, please do connect with us. We're on Facebook, we're on Twitter and there's our Web page. Please do go to those and let us know what you think.

But until next week, from Johannesburg, thanks for watching.

END