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Quest Means Business
UK Health And Finance Ministers Announce Resignations; Scandinavian Airline SAS Files For Bankruptcy; Survey: 97 Percent Of US Hotels Are Short Staffed; WTI Blow $100, Recession Fears Take Toll on Market; Biden Considering Lifting Trade Barriers with China; "Connecting Africa". Aired 3-4p ET
Aired July 05, 2022 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
PAULA NEWTON, CNN INTERNATIONAL HOST: Mixed day for US markets. A late turnaround for the NASDAQ, if you can believe it, in positive territory
while recession fears are still weighing. You can see there on the Dow and S&P 500. Those are the markets and these are the main events.
Boris Johnson's leadership is in doubt after two senior members of his Cabinet resign.
Oil prices slide 10 percent on signs that slowing growth will shrink demand.
And just how early do you need to get to that airport these days? We'll ask the expert, The Points Guy, Brian Kelly.
Live from New York. It's Tuesday July 5th. I'm Paula Newton, in for Richard Quest and this of course, is QUEST MEANS BUSINESS.
And good evening.
Tonight, Downing Street in crisis. I know you've heard that before, but as Boris Johnson faces one of the biggest threats to his leadership. After
months of scandal, now two -- two -- key members of his Cabinet have quit in very dramatic fashion.
Men -- you have to think about this -- men who have been close and among his closest allies for years. Health Minister Sajid Javid and Finance
Minister Rishi Sunak have both said they're resigning. That's just happened in the past few hours. Javid says he no longer has confidence in Mr.
Johnson. Finance Minister Sunak said he could no longer work with the Prime Minister whose approach was "fundamentally different to his own."
Now, the resignations came just moments after Boris Johnson apologized for appointing a senior conservative lawmaker to his government. Chris Pincher
resigned last week over recent allegations of sexual misconduct, and he'd been accused of misconduct in the past, complaints the Prime Minister and
everyone says was actually aware of.
Now, Bianca Nobilo has been following these developments very closely for us, and Bianca, I am always happy to see you, but never more than this
evening.
Another political earthquake in Britain, right? Can Boris Johnson really lose two of his most trusted high-profile Cabinet Ministers and survive?
It's got to be the question ripping through Britain right now.
BIANCA NOBILO, CNN CORRESPONDENT: It is and that's because any other Prime Minister would have resigned many times over by now, but Boris Johnson
hangs on. And what we've seen tonight in these letters from Rishi Sunak and Sajid Javid, two of the heavyweight positions in Cabinet, is part of that
waterfall of momentum of Cabinet Ministers, his own MPs or Junior Ministers deciding that they really can't take it anymore.
And you mentioned the case of Chris Pincher, who was the Deputy Chief Whip. This has caused a lot of members of Boris Johnson's party to snap today.
And that's because once again in a way that really resembled what we saw throughout partygate, Downing Street issued a denial. They said that the
Prime Minister had no knowledge of sexual misconduct allegations against Pincher.
And then as the days roll on, it transpires as somebody who was very high ranking and had knowledge of the matter said that not only was the Prime
Minister informed of an official complaint against Pinscher, but that that complaint was actually upheld, it was not dismissed.
So then the Prime Minister had to apologize and I think we can take a listen to that -- Paula.
(BEGIN VIDEO CLIP)
BORIS JOHNSON, BRITISH PRIME MINISTER: I think it was a mistake, and I apologize for it. I think in hindsight, it was the wrong thing to do.
I apologize to everybody who has been badly affected by it, and I just want to make absolutely clear that there is no place in this government for
anybody who is predatory or who abuses their position of power.
(END VIDEO CLIP)
NOBILO: And Paula in the last hour or so, we've had Boris Johnson's trade envoy, who is one of his own MPs, eh resigned, also citing a lack of trust
in the fact that he couldn't continue with this rolling chaos of the last six months and actually live on air on a British news program in the last
half hour, Bim Afolami, who was one of Johnson's MPs, also Vice Chair of the Conservative Party took the decision to resign in a discussion with the
anchor of that new show, saying that he can no longer do it because today he'd been at a funeral of a long serving Council Member and that reminded
him of the importance of integrity and he simply couldn't continue serving Boris Johnson.
So the real question is now, Johnson has been famous throughout his political career for having these great delusions of grandeur, anecdotally
wanting to be World King as a youngster and really believing his own hype.
[15:05:10]
But Paula, does he really think he can continue when he is bleeding so much support and loyalty and the discontent in the Conservative Party has simply
never been higher under his Premiership?
NEWTON: Yes, and so many people skeptical, even within his own party, of his leadership. And yet, they've always said, this is a man who wins us
election, obviously no longer if you look at the British polls.
I want to ask you, though, Bianca, and you've so carefully taken us through this really, for months and years now, but what are the options for
Conservative Cabinet Members and MPs who want Johnson out? We just had that very dramatic vote of many people dissenting from his own party and not
wanting him to continue to be leader, but this isn't going to be easy from a procedural sense if Boris Johnson refuses to resign, is it?
NOBILO: Yes, Paula, this is the most salient point.
So as you mentioned, he just narrowly survived a confidence vote. So in theory, that means that he is safe for another year from another confidence
vote, which if it was to occur, now, he, I don't think could possibly win. He simply doesn't have the numbers.
Now, the confidence vote process is handled by the 1922 Committee, which we don't need to get into, you know, the esoteric of that. But essentially,
it's a group of his own lawmakers who handle that process, and the Chairman receives the letters of no confidence in the Prime Minister.
Now, that executive is being replenished and re-elected in the coming weeks. So the thinking goes in the party at the moment that once that
happens, so once there are new people populating that committee, they will seek to change those rules so that they can have another confidence vote in
Boris Johnson within the year, possibly quite soon. So that's the received wisdom in Westminster at the moment that that will be a move that is made.
Now until that point, Paula, the only other way to precipitate the resignation of a Prime Minister, which is why tonight is so significant,
would be mass resignations from Cabinet, putting maximum pressure on the Prime Minister because A., he may struggle to fill those roles, and B.,
it's just a huge gesture of a lack of confidence in the Prime Minister and something which they often refer to them as Men in Gray Suits, but
anonymous figures behind the scenes maybe in the Cabinet Office approach the Prime Minister and say, "Sir," tap him on the shoulder, "You really
can't continue anymore. It is not looking good. You don't have the support, you don't have the confidence, and it would really be the most appropriate
thing if you now stepped down."
Those are the options that we're looking at other than in a complete break of character in all his political career, Boris Johnson decides that now is
the moment that he feels he needs to resign.
NEWTON: Yes, you make such a good point, a break of character is not something we would be used to seeing Boris Johnson capitulate.
Bianca, please stay close. I know you will, you have your show in almost two hours from now, but you will stay close because we are on the alert
here for more breaking news out of London tonight.
Bianca Nobilo, appreciate it.
Now as we were saying, those departing Ministers aren't the only ones unhappy with the UK government. And if so, as UK's survey conducted at the
end of June asked if the Conservative Party was still fit to govern? You know, just 21 percent polled said yes. And the opposition doesn't have it
much better, mind you, it is just one-third of people polled saying Labour is fit to lead. That's the lowest number for either Conservatives or Labour
since tracking started in 2011.
I want to talk more about this with Bronwen Maddox, Director of the UK Institute of Government. I mean, in Britain right now, you're already
dealing with this cost of living crisis. You're worried literally about winter and how you're going to pay for heat. And now, you have yet another
political storm, a battered Prime Minister, these two Cabinet Ministers, even the Finance Minister at this point in time. The Chancellor of the
Exchequer resigning.
I mean they have been scathing, even from the resignation letters, you know one of them sayings these are standards worth fighting for. So, they're
fighting. How much further can they go in order to actually push him though?
BRONWEN MADDOX, DIRECTOR OF THE UK INSTITUTE OF GOVERNMENT: There is a shock factor to what's happened today. I was chairing an event with Jeremy
Hunt, one of the backbench MPs, formerly a senior Minister is often mooted as a possible contender that was on Monday, just yesterday, no hint of
this.
I listened to a speech yesterday by Keir Starmer, the leader of the opposition. Again, no hint of this. It was very much politics as usual.
The shock of what's happened today, I think takes it above the just one more episode in what has been a very long running political saga of
scandals things Boris Johnson's government has slipped up and from which he or it has apologized and so on. It's gone on for a long time.
This feels different to me. They are very senior, they are heavyweight and they have made in measured, but very impassioned terms of attack on him and
a sort of impassioned plea for the standards, which they feel he is letting slip.
[15:10:14]
NEWTON: Certainly their resignations, as you said, they've been quite candid in those letters of resignation. But I have to ask what could they
possibly be hatching?
We had Bianca explain that 1922 Committee and all that is really is a committee from within, who will be able to again set the parameters of when
you can have a challenge to Boris Johnson's leadership. Do you think that is part of the plan here in having these two Cabinet members resigned?
MADDOX: No, I think they simply wanted to resign. They obviously agreed with each other that they were going to resign, they coordinated this.
The 1922 Committee elections or selections for those posts are going on, as we've been hearing on your program. So that is one route.
The procedural route, if you like that, the United 22 gets a new executive which changes the rules, and has another vote of no confidence in the Prime
Minister, possibly very soon, much, much sooner than a year, possibly within weeks or months. That is one route.
But another one, as you are also discussing is that the People in Gray Suits, we can call it that these days comes to Boris Johnson and says,
"Look, this is going to happen with a 1922 Committee. You are not going to win. The back benchers are completely against you. The only thing you have
left in your control is to step down now. And so do you want to take that option?" And that is possibly what is going to happen.
Or, you know, he just tries to hang on, reappoint or tries to reappoint successors to the people who have resigned, just tries to slug it out,
seeing what will happen. That is certainly in the nature of this Prime Minister, but his options are closing.
NEWTON: In fact, as you say, it is in his very character. What has been in the character of British citizens is to be incredibly patient. And yet,
when you look at the scale of the crises facing the British public right now, how do you think they will interpret this and given that, do you think
Boris Johnson survives the summer?
MADDOX: I think the odds of Boris Johnson surviving the summer have enormously worsened against him today. I didn't think that before. I was
very much in the camp if he will hang on and he will survive, he will survive for quite a long time, but he will definitely hang on. I think that
has changed for me today.
As to what else happens, I mean, I think the next General Election will turn on the cost of living, on the economy. Those are really the things
that are very much on the British public's mind.
NEWTON: As well, they should be, certainly given all the challenges ahead. We will leave it there for tonight again, though we are still awaiting to
see if there is more news out of Britain this evening.
Bronwen Maddox, we will leave it there for now though. Thanks so much.
MADDOX: Thank you very much.
NEWTON: And just in to CNN, more stories we're following here: Norwegian Energy workers will return to work as soon as possible. Now, the strike
among employees at Norway's state-owned energy company Equinor was brought to a quick end after government intervention. Now, they were protesting a
pay dispute. The company shut three of its fields in the North Sea.
Natural gas as we've been saying, those prices spiked significantly as a result. Norway is Europe's second largest natural gas producer behind
Russia. And obviously, all of this comes as a huge relief to many in Europe.
Just ahead for us: Travel chaos continues. The mayhem is not only pushing passengers off flights. Now, it's pushed an airline into bankruptcy as
well.
We'll tell you more right after the break.
(COMMERCIAL BREAK)
[15:16:23]
NEWTON: Travel disruptions getting worse in Europe.
Scandinavian Airlines, SAS, has filed for bankruptcy protection. Its pilots went on strike Monday leading the airline to cancel about 50 percent of its
daily flights. Now, it says it will continue to operate through the bankruptcy process.
Meantime, British Airways is further reducing its summer schedule. It is canceling about 1,500 more flights, and that is, of course, in addition to
the 10 percent of flights it has already canceled between April and October.
Anna Stewart has been following all of this for us from London. Okay, so SAS, our first significant sign of turbulence, right? It's not lost on me
or anyone else.
Anna, this was supposed to be our summer return, right, to worldwide recovery of travel. We were all going to love it and do it. Instead, it
looks so dysfunctional.
I mean, how much longer can we expect this to go on?
ANNA STEWART, CNN REPORTER: Well, in terms of the recovery, Paula, there's a recovery in demand. At least, we all want to get away, we want to take to
the skies, but yes, airlines, airports, they're not really ready for it. And really, we are looking at a confluence of issues here.
For an airline like SAS, they actually were in a bad position even before the pandemic. They faced really fierce competition from low-cost carriers.
Financially, they weren't in the strongest position. Then came the pandemic.
And you know what? 2020 was the worst year in aviation history. Airlines loaded up on debt. They had huge cost cutting procedures. They had to cut
lots and lots of the workforce. And then just two years later, huge demand, it is back and they are just not ready. And it's very hard, I think, to
recruit staff at this stage when they've cut so many. And also, you've got to look at the issue of the war in Ukraine, which is pushing up costs in
terms of jet fuel.
So all of these different issues weighing very heavily on airlines. It is strikes, it is shortages, and it is high costs -- Paula.
NEWTON: Yes. And here's the question, which I know you've been looking into this carefully: When will this sector get over this? Like when will we
be able to book a holiday without worrying about it cancelled, worrying that you won't get there, your bags may not make it. The people you were
hoping to party with won't be there. I'm asking for a friend. How long is this going to take?
STEWART: I mean, I've already had a bag lost. I've already missed a few flights that got canceled. I've got a few more to come probably this
summer.
Listen, this isn't getting any better anytime soon. Flights have been canceled right through up to October and this is trying to get ahead of it.
So at least passengers and consumers can sort of plan their summer ahead.
We've had cancellations again from British Airways. You mentioned, increased the number of flights they've canceled, taking into account that
and all the strikes.
We're looking at tens of thousands of flights already canceled for the summer up to October. They are not coming back.
Now, there is thankfully a bit of a lull in autumn, isn't there? So I don't think we'll see as much disruption then. But what about Thanksgiving?
Christmas? New Year's Eve? We all know it'll come around fast. And will they be in a better position?
So much of the problems we are seeing have to do a staff shortages and it takes time to recruit, to train, and we've all seen a huge shift, I think
in the workforce from the pandemic. People have reskilled, they've retrained. They've gone into other jobs.
Can this sector pay people enough and make working conditions good enough to actually get back into that sector or join it for the first time?
Looking at the strikes we're seeing in Europe, perhaps not -- Paula.
NEWTON: Yes, especially when it comes to labor. They are fed up as well. Right? And we've seen a little bit of that across Europe as well.
Okay, Anna, we'll leave it there for now. Appreciate it.
Meantime, Brian Kelly is the founder and CEO of the travel website, The Points Guy and no better time to speak to you especially as all this is
going on.
Okay, so help us how best to make sense of all of this. We keep waiting for travel to be like 2019, and so far we are so far away from that. Do you
expect things to get better especially now that we see these airlines trying to be more realistic about what they can handle? Or do you think
this will just continue?
[15:20:11]
BRIAN KELLY, FOUNDER AND CEO, THE POINTS GUY: Yes. The only way things are going to get better is if the airlines cancel flights, which is what we're
seeing across the board, and that really isn't better for the consumer, so many people.
What I'd recommend is book directly with the airline. When you book through online travel agencies, a lot of times the message about your canceled or
delayed flight doesn't get to you. So, so many people are showing up at the airport when their flights have been canceled for weeks.
So everyone today should check their reservations, and I highly recommend whenever you're traveling, use FlightAware. It is free flight tracking. You
can actually track your inbound plane to see if it's on its way, because even if the weather is great, where you are, often, you know, weather
situations in other cities can cause delays. So you've got to play ahead of the game.
But simply put, it's not going to get better anytime soon.
NEWTON: Yes, and that's such good advice, though, to also book with the airline and look at things like the weather and where your inbound flight
is, and we're going to get to some more rapid fire advice in just a moment.
Before I get there, though, what trends have surprised you? I know you've been looking at this for so many years now. So, also what will surprise you
with both the way the travel business has functioned and how consumers have responded?
KELLY: Yes. I mean, the biggest thing is inflation. You know, in the US, we're shocked at eight percent inflation, but we're seeing 60 percent
increase in flight prices from January, and that doesn't seem to be impacting demand.
We're hovering around two and a half million TSA passengers a day. Consumers don't care, they want to get out. Although, I do think it's
starting to really grind on them with so many people with, you know, just terrible long lines in airports.
But people still want to get out there and travel and they're feeling now more comfortable traveling and they're not as worried as much about COVID.
NEWTON: Yes, and getting to the airports. They're traveling -- and I've seen a lot of people with blankets and pillows in tow. They are ready to
go.
Okay, you already gave us one great tip, book directly with the airlines and use FlightAware, but I want to go through some more questions.
Okay, so help us out here. First one: What are your rights? And I know it's different in every jurisdiction, but generally what are your rights if a
flight is canceled?
KELLY: Well, if you're in Europe or flying to Europe, you know, there's EU 261 Compensation if your flight is delayed or canceled. You're owed cash,
depending on the length of the delay. In the United States, well, you don't really have many rights, but you are owed a full refund of your flight in
cash.
Don't let the airline give you your refund in a voucher. Never ever, ever take that unless the voucher is worth a lot more than the cost of the
flight. But what most people don't realize is your credit card can offer tons of protections. They can pay for the hotels if your flight is
canceled. So look on your credit card today and understand what your trip interruption or cancellation coverage is. Most of the major travel credit
cards have it and people don't even realize they should be submitting to their credit card companies for compensation.
NEWTON: Such a good point. So many of us would forget that. Okay, how early should you show up to the airport?
KELLY: These days, I mean, it depends. In Europe, you know, there are airports like Amsterdam that are just a debacle. Dublin, four to six hours
we're hearing people show up. But the airlines now are blocking people from entering.
So check the airport you're flying out of. Sometimes, they won't even let you enter until three or two hours before. But the biggest thing is
connecting.
A. Do everything you can to fly nonstop. Pay extra. Anytime you add in an extra stop you are asking for trouble. It's not worth saving a little bit.
But if you do have a connection these days, build in, I say at least four hours.
I flew through Heathrow recently. I had a five-hour layover and people thought I was crazy. I barely made my flight because the inbound flight was
delayed. Heathrow security, you know, so build in long layovers when possible.
NEWTON: it's going to be important.
When best to fly? That's one question. Is it always fly as early as you can during the day and when best to book? Months ahead or weeks ahead?
KELLY: Book as far in advance as possible. I use Google Flights. It pulls in most airlines. It'll even tell you low, medium, or high what the price
is. If it's medium or lower, just book it.
And in terms of flying out, flight the first flight out of the day. Generally, those flights make it out on time. Air traffic is a huge issue
for flight delays and cancellations and as the day goes on, weather hits in the afternoon. All of a sudden those evening flights just get kicked into
chaos, so first flight out one possible.
NEWTON: Okay, and your best tip to find bargains out there whether it's on flights, hotels, whatever?
KELLY: You know, I -- social media is great. The Flight Deal, Airfarewatchdog, but you've got to book quickly. When you see an amazing
deal, book it quickly. Most airlines will give you 24 hours.
And I just have to add in this tip, it is my favorite now that there is all the baggage chaos, travel with Apple Air Tags in your luggage so you can
track your bag in real time because when it gets lost, the airlines have no idea where the bags are these days.
So if you can pull up on your phone and say, "I know exactly where it is. It looks like this. Can you go get it?" That dramatically increases the
chance of getting your missed bag and that is a huge issue this summer.
[15:25:06]
NEWTON: Amazing. That is great advice.
Brian, I'm a frequent flyer. I have already learned a lot. Richard would be ashamed of me right now, but there we go. We make sure we play this back
for Richard, see if he can learn anything.
Brian Kelly for us, "The Points Guy." Thanks so much. Appreciate it.
Now staffing shortages, as we were just talking about are causing problems not just for airlines, but for the hotel industry as well. Now, a recent
survey found that 97 percent of US hotels do not have enough workers.
On a recent trip to Portugal, Richard Quest paid a visit to a hotelier who spoke to him in the early days of the pandemic. He told Richard his
decision then to keep his staff is paying real dividends. Listen.
(BEGIN VIDEOTAPE)
RICHARD QUEST, CNN BUSINESS ANCHOR, QUEST MEANS BUSINESS: It is two hours south of Lisbon where you find Craveiral Farmhouse, nestling in the rocky
Portuguese countryside. Part restaurant, part hotel, and it is the passion project of the lawyer and hotelier, Petro Franca Pinto.
He completed this project in 2019. And then of course, within months, disaster. Pandemic lockdowns in Europe and his business ground to a halt
only months after it opened.
PEDRO FRANCA PINTO, FOUNDER AND CEO, CRAVEIRAL FARMHOUSE: Now, we're thinking this is a lifetime project, a project of 30 years. It's not 18
months that will jeopardize the goals.
QUEST: So when we spoke, first of all, you talked about it, lasting three or four months.
FRANCA PINTO: Yes, a lockdown of two months and a recovery period of 18 months, it is tiny period for the lifetime of the project. So we want to
comply with the principles, keeping the staff.
And I remember that I told you one thing that we want to be integrated in the community, we want to be sustainable. We want to create a positive
impact in the lands in the region. And it's not on the first challenge that we have, that we're going to move back to all the values that we believe,
and that was the main strength of the decision.
QUEST: How is the business doing now?
FRANCA PINTO: Now, it's going well, especially we are starting the summer, the ice season in Portugal. So, I'm positive in terms of EBITDA. I have
positive cash flow. So things are going well.
QUEST: You kept your staff on. You paid the wages. It cost you a great deal of money. You told me about it.
FRANCA PINTO: Yes.
QUEST: Did that pay dividends for you?
FRANCA PINTO: Yes. Because complying with the principles of the project with the values of the project gave consistency, gave us authenticity, and
so in terms of branding, complying with what we say that we are is increasing the value of the project.
QUEST: Now Craveiral faces the opposite problem: The customers are back and he hasn't got enough staff to serve them as he would wish.
FRANCA PINTO: Yes, so we are still having challenges of hiring staff mainly in the food and beverage area because after the pandemic, there was
a huge shortage of my staff.
QUEST: Do you think there has been a fundamental shift in people working in those industries. They don't want what they had before.
FRANCA PINTO: I think they start to give much more value to balance between personal life and work life. And well, hospitality is hard work and
you work when the other person is having fun. So now the challenge is trying to create conditions for the staff to have that balance.
QUEST: But about you, your management style, your capacity for anxiety and for dealing with crisis, what did you learn about you?
FRANCA PINTO: I learned to trust myself more and to be much more secure and that the way I was doing things were was the right way, and so I'm -- I
learned that what I was saying, if you have the vision, and if you fight for it, you can do it.
(END VIDEOTAPE)
NEWTON: Now, oil prices are dipping to their lowest level in two months. What's driving the drop? We'll get to that question next.
(COMMERCIAL BREAK)
[15:32:59]
NEWTON: Well, prices are weighing on U.S. markets as they come back from heavy losses this morning. WTI has gone below $100. It was lower earlier in
the day. But listen, that is quite a slide, now down 8 percent in the WTI.
The Dow, meantime, is also clawing its way back. It is now down just 175 points. It had been down more than 700 points earlier in the day.
The S&P, in the meantime, is in slightly better shape than it was, pretty much flat, as you see it there. Could even get positive.
The NASDAQ, though, gaining a percentage and a half when no one is looking.
Again, people trying to make sense of exactly what is going on with the economy, if it will skid into recession.
Rahel Solomon is in New York for us and has been following all of this.
We've been trying to parse this from our desks, right? We really got our attention, of course, was that $100 oil. What is behind this at this point?
RAHEL SOLOMON, CNN BUSINESS CORRESPONDENT: Hi, Paula. Yes, a lot of people watching that $100 a barrel level. We haven't seen levels like this in
about two months. It was early May, mid-May, where we really saw prices like this. It's quite a difference.
If you look at the last six months or so, year to date, you can see crude prices have been steadily climbing higher.
Take a look at Brent, the global benchmark. Take a look at WTI, the U.S. benchmark. It's been a steady march higher, since January. But again, we
haven't seen prices at this $100 level since May.
What is going on? You've probably heard by this point, but recession fears. We're seeing it really play out across all sorts of asset classes.
We're seeing a player in the commodities, such as copper prices, crude prices, the equities.
We've seen markets climb back a bit. But still, it has been a rough year for stocks for sure.
And, Paula, we've seen forecasts in terms of where crew prices go from here, really, all over the place.
Some banks have said that we might see prices and WTI prices at $60 or $65 a barrel by the end of the year. Some have said that worst-case scenario,
$380 a barrel. So the forecasts are all over the place.
[15:35:08]
Of course, the reason why is there's so much uncertainty. That's creating so much volatility in the markets. We're seeing it play out with crude.
But, yes, a move lower, posing lower for the first time at levels we haven't seen in two months. Who would have thought?
NEWTON: Well, it definitely got my attention today. It got everyone's attention. This is a market that has been throwing curveballs and fielding
them as well.
Given COVID, geopolitical turmoil, what is next here in the weeks to come? Especially with all the Dow are about to get?
SOLOMON: Well, there have been a lot of sort of headwinds. And there's so much uncertainty. But we are going to have a really busy few weeks, Paula,
you and me and many others as we get lots of economic data.
But let's take a look at the calendar. This Friday, the all-important U.S. Jobs report. How is the labor market doing here in the U.S.?
We know that demand for workers has been red-hot. There have been about two open jobs for every one person looking for a job. The Fed wants to see some
slowing here, some easing here.
July 13th and the 14th, next week, we get to really important inflation reports. The consumer and the producer price reports. A sense of what
consumer inflation and producer inflation, or factory level inflation is looking like. The last report put inflation at a 0.6 percent, a 40 year
high.
We also get lots of earnings next week from the big banks. How is the consumer doing? How are banks doing? That's what we'll be watching.
We also get detailed sales data. Are we still spending? So lots of economic data.
Of course, it feels, these days, Paula, that every report is increasingly more important as we're all trying to gauge out this inflation starting to
ease. And is the Fed's job obtaining inflation starting to work. At this, point we haven't seen signs of that yet.
NEWTON: Yet. And again, we await these data points.
Rahel, Solomon, thanks so much for following it for us.
In the meantime, those recession fears that Rahel was just talking about have the White House searching for ways to get the economy back on track.
Now, they may be looking to Beijing. President Biden is considering rolling back certain tariffs on Chinese imports. Talks between the United States
and Chinese officials have intensified in recent weeks. He is expected to speak soon to President Xi Jinping. And that will require Washington to try
find that balance, right, between easing consumer prices and maintaining pressure on Beijing.
And I thank you for joining us.
It is a busy day. A lot to get to. But I do want to start with China.
CNN's latest reporting is that the easing of tariffs on at least consumer goods.
But back to those trade war tactics on strategic endures like tech and others, you know, your view is that this approach is neither for China nor
the United States getting anyone anywhere. You call it dangerously misguided.
You, know elaborate for us, especially given changes in the global economy we seen last couple of months.
STEPHEN ROACH, SENIOR FELLOW, JACKSON INSTITUTE OF GLOBAL AFFAIRS, YALE UNIVERSITY & FORMER CHIEF ECONOMIST, MORGAN STANLEY: Well, the United
States and China have, in the last five years, probably gone from the trade war to attack to now the early skirmishes of a Cold War.
I think this reflects -- I just wrote a book about, it will be published shortly -- a confluence of false narratives that each nation has with
respect for the other.
We blame China for our big trade deficit, when actually, we should accept responsibility for the fact that we have trade deficits now with 106
countries around the world because we don't save.
China blames us for trying to contain its, quote, unquote, "peaceful rise." It has failed to address its own economic structural rebalancing
challenges.
So, this blame game has escalated.
You know, it's great that Janet Yellen and her counterpart spoke this morning with respect to tariffs reductions. But they have to do a lot more
than talk about a partial rollback of these tariffs.
NEWTON: What's at stake if these top economies can't get it together the way you think they should?
ROACH: We've already seen this escalation. And it goes into a Cold War-type conflict with a lot of geostrategic risks right now.
Not just in Asia, South China Sea, Taiwan Straits. But also, because of China's, quote, unquote, "unlimited new partnership" with the Russian
Federation, there's always a risk of a cold war could get hot.
[15:40:00]
And so, we need to have a much more constructive relationship and framework of engagement between these two countries before it's too late.
NEWTON: Yes, we will see if China and the United States can come to that.
I want to move on to what is going on in the economy more broadly, if you can help us make sense of what's going on today.
We saw oil, of course, that $100 level. Also, you see the Euro hitting historic lows. Perhaps will hit parity with U.S. dollar.
I mean, what is to come here for these economies? Everyone is expecting a global economic slowdown. What do you think, especially still have
inflation to factor in?
ROACH: Well, the inflation issue is key. The main policy action that we can take to address inflation is the one that the markets have correctly
focused on in the last several months, and that's the Federal Reserve.
The Fed was in denial over the seriousness of the inflation risk, incorrectly characterized the problem is transitory. Finally, recognized
that it was a huge mistake. But recognize it too late.
So, when the Fed is late and inflation is surging, it means it has more to do in terms of monetary tightening.
And the Federal Reserve, that has more to do, raises a risk of a recession significantly. If the Fed acted more expeditiously a year ago, as many of
us had counseled, it wouldn't have this problem to deal with.
NEWTON: Now, I literally only have 30 seconds left. You describe what the Fed didn't do. What do you think they should do when it comes to interest
rate hikes?
ROACH: They need to be steadfast and determined, and continue to raise their policy ray by at least a half a percentage point in each of the
remaining four policy meetings of the year.
And hold out the possibility they will have to do more in 2023, if inflation does not subside, as they and the markets currently anticipate.
NEWTON: Jay Powell says he will do what it takes. So we will see.
I have to thank you though for weighing in on what has been an especially volatile day on the markets. Thanks so much. Really appreciate it.
ROACH: Thank you, Paula.
NEWTON: That's it for now. We'll be back at the top of the hour in the dash to the closing bell.
Up next for us, "CONNECTING AFRICA."
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[15:45:36]
ELENI GIOKOS, CNN HOST: In Azerbaijan, Business leaders and CEOs have gathered to discuss some of the biggest opportunities and challenges for
Africa.
Food security is widely talked about here. And percent of Africa's population still relies on agriculture as a source of income. It is
absolutely vital.
Yet, the continent is a net importer of food. It is 60 percent of the world's arable land but imports $35 billion of its food and consumption.
According to the International Institutes of Tropical Agriculture, that number could hit $110 billion by 2025.
(BEGIN VIDEO CLIP)
ATSUKO TODA, DIRECTOR FOR AGRICULTURE, AFRICA DEVELOPMENT BANK: When you look at the way we import food on the African continent, you see that we
import things like staples, maize, rice, wheat.
These are things that can be produced on the African continent. Yet, we export unprocessed food, like cocoa, like coffee.
So, really what we are not doing today is investing to make sure we can increase the production of key staples on the continent, which are integral
to what people eat.
We have this issue of the subsistence farmer not being able to access the extension services they need. I want to say, they, it's men and women
farmers.
And two, we see that there's a need to go to economies of scale. We need larger commercial, also economies of scale to make sure that we're making
food production in a way that is affordable.
(END VIDEO CLIP)
GIOKOS: Helping farmers across Africa to become more efficient and productive is the mission of (INAUDIBLE).
This young Nigerian businessman launched his company, Releaf, to industrialize the production and to keep products like nuts, oil palm and
vegetable oil, increasing crop fields and contributing to tackling food insecurity.
IKENNA NZEWI, CEO, RELEAF: So, Releaf is a supply chain technology company. Basically, it's our job to make sure that fast-moving consumer good company
is the impetus for their products are cheaper prices.
To do, that we need to make a primary food processing industry in Africa. We are creating that network in Africa by creating new pieces of technology
that do this primary processing.
Also using geospatial software to figure out where the best location for those factories should be to make the value chain more efficient.
GIOKOS: Take me through the value chain that you are in right now.
NZEWI: We started off in the sustainable oil palm sector. We work with small-holder farmers. If you look at the vegetable oil market in Nigeria,
80 percent of the supply comes from about four million small-holder farms. The other 20 percent comes from more monoculture plantation-based oil
farms.
So, what our company does is we work with small-holder farmers to basically process their nuts into vegetable oil. We sell that.
To take you on the journey from the farm, it all starts with the palm fruit. Farmers climb palm trees and cut down the palm fruit. They then
squeeze the juice out of the palm fruit.
Today's farmers would use handheld rocks to crack open these nuts. It's very time intensive. Of course, it ruins the quality of the resulting
vegetable oil from that nut.
So, at Releaf, we invented a nutcracker. My CTO invented it and I gave it a name. So because it cracks nuts, we call it Kraken.
(LAUGHTER)
NZEWI: It's 200 times faster than a small-holder farmer processing the nuts themselves.
It saves farmers the trouble of having to process these crops in a way that reduces value from the supply chain.
GIOKOS: Do you work with a lot small-holders farmers that then plug into a wider sort of value chain? How do they get your goods to market?
NZEWI: So I think, in general, we have chosen a good crop. Vegetable oil has incredible demand in West Africa. So, Nigeria's vegetable oil market is
over three billion dollars. And analysts estimates others twice as much demand as there's readily available supply.
The demand is there for the product. I think the development communities is even beginning to reinvasion.
The point you are just making, if the intervention should be from looking for products that have high demand, and then stimulating those value
chains, or, working from the supply side to increase yields. But maybe not being sure if those yields will be sold.
So our approach at Releaf is to really start with strong demand, from these that need these imports, and then help small-holder farmers get access to
that market.
GIOKOS: The free trade areas as a policy is really interesting, right? We want to see more inter-Africa trade, especially in the Nigerian market
right now.
Do you think there's a lot of opportunity for the continent?
[15:50:07]
NZEWI: There's a ton of opportunity.
(CROSSTALK)
GIOKOS: Can you tap into it realistically?
NZEWI: When we look across, we look at the crops over a multi-country geographical area. We don't just choose a Nigerian oil farm. We choose West
and Central African oil palm as an investment strategy.
As I mentioned earlier, with our business, we use geospatial technology to position these nut crackers where there's farming activity.
It's very easy for us to expand and basically say, oh, there's a great location in Ghana, where farmers are very productive, but they're not
access to market. Let's put a nut cracker there.
GIOKOS: The scars of the pandemic, inflation, and conflict, the world is dealing with a plethora of challenges. We ask the question, how African
businesses can build to protect against shocks?
(COMMERCIAL BREAK)
GIOKOS: Inflation, wars, food insecurity have put Africa under stress these past two years.
Here, at the African CEO Forum, I'm now preparing to go on stage and discuss with top bankers how the continent can build buffers to protect
itself from future global shocks.
I think that, if we think about the inflationary impact, we think about the prognosis from the World Bank or the OECD, were not heading into recession
just yet. But it is a scary scenario that we're looking at.
It almost feels as if one crisis happens and then we're barely out of that unprecedented experience, and we're heading into another unknown factor.
So, given the macroeconomic environment, what are bankers doing right now to change our scenarios?
Those are old problems for Africa. Those issues are old issues.
PAUL-HARRY AITNARD, CEO, ECOBANK COTE D'IVOIRE: We know that Africa has a limited space. We know we need to move up into the value chain. In terms of
agriculture, we know we have not been invested that much into agriculture for a long time. All those issues are old issues.
The only thing that is new today is this is, once again, reminding us that we need to act. We need to deal with those issues.
GIOKOS: OK, so, what are the action points on that? I think, if we had our farmers 20 years ago getting inputs and access to credit that was
affordable, maybe we would've been dealing with hard core multinational commercial farmers as opposed to stalled commercial farmers.
AITNARD: So you to provide them financing, indeed. That's where we can play a role. You need to have that corporation between private sector and public
sector. You need to invest into infrastructure as well.
Starting by infrastructure, the point here is that investing into infrastructure is going to help Africa to get into competitiveness. That is
the main point. That's what we need to do.
If we do that, we add additional funding, then we can begin to have an impact on the lives of Africans.
GIOKOS: Bertrand, welcome. It's so good to have you on.
Look, you're the former CFO at the World Bank. How are you seeing what is going on at the moment?
BERTRAND BADRE, MANAGING PARTNER & FOUNDER, BLUE LIKE AN ORANGE& FORMER CFO, WORLD BANK: We're in a deep crisis. Let's face it. I mean, it is very
tough. It's tough economically. It's tough socially. It's tough geopolitically. From whatever perspective you take.
I think, what is important for the macroeconomic, it's the long-term aspect, the mid to long term aspect.
What gives me hope is that Africa, for the 21st century, is not part of the problem. It's part of the art of the solution.
The demographic issue of the world, the carbon issue, and that's in Africa we can offset carbon. In African, you can produce the necessary hydrogen
that is needed for the transition. It's in Africa you will find rare earth, et cetera, et cetera.
A lot of things will happen in Africa.
GIOKOS: Georges, great to have you on.
I have to ask you, you know, as an African working at a multinational bank, I am curious to find out what conversations you have about the sections of
risk?
[15:55:12]
GEORGES WEGA, DEPUTY HEAD OF INTERNATIONAL RETAIL BANKING FOR AFRICA: First of, all the government needs to play their part in readjusting their
expenditure to -- and revenue equation.
We've seen a number of governments taking measures already by way of subsidies or reviewing the cost of government expenditures and so on.
But there are other things that need to be done. That is where the international committee comes in. We need to look at the cost of debt,
which is today weighing very heavily in the balance of our country.
GIOKOS: I want to be realistic. We're talking about macro issues and how to solve them.
And, by the way, I've been having this conversation for many years. Now is the time. We've seen incredible growth levels. We've got it now. We've got
great FBI. And then it just seems that it falls.
We're making changes. I agree that we're seeing huge shifts. But these tectonic shifts that were on the cusp of huge efficiencies in agriculture,
what do we need to see today?
BADRE: We have to first persuade ourselves and then persuade the others that Africa is critical for the 21st century. I think this is the starting
point.
This is important. It's not Africa that is designed -- Africa itself designing the center for the century.
WEGA: This is the time for Africa to actually get some sort of its independence in many, many aspects. We need to rely more on funds that are
raised out of the continent versus external debt.
We do have a lot of potential on the continent. We can develop our markets to actually tap into that potential to raise funds to finance those
critical projects that the continent needs to make the next leap.
GIOKOS: After being kept apart for so long, engaging in discussion virtually, you can feel the excitement of people coming together once
again, connecting in person.
Now, in the backdrop, a stark reality of many challenges facing the continent. But many CEOs tell me it's nothing that they can't contend with
if they focus on the priorities.
If you'd like to see more of our stories, you can check out our Web site.
From here in Azerbaijan, I'm Eleni Giokos. Let's stay connected.
(COMMERCIAL BREAK)
END
