Renault and Nissan reach a deal to save alliance

This is an audio transcript of the FT News Briefing podcast episode: ‘Renault and Nissan reach a deal to save alliance’

Marc Filippino
Good morning from the Financial Times. Today is Tuesday, January 31st, and this is your FT News Briefing.

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Renault and Nissan have reached a deal to save their alliance. The International Monetary Fund says most countries will avoid a recession this year. And Washington has taken another step to prevent US companies from dealing with Huawei. Plus, in South Africa, rolling blackouts are just a part of life. We’ll look at what’s been going on with the country’s dysfunctional state energy monopoly. I’m Marc Filippino and here’s the news you need to start your day.

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The International Monetary Fund came out with an optimistic forecast for 2023. It says most countries will avoid a recession and the IMF expects the global economy to grow 3.2 per cent between the final quarter of last year and the final quarter of this year. It’s an upgrade from its last forecast. The FT’s Colby Smith says a big factor is China’s decision to scrap its restrictive zero-Covid policies.

Colby Smith
And what the IMF expects that to lead to is a pretty sharp rebound in growth there, which is just gonna mean that the economy and global growth more broadly is just going to be a little bit more resilient in the face of significantly higher borrowing costs. And at the same time, across Europe, one of the big concerns was that the energy crisis there linked to the war in Ukraine was going to be quite severe. But we’ve had a more mild winter, and that just meant that the situation hasn’t really been as bad as they thought it would be.

Marc Filippino
OK. And as we mentioned, the IMF says most countries will avoid a recession this year. But one country in particular won’t, right?

Colby Smith
Yes. So Britain is the only leading economy likely to slide into recession this year, according to the IMF. And in speaking with our chief economist, what we heard is that their expectation for what they call a sharp correction really is tied to the fact that the economy is going to buckle a little bit more extremely under the weight of higher borrowing costs, especially, you know, as they ripple through the housing market in terms of higher mortgage rates in particular. And at the same time, you know, energy prices are still quite elevated across the UK. And taken together, the expectation is that households are going to be under a lot more pressure than some of these other countries.

Marc Filippino
So Colby, the timing of this report is really interesting, especially from a market standpoint, right? Because you have the Federal Reserve meeting later this week, as you well know, because you’ll be covering it. And the expectation is that the Fed is only gonna raise interest rates by 25 basis points. That would be the lowest the Fed has raised interest rates in a long time. So markets are, you know, probably already in a generally good mood. Now you have this report saying that the global economy is in better shape than the IMF expected. Could this report move markets?

Colby Smith
I mean, it could well dampen optimism in markets to a certain degree just because the consistency of the messages from policymakers is pretty important here. I mean, I spoke to Tobias Adrian, who heads up the Monetary and Capital Markets Department at the IMF on Monday. And he essentially highlighted the fact that there is this wedge between, you know, what policymakers are communicating and what’s priced into markets. And his concern is that there could very well be some significant repricing of risky assets and a tightening of financial conditions if central bank officials feel the need to kind of press ahead as they said they’re gonna do.

Marc Filippino
Colby Smith is the FT’s US economics editor.

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The White House has stopped issuing licenses allowing US companies to do business with Huawei. The Commerce Department has already notified some companies about the plans, according to sources in the Biden administration. American national security officials think that Huawei helps China with its espionage activities. And now, the White House is moving towards imposing a total ban on sending American tech to Huawei. The Commerce Department declined to comment to the FT on the matter.

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Carmakers Renault and Nissan yesterday announced a historic deal to shore up the French-Japanese alliance. The 24-year-old partnership had been in bad shape for a while, especially after the former alliance chief Carlos Ghosn was arrested in 2018. This agreement tackles one of Nissan’s longstanding frustrations. Here’s the FT’s Kana Inagaki in Tokyo.

Kana Inagaki
One of the main sources of tension between Nissan and Renault over the past two decades has been the imbalance in the capital structure. And as a result of this agreement, Renault will cut its 43 per cent stake in Japan’s Nissan to 15 per cent. And then Nissan will retain its 15 per cent stake in Renault, but they’ll get the voting rights it had long requested. So that’s really the big part of this deal. But in addition to the change in the shareholding structure, the deal also includes an agreement for Nissan to invest in Renault’s electric vehicle spin-off.

Marc Filippino
Yes, so how do electric vehicles figure into this deal?

Kana Inagaki
Renault’s electric vehicle strategy going forward will be really the interesting part, you know, of this deal. And that’s kind of the reason, motivation behind all of these talks, because they wanted to spin out their EV business. So it will be interesting to see whether they can actually survive in that fiercely competitive arena for electric vehicles.

Marc Filippino
So Kana, there are still a few things that need to be worked out before this is finalised, right?

Kana Inagaki
It’s not a done deal yet. First of all, the deal has not been approved by Nissan’s board yet. And from our reporting there has been quite a lot of scepticism, especially among Nissan’s non-executive directors, about whether the final deal would really protect Nissan’s interests, especially in terms of protecting Nissan’s intellectual property rights over some of the technologies that they will be sharing. So some of these details obviously would need to be worked out. I mean, the details of this agreement were being negotiated even within a few hours before the announcement, which shows that there was quite a lot of negotiation that had to go into even coming out with this basic framework. So I think we still need to be a bit cautious about whether a final deal can be reached.

Marc Filippino
Kana Inagaki is the FT’s Tokyo bureau chief.

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South Africa’s central bank recently cut its economic outlook for the country and said its economy would barely expand this year. A big part of that is power outages, rolling blackouts. The state energy company called Eskom can’t provide reliable power. I’m joined now by the FT’s Southern Africa bureau chief, Joseph Cotterill, to talk more about it. Hey, Joseph.

Joseph Cotterill
Hi there.

Marc Filippino
So Joseph, you’ve been talking to business owners who really struggle with these ongoing power issues. Tell us a little bit about this ice cream shop you visited called Soweto Creamery in Johannesburg.

Joseph Cotterill
For obvious reasons, you need to keep ice cream frozen all the time. So you need an uninterrupted power supply, which South Africa’s government has been unable to guarantee. And that has led businesses such as the ice cream shop in Soweto, Jo’burg, as far as the township to consider desperate measures and very often measures that they can’t really afford because diesel right now is particularly expensive to run a generator.

Marc Filippino
So Joseph, a lot of countries, especially developing economies, struggle with unreliable power. How is South Africa any different?

Joseph Cotterill
It’s important to understand that South Africa right now is probably one of the most industrialised economies to be undergoing this kind of intense level of power outages. I mean, yes, there are energy shortages across emerging markets right now from Pakistan to Ukraine. South Africa’s a little unusual because it has a great amount of industry infrastructure. It’s very unusual, actually, around the world now for a country’s electricity supply to be that integrated by a one state monopoly. But that’s what South Africa has. Until very recently, it was very difficult for businesses to help themselves beyond the problems of Eskom, which run the gamut from ageing coal power stations, which can no longer produce what they’re expected to produce, face to build new power stations and corruption, graft and the rest of it.

Marc Filippino
So I kind of assume that businesses are starting to get fed up with this. At what point do they just shut down or get up and leave South Africa?

Joseph Cotterill
If you are running a very energy-intensive operation, if you’re producing steel or something like that, it becomes very difficult to remain. I know all the governments of this, of South African producers of metal going to Indonesia, looking at Vietnam. But for many other businesses, that’s just not an option. Your market is here in South Africa. You have to invest in one of basically deadweight costs, diesel generators and so on to remain and just hope that the next one to two years do bring reforms to Eskom.

Marc Filippino
Can you give me a little bit more of a sense of what’s going on at Eskom, why this state monopoly is so dysfunctional?

Joseph Cotterill
Yeah, I mean it’s been almost like film noir. The chief executive once joked when he took the job, someone told him, you know, you’ve taken control of the biggest organised crime syndicate in South Africa. This chief executive, André de Ruyter, was allegedly poisoned by someone slipping cyanide into his coffee. He had already resigned because of a lack of political support for the reforms to Eskom. He had been leading a campaign to root out corruption in some of the worst operating power stations in Eskom’s fleet. So it may not have been a coincidence. Police are investigating, but that underlines the kind of systemic issue in Eskom.

Marc Filippino
Joseph Cotterill is the FT’s Southern Africa bureau chief. Thanks, Joseph.

Joseph Cotterill
All right. Thank you, Marc.

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Marc Filippino
You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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