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CEO Daily Brief – Feb. 3, 2011

Egyptian Revolt Not Having the Financial Impact that Iranian Revolt Did in 1979 CEOs have been watching the revolts in …

Egyptian Revolt Not Having the Financial Impact that Iranian Revolt Did in 1979

CEOs have been watching the revolts in Egypt and elsewhere in the Arab world with intense interest. While there is potential for anxiety, so far the revolts have not led to significant impact on the world’s financial markets. That could change if the unrest continues for a long time or culminates with a controversial new government taking power.

As evidence of the minimal impact of the revolt on markets, Bloomberg reports that equity-market capitalization increased to $53.6 trillion this week. Bloomberg notes that is the highest they have been since June 2008.

The revolt has led to Egypt closing its banks and several global corporations pulling out many expatriate employees from the country.

Pacific Investment Management Co. CEO Mohamed El-Erian predicts “reconciliation” will take place in Egypt. “The one thing to avoid is to exaggerate the probability for chaos,” El-Erian told Bloomberg. “There’s a lot of talk of ‘what if Egypt becomes Iran?’ I don’t think that’s the case.”

The 1979 revolt in Iran caused a 140 percent increase in oil.

Bloomberg reports that lenders in Egypt are expected to reopen on Feb. 6 and the stock exchange may resume operations on Feb. 7.

So far, Tunisian protests led to the exit of President Zine El Abidine Ben Ali and Jordan’s King Abdullah replaced the prime minister on Feb. 1 after protests there.

But the Middle Eastern countries which are rich in oil appear to be “insulated from the turmoil,” Bloomberg said. The ruling governments in oil-rich nations have money available for increased aid to the poor. Poverty and unemployment are among the reasons for the revolts.

Still, the political unrest may lead to higher oil prices and hurt economic growth, economist Joseph Stiglitz told Bloomberg. “In terms of the global economic impact, it’s likely to be most felt, at least in the short-run, through oil,” Stiglitz said. Egypt has about 0.3 percent of the world’s crude oil reserves. Egypt’s Suez Canal, through which about 8 percent of the world’s seaborne trade is shipped, has been operating normally, officials there report. Many oil shipments make their way through the Suez Canal.

For more about the impact of the Egyptian revolt on global markets, as reported by Bloomberg, please click here.

 

Obama Looks to Business to Help Block Education Department Cuts

President Barack Obama sees the business sector and CEOs as his allies in blocking attempts to cut the budget at the U.S. Department of Education.

Using the theme of a competitive global workforce, Obama argues the United States needs to focus on education in order to compete with emerging economies in China and India.

House Republicans will likely look for cuts in the federal education budget – as way to reduce the mounting deficit.

Penny Pritzker, who led Obama's fundraising in the 2008 campaign and is chairman of Pritzker Realty Group in Chicago, told Bloomberg Businessweek "that business leaders will be asked to go to Capitol Hill to make the argument" for improved education.

"Wherever I can have the biggest impact, be it at a hearing or whatever in Washington, I'll make every effort to be there," says State Farm Insurance Chairman and CEO Edward B. Rust.

GE CEO Jeffrey R. Immelt, who was named head of a new outside economic advisory panel, also sees the importance of education.

With regards to education, Obama wants a temporary tuition tax credit to become permanent and to spend money on community colleges.

In addition, former President George W. Bush's No Child Left Behind law expires this year. It requires student tests and adequate progress toward meeting goals. Obama wants it reformed, with more flexibility for school districts to show student progress.

Republicans are concerned about education spending. U.S. Rep. John Kline (R-Minn.), the new chairman of the House Education & the Workforce Committee, said he wants to "pull back federal involvement in the day-to-day operation of our classrooms." Another committee member U.S. Rep. Tim Walberg (R-Mich.) said there is "no place for the federal government in education."

In the end, most CEOs want effective schools. They value strong math and science education to prepare their future workforce. But corporations do not want to have to pay large tax bills for education spending. Under the Bush administration, local school districts became more accountable for student achievement. That accountability is important for business and the entire nation. Obama may get general endorsement for schools from CEOs but find that business leaders will not be advocates for the kind of policies endorsed by the teachers’ unions.

For more about business and education, as reported by Bloomberg Businessweek, please click here.

 

White House to Promote Energy-Efficient Buildings

The federal government is expected to introduce a program to convince commercial building owners to become more energy efficient. President Barack Obama is expected to unveil the program Thursday while in State College, Pa., at Penn State University. The proposals are part of the "win the future" program, which says that U.S. competitiveness requires advances in clean energy. Much of the program is made up of incentives to persuade businesses to “invest in retrofitting of existing commercial facilities,” according to The Wall Street Journal.

Options include: new tax breaks for energy improvements, accessible loans for upgrades, and a new grant program which encourages state and local governments to increase energy efficiency.

As of early Thursday, the White House had not specified how much the new programs would cost.

Obama wants to see a 20 percent increase in energy efficiency for commercial buildings by 2020.

In addition, Obama is asking CEOs and university presidents to "make their organizations leaders in saving energy," Bloomberg Businessweek reports.

The stimulus program in 2009 had $20 billion for improved energy efficiency. It was focused on homes, as well as buildings housing government offices or facilities.

For more about the proposal for improved energy efficiency and clean energy, as reported by The Wall Street Journal, please click here.

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