[March 06, 2006]

Daily Mail, London, Alex Brummer column

(Daily Mail (London) (KRT) Via Thomson Dialog NewsEdge) Mar. 4--FOLLOW THE TAKEOVER MONEY: Almost any personal financial transaction in Britain requires the individual to produce two forms of ID. In an age of terrorism and money laundering, the authorities cannot be too careful.

Yet it when comes to overseas takeovers of British assets, it appears too seldom are questions asked about the sources of the money. It is easy to disparage the U.S. Congress's scrutiny of the Dubai Ports World takeover of P&O, as playing politics. But behind the surveillance of this and other Dubai deals in the U.S. are questions as to where this place makes its money.

Indeed, the very questions which are asked about Dubai could also be asked about Iceland. Sitting on the edge of the Arctic Circle, the population of Iceland is just 291,000 making it smaller than my native city of Brighton & Hove.

Yet the only sizeable company ever to emerge from Brighton is the Body Shop, whereas Iceland is home to world class banks Kaupthing and Islandbanki, which are forever doing deals overseas. Retailer Baugur has grabbed chunks of our high street from the Big Food Group to Hamleys and recently FL Group grabbed a 16pc stake in easyJet.

So where does the fabulous wealth of these outposts of international capitalism come from?

Dubai is seen as an oil producer, but the reality is that its oil wealth is mostly gone and it does not have the best of relations with its oil-rich neighbour Abu Dhabi.

Yet it is hard to pick up the paper without reading of some magnificent piece of new infrastructure being built in Dubai.

In a double-page feature on Dubai this week, the Wall Street Journal observed: "Black market operators, terrorist financiers and money launderers have taken advantage of the freewheeling environment for decades, even if the vast majority of business is legitimate."

So it is possible that the Americans are not totally off the wall in questioning the credentials of DPP, the P&O buyer, or Dubai International Capital which has agreed to buy the UK domiciled engineer Doncasters.

What Iceland and Dubai have in common is that both are financial centres near rich land masses. Reykjavik has long been viewed as an outlet for capital flight from Russia, and Dubai -- so far immune from any al-Qaeda terror -- is close to valuable oil fields. Britain, as one of the most open and globalised economies in the world, always welcomed foreign investment.

But we should not delude ourselves that Dubai and Iceland are totally reliable financial centres populated by the most astute entrepreneurs in the world.

IMF RULE: How Denis Healey must look on in envy when he hears what the International Monetary Fund has to say about the British economy. After several critical report cards, when the IMF has been concerned about the direction of Gordon Brown's tax and spend policies, it finds itself in increasing agreement with the Chancellor.

Indeed, the Fund describes Britain's macro-economic performance as "remarkable" with 13 years of continuous growth. It believes that the Treasury is overoptimistic about the public finances but acknowledges that steps are in train to correct this.

North Sea oil taxes were raised in the Pre-Budget Report and the next public spending round, to be unveiled in 2007, will herald severe cuts.

The IMF says that discretionary spending, which includes health and education, will have to be slashed if the budget deficit is to be brought back towards balance by the end of the decade. That is the kind of advice which Healey, who had to slash and burn at the IMF's behest, will recognise.

The Fund also believes that the credibility of Brown's golden rule, which requires him to borrow only for investment over the cycle, has been damaged because of frequent shifts in the goalposts. It would be better to operate the rule on a fixed three-year period.

If Brown were to embrace this change he could ensure his successor is properly disciplined.

STEELING SARIN: What a topsy turvy week for Vodafone. First it shocked the market with a 28bn write off of goodwill, sending the shares skidding.

Now it acknowledges that it is in discussions with Japan's Soft-Bank about selling its struggling Japanese operation for an estimated 7bn.

Abandoning Japan is one thing. But we must hope that Arun Sarin has the steel to resist pressure from Standard Life et al to quit the fast-growing U.S. cellular market, where it has a 45pc stake in the biggest player, Verizon Wireless.

That would indeed be commercial madness.

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