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ECB Rate Cut; Muted European Markets; Dow Up; South Africa's Future; Randgold's Results; Euro Plunged; Power of Prediction; Politics, Tactics, and Technology

Aired May 2, 2013 - 14:00   ET


RICHARD QUEST, HOST: Ready to act. The ECB cuts interest rates and says it stands ready to do more.


QUEST: -- statistician made famous by the 2012 presidential election, and tonight gives us his tips.


NATE SILVER, AUTHOR, "THE SIGNAL AND THE NOISE": The lesson of hedging your bets is pretty important.


QUEST: And FYI, I will go through the most irritating business jargon, and so keep it on your radar.

I'm Richard Quest, I mean business.

Good evening. The European Central Bank, the ECB, is considering an unprecedented step into negative space. For the first time, the bank said it is technically possibly, "technically ready," in their words, to move its deposit rate below zero. It would mean eurozone banks would have to pay the ECB to hold their money.


QUEST: Today, the bank snipped a quarter percentage point of its main -- the refi rate, its widely anticipated move, and it now comes down to an historic low of just half of one percent. Here is the ECB president talking about the current threats to the eurozone economy.


MARIO DRAGHI, PRESIDENT, EUROPEAN CENTRAL BANK: There is surrounding the economic outlook for the euro area continued to be on the downside. They include the possibility of even weaker than expected domestic and global demand and slow or insufficient implementation of structural reforms in the euro area. These factors have the potential to dampen confidence and thereby delay the recovery.


QUEST: Mario Draghi. The markets and investors and pundits, skepticism abounds. After all, a small rate cut, can that translate into anything that will help the worst-off eurozone countries, the likes of Spain, Portugal, and Greece?

Partly because what we call the transmission mechanism, which takes interest rate cuts, and then moves it through the economy onto the ultimate consumers, you and me. It's said that that is broken down. Jim Boulden is with me.

We'll come to the transmission mechanism at the moment. Even -- just at the so-called zero bound of interest rates, when they're virtually zero --


QUEST: -- if people are not borrowing at three quarters of a percent, they're not going to borrow a half a percent.

BOULDEN: No. They're not. And -- I think --

QUEST: So, why is he doing it?

BOULDEN: Because the ECB needs -- was, I think, almost talked into doing this by the markets. I know they would never say that, but the markets expected a half a percent interest rate, now, and they had to cut it from three quarters of a percent.

So, they did this move because not doing this move would've looked very negatively. But to actually make a difference to the banks, this is where it has to happen. And this is what he talks about, again, Mario Draghi, in the press conference: the need to see this money moving through into the real economy, and it could take a long time, it could take a short period of time. They don't know.

But they've done a lot of things for the banks. As he keeps saying, "We've been extremely accommodative" in his -- that's his term. With all these non-standard measures that they talk about. Trying to find --


QUEST: But no --

BOULDEN: -- different ways.

QUEST: But no new


QUEST: -- non-standard measures.


QUSET: So, he's continuing --

BOULDEN: Extending them, though.

QUEST: He's extending -- he extended the refinancing, and he extended the full allotment there until July of next year.


QUEST: So -- but no new measures.

BOULDEN: No, no new measures. And in -- so the interest --

QUEST: What's he waiting for?

BOULDEN: Well -- he keeps saying that it's up to the governments to do their part to have all this massive, massive changes to their economies, because the bank can only do so much. And he seemed a bit more irritated today than he has in the past when people keep asking him, why don't you do this? Why don't you do that? The timing.

So, it seems to me like he thinks, again, that governments have got to do more of the restructuring of their economies, but that takes a long time to fix.

QUEST: Jim, there was an extraordinary tweet from His Holiness the Pope. The pope tweeted today, "My thoughts turn to all who are unemployed often." I mean, it's one thing to say that. But this is the best bit. "Often as a result of a self-centered mindset bent on profit at any cost." Pope Francis --


QUEST: -- saying that.

BOULDEN: He wasn't saying that about Mario Draghi, he was saying that about people who are making money in the stock markets. Because while all this is going on, of course, the stock markets continue to rise. And he sees that, the pope, apparently, on the back of the problems in Europe.

But it was interesting, because Mario Draghi was asked about this at the very end of the Q&A, and he kind of stumbled through his answer. Let's take a listen.


DRAGHI: We are -- let me use the word -- well, yes. I would use the word "frustrated," yes, certainly. We view improvements in the financial markets. We think financial markets are the only and the necessary channel through which monetary policy is needed.

You don't go around with helicopter money, throwing money. Just -- you have to -- in Europe, you go through banks. You don't have capital markets, as they said in the United -- as you have in the United States. And so, we have to go via the banking system.

And so, that's why in my press conference, I tried to give you a very detailed reading of different indicators, because it shows how closely we're trying to examine and analyze reality to see where these impulses that we've been transmitting to the economy since now a long time get translated into better wealth or better, lower unemployment, better economic activity.


BOULDEN: And there, of course, he's talking about the transmission mechanism along with what the pope had to say.

QUEST: Jim, many thanks. Let's just have a quick thought of some other things that the pope actually said. Some of your reactions, @RichardQuest, by the way.

Martha B. Bayenda, "He is a pope, not a finance expert." Luis Hernan Cortes, "The financial and economic problem is moral." Promise: "Yes, we need regulated capitalism." "I attended St. Thomas's University," says one. "If you want to know about mindsets profiting at any cost."

It was a fairly muted reaction on the stock markets. Investors had had a rate cut priced in for some weeks now, so rates and opinions are very much divided. That's the way the market went over the course of the session. Very little movements, bearing in mind that there was a rate cut. In New York --


QUEST: -- a very different state of affairs. Up 120 points, a strong session, nearly a one percentage gain on the day. The New York market is rallying sharply.

Now, South Africa's finance minister tells this program Africa is the hope of the world, and South Africa is at the heart of the hope. After the break, Pravin Gordhan.

Also, we'll stay on the African continent mining for gold. When the price plunges, so do profits. The chief executive of Randgold Resources. It's QUEST MEANS BUSINESS, good evening.


QUEST: There's a nasty row brewing between South Africa and Britain over the decision to switch aid to trade. South Africa's finance minister, Pravin Gordhan, says the issue has become a political football in the local elections in the UK. Britain says South Africa is now in a position to fund its own development.

The South African minister told me he was informed and not consulted about the switch from aid to trade.


PRAVIN GORDHAN, SOUTH AFRICAN FINANCE MINISTER: The UK government and the fact that they want to -- they're the only G7 government that has stuck to the 0.7 percent of GDP contribution to development aid generally. And I think they must be complemented on that, certainly in the face of some of the difficulties that we have.

Secondly, this aid doesn't -- it's not the numbers that matter, it's the solidarity that matters. And at the end of the day, if the British government thinks it's important to express solidarity with the many challenges that we face, we would welcome that solidarity on their part.

If there needs to be change, we would understand that there needs to be change, and we should work on a different formula. But it shouldn't be drawn into an election battle on your turf, which is not of particular interest to us.

QUEST: This is the local elections, which take place tomorrow. Let's talk about your economy. I was -- before I met you this afternoon, I was just reading a one-liner in a Barclays report, the global outlook. It says, "We expect the South African economy to deteriorate this year." Are they right?

GORDHAN: I don't think so. All things being equal. So, if there's another Cyprus coming along, or another shock from the eurozone, or if there is another geopolitical problem -- none of us can now anticipate those things. But if all things are equal, we'll grow at 2.7 percent, perhaps even better than that.

We're still the engine room of the African economy. Our revenue picture has been improving from the last fiscal year as well. And we have many plans that are now in the process of implementation: infrastructure, economic support, youth employment. All of which in the next two years will begin to take off.

QUEST: You have, of course, the perception problem at the moment that you have to deal with. And this is a perception that something is not right, whether it's mining strikes or the violence at the mine, whether it's the Pistorius case, which is one on its own, it doesn't really matter. The stench of something is wrong in South Africa is now becoming a view.

GORDHAN: I wouldn't call it a "stench." That's a very strong terminology --

QUEST: Well --

GORDHAN: -- to use in our country. But perception, yes. And when were -- balance perception with facts.

The reality is that we have very high expectations of South Africa, because the kind of miracle we performed as a people, with lots of assistance from all over the world, in 1994 is a miracle we are expected to sustain over a long period of time. Which I think, as a government, we want to do so that we can deliver to our people.

The difficulties in the mining area, we're sitting around the table with business, with labor, and are comfortable in finding a solution that would incorporate people. Strikes -- and unions is a phenomenon that you've been used to in the UK. We are a democracy, that's part of the Bill of Rights in South Africa.

And we hope that we can manage it in a way in which no violence is involved, employers and employees sit down --


QUEST: A bit late for that. A bit late for that.


QUEST: Bit late. The violence has already happened.

GORDHAN: Yes, it's happened. It mustn't happen again.

QUEST: So, to the critics who say the wheels are coming off the wagon, what would you say?

GORDHAN: No, not at all. If -- there was a conference earlier this week about Africa and the prospect, and I was here two years ago at the same conference. Completely different picture. The African situation is changing, Africa is the hope of the world for the next 10 to 20 years, and South Africa is at the heart of this new story, which will indeed be, if you like, the savior of the world.

Certainly, if some of the predictions in the eurozone, which you yourself have been hearing, means that less than 1 percent growth for the next ten years.


QUEST: That's the South African finance minister talking to me, actually, yesterday. The local elections in the UK -- England -- are taking place today.

Now, it's a case of profits down and production is up, but Randgold Resources, which operates mines in Africa, says it's planning to trim output because of falling gold prices. First quarter earnings were worse than expected.


QUEST: Profit came in at 81.6, down 43 percent from last year. The company sold less than it produced. The results reflect the plunge in the gold price, which fell to a two-year low of 1321 last month. Randgold also plans to cut spending to manage its cash flow.

With all that in mind, Randgold's chief executive, Mark Bristow, joined me. So, we got to grips with it. Profits down, gold prices plunging, no sign of inflation, and cuts in spending. You'd be tempted to say Randgold is in trouble.


MARK BRISTOW, CEO, RANDGOLD RESOURCES: No we're not. Things go up and things go down, not necessarily in that order, Richard, and we've had a long ten-year bull market. And a lot of people have tried to short the market.

We saw last two quarters the sentiment shift. The mining industry hasn't delivered value for its investors. There was a big move to -- and then somebody threw a lot of gold at the market on the 15th of April, and they've taken off $200.

But you know, on a relative basis, look at the curve. It's -- statistically very small.


QUEST: You're still trying to tell me that gold's a play.

BRISTOW: Yes. Absolutely. Even more so now. You know what's going to happen on the back of this?

QUEST: It's moved 9 percent in a day.

BRISTOW: Absolutely, but what is it going to do? It's going to tighten production. It's going to take out those people that have been surviving on this perception that the gold price is going to keep bailing the industry out all the time, and it's going to get the real deal guys focused.

QUEST: But you have mines that are difficult, in troublesome areas, and are exactly those high-production-cost mines --


QUEST: -- that you're talking about.

BRISTOW: We allocate capital at $1,000 gold price. We're very different to the market, we've always used $1,000 or less, and we look for 20 percent return at $1,000. So, we've got built-in margins. We're still very profitable.

QUEST: And the mines that have given you trouble in the past?

BRISTOW: You know, one thing, Richard, all mines give you trouble. You know.

QUEST: Yes, but the don't all --


BRISTOW: And they are challenging operations --

QUEST: They're not all -- they're not all in areas of dramatic civil unrest.

BRISTOW: Yes, but look at mines are in these so-called stable societies. They have equal problems, and they have much lower grade and smaller margins. And then you've got the greenies --

QUEST: Hold it. The DRC --

BRISTOW: -- and order of governance --

QUEST: The DRC, the Ivory Coast, all these places.

BRISTOW: Because these are world-class assets. And what's more is we're making a difference to those economies. We're developing their natural resources and benefiting a lot broader set of stakeholders than the mining companies in the first world.


QUEST: A Currency Conundrum for you now. A new five euro bank note entered circulation, five euro bank note. How heavy is the combined weight of all five euro notes in circulation? Is it the equivalent of two A380 super jumbos? Ten London buses? Or the Eiffel Tower?

Get all the five euro notes in circulation, and how much will they weight? Two 380s, ten London buses, or an Eiffel Tower? The answer later in the program.

The euro plunged by one percent against the dollar. The pound and the yen are down. These are the rates --


QUEST: -- and that -- of course, this is the break.


QUEST: What are the odds of predicting all 50 states in the US presidential election and getting it right? Plenty of pundits got it horribly wrong. One man got them all right. The New York blog -- the "New York Times" blogger Nate Silver called all 50 states correct, and his book, called "The Signal and the Noise" has gone through the roof ever since.

He's a former professional poker player, a man who lives and eats and dreams statistics. So, where better to take the master of prediction than a London casino?


QUEST: In the world of risk, probabilities, this has to be the extreme of it, doesn't it?

SILVER: Absolutely.

QUEST: Whether or not it's red or black or one number's going to come up. You would have no truck with this.

SILVER: I would -- so, I would not gamble at roulette. Not if I wanted to make money. Maybe if I wanted to have fun. But this is a case where you see, for example, on the board over there, they have a lot of data about what numbers are hot, what numbers are cold. It's a lot of what I would call "noise."

We know that over the long run, this thing is guaranteed or almost guaranteed to come up on each number exactly as often as the next one. People are fooled by all these false signals that they see.

QUEST: And that's really what you have set out to debunk in this book, isn't it?

SILVER: That's right.

QUEST: The difference between the signal and the noise, as you put it. How do you do that, and how do you know what is signal and what is noise?

SILVER: Well, it depends on what field you're looking at. You need to develop a type of fluency in it in the same way -- I guess I see kind of probability and statistics and math even more broadly as a type of language. It's a way of looking at the world, a highly precise, sometimes, way of looking at the world.

But you still need, as I said, some fluency in it. You need some judgment in it. That's where the kind of art comes in.

QUEST: If we take the election, where you had, I think no one can disagree, the most stunning success, that even you admit you were surprised by.

SILVER: Sure. So, our forecasts in all 50 states was correct, but we look at things in terms of probabilities and not in absolutes, so we had, for example, Obama with the 51 percent chance of winning Florida.

So, the equivalent of making a bet on the roulette wheel were you bet on black and it comes up black, or I guess maybe it's the odds are slightly in your favor, so you count the green space as counting for you and not against you. But basically, a 50-50 spin.

QUEST: Are you feeling the pressure?

SILVER: Yes. If I were the --

QUEST: To get 12 -- to get 16 right.

SILVER: So, we can guarantee that even when you make a good bet, if you're playing poker and you push all your chips all in as a 70-30 favorite, which you love to do as a poker player, you know you're going to lose that bet 30 percent of the time and go bankrupt and your tournament is over. So, I know that if we call enough close elections, we're going to get some wrong. I guarantee it.

QUEST: But as a human being --


QUEST: -- when that 30 percent comes against you --

SILVER: Yes, well --

QUEST: -- and you -- how will you feel?

SILVER: Pretty bad, but hopefully I'll have built up enough credibility and built up enough options in my own career where -- the lesson of hedging your bets is pretty important. It's part of why I'm taking a broader lens now and trying to stick all my bets on predicting the outcome of an election.

I know enough to know that there was some combination of skill and luck involved. Very true in many aspects of life that people who are successful are often very hardworking, often very good, but usually have a few breaks along the way.

QUEST: OK, got you. Which one's going to come up next?


QUEST: What's the odds of me guessing the card that you're going to pick?

SILVER: It's about 1 in 52, if this is a fair deck. Do you want to - -

QUEST: Go on. Let's have a go.

SILVER: Ten of hearts.

QUEST: You'll never know.



QUEST: Nate Silver's predictions last November would have been very different if it wasn't for a man by the name of Harper Reed. He was the head of technology in President Obama's reelection campaign, which "Time" magazine called the most sophisticated in history -- US history.

His software targeted possible voters and got them out to vote. I asked Harper Reed if he ever sat down and thought about whether he changed history.


HARPER REED, FORMER CHIEF TECHNOLOGY OFFICER, OBAMA FOR AMERICA: The fact of the matter is, it was such a large organization doing all sorts of different things. I was a mere kind of cog in a very large machine.

QUEST: You're being modest because what you did --


QUEST: -- what you did rewrote the rules.

REED: Well, no, no. I think that's true, I'm not disagreeing with that. But I do think you have to look at what we had, which was we had an aggressively good candidate. We had a country that was looking for this candidate and aggressively wanted it, especially compared to the opponent.

And what we did in technology is we made sure that all of the people who are doing the hard work, which were the volunteers and the field staff, that they could do that better, more efficiently, and just kind of do less work.

QUEST: But -- what Nate Silver calls the signal versus the noise --

REED: Yes.

QUEST: -- how did you in a real-live situation distinguish what was relevant and could affect the voters versus what's stuff.

REED: I think what we did, and I think -- I don't think it was very easy. So, what we -- and there was no clear path. And so, what we did was very simple, or seems simple. It was test. So, try it out and test. Try it out a little bit more and test again. And again and again and again, until -- we were testing constantly.

QUEST: But this is like changing an aircraft engine while the plane's in flight.

REED: Yes. It is, in many ways. But luckily, I guess we had really big wings.

QUEST: Listening to this, I'm starting to get an attack of the heebie-jeebies. I'm starting to get an attack of the market -- let's focus group this, let's see how it plays --


REED: Well --

QUEST: -- let's see how it plays in Peoria.

REED: OK, but now this is the difference --

QUEST: This is -- well, it's not.

REED: It's -- no, no, assumed.

QUEST: It's not.

REED: Assumed. Now, let me tell you --

QUEST: It's will it play in Peoria?

REED: Well, no. But a difference is, is we tested it with the people in Peoria. So, rather than testing it in a focus group --

QUEST: That's just a better way of testing it.

REED: Oh, well, exactly, it's a better way of testing it, but --

QUEST: But it's not gut politics, conviction politics.

REED: I don't think that that makes sense. Because if it's -- if you don't have a metric and you cannot measure it, then it really doesn't exist, which is one of the first things that Jim Messina told me in the very beginning.

And the idea that you have to be able to say, is this successful? And once you're able to say is it successful, if you can answer that with authority and with a number, you can say yes, it's successful, because we got 50 percent more people to vote, or we got 50 percent more people to knock on a door or volunteer or whatever.

QUEST: Would it work in Europe?

REED: Ah --

QUEST: Would it work --

REED: No, I don't think so. And the reason is is because there's a lot of data laws and a lot of reasons for why -- actually, one of the funny conversations I had earlier today was a group was telling me how the British are not very interested in bumper stickers. They're not very interested in like a -- they're a very conservative group of people.

QUEST: Yes. We're British.

REED: Yes, you're British. So, you're not going to wear a t-shirt. No? But you would use a diary. So, if we sent you a diary that said Obama for America, you may use that. But the thing is is that what we did is we did a lot of things by giving out t-shirts, a lot of bumper stickers, and all these things.

So, I think there's a lot of just the cultural differences between the various European countries and the US prevent a lot of the mechanics for what we were doing to actually work.


QUEST: That of course, the man behind the technology of Obama's victory. When we come back, garment workers in Bangladesh back at work eight days after the deadly building collapse, and after this, we ask what needs to happen to prevent another tragedy. It's QUEST MEANS BUSINESS, good evening.


RICHARD QUEST, CNN HOST: Hello, I'm Richard Quest. More QUEST MEANS BUSINESS in just a moment. This is CNN and, on this network, the news always comes first.


QUEST (voice-over): The Syrian government appears to be making serious advances (inaudible) city of Homs. Video posted online shows rocket launchers firing -- and you can see the Syrian flag flying from large boxes of ammunition. A Syrian opposition group says President al- Assad's forces have surrounded a key opposition suburb.

The U.N. says April was the most violent month in Iraq that it's -- the country's seen in nearly five years. More than 700 people were killed in acts of terrorism and other violence, much of it driven by Sunni-Shiite tensions. An international crisis group said it could lead to a broader regional struggle if they aren't brought under control.

The U.S. is urging North Korea to grant amnesty to an American citizen in prison there. North Korea's Supreme Court has sentenced Kenneth Bae to 15 years of hard labor. The North Korean state media has reported he committed unspecified hostile acts against the state.



QUEST: Millions of workers in Bangladesh's textile industry returned to work. All factories reopened after an eight-day shutdown following the collapse of the building, which, as you will be well aware, left more than 400 people dead. Of course, questions on safety standards continue and are rising. Let's -- join me at the library and you'll see.

Some are really significant issues that are around at the moment. The first, of course, the building itself. The local mayor has been suspended. He was in charge of approving the construction of the building.

And when those cracks appeared, he failed to close the factory. So the mayor, suspended; but of course, that doesn't negate the fact that the owner of the building, the nine-story Rana Plaza (ph), has been arrested.

Assets have been seized and protesters are now calling for him to receive the death penalty. In all, in all, eight people are now being held for alleged negligence, and they include the factory owners, the engineers who ignored warnings, onwards and so on it goes. And the recovery operation continues.

Bangladesh's prime minister says the recent explosion in the town of West, Texas, is an example of how industrial actions can happen anywhere in the world. She was speaking exclusively to Christiane Amanpour.


CHRISTIANE AMANPOUR, CNN HOST: There are only 18 inspectors for more than 100,000 factories and these kinds of buildings.

How on Earth can you get a grip on this with that crazy ratio?

SHEIKH HASINA, PRIME MINISTER, BANGLADESH: You know, in anywhere in the world, any accident can take place. You cannot, you know, predict anything, even in many developed country, we can see. Recently there was a, you know, accident in a fertilizer industry in Texas. So accidents may take place.

AMANPOUR: But when you say we couldn't predict it, of course you could. This factory was shown on television the very night before. There were huge cracks in the walls. The owner said, oh, no; this is just about the plaster. And the very next day the factory collapsed.

So it could have been predicted.

Who does the blame fall on then?

HASINA: Listen, the industrial police, time and again, they told them that the labor should not work in this condition. But that moment, the accident took place.

AMANPOUR: All right.

HASINA: It is not true that the government hasn't taken any steps. We have taken steps and we tried to prevent them.

QUEST (voice-over): You can see the full interview with Sheikh Hasina on "AMANPOUR" in less than half an hour from now, 8:00 pm in London, 9:00 Central in Europe. That's coming up in just about 25 minutes.


QUEST: There's one simple reason why so many companies are attracted to Bangladesh: to produce clothes -- something like this, the sort of $5 T-shirt, $7 shirt and the $10 pair of jeans. Just look at the way the comparison of making costs in the clothes come.

This came -- this survey came 13 years ago. The organization is the Institute for Global Labor and Human Rights. Now they asked a factory in Chicago and a factory in Bangladesh how much would it cost to make a denim shirt. The factory in Chicago said $13.22. The factory in Bangladesh, $3.72, a third of the price.

And if you look at this, you see a difference. Materials are 5 bucks; materials, $3.30. Of course, a much larger percentage and pro rata. But then look at cost of labor, $7.47, which makes up 57 percent labor over here, 22 cents.

But it's not just the numerical amount. It's the actual amount, 6 percent versus 57 percent. So in this scenario, how can the U.S. compete against those shorter prices? And more importantly, what sort of message is coming from the industry down?

James Fallon is the editor at "Women's Wear Daily," joins me now from New York.

James, the truth is there can't be a competition between obviously domestic garment manufacturer and developing world manufacturer. So how does the industry bridge that very large gap?

JAMES FALLON, EDITOR, "WOMEN'S WEAR DAILY": Well, you're seeing the industry take some actions following the Tazreen Fashions fire in November, where they tried to institute tougher standards in terms of fire safety inspection and so forth. I mean, Bangladesh seems to be the case at the moment with all these -- with most of the disasters.

I mean, China seems relatively safe -- I use the word relatively -- and other low-cost nations seem to be avoiding these problems. But the industry can only do so much when you're dealing with government inspectors of buildings and so forth. The only solution would be they had a person on every -- onsite at every plant they use, which is almost impossible.

QUEST: Right. That's not going to happen.

But let's just talk about what the industry can do. Is it fair and reasonable that the industry pays more for its clothes from these countries and, yes, passes it on to you and me or reduces its margins or somehow ensures a better standard for the manufacturers?

FALLON: I think the industry is trying to do that within the best realm it can. But at the end of the day, is the consumer willing to pay $3, $4 or $5 more for the T-shirt that -- regular shirt and a pair of jeans? It comes down to that. And if the Walmarts of the worlds or the Bangos (ph) or whatever aren't offering that product, someone else will.

So I think the industry has a moral responsibility to make sure that the factories they're using and the workforce they're using, they're -- you know, the labor standards are met; there's no sweatshop abuses. There's no worker abuses. The factories are safe. And I think you're beginning to -- you're beginning to see them take action to try to ensure that as best they can.

But they can't ensure that they -- and ensure that the contractor they're working with doesn't then subcontract it three factories down the line.

QUEST: Let's grab this firmly where it belongs, James. At the end of the day, those prices --

FALLON: By the throat.

QUEST: -- well, by -- absolutely, by the throat. And by the throat, I mean the consumer -- me, you. We have to accept that we have to pay more.

FALLON: Absolutely. And -- but, I mean, surveys show -- I think we ran a story in "Women's Wear Daily" a few months ago, where they surveyed American consumers, asking would they be willing to pay more for made in the USA product, and the answer was yes. Well, (inaudible) survey, they're going to say yes. In reality, probably not.

And you're dealing with a lot of economic uncertainty, if not, you know, high unemployment in Europe, unemployment in the U.S. So where is this balance? And I think that the industry can take lower margin. But Walmart's margin on a lot of its products aren't that high anyway.

And you know, but they have to make sure that the factories they're using and the suppliers they're using are safe. And I think that they're trying to do that. But it's a very -- after a certain while, becomes a very gray area.

QUEST: James, thank you for putting it into perspective for us. Good to see you as always from New York. And this is something that we will continue to watch very closely as long as these clothes are being made and we're paying these prices. I'll be back after the break.




QUEST (voice-over): Earlier, I told you a new 5-euro banknote was unveiled today. I wanted to know roughly what is the combined weight of all 5-euro notes in circulation. And the answer, the equivalent of about two A380s. That's 900 tons. Of course, if they were fully loaded A380s, it would be considerably more.


QUEST: And in case you're wanting to know, yes, that's a 5-euro note.

We've all heard it many times. And many of us repeat it all too often. It's called pointless office jargon. You're going to hear this bell a lot.

The phrases that sound big and mean very little. Today, a survey's revealed some of the worst offenders, how many can you pick out in the next 90 seconds of jargon?



QUEST: Ah, Chris, just the person. We need to touch base later.

CHRIS: I'll ping you an email when I'm free.

QUEST: I really want to see best practice on this one.

UNIDENTIFIED MALE: Yes. We'll be taking it to the next level.

QUEST: Good man.

QUEST: Oh, I need you to reach out to New York immediately.

UNIDENTIFIED FEMALE: Richard, my idea's a win-win situation.

QUEST: Good.

OK. So we've now picked the low-hanging fruit. And the issue's on my radar. But we need to really run it up the flagpole to see what happens next.

Look, can you take this offline?


QUEST: So what's your favorite or worst piece of jargon in the office? @RichardQuest is where you can join us on that one.

As for me, going forward -- which of course, is the worst, that's QUEST MEANS BUSINESS for tonight. I'm Richard Quest in London. Whatever you're up to in the hours ahead, I hope it's profitable. We'll be online in Berlin tomorrow.




NINA DOS SANTOS, CNN HOST: On the River Thames in London, welcome to MARKETPLACE EUROPE. I'm Nina dos Santos. Europe is home to around about 31/2 thousand breweries, which produce a quarter of the world's beer. In this week's program, we examined the opportunities and challenges for an industry which employs over 2 million people across the region.


DOS SANTOS (voice-over): Coming up, how a thirst for sales growth overseas is helping one London brewery to limit the impact of high-tech (inaudible).

And Heineken's president of Central and Eastern Europe on the prospects for one of the biggest beer regions in the world.

UNIDENTIFIED MALE: It's a very fertile hunting ground for companies which have international (inaudible) brands like we do.


DOS SANTOS: Having a pint in a pub is about as British as it gets. Almost 20 million pints of beer are drunk here every single day. Fuller, Smith & Turner has been making beer along the banks of the River Thames in London for 160 years. Isa Soares has been to find out how this traditional family brewer is satisfying an increasing thirst for its beers abroad.



ISA SOARES, CNN CORRESPONDENT (voice-over): Rolling in from overseas, keg after keg returns home to be cleaned and refilled. This is the new workflow for Fuller, Smith & Turner, a family partnership that's been brewing at this site since 1845.

MICHAEL TURNER, CHAIRMAN, FULLER, SMITH & TURNER: Up until three years ago, the offices of president, chairman and chief executive were occupied by one of each of the original founding families. And we think it's almost unique. We're not sure. But we think it may be unique that three families can trade together for that length of time, for over 160 years.

SOARES (voice-over): Together, they've weathered several economic downturns. And now they're facing yet another one, as U.K. beer duty saps demand for their product at home.

TURNER: We pay, in this country, 40 percent of all the duty, the beer duty, for the whole of the E.U. So our consumers are very hard-pressed. We pay something like 12 times the amount of tax that the Germans do, for instance. So that has really had a very detrimental effect on beer volumes. So that's where exports fit in.

So we're now exporting to 68 different countries. And our exports have gone up by three times in the last five years.

SOARES (voice-over): To overcome the high taxes, Fuller has been lining up its beers and shipping them overseas. Exporting the equivalent of 12 million pints per year. Demand that has seen export volumes increase by 200 percent in the last five years.

SOARES: There's more to exporting than just filling up a bottle and shipping it to make a profit. You need to know your market. In the United States, they sell them in these cardboard baskets.

Or when selling to Scandinavia, the product tends to have a high alcohol content, in this case, 8.5 percent. In the European Union, the buyers prefer the 13 liter keg to this 15 liter keg because of health and safety. After all, they're lighter and easier to carry.

TURNER: Some of these markets abroad, the tax is based on per bottle; whereas in this country, the tax is based on the amount of alcohol. So in America, for instance, they're happy to drink a range of different alcoholic levels, and they would tend to be stronger than the U.K.

If you go to Italy, they're incredibly brave. They drink Golden Pride on draft, and that's 8.5 percent alcohol. So there will be lots of different markets. And they will have different affinities. To go to Russia, London Black Cab, which is our stout, is very popular out there. But, again, the idea of having a Black Cab on the label from London, clearly, is very important to people.

SOARES (voice-over): To keep up with international demand for its beers, Fuller's have had to increase efficiency, investing around $7 million, extending its already cramped facility. From robots that can maximize space by loading and unloading kegs and beer pallets to fully integrated operation lines that clean, sterilize, fill them with beer and then pallet them for dispatch.

JEFF HACK-DAVIES, PACKAGING OPERATIONS MANAGER, FULLER, SMITH & TURNER: We're actually investing in the line that you can see behind me, which basically (inaudible) the capacity to grow to where we have. We still have (inaudible) capacity (inaudible) years in advance. And we basically product on average 6,000 to 7,000 kegs a week. So eight years ago, this would have only been 3,000.

SOARES (voice-over): As long as demand is being met, being squashed doesn't rattle this chairman.

TURNER: If we were to up stakes and move elsewhere, I'm sure we could get ourselves a new workforce. But they wouldn't necessarily have the same passion and devotion. And we feel really emboldened to the local community that we are one of the largest employers. And when you think that that's a responsibility that we should take seriously.

SOARES (voice-over): For him, (inaudible) much about staying loyal to your roots as it is about having pride in your product.


DOS SANTOS: Isa Soares there, getting a taste of some traditional London pride.

Well, coming up after the break, the Dutch brewing giant Heineken looks to Central and Eastern Europe to add future profit to its beer sales.




DOS SANTOS: Welcome back to MARKETPLACE EUROPE from the River Thames.

The brewing industry is an important part of the European economy, not least by the amount of money that it generates for government funds through taxes. Some 50 billion euros a year.


DOS SANTOS (voice-over): Heineken is a global beer brand operating in 71 countries. It's the largest brewer in Central and Eastern Europe. The region accounted for a quarter of the group's beer volumes and 11 percent of its operating profits in 2012. Heineken sells around 55 million hectoliters of beer in Central and Eastern Europe; Russia and Poland are its largest markets in the area.


JAN DERCK VAN KARNEBEEK, PRESIDENT, CENTRAL AND EASTERN EUROPE, HEINEKEN: Beer has been a story of growth the last 10 years. In the east of Central Europe, you had Russia, which was a (inaudible) culture. And you had in the south of the (inaudible), you had a wine culture. And against those cultures, beer has made huge progress the last 10 years.

Now actually a mainstay at Romanian barbeques, Russian restaurants, Polish bars. So beer's been on a growth path and actually (inaudible) had a big impact on that.

DOS SANTOS: Aside from the immediate crisis situation, a lot of these economies find themselves in, what are the dynamics like for the Central Eastern European market?

KARNEBEEK: Well, you've seen the last 10 years because of intense competition and lots of brands becoming available, quality improving. Beer's made itself right into the core of social life for Central and Eastern Europe. We see growing middle classes. These people want to trade up. They want to go from our premium brands. So to continue it to invest in that makes a lot of sense.

DOS SANTOS: Beer like this in Central and Eastern European region makes up around about 25 percent of total beer volume sales for a company like Heineken. But it's very difficult to translate that into profit. So I think it only accounts for about 11 percent of your operating profit.

How much of that has to do with costs, regulation, taxation in these places?

KARNEBEEK: Well, first of all, we'd have to see it against the backdrop of what historically our low incomes in the region. And as incomes rise, it will be easier and easier to translate that into beer prices. You have to, of course, base that (inaudible) offering something of quality. So you have to come with your international brands. You have to come with innovations.

You do stuff, for example, in a region like Grava (ph), which is beer with natural lemon juice. And it's these sort of innovations. And the premium brands which allow us to now trade up and trading up is what will turn the volume into value and profit.

DOS SANTOS: Is this a region that a company like Heineken just has to be present in, even if it's not as lucrative as other markets?

KARNEBEEK: Just by sheer size, Central and Eastern Europe has become one of the biggest beer regions in the world. Perhaps a surprise to some, but it's grown so massively that it now major, major beer region.

So, yes, you have to participate in Central and Eastern Europe. But also because it's an area of promise because young consumers in this part of the world are so tuned into brands and are so much aware of what's going on around the world, that it's very fertile hunting ground for companies which have international aspiring brands like we do.

DOS SANTOS: Are you going to be adding more brands to that portfolio, especially in Eastern Europe?

KARNEBEEK: What you see in Central and Eastern Europe in the -- we compete in 13 markets. And in each of these markets, we have a portfolio of brands. So this portfolio of brands usually starts with what we call a mainstream brand, affordably priced, then national premium brand, which is still a local brand, a bit of a higher price.

And on top of that, you get our shining star, Heineken and Desperados. So with these portfolios in place, we offer something for consumers with every level of spend. And we gradually trade them up to higher priced beers as income develops.

DOS SANTOS: So we'll see the Central and Eastern European region is a place where finally the authorities really are trying to up their game when it comes to regulation and also regulation of the alcohol industry in light of high levels of alcoholism. How is that affecting companies like Heineken?

KARNEBEEK: I think the important thing -- and this is -- we as an industry take our own responsibility. So we strongly believe in moderate consumption. And we walk a talk. So we have our own campaigns in place in order to promote moderate alcohol consumption. This is where it all starts. I think we do that well.

We are in discussion with the authorities in various countries to ensure that the industry does its bit and that the government on its side does its bit. And if I look at that, this is not unique. This happens all over the world.

And brewing's answer to this is to make sure that being a moderate level alcohol beverage anyway at only 5 percent alcohol by volume, that we actually manage to work with these developments and keep our industry healthy.

DOS SANTOS: What are the challenges of doing business in Russia? Because it's a notoriously trying business environment, that one.

KARNEBEEK: It is, but it is worthwhile business environment, because we had to realize that especially in Russia, the middle class is growing extremely rapidly. So that is a huge opportunity. Now the challenge is that we need to make sure that we stay abreast of the regulatory framework. I think we're able to do so.

And by that, I mean that the excise duty increases, we have been facing the last few years. We've managed to be able to compensate in our pricing. So going forward, I'm very positive of Russia.


DOS SANTOS: Heineken's president of Central and Eastern Europe, calling time on this week's MARKETPLACE EUROPE. Well, join us again next week if you can. But in the meantime, thanks for watching and goodbye.