Hello and welcome to World Business Report from the BBC World Service.
I'm Sam Fenwick. Coming up today, Spain's PM says homes shouldn't be mere financial assets.
He wants to reduce a property tax for non -EU buyers, but what could that mean for the market?
There's nervousness in Latin America.
You see that everything is stopping.
You know, the factories, the business chains are not, flowing regularly because everybody is waiting to see what is going to happen.
What are they waiting for?
Find out in just a moment.
And we'll be joined by a Californian wildfire expert who has been at the forefront of modelling high risk areas for years.
That's coming up here in the next 30 minutes.
But first today, Pakistan is on the brink of an energy crisis that could potentially force manufacturing companies to shut.
That's the warning from the chairman of the Pakistan Textile Council.
In the letter to the Finance Minister of Pakistan, Fawad Anwar highlights the severe financial strain faced by the textile sector due to exorbitant energy costs.
We'll hear from him in a moment.
The textile industry is pivotal to Pakistan's economy, accounting for 60 % of the country's export earnings and providing jobs for over 15 million workers.
This raises the crucial question, what policy adjustments are necessary to sustain growth and drive economic reform?
Khatija runs a small tailoring business in Lahore, and she says the rising energy prices have really significantly impacted her business.
Electricity is obviously consumed when we stitch a dress, and so when we charge our customers, they never compromise on the fact that we need to factor those costs in our final bill to them.
So sometimes it's not even worth stitching the outfit as we make no money.
We have also seen our orders being affected.
First, we would stitch 10 garments per customer.
These have now on average reduced by half.
We have half reduction, half profit.
We then have to take out labour charges before we pay out the electricity costs.
Then after that, we don't have much left that we can survive on.
We're basically living hand to mouth.
Sometimes we have to borrow money from people to pay for the electricity bills.
Well, let's talk now to the chairman of the Pakistan Textile Council, Fawad Anwar, joining us today from Frankfurt in Germany.
First of all, tell us why you're there.
Hi, Sam. Thank you for having me on the show.
We are in Frankfurt.
I mean, in Frankfurt, usually the first Tuesday of every year, this is the largest bedding textile exhibition which takes place.
So a number of people from Pakistan are here visiting the show and displaying the goods.
So getting business, basically.
But I suppose your concern is that the cost of energy is making it very difficult for some of your businesses that you represent to keep going.
absolutely um just to throw some prelude to our discussion first we have to understand that where the basic problem is coming from the problem comes from the fact that the previous government made a commitment to imf that the natural gas would be discontinued to the to the companies who are producing
or who are producing their own electricity so natural gas is something which is widely used where people generate their own electricity and they have their own generators.
They do not take the electricity from the government, which is provided by the grid.
And there are a number of reasons for that.
This commitment was made, I don't know why, by the previous government.
And this government, I mean, the Finance Minister Aram Saeed, he has to hold to it because this is the commitment made by the Pakistan government, regardless of whoever goes in power.
Often we're told that these commitments have to be made when dealing with the International Monetary Fund because often it will be something that they stipulate?
Well, this is something, I mean, they're not stipulating.
I mean, first, we have to understand that at what price the gas is supplied to.
The gas is supplied to an energy price, which is basically subsidising for the domestic users and the fertiliser industry itself.
So, I mean, if government does not provide us the gas, The subsidy which the industry is providing will not be there.
I mean, we will be ending up in a circular debt of gas, the kind of circular debt which the electricity already has.
The idea behind all this was that if the gas is not providing, the industry will be consuming more of the grid energy, which is surplus, and the government has to pay the capacity charges.
One has to understand that as exporters, we cannot be charged more.
We have to compete our neighbouring countries vis -a -vis Bangladesh, India and China.
And if our energy is far more than those countries, we will be resorting to avenues which are cheaper.
So we won't be shifting to the grid.
This is an assumption which is wrong to start with which the government is making.
In this letter, you have said to the government that if action is not taken by them, that textile firms will have to close down.
Is that a bit of a threat?
Is that, it sounds a bit dramatic.
It's a reality. It's a reality.
You see, I mean, if the cost of doing business is far more, I mean, everybody cannot sustain losses.
The few big, big, big industries might sustain a few losses for a few months and they might resort to some other means of energy.
But small ones, small and medium enterprises, what are they going to do?
They're going to shut down.
I mean, they're not going to ship.
We are going to lose market share.
The unemployment would be an issue.
it's not a threat. It's not an empty threat.
This is a reality which the government has to realise.
This is one part of it.
The second part is, who is going to pay the subsidy to the domestic?
So, I mean, the government cannot raise the prices of the domestic.
The textile sector contributes 60 % to Pakistan's export earnings and provides employment for 15 million people.
It is something that the government will surely be looking at quite closely.
Absolutely. And I tell you, I mean, this government in the last one and a half years have done remarkably well as far as the macro numbers are concerned.
We were on the verge of bankruptcy.
I mean, they have done great with the balance of payments, with the inflation, with the interest rates.
They have achieved all the macro levels.
But long term, they need to understand that if they create this energy crisis, it can be a problem leading to a big problem in the future.
Well, Fawad Anwar, we will leave it there.
Thank you very much for joining us.
We try to get a response from the Pakistani government to the letter we have yet to hear back from them.
Now, a red flag weather warning is in effect for the fire -affected regions of California, with high winds expected to exacerbate the ongoing fires.
The total damage and economic losses from the fires are estimated to be between $135 billion and $150 billion, Potentially making this the costliest wildfire season in US history Insured losses alone are projected to be around 30 billion dollars Erin Alexander, a firefighter in Newport Beach Fire Department
Told the BBC of the difficulties that they face when trying to deal with fast -moving fires We'd put one fire out and another one right down the way starting again You have these houses that catch fire that send off embers that catch other houses on fire and we didn't have enough water to put the fires
out and it was, you know, there's only so much you can do.
Experts in fire risk have been modelling high -risk areas for some time.
Michael Worre, a senior researcher and wildfire expert at Stanford University, was part of a group that assessed potential liabilities for state utility firms five years ago.
He joins us now from Mill Valley, which is about 30 minutes away from San Francisco.
Michael, thanks for joining us on the programme.
We don't know exactly what started these fires yet, but just tell us the role that the climate has had in exacerbating the conditions.
Well, climate change definitely plays a role in the sense that it raises the chances of what we're seeing in L .A.
right now, which is that you have these high winds, which are seasonal and happen almost every winter.
They're called Santa Ana's down there.
And normally, rain would have started in October.
and the ground would be wet, and therefore the winds blowing across wet ground don't cause the same fire risk.
But unfortunately, Los Angeles really hasn't seen any measurable precipitation at all, 0 .15 inches since May.
And so the ground is extremely dry, and that means any spark combined with the winds leads to these terrible wildfires and urban firestorms that we've been And as we said, you've been modelling the risk for California for five years, five years plus.
And Pacific Palisades was one of the areas that you've identified as a high risk area.
Why is that? Well, it's a combination of factors.
One is just the potential wildfire risk, right?
So there's the exposure to just the topography, the way the weather and winds take shape there.
but also it has to do with the way that the community was laid out and the density of homes.
The streets are aligned with the wind directions in Pacific, were aligned with the wind directions in Pacific Palacios.
I guess they still are.
And that meant that the houses are very close together in the direction that the wind blows.
And that raises fire risk.
Also, the community is older, so many of the homes are not built to comply with the wildland urban interface building codes in California, which were phased in in 2009.
So there's a bunch of factors.
But in the end, it amounts to a lot of very valuable real estate in a very high fire risk area.
And that's unfortunately what we saw play out last week.
And you have, as we say, been modeling this for five years.
Have you seen a change then in terms of building policy since you kind of modeled?
Well, not, you know, the biggest step that California made, and I think this is unique in the United States, actually, is to implement this code to build new homes to more stringent standards where there is fire risk.
We have also been considering but have not implemented more stringent codes for how backyards might look to make them, to help support, you know, keeping these houses from igniting during wildfires.
We haven't yet phased those in.
I hope that we do. But, you know, there's been a lot of change in some communities in California, especially those that were heavily impacted by wildfires in 2017 and 2018, but not as much in communities that had not been affected directly by wildfires like Pacific Palisades.
and I think unfortunately we saw some of the results that although I would tell you that given the conditions on Tuesday, all of these safety measures in neighbourhoods are kind of like putting your seatbelt on in your car.
It means that you're less likely to die in a low speed car crash, but you're still going to die if you hit a barrier going 200 kilometres an hour.
I wanted to ask you about utility companies because you specifically looked at that and what they can do to try and prevent fires.
Yes, utilities have made that's the one that's one place where California has made large investments over the last seven to eight years.
The utilities in general are operate in a much safer way than they did in 2017 when the first when the big utility cost fires first occurred.
And, and they they mostly do that by turning the power off or when winds are too dangerous, or making other adjustments to how the system operates to make it switch off fast enough that fires don't ignite.
Now, it does seem as if perhaps one of these fires might have been caused by utility infrastructure.
And again, none of these operational changes are perfect.
What they do is reduce risk.
They don't eliminate it.
And so during the most extreme conditions, even those measures can fail.
Okay. Well, thank you very much for coming on and explaining that to us, Michael Worra there, Senior Researcher and Wildfire Export at Stanford University.
Well, investors are understandably concerned about US insurance stocks following the wildfires.
Fiona St. Cotta is a Senior Market Analyst at City Index.
She's been watching this closely for us.
What's been the immediate impact, Fiona?
Yeah, so we have seen US insurers falling, which would be expected.
Obviously, those with the higher exposure to the area such as Allstate and Traveller, they've been trading down around 5 % over the past few sessions.
Then you've got other bigger insurance firms such as AIG, they're just down a more modest 2%.
But even Moody's, the rating agency has highlighted the impact that these fires are having.
These are obviously high -value residential and commercial properties in the affected area.
So the insured losses are going to be going well into the billions.
I think what is interesting is perhaps that the insurers haven't fallen further.
I imagine that should the fires continue to rage on, then we will see further declines in the share prices for the insurers.
Should we have a look at some other stories that are in the news today?
So there's research from a battery specialist called Row motion, which is indicating that global electric car sales rose by 25 % last year.
So that's 17 million cars sold.
But there are regional variations, aren't there, around the world as to who's buying more than others?
Yes, that's right. So it was a record year, which is great news as far as the transition to cleaner car usage.
Obviously, sales in China were much stronger than they were anywhere else.
We saw 11 million in 2024.
And that's partly because China have been promoting EV adoption in order to get cleaner airs, as well as a way of supporting their economic growth.
They also have subsidies, which have helped.
Interestingly, Germany have removed their subsidies, which has resulted in fewer sales in Europe, which has been weaker towards the end of the year when those subsidies were removed.
And obviously, there are concerns that what if those subsidies are removed in the US?
Obviously, we've got Trump coming into power in just a matter of days.
So there are sort of concerns about what would happen as far as the outlook is for the US with a change of policy if it came.
Fiona Sincotta, Senior Market Analyst at Citi Index.
Thank you very much.
You're listening to World Business Report from the BBC World Service with me, Sam Fennec.
The United States has had a long and complex relationship with Latin America.
Historically, the US has been involved in various aspects of Latin American affairs, including economic, political and military interventions, often referred to as America's backyard.
The region faces potential changes in its relationship with the US as Donald Trump takes office next week.
Gideon Long has been investigating what this could mean for Latin America.
When Mexico sends its people, they're not sending their best.
They're bringing drugs, they're bringing crime, they're rapists, and some, I assume, are good people.
Donald Trump campaigning for the presidency first time round.
Since his second election victory in November, his main focus when it comes to Mexico has been not so much crime and rapists, but trade and tariffs.
President -elect Trump says on the day he takes office he will impose a 25 percent tariff on Mexico and Canada.
Trump says he wants to stop border crossings and drugs coming into the U .S.
So he says he will impose massive tariffs that could have momentous impacts on North American trade, the potential for higher prices and higher costs for businesses and industries across the board.
If Trump does impose big tariffs on Mexican imports, it could have a huge impact on both countries.
Bilateral trade is worth $800 billion a year.
That's the biggest trading relationship between two countries anywhere on the planet.
Here's one business that operates on the border.
Right now we're in the warehouse that we have the lumber.
My name is Jose Mario Sanchez and what I do is that I sell supplies for furniture manufacturing in the border region both in the U .S.
side and in the Mexican side.
I have two businesses, one in El Paso, Texas and another one in Juarez, Chihuahua, Mexico.
Right now everything is in a standby.
You know, we do not know what is going to happen.
We do not know if it's going to be, for example, Trump is going to go in a full compliance of what he says, or if he's going to do it only in specific areas of the economy, you see that everything is stopping.
You know, the factories, the business chains are not, you know, flowing regularly because everybody is waiting to see what is going to happen.
To have a commercial war is going back to the 19th century.
Mexico is the key Latin American economy for the United States but it's not the region's biggest that title belongs to Brazil in his first term Trump hit it off with Brazilian president Jair Bolsonaro a right -wing populist often called the Trump of the tropics but Bolsonaro is no longer in power and Trump
is unlikely to have such a warm relationship with Brazil's current president Luiz Ignacio Lula da Silva, or Lula.
Monica de Boll is a Brazilian economist at the Peterson Institute for International Economics.
Lula, of course, is a centre -leftist, and given that the far -right in Brazil has these connections with the far -right in the US and with the Trumpian movement, it doesn't bode very well for Lula that the incoming administration will be headed by Donald Trump.
And so how do you feel the relationship between the two countries will be under these two presidents, under Lula and Trump?
Very tense. I do see the potential for misfired statements back and forth, both from Trump regarding Brazil as well as from the Lula administration towards the US.
Despite all his bluster over migrants, tariffs, drugs, criminals, the Panama Canal and the Gulf of Mexico, there is at least a chance of a reset in US -Latin American relations under Trump.
Not least because he'll start his second term with a Latino, Marco Rubio, the son of Cuban migrants, as his secretary of state.
That was Gideon Long reporting and you can hear more on that by searching for Business Daily wherever you get your BBC podcasts.
Now, Spain is planning to impose a significant new property tax on non -EU residents buying homes in the country.
The Prime Minister, Pedro Sanchez, announced the measure as part of a package aimed at addressing the housing shortage and making housing more affordable for local people.
In the year 2023 alone, non -residents from outside the European Union bought around 27 ,000 houses and apartments in Spain.
They didn't do it either to live in them nor for their relatives to live in.
They did it mainly to speculate, to make money with them, Something that in the context of shortage, the residential shortage in which we live, obviously we cannot afford.
Well, let's talk to the BBC's correspondent Guy Hedgeke, who joins us now from Madrid.
The Prime Minister then has said that this is a housing crisis which is absolutely unbearable and an emergency.
They're very strong words.
Can you put them in context for us?
What does he mean? Well, Sam, this has become really the dominant political issue in Spain in the last few months.
really as the the scale of the housing crisis has emerged and what the prime minister is talking about in particular is how many spaniards are priced out of the market and specifically the rental market rentals have have been spiraling over the last three or four years particularly since the pandemic
and that has meant many people particularly young people have been priced out of the market and they simply can't find anywhere affordable to live but that's particularly in the big cities so madrid barcelona valencia and so on but also in smaller cities of capitals of provinces and that has become
a huge problem for many families and that seems to be what mr sanchez is talking about when he describes this um as an unbearable uh crisis and an emergency And do we know how many homes are sold to non -EU residents on an annual basis?
Well, we have that figure from Pedro Santos himself.
He said 27 ,000 homes have been sold in 2023 to non -EU residents.
We don't have, I haven't seen a figure for 2024.
Some people have actually queried the figure that he has given saying it's actually lower than that.
But we do know that the total number of sales to foreigners overall, that includes people from inside the European Union, makes up around 15 % of the Spanish housing market.
So people who are from outside the European Union, you would think that that number would be quite a bit smaller than that.
OK. And so the hope is then that the prices will fall under this policy and more availability for local people?
yes I mean we heard Pedro Sanchez they're saying he you know he believes a lot of this is speculation it's people buying homes from outside the European Union purely for investment reasons not because they want to live in them or they want anyone else to live in them so the idea is that this frees up
those properties for local people to live in them and that that speculation as the government sees it stops and that the inflationary pressure also stops Well let's hear from Martin in London who is in the process of looking for a property in Spain but he says now that he's changed his mind I was looking
to spend somewhere probably between £500 ,000 to £650 ,000 which at the moment that's not going to happen I think Spain now is going to be a non -starter possibly Cyprus might be an alternative but I see that Spain I think if they continue and they do push this through I think they'll be shooting themselves
in the foot Well, let's bring Antonio De La Fuente into the conversation now.
He's managing director for Colliers in Spain.
Colliers is an international real estate agent.
He's also in Madrid.
How do you see this playing out then for Spain's property market if you bring in this huge tax for non -EU residents?
well thank you very much sam for contacting me first of all we'd like to point out that when we talk about this housing problem this not only happened in spain it happens in all the oecd countries where generally talking people are migrating to wealthier locations that generate wealth and attract population which are generally
the larger cities this is an issue in all the developed economies and it's a very serious problem.
Moreover, because it significantly impacts the people's lives, affecting their personal decisions and have a deep impact in their lives.
Therefore, we as a society, we must find a solution.
But our concern is that the solutions or measure that were announced yesterday by our government are not aimed at solving the problem.
Why not? Why don't you think it'll solve the problem?
Well, at the end, well, there are a couple of measures that are aimed to increase taxes on non -European union non -residents, that if you consider the figures that you were previously mentioning, they were only around 27 ,000 units that are sold to non -European non -resident buyers.
But that's roughly a very reduced amount considering the 600 ,000 units that are sold every year in Spain.
So why would increasing tax for those 27 ,000, if it's a relatively small percentage of the actual numbers, why isn't it fair?
Why shouldn't it? Exactly.
It doesn't make for us a lot of sense because we all agree when you talk with all the researchers, we all agree we are in a problem with not enough supply.
And we need to attack and produce new supply to be able to give these people that are migrating from other parts of Spain to the big cities such as Madrid, Valencia or Málaga, give a new home.
But the problem is not that this will be a drop in the ocean, in my opinion.
And there are other alternatives that definitely will have a higher impact in the housing market.
OK, Antonio de la Fuente.
Thank you very much for coming on the programme.
Joining us there from Madrid, Managing Director for Colliers in Spain.
That brings us to the end of World Business Report for today.
Craig Henderson was the reporter, the producer actually, for today's programme.
Don't forget you can always find us on a podcast search for World Business Report wherever you get your BBC podcasts.
