Year: 2015

Argon Asset Management on building trust in retirement reform

Posted on by Ashton Wenborn

When we talk about retirement fund reform both globally and in a South African context, the natural tendency for people in the financial services industry is to focus on the statistics and metrics that we are comfortable with and tend to understand. Aspects such as the number of funds, the population dynamics, longevity, structural changes, contribution rates, tax reforms and spreadsheet after complicated spreadsheet with annuity rates, and the like, are typically the key points discussed.

While this conversation has much merit and serves as a basis for many dialogues about retirement fund reform, in our view, in addition to this, we need to take a step back and focus on three objectives of retirement reform from a member and potential new member point of view. These objectives are: to increase participation in the system, to increase coverage and to improve the overall savings rate.

In 2015, is it natural and right to simply expect less financially literate members to trust us because we are investment managers and can speak the language of wealth? 

When we do this it is very obvious that apart from the traditional approaches to discussions about retirement reform – which are by their very nature exclusive in that the language of reform is one of industry jargon – we believe we need to broaden this dialogue and talk in a more inclusive way about how we improve both the quality and the level of our engagement with the people whose hard-earned money we are investing. The key question is what is the industry doing to improve the levels of trust in retirement funding, retirement provision and investment management and what could and should we be doing? In 2015, is it natural and right to simply expect less financially literate members to trust us because we are investment managers and can speak the language of wealth?

Measuring trust
How do we measure and talk about trust? Interestingly, there is an independent and international survey that has been running for 15 years that does exactly this. The Edelman Trust Barometer measures trust in institutions, including business, media, NGOs and government. In 2015, they surveyed 33,000 respondents in 27 countries. For companies looking to build or restore trust in themselves and in their innovations, the 2015 Edelman Trust Barometer offers actionable insights on the attributes and behaviours that shape trust.

According to them, trust is built through specific attributes, which can be organised into five performance clusters: integrity, engagement, products and services, purpose and operations.

Of these clusters, the barometer reveals that integrity is most important, followed closely by engagement. As in past years, areas such as excellence in operations or products and services, while important, are simply a ‘ticket to the game’ or what is expected from consumers.

According to the barometer, there is hope to increase trust against what has become a complex backdrop. Innovations that touch consumers on a personal level can counter balance security concerns. Companies can act to chart a path to public trust. Some 82 percent of respondents agreed that ‘making their life easier’ is an important trait for building trust.

Benefits of reform
Extracting and applying the lessons directly from the barometer, the following become obvious for a retirement reform process.

We must focus on discovery, while establishing personal and societal benefits of reform. According to the barometer, communicating the financial stability of institutions, listing the steps they are taking in data security and highlighting the innovations that traditional institutions are developing can make a difference. Mobile banking and electronic payments are a good example. Only 30 percent of respondents believe that businesses are interested in ‘improving peoples’ lives’. The innovation story so proliferate in financial services needs to resonate with consumers through regular, two-way engagement and active consumer participation in product development and also in the reform process itself.

Another lesson is the need to act with integrity, rigor and self-awareness. Take sustainability into consideration. Be consistent in reporting and tell people how you are doing. This is a long-term, not short-term strategy. Start with social listening; having a well-communicated culture that is focused on an institution’s people and the communities in which they live and work. Only 24 percent of respondents expect that businesses will ‘make the world a better place’ (see Fig. 1), while 54 percent say they will refuse to do business with companies that do not. Consumers are sending a crystal clear message with this finding. Companies that are listening to their customers on this will gain the greatest advantage.

Finally, we must listen, share information and improve products. Do not be afraid to acknowledge problems, but be sure to take steps to solve them. It is vital to communicate across all platforms and in every priority area – operations, purpose, products and services, engagement and integrity. Of those surveyed, 83 percent said that keeping their family safe was an essential attribute – but only 56 percent thought the financial services industry was performing well on this measure. Strengthening collaborative approaches to data security and privacy, standing for consumer protection and making sure the institutions themselves remain strong will help to close the gap. The good news is that the 2015 Edelman Financial Services Trust Barometer shows a public willing to partner and engage and one that is open to innovation. Now is our chance to build on that. We need to make them aware of what the industry is doing to improve security, safeguard our financial systems and bring greater access to developing communities around the world.

Perceived drivers of change in business and industry

Integrity and engagement
The trust-building opportunity for the reform process, therefore, lies squarely in the area of integrity and engagement. These areas encompass actions for individual participants in the retirement industry such as having ethical business functions, taking responsibility to address issues or crises, having transparent and open business practices, listening to customer needs and feedback, treating employees well, placing customers ahead of profit and communicating frequently on the state of the business.

Unsurprisingly, these are the qualities also evidenced to build trust in innovation and change. When it comes to retirement reform, integrity and engagement with members is therefore critical. But unfortunately, the financial industry dialogue currently tends to focus on the technical jargon, tax, product and contribution changes rather than embracing the challenge of deepening our understanding of what integrity and engagement may mean to the process and what is required to build trust with consumers.

At Argon Asset Management, we are entrusted to be stewards of hard-earned money from members of retirement funds. We therefore proactively maintain a strong, non-negotiable values orientation. Our values are honesty, integrity, thoroughness, accountability, respect for self and others, and a solid work ethic. This combination allows us to engage with external stakeholders with care, attentiveness and a proactive and socially consciousness approach to meeting their needs. We believe a key aspect of this is our culture and healthy internal people dynamics. We recognise that the effectiveness of our engagement with clients and members depends on the quality of our people, our discipline and passion to really listen to evolving needs and respond appropriately in a culturally sensitive way.

It is important to understand that engagement is a two-way thing. As an industry, we are very good at talking at people, perhaps because the consequence of listening and really paying attention across all of society in an inclusive way could change our paradigm and appear too costly in the short term. So, as an industry we don’t tend to stop and ask what members want and understand, never mind listen when they tell us. We fall into the trap of patronising many members or ignoring their financial, cultural, language and other needs, which, unfortunately, we believe will be much more costly to us as a society locally and globally, in the long run.

We are embracing the challenge at Argon and we will continue to deepen and broaden the quality and reach of our investment management services and the level of engagement with the clients whose needs we strive to meet and whose trust we seek to earn.

Financing the future

Posted on by Ashton Wenborn

According to the ILO, the garment and textile industry employs 60 million people around the world. Investment in the sector has been a priority for IFC and other development finance institutions as it provides formal jobs for low-skilled workers, furthering the goal of reducing poverty. Moreover, since many of the workers are young women with few opportunities to earn their own income and become independent, creating jobs in the sector can also improve gender equality.

To achieve these goals, however, investments must combine financial sustainability and profitability with strong social and environmental standards. This can be a challenge in countries where laws and governance are weak, which are also usually the places where poverty is widespread and investment and jobs are scarce. It is particularly challenging in the garment industry, where intense competition leads some suppliers to disregard basic safety standards and worker rights.

Recent factory disasters, such as the Tazreen fire and the Rana Plaza collapse that together took the lives of 1,200 people, have prompted the IFC to identify innovative ways to improve the garment sector in developing countries. While traditional audits and supervision are important to ensure environmental and social compliance, we must move to the next stage and create the financial incentives for suppliers to upgrade their processes and factories. To demonstrate that this is possible, IFC partnered with Levi Strauss – one of the largest apparel companies and a leader on environmental and social standards in its supply chain – to roll out a new kind of supplier financing product.

Using our $500m Global Trade Supplier Finance Program we are providing short-term finance to emerging-market suppliers. The key is to offer lower interest rates to suppliers who score better on Levi Strauss’ sophisticated evaluation system for labour, health, safety, and environmental performance. The program works on a sliding scale – as suppliers improve their environmental and social performance, they are rewarded with lower interest rates, reducing the cost of their working capital. In short: the higher the supplier’s score, the more they will save. Through this innovative partnership, Levi’s suppliers have access to cheaper capital than they could otherwise obtain in their home country. Moreover, the benefits go beyond monetary savings. Suppliers can differentiate themselves from competitors through positive environmental and social scores. This is a win-win solution for all parties, including international buyers, who want to improve safety and working conditions in their supply chains.

IFC has also been spearheading other partnerships to make positive changes in the textile and garment sector. In 2007, we launched the Better Work Program with ILO to improve labour standard compliance in global supply chains, both to protect workers’ rights and to help enterprises become more competitive. The program, which is currently active in eight countries, focuses on scalable and sustainable solutions that build cooperation between governments, employer and worker organisations, and international buyers.

In Bangladesh, where the garment and textile sector accounts for 80 percent of export earnings and employs 4.2 million workers in 4,500 factories, we launched the program following eighteen months of collaboration with the government to improve national labor laws and develop the national “Framework for Continuous Improvement.”  The objectives are to provide assessments of factory compliance with national law and international core labor standards, and to report the findings in a transparent manner, as well as to provide advisory support for factories to make improvements.

These kinds of partnership between governments, employers, unions, buyers, and other industry stakeholders can bring about sustainable change in the garment sector by helping factories improve working conditions, and foster factory-level capacity for worker-management relations. We hope that other major international apparel brands will follow the lead of Levi Strauss and other countries will emulate the example of Bangladesh and sign on to the Better Work Program.  It’s the right thing to do and also makes good business sense.

Olaf Schmidt is Global Sector Lead of Retail, Real Estate & Hotel Investments at IFC, the private sector arm of the World Bank Group.

Technology enriches the wealth management sector

Posted on by Ashton Wenborn

In the wealth management industry, technological developments have taken hold to such a degree that prominent managers no longer enjoy the monopoly over market information they once did. Easy and immediate access to performance metrics, and the tools to break down and digest complex data patterns means that wealthy individuals need no longer put their faith in asset managers to secure a healthy return. Advantageous for moneyed individuals in that the digital age allows them to decide for themselves how best to spread the wealth, the upshot for financial services is that the business of wealth management is shrinking.

“Technology advancements, client demand for digital services, and current industry dynamics are creating an environment conducive to the development of self-service capabilities”, according to a recent Capgemini report titled: Self-Service in Wealth Management. “In the past, self-service capabilities in wealth management have been restricted to online accessing of account information and transacting online. However, firms can offer richer features to promote a collaborative investment management experience.”

This rise of the digital consumer (see Fig. 1), coupled with a real and growing pressure on fees, has asked that wealth managers embrace technology, if only to keep a hold of a shrinking opportunity. Though the transition is not all one sided, and a second look at the market shows that technology is unlocking new opportunities elsewhere.

So far, the internet has been used as a weapon against the
adviser community

Digital invasion
The realisation that revenues were on the decline set in last year when studies compiled by ComPeer showed that wealth management firms in the UK were being squeezed, increasingly so, by a changed operational environment, born largely of technological innovation. “The first rule of any technology used in a business is that automation applied to an efficient operation will magnify the efficiency. The second is that automation applied to an inefficient operation will magnify the inefficiency”, said Bill Gates in an ATKearney study titled Wealth Management in the UK: Survival of the Fittest. And in many ways this quote perfectly encapsulates the issues dogging wealth management currently, with technological change interpreted both as a threat and an opportunity.

The age-old method of face-to-face delivery has been overhauled recently, as a technologically orientated financial landscape, in which access to information is immediate and expert opinion never less than a few clicks away, has taken hold. Cognitive computing technology has made data far easier to digest, and a greater degree of independence has piled the pressure on operating costs. Yet wealth management, even in mature markets, has been slow to adjust, to the extent that private banks are losing ground to new market entrants.

Perceived by slow-to-move parties as a threat more than an opportunity, the proliferation of technology in financial services has brought a swift and decisive end to the days when traditional wealth managers were considered the singular authority in handing out investment advice. With fees bordering on the extreme and their services reserved only for the ultra wealthy, a new breed of wealth management is encroaching upon their ever-diminishing slice of the pie.

Newcomers and game-changers
Promising reduced fees, lower entry costs and more immediate access, online wealth managers are snatching customers away from the competition, and will continue to do so for as long the competition’s competencies fall short. “Technology has always been at the heart of how wealth managers do business”, according to an Ernst & Young report titled Digital Disruption and the Game-Changing Role of Technology in Global Wealth Management. “The emergence of digital technologies for delivering services is forcing wealth managers to invest in their front-office digital capabilities or run the risk of falling behind. The digitisation of the wealth management value chain and the increasing use of mobile devices for doing business is making it easier for new entrants to challenge the status quo and exploit areas of dissatisfaction and underinvestment.”

With this, so-called ‘digital disruptors’ such as Nutmeg and Wealth Horizon have crashed the party, with expertise comparable to that of their better-known counterparts and at a reduced rate. In a market dominated still by business on a face-to-face basis, access to multiple platforms, whether on tablets, mobiles or computers, is doing much to quell frustrated clients for whom old systems are failing to meet their lofty standards.

Though in its infancy, this online wealth management subsector has succeeded so far in attracting investors with modest portfolios, yet failed to reel in the ultra-high-net-worth individuals (UHNWIs) that traditional wealth managers have worked so hard to retain. “The current market share of these firms is marginal (concentrated mainly in the lower end of the market), and their underlying business models are still untested in down markets”, according to another Ernst & Young report. “However, we believe their steps to streamline the client online experience, provide greater transparency and improve the economics for the mass segments are irreversible. While traditional firms will continue to focus on the wealthier segments, those that also want to compete for the lower end of the market and/or improve their clients’ digital experience will need to determine if and how to adjust their offerings accordingly. All in all, this offers new opportunities for expansion while challenging some of the aspects of the traditional advice model.”

In this respect, web-based advisory firms have done little to threaten the collective might of the industry’s larger powers, having collected only a small share of assets lower down the pecking order. However, as their presence grows, as indeed it looks certain to do so, online managers could conceivably profit from the frustrations of more sophisticated clients, should they – like their lesser counterparts – opt to depart from the traditional model.

Analysts have been quick to draw parallels between the wealth management industry of today and that of tourism in the 1990s, during which time travel agents lost market share to online alternatives such as Expedia. And while it’s unlikely, at least in the short-term, that start-ups will alter the traditional wealth management landscape in quite the same way, or to the same degree, new models of wealth management have succeeded at least in unlocking underserved segments of the investment community.

“New digital technologies – mobile, analytics, social and cloud – are enabling both unencumbered development and unprecedented disruption, right across the wealth management value chain”, according to an Accenture report on digital wealth management. “Using readily available components that cost little or are actually free, digital disruptors leveraging open platforms can enter the market directly, with more cost-effective, more innovative, more customised solutions that compete with incumbents on all three core value disciplines: operational excellence, product leadership, and customer intimacy.”

The consulting firm goes on to stress that clients expect wealth management solutions to be designed with both transparency and customisation held in high regard; a feat made possible by the latest technological developments. And with lesser clients migrating to lesser-known names in the business, more experienced firms are exploring new methods, again utilising technology, albeit for different purposes altogether.

Wealth matchmaking
“So far, the internet has been used as a weapon against the adviser community”, said one spokesperson on behalf of broker-client matchmaker Advisor Finder, in an interview with welathmanagement.com. Dreamed up by Boston-based Dalbar Financial and Microsoft, the firm entered the scene as far back as 1999, though only in recent months and years have wealth management matchmaking services come into their own. “We’re turning the equation around here.”

Far from alone in the market, rival matchmaker FindAWealthManager.com secured a £500,000 ($768,792) investment earlier this year to launch its service in Asia, and similar such solutions are fixing a much-needed element of digitisation to otherwise traditional models. Even today, those at the top of the pile depend largely on face-to-face interactions, though by honing their focus on UHNWIs, ambitious managers must employ technology in matching their services to the right clients.

While the broker to client matchmaking business represents only a fraction of the changes sweeping the industry, it goes some way towards demonstrating the lengths by which technology has infiltrated wealth management.

For those looking to slash costs, technological improvements will prove a popular strategy. However, more important than these broad-based improvements even are the smaller concessions of larger names that – despite their leanings towards traditional models of doing business – depend largely on technological improvements. True, the digital revolution has cost certain segments of wealth management dear, but succeeded also in bringing fresh opportunities to the fore.

Global review: countries whose economies are most fuelled by tourism

Posted on by Ashton Wenborn

Global review 1

1. UAE (Rank 4)

As a small collection of cities along the Persian Gulf, the UAE offers little in the way of natural diversity beyond its endless sand dunes and beaches. What it lacks in natural assets it makes up for in impressive engineering feats, and being home to the world’s largest man-made island, the Palm Island. Amid its impressive skyline is the Burj Khalifa, the world’s tallest man-made structure. With its world-class airport infrastructure and liberal visa system, travel is relatively easy. The government has carried out a successful branding campaign in recent years, and in 2014 tourism amounted to 4.1 percent of GDP.

2. Switzerland (Rank 5)

With no standing army, no official capital city and three linguistic groups, Switzerland is a unique country. The mountainous nation – home to the Swiss Alps – has impressive landscapes and views for tourists, kept pristine through stringent environmental laws. Geneva, one of the country’s main cities, is also a major centre for luxury shopping. Outside the eurozone, the Swiss Franc has a high exchange rate, making visiting expensive, and Geneva and Zurich rank among the most expensive cities in Europe. For those visiting from outside of the Schengen Area, obtaining a visa can often be a lengthy process.

3. South Africa (Rank 15)

It has been five years since South Africa hosted the 2010 World Cup, and the country is still reaping the benefits, with the large stadiums built for it now available for various entertainment events. Outside of the cities, the country is home to an abundance of wildlife and a number of classified World Heritage sites, such as the Mapungubwe Cultural Landscape, where structures and buildings dating back to the 15th century still stand. The government places a high emphasis on environmental and cultural conservation. However, South Africa’s visa restrictions, due to a set of immigration reforms, are set to become more stringent.

4. Panama (Rank 33)

Aside from being the trade hub of Latin America, Panama also has a significant tourist industry, totalling six percent of its GDP. The country, with the Gulf of Panama on one side and the Caribbean Sea on the other, has very attractive beaches. In contrast to much of the region, Panama has strong tourist infrastructure and a skyscraper dominated capital in Panama City. Its airport – the busiest in Central America – is a regional travel hub, which allows for easy access to the country. Panama is also one of the safest countries to visit in Central America, with relatively low levels of tourism crime.

Global review 2

5. Israel (Rank 51)

Home to holy sites of the world’s three major religions – Judaism, Christianity and Islam – and the birthplace of two of them, Israel houses various sites of historical and cultural importance. However it also has more secular attractions, with a vibrant nightlife scene in the modern city of Tel Aviv on the Mediterranean coast, and wineries in the Golan Heights in the north and Negev Desert in the south. Although Israel has ploughed investment into improving its tourism infrastructure, navigation is sometimes not so easy. The cost of living – and therefore cost of visiting – is also rather high.

6. China (Rank 80)

Nearly 130 million people visited China in 2014. Cities such as Shanghai and Beijing offer visitors the experience of a lively modern megacity, replete with skyscrapers, luxury shopping and expensive bars and restaurants. For those wishing for a glimpse into China’s more traditional past, the country ranks third in the number of World Heritage natural sites and is home to world-famous cultural heritage sites such as the Great Wall, the Forbidden City and the Mogao Caves. The country’s government continues to invest in infrastructure, easing travel. However, within the coastal cities, air quality is often low.

7. Spain (Rank 100)

Since the 1970s, Spain has proven popular among Northern Europeans seeking sun for a few weeks a year. In recent times, however, the country’s tourism numbers have been boosted by other parts of the world, with those in developing nations growing richer. Spain receives approximately 60 million tourists a year, with a growing number of visitors from emerging economies such as Mexico, Brazil and China. The country boasts a rich cultural history, from the Alhambra palace – which dates back to the medieval years of Muslim rule – to tours retracing Pablo Picasso’s early 20th century youth in Barcelona.

8. Colombia (Rank 108)

Every year Colombia hosts Barranquilla’s Carnival, a four-day folklore festival dating to the 19th century. Ranked by UNESCO as a Masterpiece of the Oral and Intangible Heritage of Humanity, it is part of the country’s rich cultural heritage on offer to tourists. The Latin American nation is also home to a highly diverse ecosystem, with over 3,000 species. Although the country has been troubled by a civil war in some regions, Colombia has grown a safer place over the past few years, reflected by an increase in tourist numbers. The country also has a liberal visa policy, allowing for easy access.

Source: World Economic Forum

Grexit averted after bailout deal reached

Posted on by Ashton Wenborn

Today, the eurozone summit agreed to commence negotiations for a third Greek bailout under the European Stability Mechanism (ESM) programme.

“EuroSummit has unanimously reached agreement. All ready to go for ESM programme for #Greece with serious reforms & financial support,” explained Donald Tusk, President of the European Council, on his Twitter account early in the day.

The new stimulus package will be “subject to strict conditions”

The new stimulus package will be “subject to strict conditions” and “accompanied by a growth and employment package in the order of EUR 35 billion,” according to a statement released by the EU Commission.

“There will not be a ‘Grexit’,” said Jean-Claude Juncker, President of the European Commission during a press conference. “I am satisfied both with form and substance of the agreement.” 

The Greek parliament, along with the legislative branches of several other member states still needs to “give [its] blessing” for formal proceedings to commence, with finance ministers required to convene in order to discuss short-term bridge financing.

Revising international trade agreements

Posted on by Ashton Wenborn

Trade is high on the agenda in the US, Europe, and much of Asia this year. In the US, where concern has been heightened by weak recent trade numbers, President Barack Obama is pushing for Congress to give him Trade Promotion Authority (TPA), previously known as fast-track authority, to conclude the mega-regional Trans-Pacific Partnership (TPP) with 11 Asian and Latin American countries. Without TPA, trading partners refrain from offering their best concessions, correctly fearing that Congress would seek to take ‘another bite of the apple’ when asked to ratify any deal.

In marketing the TPP, Obama tends to emphasise some of the features that distinguish it from earlier pacts such as the North American Free Trade Agreement (NAFTA). These include commitments by Pacific countries on the environment and the expansion of enforceable labour rights, as well as the geopolitical argument for America’s much-discussed strategic ‘rebalancing’ toward Asia.

Trade boosts productivity, which is why exporters pay higher wages than other companies

Following a similar direction
As with consumer products, the slogan ‘New and improved!’ sells. NAFTA and other previous trade agreements are unpopular. So the Obama administration’s argument is apparently, “We have learned from our mistakes. This agreement will fix them.”

But the premise is wrong: The previous agreements did benefit the US and its partners. The most straightforward argument for TPP is that similar economic benefits are likely to follow.

The economic arguments for the gains from trade of course go back to David Ricardo’s classic theory of comparative advantage. Countries benefit most from producing and exporting what they are relatively best at producing and exporting, and from importing what other countries are relatively better at producing.

Moreover, trade boosts productivity, which is why exporters pay higher wages than other companies, on average – an estimated 18 percent higher in the case of US manufacturing. And the purchasing power of income is enhanced by households’ opportunity to consume lower-priced imported goods. The cost savings are especially large for food and clothing, purchases that account for a higher proportion of lower-income and middle-class households’ spending.

American trade debates have long been framed by the question of whether a policy will increase or reduce the number of jobs. This concern is a first cousin to the old mercantilist focus on whether a policy will improve or worsen the trade balance. A ‘mercantilist’ could be defined as someone who believes that gains go only to the country that enjoys a higher trade surplus, mirrored by losses for the trading partner that runs a correspondingly higher deficit.

Even by this sort of reasoning, one could make an ‘American’ case for the on going trade negotiations. The US market is already rather open; TPP participants such as Vietnam, Malaysia, and Japan have higher tariff and non-tariff barriers against some products that the US would like to be able to sell them than the US does against their goods. Liberalisation would thus benefit US exports to Asia more than Asian exports to the US.

The late 1990s offer a good illustration of how trade theory works in the real world. The volume of trade increased rapidly, owing partly to NAFTA in 1994 and the establishment in 1995 of the World Trade Organisation as the successor to the General Agreement on Tariffs and Trade.

Balancing the numbers
For the US during this period, imports grew more rapidly than exports. But the widening of the trade deficit had no negative effect on output and employment. Real (inflation-adjusted) GDP growth averaged 4.3 percent during 1996-2000, productivity increased by 2.5 percent per year, and workers received their share of those gains as real compensation per hour rose at a 2.2 percent annual pace. The unemployment rate fell below four percent – as low as it goes – by the end of 2000.

A stronger trade balance in the late 1990s would not have added to output growth or job creation, which was running at full throttle. Further increases in net export demand would have been met only by attracting workers away from the production of something else. That is why the gains from trade took the form of bidding up real wages, rather than further increasing the number of jobs.

Admittedly, it is harder to make the case for freer trade – particularly for unilateral liberalisation – when unemployment is high and output is below potential, as was true in the aftermath of the financial crisis and recession of 2007-2009. Under such circumstances, there is a kernel of truth to mercantilist logic: trade surpluses contribute to GDP and employment, coming at the expense of deficit countries.

Of course, if one country erects import barriers, its trading partners are likely to retaliate with ‘beggar-thy-neighbour’ policies of their own, leaving everyone worse off. That is why the case for multilateral renunciation of protectionism is as strong in recessionary conditions as ever. In response to the 2008-2009 global recession, for example, G-20 leaders agreed to refrain from new trade barriers. Contrary to many cynical predictions, Obama and his counterparts successfully fulfilled this commitment, avoiding a repeat of the debacle caused in the 1930s by America’s introduction of import tariffs.

In any case, mercantilist logic is no longer relevant. The US unemployment rate has fallen well below six percent – not quite full employment, but close. If output and employment were rising this year as rapidly as in 2014, the Federal Reserve would probably have felt the need to start raising interest rates early. As it is, the Fed will almost certainly delay raising rates for a while longer. If trade deals do boost US exports more than imports, the Fed will probably have to put a brake on the economy that much sooner.

But the bottom line is that if the US can boost auto exports to Malaysia, agricultural exports to Japan, and service exports to Vietnam, real wages will be bid upward more than by the creation of more jobs. That is why, if it is allowed to proceed, the TPP will, like past trade deals, help put real median US incomes back on a rising trend.

Jeffrey Frankel is Professor of Capital Formation and Growth at Harvard University.

© Project Syndicate 2015

Indian private equity set for record breaking year

Posted on by Ashton Wenborn

Private equity firms in India are on track to have their best year yet. The country has been subject to a flurry of investments so far in 2015 and if the trend continues for the remaining months, it will be a record-breaking year for Indian private equity, which has previously struggled.

Private equity has had a troubled past in India

The prediction is based on data from PwC, which estimates that so far this year, total deals in private equity reached the record level of $7.5bn. “Without a doubt, at this point I will be very surprised if 2015 comes second best to any year we have seen,” said Sanjeev Krishan, PwC’s Head of Private Equity in India, speaking to the Financial Times. “At the current run rate we should easily surpass 2007, which was the sector’s best [year] to date.”

Private equity has had a troubled past in India. Between  2001 and 2013 about $93bn worth of Private equity deals poured into the country, according to a paper published by McKinsey&Company in February 2015. According to the paper, “returns fell sharply in following vintages; funds that invested between 2006 and 2009 yielded seven percent returns at exit, below public markets’ average returns of 12 percent. In fact, India’s PE funds in recent years have come up well short of benchmarks: with a nine percent risk-free rate and a 9.5 percent equity risk premium.”

As the paper also notes, just “$16bn of the $51bn of principal capital deployed between 2000 and 2008 has been exited and returned to investors.” The first half of 2015, however, saw an uptick in exits, over $5bn, according to PwC data, and including big names such as Apax Partners TPG Capital.

Economics’ big bipolar problem

Posted on by Ashton Wenborn

Readers of this column, no doubt concerned for my wellbeing, have occasionally asked how my book Economyths – a critique of mainstream economics from the point of view of an applied mathematician – was received by economists.

The book, which also served as the basis for many Econoclast articles, did muster a number of positive reviews, from publications ranging from Bloomberg to Handelsblatt. The science writer Brian Clegg called it “probably one of the most important books I’ve ever read” (he’s not an economist, I just wanted to mention it, before we go on). Perhaps the strongest endorsement was from Czech economist Tomas Sedlacek, who co-wrote a subsequent book with me.

Not everyone was so complimentary. In an online discussion at the leading Canadian economics blog Worthwhile Canadian Initiative, a group of university economists, wrote off my book based on what they could find on Google, describing it variously as juvenile, idiotic, intellectually lazy, semi-articulated, ignorant, and “sort of like Malcolm Gladwell without the insight” (ouch). One poster even compared me to a climate change denier. They could have thrown a copy on a fire, if they’d bought one.

[A] common criticism of economics is that it is based more on theory or ideology than on empirical evidence

The site linked to a review, which a World Finance reader alerted me to, written by Christopher Auld from the University of Victoria in Canada. It displayed a similar lack of enthusiasm. According to this economics professor, Economyths is “a terrible, wilfully ignorant, deeply anti-intellectual book. The characterisation of economic thought presented is ridiculous. The level of scholarship is abysmal.”

Hmm. For context, compare this with the straightforward description of the same book from William White – former Deputy Governor of the Bank of Canada, and current chairman of the OECD’s Economic and Development Review Committee – who cited it as a Bloomberg Best Book of 2013: “Lists 10 crucial assumptions (the economy is simple, fair, stable, etc.) and argues both entertainingly and convincingly that each one is totally at odds with reality. Orrell also suggests that adopting the science of complex systems would radically improve economic policymaking.”

Get the kindling version
Of course everyone has a right to their own opinion, but the contrast between White’s “best book” recommendation and Auld’s “there is nothing an interested layman could possibly learn from this book” assessment seems extreme. So what is going on? Is the book – and by implication this column – total rubbish, suitable only for incineration, or does it have some redeeming features? And what does this tell us about how economics is developing now?

I would argue that this type of ill-tempered, get-the-matches-out response is symptomatic of a wider denial in economics – more prevalent among academics than practitioners – about the subject’s role in the crisis, and its need for reform. One of the themes of the book is that economics needs to bring in ideas from people such as complexity scientists or biologists. While some specialised centres, such as the Soros-funded Institute for New Economic Thinking, were designed to encourage such interactions, in many academic departments they are still largely perceived as a threat.

This defensiveness is illustrated, in a revealing way, by Professor Auld’s review. A common criticism of economics is that it is based more on theory or ideology than on empirical evidence, and that is certainly the case here, where the facts are twisted to fit the argument – though it appears he at least obtained a copy of the book, which is more than can be said for the Worthwhile reviewers.

The review claims for example that I spend “several chapters discussing the scandalous fact that economists oppose any and all government intervention to protect the environment” which would surprise most readers, especially since the book only has 10 chapters. It also takes remarks out of context – even turning a humorous question into a statement by omitting the question mark – and generally misrepresents the book.

Feedback is always useful, and no book is perfect. But even negative reviews should try to give an accurate sense of what a book is about – especially when they come from university professors who have a special role to play in society, as publicly funded arbitrators of knowledge. It seems more about angry denial than anything else – not so much about my book, I suspect, than about the changing status of economics.

Lighten it up
In the last year or so, the field of economics has come under increasing criticism for its rigidity and insularity. Student groups such as Rethinking Economics – with branches in seven countries – Manchester University’s Post-Crash Economics Society, and many others around the world, have sprung up to demand reforms in the way that economists work and teach. A consistent theme is that economics need to relax a little and adopt a more open, pluralistic style.

In Quebec, for example, a student petition noted that the field “isolates itself from criticism, leaving little room for ethical, epistemological, philosophical, political and historical reflection, which would allow the discipline to reflect on itself and renew continuously”. As Keith Harrington from the activist group Kick It Over told YES! Magazine earlier this year: “Despite its enormous failings in the face of the financial crash, the mainstream of the profession has by and large failed to embrace self-criticism or open itself up to different approaches.” From my own experience with the book, I can understand how hard it must be for a student to question their professors. At least they don’t grade me.

Auld maintains a list of “anti-economists” on his site, which also includes, apart from yours truly, the economist Steve Keen (author of Debunking Economics), the environmentalist David Suzuki, and the biologist David Sloan Wilson – all people from outside the mainstream establishment who have questioned the basic assumptions of economics. Keen, together with White, was among the few people credited with giving advance warning of the financial crisis.

Silence those voices, and what hope is there to predict the next one? Shut out the biologists and anyone with a different background, and how can economics reform? When these academics get out of book-burning mode and start listening to those other than critics and their own students, maybe the field can start to move forward.

Investment drives Latin America’s Southern Cone

Posted on by Ashton Wenborn

Over the last decade, Latin America’s economic growth has been grounded on favourable trade terms and ample global liquidity. With commodity prices on a downwards trend, growth drivers will need to shift. For Argentina, Paraguay, and Uruguay – part of Latin America’s Southern Cone – the shift represents an opportunity to diversify their economies and to move up in the value chain beyond the primary sector.

Economic activity has been ignited in the primary sector across different industries, yet for many in Latin America, productivity still lags relative to the agriculture and livestock farming sectors. To lever up on the decade’s momentum, those sectors will need to garner productivity gains through capital accumulation and innovation. Capital-intensive growth, however, will require funding. Some emerging market Latin American countries – such as Chile, Mexico, and Brazil – have well-oiled financial sectors that can intermediate between investors and companies, and others such as Colombia and Peru are following suit.

However, for Latin America’s Southern Cone, deeper financial markets are part of the ‘to-do list’ for the 21st century. This is where Puente’s expertise and local presence in these markets comes in. Puente’s regional coverage, in-depth research and knowledge of local players provides investors with a sold link to companies looking to exploit attractive opportunities. At Puente we have a team of more than 250 highly qualified and specialised professionals who are prepared to generate value in our clients’ businesses by offering a superior customised service based on our expertise and knowledge of both local and international markets.

The lack of capital markets development denotes a weakness, but also an opportunity

Though Southern Cone countries have successfully tapped international markets at the public sector level, most private companies have not followed suit, unlike their counterparts in Peru, Colombia, Chile, and Brazil. Corporate issuances are a small fraction of bank loans, and IPOs are rare events. Market capitalisation represents less than 10 percent of GDP, compared to an average of 36 percent for their largest Latin American neighbours.

Looking forward, financial depth will need to increase, hand-in-hand with the development of new drivers for growth. At Puente, we believe our expertise and human capital can make a contribution towards this leap. Our main areas of business are capital markets, corporate finance, wealth management, sales and trading, and asset management – leveraged by solid strategy and research areas that provide strategic, timely and forward-looking information to optimise our clients’ decision making.

Sustaining emerging markets
In Latin America, emerging markets have performed well over the last decade. Favourable in terms of trade, an expansive global monetary policy and a constructive view from foreign investors has boosted demand and inflows. The Southern Cone countries have enjoyed rapid economic growth, with soybean and beef prices as the instigators of that trend. Still, their economies are lagging behind their notable neighbours in two aspects: productivity gains have not fully spilled over the value chain; and capital markets remain mostly untapped.

Fig 1

The primary sector remains the main driver of foreign inflows on the goods side. Uruguay is the only partial exception, with FDI flowing towards other sectors, such as paper mills. For the three countries, the banking sector remains the main channel for financial intermediation. Corporate debt issuances are secondary in Paraguay and Uruguay, and mostly local for Argentina. IPOs are rare, and the number of listed companies is less than 150 for the whole group.

The lack of capital markets development denotes a weakness, but also an opportunity. For these economies to sustain a growth momentum, financial intermediation will need to blossom. It’s an interesting time for Argentina – after several years of mismanaged economic and monetary policies that drove investments away from the country, the situation is changing. There are several things that make both us at Puente and investors very optimistic.

Superior sovereign ratings will spill over to corporate issuances, reducing borrowing costs. Uruguay is already an investment grade country, with Paraguay looking to become one in the next few years. Argentina has the most to gain, following a credit event in 2014 amid a conflict with holdout creditors from the 2005 and 2010 exchanges, which most analysts expect to be resolved by 2016. Lower borrowing costs will increase competitiveness for sectors currently protected or in infant stages.

Uruguay will need to face the challenge of finally taming inflation pressures, as well as returning fiscal accounts to a sustainable path. Its monetary policy has been safe for a long time, only becoming slightly hawkish since last year, with inflation now at 8.5 percent, remaining above the target during the last five years. The Central Bank still faces a challenge to regain credibility by anchoring inflation expectations. Fiscal accounts have deteriorated in the last decade, with increasing social assistance programmes, public employment, and public utility companies’ tariffs growing below inflation, driving the fiscal deficit above 3.5 percent of GDP. Still, a favourable and stable institutional framework and growing credibility in authorities have allowed Uruguay to attract the highest ratio of FDI in Latin America, above four percent of GDP recently, (see Fig. 1), behind only Chile.

Fig 2

Infrastructural change
Paraguay started its path towards the investment grade rating introducing a set of fiscal reforms, and improving governance and institutional strength. The country has also introduced a fiscal responsibility law (FRL) that keeps expenditure bounded by a cap on the structural deficit. Looking forward, the government will need to abide by the limits imposed by the new law. This constitutes a challenge, but also an opportunity to demonstrate its commitment with the FRL, and its efficiency to approve several infrastructure projects.

In the monetary sector, the adoption of an inflation-targeting regime in 2011 has kept it under control, within the target range of 6.5 percent to 2.5 percent throughout the last five years, anchoring inflation expectations around the 4.5 percent target. This predictability of monetary policy – which has helped to reduce currency and interest rate volatility – was an important driver behind the rating upgrade. Beyond these efforts, the country will also need to reach a more diversified growth path, reducing the volatility that has characterised its economic activity, mainly as a result of climate events.

For Argentina, regaining market access is expected to reduce borrowing costs for both the public and the private sector, unlocking medium-term opportunities for growth. Reaching a settlement with holdouts from the 2005 and 2010 exchanges (following the 2001 default) will remove obstacles for the government to issue external debt in deeper markets. In turn, this will allow the next administration, taking office by the end of 2015, to build a buffer of external savings to correct macroeconomic imbalances – giving the private sector more space to function.

Fig 3

Argentina’s public and private sector leverage is among the lowest of the region, after declining steadily over the past decade. Increasing the availability of external savings will likely lead the government to remove some controls on its current account situation (see Fig. 2) and encourage investment, which is lagging behind its potential (see Fig. 3). This will unlock the full potential of GDP growth, estimated to be 4.5 percent. In this context, low-developed financial and capital markets are expected to face an increased demand. Foreign inflows and higher revenues would take pressure off central bank transfers to the treasury, mitigating inflation, and opening space to reduce fiscal pressure.

The country has a reputational problem that generates lack of credit, which is translated into bond and equity prices. There’s not a solvency problem. As we get closer to the change in the administration, equity prices will probably rise along with an interest in Argentine assets. We recommend investors to become positioned in Argentine bonds and equities as we think they are paying a very high premium over their real risk. There are already some investors that are getting ahead of the market by investing in real economy and financial assets.

The reduction in borrowing costs should open opportunities across different sectors where growth drivers will need to shift from commodity prices and cheap funding to investment and productivity gains.

In Paraguay, economic diversification has been improving along initiatives from both the government and the private sector. In particular, light manufacturing industries have been developed and value-added in agricultural manufactures has increased.

Mind the gap
The expansion is likely to continue due to Paraguay’s competitive advantages over Brazil, including lower labour and energy costs, and a more favourable tax environment. Paraguay’s salaries are among the lowest in the region, and currently most of its energy production from Itaipú and Yacireta is exported to its partners Brazil and Argentina. Another challenge for Paraguay is to close the infrastructure deficit gap, as it is the highest among the Southern Cone countries.

Fig 4

Authorities took on this issue by approving the Public Private Partnership (PPP) law, generating a proper environment to develop infrastructure projects by allowing mixed funding from the public and private sector. Three projects are expected to start the construction stage by the end of 2015 under the PPP programme, for a total investment of around $1.4bn, representing 40 percent of the last five years’ average investments. In addition, the public sector is expected to carry out investments in infrastructure for $1.8bn.

Uruguay’s investments have been concentrated on agro-businesses and the construction sector. Soybean-led agriculture productivity is at a record-high, and the exports profile is changing, with production diversifying to other activities, such as the forest industry, where the country is expected to become a main global player. Following the construction of a second-cellulose pulp plant last year and the potential installation of a third-one, cellulose exports will be among the three main exports – around 15 percent of total exports –together with soybean and beef.

Pulp exports will amount to more than 2.5 million tons per year ($1.5bn, around 2.5 percent of GDP), and will represent around four percent of global cellulose production, above Uruguay’s share of global soybean and meat production, which is around one percent of the global output.

But in this context, infrastructure investments have not accompanied the highly-dynamic growth of the last decade. Authorities, who estimate an infrastructure deficit of $3.6bn, are conscious that an investment shock is required to safeguard growth. Considering the need to reduce fiscal deficit, private investment is required to finance the construction of roads and railways, so the government is auctioning projects via PPP agreements. Part of the funding will come from local pension funds, allowed to invest up to 50 percent in productive projects ($5.5bn), but foreign savings will need to also contribute.

Fig 5.1

In Argentina, two sectors that have great growth potential are infrastructure and the oil and gas industry. With gross fixed capital formation having contracted in real terms since 2011, Argentina has an infrastructure deficit in key sectors, particularly in energy distribution, transport and technology. Electricity shutdowns and low quality of communication services are evidence of some of the infrastructure bottlenecks in the country. In the case of utilities, this is mostly a consequence of years of frozen tariffs, which have vanished utility companies’ profits in a backdrop of two-digit inflation.

It’s expected the next administration will allow tariff increments to boost investments in the sector, increasing the quality of the services. Improved utility services, transportation and communications will in turn improve efficiency in most sectors, particularly manufacturing and a whole array of services, for which infrastructure bottlenecks have been an obstacle to operate at full potential.

Argentina’s oil and gas sector (see Fig. 4) is also expected to have a game-changing role in the future, particularly in the hand of rich unconventional shale resources in the region of Vaca Muerta. This is the second-most extensive shale gas resource and the fourth-largest shale oil resource in the world, with a potential output of 27 billion barrels of unconventional oil and 802 trillion cubic feet of unconventional gas. The reservoir is seen as the main magnet to attract FDI in the long-term, with high potential to boost growth and domestic demand, and reduce balance of payments risks. Fully exploiting Vaca Muerta would require investments for over $20bn per year (around five percent of GDP), which would spill over into steel and transportation.

Lower expected energy prices have made profitability of the reservoir more uncertain, although at least for shale oil – for which productivity is lower than for gas – expected inflows could be postponed to the reservoir until price expectations increase. Vaca Muerta’s average break-even price is estimated to be around $84 per barrel of oil, which is above both current domestic regulated prices, as well as international prices.

Growth potential is bound to boost demand for consumer goods, particularly those targeted at the middle class, which amounts for 50 percent of Argentina’s population. Production of consumer goods should be increased once currency overvaluation is corrected, boosting exports and, once consumption rebounds, bringing higher growth (see Fig. 5.1 and 5.2). The manufacturing industry and commercial activity represent 30 percent of GDP, two sectors strongly dependent on consumer sales.

Fig 5.2

 

Competing local markets
Other promising sectors include agribusiness and financial sectors; however investors are looking at opportunities in all industries. Argentina shows asset prices at significant discounts compared to those in the rest of the region. And if expectations change following this recent period of volatility, there is a high potential for foreign investment. This is not only reflected in the financial markets; the local investment climate’s view of real assets has also started to change. Investors are no longer buying liquid assets from their offices abroad, but are increasingly visiting the country to understand how economics and politics work in order to make long-term investments in the real economy.

Both the public and private sectors present very low levels of leverage (current foreign debt to GDP stands at 47.8 percent), which will provide high flexibility for the new administration to face these challenges, once access to international financial markets is regained. At Puente, we saw these opportunities several years ago, and we have positioned ourselves as the leading investment bank in the country, ready to take advantage of the significant opportunities we see for Argentina in the coming years. This is a key aspect of our regional expansion plan to become the leading investment bank in the Southern Cone.

We believe the Southern Cone can sustain the last decade’s momentum through a more diversified economic structure, which will require financial intermediation as a key ingredient. At Puente, our expertise in the region can become an essential link in the value chain, to exploit opportunities in up-and-coming sectors that will become an integral part of these economies over the next few decades.

Syriza scrambles to get last minute bailout

Posted on by Ashton Wenborn

The Greek government has submitted to Brussels its latest proposals for economic reforms to meet conditions for a new three-year bailout, late at night on Thursday July 10. The new plan (published in full at The Wall Street Journal) must be accepted by EU leaders on the following Saturday to ensure Greek banks do not run out of money, potentially forcing the country to drop out of the eurozone.

The plan is seen as a huge compromise on behalf of the Greek government, led by the left-wing Syriza. The deal they have proposed concedes to a number of measures put forward by the EU, which the party has been fiercely opposed to in its time in power. It also seems to go against the referendum result, in which the party campaigned for a successful “no” vote, much to the anger of European officials. This has led some commentators to question what the purpose of such grandstanding – which caused a run on Greek banks and forced Greece to institute capital controls – really was.

Five of the 10 economic reforms Greece has proposed to Brussels

1. VAT reform
2. Pension reform
3. Changes to public administration, justice and anti corruption
4. Amendments to the financial sector
5. Increased privatisation

One major sticking point in past negotiations between Greece and EU creditors has been the exemption of certain Greek islands from VAT. The latest proposal has agreed to begin abolishing these exemptions, starting with islands with the “highest incomes and which are the most popular tourist destinations.” Other climb downs include agreeing to raise the pension age to 67 as well as cutting supplementary pensions for the least well off.

Within the plan there was no mention of debt relief. The recently resigned finance minister Yanis Varoufakis had long been an advocate for such relief and often spoke of it as a requirement for any future deal. Varoufakis left shortly after the referendum, claiming that his presence at negotiations with creditors – with whom he became deeply unpopular – could hinder talks.

Prime Minister Alexis Tsipras is facing mounting opposition from within Syriza, which has a rather large base of support spanning from far left to centre left, over the contents of the plan. Many on the left of the party feel that the plan goes too far in compromising with creditors and betrays the principles upon which Syriza was elected and the July 5 referendum decision made.

US is a drag on global growth, says IMF

Posted on by Ashton Wenborn

The IMF has downgraded its global growth forecast for this year, citing the US slowdown as the most significant factor in what could prove the slowest year since the world economy contracted back in 2009. The IMF clipped its previous forecast by 0.2 percentage points to 3.3 percent and revised its estimate for the world’s number one economy also, down to 2.5 percent from 3.1 percent previously.

[T]he IMF’s chief economist Olivier Blanchard attributed a weak US performance mostly to “a series of accidents”

“The shortfall reflected to an important extent an unexpected output contraction in the United States, with attendant spillovers to Canada and Mexico. One-off factors, notably harsh winter weather and port closures, as well as a strong downsizing of capital expenditure in the oil sector contributed to weakening US activity,” according to the IMF outlook.

The document went on to add that demand support and structural reforms were key focal points on a global front, and, in advanced economies, accommodative monetary policy could do much to raise both economic activity and inflation. An enduring low growth climate underlines the fragility of the global economy still, though, in a press conference held after the announcement, the IMF’s chief economist Olivier Blanchard attributed a weak US performance mostly to “a series of accidents.”

Assuming there are no more “one-off factors”, the US should play out the rest of the year on a relatively positive note, and another contraction before the year’s end is unlikely.

Elsewhere, the IMF maintained its 1.5 percent forecast for the eurozone, despite the situation in Greece, and China’s 6.8 percent forecast was also unchanged, despite stock market volatility of late. In 2016, growth is expected to strengthen and reach a far healthier 3.8 percent.

What happens when brands rebrand?

Posted on by Ashton Wenborn

Building a recognisable, trusted brand is often exceptionally hard, but can be the difference between lasting success and quick failure. However, when established brands feel they need to freshen up their images, implementing changes can be fraught with difficulty. A fine line between alienating a loyal customer base and capturing new supporters means a great deal of thought needs to go into any rebranding.

A number of firms have changed their images in the last year – including Airbnb and Hootsuite – with varying success. Now, 2015 has been touted as the year of the rebrand, in particular for small- and medium-sized enterprises (SMEs). This year it seems many marketing agencies could be set for windfalls as a result of a shift towards simplifying brands and updating images, but it doesn’t always make sense to bring in expensive branding agencies.

While it can prove hugely beneficial to update a company image, history has shown many established firms have made catastrophic errors when tinkering with their brand. These can include paying for flashy new logos that get quickly ditched after poor receptions, to making changes to a popular product and enraging previously loyal customers. At the same time, many rebrands have had significant benefits for companies, reinvigorating staid profiles and updating an image for a modern audience.

Logo price tags:

$211m

BP, 2008

$100m

Accenture, 2000

$1.8m

BBC, 1997

$1m

Pepsi, 2008

$625,000

London 2012, 2007

$35

Nike, 1971

$15

Twitter, 2009

£0

Coca Cola, 1886

Why rebrand?
The reasons for rebranding are varied, but usually stem from a need to grab the attention of a stagnant market, stem the tide of departing customers, or to distance a business from a particularly disastrous reputation. One of the more recent company rebrands to hit the news is that of online property rental site Airbnb. The company has already been a hugely successful new entrant into the tourism industry, upsetting the traditional hotel industry by allowing people to easily make money from letting out their properties. Nonetheless, as it rapidly expanded, Airbnb’s management was starting to worry that it did not have a recognisable brand or logo that would cement the company into the minds of users. Therefore it hired a brand design company – San Francisco-based DesignStudio – to come up with a new logo that would be both instantly recognisable and reflect the company itself.

Writing in The Guardian last September, DesignStudio’s Executive Creative Director James Greenfield explained how his team worked out the new logo. “For Airbnb, the first step was to understand the brand on a global scale and specifically the community that underpins the ethos of the brand itself. We sent four team members to 13 cities, staying with 18 varied hosts across four continents over four days. Armed with a basic video camera, they captured their journeys. This combined with more than 120 interviews helped us to understand the spirit of Airbnb and the emotional connection that their community has with the company.”

However, when they did unveil the new logo, many observers thought it had been a terrible mistake. Likened to, among other things, both male and female sexual organs, the logo was widely spread across social media. However, the attention created for Airbnb has led a stronger recognition of the company and to it growing its user base even further, which now sits at around 15 million.

Not just image
A successful rebrand does not necessarily involve just a change in logo or name, but often requires a complete overhaul of the company’s goals, message and culture, as well as their product offerings.

One example is Harley-Davidson. While it has been synonymous with the iconic image of leather-clad motorcyclists, the company was seriously struggling with its finances during the 1980s. With mounting debts and a poor reputation for reliability, the company realised it needed to improve its product if it was going to survive. While the brand has always remained strong, Harley-Davidson’s had become renowned for being faulty at the time. Addressing the situation, management invested heavily in ensuring the bikes were a far better quality, catapulting the brand into becoming the most reliable motorcycle manufacturer in the world.

Although McDonald’s had grown to near global dominance of the fast food industry, the turn of the century brought about a sudden health-conscious trend among many people. Whereas the company had been seen as a staple of many people’s diets, customers were turning their backs on the greasy, cheap burgers for healthier options with fresher ingredients. Realising it needed to do something to stem the flow of departing customers, McDonald’s set about offering healthier options like salads, while trumpeting the supposedly fresh ingredients it was using for many of its products. While not quite as popular as it once was, McDonalds has seen customers return in recent years.

Marketing mistakes
There have been many other rebranding missteps made by overly creative marketing departments throughout the years. US retail store Radio Shack attempted a redesign in 2009 to capture a more youthful clientele, and jettisoning its 90-year history and strong brand image for a simplified name. Renaming itself ‘The Shack’, the attempt at appearing cool was widely lampooned by observers, with branding expert Rob Frankel telling Business Insider in a 2011 article, “Why would anyone throw away decades of brand value, which actually shows up on the balance sheet as an intangible asset, just to try to be cool for a few minutes?”

Even though Radio Shack reversed its decision to rename, it hasn’t stopped the company from haemorrhaging customers and losing money. Things came to a head in February when it finally filed for Chapter 11 protection under US bankruptcy laws, having suffered 11 consecutive quarters of losses.

Other reasons for rebranding can include legal disputes, where trademarks might have been infringed upon, or a changing audience that requires a fresh image. In 2009 another company, US cable television channel SciFi, attempted to change its image and appeal to a younger crowd by changing its name. SciFi also had to find a new name that it could trademark, as the original name could not be bought. Choosing the way young people would supposedly text the name – SyFy – the company failed to realise that this name was also a slang term for a particularly unpleasant sexually transmitted disease. Despite much derision, the channel stuck with its new name.

Bad press
There could be a sudden incident that causes a once admired brand to be tarnished with bad publicity. A company that successfully altered its image is fashion label Burberry. For years, the 150-year old British clothing company had become known as the designer-of-choice for English football hooligans and gang members. The trademarked black, beige and red check pattern adorned caps, bags, scarves and other clothes that many of society’s less-friendly members were proud to be seen in. Things got particularly bad for the brand’s image when two English pubs banned anyone wearing Burberry clothes from their premises.

Recognising the need to distance itself from such a crowd, Burberry’s management decided to overhaul its image with a series of new products, using iconic celebrities like Kate Moss and Emma Watson to promote them.

Christopher Bailey, then the company’s creative director (and CEO as of May 2014), said in a 2009 interview with The Times that the new image was about updating Burberry’s heritage and making it “relevant for today”. He added, “You have to make sure what you do is right for the moment you live in. What makes things relevant?”

Bad publicity can also be caused by unforeseen circumstances. Following last years tragic lost aircrafts, Malaysia Airlines was said to be considering a brand overhaul and change of name to stop people from associating the company with air disasters, with customer numbers plummeting after the crashes. However, such a change has yet to materialise.

Another firm in the news recently for the wrong reasons is payday loan company Wonga. The British company lost considerable amounts of money in recent months because of a series of scandals and fines resulted in losses of £37m ($58.04m). To distance itself from the negative publicity – which included being singled out by the Church of England as being “morally wrong” – Wonga’s management has been rumoured to be looking at a complete rebrand.

Coca-Cola products on display. The iconic brand was brought back as Coca-Cola Classic, after New Coke flopped
Coca-Cola products on display. The iconic brand was brought back as Coca-Cola Classic, after New Coke flopped

Publicity stunts
There have even been some suggestions that rebranding exercises have been done to strengthen the original brand. By announcing a total overhaul of a well-known brand, howls of outrage cause media attention and sentimental feelings to swell around the original brand, therefore bolstering the existing company. While some marketing departments reversing a rebrand after protests may claim that it was their clever idea to drum up support, it seems doubtful that many are really that strategically insightful.

Perhaps one of the most famous examples of a rebranding exercise gone spectacularly wrong is Coca-Cola’s 1985 relaunch. Changing the original formula of the extremely popular drink, the company released New Coke after a number of years of steady decline in market share to rival Pepsi – a company that would also make its own calamitous rebranding mistakes years later. This came after Pepsi launched its highly successful ‘Pepsi Challenge’ ad campaign that claimed to show how people tended to prefer the taste of their drink over Coke. Conducting their own tasting tests, they discovered that people seemingly did like Pepsi more than Coke.

New Coke was developed to be closer in taste to Pepsi, and subsequent tests proved it to be much more popular than the rival drink. The fateful decision to discontinue the original Coke in favour of New Coke was made, announcing the move well in advance of the actual launch. The reaction, however, was not what the company expected. Howls of protest by millions of Americans came in the run up to the eventual release in April 1985, and when it was finally available to buy, the poor publicity meant many refused to buy it in protest.

Realising the colossal mistake it had made, the company decided to launch the old product as Coca-Cola Classic just 77 days later. The company would try to put a positive spin on the debacle, hinting that it was all part of a marketing plan. Trumpeting the return of the original Coca-Cola, the firm released a statement declaring that, “April 23, 1985, was a day that will live in marketing infamy…spawning consumer angst the likes of which no business has ever seen.”

Then company President and Chief Operating Officer Donald Keough announced the return of the original drink, while claiming that customers’ loyalty to old Coke was not something any marketing expert could have predicted. “There is a twist to this story which will please every humanist and will probably keep Harvard professors puzzled for years. The simple fact is that all the time and money and skill poured into consumer research on the new Coca-Cola could not measure or reveal the deep and abiding emotional attachment to original Coca-Cola felt by so many people.” He added, “The passion for original Coca-Cola – and that is the word for it, passion – was something that caught us by surprise.”

Looking back on the debacle, Marketing Vice-President Sergio Zyman, who alongside then-President of the company’s US business Brian Dyson, had led the rebranding, said, “Yes, it infuriated the public, cost a ton of money and lasted only 77 days before we reintroduced Coca-Cola Classic. Still, New Coke was a success because it revitalised the brand and reattached the public to Coke.”

Such was the furore around the decision to change the formula of Coke that many have speculated whether it was an intentional move to cause a surge in sales of the original drink and grab the attention of the world’s media. However, dispelling such rumours, Keough maintained it was no marketing ploy. “Some critics will say Coca-Cola made a marketing mistake. Some cynics will say that we planned the whole thing. The truth is we are not that dumb, and we are not that smart.”

In 1992, a decision was made to rename the new drink Coca-Cola II. It was discontinued a decade later, after years of neglect from the marketing side of the business. Coca-Cola Classic, by contrast, has been the main focus of the firm ever since, and has gradually seen the ‘Classic’ label withdrawn, emphasising it is now considered the one true Coke.

A McDonald’s in Times Square. A healthier approach has helped bring customers back to the fast-food chain
A McDonald’s in Times Square. A healthier approach has helped bring customers back to the fast-food chain

Shaking it up
Coca-Cola’s long-term rival has become notorious for constantly changing its logo and undergoing rebranding exercises, doing so nearly each decade over its 122-year history. While it was seeing considerable success during the 1970s and 1980s, thanks in large part to its series of blind tests that saw people favour its drink over Coke, Pepsi has since struggled against its rivals’ stronger brand identity. Over the years it has overhauled its logo, but the most criticised rebranding came in 2008. Taking the traditional ‘wave’ design for the logo and turning it into an unbalanced, smirk-like smile, it was panned by both designers and customers alike.

The company hired to do the rebranding – The Arnell Group – were rewarded handsomely for their design, receiving $1m. However, the cost to the company is thought to have been far higher, and some speculate that the entire rebranding effort cost $1.2bn over the three years it took to implement.

PepsiCo, Pepsi’s parent company, has also tinkered with other brands it owns. In 2009 it changed the design of its hugely popular and recognisable Tropicana juice drink. Changing from the old carton design that featured an orange with a straw in it, to a cleaner and more minimal design, the company received many complaints from disgruntled orange juice fans. After sales fell by 20 percent, the company quickly reinstated the old carton.

While many of these examples have shown that freshening up a company image can bring in a new wave of customers, there have clearly been examples – certainly in the case of Coca-Cola and Pepsi – where tinkering with a well-known product or logo can seriously damage the bottom line of a business. Whereas marketing departments might be tempted to constantly update a company’s brand – perhaps as a way of finding something to justify their large salaries – it can often be the case that if a business is already doing well, there’s really no need for changing a winning formula.

Azure Wealth: get ready for a new generation of investors

Posted on by Ashton Wenborn

In a recent KPMG report it was noted that “Nobody can predict the future”, but that has not stopped the company contemplating what the investment management industry will look like in 2030. In its report, the professional services company contends that the rapid change the industry is experiencing is driven by a number of deeply rooted forces, or ‘megatrends’.

Over the next 15 years, these megatrends are meant to impact the investment management industry in a number of ways (see Fig. 1). For starters, over the past 30 years the industry has been driven by the baby boomer generation, which has provided strong levels of investment, underpinning solid market growth. But it is important to remember that these markets have also been buoyed by rapid globalisation and a massive rise in international capital flows.

As that generation begins to reach retirement, however, the focus of investment managers shifts to a younger group of investors, but one that is not accompanied by such a favourable socioeconomic environment as the generation that preceded it.

In the wake of the financial crisis, many of the world’s major economies are still struggling; putting a cap on growth. The crisis has also played a big role in eroding trust between investors and financials service providers – adding to a challenging path ahead for investment managers to navigate, but one they plan to meet head on.

Digitisation is pervasive in all industry sectors and can be difficult to keep ahead of

“Investment management has become more and more sophisticated with the tools that are available nowadays and with easy access to information”, says Pedro Pinto Coelho, CEO of Azure Wealth in Switzerland. “The main driving forces behind this evolution include, on the quantitative side, more sophisticated tools to manage risk and models that allow us to digest large chunks of data and, on the qualitative side, the ability to reach out to the local expertise on the ground. However, the distinction between good and bad performance still lies in the human factor and the ability to make sense of the data analysis to try to forecast the expected outcome.”

Investor circa 2030
In the future, Azure Wealth and other investment management firm’s will need to find new ways to meet the ever-evolving demands of their clients as the profile of the typical investor continues to evolve over time and become harder to pin down.

KPMG suggests there are likely to be far fewer ‘typical’ investors. Instead, the industry will benefit from being able to draw from a larger pool of investors, but will have to tailor their services to a investor class with a far more diverse set of needs, attitudes and income patterns.

The financial services firm believes that in the coming years, investors are going to expect the organisations to provide bespoke service models in order to better suit the individuals needs of this increasingly diverse group of investors. Not only that, but because financial literacy remains low around the world, investment managers may be expected to provide better advice, information, education and support for investors.

“In an industry currently suffering from high levels of consumer mistrust, investors are likely to assign increased value to trusted brands, particularly as awareness of issues such as data security, confidentiality and privacy increases”, writes the author of the report and global head of investment management at KPMG, Tom Brown. “In tomorrow’s world, simplicity, transparency, honesty and integrity are likely to be regarded as more important buying criteria.”

This is going to require investment management firms to change the manner in which they provide many of their services to clients. No longer will the fund factsheet be enough to satisfy the new 2030 investor that KPMG speaks of. Instead, investors will expect the type of access to information that they have become accustomed to and, which is provided by other industries. It will require the implementation of interactive service models that will allow investors to obtain up-to-date market information through a variety of platforms.

Brown and his colleagues believe that as a result, future investors are going to want better solutions to their individual needs and will want to ‘lock down’ value earlier in a product lifecycle. In order to track value and lock it down earlier, it is important that investment managers implement effective data analytics in order to provide investors with consistent returns.

“[Azure Wealth] has proprietary forecasting models that represent the different components of an integrated platform to be able to make a top down and bottom up analysis”, says Coelho. “This platform allows us to adjust our investment allocation and spot new investment opportunities in a consistent way. We believe in long-term objectives and by analysing the market trends we define an investment strategy based on fundamentals and not on market swings. We analyse carefully the risk associated with each component of our portfolio to allow us to have a combination that has consistent returns with reduced capital erosion.”

Core megatrend factors

Keeping pace
Digitisation is pervasive in all industry sectors and can be difficult to keep ahead of, but if used properly it can help firms offer alternative service models and better cater to the needs of their clients. Investment management is an industry that takes pride in cultivating strong, personal relationships, but is facing both challenges and new opportunities as technology shapes the expectation of individual and institutional investors.

While there will always be demand for face-to-face interaction between clients and those tasked with managing their capital, the growth and success of mobile applications, video and social media platforms means that they are becoming the preferred method for investors to stay abreast with market information.

Therefore, the application of digital technologies is essential if firms want to be successful. They must be willing to adopt, evolve and grow their use of these platforms and incorporate these systems into the very heart of how they do business if they hope to cater to their new, technologically savvy client base.

However, it is important to remember that real people with the right expertise should compliment new technologies in order to help investors makes sense of all the data that they will soon have at their finger tips if trends continue in their current trajectory.

“Although technology has evolved significantly, we still believe the human assessment plays a far more significant role to provide clients the risk-adjusted returns they expect”, explains Coelho. “Today we live in a world of high swings between high and low volatility periods.

We believe in long-term returns and believe these swings can generate good opportunities to make investments with strong fundamentals.” Over-spending by governments around the globe has created high levels of debt, which has led to the implementation of harsh austerity programmes in a bid to balance the budget.

As a result, more and more people are realising that their state and even private pensions are not going to be enough to support them later in life. This trend has and will continue to force people to look for viable investment alternatives that are capable of providing the financial security that people desire.

According to KPMG, this new generation of investors, as a result of the economic climate that they have grown up in, will be more likely and willing to consider non-traditional alternatives to ‘traditional’ savings and retirement products.

Furthermore, the financial services firm contends that investors’ decisions are not only going to be influenced by the current economic situation that they find themselves in, but also the choices they make are likely to be influenced their peers, friends and colleagues.

This provides investment managers with a massive opportunity to attract a new generation of investors with a very different set of motivations and needs. But in order to make the most out of this opportunity, investment managers will need to adapt their business practices in accordance to the demands of their clients.

“The future trend of the industry will take into account the aggregate value of each expert. In other words, we will see more cooperation between the different asset managers where each one will provide its knowledge and will rely on others for specialised knowledge on areas they will require support. There will be a new world of aggregate knowledge”, continues the KPMG report.

“Azure Wealth is built on the strong conviction of wealth preservation in the long term. Therefore, we see that more clients require the necessary support in a world of constant uncertainty and conflicting information. Azure Wealth is expected to have a strong growth as more and more clients recognise our added value”, says Coelho.

Kaiser Partner Vaduz on securing family finances

Posted on by Ashton Wenborn

There are numerous situations that can endanger your fortune as a wealthy family or entrepreneur. Some are exogenous and cannot be prevented, but can at least be mitigated. For example, this concerns the area of government influence, from taxation to deprivation and inflation. There is also the vast range of disruptions that can affect society, such as revolutions and changes to the current form of government, and subsequent loss of property and income streams.

Similarly, fraud and embezzlement can be committed by virtually anyone advising the entrepreneur, family or someone employed by the family. Bad business development can be the cause of external factors, as well as not having adapted the business model to the current environment. This ties in closely with advisors, who could have a conflict of interest and therefore misadvise the family and follow their own agenda.

Preventing unwanted wealth attrition requires diligent planning and coordination across many areas, including family mission, wealth advisory, tax and legal

The best resolution
Another internal field is the area of divorce and family conflict, which can cause years of lost effort and resources being mis-allocated. Family governance is also relevant, where we have seen families that did not have a common vision – and therefore a mutually agreed world-view – losing sight of the objective and see that their assets would dwindle. In our practice we observe that entrepreneurs who have a family – following strong intrinsic values – will be more successful in keeping the assets together.

The question is, what should happen to my assets after I am gone? It is common for entrepreneurs to ask themselves this question at a particular stage in their life, usually when nearing their preferred retirement age, which can be as early as 45 or as late as 85. To name just two of the many possible options for wealth succession, should an entrepreneur go for dynasty or charity? Either way, preventing unwanted wealth attrition requires diligent planning and coordination across many areas, including family mission, wealth advisory, tax and legal.

One effective way of addressing this emotive issue is to conduct an off-site meeting with all the family stakeholders under expert guidance. Such ‘wealth seminars’ are often used as a platform to clarify entrepreneur and family aspirations, motivations, and future plans. It is a useful tool for understanding what an entrepreneur has in mind, where the family as a whole currently stand, what the environment looks like now and how it might develop in the future. This can help address questions that are delicate and often raised too late.

Structuring debates
These seminars can also provide essential education for family members who have not so far been exposed to wealth management issues. In an open discussion led by experts, various themes can be addressed and appropriate solutions made. Themes that are typically covered include succession and estate planning, wealth planning and charitable work, and identifying intrinsic family values. These values are the very foundations on which dynasties are built.

Options and their consequences are discussed openly, sometimes with the entrepreneur alone, sometimes together with their spouse, children, and partners or even with the family as a whole. A modular approach can help adjust planning to specific needs and ensure no options are excluded. An open but structured discussion will result in a plan for the development of the family’s wealth, together with a list of open issues and viable courses of action. If the fundamentals can be agreed, the threats to a family’s wealth can be mitigated.

Could tax breaks be on the agenda for big oil companies?

Posted on by Ashton Wenborn

Reaching lows not seen since the 1970s, North Sea oil production has shown no signs of picking up since the late 90s, with some analysts going so far as to suggest that the field is on a knife edge of terminal decline. Blighted by the twin spectre of job cuts and early decommissioning works, those on the sour side of the Brent price slump have been calling on governments to expand their tax breaks and, in doing so, arrest the slide.

“The plummeting oil price has eaten into the margins of large oil and gas companies, and all around the world they are demanding a reduction in overall tax burden, especially on new projects”, says Ivetta Gerasimchuk, Senior Researcher for the International Institute for Sustainable Development. Generous tax cuts would hand struggling firms the impetus they so desperately need, or so say those affected. And for much the same reasons that minimal relief was deemed fit for an industry on the receiving end of rising prices, the opposite should stand for the other side of the coin.

Over the course of the last century, the US Government alone has exempted the fossil fuels business from over $470bn in tax

The announcement in March, therefore, that North Sea oil producers would benefit from additional tax cuts worth £1.3m ($2.02m) was greeted positively by an industry in need of a pick-me-up. With the costs rising and prospects worsening, the move has been received warmly by an industry for which a price shock has squeezed margins.

“Today’s announcement lays the foundations for the regeneration of the UK North Sea. The industry itself must now build on this by delivering the cost and efficiency improvements required to secure its competitiveness”, Malcolm Webb, Oil and Gas UK’s CEO, said of the news. “Along with substantial industry efforts to address its high-cost base and the regulatory changes now in train to provide more robust stewardship, the foresight shown by the Chancellor in introducing these measures, will, we believe pay real long-term dividends for the UK economy.”

Introduced on the basis that tax breaks have a major part to play in keeping the fossil fuels business afloat; by adding to the hundreds of billions shelled out already, the Chancellor has appeased producers though also rattled those who say the oil sector relies too heavily on government hand-outs. “It’s all so tiresome and predictable”, according to Nicholas Shaxton of the Tax Justice Network, and many critics of the same voice have taken pains recently to highlight the ways in which government tax subsidies are founded on a false premise.

Splashing the cash
Over the course of the last century, the US Government alone has exempted the fossil fuels business from over $470bn in tax, and the concessions granted to North Sea operators recently serve to underline the enduring influence of big oil in government policy. Introduced on the basis that a lesser tax burden will keep major names sweet and state contributions regular, the case of the North Sea serves to illustrate that tax relief does not necessarily dictate whether affected parties will stay the course, or indeed whether they’ll stay at all.

Going back to the beginning of the year, Royal Dutch Shell became the first major firm to toy with the idea of early decommissioning works when it started the consultation process in February. Likewise, Fairfield Energy announced in May that it was to begin decommissioning works of its own, “…taking into account the asset’s lifecycle, the depressed oil price and challenging operational conditions in the North Sea”, according to the firm’s CEO David Peattie.

The reasons for further tax cuts are that greater relief will offset, at least in part, a depressed oil price and difficult operational environment, though not all parties are convinced of the policy’s effectiveness. Feeding into a longstanding tradition whereby subsidies have sweetened the deal for struggling firms, the latest North Sea oil tax breaks have handed resident firms reason to continue with expensive projects, though at what cost is uncertain.

Making an appearance first in 1916 as a means of fuelling America’s budding romance with the automobile, much the same subsidies as those handed to the North Sea industry averaged at around $1.9bn (real terms) every year for the next 15 and set an expensive precedent for the decades to come. Since then the industry has changed immeasurably, though similarly generous tax breaks remain very much a constant for an industry struggling to reach the heights of old.

The big five, in BP, Chevron, Conoco-Phillips, ExxonMobil and Shell, are each in and among the most profitable firms on the planet (see Fig. 1), though continue to enjoy billions of dollars in tax breaks each year. One report published by Taxpayers for Common Sense (TCS) shows that in the period from 2009 through 2013, America’s 20 largest oil and gas companies paid a federal effective tax rate of only 24 percent. This is despite claims that the industry pays more than its fair share of the statutory rate of 35 percent, though only when factoring in both foreign and deferred taxes. According to the TCS study: “The American Petroleum Institute cites an industry-wide effective tax rate of 44.3 percent. In reality, the amount oil and gas companies pay in federal income tax is considerably less than the statutory rate of 35 percent, thanks to the convoluted system of tax provisions allowing them to avoid and defer federal income taxes.”

Criticisms of big oil’s special treatment have increased, though the fear holds that major names will simply up sticks and leave without the same concessions. The fact of the matter is still that the industry is one of the biggest contributors to not just US tax revenues, but to state coffers across the globe, and for as long as this is the case action on the point will be muted.

The big five's net profits

Handicapped no more
Many governments are loath to reconsider tax breaks, for fear of an industry backlash, though claims to this effect are increasingly falling on deaf ears. Saudi Arabia, Angola and a host of other such high-tax jurisdictions, are proof enough that excessive rates do not necessarily deter companies from drilling. Yet this point appears to have escaped those in mature economies, who are as yet unwilling to do the same, despite real and growing pressure to reconsider the century-old policy stance.

Nicholas Shaxson of the Tax Justice Network writes that tax cuts for big oil are a “truly silly idea”, namely because “this is about national policy. A tax is not a cost to a nation. It is a transfer within it. Let’s say there is a tax cut worth $5bn. That is a transfer from ordinary UK taxpayers (who will then have to suffer higher personal taxes, or higher deficits, or reduced public services) towards the mostly wealthy shareholders and executives of large oil firms. A large proportion of those shareholders are foreigners. So it’s a net transfer of wealth upwards, and out of the country.” Shaxson argues also that oil majors rarely relocate in search of a more accommodating tax environment, and emphasises that firms need only pay tax on profits, which in itself guarantees they are in good enough nick to take the hit.

More than any of these points, Shaxson notes that the prevailing low price environment presents an unparalleled opportunity for governments to funnel any proceeds towards renewables in place of fossil fuels. Governments from around the world offloaded $550bn on subsidising the production and consumption of fossil fuels last year, according to figures cited by The Economist, and the recent downturn serves as an opportunity to roll back any added incentive to invest in unviable finds.

Changing circumstances
“In our extensive work on energy subsidies, every time the Global Subsidies Initiative has looked at tax breaks and other subsidies to the oil and gas industry, we have found that they are by far not the best way to meet the stated policy objectives”, says Gerasimchuk. “Why create jobs, local contracts and rely on taxes from such a volatile industry? Why go through boom and bust all the time? Renewable energy can meet the same objectives more steadily and help ensure energy security, too. All that without the devastating externalities of oil spills and climate change.”

Having fallen foul of falling oil prices and the looming prospect of stranded assets recently, generous tax breaks for big oil do little to reflect the changed circumstances facing the industry. Higher taxes could prove beneficial both for recipient governments and oil majors, given that the contribution to state coffers would be greater and the inclination to invest in risky assets less. True, oil companies must improve efficiencies where they can in a climate where profits will understandably be less, though the burden should fall on them and not on governments to find the funds.