Year: 2018

CS Global Partners: Which citizenship by investment scheme is the best?

Posted on by World Finance

Citizenship and residence by investment consultants CS Global Partners help high net worth individuals find the right investment immigration programme for them. Andres Gutierrez explains the history of the citizenship by investment industry, the importance of the due diligence process that countries go through when assessing their potential citizens, and how to work out which programme is the best for you. In the second half of this interview he discusses the growing demand in the industry, why you might prefer a residence-by-investment programme over a citizenship-by-investment scheme, and what they future may hold as we change the ways we think about citizenship.

World Finance: What does the investment immigration industry encompass?

Andres Gutierrez: Investment immigration encompasses the legal processes of either acquiring residence or a citizenship, either by making a contribution to a government fund, or an investment into real estate.

The global existence of the investor immigration market goes back 30 years; it started with the Canada residence programme in 1986, and then that has led to the St Kitts programme in 1992, then the Dominica programme. These programmes enable different applicants further travelling on their side, and business opportunities, as well as driving foreign investment into these countries.

World Finance: There is a public perception that these golden visa programmes or golden passport programmes are: you pay your money and you get your citizenship; but it’s more complicated than that?

Andres Gutierrez: Yes indeed it is more complicated than that. There is a very strong due diligence process after the application is submitted to each particular country. And that due diligence part of each particular application is the key of the entire investor immigration market.

It is so important because most citizenship by investment programmes do not require the applicant to have a residence in the country, or to visit the country itself. So a very thorough, a very complete due diligence process is done in order to ensure that the applicant basically is who he or she really says. And that serves first to protect the investment of all the applicants – because at the end of the day, what the government wants, what the countries want, is entrepreneurs, business people, of high moral standards – that they endorse with these passports. And at the same time it is a measure of protecting their programmes and the investor immigration market as a whole.

World Finance: What else makes a good citizenship by investment programme?

Andres Gutierrez: There are many different factors. The CBI Index published by the Financial Times has mentioned for example affordability, timelines to citizenship, ease of processing, residence requirements. The longevity as well: a programme that has been around for a very long time, that has been operating for a very long time, ensures that improvements have been made to that process. That fine-tuning to the operations have been made as well. And it is a warranty at the end of the day.

So yes: I think those are the key things. And just to mention as well, the Commonwealth of Dominica citizenship by investment programme was ranked first in the CBI Index of the Financial Times.

World Finance: So would you say that’s the best?

The best programme… it depends on each particular applicant. The Dominica programme was ranked number one in the CBI Index; however, perhaps it is not aligned with the interests of the applicant, because perhaps they want to live in Europe, for example. Perhaps they are not interested in Dominica. So we focus our attention on understanding what the client needs, because a person that wants ease of doing business globally perhaps will tend to go for a Caribbean citizenship; while a person that, let’s say, has two or three kids and wants to live in the UK or in Europe, perhaps they are looking at a European CBI programme such as Cyprus.

So as advisors, it is understanding the needs of the client, and where do they want to go.

 

Top 5 of the fastest-growing industries in the world

Posted on by Millie Angel

As the world becomes increasingly advanced and interconnected, new sectors must keep up with the latest demands. From biotechnology to artificial intelligence, we count down five of the fastest growing industries.

1 – Renewable energy
The price of renewable energy such as solar and wind power has declined in recent years and become more affordable, meaning that green power is now being seen as a more feasible option for many countries and companies. Global tech company Samsung has committed to using only renewable power by 2020 in the US, Europe and China. Additionally, the EU has raised its target of having 32 percent of its total energy use being green power by 2030 – after pressure from the UK, France, Spain and Italy. The renewable energy market is particularly successful because unlike other power industries, its sources won’t run out. The growth of this industry is so fast that the renewable energy market is already worth $1.35bn.

2 – Cybersecurity
As people and businesses turn online for their data and finances, so do cyber thieves. In 2017, in the UK alone, there were 4.7 million cyber crime cases, making cyber security more important than ever before. By using databases, networks, hardware, firewalls and encryption, cyber security teams can ensure that systems run smoothly, block intruders and stop any information or money from being stolen. Cyber security is now in such high demand, that experts predict that the global market will be worth $165.2bn by 2023.

3 – Biotechnology
Biotechnology is extremely useful in the modern day as it can be used to generate higher crop yields, which is crucial in a world where the population is rapidly increasing. Moreover, biotechnology can cure genetic diseases by manipulating genes, improving the quality of countless people’s lives. Modern biotechnology was first used by Karoly Ereky, a Hungarian architectural engineer in 1919, when he began to convert raw materials into more useful products. The need for biotechnology is in such high demand that the market is estimated to be worth $727.1bn by 2025 with a growth rate of 7.4 percent.

4 – Virtual reality
Virtual reality was first introduced into the market in the early 1990s, and from there the industry quickly went from strength to strength. Virtual reality is not just used for entertainment purposes: it is used by the military, in sport as a training aid and even in mental health to help patients deal with past trauma and severe phobias. The size of the virtual reality industry has practically doubled each year, from being worth $6.1bn in 2016 to $14.1bn in 2017. The market’s rapid growth making it an extremely successful and fast growing industry not only to be in, but also to invest in.

5 – Artificial intelligence
Artificial intelligence is another industry that has rapidly grown, with its main pioneers located in China, Singapore and Hong Kong. From creating artificial intelligence that is able to smell disease, to being able to predict when you are going to die with a 95 percent accuracy, to Amazon Alexa, this sector is always creating new and improved technology. This competitive market will be worth almost $9bn by 2025.

Shaping tax policies to meet the requirements of the digital age

Posted on by Emily

In recent years, executives of multinational companies have grown all too accustomed to warnings of disruption, their organisations scrambling to adapt to the numerous threats and opportunities presented by breakthroughs in digital technology. These challenges have dominated business in the digital era, and yet such challenges could soon be lessened by corresponding changes in policy. If the digital economy taxation proposals put forward by the European Commission (EC) and the Organisation for Economic Cooperation and Development (OECD) come to pass, businesses will have to work hard to comply with the new regulations.

Policymakers need to be aware that tax authorities are aggressively pursuing new ways of capturing revenue in the digital era

Most analysis of these potential tax policy changes inevitably focuses on how the disruption will affect the practices – and bottom lines – of a handful of large, US-based technology companies. It is important to keep in mind, however, that these changes will affect more and more companies as they undergo digital transformations and derive even greater value from their data assets and digital transactions.

According to a recent PwC bulletin: “Digitalisation is resulting in significant changes to economies – and tax bases. The influence has spread far beyond the digital economy; the digital economy increasingly is the economy, and it cannot be ringfenced. Any changes will, therefore, impact all businesses, however narrowly policymakers try to draw them.”

It’s important, then, to recognise the risks and ripple effects that may be coming down the pike, especially at a time when global companies are striving to understand, prepare for and respond to other major changes in traditional tax law. These changes include the EU’s proposed overhaul of its value-added tax rules, the US Tax Cuts and Jobs Act, and the US Supreme Court’s decision regarding the implementation of a digital sales tax in South Dakota vs Wayfair which, at the time of writing, has yet to reach a verdict.

The risks of ringfencing
It was a busy spring for tax policymakers. In mid-March, the OECD released its Tax Challenges Arising from Digitalisation – Interim Report 2018 as part of an ongoing effort to prepare businesses for impending tax changes via its base erosion and profit shifting (BEPS) action plan. The report offers insights on “certain highly digitalised business models and [focuses on] value creation in the digitalised age”, examining the shortcomings of the existing international tax framework and the complex issues we face in moving towards a long-term solution. The report also discusses some unilateral interim digital taxation measures put forward by individual countries. On this matter, however, the report notes: “There [has been] no consensus on the need for, or merits of, interim measures, with a number of countries opposed to such measures on the basis that they will give rise to risks and adverse consequences.”

Shortly after the release of the Interim Report, the EC proposed two new rules to ensure that digital activities were “taxed in a fair and growth-friendly way in the EU”. The first legislative proposal, which the EC describes as its “preferred long-term solution”, calls for profits to be registered and taxed where businesses have significant interaction with users through digital channels, in accordance with new digital presence criteria. The second proposal, meanwhile, calls for an interim tax that “covers the main digital activities that currently escape tax altogether in the EU”. This would be primarily achieved by taxing the sale of online advertising space, digital intermediary activities and the sale of data generated from user-provided information.

Policymakers must also be wary of the wholesale changes major revisions in tax policy are likely to give rise to

The EC’s proposals could have a major impact on a relatively small group of large US technology companies. In one particularly strident response to the EC’s proposals, the editorial board at The Wall Street Journal wrote: “For ‘large tech firms’ you should read ‘American companies’, since the rules are tailored to apply to the likes of Amazon, Apple, Google and Facebook. The tax proposal ensnares companies that sell digital advertising or provide a platform for online trade between third parties.”

The Silicon Valley Tax Directors Group (SVTDG) has also been quick to point out that, despite the OECD’s assertion in its original BEPS report that the digital economy could not be ringfenced, the taxation options it has recently requested comments on achieve just that.

Policing policy
While the digital economy taxation proposals put forward by the OECD and the EC would clearly affect US tech giants, the impact of these measures would extend well beyond this small group of companies if adopted. For this reason, the business and tax leaders of multinational companies should already be planning for both the immediate and long-term future with these potential changes in mind.

First of all, policymakers need to be aware that tax authorities – not just the OECD and the EC – are aggressively pursuing new ways of capturing revenue in the digital era. To make matters even more complicated, some countries and economic blocs prefer not – or appear unwilling – to wait for a multilateral solution. This is why the EC emphasised the need to “urgently bring… tax rules into the 21st century” when it announced its own digital taxation proposals.

Without a multilateral solution in place, organisations will be keen to avoid double taxation or, even more detrimentally, multiple taxation. While many leaders of multinational companies recognise that tax authorities will subject the digital economy to some type of formulary apportionment, they should have serious concerns regarding the extent to which new rules will upend existing business models and processes. Many executives have previously raised concerns that the information contained in the BEPS country-by-country reports their companies file could be used to establish this formulary apportionment, instead of the transfer pricing practices normally used to determine the portion of profit each country receives. If business leaders fail to put adequate plans in place to effectively account for these changes, their companies could face the very real possibility of multiple taxation.

Policymakers must also be wary of the wholesale changes major revisions in tax policy are likely to give rise to. For decades, companies have invested heavily in their systems so as to comply with the current regime’s tax rules, setting up structures for selling products, such as limited risk distribution subsidiaries, and storing data in ways that align with sourcing regulations. If enacted, many of the proposed changes would spark disruptions and upend these long-standing business models.

Task at hand
According to a comment letter from the SVTDG to the OECD’s Task Force on the Digital Economy, a number of the measures the OECD is considering could have potentially massive – and detrimental – effects on companies, as well as on many OECD countries. When the OECD’s task force meets this summer, it will consider other sweeping changes, such as taxing databases according to the country of residence of the citizen whose data has been entered into said database. This type of policy shift would represent a sea change in how intangible assets are treated from a taxation perspective. If such a scenario comes to pass, a growing digital company that has yet to turn a profit could face a major tax burden and be forced to rethink its operating model.

Regardless of how the digital economy taxation proposals progress, it seems likely that global tax authorities will increase their focus on transaction taxes as a key revenue lever

As such, the management of tax data will become more important than ever. Strategies, processes and supporting technologies within tax functions will need to be re-evaluated and updated to accommodate new taxes on digital transactions and/or digital assets. The importance of tax data will rise in tandem with the emergence of each new tax remittance and reporting obligation, requiring tax functions to exert as much control over their own data as possible in order to ensure accuracy and limit the risk of noncompliance.

The OECD’s Interim Report emphasises that three areas of importance for multinational companies and their tax departments have yet to be addressed by the task force. These are: business tax functions; people and systems required to use financial data; and the impact of technology on tax administrations, including the improvement of taxpayer services and the reduction of compliance burdens. The OECD does, however, recognise that these areas require more attention. Automated technology can greatly improve data management and transparency, while also accelerating efficiency and accuracy. The improved governance control and risk management that technology can provide will benefit organisations globally.

Regardless of how the digital economy taxation proposals from the OECD and EC progress, it seems likely that global tax authorities will increase their focus on transaction taxes as a key revenue lever. As governments look to meet revenue needs in the near future, it’s safe to assume transaction taxes will be in their crosshairs. How much additional disruption this will cause to existing business models, however, remains to be seen.

For more information go to the vertex website

How Liechtenstein Bankers Association uses technology to drive sustainability

Posted on by Max Tomlin

For decades, technology has been a key driver of change in the financial services sector, but today, digital developments are accelerating such change. Innovations such as cloud computing, big data analytics, artificial intelligence and distributed ledger technology offer new opportunities that could foster radical change in the financial sector.

The mobilisation of private wealth is crucial if the UN’s sustainability goals are to be met

Digitalisation is set to revolutionise the finance world, breaking up value chains and altering business models. It holds tremendous potential for financial service providers to increase efficiency and improve customer relationships. In the meantime, regulators are struggling to keep up with the pace of developments. While often less regulation is sought in certain areas, market participants are pushing for clearer rules to provide legal and planning certainty.

The European Commission has responded to calls to fill the current regulatory gap with its fintech action plan, which was published in March. The document sets out a range of measures aiming to encourage and simplify the emergence of new solutions and enable innovative business models to scale up. It also sets out to increase cyber-resilience, thereby preserving the integrity of the financial system while helping the sector manage risks and cope with change.

With digitalisation allowing companies to hold and use more consumer data than ever, it is essential that such information is kept secure. In an attempt to ensure just this, the General Data Protection Regulation (GDPR) – which is designed to protect citizens’ data within the European Single Market, regardless of where the data is processed – came into force in May. Complying with GDPR while also meeting customers’ new, digitally focused expectations requires appropriate managerial structures, operational processes and data governance.

Sustainability goals
As well as digitalisation, another equally important issue is increasingly occupying the financial industry: sustainability. After the Paris Agreement and the United Nations’ adoption of the Sustainable Development Goals (SDGs) in 2015, the discussion on sustainability gained new focus. The SDGs include targets such as providing affordable clean energy, ending poverty and ensuring access to clean water and sanitation. The goals have, for the first time, combined social and environmental concerns into a single agenda.

This approach recognises that sustainability and economic development programmes can work in harmony. Nearly in parallel with the FinTech Action Plan, the European Commission presented its Action Plan on sustainable finance and financing sustainable growth for a more sustainable financial system. The plan states that roughly €180bn ($214bn) in additional investment will be needed in the EU alone to meet the agreed climate targets. PwC, meanwhile, has estimated the global annual investment required to meet the SDGs to be a hefty $7trn. However, even if the financial demands of the SDGs are met, the real test of success – implementation – is yet to come. The UN can only achieve the SDGs if states, businesses, local communities and individuals play their part. However, at present, governments are only spending one seventh of the amount required, most of which has come from the private sector.

To overcome the challenges of achieving sustainable development, be it in social or ecological matters, we not only need a strong political system, but also businesses that act sustainably and make their own contributions via structural change and technological innovation. The financial sector has significant responsibilities and an important role to play in the necessary transformation, particularly in terms of allocating capital.

A question of allocation
The mobilisation of private wealth is crucial if the UN’s sustainability goals are to be met. According to Deutsche Bank, in 2015 the global wealth of private households amounted to a total of $250trn. Worldwide, the assets managed by institutional investors – such as pension schemes and investment funds – amount to approximately $83trn, according to OECD estimates. Private and institutional investors both tend to be focused on long-term results, as do the sustainability goals themselves. Accordingly, their wealth could be employed worldwide to ensure access to education, promote health, bring affordable clean energy, support infrastructure projects and fund climate protection. Sufficient capital is available; it’s merely a question of how it’s allocated.

While sustainable investments become increasingly important to private investors, the majority of institutional investors already believe that sustainable investments increase risk-adjusted yield. There are still constraints preventing private investors and investment entities from integrating sustainability into their decision-making processes. To further encourage sustainable investments, we need to increase both awareness and acceptance of the fact that environmental and social responsibility doesn’t mean renouncing economic returns. This erroneous belief is still rooted in the minds of investors and product providers, despite numerous studies showing that sustainable investments bring better financial returns in the long term.

The next generation
Considering that 460 billionaires will be leaving some $2.1trn in wealth to younger generations in the next 20 years, it’s clear that the financial sector’s evolution towards sustainability requires commitment not only on the part of financial intermediaries – who are creators and brokers of sustainable investment products – but also among high-net-worth individuals, who will be making significant investments. Studies have found that younger generations are increasingly motivated by an interest in changing the environment and society for the better, rather than purely material wealth. This is the same generation for whom the use of digital technology is a matter of course in everyday life. Digitalisation and sustainability are thus more than just trends; they are complex issues that financial firms absolutely must come to grips with to survive in the marketplace in the long term. Neither is more pertinent than the other; both will determine the industry’s agenda over the coming years.

For change to happen, however, there is a pressing need for action, information and education. The financial industry plays an essential role in this regard. It is apparent that leadership at the top of every financial institution is needed to drive change and accept responsibility – both today and for future generations. Fortunately, ongoing digitalisation presents opportunities to tackle these issues through developments such as new educational tools and the ability to reach out to previously excluded individuals via innovative channels.

Liechtenstein can lead
The country of Liechtenstein – a financial centre in the heart of Europe with an international focus – is evidence that small national economies can make an important contribution to reaching the SDGs, as well as achieving stability and sustainability in general. With its 38,000 inhabitants, Liechtenstein offers the institutional framework for sustainable development: excellent economic growth, low CO2 emissions and fast, unbureaucratic channels to support capable and adaptable behaviour. These factors alone give Liechtenstein an advantage over larger economies in terms of initiating and achieving sustainability.

With its balanced, debt-free national budget and AAA country rating from S&P, Liechtenstein is one of the most stable global economies. Accordingly, the country has proven to be a reliable partner to the international community over the years. This can be seen in its participation in the exchange of information, its effective measures against money laundering and terrorist financing, and the implementation of international regulations. With more than 1,300 non-profit foundations and many years of experience in wealth management, the Liechtenstein financial centre is well suited to taking on a significant role in the responsible investment of assets. It serves as an important bridge between investors looking to invest their money in a meaningful way and the financing gap that sustainable investment is experiencing.

The fire still burns for the coal industry

Posted on by Emily

Late last year, a Dutch energy provider announced plans to create an artificial island in the North Sea that would supply several countries in Northern Europe with clean wind energy. Meanwhile, over in the US, renewables’ proportion of the country’s energy mix has increased from nine percent to 18 percent over the past 10 years. During 2017, global investment in solar power was greater than that in all fossil fuel sources combined. But not everyone is committing to going green – not yet, anyway.

When it comes to heating homes, powering industry and keeping the lights on, coal is still seen as the safe choice in many parts of the world

In March this year, Swiss mining firm Glencore purchased the Hail Creek coal mine in Queensland, North-East Australia, for $1.7bn. The move represents a significant fossil fuel commitment at a time when many other businesses – even those in the petrochemical industry – are exploring alternative sources of energy. It also comes off the back of the firm’s $1.1bn investment in another Australian mine, Hunter Valley, last year. Glencore is not expanding its coal operation as part of some fondness for carbon emissions and pollution; it is doing so because it makes economic sense.

Despite the rightly lauded gains that have been made in the renewable energy market, coal continues to contribute a significant proportion of the world’s global energy consumption. While many political actors based in developed countries have called for the fuel to be dropped entirely, in other markets – particularly Asia – coal use is on the rise. Collectively, the abundance, cost and diversity of coal deposits have helped to ensure the fuel’s resilience. Whether or not coal can continue to stave off competition from rival power sources will depend on its ability to grow in developing markets, but it certainly seems as though this particular fossil fuel isn’t going away anytime soon.

Back from the dead
The environmental damage caused by the coal industry has been known for decades. Since the 1970s, efforts to reduce the harmful pollutants produced by burning coal – notably nitrogen oxides and sulphur dioxide – have gained traction the world over. At the same time, technological developments in solar, wind and other green energy sources have caused their share of the global energy composition to increase. And yet, coal appears to be sticking around. In fact, Carlos Fernández Alvarez, Senior Coal Analyst at the International Energy Agency (IEA), explained in an interview with World Finance that the industry has a “long-term outlook” stretching to 2040 and beyond.

“There is a mixture of causes for the resilience of the coal market,” Alvarez added. “Abundance is a very important reason and helps to explain why China, India and even the US continue to rely on coal to produce electricity. The cost is important, of course, as is logistics. Coal is relatively straightforward to store, which is another advantage it has compared with rival energy sources.”

Alvarez’s optimism is justified given that the coal sector experienced a buoyant 2017, with global demand increasing by one percent. When this is coupled with the fact that coal still accounts for 40 percent of the world’s electricity generation and supplies around a third of its total energy, it points to an industry that is not simply hanging on; it is actually enjoying something of a revival.

Part of the reason why coal appears to be on the comeback trail is that other energy sources are not yet ready to handle the weight of the world’s energy needs. Renewables like wind, solar and hydroelectric power are intermittent and depend on meteorological factors that are outside of human control. In contrast, coal is the most abundant energy resource on the planet, with more than 892 billion tonnes of proven reserves worldwide. The fact that many of the world’s coal deposits reside in politically stable countries like the US provides another boost to its reliability. Additionally, unlike gas and oil, coal does not require costly pipelines or other infrastructural developments that can create supply bottlenecks.

Although it is also tempting to attribute coal’s improved fortunes to Donald Trump’s blasé attitude to climate change, the impact of the president’s rhetoric has been minor. Growing energy demand in emerging markets is a much more likely reason for coal’s recent uptick: in developing countries, electricity demand is growing so fast the reliability of coal is preferred, even if its polluting by-products are not.

Keeping the lights on
Despite demand for coal rising slightly – or remaining stable at the very least – the world’s major coal suppliers, apart from Indonesia, Russia and the US, were unable to increase production in 2017. This has precipitated a global increase in the price of thermal coal – something that caused Minergy CEO Andre Bojé to claim back in April that there has “never been a better time to invest in coal”. If that is true, it’s almost entirely a result of rapidly expanding economies in Asia.

Economic growth in China and India pushed up global energy demand by over two percent in 2017, much of which was met by fossil fuels. Coal still accounts for 40 percent of all energy consumption in emerging markets, with China the world’s largest consumer and India one of the few major economies committed to increasing its consumption. According to Alvarez, it’s almost possible to draw a line east of Germany between the countries that are moving away from coal and those that are not yet able to.

“Emerging markets are absolutely vital to the coal industry,” Alvarez explained. “To give you a simple figure that illustrates this: in 2000, one quarter of the coal in the world was used in Europe, another quarter in North America and half was used in Asia. In 2015, the figures were one quarter being used in Europe and North America combined, and three quarters in Asia. This shift is going to continue. In Western Europe, most countries have committed to phasing out coal for power generation by 2030 at the latest.”

Last year, energy companies from every EU nation besides Germany and Poland pledged that no new coal-fired power plants would be built after 2020. The decommissioning of existing plants is also underway across the bloc. In Asian markets, however, it’s a different story. In China, 692GW of coal-fired capacity was commissioned between 2006 and 2017 – more than twice the amount authorised in the rest of the world combined. India, a distant second, added 152GW over the same period. Even Japan, one of the world’s most developed economies, has plans to open 36 new coal plants over the next decade – although this is partly a backlash against nuclear power following the 2011 Fukushima disaster.

Coal’s strong showing in Asia is largely attributable to the continent’s sustained economic growth. Although Chinese investment in green energy sources is beginning to eat into coal’s market share somewhat, in India power derived from coal is expected to grow until 2022. This is being driven by GDP growth of almost eight percent a year and a need to deliver power to the 240 million Indians who remain without a reliable supply of electricity. When it comes to heating homes, powering industry and keeping the lights on, coal is still seen as the safe choice in many parts of the world.

A bit rich
If Asia does continue to rely on coal for its energy needs, it will have to accept disapproving sound bites from the West. Of course, international pressure from developed economies is well meaning: the Clean Air Task Force estimates that 13,000 people die every year from coal pollution in the US alone. Smog is already a major issue in many of Asia’s biggest cities, and the much-publicised impact of carbon emissions on global temperatures also needs to be confronted.

And yet, lecturing developing economies on their coal usage can come across as hypocritical, particularly when carbon emissions per capita are often higher in western nations than they are in the likes of China and India. Considering that emerging economies are simply treading the same development path that post-industrial nations took many decades ago, it is hardly surprising that some nations put environmental ambitions to one side in favour of their economic ones.

It is, in Alvarez’s words, “a very sensitive issue” that must be assessed on a country-by-country basis. “In the short to medium term, it is not realistic to think that coal is going to end as a means of electricity generation. Although you cannot oppose initiatives to reduce CO2 emissions, in China, India and elsewhere, coal is still very much needed.”

One possible way for developing countries to embrace greener energy principles without jeopardising growth is to invest in clean coal technologies. One of the most promising is carbon capture and storage (CCS), where carbon dioxide emissions from fossil fuels are prevented from entering the atmosphere, but the technology has gained little traction in spite of government incentives encouraging its use.

“If you go back a few decades, coal power plants produced a lot of emissions,” Alvarez said. “Now, many plants have the equipment to clean local pollutants. In Japan and China, for example, there are coal power plants whose emissions are lower than gas plants. Unfortunately, there are not many plants around the world that are using CCS solutions.”

In the end, simple economics may drive the debate between renewable advocates and coal proponents into irrelevancy. As the demand for coal outstrips its supply, costs are likely to increase, pushing markets to explore renewable offerings instead. Electricity costs from large-scale solar projects have fallen by 73 percent since 2010, while wind, hydropower and geothermal energy are following a similar path. By 2020, all renewable sources currently in commercial use are predicted to fall to the same cost range as fossil fuels.

Of course, predictions are not always accurate. Worldwide, the IEA expects coal’s share of the energy mix to shrink only marginally, from 27 percent last year to 26 percent by 2022. Similarly, in 2013, the US Energy Information Administration claimed that global demand for coal would increase 39 percent by 2040. It has since revised its figure to just one percent. So while coal’s resurgence could be part of a longer trend that sees it remain a staple of the energy landscape for decades to come, it could equally experience a faster-than-expected decline.

For the planet’s sake, many will be hoping that the latter is closer to the truth. For this to be the case, governments in rapidly developing countries should look to funnel some of their GDP growth into renewable subsidies that support new green developments. A long-term approach must be prioritised – one that not only compares energy sources along price lines, but considers environmental and health implications too. If countries around the world can achieve this without hampering growth, then last year’s bullish coal market could represent the death throes of a fuel finally on its way out, rather than a sustained revival.

African Free Trade Area agreement poised to revolutionise the continent’s trade

Posted on by Emily

The African continent is one of huge untapped potential. Despite its rich supply of natural resources and its large, youthful population, it continues to lag behind most of the world in terms of economic development. The combined GDP of Africa’s 50-plus countries, based on purchasing power parity, is equal to roughly a third of the US’.

The causes of Africa’s struggles are deep-rooted, varied and not easily solved

Recently, however, one particular challenge has received increased attention: trade. Back in March, at an African Union summit held in Rwanda, a major breakthrough was made that could revolutionise the continent’s economy. During the session, 44 countries signed up to a continent-wide free trade agreement that, if ratified, will create the largest single market in the world.

The African Continental Free Trade Area (CFTA) hopes to modernise a trading landscape that remains hampered by high tariffs, outdated (or non-existent) infrastructure and regional fragmentation. If it is successful, it will become the largest free trade zone in the world and could play a leading role in lifting millions out of poverty. Progress, however, will be hard-won. The first challenge is convincing the 11 national governments that refused to sign the CFTA to change their minds – including two of Africa’s largest economies: Nigeria and South Africa.

Sharing is caring
Africa’s need for greater intracontinental trade is well documented. Existing trading networks range from the relatively liberal to the stubbornly protectionist. In the worst examples, exporters are forced to wait at border crossings for weeks and businesses choose to transport goods to neighbouring countries via EU middlemen to avoid bureaucratic hurdles. Such inefficiencies cause delays and create an unfavourable business climate. If investors choose to put their money into markets elsewhere, few could blame them. The CFTA hopes to solve some of these issues by creating a single continental market for goods and services. Free movement is one of the project’s main aims, along with reducing tariffs on 90 percent of goods. Plans to create a customs union in the not-too-distant future will also help support and promote regional value chains.

Michael Kottoh, Chief Strategist of the AfroChampions Initiative, a pan-African platform aimed at boosting economic integration on the continent, believes that the CFTA will deliver a number of benefits to the region. “African businesses are now confronted with an average tariff of 6.1 percent,” Kottoh told World Finance. “These tariffs are often higher for intra-African exports than they are for exports outside the continent. By eliminating tariffs on intra-African trade, it will become easier for businesses to trade within the continent, and leverage opportunities from neighbouring or more distant African countries.”

The CFTA should also foster closer collaboration between African countries, creating a more inclusive business environment. The free movement of goods, people and services will naturally lead to a spread of new ideas as well. By sharing data across borders, African entrepreneurs will have access to more detailed business intelligence, enabling them to scale up their own projects and accelerate the spread of technology across the continent.

Economic coordination will also create its own advantages. “The design of economic plans by African nations in isolation from one another has led to a complete lack of synergies between countries,” Kottoh said. “This has led to a climate of unnecessary and sometimes harmful competition between neighbouring countries in their bid to attract foreign investment.” The CFTA will look to replace the existing spirit of economic rivalry with one of regional cooperation.

Despite its growing number of detractors in the West, free trade has been a significant driver of economic growth and – globally, at least – has reduced inequality on a huge scale. The UN’s Economic Commission on Africa predicts that the CFTA will increase intra-African trade by 52.3 percent, with this figure set to double upon the further removal of non-tariff barriers. A more liberal trading system would not only support existing businesses, it would drive investment and benefit people spread across the continent.

Existing trading networks range from the relatively liberal to the stubbornly protectionist

Same old, same old
If the CFTA is to have its desired impact, it will need to do more than simply replicate the meagre gains currently being provided by Africa’s existing intracontinental trade agreements. Presently, Africa is home to eight regional economic communities (RECs), many of which overlap and each of which possesses its own rules and objectives.

Two of the more successful trading areas – the Economic Community of West African States and the Common Market for Eastern and Southern Africa – have proved somewhat successful in their efforts to promote trade with markets further afield, but intra-African trade remains low. When compared with trading blocs in Europe, Asia and elsewhere, intra-African trade is modest at best. As of 2016, intra-EU trade represented 65 percent of the region’s total, while in Africa the respective figure stood at just 18 percent.

“The issue is, for any REC to succeed, there needs to be a multidimensional approach to economic integration,” Kottoh explained. “There has been too much of a focus on trade alone in the past without acknowledging the importance of trade enablers. Effective trade requires coordination on economic and monetary policies, financial alignment and some interoperability of various national instruments and legislation.”

The overlapping and competing interests of the various RECs do not help simplify trade in a part of the world that is already rife with complexity. Currently, 31 African countries are members of two RECs and nine are members of three. The fragmentary nature of Africa’s trading network discourages legitimate economic activity and is partly responsible for the growth of informal cross-border trade – estimated to be worth 43 percent of Africa’s GDP.

The CFTA will undoubtedly streamline Africa’s trading landscape, but creating a rules-based business environment is one thing; adhering to it is another. The East African Community, another of the continent’s RECs, has had some success in creating a common market, but even so, it’s not unheard of for Tanzanian border officials to seize Kenyan imports seemingly without reason. If a civilised trading system cannot be maintained in a six-country bloc, then what hope is there for a continent-wide agreement?

Supplanting the RECs with the CFTA is not a panacea. Infrastructural development and investment facilitation, both of which are in drastic need of reform in many African nations, must be improved. The lack of a developed manufacturing industry in many states will also limit the benefits available.

However, Kottoh believes that these issues “depend more on the policies of individual states than RECs”. The CFTA will need to build on the work of RECs by pushing countries to engage in closer economic and regulatory alignment. National governments cannot simply rely on the CFTA and the African Union to clear all their trading hurdles for them. Promoting intracontinental trade will require a concerted effort on the part of politicians, NGOs and entrepreneurs alike.

A model to follow
March’s CFTA summit saw 44 signatories commit to introducing the free trade area within 18 months. In order for this to occur, at least 22 countries must formally ratify the agreement through their national parliaments. Kenya became the first to do so in early May, but it is already apparent that some nations will take more persuading than others.

During the aforementioned African Union meeting, Nigeria and South Africa were the most noteworthy states to reject the CFTA outright. With their combined GDP figures equalling almost a third of the entire continent’s, encouraging these two countries to sign on the dotted line would provide a huge boost for free trade in Africa.

South African trade minister Rob Davies has expressed reservations about the agreement, and has asked for some of its more vague areas to be fleshed out. Even so, the national government in Cape Town has shown every intention of joining the CFTA. However, President of Nigeria Muhammadu Buhari provided less cause for optimism when he used his official Twitter account to rail against anything that would “lead to Nigeria becoming a dumping ground for finished goods.”

The Nigerian Government is perhaps concerned that its export strength, outside of its robust petroleum industry, remains too underdeveloped to open its borders up to further competition. More generally, the huge economic disparity across Africa could deter the continent’s stronger economies from joining. Still, it is Kottoh’s view that “convincing reluctant countries is largely about giving them more time to evaluate the details of the agreement”.

Even if the African economies that have so far abstained from the pact do change their minds, challenges will remain for the CFTA. Fortunately, there already exists a free trade area that could serve as a model for Africa’s own. The EU has demonstrated the many benefits that single markets can deliver and, just as Europeans have benefitted from cross-border innovation for decades now, it is hoped that the CFTA will give individuals from Cairo to Kinshasa the opportunity to enjoy the same advantages.

“The overlapping and competing interests of the various RECs do not help simplify trade in a part of the world that is already rife with complexity”

Part of the reason why the EU provides such a good example for the CFTA to follow is because of its well-established frameworks, systems and institutions. Through regulatory alignment, it provides rules for businesses to follow and sanctions for those that fail to do so. Through the European Commission and the European Court of Justice, the EU has created a rules-based trading system that is just as important for the bloc’s economic wellbeing as the single market or customs union.

“The EU judicial system has been instrumental in facilitating the mutual recognition of goods and services and defining rules of origins,” Kottoh explained. “So, creating a strong incentive for compliance within the CFTA is something we will have to think about. What we can learn from the EU and other free trade areas is that you need to consider all dimensions of economic integration if you really want it to succeed.”

The EU, of course, is not perfect. Wage depression resulting from free movement could be negatively replicated in Africa, and national economies may bristle at having to shape their domestic policies to fit within supranational frameworks. But the EU is also not static: it is constantly evolving and adapting to the needs of its member states. There is no reason that the CFTA could not do the same.

If Nigeria is worried that a lack of strong controls around the CFTA’s outer border will allow unscrupulous companies to flood its market with cheap imports, then it is the job of the African Union to convince it otherwise. Rules need to be discussed and properly enforced at the local level if, as Kottoh believes, the CFTA is to be viewed “as a good and fair deal for all countries”. Only then can Africa’s potential be unlocked, without free trade descending into a free-for-all.

Wema Bank is shaping the future with launch of pioneering ALAT

Posted on by Emily

Crowded banking halls, long queues at ATMs and a daunting amount of paperwork: these have long been the hallmarks of banking in Nigeria. For even the most resilient person, a trip to the bank is an overwhelmingly stressful experience. It is also something that people go through often, with many regular banking tasks still requiring a physical visit to a branch. While advances in digital technology have opened up new channels and mean there are fewer reasons to visit, their functionality is limited. For everything beyond the most simple transactions, enduring a visit is still a necessity.

As the convergence unfolds at Wema Bank, a far-reaching strategy for transforming the entirety of the Nigerian banking experience is slowly crystallising

This status quo is mirrored on the back end of banking operations as well. Behind-the-scenes processes are typically sluggish, which leads to very long wait times. This all adds up to create a seemingly unending list of frustrations for the average customer.

Quantity isn’t quality
While many Nigerian banks have committed a significant amount of resources to making banking more convenient for their customers, they have primarily approached it by expanding the footprint of their branches. By building more physical locations, they hope to better accommodate the daily flood of people visiting to complete transactions, open accounts and resolve any other issues that may arise. But the drawbacks of physical expansion far outweigh the benefits. An increase in the number of branches may help a bank manage the number of customers it has to deal with every day and increase its brand presence, but ever-growing building and maintenance costs diminish any potential gains. Add in the necessary investment in human resources needed to support additional branches, and any physical expansion becomes a risk on the bottom line of a bank.

As well as adding branches, several banks in Nigeria have made varying degrees of commitment to furthering some sort of digital banking strategy. Mostly, their efforts involve deploying a combination of internet banking services, mobile apps for smartphones and creating an Unstructured Supplementary Service Data (USSD) portal for GSM mobile phone users. Unfortunately, the success of these digital channels has been limited; their high cost combined with the limited penetration of internet connectivity in Nigeria has hampered their success. The channels themselves have also proved to be inconsistent and unreliable at times. Consequently, more uptake has been seen in the use of USSD than all other internet-dependent channels combined.

But USSD is not without its limitations and, while its usage is increasing, it has not been able to stem the tide of customers making their way to the banking halls. The Nigerian banking experience is ripe for disruption, and innovation has recently appeared from what many would have considered the most unlikely source.

The digital pivot
Wema Bank, the oldest indigenous bank in Nigeria, faced a conundrum for many years: while it desperately needed to achieve profitability by acquiring more customers, it could not afford the massive expense that would be required to expand its network of branches. To make the bank’s situation even more dire, the Wema brand is not what it used to be. Over the years it has been overtaken by more youthful financial brands, and for a while now has been considered unattractive by a majority of Nigeria’s Millennial population. With these people representing the future of the bank, a change was necessary to ensure the bank’s survival.

Pressed for time and struggling to stay afloat, Wema Bank took a bold step that caught the rest of Nigeria’s banking industry sleeping. In May 2017, Wema Bank offered a fresh and exciting perspective on the Nigerian banking experience with the launch of ALAT, the first entirely digital bank – not just in the country, but one of the first in Africa as well.

Built from the ground up to be a branchless, paperless bank, ALAT completely removes the need for commencing or completing transactions at a physical location. Signing up begins with downloading the bank’s app, available on both Android and iOS, or visiting its web application. Registration is completed by uploading a selfie and a photo of one’s signature, as well as other identification documents. With an average sign-up time of only five minutes, ALAT has revolutionised the process of opening a bank account in Nigeria. The hour-long, paperwork-filled account opening process at traditional banks is now a thing of the past.

The bank’s innovation also extends to securing a debit card, another process that is typically tedious. Unprecedented in Nigeria, ALAT offers in-app card requests and activation, as well as free card delivery in as little as three working days to any Nigerian address.

Like other Nigerian banks, ALAT offers a standard savings account, but that is where similarities end. The bank provides multiple personal savings options, including savings goals and group savings options. Nearly all of these account formats come with up to 10 percent interest; three times the regular bank rate in Nigeria. To keep its Millennial audience within the ALAT ecosystem, the bank also offers loans and deals or discounts on food, entertainment and travel, and a virtual dollar card for online shopping. This is an innovative use of digital systems and is proving to be extremely successful.

While adoption is increasing among Millennials, the general response to ALAT has also exceeded expectations: during its first year, the bank has acquired more than 250,000 customers responsible for well over NGN 1.6bn ($4.48m) in general deposits. Now ALAT is closing in on the NGN 1bn ($2.78m) mark in terms of deposits into savings accounts. With assets growing steadily, ALAT is also seeing a consistent increase in the number of monthly active users.

Despite its success, ALAT is not exempt from the growing pains that digital-only ventures typically experience. It has also been unable to completely escape the internet connectivity issues and regulatory impediments that would otherwise make its adoption easier. Yet, the bank has shown more than enough promise for it to be a linchpin in the next phase of Wema Bank’s digital transformation journey; the convergence of its banking services into one versatile, omnichannel platform.

Bringing it all together
Driven by the success of ALAT, as well as a desire to simplify banking for everyday Nigerians, Wema Bank has begun the process of streamlining its banking services, harmonising duplicates and consequently cutting operational costs. Wema Bank’s convergence journey kicked off recently with the gradual closing of its old Wema Mobile app. Users of the old app will be seamlessly migrated into ALAT, which has proven to be a more than adequate replacement. Once this process has been completed, ALAT will become Wema Bank’s primary online banking platform, supported by its highly successful USSD channel and a small, but frequently visited, network of branches.

[A]n omnichannel approach that allows for the co-existence of digital and traditional platforms

As this convergence unfolds at Wema Bank, a far-reaching strategy for transforming the entirety of the Nigerian banking experience is slowly crystallising. This will begin with our own customers, but we hope it will also bring significant change to Nigerian banking more generally. The unique nature of the Nigerian market has shown that the digitalisation of front-end services may not catch on as quickly as businesses would like.

Consumers are often resistant to change in all sectors of the economy, not just in banking. Instead, what is more workable is an omnichannel approach that allows for the co-existence of digital and traditional platforms, with the former slowly absorbing the latter as the quality and proliferation of digital infrastructure grows. With digital services always improving, we believe that while it may take time, there will ultimately be a successful transition to a digital-first experience.

However, in terms of back-end services, we have much more freedom as to how we work to create a digital revolution. This is urgent, given the state that much of the Nigerian banking industry operates in. Wema Bank has already staked a claim at the forefront of this development, promoting digital change by implementing the globally touted, agile method of software development. Agile is an exciting form of development that will allow us to adapt to customers as their needs evolve. By developing and rolling out new features and tools frequently, we can bring a much-needed increase in speed to the Nigerian banking industry.

As more customers come on board, having an agile development team in place will become a necessity to meet their expectations. We have recruited some of the best homegrown technical talent and are investing liberally in research and development. With our expert team, we will lead the way when it comes to Nigeria’s digital banking revolution.

The evolution of Wema Bank from simply the oldest indigenous bank in Nigeria into a nimble financial institution with its own fintech spinoff is well underway, and it is quite a sight to behold. We believe that our work now will come to shape the future of the entire Nigerian banking industry. The world should sit up and pay attention: Wema Bank is a bank to watch and a bank to beat.

Counting the cost of plastic pollution

Posted on by Millie Angel

We’ve finally reached that point – the one at which we can no longer bury our heads in the proverbial sand. The magnitude of the plastic problem facing our oceans has reached such a level that even the most indifferent can no longer ignore it. Consequently, over the past year or so, we have been seeing the issue in the news more and more. The public is now aware, and this awareness continues to grow.

The magnitude of the plastic problem facing our oceans has reached such a level that even the most indifferent can no longer ignore it

It’s driven in part by the mounting scientific evidence that is surfacing, in addition to the growing number of related incidents proliferating around the globe. “We’ve had stories like huge dumps of litter on the beaches of Bali, which is familiar to many of us in the West. We’ve seen large [swathes] of waste appearing, seemingly spontaneously, off the Caribbean coast and Latin America. There’s even been fatalities or disasters associated with plastic waste; in Sri Lanka, for example,” said Dr Malcolm Hudson, Associate Professor in Environmental Sciences at Southampton University.

Undoubtedly, David Attenborough’s incredibly popular Blue Planet II has also played a role in this growing societal consciousness. “It makes for very spectacular and very emotive television – seeing a negative story among all the beautiful things in the natural world,” Hudson added. Indeed, during the docu-series, and in the final episode in particular, viewers see first-hand just how much plastic is floating around our seas, the impact it has on marine life, and the damage it can inflict on the food chain. The reaction of most is one of sheer sadness: a disaster is all the more disconcerting when we know it could have been avoided.

At what price
According to the Ellen MacArthur Foundation, it is estimated that around eight million tonnes of plastic flow into the oceans each year – but as great as this figure is, others believe it has actually been underestimated. Even more disturbing are the projections if we continue down our existing pathway: a report published by the foundation on behalf of the United Nations claims that by 2050 plastic waste will outweigh fish in the world’s oceans.

8m tons

Amount of plastic flowing into the oceans every year

51 trillion

Microplastic particles present in the oceans

1.8 trillion

Plastic pieces in the Great Pacific Garbage Patch

617,000sq miles

Size of the Great Pacific Garbage Patch

Acting as a sad symbol of this intensifying mess is the Great Pacific Garbage Patch, an ocean current in which huge swathes of plastic debris gather. Located between California and Hawaii, it is believed to contain 1.8 trillion plastic pieces and span 617,000 square miles – which, to put this into perspective, makes it roughly three times the size of France.

Unsurprisingly, all this plastic is having a direct impact on marine life. As recent reports indicate, creatures both large and small are ingesting plastic materials, believing them to be food, and starving in the process. They also act as poisons in the gut, while their very presence can cause severe digestive problems that lead to death. Sea birds are affected too: according to research undertaken by Jennifer Lavers of the University of Tasmania, every bird on Australia’s Lord Howe Island now has plastic in its stomach.

In addition to the deeply detrimental impact that plastic pollution is having on marine life, there are other underlying costs too, particularly with regards to both marine and coastal activities, and in turn the economic benefits that local communities and nations derive from them. Judith Schäli, a researcher at the World Trade Institute, told World Finance that environmental damage to marine ecosystems is estimated to equate to some $13bn per year. Elaborating further, she said: “Related economic costs include those linked to clean-up operations [and] litter removal.” According to Schäli, the cost to marine industries in the Asia-Pacific region is estimated to be around €1bn ($1.17bn) per year. But even that is not the whole picture: as she explained, the presence of alien invasive species that live on floating plastic debris can also result in serious economic losses, though the exact figure is difficult to quantify.

The fishing industry is an obvious economic victim in the declining health of our oceans. As well as obstructing motors, plastic debris can also cause the loss of or damage to fishing equipment; the result is the need to repair or replace gear, or even entire vessels. Even the time taken to clean litter from propellers and nets adds to the cost for fishers. Then there is the additional loss of revenue that culminates from fewer fish being caught, and the fact that what is caught nowadays is often of poorer quality; simply, less healthy oceans inevitably leads to less healthy fish. Collectively, these factors can weigh heavily on the industry as a whole, as well as on the individuals whose livelihoods depend on the seas.

The fishing industry is an obvious economic victim in the declining health of our oceans

Another vital industry that is now suffering first hand from marine litter is the tourism industry. Many popular destinations rely heavily on the lure of pristine beaches, sparklingly clean waters and beach-fronted hotels. But as many tourists have witnessed in recent years, the reality has become a far cry from depictions online and in glossy magazines. Numerous beaches in the Caribbean and Thailand are now lined with a tangled mess of plastics, putting many off revisiting these sorry sights. The associated impact to wildlife only adds to the rebuke of travellers. Speaking about the economic cost to the tourism industry as a result of a loss in aesthetic value, Schäli noted: “It was reported that in South Korea, a single marine litter event caused a revenue loss of about €29m [$34m] in 2011 compared to 2010, as a result of over 500,000 fewer visitors to the country.”

While oceans flow around each continent and are entities we all share, marine plastic pollution can vary from country to country. Schäli  explained: “The degree to which countries are affected by marine litter [varies depending] on their level of exposure, but also on their economy and level of income. Countries that largely depend on coastal tourism or the fishing industry are more vulnerable to the economic consequences of marine plastic pollution. Overall, the costs of marine plastic pollution are not necessarily borne by the polluters. Marine plastic pollution hence involves equity concerns… In addition, coastal municipalities, governments and local communities often have to bear high costs for clean-up operations, awareness-raising activities and education.”

Mega micro
As shocking as these consequences are, sadly, this is just half the story – and the better half at that. The most concerning culprit is actually the prevalence of microplastics – tiny particles that have either broken up from fragments of plastics and continue to become smaller over time, or have been purposefully engineered for consumer products. The cosmetic industry, for example, has been using ‘microbeads’ for some time now, promoting their ability to thoroughly scrub skin, which has made them wildly popular in the process. These microbeads are so small that they easily flow through filtration systems and end up in waterways that lead into the sea. Both types of microplastics are having possibly irreparable damage to our oceans, particularly due to their volume: the UN Environment Programme approximates that as many as 51 trillion microplastic particles are present in the oceans.

“I think the microplastics are potentially a bigger problem than the macroplastics,” said Hudson. “With the large stuff, it’s visible and it’s difficult to clean it up, but we can envisage ways of removing it from the sea. But with the microplastics that can be just a few microns long – they could be smaller than the diameter of a piece of hair – these are not even visible, so you can’t even see that the problem is there, and that makes them much more difficult to track in the marine environment… And the longer we have plastic waste going into the sea, both large and small, the more microplastics we’re going to get in the end.”

All types of sea creatures are ingesting microplastics each day, and as they move up the food chain, these plastics will inevitably end up in the human gut. “The plastics have materials in them, such as plasticising agents, that may be harmful for living things and human health… But they also absorb pollutants that are already in the marine environment. So organic materials, pesticides and pharmaceuticals that end up in our marine systems will tend to get concentrated in these tiny particles,” Hudson told World Finance. “We could swallow these particles when, say, eating seafood. And if they’re very small, they might have the potential to pass toxic chemicals or maybe carcinogens into our bodies that may disrupt our hormone systems – we don’t know what the effects of them will be.”

Marine plastic debris affects multiple industries, our global economy, and it could well be affecting our health too

With such stories proliferating in the news and beginning to weigh on the consumer conscience, the UK banned the use of microbeads in the cosmetic industry in January 2018. While this move is a massive boon for the environment, the problem doesn’t stop there, for it’s not just the cosmetic industry that is at fault here – and neither is it just the UK. In terms of the former, plastic beads have various industrial uses as well, such as sand blasting and wastewater treatment. As such, until these areas are also addressed – and in all countries, for that matter – we are continuing to pump these tiny creations into the sea.

There is also another plastic pollutant that has unknown consequences, but has received far less attention in the media: microfibres. These plastic fibres are generated by washing synthetic garments; each time, thousands of synthetic fibres are discarded into washing machines, which are then passed into water treatment systems. “Our water treatment systems aren’t designed to remove them, so they can pass straight into our rivers, estuaries and coastal waters, and then they’re lost in the marine environment in the long-term – with potentially the consequences we’ve talked about,” said Hudson. Unfortunately, the problem doesn’t stop at synthetic clothing: as Hudson explained, plastic fibres also originate from articles such as fishing nets and plastic ropes, which, once discarded into the ocean, will continue to break down until they become microfibres, another invisible enemy with which we must contend.

Boomy McBoomface
Clean-up initiatives, while well-intentioned and helpful to an extent, are limited in their effectiveness. Such operations range from simple beach clean-ups carried out by willing volunteers to much-researched, more innovative methods. The latter most famously refers to a scheme thought up by Dutch entrepreneur Boyan Slat, designed to tackle the Great Pacific Garbage Patch. On May 11, 2017, Slat’s organisation, the Ocean Cleanup, unveiled a new design for the system and its deployment, in what will be the world’s first attempt to clean up the biggest mass of ocean plastic on the planet since it was discovered in 1997.

Slat’s device, which is officially called ‘Boomy McBoomface’, lets the ocean do all the hard work. Namely, currents funnel plastic debris into solid V-shaped screens, which are held in place by inflated plastic booms that are anchored to the sea floor. The next stage of the process will involve loading the plastics onto vessels to be taken back to land and recycled. It is hoped that Boomy McBoomface will collect half the mass of the Great Pacific Garbage Patch – which equates to a whopping 40,000 metric tons – within five years.

“It’s very impressive, but it needs to be done over a long time period, over a very large scale, and there are also problems with carrying it out. So where we have these large-scale rafts of plastic in the centre of our major oceans, there is marine life associated with that, so there will be impacts of removing them at the same time,” Hudson explained. “We also have the question of what we do with so much plastic waste when we bring it on shore, so we’ve got to find a way of dealing with that in with minimal environmental impact. Also, large booms – that are, again, plastic material – are likely to degrade. So while I think these are positive ideas, they may have negative aspects to them that we haven’t foreseen yet.”

Shared accountability
While certain countries are impacted more than others (see Fig 1) and some nations are better equipped to tackle the challenge, marine plastic debris is a problem we all share. It affects multiple industries and, in turn, our global economy, and it could well be affecting our health too. Aside from such direct costs, there are, of course, also those to marine life – causing animals to suffer and die as a result of our reckless use and disposal of plastics.

The existing problem is frightening, but the first port of call is to stop it from becoming worse. “We need to look at our usage of plastics and find ways to use them more wisely,” said Hudson. This is an important point, for plastic itself is not necessarily the enemy – it’s our relationship with it that is causing so many problems for the natural environment. Hudson shared some suggestions for ways forward with this controversial, yet essential, material to human life: “We can design ways that plastic can be reused, remodelled or remade so that it doesn’t become a waste product, some of which will be lost and some of which will end up in our natural systems.”

The existing problem is frightening, but the first port of call is to stop it from becoming worse

Schäli agreed: “Corporations that are involved in the market of plastic products, especially consumer products, play an important role in the shaping of our production and consumption patterns. They influence consumer behaviour [through] commercials and subliminal advertisement in packaging. By their material choices and product designs, they determine the durability of their products, as well as their recyclability, biodegradability, ecotoxicity and susceptibility to end up in the environment. They further influence consumers’ product choices by providing or withholding information about the materials they use, including the additives with potentially toxic or otherwise hazardous effects.

“In order to reduce their impact, companies should be aware of, and take responsibility for, the whole life cycle of their products, including disposal… They can redefine their business models and overcome the phenomenon of planned and perceived obsolescence, which pushes consumers to constantly renew their belongings by artificially limiting the service life of the products or suggesting that they are outdated.”

Businesses can also reduce packaging quantities and avoid hazardous chemicals, particularly toxic and bioaccumulative substances. Using recyclable or biodegradable materials is a positive step in the right direction. Schäli explained: “[Corporations] can engage in research and development in order to find technical solutions to specific problems in their field of activity, such as textile fibres from washing machines or microplastics from tyre wear. They can make sure that maritime transport of their goods is safe and that the ships meet international standards and comply with the regulations, including the prohibition [of disposing of] plastic wastes at sea. Finally, they can engage in awareness-raising campaigns, educational activities or coastal clean-ups.”

Governments too have a vital role to play, as they can establish the necessary legal requirements, as well as incentives and disincentives, to curb marine plastic pollution. “From an economic point of view, massive marine plastic pollution may bring us to rethink our economic models, based on raising consumption levels and a high throughput of resources, and our throwaway lifestyles,” Schäli noted. A big rethink of our disposable attitude is crucial, but as considerable as this change is, it can start today, with each individual. For now is the time for action: we can no longer stand by and watch the demise of our oceans – without them, we too will perish.

Creating change – significant change – takes time, resolve and money. But the cost if we stand by and simply continue our current habits will be startlingly worse than it is at present. Fortunately, individuals, businesses and governments are on the cusp of the epiphany needed: new regulations are being introduced, reduced packaging is becoming more common, and there is far greater consumer awareness than ever before. But it is not enough. We have to act fast – not for future generations, but for the present, as this is the time frame that we’re dealing with. On the one hand, there is the damage to the environment and subsequent marine fatalities, which should be enough to convince many of this issue’s pertinence. For those less concerned with such issues, there is the inarguable cost to numerous industries, thousands of businesses, national economies, as well as the global economy. Fortunately, the story is not all doom and gloom: awareness is the first step. Now onto the next.

Top 5 political events that rocked the global economy

Posted on by Ashton Wenborn

Political decisions have always affected social and economical aspects in a region – whether the change is as small as new parking restrictions, or as major as countries entering war with one another. Millicent Angel examines some of the most striking examples of political decisions affecting economies.

1 – The Greek financial crisis
The Greek financial crisis, which started in 2010, was arguably caused by the bad political decisions of the Greek authorities, which spent money excessively, engaged in tax avoidance and kept interest rates low for too long, leading to inflationary pressures. As a result, 50 percent of under-25 year olds in Greece became unemployed, deprivation was commonplace and riots took place throughout the country.

2 – The fall of the Berlin Wall
The fall of the Berlin Wall on November 9, 1989 signified the end of Soviet and communist rule in Eastern Europe; this political decision gave rise to many economic opportunities for the USSR’s ex-satellite states. Indeed, the trade market opened up to an extra 400 million people in Eurasia; moreover, it dramatically benefitted the financial state of countries such as Poland, Hungary and Ukraine. These economies were previously controlled by Moscow, but following the collapse of the wall, they gained the freedom to trade with any country they wished, manage their own finances and adopt capitalism.

3 – The formation of the European Union
The formation of the European Union (EU) on November 1, 1993 in the Netherlands, was an extremely significant political decision that is still felt today. The euro, which many EU member states use as their currency, better facilitates the freedom of movement and goods across the Union, while providing the benefits of integrated financial markets. It also gives the EU a stronger presence in the global economy. Since it was conceived, the single market is said to have added 2.2 percent to EU gross domestic product, as well as boosting employment by 2.8 million.

4 – World War Two
The end of World War Two in August 1945 came with countless economic effects. In the Soviet Union, around 15 million people were killed as a result of the war; productivity in the USSR slowed as a result, which in turn led to huge economic difficulties. In Germany, low industrial output led to a downturn, further exacerbated by the cost of $320bn in reparations. The UK was forced to borrow $4.33bn (£2.2bn) from the US, which it could not pay back until 2006, showing just how much the economy was dependent on the US after the war.

5 – The Arab Spring
The Arab Spring began in June 14, 2011 in Tunisia, and swiftly spread throughout the rest of the Middle East to countries such as Egypt, Yemen, Libya and even Saudi Arabia. There was an immediate backlash from authorities throughout the region, with numerous rash political decisions made to oppress those revolting. The Arab Spring is estimated to have cost the region $600bn or six percent of its GDP between 2011 and 2015.

Masaref enhances its reputation in Egyptian banking circles

Posted on by Emily

Much of the buzz currently being felt in the Egyptian banking community is directed towards Masaref, a young, dynamic company that provides business solutions and consultancy services to a variety of clients. The company has faced a series of large and undeniably challenging core banking implementation projects over its lifespan, and has enjoyed multiple success stories in the process.

Masaref is founded on a comprehensive set of business ethics that are fundamental to achieving its goals

World Finance had the opportunity to speak with three members of the company’s board of directors: Dr Mohamed Goneid, Chairman of Masaref; Ahmed Abdel Aziz, the CEO and founder of the firm; and Tarek Hamoud, COO of Masaref and one of the youngest project managers in Egypt.

Can you tell us a little about Masaref’s mission?
At its heart, Masaref is an independent services company specialising in the implementation of the Temenos T24 Core Banking system. We are an official business partner of Temenos. To achieve integration, our consultants may design and develop necessary interfaces – we may also add other systems in order to guarantee complete functionality.

We are also official partners of NetGuardians, a Swiss company that specialises in providing anti-fraud systems for banks, and HID Global, which is one of the leading names in the field of online authentication services for digital banking.

What makes Masaref unique among other implementation services companies?
Our business is a people-orientated business, which means we do our best to avoid communication problems among project participants, whether as a result of cross-culture differences or linguistic misunderstandings. Masaref’s mission is to provide Temenos customers with high-quality implementation services and support. Our vision is to become the best and largest implementation services provider for Temenos products in the Middle East. Our goal is to maintain high customer satisfaction and excellent business relationships based upon a profound understanding of customers’ business requirements.

Another factor that we believe makes Masaref unique is the fact that the company is founded on a comprehensive set of business ethics, which are fundamental to achieving our goal. Masaref stays true to its word: we never walk out of a difficult situation, and we understand and love our customers. They are our real advocates.

Why do banks choose Masaref when they are in need of implementation services?
Masaref’s top management, as well as our key resources, have worked for Temenos for more than 10 years. During business discussions with the customer, Masaref will provide the bank with Arabic-speaking project management and business consultants, which we have found to dramatically reduce miscommunication issues. We use agile software development methodology to cut the time frame of projects short. We have also developed and implemented what we call the Egyptian Model Bank to meet the specific requirements of the Egyptian banking business, allowing banks to deploy these products in conjunction with T24 features and best practices.

Is it difficult to recruit and retain consultants in a challenging business such as yours?
Masaref has one of the most efficient incubators in our line of business. Our policy is to form a team with an elite line-up of seasoned business services professionals, supported by young consultants who are almost limitless in their capacity to deliver. Our work is extremely interesting; our consultants learn about in-depth modern software solutions, as well as banking business techniques. At Masaref, we all form one big family and we really enjoy what we do, in spite of difficulties and long working hours. Banks in Egypt are turning towards outsourcing; this trend allows us to grow and to retain our consultants. Our mission is to serve banks efficiently at very competitive costs.

Do you have plans for the future of the business?
As a company, we are extremely busy at present and we will stay very busy for the next three years at least. Our pipeline is rich and, with new business coming in almost every day, we believe we made the right bet on Temenos T24 and have been rewarded accordingly.

Notably, Goneid spent a chunk of his career in South-East Asia and is passionate about doing business there. We have a sister company operating in the Asia-Pacific region, and together we will create a common entity very soon. This will drastically increase Masaref’s footprint on this planet. We will definitely play an important role in implementing the future of digital banking and microfinance in the Middle East.

Are we witnessing the death of pennies?

Posted on by Millie Angel

We can be a funny lot sometimes. On the one hand, we are always so eager to step into the future. We embrace new technology – whatever it may be – like it’s exactly what’s been missing from our lives. We’re glued to our smartphones as though they’re limbs attached to our person, and we went crazy for digital currencies as soon as they entered the mainstream media – suddenly, everyone from the local butcher to the high-profile banker started investing. But ask us to eradicate from our lives something that has become outdated – redundant, even – and we cry out in indignation. This, in a nutshell, is the situation we have with the penny. 

It costs more than a penny to make a penny. This has been the case for the US since 2006

In spring of this year, the debate heated up in the UK. After the government toyed with the idea of eradicating one and two-pence coins for good, the immediate reaction was one of outrage at the thought of eliminating a symbol of national pride. In the US, a spat of sorts has been going on for years now. Some countries, meanwhile, have made the move already: in May 2012, Canada bucked the trend and retired its lowest-denomination currency. Unsurprisingly, its economy has survived this unfathomable shock, while the country itself is also still standing.

More cost than worth
Canada is not alone. Australia and New Zealand withdrew their one-cent coins even further back – 1992 and 2006 respectively – and are among a growing list of others. As radical as the elimination of the penny may seem to some, the move is a logical one. By no coincidence, it starts with money: nowadays, it costs more than a penny to make a penny. This has been the case for the US since 2006, in fact.

“The actual amount has fluctuated from year to year, but [the cost is] in the range of 1.6 to 1.7 cents per penny made,” said Jeff Gore, Associate Professor at MIT and co-founder of the group Citizens to Retire the US Penny. The manufacturing cost reached a peak of 2.41 cents in 2012, while in 2017 it cost 1.82 cents per penny, according to the US Mint’s latest annual report. It is also important to note that because so many pennies fall out of circulation, more are required than any other coin: 8.4 billion were delivered in the US last year, greater than the sum of all other coins combined.

There are also various emotions involved in the debate – people couple pennies with nostalgia

Theoretically, a penny can be used thousands and thousands of times over many years, thereby offsetting its disproportionate cost. The reality, however, is that this happens very rarely nowadays. First, nothing costs a single penny anymore: back in 1914, a penny could buy a loaf of bread, a pint of milk or a newspaper in the UK. It’s been decades, however, since you could even buy ‘penny sweets’.

Second, many people just don’t like loose change – particularly pennies, which they rarely use. Coins weigh down our purses and pockets, and take time to count out to a cashier. Many of us collect them in oft-forgotten-about jars, while some people willingly give them away and others simply discard them. A penny generally stays in circulation for much less time than that which would make the cost worthwhile. “To me, this is really striking, where you have a coin that nobody wants to get – we often give it away,” Gore told World Finance. “There’s the ‘take a penny, leave a penny jar’ in many of these shops – yet the US Government is losing money making this thing. It sort of highlights the absurdity of the situation.”

The time wasted is a huge factor for Gore. Indeed, a study conducted by the National Association of Convenience Stores (NACS) providing empirical evidence to the fact was the inspiration behind his campaign. “[NACS] found that something like 1.5 seconds were wasted in each cash transaction as a result of handling pennies… 1.5 seconds is not that long, but if you run the numbers, given the number of transactions over the course of the year and the number of people that might be involved in the transaction – it comes out to be an hour or two that each of us waste as a result of pennies circulating in the system,” Gore explained. “From my perspective, there are a lot of problems in the world that are very difficult to solve, whereas this to me is a complete no-brainer that essentially everyone would be better off if we were to retire the US penny.”

Aside from the costs in terms of both time and money, there is another incurred: that to the environment. Unsurprisingly, it takes a great deal of energy to mine zinc, extract it from ore, roast it, smelt it and refine it. Once processed, it is rolled out, impressions are stamped, and then the newly minted pennies are transported around the country. According to Design Life-Cycle, it takes 35 metric tons of force to strike a penny, while transporting pennies releases more than 1.5 million tons of carbon dioxide into the atmosphere each year.

There is also their toxicity to consider. The US Environmental Protection Agency states that only three to 11 percent of zinc ore contains metallic zinc. The rest is composed of noxious materials, such as lead and cadmium. Even zinc itself is harmful in high doses. These materials can all contaminate the soil and water around the mines from which they are extracted. “Different people are going to have different takes on this. From my perspective, the primary issue is that we should not be wasting resources, and that includes valuable metals, as well as our time,” Gore added.

Bring us luck
Naturally, there are several arguments those in favour of keeping the penny often use. A couple of them are actually quite convincing, with the most common relating to charitable giving. It is commonly said that without pennies, people would simply give less; charities wouldn’t survive without penny drives or a common willingness to rid ourselves of such low-value change. Of course, if everyone – or at least a great deal of us – were to part with their pennies, the amounts raised for charities would be transformative. And when it comes to a good cause, it’s hard to argue for something that could result in less funding.

Aside from the costs in terms of both time and money, there is another incurred: that to the environment

But this may not necessarily be the case. If it is human nature to give away our least valuable currency, this then infers that without the penny, the five-cent coin (or the two-cent, depending on the country) would be donated instead. This in turn could result in charities receiving more.

On this topic, Gore said: “If you look at the value of pennies that end up being collected, it’s really not very large. Besides, we can have nickel drives, and so forth. And so I really think that charities can get money from the other coins that are in the system, and that’s actually where the vast majority of the value is.” Some argue that people will be less inclined to give nickels away, but this is perhaps an overstatement – besides, with time, everything becomes relative.

The other chief argument is that the consumer will lose out, as they will have to pay more for everyday goods. This fear is linked in particular to concerns for the poorer segments of society, which are more inclined to pay with cash, and so could be hit the hardest when prices are being rounded.

It’s natural to assume that corporations will simply increase their prices, particularly given the cost that the transition would have (which would include relabelling, changing menus, reprogramming cash registers, and so on). Back in 1990, when representing the pro-penny lobby group Americans for Common Cents, Raymond Lombra, Professor of Economics at Pennsylvania State University, told a congressional committee: “This rounding ‘tax’ will have a significant adverse effect on consumers. A conservative estimate places the tax in the $600m per year range.”

Opponents such as Gore, however, argue that corporations would not always round up. He uses sales tax as the foundation of his argument. “With sales tax, the final amount doesn’t come out to be right on the penny; instead we round to the nearest penny in order to decide how much [something] is. We don’t systematically round up or down; half the time it goes up, half the time it goes down, meaning that it favours neither the store nor the customer. And indeed, this is the way that we would do it without the penny.”

Everybody wins
Naturally, it is difficult, if not impossible, to calculate just how much both businesses and individuals could stand to lose from the transition – but assuming that a non-systematic rounding takes place, then the difference should be minimal. There is, obviously, a reason why some would argue otherwise. “Given that Jarden Zinc [Products], for example, sells tens of millions of dollars [worth] of penny blanks to the US Mint each year, they have the incentive to fund groups that will make counter arguments, and that’s understandable – it’s just the way that the world works. But it’s important to understand that the pro-penny lobby – and it is indeed a lobby group, [although] it looks like a non-profit website supported by local citizens and so forth – is getting paid to do this, whereas I will note that I don’t get any money for my advocacy of this particular issue,” Gore told World Finance.

And yet, despite the battle fought by those who stand to lose out from the eradication of pennies, this outcome is surely inevitable, for the coins are becoming more and more redundant with each passing year. Add to this the exponential increase in electronic payments, together with the advent of cryptocurrencies, and the notion of continuing to make such low-value and little-used coins becomes all the more absurd.

There are also various emotions involved in the debate – for some reason, people couple pennies with nostalgia. Perhaps this is because they remind us of our childhoods and happy days gone by, where we would splash out on sweet things for mere cents. There are also nationalistic sentiments involved: in the US, the one-cent coin represents President Lincoln; in the UK, the penny is seen as some form of national identity. And yet both arguments are flawed: Lincoln is still represented on the $5 bill, while there are much stronger symbols of British pride – the flag and the Queen being but two.

Perhaps instead it all comes down to a sheer reluctance to acknowledge inflation. Undoubtedly, retiring the penny is a symbol of inflation – one that most people prefer to ignore, because essentially it makes them sad to recognise that the cost of living grows relentlessly. Those of this mindset talk about ‘not giving in to inflation’, but inflation isn’t a bad thing per se – not moderate inflation, at least. It is simply an unavoidable economic mechanism brought on by time.

The truth is no one knows how much removing the penny from circulation could cost both consumers and businesses. But let’s not forget that we have done this before: back in 1857, the US retired its half-cent coin and people simply got used to it. As examples such as Canada, Australia and New Zealand indicate, this time around will be no different. No major problems will be caused, and no issues to the economy will arise. In this scenario, no one loses out – well, except the companies selling penny blanks, of course.

US vs China: who prevails in a trade war?

Posted on by Millie Angel

On March 2, 2018, US President Donald Trump posted the following on his Twitter account: “When a country… is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down [$100bn] with a certain country and they get cute, don’t trade anymore – we win big. It’s easy!” The tweet, alongside a plan to apply duties of 25 percent on imported steel and 10 percent on aluminium, has become another example of the gradual deterioration of trade relations between the US and China, the ‘certain country’ referenced in the tweet.

Precursors to war
While Trump’s tweets are usually not much more than banal politicking, his posts about trade have so far amounted to tangible policies. At the beginning of 2018, the Trump administration began slowly putting pressure on China, imposing safeguard tariffs on some minor imports like washing machines and stainless steel flanges. The Chinese Ministry of Commerce expressed frustration at these tariffs on a number of occasions. Tensions reached a boiling point on March 22 when the US proposed a 25 percent tariff on $50bn of Chinese products, alongside the filing of a complaint with the World Trade Organisation alleging that China’s intellectual property practices were benefitting the country to the detriment of US competitiveness. Responding, China released its own list of tariffs, matching the US’ figure across products ranging from soybeans to aircraft. Threats have escalated further, with the US now considering imposing $150bn worth of tariffs on more Chinese goods.

Throughout history there are examples where a trade war has ultimately hurt the participants more than it benefitted them, with the US being no exception


On April 4, Trump tweeted: “We are not in a trade war with China, that war was lost many years ago by the foolish, or incompetent, people who represented the US. Now we have a Trade Deficit of [$500bn] a year, with Intellectual Property Theft of another [$300bn]. We cannot let this continue!” He continued: “When you’re already [$500bn] DOWN, you can’t lose!” In reality, trade wars are difficult to define, rarely positive and attempts to identify a winner are almost impossible. Throughout history there are examples where a trade war has ultimately hurt the participants more than it benefitted them, with the US being no exception.

Defining the conflict
Unpacking the concept of a trade war is surprisingly difficult. Douglas Irwin is the John French Professor of Economics at Dartmouth College and author of several books about trade, including Clashing over Commerce: A History of US Trade Policy. Speaking to World Finance, Irwin said economists have two difficulties with identifying the winners of a trade war: “One is there is no unique definition or generally accepted definition of what a trade war is, or what it constitutes. And second of all [is] the idea that you’re ‘winning’ or ‘losing’ as a result of trade. Economists generally believe that trade is mutually beneficial and that if you stop trade, you hurt your trade partner, but you also hurt yourself because the price of your imports will go up for consumers.”

25%

Planned US tariff on imported steel

10%

Planned US tariff on imported aluminium

$500bn

Supposed trade deficit between US and China

$300bn

Alleged cost of Chinese intellectual property theft for the US

A basic definition is that a trade war occurs when countries try and damage each other’s economies through the imposition of tariffs, quotas or other restrictions on imports and exports. They are typically rooted in protectionism, with the justification for instigating a trade war often the protection of local industries from an unfair advantage had by an international competitor. Another reason may be to balance out a trade deficit, a situation where imports are far larger than exports and so represent wealth flowing out of a country. When a country subject to tariffs launches its own retaliatory tariffs, this confrontation could be considered the beginning of a trade war.

However, trade wars are not usually this clear cut. ‘Wars’ typically have winners and losers, but identifying the victor of a trade war is not always possible. Countries have multiple trading partners, making a targeted and damaging trade strike difficult to achieve. Engaging in a trade war will almost certainly hurt the country imposing the tariffs, as well as the target. In many cases, trade wars never move beyond the mere threat of tariffs and are effectively over before even starting. As a consequence of this, settling on an exact definition of a trade war is a challenge, and Trump’s suggestion that they’re “easy to win” is manifestly wrong.

The lessons of history
Given the detrimental effects of a trade war on a country, the usual hope is that the threat of tariffs is not followed by their actual imposition. Irwin said there are relatively few examples of two countries engaging in major retaliatory trade actions against each other, but there are some smaller examples that are similar to the current situation between the US and China: during the mid-1980s and early 1990s, the US and Japan were locked in something of a trade war. At the time, the US had a significantly large trade deficit with Japan, and also alleged that Japan was engaging in unfair trade practices and industrial espionage. The threat from the US was clear; unless you meet our terms, there will be a host of trade restrictions put in place. 

“Because Japan was an ally, and to some extent dependent on the US market and wanted to keep the US happy, Japan [was] willing to negotiate, though not always happily,” Irwin said. “But [it] did try to reach an accommodation with the US, so the US did not have to impose those tariffs as many times as they were threatened: sometimes agreements were reached.” 

An interpretation of the trade war between the US and Japan could be that the US was ultimately the victor. The US got much of what it wanted from Japan, such as voluntary export quotas, penalties for unfair trade practices and the liberalisation of restricted Japanese imports. It also never grew to become a fully fledged trade war by the traditional definition. Japan may have only begrudgingly come to the negotiation table, but it did so before imposing tariffs of its own. Neither economy suffered significantly from the conflict, suggesting that, more often than not, the most desirable outcome for a trade war is to halt it before it even begins.

While there are similarities between then and the US’ current trade disputes with China, such as allegations of corporate espionage and unfair practices, Irwin said there are also major differences: “The big difference with China today is that China is not an ally of the United States and has already threatened to retaliate. Japan never threatened to retaliate or counter retaliate against the United States. So, the risk that this will be an un-won trade war – one where it’s damaging to world commerce without achieving the goal of more open markets – is much higher than the case with Japan in the 1980s.”

The fog of war
Many of the times where the US has engaged in an indecisively concluded trade war, significant economic damage has followed in its wake. Dr Marc-William Palen is a lecturer at the University of Exeter and author of the book The Conspiracy of Free Trade: The Anglo-American Struggle over Empire and Economic Globalisation. Speaking to World Finance, Palen said that Trump and the Republican Party’s current position has a number of similarities to its stance in the mid-19th century: “Following the Civil War’s end in 1865, the Republican Party tied its ideological sails to economic nationalism. It became the party of big business and protectionism. The GOP stuck to protectionism throughout most of its history, and only began abandoning it after the Second World War, and only gradually at that.In other words, Donald Trump’s protectionism isn’t an anomaly; it’s a return to the Republican status quo.” 

During this period, there are cases where attempts by the US to protect its own economy backfired. In the late 19th century, Republicans dominated the White House and the party was still proudly protectionist, prompting the US to repeal its reciprocity treaty with Canada in 1866. Palen said Canadian conservatives consolidated around their own national policy of protectionism in 1879, prompting exactly the opposite of what the Republican Party desired. “Some American companies like Singer Manufacturing, Westinghouse, [the American Tobacco Company] and International Harvester realised it was cheaper to move their production to Canada rather than pay the high import taxes. Sixty-five US manufacturing plants had relocated to Canada by the late 1880s. So, in this case, far from halting outsourcing, protectionism created it.”

When trade wars escalate to retaliatory sanctions, the only real winner that emerges is any country that is not participating

When trade wars escalate to retaliatory sanctions, the only real winner that emerges is any country that is not participating, as was the case between the US and Canada. “Trade tensions reached a breaking point in 1890, when Republicans passed the highly protectionist McKinley Tariff,” Palen said. “Agricultural exports to Canada fell by half from 1889 to 1892. And when the Republicans passed the even more protectionist Dingley [Act] in 1897, Canada decided that the best response was a combination of tariff retaliation and establishing closer trade ties with the British Empire rather than with the [US]. America’s loss was the British Empire’s gain.”

By far the most famous example of tariffs not working as desired for the US was the Smoot-Hawley Tariff of 1930. Sponsored by Senator Reed Smoot of Utah, who was chairman of the Senate Finance Committee, and Representative Willis Hawley of Oregon, the chairman of the House Ways and Means Committee, the act raised the US’ already high import tax to an average of 40 percent across all industries. It was designed to protect US businesses from competition in Europe, wherean economic recovery was occurring after the war. The stock market crash of 1929 made protectionism even more appealing to Americans, and the act passed in the Senate by a narrow margin. “It raised duties on hundreds of imports, following which Canada responded with tariff increases of its own, as did Europe,” Palen said.

This tit-for-tat trade discrimination left the US isolated and unable to tap into global markets, effectively making a recovery from the Great Depression far more difficult than it necessarily needed to be. Due to the economic damage the tariffs wrought in other countries, the US also became deeply unpopular internationally. “To provide but one example, the Italians responded violently to the Smoot-Hawley Tariff,” Palen said. “American-made cars were attacked on Italian streets, and US-made car sales plummeted. Tariff duties were increased on US goods, plunging US exports to Italy from $211m in 1928 to $58m in 1932. Italy quickly signed a commercial treaty with Soviet Russia in August 1930, followed by a non-aggression pact two years later, demonstrating again the unpredictable geopolitical fallout from trade wars.” Again, the winners of the trade war were those on the periphery, who were able to fill the holes left in the market.     The impact of the Smoot-Hawley Tariff was such that the US changed its laws, and the act became the last trade act to pass through Congress. Trade negotiation was then delegated to the president; the system is still in place today. The Smoot-Hawley Tariff also led to another definition of what a trade war is. “Political economist Joseph M Jones Jr, in a widely cited study from 1934, examined Europe’s retaliation,” Palen said. “His study warned of the trade wars that can arise when a single nation’s tariff policy threatens specialised industries in other countries, which can arouse hostility and retaliation.” 

The 1960s saw the next major trade battle in the US’ history: the European Union was establishing agricultural policies for the recently formed common market, prompting the price of chicken to significantly drop. European countries began introducing price controls and placing tariffs on imported chicken. Factory farming had made chicken a major US export, so in response President Lyndon Johnson imposed tariffs on Europe. In particular, a 25 percent tariff was placed on light trucks.

Irwin said the winner of this trade war is indeterminable: “Europe refused to open up [its] market to US chicken, and we [the US] never got rid of our tariffs. The question is, who won that? They’re not taking our chicken, we’re not buying vans from them, in fact we still have this 25 percent tariff in place today… It’s hard to say anything was accomplished.” The tax in place is unlikely to be repealed since US automakers have successfully lobbied for it to remain, since it puts them in a favourable position.

A threat to peace
Since the General Agreement on Tariffs and Trade was signed in 1947, and later the World Trade Organisation established, global trade has surged while tariffs have, on average, been in gradual decline. Trade is far more transparent than it was before, and supply chains now cross borders far more easily. A trade war between China and the US would certainly destabilise this. 

In terms of supply chains, Irwin said he believes they may be disrupted temporarily, but will change to accommodate. “I think what will happen is there will be a movement of resourcing to other countries in South-East Asia, away from China. So, we might start getting our apparel from Vietnam, or see electronic component assembly operations set up in Vietnam… It would be trade diversionary, I think, rather than a permanent loss of imports from those countries.” Once again, the real winners of a trade war may be the countries that simply choose not to participate.  Negotiations have been ongoing, and Trump has already emerged with some surprising announcements. A delegation to China in early May yielded little progress, but Trump has since expressed a willingness to work out a deal that would save ZTE, a Chinese technology company that has stated it will be forced to close under the current sanctions relating to national security. An employer of 75,000 people, the rescue of ZTE could be a significant bargaining chip in negotiations, albeit from a predicament brought on by the US in the first place. 

Palen said a predictable outcome of the trade war would be higher prices for American consumers, which will be felt most by the poorest. “[With] Trump’s new tariffs, these winners will likely be US steel and aluminium producers, in the short term at least. But the losers – American and world consumers, [and] businesses that rely upon global supply and demand chains – will far outnumber the handful of winners, that’s for sure.” 

Based on US history, major trade actions like those that have been proposed recently will have far-reaching and unpredictable consequences

What is more uncertain is how a trade war between the US and China could change the world’s economic and political stability. Based on US history, major trade actions like those that have been proposed recently will have far-reaching and unpredictable consequences. Palen said the parallels between now and late 19th century Republican policies are remarkable and also historically unprecedented. “Granted, Trump’s xenophobia, protectionism, jingoism and populism parallel the GOP of the late 19th century. They might well have been taken directly from this earlier era’s Republican playbook. What is historically unprecedented today is that, with Trump in the White House, the United States – the leader of the global economic system and main advocate of trade liberalisation since 1945 – is now the first to advocate turning away from the very system it helped create. We’ve never witnessed anything like this before. As a result, the uncertainty that this holds for the future of the global economic order is at least as worrying as the GOP’s revival of late 19th century protectionist politics.”

No one wins
It will be challenging to identify a winner from the fallout of the rounds of sanctions that China and the US are throwing at one another, since there is not a clearly defined goal for either side. Both economies will suffer from the tariffs, and neither is likely to see a significant redevelopment of their local industries. The concerns of the US regarding alleged intellectual property theft by Chinese firms may be addressed, but whether that will result in a reduction of the trade deficit is unknown. Based on the US’ history, the damage from a fully fledged trade war could be significant

US FDA greenlights its first cannabis-based drug

Posted on by Max Tomlin

The US Food and Drug Administration (FDA) approved its first marijuana-based drug on June 25, which will treat two debilitating forms of childhood epilepsy.

The drug is called Epidiolex, and it is a fruit-flavoured oral solution that contains cannabidiol (CBD), made by the UK firm GW Pharmaceuticals.

The FDA’s approval is good news for the fledgling cannabis industry

GW’s CEO Justin Gover called the approval a “historic milestone” that will offer a treatment for patients suffering from two severe forms of epilepsy: Lennox-Gastaut syndrome and Dravet syndrome. These diseases are “highly treatment-resistant,” according to Orrin Devinsky, Managing Director of NYU Langone Health’s Comprehensive Epilepsy Centre. However, in clinical trials, Epidiolex was found to cut the number of seizures in half for 40 percent of patients with Dravet syndrome. Three patients also stopped having seizures entirely.

CBD is one component of the cannabis plant, but unlike tetrahydrocannabinol (THC), the compound that causes highs, it is non-psychotropic. The compound is said to be able to alleviate pain, relieve anxiety and control seizures.

As part of Epidiolex’s approval process, it must be rescheduled by the US Drug Enforcement Agency (DEA) from its current standing as a Schedule 1 drug, meaning it has no recognised medical use and a high potential for abuse. GW said rescheduling is expected within 90 days, but the Washington Post reported it was not clear whether the DEA will reclassify all CBD products or the CBD formulation used by Epidiolex.

Beyond the US, the medicine is currently under review by the European Medicines Agency for the treatment of seizures in patients with Lennox-Gastaut or Dravet syndrome.

The FDA’s approval, and the subsequent expectation that CBD will be rescheduled by the DEA, is good news for the fledgling cannabis industry. Although medicinal use of cannabis is not legal in all US states, the market for CBD is now estimated to be worth $200m, having doubled in size over the last two years as more investors look to cash in on the buzz around CBD. The FDA noted, however, that it will still “take action” against the illegal marketing of CBD-containing products with unproven medical claims.