Despite the boost in tourism and the increase in jobs that the 2016 Olympic Games in Rio de Janeiro will bring for the city and state, the event is no cure for the economic ills that Brazil is currently facing. The story was much the same when the country hosted the 2014 FIFA World Cup, which, while helping boost tourism and productivity, was unable to do so on the magnitude necessary to drag the eighth-largest economy on the planet out of the crisis that it found itself in then and is still grappling with now.
Despite the government’s optimism, Brazil struggled to entice the 3.5 billion people watching the World Cup on their TV sets to fly out and experience the event in the flesh. And while it did manage to pull in a little over a million foreign visitors to the country for the month-long spectacle – exceeding the 600,000 that its tourism board had predicted – it pales in comparison to the two million visitors that Germany welcomed when it hosted the event in 2006.
Part of why Brazil failed to lure in sports lovers, and why it is unlikely to do any better this summer, comes down to the fact that it has been unable to overcome problems in several key areas, including high crime rates and sub-standard levels of investment in infrastructure. “Brazil has attractions; it doesn’t have competitive prices, promotion, or infrastructure”, Diogo Canteras, a partner at the hotel consulting firm HotelInvest told Bloomberg Business in a interview. “The World Cup wasn’t the generator of tourists that was expected.”
The FIFA World Cup was originally billed at a little over $1bn, but ended up costing the taxpayer more than $11bn. The story is much the same for the upcoming Olympics, with the event scheduled to cost a little over $15bn. The government claims that it will improve the global image of Brazil, reminding investors of the huge economic potential of the country, but it is difficult to quantify to what extent.
Four short years ago, the country was the favourite of emerging markets. Since then, however, it has suffered greatly from the collapse of commodity prices
One thing is for certain: the Olympics will help rally the country in the aftermath of widespread corruption allegations – something that the country had thought was a relic of its distant past. With the games fast approaching, many are hoping that the country can use the event as a springboard to move forward and tackle the fundamental weaknesses in its economy, helping it to realise its full potential.
Olympic dreams
Two years ago in March, Federal Police carried out an investigation into money laundering and allegations of corruption at the state-owned oil company Petrobras. During the course of their investigations police discovered that the company’s board of directors had allegedly been accepting bribes from various construction companies in exchange for lucrative development contracts.
The fallout from what is now referred to as the ‘Petrolão scandal’ has been huge to say the least. Investor confidence, both inside and outside Brazil, has suffered greatly. The corruption cases have added an extra layer of pressure on the country’s economy, which has to deal with a depressed commodities market and a global reduction in demand for its exports brought on by the economic slowdown in China.
“When you have very large construction companies and very large oil companies involved in a scandal like this people do not want to sign contracts”, Rogerio Studart, Associate Professor at the University of Rio de Janeiro and former executive director at the World Bank told World Finance. “They do not want to make decisions when it comes to long-term investments. That brings the economy down even further.”
The arrest of prominent business leaders such as Marcelo Odebrecht and André Esteves, along with the detention of major politicians like Delcídio do Amaral at a time when the country needs strong leadership has created a real sense of disappointment among the Brazilian people. Not only has the corruption scandal stripped the country of the leadership it needs to guide it through the current crisis, but it has also reminded those from Brazil that corruption is still alive and well. Many commentators are hoping that the Olympic Games in Rio will help the country heal from the recent bout of scandals, acting as a beacon for the country to rally and unite around.
Marcelo Odebrecht, President of Brazil’s construction giant Odebrecht, speaks during a hearing on the Petrobras investigation in Curitiba, Brazil
“Brazilians need economic growth, yes, but they also need dreams”, said Lourdes Casanova, a Senior Lecturer and Director of the Emerging Markets Institute at the Johnson School of Business at Cornell University. “The Olympic Games is an opportunity for Brazil to show the world that it has come of age and is capable of standing side by side with other economic powers.
“I’m from Spain, and of course the Olympic Games in Barcelona in 1992 completely changed the city and the perception of the country in the eyes of the world, so I am hoping that the same will happen for Brazil. But the mood in the country is so low right now that, even though I am sure that the Governor of Rio [de Janeiro] will put on an incredible event, the tremendous economic downturn and the ongoing political divide is bound to have a negative impact on the event.”
From darling to dismal
It would be foolish to write the Brazilian economy off, as so many have already done. Four short years ago, the country was the favourite of emerging markets. Since then, however, it has suffered greatly from the collapse of commodity prices and is discovering just how dependent it is on natural resources to sustain its economic prosperity.
The country’s main export destinations are China ($46.1bn), the US ($25.2bn), Argentina ($19.3bn), the Netherlands ($16.3bn) and Japan ($8.58bn), all of which are dealing with their own unique set of economic challenges, leading to a huge decrease in demand for Brazilian exports.
The competitive devaluation of currencies around the world is another huge problem for Brazil. The engineered decline of the Brazilian real should have helped increase the attractiveness of its exports, but this has not happened to the extent that officials had hoped (see Fig. 1). This is because across the world governments have undermined the impact of this monetary policy by taking similar action themselves.
Another by-product of the global devaluation of currencies is that the purchasing power of the Brazilian real has been significantly eroded, driving up the price of imports. A decline in export demand and a reduction of purchasing power, however, are just two prongs puncturing the country’s economy.
According to Studart, there are several layers of the crisis in Brazil. One has to do with the proclivity of governments and people in general to not realise that the good times will eventually end. “Something that happens to resource intensive economies when prices go up very fast is that they tend to think that the trend is going to last forever”, he said. “So they start being more carefree with certain variables. In Brazil there was clearly a problem with the competitiveness of its industrial sector that was caused by a number things.”
One revolves around inadequate levels of investment in infrastructure, which has impacted the competitiveness of Brazilian businesses across all industry sectors. The Latin American powerhouse has also suffered from a major decline in its industrial sector at the hands of such structural weaknesses and, therefore, productivity has remained low for some time, driving up unemployment. In fact, the unemployment rate in the country rose to 6.9 percent in December 2015, according to data compiled by the Brazilian Institute of Geography and Statistics (IBGE), up from 4.3 percent during the same period the year previous.
“Throughout the commodities boom, these issues could have been dealt with, but there was a continuous decline in the animal spirit in the industrial sector, and so there was a decline in investment in that area”, claimed Studart.
What is more, as pace of economic growth in Brazil began to decline, the government tried to be counter-cyclical. But, according to Studart, the government ran into troubles while it was attempting to enact this fiscal policy because of how rigid its market economic management system is.
“You cannot pump liquidity into the markets like the US and the EU have done, because you have a very tight inflation target system”, he stated. “And you cannot cope with public expenditure because there is a fiscal responsibility law in place. So, in order to deal with all this, the government did things that were not by the book.
“Then the elections came along and you had the crisis of confidence and credibility and in order to counter that they decided to engage in a fiscal and structural adjustment, along with a massive reduction in public expenditures.”
What this created was an economic environment where public spending was down and inflation was through the roof. When this happens the central bank’s only option is to raise interest rates, which forces businesses and individuals to cut back on spending, weakening the economy in the process. Combine all this with a depressed commodities market, a massive drop off in demand, and you have a recipe for economic catastrophe.
Not to be written off yet
Despite the economic woes the country is battling, there are a lot of reasons to remain optimistic. Right now, the exchange rate – which has made Brazil relatively inexpensive – has led to a massive hike in the levels of FDI coming into the country. According to the Banco Central do Brasil (Central Bank of Brazil), the country has attracted more than $15bn in FDI in December 2015, which is way above market expectations.
Overall, the long-term economic forecast for Brazil is still good. There is a significant amount of consolidations and M&A activity emanating from international investors. Brazil has become cheaper in terms of company evaluation, with the crisis impacting the prices of assets and commodities, forcing investors to take a second look at the country.
“The productive investors have a long-term view”, added Studart. “By any measure Brazil is a good investment. It has achieved a lot, but has a long way to go. I am pessimistic in the short term, but I remain optimistic in the long run. Investors, both domestically and internationally, feel the same way I do.”
It is important to remember that Brazil has had crises before, and even though this is one of the largest it has ever had to endure, it is arguably in the best place it has ever been to cope with the downturn. Many of its financial and government institutions, despite the recent scandals, are the best they have been in a long time, which is reason for investors to remain optimistic. Put simply, Brazil may very well be a mess, but it is no Greece.
“Over the last 10 years the country has had so many mood swings when it comes to analysing what is happening in the world that we should be more humble and admit that we may have got it wrong again”, argued Studart.
“I remember at the beginning of the crisis, everyone was talking about how emerging markets and BRICs would save the world and the global economy would recover. Every year there seems to be a shift in focus from better to worse.”
In his opinion, investors and economists need to have a more long-term perspective and should be thinking about where their investments are going to be in the next 10 years or so.
“If you apply this thinking to a country like Brazil, then you realise that this is a country that has faced difficulties, but it has been building its fundamentals and is likely to prevail over the long term.”
The Olympics, therefore, will hopefully serve as a way for the country to regroup, offering a short reprieve and a slight boost in economic activity at a time when the country needs it most.
If the event is a success and operates within budget, which it is forecast to do, then it will help lift the spirits of those within the country and cause those on the outside to remember all the good things, economically and otherwise, that the country has to offer.
Since the Fukushima meltdown in 2011, most of the world has been turning its back on nuclear energy. Although technically cleaner than oil, the risks that it carries, as well as the cost, are deemed by many as too great to pursue. Following the disaster, Germany began to permanently close its reactors; Spain and Switzerland banned the construction of new plants; and multiple other countries took an official position against nuclear power in 2013. It may therefore come as a surprise that a slow adoption of nuclear power can be seen in the Middle East (see Fig. 1), with several countries attempting to secure a spot in the nuclear club.
Last November, Egypt took its first steps towards instigating a nuclear power programme by signing a new deal with Russian state-owned firm Rosatom. The Dabaa-based plant, which will be comprised of four power units that each generate 1,200mW of energy, is expected to be fully operational within the next 12 years. Along with its construction duties, Rosatom has agreed to finance the $20bn project, which will be payable over 33 years, starting with an 11-year grace period.
Jordan also signed a $10bn deal with Russia last year, which will see two reactors built in the north of the country, while Saudi Arabia plans to build 16 units over the next 20 years. Neighbouring UAE, on the other hand, started its own nuclear programme in 2012, when it accepted a $20bn bid from a South Korean consortium to construct four commercial nuclear rectors by 2020. And, of course, there is one country in the region that is already generating nuclear power – Iran.
The arguments for nuclear
There have been various reasons given as to why these states are currently implementing incredibly costly nuclear power programmes. Perhaps the most obvious and plausible is that through nuclear energy, a vital shift away from oil can be achieved. The diversification of a state’s energy mix is increasingly important in today’s unpredictable landscape, with achieving greater sustainability and resilience being key factors in modern-day governance. For oil producing nations, by introducing an alternative energy source, they can benefit from greater export revenue, a commonly cited opportunity cost missed out on due to domestic demand. For non-oil producing nations, such as Jordan, the need for alternative energy is even greater, being a net importer.
“All countries seek to improve the wellbeing of their people by providing affordable and reliable supplies of electric power. Middle Eastern countries are no exception”, William D Magwood, IV, NEA Director General of the OECD Nuclear Energy Agency (NEA), told World Finance. “Nuclear power plants can produce electricity at a large scale for decades without emitting harmful air pollution, enabling economic growth and improved quality of life. While some countries in the region could produce electricity using fossil fuels, doing so consumes valuable export commodities that can have greater value on the global market. In addition to addressing that concern, building nuclear power plants helps diversify the energy supply of any country, making their economies less vulnerable to disruption.”
Countries in the process of economic development naturally contend with a rapidly growing demand for energy. This is particularly true given that when a state opens up more opportunities for business and investment, SMEs multiply in number and an expansion of the middle class takes place – both of which play a considerable role in mounting energy requirements.
The diversification of a state’s energy mix is increasingly important in today’s unpredictable landscape
At present, Egypt is stunted by frequent electricity cuts that disrupt its industries, as well as energy subsidies that cripple the state’s budget on a yearly basis. Quite simply, the need for Egypt to implement a new energy strategy is nothing short of urgent, particularly given its swift decline in gas production. However, with a nuclear programme now firmly afoot, it would appear that greater energy securitisation is imminent for Egypt, which could act as a much-needed catalyst to its struggling economy.
Politically speaking
While there are certainly valid points to be made for energy diversification and increasing export revenue, there is also another side of the picture to be considered. Firstly, it is worth noting that having nuclear power comes with a certain level of international prestige for any state: possessing the technology, capital and expertise required to generate nuclear electricity is a coveted prize for many internationally (See Fig. 2), and so nuclear power is a symbol of strength and a powerful motive for any notable player in the game of global politics.
“It is political because Iran started the process of acquiring nuclear energy way back in the late 1990s, which came to light in 2002”, said Anoush Ehteshami, Professor of International Relations at Durham University. “The completion of the Bushehr power plant by Russian scientists and technology has galvanised other regional countries with an interest, but also [those] with the resources, financial in particular, to seek nuclear energy. They do not want to be lagging behind what was seen, or what Iran portrays at least, as major technological advances. And so these countries, given their financial abilities, felt more or less compelled to follow suit.”
Refuting Iran, which is a major Shia power in the Middle East, is a huge factor for regional players, especially given that tension is once again mounting between Iran and Saudi Arabia as the two carry out a bloody proxy war in Yemen. While keeping up with Israel is also an influential factor, it would seem that Iran’s deal with the P5+1 countries was the real catalyst for Egypt in particular.
Historically speaking, Egypt has long played a leading role in the Middle East, often acting as the bridge to the West and the cultural epicentre to the region. Yet a prolonged economic downturn in recent decades, together with the rise of Turkey, has seen Egypt slip from its once-prominent regional position. As such, it would appear that Cairo endeavours to regain this role through its admission to the nuclear club.
Nonetheless, achieving this is no simple task: Ehteshami told World Finance: “I think Egypt, given its historical weight in the region, has always aspired to be a leader in the region. The general [General Abdel Fattah al-Sisi] is now more or less back in charge, and would want to restore Egypt to what they see [as] its rightful place as the main Arab party. But I don’t see that happening myself: I think Egypt is still a limping sphinx, I don’t think it has the financial or the political capital to reassert itself in the region. This nuclear gambit is little more than an expression of interest to appear to the rest of the region as a power to rival that of Iran.”
That said, it is worth noting that Egypt’s deal with Rosatom was announced shortly after the Turkish attack on a Russian fighter jet in its airspace, which indicates a noteworthy shift in Egypt’s geopolitical standing. With relations between Turkey and Russia expected to worsen, Egypt’s role as Russia’s regional partner could very well augment in the coming years. Also vying for greater regional influence is Saudi Arabia, which sees itself as the natural leader of the Gulf States in particular. In order to consolidate this role – and extend further still – it is vital for Saudi Arabia to stay ahead of the game in terms of military and financial power, as well as technological prowess.
The Noor 1 solar power plant in Ouarzazate, Morocco. The country is one of few in the region to have embraced solar power
A flawed system
Naturally, achieving nuclear power is a complex process: there are various hurdles to overcome, not least of all the issue of finance for cash-strapped states. “The most significant challenge that developing economies will face is the limited human and industrial infrastructure available to support the safe and efficient operation and safety regulation of nuclear plants. It can take many years to build an appropriate infrastructure. For that reason, many countries in the region have undertaken initiatives to train the engineers and technicians that would be needed to support nuclear operations”, Magwood added.
“Successful introduction of nuclear plants will require the establishment of a strong, independent regulator, first and foremost. If this is done, countries can proceed to seek competitive proposals to build plants from established suppliers who can build plants safely and cost-effectively. They will also need to ensure that the suppliers and contractors needed to support efficient operations will be available over the long operational life of the nuclear plants.”
Moreover, there are several holes in the economic argument presented by nuclear-seeking Middle Eastern states: building a nuclear reactor costs at least $5bn a piece – an unfathomable expense for struggling economies such as Egypt and Jordan; hence the partnership with Rosatom. However, such agreements obviously do not come for free, and while Saudi Arabia and the UAE are in a better position to carry out large-scale infrastructure projects, they too face difficulties in terms of state revenue that have resulted from the current oil price crisis.
“The benefits can only be in the long-run because the capital outlay for generating nuclear power is actually quite substantial”, explained Ehteshami. “It will be many years in the case of Iran, for example, [before] the Bushehr power plant will actually return a profit. So these are all in essence state-managed projects, but none of these states have got bottomless pits of money.”
What makes the scenario even more provocative is that all of these countries already have far easier access to an abundant source of energy: solar power. It therefore seems more logical for them to pursue this sustainable energy source in order to meet growing domestic demand and reduce the volume of oil exported. Furthermore, the cost of generating solar power is substantially less than that of nuclear power, particularly when considering the cost reductions that have permeated the industry in recent years.
Yet, at present, Morocco stands out as the only country in the region taking discernible steps to tap into this enviable asset. The country recently started construction on the world’s largest solar energy production plant, which will allow its move away from a heavy reliance on imported fossil fuels. Rabat has even pledged that by 2020, 42 percent of domestic electricity demands will be supplied by solar energy. That said, the UAE and Jordan have also set targets to expand solar power generation in the coming years, albeit to a lesser degree, which thus makes their nuclear strategy even more curious.
The Russian factor
As a result of the plummeting rouble, the Crimea conflict and economic sanctions, Russia itself is cash-strapped at present, making its mammoth investments in the Middle East somewhat surprising. Certainly, Rosatom’s experience in the field is abundant and the company is the world leader in terms of the number of reactors it currently has under construction (see Fig. 3); factors which make it a logical partner for such projects. Yet it can be argued there is more to the state-owned firm’s big business development push in the Middle East than simply market infiltration.
Receiving financing for these multi-billion dollar projects politically ties states such as Egypt and Jordan to their benefactors – especially given the regional significance of the projects in question. As such, Russia’s partnership indicates a new anchor for the state in the area, at a time when the US is losing much ground geopolitically.
At present, relations between the US and Egypt are at their worst in perhaps decades, as a result of the support lent by the former to the Muslim Brotherhood during its brief stint in power. With a military leader now back at the helm, incumbent ruler Abdel Fattah al-Sisi sees the US as an unreliable partner, and as such is in the market for another powerful ally. Furthermore, the US’ role in Syria and Iraq has reduced its credibility, arguably for the entire region, while its reacquainted allegiance to Iran will certainly cool relations with other nations. All of these factors will collectively contribute to Russia’s mounting political influence in the region.
On your marks
Since the announcement of Egypt and Jordan’s respective deals, there has been talk of a potential nuclear arms race in the Middle East. Of course, such a scenario would take shape in the very long-term, given the length of time and the mammoth costs required to build and maintain nuclear reactors, yet it cannot be denied that such a possibility exists.
Although nuclear energy is indeed a complicated pathway to nuclear weaponry, the former nonetheless enables the technology and expertise required for the latter. As Ehteshami explained, the region is now playing catch-up to Iran, therefore it would be logical to assume that neighbouring nations desire to be on par militarily with their political rival as well.
Military might is a highly significant and pivotal factor in domestic policies for countries in the Middle East, particularly given the levels of instability and turmoil that persist in the region. It is for this reason that Saudi Arabia, despite dealing with a drastic fall in state revenue since the 2014 collapse of oil prices, increased its military budget by 17 percent – to $80.8bn – between 2013 and 2014, making it the fourth largest in the world. Such a financial manoeuvre indicates the sheer importance of maintaining military precedence for leading players in the region and contributes further to the argument that a Middle Eastern nuclear arms race could in fact be on the cards in the not-too-distant future.
The Middle East is a volatile region, and individual states still have a great deal of work to do in their respective stages of development. For some this involves securing a reliable source of energy, while for others it means moving firmly away from oil dependency. In both cases, nuclear energy offers a solution. Yet this solution comes at a great financial cost: given the current global economic landscape, plus the slowdown facing developing countries, there is much to be questioned when the latter decide to pursue multi-billion dollar super projects.
As such, it appears that nuclear energy is the latest pawn in the regional game of geopolitical chess that afflicts the Middle East. With financial partners at the ready to support states in fulfilling their nuclear goals, it seems unlikely that the pool will remain at its current size. Aside from the possibility of plunging these countries into deep economic crisis through the financial burden of nuclear power generation, there is also a real chance that tensions will continue to heat up in the region as players attempt to assert their dominance over one another. And, given most nations’ strained relationship with Iran – the state that set the nuclear precedent in the first place – there is no telling what the end result could be, be it in one decade or in five.
Every year, thousands of shipping vessels succumb to rust, corrosion and metal fatigue; no longer deemed fit for purpose. When their time eventually comes, these goliaths of the sea are broken down in an attempt to recoup as much money from their demise as possible – a process known as shipbreaking. Ship breakers strip out absolutely everything: nothing is wasted. Any parts that can be sold for re-use aboard another vessel are salvaged first, with the remaining morsels extracted and sold for scrap.
Shipbreaking is an extremely profitable business. Scrapping companies pay roughly $400 per tonne, and so, considering the sheer size of the ships that come ashore to be dismantled, the process can easily add up to scrappers collectively paying a total of anywhere between $3m and $10m for a single vessel.
Shipbreaking takes place all over the world, but the manner in which it is carried out differs considerably: in developed countries, the process is handled the by the book, with scrapping companies forced to adhere to strict environmental guidelines outlined by the United Nations Environmental Programme’s (UNEP) 2003 Basel Convention, which stresses the importance of controlling the trans-boundary movements of hazardous wastes and their disposal.
As a consequence of the comprehensive enforcement of these rules, ship breakers in developed countries must ensure that practically every part of the decommissioned vessel is recycled, with only the small amount of unrecyclable materials left over as waste. The guidelines also ensure that before workers begin the process of dismantling a ship, all potentially dangerous materials, including any toxic or flammable gases and liquids, are removed. This procedure is carried out not only to protect the surrounding environment from leakages or contamination during the scrapping process, but also as a safety precaution for those tasked with carrying out the heavy lifting.
Unfortunately, the vast majority of shipbreaking does not occur on the beaches and dry docks of developed nations: more than two thirds of the industry is based in developing countries, specifically India, Pakistan, Bangladesh and China (see Fig. 1). These countries have historically struggled to meet the international standards of practice, with employees forced to deal with working conditions that threaten their health and safety each and every day. What’s more, many of the workers that are tasked with carrying out this difficult and precarious process receive very little in the way of training, and are poorly paid for their labour.
Major industry bodies have campaigned tirelessly in the hope of getting South Asian scrap yards to adhere to international guidelines in an attempt to reduce shipbreaking’s environmental impact
“Without a voice in the workplace, daily abuses go unchallenged”, Nazim Uddin, the leader of the Bangladeshi shipbreaking union, explained in a report conducted by the global workers union IndustriALL. “Shipbreaking workers have miserable conditions. Workers are paid daily – no work, no pay. They receive no paid leave at all, no bonus, no gratuity, and have no job guarantee. Employers pay no compensation to the killed workers’ families. The High Court rules that each killed worker’s family should be compensated BDT 500,000 ($6,400), but employers do not respect this.”
In response to such allegations, major industry bodies, governments and numerous non-profit entities have campaigned tirelessly in the hope of getting South Asian scrap yards to adhere to international guidelines in an attempt to reduce shipbreaking’s environmental impact, and to improve the lives of workers involved in the industry.
All hands on deck
One of the loudest voices in the battle to improve the conditions in the ship recycling sector belongs to the International Chamber of Shipping (ICS). This organisation has helped to raise awareness about the sub-standard practices that take place within the shipbreaking industry, along with the environmental impact that these have and the dangers that they pose to workers.
“The industry accepts its responsibility to promote the safe and environmentally sustainable disposal of ships in the world’s ship recycling yards, the majority of which are located in developing countries”, Peter Hinchliffe, ICS Secretary General, said in a statement. “Adherence to these transitional measures should be seen as a sign of good faith prior to the entry into force of the IMO regime. But they will also help companies avoid falling foul of the separate EU ship recycling regime, which started to take effect on 31 December, and which is also relevant to ships flying non-EU flags.”
More recently, the ICS has reached out to its members around the world, encouraging them to follow a new set of transnational measures. This will in turn help those members to comply with the International Maritime Organisation (IMO) Hong Kong Convention once the global regime comes into force. The ICS has expressed its hope that the measures it has outlined will help ship owners ensure that when their vessels reach the end of their life on the high sea, they will be recycled in the appropriate manner and scrapped by ship breakers using the correct procedures.
“The transitional measures demonstrate that the shipping industry is playing its full part”, Hinchliffe added in his statement. “It is disappointing that after six years the Hong Kong Convention has still only been ratified by a handful of IMO Member States. Governments need to make this a far more urgent priority if they are serious about improving conditions in ship recycling yards on a global basis.”
As such, despite increased regulatory pressure and the support of international trade associations like the ICS, conditions in many South Asian scrap yards are still abysmal, and have shown little sign of improving.
Graveyard shift
The men whose job it is to dismantle these end-of-life ships once they have run ashore on the beaches of South Asia are more often than not poor, unskilled migrants. The vessels in question are usually full the brim with toxic materials, and the workers must contend with a range of highly flammable gases and liquids. To make matters worse, these unqualified workers are rarely supplied with adequate levels of safety equipment or the essential tools that could make the shipbreaking process altogether far safer and simultaneously reduce the toll it takes on their physical health.
According to the website Shipbreaking in Bangladesh, which is owned and operated by the non-profit social development organisation Young Power in Social Action (YPSA), in order to make up for the lack of equipment that they receive, workers in shipbreaking yards often resort to crude, improvised methods in order to try and protect themselves: “When a new ship arrives, there are containers, chambers and tanks which contain oil, petroleum and poisonous gases”, according to the website.
“One method used for checking the level of danger in these parts of the ship is to lower down chickens [on] a string to check whether there are dangerous gases. If the chickens survive, the first workers will enter to clean for oil, petroleum and other flammable substances. The flammable substances are often burned off before the cutters enter to rip the ship apart. Gas explosions [are] a common phenomenon.”
If the threat of explosions and poisonous gases wasn’t bad enough, workers are also at risk of being crushed to death by cranes and other heavy lifting equipment, which are placed on slick, muddy sand that is unable to adequately support them. The terrible conditions that these labourers work in combined with the lack of adequate safety equipment and the complete disregard for international regulations has led to thousands of ship breakers losing their lives.
The Gadani shipbreaking yard in Pakistan is one of the world’s largest ship recycling facilities. According to an IndustriALL article, its 15,000-strong workforce regularly works 12 hours a day, seven days a week, under horrendous conditions, while their pay is around PKR 12,000 a month – a figure that the union equates to around $113. The organisation also claims that workers at Gadani have no access to clean drinking water or first aid. The net impact of all this is that at this specific ship recycling yard, more than 19 people lose their lives every year.
Changing the tide
In order to bring an end to the needless loss of life and reduce the environmental impact of the industry, campaigners are urging countries around the world to implement guidelines outlined in the Hong Kong Convention, which was adopted by the IMO in 2009. However, so far only Norway, the Republic of Congo and France have fully ratified the convention, while Italy, St Kitts and Nevis, Turkey and the Netherlands have expressed their willingness to adopt the guidelines outlined in the agreement.
“Ship building for 130,000 workers in South Asia is predominantly done in medieval conditions”, said Jyrki Raina, General Secretary of IndustriALL, in the same article. “It is shameful that five years have passed since the Hong Kong Convention’s adoption and only three countries have ratified… The Hong Kong Convention will change lives.”
For the convention to enter into force, 15 states, representing 40 percent of the world’s merchant shipping (by gross tonnage), must be on board. As such, this initial undertaking is evidently not good enough. More widespread support is clearly required if these life-changing policies are ever to be put into effect.
On September 15 1992, the British Chancellor Norman Lamont met with Robin Leigh-Pemberton, the then governor of the Bank of England. The Friday before, on September 9, currency speculation had forced the Italian lira to devalue. As a consequence, Britain was facing the same prospect, putting the European Exchange Rate Mechanism under increasing strain. The two men agreed that they would defend the value of the pound through aggressive action, by buying up the sterling of foreign currency exchange markets.
However, as the end of the meeting neared, news came through that Helmut Schlesinger, the head of the German Bundesbank, had told The Wall Street Journal and the German newspaper Handelsblatt that there would have to be a realignment of currency values within Europe’s exchange rate mechanism. As part of the mechanism, Britain’s currency was supposed to shadow Germany’s. Such a statement, just as the UK was attempting to stave off currency devaluation, was not welcome news. “Schlesinger’s remark was tantamount to calling for the pound to devalue”, Sebastian Mallaby noted in More Money than God, his 2010 book about the history of hedge funds.
Following this news, Leigh-Pemberton contacted Schlesinger, who claimed that his comments had not been authorised. He went on to assure his British associates that the remarks would be clarified in a statement the following day. The problem, however, was that while European markets then closed for the night, across the Atlantic they were still very much in motion. News of the situation soon reached George Soros’ Quantum Fund in New York.
Playing the market
Business magnate and financial investor George Soros had only a month earlier started to build up a considerable short position in sterling. If the pound were to devalue, Soros would make an immense profit. By that afternoon, Quantum Fund’s chief portfolio manager had noticed the news of the German central banker’s fateful comment. As he informed Soros, the magnate saw his opportunity to move against the pound and make his short pay out. “Go for the jugular”, he told his portfolio manager.
The fund then initiated a massive sell-off of the pound and encouraged others to do the same. As European banks attempted to purchase the pound in order to prop up markets the next day – a day that was to become known as Black Wednesday – they saw few results. Two orders of £300m were put in before 8:30am on September 16, but to no effect: Soros’ fund was dumping pounds at a faster rate than the Bank of England could buy them.
“The financial markets generally are unpredictable… The idea that you can actually predict what’s going to happen contradicts my way of looking at the market” – George Soros
As The Times quoted Soros in the aftermath: “Our total position by Black Wednesday had to be worth almost $10bn. We planned to sell more than that. In fact, when Norman Lamont said just before the devaluation that he would borrow nearly $15bn to defend sterling, we were amused because that was about how much we wanted to sell.”
Attempts to raise the interest rate further proved fruitless, even with rates at one point reaching 12 percent, followed by a promise to raise them by a further three percentage points. By 7pm in the UK, Britain had been forced out of the Exchange Rate Mechanism, its currency devalued. Soros’ short position paid off, earning himself over $1bn and the title of ‘the man who broke the Bank of England’ with it.
Finding his fortune
Soros was not a man to be underestimated. After surviving occupation by the Nazis and then by the Soviets in his native Hungary, Soros moved to the US and built himself a financial empire and fortune through his genius as an investor, earning him a spot among the wealthiest men in the world.
Born in 1930 to parents Tivador and Elizabeth in Budapest, Hungary, Soros was originally known as George Schwartz. Tivador, a lawyer and World War One veteran, changed the family name to Soros in 1936, and taught his son the constructed international language Esperanto from an early age.
When George Soros was 13 years old, Hungary was occupied by Nazi Germany. The Jewish Soros family was in grave danger, and survived by going into hiding and using forged documents. The following year, in 1945, Soros also survived the viciously fought Battle for Budapest, which saw close-combat, house-to-house fighting between the Germans and the Soviets.
In 1947, Soros emigrated to London, leaving behind the then Soviet-occupied Hungary. Scraping by as a railway porter and waiter, he studied philosophy at the London School of Economics (LSE) under the esteemed philosopher Karl Popper. After graduating with a bachelors and PhD in philosophy from the LSE in 1954, the future hedge fund mogul found a job selling souvenirs wholesale to seaside shops on Welsh beaches. Not content with this career, Soros applied for jobs at a number of merchant banks, although with little luck, facing a number of rejections or ridiculing interviews. Eventually, however, Singer & Friedlander – a financial services firm based in London – decided to take him on. Soros joined the company as a clerk before moving to the arbitrage department.
Two years later, on the advice of a colleague, he applied for a position at the brokerage house FM Mayer of New York. Here he worked as an arbitrage trader, focusing on European stocks. In 1959 he started working as an analyst of European securities at Wertheim & Co., where he further developed his theory of reflexivity, something that he had first established while studying at the LSE. Building upon the thought of his former teacher, Popper, Soros’ theory aimed to explain the nature of market fluctuations. In 1963, Soros served as a vice president at Arnhold and S Bleichroeder, and it was here that he opened a number of funds, honing his investment strategy and theory of reflexivity.
George Soros has described himself as a “financial, philanthropic and philosophical speculator”
After developing his method, Soros was able to start applying it in practice, beginning with a fund that he set up in 1966 with $100,000 of his employer’s money. In 1970 he set up his own firm, Soros Fund Management, which eventually grew to be one of the most successful hedge funds in the world.
With an aggressive trading style and a keen eye for short sell speculations, his fund quickly began seeing returns in excess of 30 percent per year, and twice posted annual returns of more than 100 percent. Although he gave up day-to-day hedge fund management in the 1980s, Soros still exerted considerable control over the organisation and continued to make huge profits by playing the market, eventually making him one of the richest men in the world. The US-Hungarian citizen is today estimated to have a net worth upwards of $24bn, and along with being counted among the 30 richest men and women in the world, he is known as the world’s richest hedge fund manager and one of the top 10 richest Americans.
With more free time and cash to spare, Soros was then able to branch out into another interest of his: politics and charity. As early as the 1970s, Soros had started to fund noble causes, including support for dissidents in communist eastern Europe in the 1970s and backing those opposing South Africa’s apartheid system.
In 1993, Soros founded the Open Societies Foundation, which has since dedicated millions of dollars to causes in the pursuit of democracy and liberalism. The organisation supports civil society groups around the world, hoping to promote justice, education, press freedom and public health. Among his most notable work has been the pursuit of the democratisation of his homeland, along with other eastern European nations that were suffering in the grasp of communism. He has also supported a number of other causes, such as advancing the rights of the Roma people in Europe and reforming US drug and immigration laws. The foundation reported a yearly expenditure of $827m in 2014.
Upon receiving an honorary degree from the University of Oxford, Soros was asked how he would like to be introduced during the ceremony. He replied: “I would like to be called a financial, philanthropic and philosophical speculator.”
George Soros in numbers
$24.2bn
Soros’ estimated net worth, 2015
29th
Soros’ position on Forbes’ 2015 ranking of the world’s billionaires
$10bn
The amount of sterling short sold by Soros’ firm on Black Wednesday
$11bn
Donations to various causes between 1979 and 2015
Men of business
The US is often noted, in comparison to Europe, for its lack of prominent public intellectuals – not for want of thinking men or women, intellectuals in the US have, for the most part, tended not to capture public imagination as they have in Europe. Rather, the country seems to look more to men who have proven themselves in the practical world of business and finance.
Acquiring a fortune in the world of business is more of a prerequisite to catching the eye of the American general public than writing an abstruse thesis at the École Polytechnique, or ruminating on the left bank of a certain river. However, the history of his overwhelming success has turned George Soros into someone that people listen to.
American capitalism and the opportunities it offers have produced many such public figures, but few as prominent as Soros. Along with his long list of philanthropic pursuits and advocacy for democratic causes around the world, Soros has positioned himself as a dispenser of economic and financial prophecy and analysis. His success in the industry has allowed him to take up the mantle of market guru. It’s hard not to at least consider the advice of a man who has the achievement of short selling one of the world’s largest economies attached to his name, as morally dubious as such an accomplishment may be.
The year 2015 had its fair share of financial crises and economy-centric headline stories: emerging markets saw their growth slow, and some, such as Brazil, entered crisis point. Oil prices continued to hit record lows. China saw its growth slow down, unbound volatility engulfed the world’s stock markets, and the eurozone stared down Greece, in what very nearly resulted in Greece’s withdrawal from the monetary union.
Less than a month into 2016, however, financial analysts were already predicting that the coming year would be even worse. Most notably, RBS and Société Générale both released ominous warnings of impending financial turmoil, while the Chancellor of the UK, George Osbourne, more soberly hinted at potentially troubling global economic conditions in the upcoming months.
Soros was another analyst to warn of troubled waters ahead: in early January, he announced that we were going to be facing 2008 all over again, as the current conditions in global markets were reminiscent of that fateful year. “China has a major adjustment problem”, Soros warned at an economic forum in Sri Lanka in January 2016. “I would say it amounts to a crisis. When I look at the financial markets, there is a serious challenge which reminds me of the crisis we had in 2008.” As a man who has made his fortune from shorting markets and making confident financial bets on global markets and the future of the world economy, his advice is perhaps worth heeding.
The great Arctic oil crusade suffered a setback last year when Shell finally called time on its multi-billion dollar Alaska project. Speaking about the decision, sources at the Anglo-Dutch multinational said that the reserves were “not sufficient to warrant further exploration”, despite the fact that more than $7bn had already been spent on offshore developments in the Chukchi and Beaufort Sea. After years of controversy and no shortage of talking points, Shell decided that the risks to its reputation and bottom line were simply too great to stomach. Environmental groups were all too pleased to hear it.
“We hope this will provide a reality check to other companies considering the unpredictable proposition of Arctic drilling, and that investors will transition their funds instead towards low-carbon solutions”, wrote Alexander Shestakov, Director of WWF’s Global Arctic Programme. Greenpeace’s UK Executive Director, John Sauven, added in a statement: “Big oil has sustained an unmitigated defeat. They had a budget of billions, we had a movement of millions. The ‘unpredictable regulatory environment’ that forced Shell out of the Arctic is otherwise known as massive pressure from more than seven million people. For three years we faced them down, and the people won.”
However, as much as environmental groups looked on the announcement as proof that producers were bowing to outside pressure, in reality, this was not quite the case.
Arctic oil is among the worst casualties of the recent oil price slump, which has seen the cancellation or delay of an estimated $380bn in planned projects, according to Wood Mackenzie. What’s more, with 68 major projects – the equivalent of 27 billion barrels of oil – put on hold, it’s little surprise that major names like Shell are scaling back their ambitions and pulling out of capital-intensive operations.
“Company budgets have shrunk drastically and investors are favouring those delivering severe capex cuts”, according to a Wood Mackenzie report. “As a result, there is a growing backlog of deferred greenfield and incremental developments that require significant investment” – of which Arctic oil plays a major part.
The oil industry backslide amounts to little more than a minor setback for what remains a major growth opportunity
Arctic opportunity
This being said, rather than a nail in its coffin, the industry backslide amounts to little more than a minor setback for what remains a major growth opportunity. “Shell’s lack of success is a setback for offshore Alaska exploration and the Chukchi Sea in particular, but does not have wider implications”, Dr Andrew Latham, Vice-President of Global Exploration Research for Wood Mackenzie, told World Finance.
According to a Eurasia Group report for the Wilson Centre, the Arctic is host to an estimated 1,670 trillion cubic feet of natural gas and 90 billion barrels of oil – about 30 percent of the world’s undiscovered gas and 13 percent of its oil. As much of a setback as Shell’s Burger J well is, it’s by no means enough to dampen the industry’s enthusiasm for what is still the most underutilised pool of hydrocarbon resources left on the planet.
For as long as the oil price sits below $50 per barrel, oil majors are unlikely to embrace the Arctic opportunity with quite the same fervour as before. Shell, Statoil and others laid the foundations when oil was traded at around $100 per barrel, but the price collapse in recent months has left billions of barrels beneath the surface and oil majors wondering whether a more appropriate time will ever arrive.
Nonetheless, with OPEC members in possession of 72 percent of proven oil reserves, the Arctic has been hailed as the last great frontier for producers – that is, if they are ever able to unearth the goods. “Low oil prices have generally dampened enthusiasm for oil and gas exploration everywhere, with frontier drilling hardest hit. Companies are focusing their reduced budgets on lower-risk, near-term opportunities, such as appraisal of promising discoveries”, said Latham. “Drilling will hold up best in basins with existing infrastructure and tax shelter for exploration costs against production revenues. Since the Arctic is invariably high-risk, long-term and lacking in infrastructure and tax shelter, it is completely out of favour at these oil prices.”
What’s important to remember here is that Arctic oil and gas reserves are unevenly distributed throughout the Eurasian and North American continents, and though Alaska numbers among the best-known sites, the North American continent is home to only 36 percent of the planet’s total resource base. The interpretation that Alaska is in any way representative is wildly inaccurate, and commentators would be wise to consider a more complete picture.
The brighter side of Arctic oil
While Shell’s failed approach has made headlines around the globe, much less has been said about the many more successful projects in the Arctic pipeline. The biggest stories of the year have centred mostly on cost overruns and missed targets, although a string of developments, most notably on the Eurasian continent, go to show the region’s enduring influence on the global energy stage.
US-based Hilcorp, for example, has outlined plans to build a gravel island that will act as a platform for five or more extraction wells in Alaska. Located approximately six miles off the coast of the Beaufort Sea, the 23-acre island will create a platform from which the company can produce 70,000 barrels of oil a day, or 80 million to 150 million barrels over a 15 to 20-year timeframe.
The proposal is still awaiting approval and will likely struggle to get off the ground before 2017. However, the plan alone is proof that there is opportunity enough to keep major players in the hunt. More impressive than Hilcorp’s island expansion is the evolving situation in Norway, where the government has voiced ambitions to set in motion more Arctic drilling by the year 2017. “New acreage is a cornerstone for long-term activity”, said Norway’s Minister of Petroleum and Energy, Tord Lien, in an interview with Marketwatch. “It’s a good sign for the future petroleum activity in the high north that a broad selection of companies compete for new acreage in the Barents Sea.”
6%
of the Earth’s surface is covered by the Arctic Circle
13%
of the world’s untapped oil reserves can be found there
90bn
The equivalent number of oil barrels in the Arctic Circle
Participants in the latest funding round, according to Lien, included major names such as BP, Shell and Statoil, together with a string of lesser-known names – 26 in all. While the territory is a relatively mature one, the emergence of the Norwegian Barents Sea as a hot new prospect dashes expectations among environmentalists that Arctic oil is becoming in any way undesirable.
“The one bright spot is the Norwegian Arctic: the offshore environment is much easier than most of the Arctic offshore, with sea ice largely absent even in winter”, said Latham. “Norwegian fiscal terms incentivise companies with immediate recovery of 78 percent of their exploration costs, irrespective of production revenues. Several promising oil and gas discoveries have already been made in the Norwegian Barents Sea and new licences continue to be awarded with firm exploration well commitments.”
The Goliat drilling platform is the world’s largest offshore rig. This $8bn joint venture between Eni and Statoil is on course to tap 174 million barrels of Arctic oil, peaking at 100,000 barrels per day. When production begins in the summer of this year, Goliat could follow up a catalogue of cost overruns and delays with one of the most impressive Arctic projects in history. However, uncertainties have cast a cloud over the project’s viability, and some believe that such an enterprise will require an oil price of around $90 per barrel in order to break even over its 15-year lifespan.
East rising
What’s certain is that Western oil producers have made considerably less progress than their Russian and Chinese counterparts, and while those in the US continue to dither, Eastern powers have taken the opportunity to extend their lead.
Russia started work in the Prirazlomnaya field two years ago, and in 2015 produced 2.2 million barrels of the black stuff – over 5,000 per day. What’s more, Gazprom estimates show that the company will more than double production at its offshore site this year, despite EU and US sanctions. Russian producers have already started work on the modernisation of the rig’s drilling installations, technological equipment and safety and telecommunications systems, according to Oilprice.com, with a view to boosting production capacity to 120,000 barrels per day by 2020.
However, where Russia has dominated Arctic oil exploration in the past, China is on course to lead in the future: Chinese oil executives, including Sun Xiansheng, CNPC’s Director General, have made public their Arctic ambitions, which go beyond oil and gas and extend to trade routes. In 2013 the country struck a $400bn gas contract via its Siberian pipeline and paid Rosneft $60bn, on top of an existing $25bn, to pursue offshore oil fields.
With Russia dependent on imports for much of its Arctic equipment and infrastructure, don’t be surprised to see China seize the opportunity and up its investment and share in Russia’s Arctic endeavour. Fears about the financial and environmental ramifications of Arctic exploration remain, however, though Chinese investment would go some way towards alleviating these concerns.
While it’s true that the market for Arctic oil has suffered a setback in recent times, observers would be unwise to assume that producers are giving up on the opportunity quite so easily. The Shell withdrawal has been dubbed a milestone victory for environmentalists, though critics mustn’t overlook the many more successful projects in the pipeline, not to mention the emergence of China as major force in the global energy market. For observers seeking a more complete picture of the Arctic oil market, it’s imperative that their sights extend far beyond the activities of Western powers.
It’s not uncommon for companies to skew the facts about sustainability to their own ends, though few – if any – have taken their deception as far as Volkswagen. The so-called ‘diesel dupe’ made headlines around the globe in September when the EPA found defeat devices, designed to game the system and ensure that theirs were among the cleanest cars on the market, installed in VW vehicles.
The findings resulted in fines of epic proportions and, more pertinently, the exposure of one of the world’s foremost brands’ attempts to pedal a dishonest product under the guise of sustainability. The ugly saga has some way to go before the full truth of it is known. However, the fact of it up to this point is that over 11 million vehicles were fitted with the device, while millions of consumers – not to mention regulators – were misled about the group’s sustainability credentials.
Even with a new chief executive in tow, plus a revised and revved-up commitment to sustainability, disaffected consumers are eyeing Europe’s leading automaker with suspicion (see Fig. 1) – and deservedly so. “We need a culture of openness and cooperation”, the group’s Chairman of the Board of Management, Matthias Müller, said in a statement following the crisis. “We have to look beyond the current situation and create the conditions for Volkswagen’s successful further development.” However, there is a long way to go before it can hope to reclaim the consumer trust that was lost.
In the cold, hard light of the emissions scandal, we’ve entered into a period where consumers would be wise to question corporate promises on climate change
“VW, in pursuit of increased sales, showed flagrant disregard for environmental regulation and lost its customers’ trust”, Frances Way, Co-Chief Operating Officer at CDP (formerly the Carbon Disclosure Project), said in an interview with World Finance. “As the need for transparent disclosure on climate impacts has entered the mainstream, companies are more accountable to all their stakeholders.”
Today, having long ago declared itself a leading light on the hot button topic of climate change, Volkswagen has joined a long and growing list of companies to have promised and ultimately failed to uphold their sustainability pledges. And while companies are acknowledging the significance of climate change – more so by the day – the VW scandal is a reminder that these commitments are not always genuine.
In the cold, hard light of the emissions scandal, we’ve entered into a period where consumers would be wise to question corporate promises on climate change. The risks posed by rising emissions are well documented, though it seems that many companies are all too willing to set aside the risks in sight of immediate profits.
The climate change question
For the most part, companies recognise that sustainability is not a choice, but a fact of the market. Nowhere else can this commitment be better seen than on the issue of climate change. “Companies understand first-hand the disruption that climate change, unabated, will cause to their supply chains, markets and operations”, said Kevin Moss, Global Director of WRI’s Business Centre, in an interview with European CEO.
Many businesses recognise that climate change could derail their operations, from the physical risks that could threaten their processes, to regulatory challenges that could impact their bottom line. On the flipside, according to Way, tackling climate change is a significant business opportunity: the low-carbon economy was valued at $5.5trn in 2011-12 and is growing at an over three percent clip every year.
This sentiment was echoed last year by a Ceres initiative, known as the Business for Innovative Climate and Energy Policy, or BICEP, when over 1,000 companies signed on to a “coordinated effort to combat climate change”. With Apple, Intel, GM, Nike, Unilever and hundreds of others on board, the climate declaration is proof enough that businesses are beginning to pay attention to the issues at hand.
Farid Baddache, Managing Director for Europe, Middle East and Africa at BSR, has stated that more and more companies are now focusing on climate change. The We Mean Business Coalition, of which BSR is a co-founder, already includes 329 companies and investors who have made more than 500 commitments to reduce their carbon footprints. The supporters so far include major European brands such as IKEA, BT Group, Commerzbank, H&M, Unilever and Marks & Spencer, and each has committed to procuring 100 percent of their electricity from renewable sources.
“After decades of debate, the scientific community is agreed on the science that shows that human activity is causing dangerous climate change”, said Way. “Just as importantly, this is now an established fact for leading businesses who understand that there is no greater threat to the global economy than climate change.”
Speaking about the role of business leaders in facilitating this transformation, Baddache told European CEO: “CEOs must state a vision enabling the transformational changes needed for their company to mitigate risks, capture opportunities and demonstrate leadership, creating value for the long-term.”
Where much of the emphasis in years gone by has fallen on governments, communities and the third sector in shouldering the costs, multinationals are being urged – increasingly so, in fact – to engage with the issue at hand.
Volkswagen’s new Chief Executive, Matthias Müller
“More and more companies are understanding that it is in their own business interest to take action to address climate change. CDP’s 2015 climate change report reveals that compared to 2010, when just under half of companies said they had activities in place to reduce emissions, now nine in 10 engage in these activities”, said Way. “We see that corporations are clearly shifting their strategies to become part of the solution to the climate challenge. The momentous and global nature of climate change means that, ultimately, we need everyone on board to take action.”
Playing its part
According to a working paper authored jointly by the Centre for Climate Change Economics and Policy and the Grantham Research Institute on Climate Change and the Environment, “failure of adaptation measures” by business and governments ranked fifth among the global risks with the highest impact. “Yet, the role and impact of the private sector in delivering adaptation and, more generally, climate-resilient development, is poorly understood, perhaps with the exception of certain sectors – such as insurance, tourism, energy and utilities or the food and beverage sector – which have been more visible in terms of their response to climate risks.”
Internal factors, such as supply chain disruption and company culture, are the most important issues in driving private sector adaptation. External factors will play a much greater part in the near future, however, as extreme weather events, rising temperatures and rising sea levels enter into the mix. Regulatory changes, together with sustained stakeholder and shareholder pressure, will likewise have a bearing on private sector engagement, as companies look to incorporate climate change in their day-to-day decisions.
According to the latest GlobeScan/SustainAbility Survey, 86 percent of over 600 expert stakeholders representing business, governments, NGOs and academia feel that the private sector will play an ‘important’ or ‘very important’ role in advancing climate change solutions.
However, while a commitment to climate change is commendable, wavering from these commitments can breed mistrust among consumers, and doing so serves only to depress public opinion. A survey of 1,500 US citizens, conducted by the Pew Research Centre, shows that 43 percent of Americans view corporations unfavourably. This figure, up from 31 percent in 1985 (see Fig. 2), shows that scandals like the VW diesel dupe threaten to ratchet up the pressures facing corporations. Recognising that action on climate change brings with it valuable brand points and a much-needed competitive edge means that companies have been quick to get in on the act.
The Exxon scandal
As if the situation for corporations wasn’t hard enough, it was made worse recently when the news emerged that ExxonMobil may have been knowingly misrepresenting the evidence for man-made climate change. New York State Attorney General Eric Schneiderman has called for company documents that may prove that the world’s largest oil major has been knowingly downplaying the risks. If true, the oil major could face legal charges for failing to adequately inform investors about the risks to its bottom line.
To briefly cast an eye over the tenure of Exxon’s former CEO Lee Raymond, the company veteran of more than 40 years expressed doubts about whether the planet was warming at all. Not only were his views on the matter at odds with the scientific community at large; they conflicted with scientific studies commissioned by Exxon itself from 1977 onwards.
“In the first place, there is general scientific agreement that the most likely manner in which mankind is influencing the global climate is through carbon dioxide release from the burning of fossil fuels”, wrote James Black, a top expert in the company’s research and engineering division, in 1977. Expanding on his research the following year, Black warned Exxon’s managers that a doubling of CO2 could increase average global temperatures by as much as three degrees Celsius, and as much as 10 degrees at the poles. “Present thinking”, he wrote, “holds that man has a time window of five to 10 years before the need for hard decisions regarding changes in energy strategies might become critical.” In order to prosecute, the state must find false statements concerning climate-related costs, and sources say that the investigation will likely extend to rival oil majors should the results prove fruitful. In short, the message to energy companies is that they can no longer afford to ignore the climate question, and, more than that, doing so risks legal repercussions.
Research conducted by Yale’s Dr Justin Farrell shows that the Exxon scandal is not the only case of a corporation influencing the public’s perception of climate change, with 20 years of data on the subject showing that there’s a relationship between corporate funding and climate change denial. In the study, Farrell went so far as to conclude that corporate funding actually influenced the specific content and language used by climate change sceptics.
Drawing on two sets of data – the first being a network of 4,556 individuals with ties to 164 climate sceptic organisations, and the second being 40,785 climate change-centred texts produced by those organisations in the period spanning 1993 to 2013 – Farrell said that “the text analysis is entirely computational, and it shows an ecosystem of influence”. He continued, writing in the online edition of the Proceedings of the National Academy of Sciences: “They were writing things that were different from the contrarian organisations that did not receive corporate funding… Over time, it brought them into a more cohesive social movement and aligned their messages.”
Where many corporations are happy to make a pledge on the issue of climate change, few are willing to carry these promises through to fruition
Painting it green
While there are signs that corporations are beginning to pay heed to the issue of climate change, cases much like VW, ExxonMobil and those discussed in Farrell’s analysis show that for every success, there is usually a failure. The fear is that the solution to climate change will not come voluntarily from companies, and so those who feel that it might may need to reduce their expectations. For years, corporate promises on climate change have been met with little in the way of scepticism, but this trust has been gradually eroded over time.
“Risks abound for companies who choose to be bystanders or to defend business-as-usual instead of proactively shaping the future of their industries”, said Moss. “They’ll find that the proactive and innovative competitors who look for market opportunities to serve the needs of society in a resource-constrained planet will be the ones to gain an advantage.” And while Moss’ opinion here is very much the general consensus, it has done little to deter companies from skirting their responsibilities.
“In our regular public opinion research on sustainable consumption across 18 countries with National Geographic, statistical modelling shows that greatest barriers to sustainable consumer behaviour were the lack of trust that consumers have in the claims companies make about the environmental performance of their products, and a lack of demonstrated sustainability leadership from both governments and companies (see Fig. 3)”, Stacy Rowland, Director of Public Relations and Communications at GlobeScan, told World Finance.
Ultimately, those misrepresenting the facts about climate change risk seriously damaging consumer trust. “While companies are seen as a big part of the problem, our research with both consumers and stakeholders consistently shows that they are expected to be a big part of the solution. Failing to deliver on this will only drive down trust, and it’s already at historically low levels”, said Rowland.
Those perpetuating green-based environmental initiatives while participating in nothing of the sort – a process more popularly known as ‘greenwashing’ – have polluted the climate question. Similar to whitewashing, where a company might make a coordinated attempt to obscure an otherwise unpleasant truth, greenwashing operates on the same principle, but in an environmental context.
The most often-cited example is a fossil fuel company that might profess to be green, though in reality this ‘greenness’ is only a very minor part of what is, in essence, a not-so-green business. Aside from ExxonMobil, Shell has been on the receiving end of greenwashing accusations perhaps more than any other energy company, and critics have taken pains to bring the company’s environmental commitments into focus.
The examples mentioned here, together with hundreds – if not thousands – of others, have complicated the question of whether corporations are doing enough to combat climate change. Well-intentioned statements often do little to rectify the real issues at hand, as where many corporations are happy to make a pledge on the issue of climate change, few are willing to carry these promises through to fruition. And while there is a growing consensus that meaningful action on climate change from the private sector won’t come without encouragement, there are a few exceptions where climate action takes priority.
A brighter climate
When the White House announced a commitment to the American Business Act on Climate Change in October, environmentalists rejoiced to see that some of the nation’s leading names had set their commitments to climate change out on paper. Apple, which runs the entirety of its US operations on renewable energy, pledged to bring an estimated 280mW of additional renewable capacity online before the end of 2016. Facebook, meanwhile, committed to 100 percent clean and renewable energy, and doubled its previous renewables target to 50 percent, by the year 2018.
Aiste Brackley, Research Manager at SustainAbility, said of these efforts in a recent GlobeScan press release: “The landscape of corporate leadership is dominated by technology and consumer companies that have been at the forefront of investing in renewable energy and low carbon solutions, and being vocal about their initiatives on the global stage.” While the commitments themselves are commendable, there were few in the group for whom the changes amounted to a cultural overhaul.
Members of the public form the slogan ‘100% renewable’ outside the COP21 proceedings in Paris
In terms of scope, surely no other initiative rivals Unilever’s Sustainable Living Plan. Seen in the latest GlobeScan/SustainAbility Survey as having made the greatest contribution to advancing climate change in the last five years, Unilever’s contributions stem from its origins as a purpose-driven company. According to the group, “Today our purpose is to make sustainable living commonplace”. The aim is to decouple growth from environmental impact, all while making a positive social difference, driving profitable growth, saving costs and fuelling innovation.
The consumer goods company was held up as a shining example to competitors at COP21 on account of its commitment to zero net deforestation by 2020, and again when it revealed that the next phase of its plan was to expand its sustainable supply chain initiative. Working alongside Dutch NGO Solidaridad, Unilever has pledged to reach deeper into its supply chain and deliver environmental benefits to the over one million people working, either directly or not, for the company.
Other notable examples include IKEA, whose commitment to sustainability was clear for all to see last year when the Swedish furniture maker pledged €1bn towards renewables and climate change adaptation in poorer nations; that’s on top of the €1.5bn spent since 2009. IKEA’s 23 wind farms and 700,000 solar panels will also go some way towards protecting the company from any price swings in the energy market. Special mention should go also to Tesla, whose recent achievements include advancing battery technology and emissions-free refuelling infrastructure across the globe, and to Patagonia, for repurposing its operational strategy time and again in order to reflect the climate question.
The aforementioned examples, as with many others, are living proof that a commitment to climate change need not come at the expense of profitability. More than that, they show that the private sector has some valuable answers on the climate question. “Consumers vote with their feet – and their wallets – if they feel companies are not transparent and trustworthy. So corporate reputations matter to the bottom line”, said Way.
Granted, there may be some business models that are ill-equipped to make quite the same stand. However, the fact remains that businesses have a responsibility to acknowledge what many consider to be the defining challenge of our time.
People don’t care for estate agents very much. Many have the annoying habit of taking prospective buyers to abodes that are either wildly out of their price range or to houses that show a complete disregard of the specific criteria they are looking for. Then there is the awkward issue of being shown around by someone who is trying every tactic in the estate agent’s handbook to convince potential buyers that the property in question is the perfect fit. Using words like ‘cosy’ in the hope that the buyer won’t realise they have just walked into a matchbox. But worst of all are the extortionate fees.
In the UK, high street estate agents can charge a percentage fee that can range anywhere between 0.75 percent to three percent (including VAT), of the agreed selling price for a property. Consider the fact that the average price of a house in London is £350,000 (around $500,000), and an estate agent could potentially take up to £10,500 home in commission. Then there are all the little add-ons for services – many of which are not necessary – that can tag thousands of pounds onto the estate agent’s bill. For years, the industry has existed like this. It has had little to no outside interference, with few market disruptions or new entrants to give it reason to change its antiquated business model – until now.
Tech injection
Over the last couple of years, more than $1.4bn has been invested into real estate start-ups, according to the tracking site Crunchbase, with a huge proportion of that capital finding its way into the UK market. Investors clearly see an area to exploit: a number of property companies have begun springing up with the intention of shaking up the traditional high street estate agents, who for the longest time have failed to incorporate technological solutions into their business model.
Online companies such as Rentify, easyProperty, Purplebricks and eMoov are all looking to capitalise on the inaction of the traditional estate agents, usurping them as the middlemen of the property market by taking house sales and lettings off the high street and onto the internet.
[High street agents aren’t] embracing technology, which for any business in today’s world is daft and dangerous
CEO of easyProperty – one of the tech start-ups that plan to take a chunk out of the high street’s market share – Robert Ellice, seemed both pleased and shocked that the high street agents have been so unwilling to evolve with the times. “[High street agents aren’t] embracing technology, which for any business in today’s world is daft and dangerous”, he told World Finance. “Over the last five years, consumer behaviour has changed a lot.”
In fact, more than 90 percent of prospective home buyers began their search online and real estate related searches on Google have grown by as much as 253 percent, according to a report by the National Association of Realtors. The mass consumer migration online is not a new phenomenon: people have grown accustomed to using technology to help them look at and buy things online, as it provides access to a wide variety of products and services all in one place; making it even more bewildering that traditional estate agents have failed to react to this glaringly obvious trend.
“When I first got into estate agency… it all had to be done by physically taking people to as many properties as you could, or getting your hands on a black and white photocopy to show them, which doesn’t really let the buyer see very much”, explained Ellice. “Nowadays people don’t want to waste their time traipsing around, especially when they are used to accessing everything all online. And as soon as they’ve seen it they will make a snap decision whether they want to view the property in person or not.”
So far, the high street chains – which still hold the lion’s share of the property market – have only recently adopted online portals, affording customers the opportunity to at least view pictures of the properties that they have on their books. Technological solutions have been around for a while now that would grant their customers increased flexibility, but there has been little movement to adopt such solutions.
The inaction of many high street agents in this area comes down to a number of factors. For starters, many are locked into long-term leases and are burdened by large numbers of staff dotted around offices all over the country, which is a situation that is extremely difficult to untangle.
Adopting a more tech-based business model would lead to a huge reduction in staff. Making large swathes of people redundant is not only an unpleasant process; it is also a costly one. The sector has grown complacent due to the lack of new entrants into the space for many years – leading to an ‘if it ain’t broke, don’t fix it’ mentality among the high street chains.
“There is an inherent problem in as much as that if you read any of the estate agency forums, anything that makes the business more efficient – and I mean literally anything – is met with pushback”, continued Ellice. “A real fear of technology has manifested itself all throughout the industry, which is really sad because… it ultimately deprives the customer of a good service.”
Property 2.0
It is this reluctance to change with the times that online estate agents like easyProperty and eMoov are hoping to take advantage of. This new breed of online estate agents aims to provide prospective buyers, sellers, renters and landlords with increased levels of choice, control and value.
Because these estate agents are online they are able to pass the savings they make on reduced overheads directly to the consumers. Unlike the bricks and mortar of the high street, online agents do not have to fork out money on a store front, company cars or staff. They also provide a lot more flexibility with regards to the services they provide – offering customers a ‘pick and mix’ structure that lets their clients pay for what they need.
“Our model is based around flexibility”, explained Ellice. “So if you have a contract you want to use, use it. If you have photos or floor plans of a property, then why pay for them as one big package when the photos are exactly the same as they were 12 months ago and a floor plan doesn’t really change very often.”
Another area where many people are happy to do without the unnecessary input of the dreaded estate agent is the actual viewing of the property. Most people don’t need someone to accompany them on a viewing and most are far better positioned to talk about their property than an estate agent is. Consumers are also going to be far more happy with the prospect of doing it themselves too when they realise that they can save money by doing so.
Online estate agents like easyProperty provide strength by remaining in the background. Negotiating the deal, matching the right person with the right property – not traipsing around in a car emblazoned with their logo on it and spending two or three hours out of the office to do a viewing that merely raises the total cost to the consumer.
“Online gives an impression of being a DIY offering, and it isn’t”, said Ellice. “With us you have exactly the same service as a high street agent, but at a fraction of the cost. You get premium listings on Zoopla. You get printed brochures and viewings, all for £1,500.
“We will come round and do the viewings if you want. We will come round and do the floor plans. But if they want to take something out, like the viewings, then you can, and if you would prefer to have standard listings on the portals, then they can do it for £825.”
Rapid expansion
It is still early days for online estate agents, but the sector has all the right conditions to make a big impact in the coming years. easyProperty, for example, has already got more than 1,300 sales properties on the market, with 200 commercial properties on the market and a further 3,540 rental properties for customers to choose from. These statistics are made even more impressive when considering the fact that the sale side of the company was launched in September last year, its commercial and lettings business opened in April and September of 2014 respectively.
This rapid expansion has been helped by the huge amounts of funding that the sector has managed to obtain, with tech entrepreneurs and other investors looking to take a chunk out of the high street’s market share. Purplebricks has managed to secure more than £25m in investment and easyProperty has seen similar levels of funding.
Most of this money will no doubt be spent on improving consumer awareness, as many people still use high street chains when buying and selling their homes. But once consumers become aware of the savings on offer and the prospect of never having to deal with an estate agent again, they may never look back.
Argentina was once one of the world’s richest economies. Only as recently as the turn of the 20th century, Argentina, along with several European and North American economies, was part of an elite club of prosperous countries – a club that, following the rapid rise of China and other emerging market economies, has grown in size in the decades since.
It is popular to talk about the ‘rise of the rest’. Although the US remains preeminent in its economic sway for the time being, European economies have gradually fallen behind in terms of GDP size as other countries have steadily caught up, rising among the ranks of the world’s largest and most dominant economies. A few years ago, Brazil overtook the UK in terms of total GDP, while Germany recently saw Russia’s economy eclipse its own. For the most part, however, this was to be expected: European nations comprise a small corner of the earth, and as larger nations turn their subsistence farmers into industrial workers (and then service sector employees), overtaking the old powers of Europe is inevitable. It is less of a fall and more of an expected correction and relative decline.
Argentina, however, really has fallen: while a century ago it was one of the world’s most prosperous economies, it has now, according to the World Bank, been downgraded to an upper-middle income country. This rating is still better than that of the majority of countries today, but its relative position is a far cry from scarcely 100 years ago, when its wages rivalled those of the UK. In terms of prosperity, the nation has failed to maintain its position among the European and North American economies it once rivalled. Income per capita is now on average 43 percent of that of the world’s richest nations, among whom it once ranked (see Fig. 1).
A republic on the rocks
Behind this rise and fall has primarily been poor economic policy: a reliance on exports led to both the nation’s initial rise and later decline, while a subsequent attempt to seal itself off from the world economy merely furthered this descent.
Argentina has recently elected a new president, however: the former mayor of Buenos Aires, Mauricio Macri, of the centre-right Republican Proposal party. Since its fall from grace, Argentina has seen persistent poor policy and economic management from its leaders, creating a continually rising and falling economic pendulum (see Fig. 2). As such, the new leader has a formidable task ahead of him. Macri will have to grapple with both a historical legacy of Argentinian economic decline and the country’s currently poor economic performance, which largely comes thanks to his predecessor, Cristina Kirchner.
According to the World Bank’s Latin America and Caribbean Regional Outlook report, which was published in January, the country faces a number of challenges in the coming months and years: while the Argentinian economy saw a modest rebound of growth to 1.7 percent in 2015, the report noted that this was largely due to a surge in government spending. This increase, and the resulting rebound in growth, was unleashed by the previous administration in the run-up to election in the hope of buying the support of the electorate, but was ultimately unsustainable. As such, projected GDP growth for Argentina in 2016 is 0.7 percent.
Net exports, as noted by the report, have been falling, while private consumption is weak. Argentina has also been seeing soaring inflation, reaching over 15 percent in the first half of 2015 and around 14 percent in later months. This figure currently stands at around 20 percent.
Imported difficulties
Of course, some of the problems being faced by the Argentinian economy are cyclical: across the world there are fears of a new global downturn, while Argentina in particular is being hit by the economic troubles of neighbouring Brazil. The Portuguese-speaking giant is Argentina’s largest trading partner, and so some of its economic sectors, including the automobile industry, rely on Brazil for up to 80 percent of their trade. As the World Bank noted in its report: “Growth declines in Brazil tend to have measurable or statistically significant spill-overs to its South American neighbours. A one percentage point decline in Brazil’s growth tends to reduce growth in Argentina, after two years, by 0.7 [percent].”
Yet the country’s woes are not all imported: investor confidence in Argentina is particularly low at present as a result of unease over the nation’s fiscal and monetary policies, particularly with regards to its afflicting debt levels (see Fig. 3). Since the 1980s, the country has defaulted multiple times on its debt obligations; most notably, but not most recently, in 2001, when it failed to pay creditors a total of $95bn – the biggest default in history.
The nation’s credit grade remains consistently low, being at the bottom of ratings compiled by financial advisory service Standard & Poor’s. Furthermore, since the mid-2000s, the country has been locked in a long-running dispute with so-called ‘holdout creditors’ – those holding bonds who refused debt swap options following Argentina’s multi-debt restructuring efforts. This has made Argentina something of a pariah on international bond markets, from which it is effectively barred.
On top of the world
This reputation is in stark contrast to how the Argentinian economy was performing and perceived in the past. Writing in 1905, economics observer Percy F Martin heaped praise upon the future of Argentina in his essay Through five republics of South America: “In spite of its enormous advance, which the republic has made within the last 10 years, the most cautious critic would not hesitate to aver that Argentina has but just entered upon the threshold of her greatness.”
He optimistically predicted that Argentina’s “next generation is destined to see as great a rate of progress in this country’s trade as the past 20 years have witnessed”, while he also showed admiration for the “common sense of the cosmopolitan commercial population”. This cosmopolitan population was made up of waves of European immigrants. While the story of the huddled masses of Europe seeking opportunity in the US now dominates historical memory, many also made a similar journey to Argentina – so many, in fact, that in the early 20th century, half of the capital’s population was foreign-born. These migrants went to find work in the country’s booming agricultural and cattle industry.
In the late 19th century, in the lead-up to the outbreak of the First World War, Argentinian GDP surged at an annual growth rate of 6 percent. Although the world has since seen growth rates much higher than this, at the time it was the fastest rate of growth recorded anywhere on the planet.
This impressive growth rate allowed the country to rank among the 10 wealthiest nations on earth at the time, ahead of France, Italy and even Germany. At the time, Argentina had a per capita income that was 50 percent greater than Italy’s, and nearly twice that of Japan’s. According to The Economist: “Income per head was 92 percent of the average of 16 rich economies.” Furthermore, Argentinians were four times as wealthy as Brazilians.
However, as The Economist starkly noted, “it never got better than this”. Since these glory days, Argentina’s “standing as one of the world’s most vibrant economies is a distant memory”. After a long decade of relative decline, while much of the rest of the world excelled, Argentinians ended the 20th century with an income that was less than fifty percent of that of the Italians and Japanese.
President of Argentina, Mauricio Macri, following his swearing-in ceremony on December 10, 2015
Argentine decline
The country’s great wealth was based on a boom in global trade. The period before World War One was an era of unprecedented globalisation and free trade, of which the Argentinians took full advantage, most notably through the export of beef. The country’s abundant supply of various resources allowed it to find prosperity through exporting to the rest of the world – yet this possibility turned to dependency, putting the country’s fortunes at the behest of the rest of the world. When the era of free trade and economic liberalism fell victim to war and depression, Argentina began its long decline.
For a nation so reliant upon exports, the tariffs and blockades of war were a disaster. They also underlined a fundamental problem with the Argentinian economy: despite being one of the richest in the world prior to the war, it was not a modern, industrialising power like those that it surpassed in terms of wealth were. This meant that it was hit especially hard by the external shock of the new, war-torn era.
This was not unique to Argentina – the period of 1914 to 1945 was a catastrophe for most economies around the world. However, as much of the rest of the world subsequently went through an era of economic reconstruction, Argentina was for the most part left by the wayside.
Then, in 1946, Juan Perón came to power. His political philosophy, now known as Peronism, was a form of corporatism, chiefly favouring large state enterprises and an overbearing regulation on the economy. Of course, state protectionism itself isn’t always responsible for economic failure: South Korea and Taiwan both favoured protectionism in order to foster domestic industries in the 20th century, with the intent of using the method to build up industries to compete on the world market – which they did, very successfully. However, the protectionist policies of the two East Asian tigers and that of Argentina were very different.
Protectionism in Asia was intended to foster industry and ready it for the world market, while Argentina’s was an attempt to withdraw from the world economy and its fluctuations. The present fortune of each country speaks for itself. Under the command of Perón, the state even went so far as to monopolise all foreign trade, a policy generally associated with countries east of the Iron Curtain. The Asian countries also had a greater degree of political stability at the time, boasting secure property rights – something that Argentina was, and still is, sorely lacking.
Argentina attempted to liberalise in the 1970s, but without any industry able to meaningfully compare with international competitors, this only served to precipitate another decline. Peronism had allowed some industries to grow, but they were massively inefficient, shielded from the world market. Any local industry that had been fostered by protectionism was no match for the outside world, and so its products were outcompeted by foreign goods entering the market.
Manufacturing had seen growth in the period of protectionism, but now started a long period of decline. Ultimately, turning in from the world had merely created inefficient industries, rather than providing a protected space in which industries could grow. Between the 1970s and 1990, Argentinians experienced a real per capita income drop of over 20 percent.
The long road ahead
After a century of decline, the Argentinian economy approached the 21st century with a brewing financial crisis, with poor economic policy once again taking a toll on the fortunes of Argentinians. Following a huge build-up of public debt and a period of high inflation in the 1980s, in the following decade the Argentinian Government decided to peg their currency to the US dollar. This was intended to reduce inflation and allow imports to become cheaper through currency appreciation.
While an appreciation of the Argentinian peso was indeed needed, pegging it to the US dollar meant that it overshot the mark. This had a disastrous effect on Argentinian exports, and by the late 1990s Argentina had entered into a deep recession, with unemployment sitting at 15 percent. Along with longer-term issues such as poor tax collection and corruption, the recession resulted in a rise in state spending and a diminished revenue base.
By 1999, creditors had lost confidence in Argentina’s ability to service its debts, leading Argentinian bonds to appreciate. The response was a round of austerity cuts at the behest of the IMF, yet this only further deepened the Argentine recession. By 2001, Argentina had defaulted on its debts and did away with its currency peg: this was the only option afforded to the country, but the subsequent devaluation further impoverished Argentinian citizens.
As capital fled the country, consumer spending collapsed and savings were wiped out. The economy, however, was able to start to rebound after the devaluation, with Argentinian exports once again picking up (see Fig. 4). Furthermore, the onset of a boom in commodity demand in the 2000s also arose, largely fuelled by Chinese and emerging market demand.
However, this once again caused Argentina to become reliant upon exports and vulnerable to external shocks – something that has just recently happened again with the global collapse of commodity prices. Add to this crisis the poorly thought out policies of the previous administration, and the formidable economic task facing Argentina’s new president becomes clear.
The last few years under the presidency of Cristina Kirchner included polices such as “instituting capital controls, running down foreign exchange reserves, [and] in effect having the central bank print money to finance a public deficit”, according to the Financial Times. While these wrongheaded policies were for a while hidden by a world commodity boom, after commodity prices went into the doldrums, the full extent of Kirchner’s economic mismanagement has become apparent.
It would be churlish to expect the new president to be able to completely rectify this century of economic decline: Argentina will not return to its once high-ranking place among the world’s economies anytime soon, nor will the legacy of certain economic calamities be swiftly overcome. However, Macri can set about addressing certain problems with the economy, particularly with regards to cleaning up the mess left by his immediate predecessor.
Argentina has defaulted multiple times on its debt obligations – most notably in 2001, when it failed to pay creditors a total of $95bn
As the World Bank’s report noted, Macri’s new administration is “expected to implement monetary and fiscal tightening in 2016”, which is hoped to lead to a pick up in growth in 2017 “as investment slowly strengthens on renewed investor confidence and leads the recovery”. Along with this, the government has announced that it will make efforts to reach a compromise with holdout bondholders from Argentina’s previous defaults, with the hope that Argentina will lose its pariah status among international creditors. Macri has also pledged to end the policy of capital controls and bring the country’s exchange rate to a more realistic level, while the country’s central bank is also expected to finally move to combat inflation, tightening monetary policy by increasing interest rates.
This will be a tough task, as exports will undoubtedly be hit by such policies and ordinary Argentinians will feel the pinch. Yet it is hoped that the new regime will begin to restore some normalcy to the economy and reinstate confidence in it for businesses. The new fiscal and monetary policies of Macri, after countless years of economic mismanagement, should lay the foundations for a much-needed reversal of fortunes for Argentina. However, none of this will see Argentina return to its former economic glory anytime soon: such a turnaround will require a long-term compromise between being either entirely export dependent or overly protectionist and inward-looking – both of which it has been, and suffered from, in the past.
Argentina must become neither dependent on nor cut off from the world economy, but find a middle ground that allows it to take advantage of world trade, while being able to deal with any external shocks that may arise. Only then can Argentina hope to regain – and sustain – the economic prosperity that it lost a century ago.
Over the past 10 years, the net worth of the online gambling sector has grown to over $35bn. Smartphones have further revolutionised the sector during this time, with usage growing to account for over half of all revenue from operators in the past five years alone. Yet despite this, other than among industry experts and insiders, little is publicly known or understood about the sector; something that is largely because of the complex regulatory environment that influences and shapes the industry.
To shed more light on the workings of this innovative sector, World Finance spoke to Melissa Blau, Founder and Director of iGaming Capital, a firm that provides consulting and development services for companies seeking to enter the online gaming industry. Blau explained how such regulations, if correctly orchestrated, are not a burden, but a benefit to the industry. She also outlined how her firm hopes to help the industry overcome an anti-gaming stigma that often keeps outside investors away.
How has the online gambling sector evolved in recent years?
Over the past few years, the evolution of the industry has been predominantly influenced by the increasing role of regulation, which has been a welcome change. While regulation has its drawbacks (increased complexity and taxes), the benefits far outweigh the negatives.
Firstly, regulation provides clarity regarding the operating environment (tax rate, product vertical), which is important for investors. It also allows the iGaming sector as whole to achieve greater public awareness through the ability to use mainstream media to advertise.
Over the past five years, wagering on mobile devices grew from insignificant amounts to now representing 50 to 70 percent of an operator’s revenue. The ability to use a smartphone to wager on a football event while at the game has increased fan engagement, as well as player loyalty. The technological innovation has also changed the overall game offering: it used to be that players could only really wager on the outright score of a game, but with better technology, predictive models and algorithms, the ability to wager on the next kick or score now represents more than half of all wagers.
As with any industry that matures, operating an iGaming company has become more complex and competitive. Only 10 years ago, few people had any substantial operating experience. It was easier to launch as a new operator with a relatively high degree of success, but as the industry grows, that is starting to change.
The iGaming sector is an industry at an inflection point, and there is great opportunity to target disruptive technologies and services
What are the biggest opportunities and challenges for online gambling?
There are continually new technological developments (for example, mobile geolocation), game formats (in-play sports wagering, daily fantasy sports) and commercial models (virtual currency or social casino) that present massive opportunities. The biggest challenge for innovation has mainly been a lack of capital invested in the sector, coupled with operating in a highly regulated environment. Start-ups in any industry require capital, but starting a company in an industry as highly regulated as iGaming can become a bit more capital-intensive, as the operators and/or technology must be licensed and certified.
The intensity and cost of the regulations vary greatly by jurisdiction. So many early stage companies tend to operate in jurisdictions that are more reasonable to prove out their concept, before moving on to more challenging environments, such as the US.
Why doesn’t the online gambling sector receive much outside investment?
From an early to mid-stage company funding perspective, I have come across lots of interesting and innovative ideas, largely from industry insiders who have vast experience in the sector and see a real opportunity in the market. Yet funding for these companies is exceptionally tough: many venture funds are precluded by their investment charters, which specifically name gaming as a no-go industry. A few shy away from investing in the sector, as they cannot overcome the ethical issues associated with iGaming. That is understandable, as this industry is not for everyone.
I think the biggest opportunity is to attract those investors who have a genuine interest, yet don’t know where to seek the premium deal flow. Understanding the iGaming sector requires speaking to the stakeholders in the sector, such as the regulators, operators, suppliers and industry-focused legal/financial advisors.
What has ended up happening is that when it comes to funding, many of the early stage companies have been funded by high net worth individuals from within the industry. While that has been great for them, with such little competition over valuations, it is poised to change.
How do you plan to break the stigma surrounding the sector?
Over the past couple of months, I have been working to help solve this problem by leveraging my years of experience in venture capital at Constellation Ventures, as well as my 13 years in iGaming generally, to create a dedicated iGaming fund to invest in the proprietary deal flow I have cultivated over my years in the sector.
My goal is to develop GamingTech as an asset class similar to HealthTech and FinTech, to assist in attracting capital that would not otherwise be invested in this fast-growing sector. In doing so, I strive to break misnomers about the sector and make investing in the sector more transparent.
When I co-founded Constellation Ventures in 1997 with Cliff Friedman, in conjunction with Bear Stearns, it was important to investors that we both had industry experience in the MediaTech sector. Friedman was a well-known analyst for Bear Stearns and also a senior executive at NBC. I had worked at Viacom Interactive and helped to launch Simon & Schuster’s interactive business. With Sony as our largest investor, we created what was at the time one of the leading vertical-specific venture capital funds that was specifically targeting technology and content in music and media in general. It was clear that our industry experience made us better investors. Recreating that with my experience in iGaming has been a long-time goal, and I am working on now setting that plan into action.
How do online gambling regulations vary from country to country?
Each country or state takes great pride in administering their own variant of gaming regulations, as each locality has their own way in which they want to see potential issues addressed. Some countries offer a very open regulatory environment, such as the UK and Denmark, which allow foreign companies with no prior presence of operating gaming to obtain an iGaming licence. The UK and Denmark also allow for what we call ‘open liquidity’, wherein their poker players are allowed to play on the same network as players from almost any other country.
Other countries, such as Belgium and the US, only allow licence holders of land-based operations to offer iGaming. Other countries offer it solely to their government monopolies or lotteries, while the majority of jurisdictions have yet to develop any regulations, and remain grey markets. While regulated markets still remain somewhat in their infancy, the lessons and mistakes continually unfold. Another big difference is the tax rate and product offering – the level tax rate can largely determine the success of iGaming in any country. As a rule, any tax of more than 20 percent will generally be unsuccessful. It seems that when a jurisdiction sets the tax rate higher, two things tend to occur: first, the top operators shy away from entering the market. Second, illegal operators tend to do better.
France is a perfect example of where the regulations could be improved. Not only is the tax rate high, but the country has also yet to regulate casino-style games, offering only legalised poker and sports wagering for remote gaming. While France was one of the first jurisdictions to create iGaming regulations, there have been an increasing number of jurisdictions from which to learn, creating a more robust and profitable environment for both operators and investors.
What are your ambitions for the sector moving forward?
As I have mentioned, my ambition is to attract additional capital into the sector by capitalising on the changing global gaming market, tapping into the proprietary access of experienced key stakeholders who are the thought leaders in the sector. As part of it, I would like to create GamingTech as an asset allocation for strategic and financial investors, similar to HealthTech, SportTech and FinTech. Potential investors include a broad range of capital, such as strategic corporate capital, family offices, investment advisors, private banks, institutional consultants and institutional investors.
The end goal is to create a leadership position in the GamingTech sector by acting as a resource for potential investors and assuaging preconceived fears of the sector, as well as break the ‘insider only’ investor market. The sector is an industry at an inflection point, and there is great opportunity to target disruptive technologies and services.
Poor planning has plagued Spanish infrastructure in recent years. The sector has suffered from a lack of prioritisation for the most socially beneficial projects, considerable overspending of public resources on construction, and little long-term vision from the government.
Political fragmentation in the wake of the recent elections has only added further uncertainty to Spain’s infrastructure sector – something that threatens to constrain the outlook for new projects in the coming decades. To better meet its future infrastructure needs, Spain would do well to form a concrete strategy for infrastructure investment in the long term.
To this end, the country can build on some encouraging developments: Spain’s economy made a promising recovery last year, as investor appetite for project finance grew, while the establishment of the new National Evaluation Office (NEO) – set up to analyse the feasibility of large-scale infrastructure projects – will help the country to improve its infrastructure planning.
A poor track record These are certainly welcome developments for a country where local and national governments have often not prioritised the most viable projects, a decision that has resulted in negative economic and social consequences. What’s more, significant public resources have been invested in unfinished or unused projects during this process.
In the years preceding the financial crisis, all provincial capitals in Spain – of which there are around 50 – argued that they were entitled to an international airport. Such enthusiasm led to the expensive construction or upgrade of numerous barely used and remote airports. 200 kilometres south of Madrid, for instance, the airport of Ciudad Real was opened in December 2008 following an estimated investment of €474m. By 2012, the airport had closed and filed for bankruptcy. The airport will have to be auctioned this year, following a failed auction process in 2015.
This unfortunate pattern was repeated across Spain: Castellón’s airport in the east of the country opened in 2011, but only saw its first flight in March 2015. Similar airports, such as Huesca (in Aragon), Lleida (in Catalonia) and Cordoba (in Andalusia), only attracted a trickle of flights after the recession hit in 2008.
The Spanish rail sector also suffered from poor attention to project profitability: with the majority of public investments in Spanish infrastructure going towards expanding its high-speed railways in recent years, Spain has the world’s third largest high-speed rail network after China and Japan. However, oversupply and inadequate demand has affected some lines. In fact, the high-speed line through the Pyrenees, from Perpignan in the south of France to Figueras in northeast Spain, filed for bankruptcy proceedings in July 2015. The project’s sponsors are now claiming compensation from both the French and Spanish Governments due to early termination.
Nor have Spanish highways fared much better: notably, eight concessionaires for toll roads (the ‘radiales’) radiating outwards from the Spanish capital are currently undergoing bankruptcy proceedings. Negotiations between the government and these lenders have lasted three years to date, and have no end in sight.
Political fragmentation Such a poor track record stems, in large part, from a lack of long-term planning for infrastructure development on a governmental level. Not only is responsibility for infrastructure investment fragmented among various divisions of local and national government, but infrastructure investment is also influenced by the course of elections – and with different parties come conflicting infrastructure polices.
While the plan for investment in transportation is the sole responsibility of the Ministry of Public Works, it only remains in force for as long as the government responsible for the action is in power – and governments can last as little as four years. As a consequence, Spanish infrastructure investment is rarely guided by a long-term vision or strategy beyond the mandate of its elected government.
It is for this reason that this year’s political fragmentation threatens yet more uncertainty for Spain’s infrastructure sector. In December’s general election, no single party gained even one-third of the popular vote, and an absence of government has meant a lack of clear infrastructure policy – and plans for investment – in the future.
Breaking the political deadlock requires the formation of either a coalition or a minority government. However, either option will have significant ramifications for the infrastructure sector: on the one hand, in a coalition, national infrastructure priorities would require consensus among the political parties – a difficult task, given their differences in policy. While the centre-right Partido Popular (PP) party favours continued development of national high-speed, conventional and freight railways, the left-wing Podemos party has voiced its support for the cessation of all large infrastructure projects that have not yet been approved.
On the other hand, should a minority government form, the party in charge would have a limited ability to introduce any infrastructure reforms, due to its lack of a legislative majority in parliament.
Long-term doubts This political fragmentation and the consequent hiatus in policymaking have increased uncertainty over Spain’s plan to meet its infrastructure requirements over coming decades. Above all, there is a worrying lack of a clear pipeline of future projects.
The Infrastructure, Transportation and Housing Plan (PITVI) – the current strategy guiding Spain’s investment in much of its national infrastructure – is set to expire in eight years. Without political direction to guide planning, significant investment in greenfield projects – that is, new developments – could suffer further down the line.
Meanwhile, the market for public-private partnerships (PPPs) may struggle to develop in this environment, given the time that is required for the tendering process: a local authority needs to plan its infrastructure projects, award contracts to companies and deal with the legal side of issuing tenders. All of these actions take time – something that may be eaten up by political stagnation over the next year.
Furthermore, the project to develop Aragon’s Alcañiz Hospital in Spain’s northeast was also cancelled in the wake of fresh elections. Like the City of Justice, this was despite the fact that the preliminary preferred bidder for the concession was already in place.
What’s more, the lack of political cohesion on infrastructure policy could also have an impact on the future upkeep of brownfield projects (infrastructure already built and functioning). Although political uncertainty is unlikely to hurt existing infrastructure in the short term, doubts remain for the long term. For instance, although some infrastructure sectors, such as roads, are currently in good shape and should not require improvements any time soon, this may not be the case 10 years from now in the absence of any maintenance.
A cohesive strategy Spain urgently needs to adopt a concrete infrastructure strategy that can provide strong guidance for public investments by different administrations and across the political spectrum over the next 30 years. Encouragingly, the foundations for such a strategy have already been laid.
First, 2015 saw the country’s infrastructure finance market signal a crucial recovery. Spurred on by an improvement in the economy, as GDP growth picked up to 3.2 percent from a mere 1.4 percent the previous year, investor appetite for project finance grew, and the secondary market picked up steam after several years of relative inactivity.
In fact, while Spain has traditionally financed projects through the bank loan market, recently there has been a growing interest for the refinancing of existing transactions through the debt capital markets. The increasing involvement of pension funds in projects was particularly notable.
Second, the recently approved NEO was set up to analyse the financial feasibility of new public works or public services concessions prior to the tendering process. The NEO will offer vital advice and scrutiny to large-scale projects (investments of more than €1m) and is open to regional and local governments, which could benefit local and regional authorities less familiar with the process of offering concessions. If correctly implemented and staffed with skilled technicians – allowing projects to be analysed with respect to profitability and cost-effectiveness – the NEO could improve the prospects of Spain’s infrastructure sector and solidify its future.
Certainly, there is room for improvement. But having learned the lessons of the past, and with a strategy for the long term, Spanish infrastructure could weather the current storm of political uncertainty.
On March 8, Mark Carney, the Governor of the Bank of England, warned that a vote for the UK to leave the EU could cost the economy £2.04trn ($2.9trn). Carney stated that Brexit, as it has become commonly known, could impel a number of banks to move away from London, thereby jeopardising the city’s status as one of the financial capitals of the world.
Carney also suggested that a number of large institutions could already be planning a contingency move of their European headquarters elsewhere.
When speaking in front of the Treasury Select Committee, Carney guaranteed that his comments were in no way a statement on the Bank of England’s position regarding the EU referendum. Nonetheless, his comments could suggest that he is indeed advocating for Britain to stay in the EU.
Carney explained that the full impact of Brexit would depend on whether the EU chooses to grant full mutual recognition to the UK. If this is the case, then financial companies working in the UK could continue operating throughout the EU under similar terms to the ‘passporting’ arrangements that are in place at present. However, Carney also warned that mutual recognition provisions tend to take some time to come into effect.
The Governor’s comments about the domestic risks and financial instability facing the UK if it left the EU clearly angered the Eurosceptics of the committee, who went on to accuse him of promulgating ‘standard’ pro-EU sentiment. During the fiery exchange, Carney insisted that David Cameron had not influenced his opinion, and that he “will not let that stand”.
It has been clear since the announcement of the referendum that the biggest players in the British political and economic scene are divided when it comes to their opinions on whether the UK should exit the EU or not. As such, a prediction on the outcome of the vote at this stage is more uncertain than ever.
Founded in 1990, Zenith Bank is now the largest tier 1 bank in Nigeria. Following its public listing on the London Stock Exchange in 2004, it has since grown to have a shareholder base of roughly one million. The bank has spread both across Nigeria and the world. With its headquarters in Lagos, it has over 300 branches and offices across the rest of the country, along with subsidiaries and representatives across the world.
Speaking to World Finance, Peter Amangbo, CEO, Zenith Bank, discussed the company’s plans for growth in more depth. Overall, it is looking to pursue organic growth. In the short to medium term, the bank hopes to pursue growth internally. “Our strategy from inception”, Amangbo noted, “has been based on internal growth.”
In the longer term, Zenith Bank aims to promote growth through a strategy plan that focuses on trying to “improve – through creation and enhancement of new markets, products and services – and consolidate, through superior customer services, local and international awareness of our brand.”
Technological advancements
With this overall strategy in mind, the bank has a number of plans. It hopes to enhance customer service experiences through the implementation of high quality information and communication technology platforms. These, Amangbo said, will “create convenient banking channels and products for our customers.” The use of new technology platforms by the bank has so far proved successful.
Zenith Bank’s mobile banking application was used
7.1 million times in 2015
Its mobile banking application was used 7.1 million times in 2015. At the same time, its Corporate I-bank, which has the unique feature of enabling customers to view their information in other banks, experienced a volume of 9.5 million. Other Zenith Bank platforms have also proven popular, such as the eazymoney app, which allows non-customers with smartphones to carry out a variety of transactions.
Such apps allow non-customers to engage with the bank, potentially laying the ground for new customers within Nigeria. However, these new online banking technologies – in line with its strategy of internal growth – will also allow Zenith Bank to deepen its relationship it already has with existing customers. As Amangbo told World Finance: “These platforms provide a means by which our customers can be engaged digitally, increasing the depth of the relationships with these individual customers.” And the results are showing: the most recent available survey on customer satisfaction conducted by KPMG ranked Zenith as the most customer focused bank, an award it also won in the preceding year.
Another area of internal growth that Zenith Bank is working on is to create cohesion among the bank’s various components. “Our policies, practices and processes”, Amangbo pointed out, “are designed to ensure a handshake among the bank’s components and build a culture of collaboration that is tailored towards achieving the bank’s stated objectives.” Cohesion within the bank is nurtured by giving clear directives of the business’ vision, mission and goals, with each department aware of how they will specifically contribute to this.
Widespread customer focus
The bank’s business focus is communicated to each of its core business groups (BFGs) with the target customers they are primarily meant to serve clearly identified. In allocating responsibilities, the executive management ensures that all customers receive and experience the same quality of service across all of its BFGs.
Going forward, Zenith Bank hopes to expand both domestically and internationally – and it is in a good position to do so. Within Nigeria, it is among the safest and most risk minimising banks, in terms of capital ratios. Its capital adequacy ration is 21.92 percent, which is well above the regulatory requirement of 16 percent for systemically important banks. In terms of international expansion, Amangbo said it plans to grow its “operations overseas in the world’s major financial centres”, which it hopes will enable it to “provide multinational customers with cross-border financial solutions which will meet their international requirements.”
To this end, its European subsidiary Zenith UK, based in London, is well positioned. It already assists the bank’s various West African subsidiaries in the form of trade finance services. With a combination of a progressive use of technology, focused internal growth, a strategy of nurturing institutional cohesion and a growing international presence, Zenith Bank is just starting out on its successful path.
Europe’s recovery has fallen far short of the expectations set out by optimistic analysts and over-ambitious politicians in years past, although this isn’t to say the business climate has suffered as a result – far from it in fact. Many companies in Europe today recognise that sustainability is as important as profitability in determining their success in the long-term, and the growing popularity of CSR programmes is testament to this development.
World Finance spoke to Gianpietro Giuffrida, Head of Private Banking at BNL-BNP Paribas, about how the bank has evolved in this changed European landscape, and how the bank’s commitment to philanthropy and CSR sets it apart from the rest.
As the economic recovery in Europe continues to disappoint, how is it that BNL-BNP Paribas can offset these challenges?
BNL is part of the BNP Paribas Group, ‘the bank for a changing world’. Change does not frighten us and, indeed, is seized on as an opportunity to innovate and improve our delivery model.
BNL-BNP Paribas’ private banking arm aims to build a partnership with our customers, being at their side and taking care of their investment needs. We have expanded and diversified our offer, not only through banking products and services but also by widening the range of solutions to answer our customers’ needs and expectations, always using a diversified approach to investment and taking into account risk profiles.
A concrete example is our wealth planning service, where we have taken into account tax and legal issues and supported our clients even in managing inheritance. Other opportunities are also available with art advisory, wine, properties and alternative investment solutions.
All this has been made possible, at least in part, because of the ability of BNP Paribas to leverage the expertise of more than 6,000 professionals in wealth management, despite the fact that many operate in entirely different sectors and markets.
Which services are offered to clients to protect their wealth in post-crisis years?
Generally speaking, the approach to financial investments advisory has evolved by focusing more than ever on the clients’ and products’ risk profiles. On the client side, any financial advice we provide is based on the client’s risk profile, their investment horizon, their risk tolerance, their knowledge and experience of financial markets, and the purpose of their investments.
On the product side, the financial risk of investment products is categorised and quantified through synthetic risk indicators. These are calculated and maintained over time for all securities traded by BNL.
Once you have identified the risks for both clients and products, you can then perfectly match your investment proposal to each client’s needs. In order to facilitate this process, BNL-BNP Paribas Private Banking has developed an IT tool that enables bankers to identify the measures they need to take in order to align clients’ portfolios to their risk profile.
If we can’t prevent new financial crises in the future, we can at least optimise our clients’ wealth protection in those circumstances.
Can you explain the importance of philanthropy in the world of business?
Corporations can lead the process of transition from traditional philanthropy to a public philanthropic attitude. The direct involvement of corporations may improve the global perception of poverty, environment, education and many other important causes.
Ultra high-net-worth individuals (UHNWI) are today playing a key role in the development of this modern, forward-thinking approach, and philanthropy can be one of the most important tools to hand. With this in mind, the modern concept of philanthropy is about conditioning different ways of doing business, and it is thanks to this evolution that today it is very common to hear about ‘impact investing’ in financial instruments. In other words, investment activities that aim to create not only an economic return for investors, but also achieve a positive and relevant social impact.
Combining business and philanthropy means that the time horizon of medium-term and long-term investments will coexist with primary needs
Combining business and philanthropy means that the time horizon of medium-term and long-term investments will coexist with primary needs such as these. Launching your own philanthropic initiative and guaranteeing its sustainability is a lifelong project in itself.
That is why it is essential to have support and guidance along the way, whether it be establishing impact measurement methodology, creating structures to guarantee the viability of your initiative, or finding those who could take over from you.
Giving meaning to your wealth requires a global approach and a wider consideration of wealth planning issues. That is why it is important to seek the advice of philanthropy experts as well as wealth planning advisors. When well thought out, a philanthropic project will meet the needs of those you wish to help. If well analysed, your financial commitment will be optimised; this is our goal at BNL-BNP Paribas Private Banking and we support our customers in their philanthropic journey with our dedicated teams.
What corporate social responsibility programmes does BNL-BNP Paribas have in place?
Corporate social responsibility (CSR) is the adaptation of sustainable development to the corporate world. It is the best way for companies to integrate environmental, social and corporate governance (ESG) criteria into their strategy and general policy.
As part of the BNP Paribas Group’s global philanthropy mission, BNL supports non-profit activities in the areas of culture, solidarity, education and the environment. In Italy, the group invests in a large number of initiatives in support of the community, ranging from BNL’s financial education courses to raising awareness of the choices available (Educare Project) and its initiatives targeted at young people, and the Arval Ecopolis project for a sustainable city.
Moreover, BNL is also involved in promoting socially beneficial solidarity projects all over the world through the BNL Foundation. For over 20 years, BNL has been actively working with the Telethon Foundation in support of scientific research. The aim is to integrate the bank further into the social fabric, and to bring it closer to the needs of the community, not only in the field of business. We can say that today, a form of socially responsible investing is not a utopia but something extremely concrete.
BNL-BNP Paribas Private Banking wants to go further in offering its customers sustainable and responsible investments (SRIs), focusing on the way in which investors integrate sustainable development and CSR into their investment choices. Poverty, inequality, exclusion, pollution, global warming and the rarefication of natural resources are all major challenges for the economy, and ones for which each investor has the power to take action. Investing is a responsibility and a means of meeting these huge challenges in the long-term.
SRIs represent a concrete way to support a responsible economy, while taking advantage of the investment opportunities offered by sustainable development. Our customers have a wide range of SRI funds available to them, as well as impact investments in selected instances.
Our in-house fund provider, BNP Paribas Investment Partners, was one of the first fund managers to promote SRI-compliant funds, having done so since 1997, and one of the first to promote the UN Global Compact. Our group is proud to certify that 100 percent of BNP Paribas’ investment partners’ portfolios respect ESG criteria – a guarantee for all our customers.
How is Private Banking BNL-BNP Paribas different from other European banks?
The assistance we offer to our clients is not limited to the simple management of wealth, but extends to the excellence of BNP Paribas Wealth Management and its 600 specialists spread over 30 countries. Our financial offers are the result of an attentive knowledge of our clients’ needs and expectations, which allows us to tailor the proper solution for them.
To reach this goal we can take advantage of synergies with other companies within our group, such as BNP Paribas Investment Partners (funds), CIB (certificates and M&A), Cardif (insurance) and Servizio Italia (fiduciary services) for dedicated products but also for totally tailored creations.
We also provide non-financial high-level services such as rural properties advice, which gives guidance on investing in wine throughout Europe, or art advisory services to help build your private collection, manage it, and even work with the most important museums in loaning your masterpieces.
For 2016 and beyond, what does Private Banking BNL-BNP Paribas have planned?
More than 500 professionals are dedicated to assisting clients in more than 40 private banking centres, with two dedicated offices for UHNWI in Rome and Milan. Our assets under management total €32bn, with an annual increasing ration of 13 percent, double the average ratio of the market. We have a 5.8 percent market share and we are fifth place in the Italian private banking sector, and reasonably confident that by the end of 2017 we will be third.
We will continue to grow our network of private bankers, thanks to our recruiting activity. In addition to these figures, we want to continue to improve in terms of quality by innovating and diversifying our offer to create better tailor-made solutions for our customers.
One revolves around inadequate levels of investment in infrastructure, which has impacted the competitiveness of Brazilian businesses across all industry sectors. The Latin American powerhouse has also suffered from a major decline in its industrial sector at the hands of such structural weaknesses and, therefore, productivity has remained low for some time, driving up unemployment. In fact, the unemployment rate in the country rose to 6.9 percent in December 2015, according to data compiled by the Brazilian Institute of Geography and Statistics (IBGE), up from 4.3 percent during the same period the year previous.
“The productive investors have a long-term view”, added Studart. “By any measure Brazil is a good investment. It has achieved a lot, but has a long way to go. I am pessimistic in the short term, but I remain optimistic in the long run. Investors, both domestically and internationally, feel the same way I do.”
The arguments for nuclear
Historically speaking, Egypt has long played a leading role in the Middle East, often acting as the bridge to the West and the cultural epicentre to the region. Yet a prolonged economic downturn in recent decades, together with the rise of Turkey, has seen Egypt slip from its once-prominent regional position. As such, it would appear that Cairo endeavours to regain this role through its admission to the nuclear club.
Yet, at present, Morocco stands out as the only country in the region taking discernible steps to tap into this enviable asset. The country recently started construction on the world’s largest solar energy production plant, which will allow its move away from a heavy reliance on imported fossil fuels. Rabat has even pledged that by 2020, 42 percent of domestic electricity demands will be supplied by solar energy. That said, the UAE and Jordan have also set targets to expand solar power generation in the coming years, albeit to a lesser degree, which thus makes their nuclear strategy even more curious.
Military might is a highly significant and pivotal factor in domestic policies for countries in the Middle East, particularly given the levels of instability and turmoil that persist in the region. It is for this reason that Saudi Arabia, despite dealing with a drastic fall in state revenue since the 2014 collapse of oil prices, increased its military budget by 17 percent – to $80.8bn – between 2013 and 2014, making it the fourth largest in the world. Such a financial manoeuvre indicates the sheer importance of maintaining military precedence for leading players in the region and contributes further to the argument that a Middle Eastern nuclear arms race could in fact be on the cards in the not-too-distant future.
According to the website Shipbreaking in Bangladesh, which is owned and operated by the non-profit social development organisation Young Power in Social Action (YPSA), in order to make up for the lack of equipment that they receive, workers in shipbreaking yards often resort to crude, improvised methods in order to try and protect themselves: “When a new ship arrives, there are containers, chambers and tanks which contain oil, petroleum and poisonous gases”, according to the website.
According to the World Bank’s Latin America and Caribbean Regional Outlook report, which was published in January, the country faces a number of challenges in the coming months and years: while the Argentinian economy saw a modest rebound of growth to 1.7 percent in 2015, the report noted that this was largely due to a surge in government spending. This increase, and the resulting rebound in growth, was unleashed by the previous administration in the run-up to election in the hope of buying the support of the electorate, but was ultimately unsustainable. As such, projected GDP growth for Argentina in 2016 is 0.7 percent.
Imported difficulties
Argentina attempted to liberalise in the 1970s, but without any industry able to meaningfully compare with international competitors, this only served to precipitate another decline. Peronism had allowed some industries to grow, but they were massively inefficient, shielded from the world market. Any local industry that had been fostered by protectionism was no match for the outside world, and so its products were outcompeted by foreign goods entering the market.
