Author: itsupport

From tradition to transformation in the luxury market

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In 2023, the luxury sector demonstrated robust growth, despite facing global economic complexities, an overall slowdown in consumer demand, and inconsistent performance across different markets. Bain & Company reported a global market value of €1.5trn, with personal luxury goods reaching €362bn – a four percent increase at current exchange rates and eight percent at constant rates. Notably, menswear emerged as a rapidly expanding segment, driven by the demand for high-quality, classic pieces reflecting brand heritage – a trend corroborated by our group’s recent results.

Entering 2024, the luxury sector faced additional hurdles, including adapting to a swiftly changing digital landscape and combating counterfeiting while upholding ethical supply chains. The geopolitical environment, including the Russia-Ukraine war and most recently the Israel-Palestine conflict, has also presented challenges for sector growth. Despite these obstacles, the sector has demonstrated resilience, emphasising its ability to thrive amid volatility. As the year progresses, luxury brands must continue to navigate geo-political and economic challenges, technological shifts, and evolving consumer preferences. This adaptability is essential as brands aim to meet the sophisticated demands of a global consumer base seeking authenticity, sustainability, and exceptional quality.

Navigating new norms
The luxury market is experiencing significant changes in 2024, influenced by economic shifts and an evolving demographic profile. The Knight Frank and Douglas Elliman 2024 Wealth Report highlights a 4.2 percent increase in global ultra-high-net-worth individuals (UHNWIs), with notable growth in North America, the Middle East, and Africa. This surge provides luxury brands with opportunities as $90trn in assets is set to transfer from baby boomers to their children, setting the stage for millennials to become the wealthiest generation ever.

However, capturing this wealth requires more than traditional strategies and this becomes even more imperative in the face of Bain & Company’s prediction that younger generations (Generations Y, Z, and Alpha) will emerge as the predominant consumers of luxury goods, accounting for nearly 85 percent of global purchases by 2030 (see Fig 1).

Today’s affluent consumers, especially millennials and Gen Z, demand authenticity, sustainability, and ethical practices from luxury brands, reshaping the market’s landscape. These consumers are not just looking for prestige but also for a genuine commitment to social values and environmental responsibility.
Sustainability has become a crucial aspect of luxury branding. The younger generation’s environmental concerns are prompting luxury brands to adopt sustainable practices and transparently communicate these efforts, moving sustainability from a trend to a business imperative and an integral part of their global legacy.

Digital transformation is also critical. As wealth mobility and younger consumers’ digital fluency increase, luxury brands must integrate advanced technologies such as AI to enhance online and in-store experiences. AI can enable brands to drive design with data insights, authenticate products, optimise supply chains, and much more. These innovations are not just about keeping pace with technology but are crucial for connecting with a digitally native audience, thereby ensuring that luxury brands remain relevant in an ever-evolving market landscape.

Additionally, according to Bain & Company, the retail landscape is witnessing a remarkable shift towards enhanced in-store experiences. Monobrand stores, in particular, are leading this change. In our group’s experience, personalised clienteling has been instrumental in attracting luxury consumers who are eager to return to face-to-face interactions, thereby demonstrating a preference for a more tailored and intimate shopping experience. This era is about leading change, not just adapting to it. Luxury brands that can effectively harness shifts in wealth demographics, consumer expectations, and technological advancements are set to succeed. The evolving luxury landscape continues to demand a blend of exclusivity, responsibility, innovation, and authenticity, all tailored to meet the diverse needs of a global consumer base, just as it has in the past.

On-trend in China
China has been a reference for luxury goods for decades and the diversity within China’s regions plays a critical role in shaping the luxury market. For example, while mainland China has shown strong performance post-reopening, emerging economic challenges have hinted at potential slowdowns. In contrast, Hainan’s Sanya Haitang Bay is on track to become a new luxury hub, set to transform into a duty-free island by 2025, which could significantly alter the luxury retail landscape.

The retail landscape is witnessing a remarkable shift towards enhanced in-store experiences

Furthermore, Bain & Company forecast that by 2030, Chinese consumers are expected to reclaim their pre-Covid-19 position as the leading nationality for luxury goods, accounting for 35–40 percent of global purchases. Additionally, mainland China is anticipated to surpass the Americas and Europe, becoming the largest luxury market worldwide, representing 24–26 percent of global purchases.

While the luxury sector faces a complex array of challenges in 2024, the opportunities within China’s expanding and evolving market are significant. Brands that can navigate these complexities with strategic agility, a strong digital presence, and a commitment to sustainability are likely to outperform and continue to captivate the sophisticated and increasingly diverse luxury consumer base in China and beyond.

Must-haves in the Middle East
The Middle East is experiencing significant economic growth, driven by government investment of energy sector revenues into new economic areas. This is fostering a notable increase in wealthy families in the region. Projections suggest that by 2027, the number of high-net-worth individuals (HNWI) in the Middle East will increase by 82.4 percent, and UHNWIs by 33 percent, exceeding the global growth rate.

In addition to these trends, the Middle Eastern luxury goods market, primarily driven by the UAE and Saudi Arabia, is expected to double in size from nearly €15bn in 2023 to €30–€35bn by 2030. Saudi Arabia, in particular, is rapidly becoming a major hub for luxury, with Vision 2030 playing a pivotal role in transforming the country into a luxury destination. The country plans to develop nearly 500,000 square metres of luxury commercial real estate in Riyadh alone, including three major shopping malls. This development is aimed at retaining the luxury expenditure of Saudi nationals within the country, which is expected to grow significantly. Additionally, the proposed luxury destination in the Red Sea by Neom is anticipated to bring substantial economic growth to the area.

This burgeoning growth sets the stage for the Middle East to become an increasingly important market for luxury goods, potentially comparable to established markets such as the US, Europe, and China. The emphasis on creating a regional luxury shopping paradise, coupled with massive economic transformation initiatives, positions the Middle East as a vibrant landscape for luxury brands looking to expand their global footprint.

Redefining the industry
In 2024 the luxury sector is on the brink of a significant transformation, offering a wealth of opportunities for forward-thinking brands. To thrive, companies must innovate, evolve, and resonate with the shifting dynamics of the luxury market. The foundation of this transformation lies in understanding and engaging with the new generation of consumers who demand both authenticity and innovation.

Companies must innovate, evolve, and resonate with the shifting dynamics of the luxury market

Over the next decade, the fusion of traditional luxury values with cutting-edge technology will redefine the industry, creating a new era that appeals to a more diverse and sophisticated global audience. Brands that leverage data-driven insights, embrace seamless omni-channel experiences, and expand into emerging markets will be at the forefront of this evolution. Overall, the future of luxury is about more than just quality products; it’s about creating strong long-lasting relationships with consumers and offering them personalised, meaningful experiences that they connect with deeply.

Tackling the world’s hidden-debt problem

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From the Covid-19 pandemic to advanced-economy interest-rate hikes, developments over the last few years have left many developing economies struggling to repay their debts. But the problem might be even bigger than the world realises, as many sovereign debts are hidden, undisclosed, or opaque. This prevents policymakers and investors from making informed decisions. Some low-income countries have made progress on disclosing their debts: the latest Debt Reporting Heat Map shows a rise in disclosure from 60 percent in 2021 to 80 percent today. But some countries have regressed, and significant gaps and weaknesses remain. For example, information might not be released swiftly enough or in adequate detail, and countries might disclose only central-government debts, leaving out other public and publicly guaranteed liabilities.

Consider domestic debts: many low-income countries, shut out of financial markets, have resorted to issuing such debt to meet their financing needs – often without reporting these instruments. Similarly, opaque currency-swap lines are being used to prop up heavily indebted borrowers. The World Bank’s 2021 report on public-debt transparency in low-income countries anticipated both of these trends. Boosting debt transparency requires action in three key areas.

Dealing with debt
First, we need to improve the software that records and manages public debt. Just as individuals use internet banking to manage their personal finances, governments rely on specialised software to manage their debt portfolios. But whereas advanced economies design their own systems – typically as part of an integrated information-technology solution that manages budgetary, accounting, and treasury processes – most low-income countries rely on ‘off-the-shelf’ software subsidised by the international community. These arrangements are often inadequate to deal with countries’ increasingly complex debt portfolios, let alone to deliver comprehensive, timely debt reporting. This became starkly apparent during debt-reconciliation efforts under the G20’s Common Framework for Debt Treatments beyond the Debt Service Suspension Initiative. The debt records of the four countries that applied to the Common Framework – Chad, Ethiopia, Ghana and Zambia – were sometimes incomplete and often inaccurate.

To resolve these issues, Excel spreadsheets had to be manually reconciled – a months-long process that significantly delayed restructuring negotiations. We recommend creating a task force to coordinate the design of better debt-management systems. With the involvement of all the main service providers, task-force members would standardise debt definition and computation methods, and lead the development of user-friendly IT solutions. That way, national authorities could focus on debt analysis and management, rather than remaining bogged down by data entry and reconciliation. The newly designed software could also allow for input from creditors on loan disbursements and payments, as suggested by the 2023 UNCTAD Trade and Development Report. This would enable the real-time generation of World Bank International Debt Statistics and other statistical reports, based on fully validated data.

The second crucial measure needed to strengthen debt transparency is the creation of incentives for public borrowers to disclose their debts at both the national and international levels. This will require reforms of national legal frameworks as well as efforts by multilateral organisations to promote debt-transparency initiatives. Already, the World Bank’s Sustainable Development Finance Policy includes debt-disclosure incentives for low- and lower-middle-income countries receiving support from the International Development Association. This has contributed to improvements in debt reporting and coverage in more than 40 low-income countries.

Debt restructuring also creates opportunities to implement such incentives. The necessary and often arduous debt-reconciliation process can be used to provide detailed information on outstanding debt, as in the case of Zambia. It also gives countries a chance to wipe the slate clean and organise their debt records from scratch. Eligibility criteria for the provision of debt relief could include minimum transparency requirements to encourage the provision of data until debt relief is fully provided.

The third area where progress is needed is improved reporting by creditors. To facilitate transparency in official bilateral lending, creditor countries should follow the recommendations of the G20 Operational Guidelines for Sustainable Financing, such as improving data collection and publishing more information on new and existing loans.

Bilateral creditors should publicly disclose both outstanding debts and the core terms of foreign exposure, including direct loans, guarantees, and Export-Credit Agency insurance. The US Treasury’s loan-by-loan repository offers a good model for creditors seeking to boost the transparency of their portfolios. To support these efforts, creditors should avoid including confidentiality or secrecy clauses in new loan agreements, as a 2022 World Bank paper argues. Among the debt challenges facing low-income countries, strengthening debt transparency is one where concrete and meaningful progress is within reach. Success will require a combination of practical technical solutions and full cooperation from every stakeholder.

Completing the banking puzzle

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For fans of American football used to watching advertisements about fast food chains, the last few months have been a crash course in banking regulation, with commercial breaks during NFL games often featuring ads that warn them about sudden hikes in their mortgage rates. And that is just the least aggressive part of a campaign the US banking industry has launched against a reform in capital rules, announced by regulators last summer. “I doubt that people seeing those ads have any idea what they are talking about,” said Michael Ohlrogge, an expert on financial regulation teaching at NYU School of Law, adding: “They might perhaps activate people who have a knee-jerk reaction that all regulation is bad.”

Higher, stricter, harsher
The reform is the latest attempt to buttress the country’s financial system, proposed by the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation. It has been named ‘Basel III endgame’ after the Swiss city where the Bank for International Settlements (BIS) that oversees central banks is based. Banks with over $100bn in assets will be obliged to set aside tens of billions more by early 2028. They will also have to include a larger part of losses in capital ratios and will no longer be able to use lower historical capital losses to reduce their capital requirements. US regulators have expressed hope that the reform will reduce systemic risk and improve the US banking sector’s resilience.

The Fed has indicated its willingness to compromise and water down the most stringent rules

The overhaul aims to harmonise US capital rules with international standards. Most developed economies have already implemented capital rules dictated by the Basel Committee on Banking Supervision, which sets global capital requirements. In 2017, the committee reached an agreement for higher capital requirements to address concerns that ‘Basel III,’ a banking regulation package implemented after the credit crunch, had failed to tackle systemic risks. However, the committee’s rules are non-binding and subject to adjustment to national regulatory priorities.

In response, US regulators chose to apply stringent standards, particularly in operational risk, which includes novel threats such as cyber crime. One reason is the recent turmoil in the country’s banking system, echoing the darker days of the financial crisis. Three of the largest bank failures in US history took place during the last three years, putting the recovery from the Covid slump and the effectiveness of post-2009 banking regulation into question. The 2023 collapse of Silicon Valley Bank, which albeit small by US standards, held a crucial role in the tech ecosystem, raised eyebrows about the practices of smaller banks. Just a few months later, First Republic, a San Francisco-based bank, followed suit. Crucially, the proposed rules also cover regional lenders previously exempt from strict capital requirements.

Banks may also have to increase their capital when regulators expect a recession. What regulators are keen to avert are more bank bail-outs, an issue that caused public resentment in the aftermath of the Great Recession. “Since the real estate market and debt scenarios have started to mimic the pre-2008 crash scenarios, regulatory organisations are trying to prevent a banking sector collapse with strict policies,” said Ethan Keller, president of Dominion, a US-based network of legal and financial advisors.

Fierce pushback
When announced last summer, the proposals sent a shockwave across Wall Street. An analysis by the law firm Latham & Watkins found that a staggering 97 percent of responding institutions to the public consultation process found the changes problematic. Banks fear that stricter capital requirements will limit their lending capabilities, hurting the US economy and especially SMEs. The bone of contention is risk-weighted assets (RWA), which are measured based on a risk weighting assigned to banks’ operations. As the denominator to determine capital ratios against future losses, low RWAs help banks look stronger financially. Previously, banks were allowed to use their own models to gauge risk, but discrepancies in modelling across the industry have urged regulators to set a common standard to measure operational risk. Critics argue that this will increase capital requirements for mortgages and corporate loans, and even put products such as the hedging contracts airlines use for fuel purchases in jeopardy.

“The pushback is justified, because the rules will have costs but no clear benefit,” said Charles Calomiris, an expert on financial institutions teaching at the University of Austin. Other experts, however, question the validity of the banks’ claims. “If the loans are good loans to make in the first place, why wouldn’t they be willing to fund them with a portion of money from their shareholders,” NYU’s Ohlrogge said, adding: “The kind of loans that capital requirements are going to lead to a reduction in are loans that were bad loans to start with – that is, loans that only make sense to the bank if it can get the profits if the loans perform well, but pass off the costs if they perform badly.” A 2016 BIS study found that increased equity capital is linked to more lending. Critics of banks also argue that their real concern is pay, as higher equity capital will hit executive bonuses based on return-on-equity, and possibly dividends and share buybacks.

Regulators estimate that the new rules will lead to an aggregate 16 percent increase in capital requirements for the largest banks. However, they clarified in their initial proposal that “the largest US bank holding companies annually earned an average of 180 basis points of capital ratio between 2015–2022,” meaning that the hit would be mild at best. The 12 largest US banks sit on a record $180bn of excess common equity tier one capital, a common measure of their financial strength. Several banks and lobbying groups have pushed back against these projections. The Bank Policy Institute, which represents large and mid-sized banks, estimates that the largest ones will have to increase their capital up to 24 percent. Some banks have also argued that they are already financially strong, expressing concerns that higher capital requirements would only lead to higher costs, rather than more safety. The Financial Services Forum (FSF), a group representing the eight largest US banks, estimates that its members had $940bn of capital in 2023, three times more than in 2009.

Three of the largest bank failures in US history took place during the last three years

Another concern is potential loss of international competitiveness. US banks will have to comply with more stringent capital requirements than those their competitors face, currently standing at 3.2 percent for large UK banks and 9.9 percent for EU-based ones. Diminished internal competition could be another unintended consequence if more banks merge to comply with the new rules. One of the regulators, the Federal Deposit Insurance Corporation, has recently proposed reforms that would make big bank mergers more difficult. “Not only do higher capital requirements make US banks less competitive relative to foreign banks, higher capital requirements also make regional and larger US banks less competitive relative to community banks,” said Matthew Bisanz, partner in the financial services, regulatory and enforcement practice of the US law firm Mayer Brown. “Considering EU banks’ existing technology and framework to maintain the Basel framework, this will give them a competitive advantage over US banks,” said Dominion’s Keller, adding: “As this framework means additional costs for training, tracking, and setting aside a specific portion of the capital, the banks will churn out the additional costs from the customers. Hence, smaller banks with Basel Endgame exception will gain a new clientele not willing to pay extra money for US banking conglomerates.”

For its part, the Fed has indicated its willingness to compromise and water down the most stringent rules of the initial proposal, with a final plan expected to be announced this summer. Its chair, Jay Powell, has said that “broad and material changes” are likely and has acknowledged that a balance has to be struck between potential costs and the stability of the financial system. Other Fed board members are even more sceptical. Two of them, Michelle Bowman and Christopher Waller, have raised concerns over reduced competition, curtailed lending, less liquidity and costlier credit as a result of the changes.

Basel rules under fire
The reform has entered the political fray amid the campaign for the forthcoming presidential election. The banking industry has launched a website where voters can notify elected representatives about their concerns. Banks are also lobbying lawmakers to put pressure on regulators. Many republican congressmen and senators have openly opposed the reforms, and a future Trump administration is expected to pressurise regulators to water down the proposals. When the initial proposals were announced last summer, regulators were concerned about recent bank failures, while Biden administration officials were worried about an imminent financial crisis. The reform “reflects the greater political pressure on US regulators and politicisation of US regulation post-Dodd-Frank,” Bisanz said, referring to a post-2009 piece of legislation that reined in the worst excesses of the financial services sector, adding: “The campaign of banks reflects the seriousness of the increase in the capital requirements, as well as the weakened position that US regulators are in after missing the bank failures last year. There also is an element that courts are questioning decisions by regulators.”

More ominously, the overhaul and the resulting outcry have provided ammunition to the many critics of Basel rules. “Basel is so weak that even in the US, where large banks succeed in avoiding strict prudential guidelines, it has historically been so inadequate that the US adopted stricter but still ineffective standards,” said Calomiris. Stricter capital requirements elsewhere and even another overhaul of Basel regulations may be on the cards, as banks and regulators worldwide take notice of changes in US regulation. Ironically, the government of Switzerland, where BIS is based, has put forward proposals to increase capital requirements for Swiss banks after the collapse of Credit Suisse in March 2023. “The more rigorous of capital regulations the US adopts, the more encouragement it provides for other countries to adopt rigorous rules,” said Ohlrogge.

Can extreme weather events threaten the rise of solar?

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Solar is the fastest-growing energy source in the world. Between 2013 and 2022, 46 percent of global renewable energy investments flowed into solar photovoltaics, according to the International Renewable Energy Agency (IRENA), which also highlighted that in 2022 solar PV accounted for 60 percent of this investment, around $300bn. But as extreme weather events increase in frequency, insurers and lenders want assurances that potential threats to productivity, performance and resilience of these assets are being addressed.

Towards the end of the last decade, a large loss for a utility-scale solar PV plant would typically be in the region of $100,000 to $200,000, perhaps as much as $1m. According to specialist renewables insurer GCube (owned by Tokio Marine HCC), which has underwritten over 20GW of solar capacity, claims due to damage from hailstorms to solar PV plants in the US now average around $58.4m per claim and account for 54.21 percent of incurred costs of total solar loss claims.

GCube director of operations and legal counsel, James Papazis, says: “The premiums for the solar plant’s construction phase as well as its operational phase have increased, along with increases in deductibles and imposed sub-limits and limits.”

Today $100m-plus losses from hail damage at solar sites in the US are not unusual with sub-limits at $50m–$60m. The loss is shared by multiple insurers and reinsurers. Even then the project is exposed with an uninsured loss for a substantial figure. “This had led to tension between financiers, lenders and insurers.

As a result, more due diligence and effort is occurring at the planning stage of projects, and insurance is also being discussed at a much earlier stage of the project’s development because lenders want to know about sub-limits, premiums and deductibles,” Papazis says. As solar PV projects have increased in size and are increasingly being sited in more remote locations, longer construction phases ensue. Supply chain bottlenecks and limited availability of components and equipment have also impacted projects so they are taking longer to build.

Construction risks
“If project construction phases fall behind it can expose projects to additional risks because it may occur in wind, hail or tornado season and fully complete projects are more resilient to damage than incomplete ones,” says Papazis. According to Paul Raats, principal consultant, energy systems at risk management consultancy DNV, financiers and insurers are paying increasing attention to the risk that comes with climate change and extreme weather events. “In north-east Europe, it has led to additional risk analyses to ascertain a solar project’s viability with increased impacts in the instance of heavy rainfall and winds.”

DNV has advised IRENA on developing a set of recommendations to help the solar PV industry better manage extreme weather event-related risks regarding solar projects and assets. “More attention needs to be given to sudden harsh weather during construction as the PV systems are not at their full bearing capacity and are more vulnerable to heavy loads,” says Raats. Developers and their contractors are advised to schedule construction by considering short-term weather forecasts, a practice that is more usual in offshore wind.

$100m-plus losses from hail damage at solar sites in the US are not unusual

“In extremely wet or flood-prone regions risks can be better understood and mitigated during the development stage by carrying out detailed geotechnical, hydrological and flood risk assessments,” Raats continues. DNV also advises that assessment of 100-year flood probability should be part of these assessments and any recommendations should be considered in the project design. These can include ensuring increasing the height of mounting systems so the bottom edge of the solar PV module is above the highest historical water level, installing inverter cabinets off the ground, reinforcing foundations and adding draining systems or modifying existing drainage. Furthermore, insurance against damage should provide an additional layer of financial protection to the projects located in such regions. As well as advising that projects should have an owner’s engineer for oversight, inspectors during plant construction should be employed and contractors should have proper insurance in place, according to DNV.

Wind, rain, floods and landslides
Solar developer and asset owner Lightsource bp intends to start construction works on a 100 megawatt (MW) project in Taiwan once financial close is reached in the next two to three months. The extent and frequency of extreme weather events on the island is increasing. Higher wind speeds, more rainfall as well as flooding and accompanying landslides have to be considered. Lightsource bp’s specific mitigations for its Budai solar project include technical requirements to ensure equipment is high enough – at least 1.1 metres – to account for potential subsidence/landslides, which are determined through historical trends as well as considerations like flash flood events. Double glass modules to reduce the chance of water ingress will also be used instead of those with polymer backsheets.

The developer has also involved reputable international parties with strong local experience like Fitchner, as owner’s engineer, and TÜV Rheinland, as lender’s technical adviser, to check its assumptions and design. In addition, project level insurance is in place to cover force majeure events.

Weather modelling
The frequency, intensity and unpredictability of weather and its impact on solar farm yields, or productivity, as well as its potential for damaging solar assets, can be mitigated by weather monitoring and modelling.

US solar plant owners and developers are adopting approaches where they use ground weather monitoring stations – onsite sensors – at their project site for a minimum of a year. The gathered data can then be compared with high-resolution satellite data, sometimes going back 20–30 years, to produce bankable site-specific data. Solargis, which provides this kind of modelling service, counts solar PV project developers and independent power producers, as well as technical advisers and independent engineers on projects, while banks also use its data and services for their financing process.

Accurate historical temperature and irradiation values are crucial for analysing trends, predicting scenarios, and making informed decisions, says Giridaran Srinivasan, Solargis’ Americas CEO. “This allows for more accurate prediction of output, based not only on the best-case scenario but also for periods of extreme or non-typical scenarios. More and more, lenders in the solar PV sector are including rigorous due diligence procedures for project funding.” As part of this process, they require calculations and simulations that incorporate more extreme event models upfront to account for the worst-case scenario in terms of energy production. The aim is to provide an accurate representation of the solar PV project’s potential performance.

“The use of such models ensures that lenders have a comprehensive understanding of the risks involved in financing a given project so it is important for project managers and developers to incorporate these extreme models in their simulations to secure funding,” Srinivasan adds.

Technological adaptations
More accurate modelling and better data is also helping the supply chain to respond to the challenge. Solar module tracking systems are becoming more mature and mainstream with built-in intelligence models, for example.

Kevin Christy, Head of Innovation & Operational Excellence, Americas, at Lightsource bp, says: “The US is experiencing severe hail events in Texas, Kansas, Oklahoma, to name a few. A large hail stone can do a lot of damage if it hits a solar panel dead on. Our hail monitoring and mitigation system, Project Whiskyball, helps to mitigate damage.”

The trackers that the company uses in its projects tilt in order to maximise the incoming light from the sun. But when the risk of a hailstorm is detected, the trackers stow the modules in a more vertical position.“Any hail striking the modules will be reduced to a glancing blow rather than a direct hit. It is extremely effective at reducing the force applied by any hail and greatly reduces the potential for damage. Project Whiskyball is now operational across all of our completed solar assets in the US,” Christy adds.

Lenders in the solar PV sector are including rigorous due diligence procedures for project funding

Solar Defender Technologies has developed a protective net that covers modules mounted on single axis tracker systems, used in ground-mounted utility-scale installations, while allowing the modules to move to achieve optimum energy output. A combination of the increased costs of solar technology adaptation plus the tripling of insurance premiums in the last few years, is eroding the profitability of some solar plants. In some cases there may not be the coverage available to give the developer the comfort to build. Papazis says: “This is becoming a big issue for the industry. When lenders have to factor in increased premiums or uninsured hail losses, the economics of projects can change significantly. There isn’t really a clear answer yet.”

Where developers are building projects that they intend to operate and own for the majority of the operational lifetime, lenders are more comfortable with these sorts of companies to partner with. “This long-term approach does change the economics, making it attractive for those with large balance sheets and large portfolios,” adds Papazis. Portfolios with projects spread across different locations and regions mean that ones in a hail-prone part of a state or by the coast can be offset by others that are in areas where weather is less severe. The main problem with the weather has always been its unpredictability, and climate change isn’t helping.

“Wildfires are the latest issue for the industry. Generally, solar projects in some parts of the US are becoming more expensive to finance and insure due to mitigating against more weather events, not just natural catastrophe,” he says. The industry has options available to support mitigation and underwriting of risks, including paying more attention to site selection, equipment and technology choices and making better use of weather modelling, as well as looking at water tables and frequency of flooding events. “There are multiple factors so use of multiple different modelling tools, including satellite imagery, is important,” says Papazis.

Too much power: the problem of private equity

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As a Professor of Law and Economics at Harvard Law School, as well as former Acting Director for the Division of Corporation Finance for the US Securities and Exchange Commission (SEC), John Coates doesn’t mince his words when it comes to regulating the wildest beasts of modern capitalism. In his latest book, The Problem of 12: When a Few Financial Institutions Control Everything, he explores the origins of a quiet revolution in American finance. ‘Big Four’ index funds such as Vanguard and BlackRock control more than 20 percent of the votes of S&P 500 companies. Private equity firms, the likes of Carlyle and KKR, have amassed trillions of assets while removing from public markets and scrutiny an increasing number of firms. This is the titular ‘problem of 12’: a few financial institutions hold dangerously outsized sway over US politics and finance.

Professor Coates sat with World Finance’s Alex Katsomitros to discuss how we arrived at this crucial juncture and what regulators and policymakers can do about it.

How did index funds and private equity grow so big?
Index funds are growing faster than the economy, the stock market and even the companies they own, because they offer a remarkably good product: a low-cost way to achieve diversified investment in the equity, debt and alternative markets. They have a track record of 50 years of outperforming most active managers, even before fees.

Index funds are growing faster than the economy, the stock market and even the companies they own

It is not simply retail investors who benefit from the product, but most large institutional investors, including pension funds and endowments. They also enjoy enormous economies of scale. That allows them to lower fees even more. Today, you can get close to zero costs.

The combination of growth and concentration coming from economies of scale means that the top index funds now own 25 percent or more of all US-listed companies. Private equity funds are also growing faster than the economy and public capital markets and enjoy enormous economies of scale and access to information. They are constantly buying and selling companies, raising funds, exchanging ownership stakes with other investors.

They also run credit funds. So they are responsible for an excess of 25 percent or more of all fee-generating activity for Wall Street. They are the biggest players positioned to harvest information across the entire capital market, and they use that information to time exits, entries and fundraising.

You argue in the book that index funds and private equity have practically become ‘political organisations.’ How did that happen?
The politics arises because of concentration. If the industry only consisted of many dispersed firms, like the mutual fund industry 30 years ago, I don’t think they would be significant political players. But the index funds have grown at the largest scale, especially the top three or four. So the problem is that 12 people largely control the outcomes of votes at shareholder meetings for public companies.

When Exxon had a proxy fight a few years ago, the dissident was able to elect directors to the board over the objection of Exxon. They had a very different political agenda, but they were able to do that because the index funds supported them. Currently there is a debate going on over labour policy at Starbucks and other companies. Again, index fund votes are largely determining how those struggles are playing out. So it is the concentration of voting power in a small number of funds that gives them enormous power through the shareholder control process, and with a different result than 20 years ago.

Private equity is different. Their power comes from controlling about 15–20 percent of the entire US economy. About eight or nine percent of US workers work for private equity, even if they don’t know it, because part of the structure of private equity is to make no disclosure. It is difficult to find out who owns what. But they make important choices about how the companies they operate are run, and they have political effects.

Currently in Boston there is a hospital chain that private equity bought out a few years ago. They took on financial risk, and it is probably going to go bankrupt in the next few weeks. That is going to shut down major hospitals in Boston, depriving people of basic healthcare. That is putting a spotlight on the role of private equity not just in that sector, but other parts of the economy too.

You also claim that private equity is not really private anymore. Why is that?
Private equity was originally private in the sense that most of the capital that early buyout funds were raising was from a few wealthy individuals. The SEC limited the number of investors, preventing funds from raising money from lots of institutions. They also had ‘look-through’ rules, which meant that if a fund raised money from other funds, it could be a problem. That changed in the 1990s. Now SEC reports show that their principal investors are institutional investors: pension funds, endowments, other funds. So the ultimate economic beneficiaries whose money is being managed are millions of people. A typical private equity fund is no longer managing money just for a few people, but for the public.

It is effectively the same type of capital formation process that goes into a public company, but through a different set of channels, which don’t trigger a requirement to register with the SEC. In fairness, they don’t list the shares of their portfolio companies. So in that sense they are still private, but the ultimate economics are more public.

Should they be regulated like public companies then?
I don’t think their structure lends itself to taking public companies’ disclosures and dropping them onto private equity. However, there is a public interest in how they are being run, what risks they are taking, and whether that generates returns that compensate investors. The reason is that US pension funds, especially public pension funds, face relatively light oversight. So if private equity is doing a large part of the investing for those pensions, ultimately US taxpayers are on the hook if the pension funds’ money is not well invested.

Private equity occasionally goes through periods when the risks they take don’t generate returns. When they buy a company, they borrow money and that debt creates financial risk. Some private equity funds generate other kinds of harm through the way they run the kinds of companies they increasingly own. Today, they are active in professional services, healthcare, service businesses regulated in ways that make some disclosure a good idea for the industry.

Control the outcomes of votes at shareholder meetings for public companies

I wish it was as simple as doing the same thing as with public companies, but I don’t think that would be a good model. Most of their operations are portfolio companies that don’t have the capacity to produce quarterly reports or engage with investors. It would be odd to require that kind of detailed reporting when the only exit would happen several years later. So a reporting regime is a good idea, but not the public company regime.

If this is a problem of market concentration, isn’t breaking them up the standard regulatory response?
If we are talking about an excessively concentrated product market or service market, antitrust or competition policy has often been the way we respond. But it is not the only way. Take early dominant players in sectors that at the time were high-tech, like electricity and water. Companies that provided what we now call utilities enjoyed massive concentration. We didn’t try to break those up. Sometimes we did, and sometimes there were limits on size.

Another path is to regulate them and allow them to provide benefits because they enjoy economies of scale. This is ultimately the problem. If you break up companies that enjoy efficiencies at great scale, and therefore concentration, you are imposing greater costs on the people who benefit from their services. It will be more costly for 12 index funds to function than four, so they won’t be able to do the same job at the same price.

Isn’t it worth paying that price?
Maybe, but another way to go would be to say: ‘okay, we don’t mind that they are so big and concentrated, but we don’t want them to use their power in ways other than their basic utility, which is to invest in a low-cost, diversified way.’ On the regulation side, they have already started to take the first step themselves by being more transparent about how they go about making voting decisions on behalf of other people. They now report quarterly, although they are only required to report annually. I don’t know why they can’t report in real time; the technology is available for that. I would encourage them to go even further.

A typical private equity fund is no longer managing money just for a few people, but for the public

More importantly, they have started, at least in principle, to give their investors the option to pick different policies for them to follow about how to vote. So far, the policies are very similar to each other. Over time for this to work, policies will have to become more varied. There is also a question of whether they will follow the instructions, but this is a work in progress.

The closest analogy is thinking of them as quasi-government agencies. We don’t want to have multiple central banks, that is a contradiction: two central banks are not better than one. What we want is more accountability and transparency.

Would you pin your hopes on a Biden or a Trump administration to address this issue?
Any government that doesn’t obey the law, I don’t have any faith in. I may not love the Biden administration all the time on every issue, but they follow the rules. With normal Republican and Democrat candidates, I might have a different view, but Trump has zero commitment to the rule of law. Once you say that, there’s nothing else to say.

Navigating cryptocurrency regulations

Posted on by itsupport

Despite its meteoric rise, the cryptocurrency market operates within a regulatory grey area in many jurisdictions. The decentralised and borderless nature of cryptocurrencies poses significant challenges for regulators, who must grapple with issues ranging from investor protection to money laundering and financial stability. James Burnie, a partner at legal firm Gunner Cooke advising on financial services regulation says: “The nature of the Web3 industry has been intrinsically global, as it is easier than ever for a company based in one jurisdiction to sell to clients in another. As regulation has come in, originally this meant that companies were able to engage in regulatory arbitrage as they could structure their setup to avoid more onerous regimes. Such companies could offer cheaper products; however this was often by having lower standards than companies within a jurisdiction would have to abide by.”

To counteract this outcome, regulators have started to take a more expansive approach to their jurisdiction, meaning that the offering of a product into a country is seen as an activity that can be regulated. “The consequence of this has been to drive up the cost of compliance for the Web3 industry, making it harder for the industry to thrive. The key issue in the next few years is therefore how to balance the cost of compliance with ensuring proper standards and it is clear in this respect that the global regulatory system is far from settled as to how to handle this issue,” Burnie adds. Jill Wong, a Partner at international law firm Reed Smith, agrees that there are intricate legal challenges associated with regulating cryptocurrencies. Wong, based in Hong Kong, highlights the difficulty of fitting cryptocurrencies into traditional financial laws, leading to regulatory gaps.

“In Hong Kong, as in other jurisdictions, it has not been straightforward to fit cryptocurrencies into traditional securities and banking laws or other existing regulations in relation to money services,” she says.

“As Hong Kong has functional regulation, the regulator may be different depending on the activity being carried out. It can get complicated. However, with recent new regulatory initiatives aiming to fill regulatory gaps, the regulatory landscape is becoming clearer; crypto-exchanges should now apply for a licence and in the near future, stablecoin issuers and OTC crypto-fiat conversion businesses are likely to be regulated.”

The decentralised nature of cryptocurrencies complicates enforcement and investor protection efforts, highlighting the need for cross-jurisdictional collaboration among regulators. Wong’s colleague Brett Hills, also a Partner at Reed Smith, says: “There are huge challenges to legislators and regulators in designing, implementing and enforcing effective and proportionate regulatory regimes governing cryptocurrencies and indeed other digital assets. And it is therefore not surprising when regimes have not been effective and proportionate.”

Categorising cryptocurrencies
Cryptocurrencies present several regulatory challenges. They have some similar and some different features to existing financial assets. Questions arise as to whether particular digital assets fall into existing categories (securities, commodities and so on) or new categories need to be developed to appropriately cater for them.

Cryptocurrencies are also owned, bought and sold on a global basis; regulators operate within jurisdictions. That then raises the question of how a local regulator deals with offshore activity. Regulators are generally more protective of retail customers and investors, many of whom have bought cryptocurrencies.

Regulators worldwide are grappling with defining cryptocurrencies and determining their regulatory status, often resulting in fragmented and inconsistent regulatory approaches. Research from the Financial Conduct Authority highlights the complexity of the situation. While 90 percent of crypto users understood what cryptocurrency was, only 58 percent claimed they had, “a good understanding of how cryptocurrencies and the underlying technology works.”

A further 12 percent of crypto users falsely believed that crypto investments have some sort of financial protection. This lack of consistency can be confusing for businesses and investors alike, as they navigate a landscape where rules may differ significantly from one jurisdiction to another.

Implications of regulatory decisions
Recent court rulings and legislative changes have profound implications for cryptocurrency regulation. In jurisdictions like the EU and the UK, efforts are underway to craft specific regulatory frameworks for digital assets. The EU’s Markets in Crypto-Assets Regulation (MiCA) is an example of this. The UK is following a similar path but phasing in the introduction of its regulatory regime so that it can build upon and learn from previous phases.

In the US, regulators have sought to apply existing regulatory categories to digital assets and related firms such as exchanges resulting in regulation driven by enforcement. MiCA in the EU and the new UK regime aim to provide clarity and predictability for businesses and customers, fostering a conducive environment for industry growth.

However, challenges persist, particularly in jurisdictions where regulation is driven by enforcement actions, such as the US. The lack of clarity stemming from enforcement-driven regulation creates uncertainty for businesses and investors, hindering industry development and innovation. Hill says: “In most jurisdictions, the view was that most cryptocurrencies fall outside the traditional categories of financial products such as securities and electronic money. As a result, in some of those jurisdictions, legislators have been able to design regulatory regimes that specifically apply to cryptocurrencies and other digital assets.”

Wong adds: “In Hong Kong, cryptocurrencies have been recognised by the courts as ‘property’ which can be the subject of a trust in a liquidation context. Hong Kong courts have also on multiple occasions granted freezing injunctions over cryptocurrencies as asset preservation measures. These provide welcome certainty for traders and investors.”

The impact of regulatory clarity
Regulatory clarity plays a pivotal role in shaping the development of the cryptocurrency industry. Uncertainty leaves businesses and investors grappling with regulatory risks, impeding investment and innovation. Conversely, clear and transparent regulatory frameworks provide certainty, fostering trust and confidence in the market.

Jurisdictions that offer regulatory clarity and certainty attract businesses and investment, positioning themselves as preferred destinations for cryptocurrency-related activities. As the industry matures, stakeholders increasingly prioritise jurisdictions with robust regulatory regimes, conducive to sustainable growth and innovation.

Regulators worldwide are grappling with defining cryptocurrencies and determining their regulatory status

Burnie says: “The problems of uncertainty generally leave firms with the choice of either ignoring the regulatory risk, meaning that there is a greater chance of repercussions should it materialise, or to spend on contingencies designed to reduce the risk, which may or may not be successful.

“As such, the preference will always be for greater clarity and certainty and indeed we have seen firms actively move into those jurisdictions which provide certainty. This has been a selling point for regulators seeking to promote their jurisdiction and indeed we have assisted both the Mauritius FSC and the Kazakhstan AFSA with developing regulatory frameworks for cryptoassets, designed to give certainty and thereby attract business to the regions.”

Advice for businesses and investors
Navigating the regulatory landscape of cryptocurrencies requires strategic foresight and careful consideration of legal and regulatory risks. Experts advise businesses to seek professional legal guidance early, understand target markets and prioritise regulatory compliance. Moreover, businesses must adapt to regulatory changes and proactively engage with regulators to shape the evolving regulatory landscape.

Investors should conduct thorough due diligence, focusing on regulated exchanges and service providers with reputable credentials. Understanding the risks associated with cryptocurrency investments is paramount and investors should exercise caution while navigating the volatile market.

Hill says: “Businesses and investors navigating the regulatory landscape of cryptocurrencies will need to think through their product offering clearly and produce a document setting out its key features for their advisors. They would be wise to take professional legal and regulatory advice early to stay ahead of any potential pitfalls or risks.

“It is also important to consider and demarcate what are the must-haves and the nice-to-haves for a product or service. Changing a product’s design can result in a very different regulatory outcome so knowing where to be flexible can go a long way to achieving the desired result.”

Burnie adds: “Often we see businesses implode either because they seek to achieve too much (spreading resources too thin), or there is poor execution (for example a lack of understanding of the target market for the product). For example, different marketing rules exist in different jurisdictions, so simply seeking to be ‘global’ is generally less successful than targeting resources in a particular jurisdiction. Given the sometimes fickle nature of the markets, it is also worth building a funds war-chest in case of another crypto-winter.”

The future of cryptocurrencies
Cryptocurrency regulation remains a complex and evolving domain, shaped by technological innovation, market dynamics and regulatory scrutiny. While challenges persist, regulatory clarity and collaboration offer a path forward for industry stakeholders, and as Burnie outlines, this has been achieved in Mauritius and Kazakhstan. By navigating the regulatory landscape with diligence and foresight, businesses and investors can unlock the full potential of cryptocurrency while ensuring responsible growth and innovation in this transformative space.

Unlocking growth in the experience economy

Posted on by itsupport

Today’s business leaders and consumers alike are facing turbulent economic times. The goal of any business is to be profitable but there is no doubt that several recent world events have made it incredibly difficult for some. Amid these challenges, businesses are striving for growth in 2024 but to do so requires the prioritisation of customer satisfaction.

Across the leisure industry, businesses ranging from hospitality through to theme parks have to adapt their ROI models to rapidly changing guest expectations. Today’s consumers want shared entertainment experiences that offer something unique every time. To meet these high expectations, the leisure industry landscape has morphed by merging two previously separate worlds: food & beverage leisure and play & entertainment leisure.

The booming experience economy
Recently, Millennials and Gen Zers have continued to drive the experience economy by spending more on memorable experiences over material possessions, and their expectations for high-quality entertainment-led, social experiences have grown rapidly. A recent Europe-wide study indicates that this trend among the ‘experience generation’ is likely to continue. In fact, 88 percent of those surveyed planned to prioritise spending the same or more on experiences in 2024 (compared to 2023). The study also reveals that among the top reasons for booking an experience is to socialise with friends and family, while food-related or family experiences were among the top experiences of choice. These findings show that investing in delivering high-quality shared experiences is crucial to drive business growth and maintain competitive advantage.

While the experience economy has been in place for a long time, there are a few key factors for its recent evolutions. Following the pandemic we have seen more and more businesses in the leisure industry merge with social activities. Supply chains disrupted during Covid continue to be impacted by an increased cost of materials forcing operators to re-evaluate the profitability of their current business models. In addition, people emerged from lockdown with a new appreciation and desire for spending time with friends and family, and experiencing new and exciting events. These factors have given rise to ‘eatertainment,’ a concept born out of the collision of two leisure sectors – food & beverage and play & entertainment – that is both mutually beneficial to businesses and meets visitors’ needs.

Learning from industry advancements
Businesses across the industry globally have recognised the importance of focusing on the entire visitor journey. Disneyland Paris Resort, for example, recently announced a huge investment to reimagine the entire guest experience from entertainment to dining and shopping. Similarly, mega developments in the Middle East, such as Qiddiya in Saudi Arabia are integrating entertainment, food and sports into one destination, delivering fresh experiences to guests every time they visit.

Businesses can take valuable insights from these developments by considering how to bring together multiple aspects to create a must-see destination. With guest expectations higher than ever, many businesses are turning to immersive technologies like mixed reality (MR) to meet the demand.

MR technology has hit a level of maturity and is more reliable and accessible both from a usability and an economic point of view, compared to just a few years ago. Additionally, MR can transform spaces into countless fantastical immersive worlds for groups, delivering the kind of social, entertainment-led experiences that visitors want.

Perfect harmony
Here are a few key considerations for any business trying to achieve the delicate balance of delivering high-quality guest experiences with profitability. It’s clear that today’s audiences value meaningful, social, entertainment-led experiences so individual digital experiences are going to become less popular than they have been previously. Operators should aim to nurture both entertainment and social aspects equally in available experiences. Audiences want the freedom of choice. It’s important for businesses to build a diverse content library that appeals to all ages and interests and provides guests with the flexibility to choose a different experience each time they visit. Consider integrating newer technologies, such as immersive VR, to make experiences more engaging, interactive and personalised so that it’s different every time it is played. And this doesn’t have to be costly; turnkey solutions can see a return on your investment quickly without the financial upheaval of building solutions yourself.

Balancing customer satisfaction with ROI is an ongoing journey. For the leisure industry, the answer is very much about combining worlds: eating and entertainment, the real and the imagined, the physical and the virtual. By embracing guest experience as a priority and using emerging technologies like immersive VR to meet guest expectations, businesses can navigate the challenging economic landscape with greater confidence.

Can immigration fix Canada’s economy?

Posted on by itsupport

This article is about the economic effects of immigration, so as a Canadian citizen, let me begin with the customary acknowledgement that I am totally pro-immigrant! Yes I was born in Canada, but my parents were immigrants. My wife is an immigrant. Even one of my daughters was born outside the country and technically immigrated. And immigration is a difficult subject anywhere because politicians often deflect problems by blaming them on migrants.

Anyway, now that is out of the way, and purely from the point of economics – why is Canada trying to ramp up its population growth through immigration? In 2023 the rate was 3.2 percent, which was the highest in the OECD.

The usual argument put forward by economists in favour of boosting immigration is that we need young workers to support all the Boomers who are collectively easing into what looks like being a very expensive retirement. There is huge demand for workers in sectors such as agriculture, construction, healthcare, and so on – jobs which are often eschewed by locals because the pay is low.

However, the availability of cheap immigrant labour means that firms have less incentive to invest in productivity-enhancing machinery – which helps explain why Canadian productivity has slid in recent decades to about 72 percent of that of the US.

And of course immigrants age and retire and bring in older family relatives themselves, so immigration might give a temporary boost to the work force but is not a viable long-term solution. Finally, immigration may be contributing to the problem it is supposed to solve.

According to Statistics Canada, 32 percent of Canadians in their 20s “did not believe they could afford to have a child in the next three years” due to lack of “suitable housing.” This might explain why Canada’s birth rate has plummeted to 1.33 births per woman, which is nowhere near the replacement number of 2.1. But excessive levels of immigration boost inflation and competition for scarce housing, which will make finding rooms for babies even less affordable.

Another reason put forward for the low birth rate is anxiety about things like climate change. Some young couples are reluctant to bring children into a world they see as being on the edge of environmental catastrophe. Since Canada is one of the highest per capita greenhouse gas emitters on the planet, growing its size also directly damages the environment. So what is going on?

Buy my house
There is also another economic reason why some governments want to maximise immigration, which is that in theory it supports house prices. After all, as they say, immigrants don’t carry houses on their backs when they come in. And house prices are very important to debt-addled Canadians (ratio of household debt to GDP highest among the G7 countries).

As Finance Minister Chrystia Freeland previously explained, “The core problem with housing in Canada is we just don’t have enough housing. It is just a mathematical thing – Canada has the fastest-growing population in the G7.”

To homeowners, that decodes to: house prices will go up! Our investments (and retirements) are safe! This is especially useful given that much of Canada’s economy is based on real estate – from realtor fees to financing to insurance to construction.

But (speaking as a quantum economist) Freeland was using the wrong kind of math. The housing boom which underpinned the economy over the last few decades had less to do with population growth than with declining interest rates; and just as immigrants don’t come in bearing houses, most of them don’t also come in bearing massive downpayments. So the fact that we have a housing shortage doesn’t necessarily translate to higher prices – it might just mean that people have to pack themselves into smaller spaces (ask an international student in one of our overcrowded university towns).

From a purely economic standpoint, immigration does boost the total size of the economy – if you double the population then the economy is twice as large – but what is the point? A better measure is quality of life, which is a separate thing – and according to metrics such as per capita GDP is in decline. The whole approach seems outdated in a world where what matters (or should matter) from an economic perspective isn’t headcount or house prices but things like technology, innovation, resources, and environmental protection.
These problems are of course not limited to Canada, which is why housing, immigration and climate change are huge political issues in countries such as the UK, Australia, New Zealand, France, and so on. And why economics Nobel winner Angus Deaton wrote in March 2024 that he no longer subscribes to what he calls the “near consensus among economists that immigration to the US was a good thing.”

The reality is that immigration is great in moderation, and enriches us in many ways (not just economic), but it is not an all-or-nothing binary choice.
If a country like Canada wants a better economy in the future, as opposed to just a larger one, then maybe it is time to focus a little more on growing its own.

Unprecedented rain in Dubai raises questions

Posted on by itsupport

On April 16, Dubai experienced its heaviest rainfall in 75 years, disrupting lives across the city. While the city is typically associated with a dry climate and scorching heat, residents found themselves unexpectedly rushing for umbrellas to protect themselves against heavy rainfall. It hardly rains in Dubai, which is why the drainage system was not included in city planning. As a result, a significant portion of the water remained stagnant due to urbanisation and inadequate drainage infrastructure, exacerbating flooding in many areas. Blocked roads made it difficult for people to resume their daily activities, with grocery stores unable to restock and several employees having trouble reaching their workplaces.

The storm in Dubai not only caused inconvenience for its residents but has also jolted investors and businesses across the UAE. Dubai is heavily dependent on its tourism industry and all businesses flourish under this industry. Being UAE’s financial hub, Dubai has the busiest airports in the world. Due to the heavy storm, approximately 1,000 flights were cancelled, leading to days of subsequent delays. Motorways remained submerged until the rain stopped. Around 21 people sadly died across the UAE and Oman.

These circumstances do not present a favourable picture to the investors. They had not predicted that natural disasters such as rain would have such an impact and must now be factoring it into their future investment decisions. At present, their main concern will be whether it is a one-time thing or something set to continue.

Meanwhile, scientists and researchers are divided about this sudden rainfall. Some are blaming seeding, whereas many think it is due to global warming. According to Richard Washington, a professor at Oxford University, it is technically quite difficult to blame seeding alone for this storm. As per World Weather Attribution, “heavy precipitation hitting vulnerable communities in the UAE” is set to become “an increasing threat as the climate warms.” If this sort of event is now the norm, it will raise concern for Dubai’s investors. Additionally, it will pose challenges for Western investors, for whom one of the key attractions of residing and investing in Dubai is its weather.

Government response amid crisis
A positive sign for the investors is that the Government of Dubai has assured its residents that it will provide damages for the loss suffered and the UAE has allocated $544m for repairs caused by the storm. The UAE Central Bank, on the other hand, has confirmed that insurance claims will be provided for damaged homes and vehicles if the party holds a comprehensive insurance policy against loss and damage.

The bank has instructed all financial institutions to offer a six-month repayment deferment to customers with personal and car loans affected by flooding. It has assured that customers will not be bound to pay any additional amount, interest, or profit charges. Moreover, the principal amount of the loan will also not be increased.

Insurance companies in the UAE were not prepared to manage such claims, and have taken time to settle them, with claims made by customers against loss and damages backed by UAE Central Bank, which is a sigh of relief for many investors. However, it will be quite challenging for consumers to file a claim, especially regarding negligence, even if they have comprehensive coverage. For instance, if you have knowingly parked a car or a vehicle in a flooded area or if you were driving in a rain-affected area. Rejection of these kinds of claims could put a dent in investor confidence.

Dubai knows that it cannot afford to lose its reputation as both an attractive travel destination and ‘safe haven’ for investors to mere rain. Therefore, it has deployed thousands of workers to bring back normalcy. Other than banks and financial institutions, many developers in Dubai are also facilitating the repair of residential property damage. As per Khaleej Times, the CEO of Damac Properties, which is the largest property developer in Dubai, has also come forward to provide assurance to its residents that they will repair all their property damages at no cost. But the real question for investors is perhaps not about repairs, but about an upgrade to the city’s drainage system.

Dubai’s investors will certainly have this playing on their minds while looking for business opportunities. Investors will be looking to see how the Dubai government intends to support them in the case of flooding or other extreme weather events. They will carefully assess and scrutinise how insurance companies will facilitate them, what is covered and what is not. Considering current predictions, the likelihood of more severe rainfall events in the future remains high. Therefore, the government of Dubai must prioritise providing assurance to its potential investors by taking proactive measures to address the city’s inadequate drainage infrastructure and improving insurance policies. By tackling these challenges, Dubai can mitigate these risks and maintain its attractiveness as a destination for investors and residents alike.

The next phase of digital banking

Posted on by itsupport

The proliferation of smartphones and the increasing reliance on mobile technology have created a fertile environment for digital wallets and real-time payments, which are undergoing rapid evolution. This is progressively transforming the banking industry worldwide, especially in the UK, the US and European countries, driven by rising consumer demand and regulatory changes.

E-wallets, which allow consumers to store, manage and transfer their financial assets, offer alternatives for those without access to traditional banking services. Consumers are now accustomed to managing their finances online, whether that is checking balances, transferring funds, or applying for loans. This reflects a fundamental shift in consumer behaviour, where convenience and accessibility dominate. Further, the enhanced security features they offer, such as tokenisation – allowing the digital banking system to identify and process the transaction without exposing the user data – and biometric authentication – the use of unique physiological or behavioural characteristics of individuals for authentication and security purposes – have helped relieve concerns about fraud and identity theft, leading to further adoption of the tech.

A notable trend of younger generations moving towards digital wallets for everyday use has emerged, particularly in the UK and the US. According to the 2024 digital banking statistics in the UK, the number of digital-only bank account holders is higher among younger generations. More than half of Generation Z (55 percent) – the age group between 18 and 26 years old – and half of millennials (50 percent) hold at least one digital-only bank account in 2024. Meanwhile, just one in five members of the silent generation and baby boomers hold a digital-only bank account (21 percent each) and a third of Generation X (34 percent).

Just under one in five millennials and Generation Zers (18 percent) who do not currently have a digital bank account intend to open one at some point in the future, as well as 15 percent of those in Generation X.

Digital overtakes traditional
According to a Forbes Advisor survey on digital wallets which was revealed in 2023, around 53 percent of US consumers used digital wallets more often than traditional payment methods. Members of Generation Z were the most likely to adopt digital wallets as their primary payment method for shopping (91 percent) and travelling (86 percent).

The UK has seen significant strides in digital wallet adoption

In the US, technology giants like Apple, Google, and PayPal have set the stage with digital wallets that leverage the cloud to offer seamless, real-time transaction capabilities. These firms, with extensive user bases and access to the latest technological solutions, have made platforms such as Apple Pay, Google Pay, and PayPal household names, offering consumers secure and efficient payment solutions both online and in-store.

Similarly, the UK has seen significant strides in digital wallet adoption, buoyed by a flourishing fintech ecosystem and a friendly regulatory environment. Companies like Revolut, Monzo, and Wise have revolutionised the market with features such as instant notifications, budgeting tools, and competitive rates for international transfers. This recent spate of innovation can in part be attributed to the UK’s Open Banking initiative which fosters innovation and competition.
Overall, while there are similarities in the evolution of digital wallets and payments between the US and the UK, there are also differences shaped by factors such as regulation, consumer behaviour, and market dynamics.

Indeed, regulatory-wise, the UK has always been a more conducive environment for the growth of digital payments as the Financial Conduct Authority (FCA) has played a significant role in promoting competition and innovation in the financial services sector. In contrast, the regulatory landscape in the US has been more fragmented, with multiple regulatory bodies overseeing different aspects of the financial industry, which has sometimes hindered innovation.

Accelerated innovation
While the UK is not obligated to follow Europe’s banking regulations like Single Euro Payments Area (SEPA), Payment Services Directive 2 (PSD2) and Payment Services Directive 3 (PSD3), these mandates have still accelerated innovation and adoption of digital banking in the UK.

The US has not experienced the same rate of adoption of new financial capabilities as the UK, in many ways because European banking and payment regulations have not been as influential overseas. US consumers are increasingly flocking to digital banking and payments and with country-wide regulations expected this will likely accelerate in the coming years.

In this regard, global financial technology company Sopra Banking Software CEO Eric Bierry said that especially in the US, there is a large market demand for instant payments, with key players in this space including Zelle, The Clearing House’s RTP network, Visa Direct, Mastercard Send, Venmo, Paypal and Square processing more than $900bn in annual real-time transaction volume. On the other hand, in the UK, while the Faster Payments Service has been driving quick payments across many UK banks for more than 15 years, recent proposals seek to make instant payments even more secure for consumers as fraud and scams increase.

Alex Reddish, managing director of the UK fintech business Tribe Payments, highlighted that while the UK and Europe may be nearing saturation with digital banking, the evolution of the sector is far from over. “Continued innovation, regulatory developments, and shifting consumer preferences will shape the future of banking in Europe and the UK, ensuring that the industry remains dynamic and responsive to future demands,” he claimed. Reddish pointed out that on the other hand in the US, the largest financial services market in the world, some progress is likely to be much slower, although the market has always shown its ability to adapt quickly and leapfrog phases like contactless payments which the UK and Europe pioneered.

Partnerships between technology companies, financial institutions and merchants have also played a crucial role in promoting the adoption of digital wallets. “These collaborations have expanded acceptance networks, raised awareness about the benefits of mobile payments, and incentivised consumers with rewards and discounts,” Reddish added.

Security remains a top concern
Looking ahead, both the US and the UK are likely to see further innovation and growth in the digital payments space. Nevertheless, despite these advancements, challenges remain, particularly in the realms of cybersecurity and regulatory space. According to a data breach report released by IBM in 2023, cyber attacks disproportionately impact the financial services industry, which is second only to the healthcare industry in terms of cost per breach.

The regulatory landscape in the US has been more fragmented

Chris McGee, managing director of the financial services practice at global management and technology consulting firm AArete, stressed that security remains a top concern in both regions, and the need for cybersecurity remains a major trend in digital banking. “Banks are using AI to evolve digital banking in several areas, including security detection. AI can detect fraud and other potential risks faster than ever before while helping banks comply with a growing number of regulations. AI will increasingly play a key role in protecting customers’ assets and personal data and, crucially, in earning customers’ trust, especially as customers continue to explore the use of digital wallets to pay for goods and services.”

Likewise, Bierry revealed that one of the biggest challenges that both US and UK banks will face will be around generative AI. “Banks see clear business value with AI, but they nonetheless worry about how generative AI tools will affect areas like security and the banking workforce overall. Banks will need to devote time to not only onboarding AI tools themselves, but also educating teams and consumers about their impact. While banks will certainly face challenges integrating GenAI into their businesses, it also offers them an incredible opportunity,” he said.

“Regulations will pose another challenge to US and UK banks. As requirements continue to evolve and new policies come into play, banks must stay up-to-date to ensure compliance. After the failure of a series of banks last year, regulators are set to introduce several new policies this year that aim to prevent something like this from ever happening again,” Bierry added.

According to Bierry, regulators are likely to focus on policies protecting consumers and their financial data this year, especially as innovative financial products and services emerge in the era of open banking and AI.

Attractive targets
Likewise, Maureen Doyle-Spare, head of asset and wealth management and insurance at UST, a US digital transformation solutions company, highlighted that security is paramount because digital wallets contain so much sensitive financial data, which makes them very attractive targets for cyber attacks.

“Robust encryption, multi-factor authentication, and vigilant monitoring are essential for safeguarding user information. Additionally, interoperability also poses challenges, as seamless compatibility among various digital wallet platforms is crucial for enhancing the user experience. Furthermore, scalability is a pressing concern, as advanced infrastructure is needed to handle increasing transaction volumes without compromising speed or reliability,” she said.

Modernising existing and outdated banking infrastructure poses a significant hurdle for banks and fintech companies across the globe. Both markets in the US and the UK are likely to face similar challenges to reach their full digital banking potential. Aside from market differentiation difficulties due to the commoditised nature of digital banking services, neobanks will have to navigate regulatory frameworks primarily designed for traditional banks, which can be resource intensive and slow down innovation.

High customer acquisition costs and low per-customer revenue also present profitability challenges.

Africa’s currency crisis

Posted on by itsupport

In September 2023, Nigeria was upbeat after Emirates Airlines agreed to resume direct flights to the country. This came after an 11-month hiatus, the root cause of which was an inability to repatriate $85m in revenues trapped in the country due to a grievous currency crisis. Emirates was not alone in suspending operations. Etihad Airlines had done the same. Cumulatively, global carriers had a staggering $812m stuck in Nigeria when Emirates was suspending operations in November 2022, according to the International Air Transport Association.

The airlines’ fiasco is one case that was overly amplified. The reality is that Africa is a hotspot of suffering for multinationals. One major contributing factor is the currency crisis. Essentially, weak domestic currencies have made it difficult for foreign companies to repatriate revenues and profits. Worse still, they have battering effects on asset valuations of local subsidiaries. Instead of making a ruckus like Emirates, a majority of multinationals have opted to exit the continent silently. Many more are scaling down operations to minimise the losses.

“The high cost of doing business, red tape and a looming risk of devaluations reaching a critical mass is rendering operations in Africa unprofitable,” says Irmgard Erasmus, a senior financial economist at Oxford Economics.

Across Africa, the currency crisis is becoming endemic. The problem is profound in countries like South Africa, Nigeria, Egypt, Kenya, Ghana, Zambia, Ethiopia and Zimbabwe. In Egypt, for instance, the local pound has lost more than two-thirds of its value against the dollar since early 2022. Last year, Nigeria’s Naira was ranked among the worst-performing currencies in the world after depreciating by 49.4 percent.

In Zimbabwe, the local dollar has become a basket case. It has lost over 70 percent of its value on the official market since January this year. With businesses and traders shunning it in favour of US dollars, the Reserve Bank of Zimbabwe has reacted by launching a new currency called ZiG. It will be anchored on gold reserves and a basket of foreign currencies.

Out of Africa
The currency crisis has ignited widespread suffering and caused policymakers sleepless nights. For foreign companies, the impacts have been devastating. Many are finding it hard to bear the pain. When it exited Africa in 2021, UK’s financial conglomerate Atlas Mara cited currency volatility as a big factor in its decision. At the time, currency depreciations had caused a staggering $145m decline in the dollar value of its assets.

It has not been easy for most African countries to weather the storm of the global recession

Barclays Bank, Procter & Gamble, Glaxo-SmithKline, Cadbury, Eveready, Bayer, Nestle, Unilever have all also exited or significantly scaled down operations. Though other factors have been at play, weak currencies have been a common denominator.

It is not just multinationals that are feeling the pain. Institutional and individual investors in Africa’s capital markets, private equity firms and venture capitalists are also taking a beating. A case in point is South Africa. Johannesburg Stock Exchange data show that foreign investments outflows have amounted to $53bn over the past eight years. Last year, equities worth $8.3bn were dumped. In the Kenyan bourse, the exodus has been acute in recent times. The trend continued in the first quarter of this year with foreign investors selling $17m worth of stocks.

Repatriation of earnings is just one side of the problem for investors. Another that is more severe is substantial losses when weak domestic currencies are converted to hard currencies like dollars and pounds. “The exits and outflows showcase how powerfully foreign investors can react when their confidence is dented by a cratering currency,” states Jonathan Munemo, Economics professor at Salisbury University’s Perdue School of Business.

A combination of factors has conspired to inflame the currency crisis. The basics are an idiosyncratic component related to structural imbalances and external pressure in the form of tight global funding conditions and geopolitical risks. On the global stage, the aggressive rate hiking by the US Fed since March 2022 aimed at tackling stubbornly high inflation stands out. Its effect has been the value of the dollar rising substantially and exerting pressure on Africa’s currencies.

Turning up the heat
Surging global food and energy prices triggered by the war in Ukraine have amplified inflation pressures. Countries with high debt loads are also being forced to spend squeezed revenues on repaying expensive loans, heaping more pressure on currencies already weakened by depleted foreign exchange reserves. Currently, about 40 percent of public debt in the continent is external with over 60 percent of it being in US dollars.

Cases of countries with worsening debt burdens enduring intense exchange rate depreciations are ripe. Kenya offers a perfect example. With a public debt standing at $82bn, persistent fiscal deficits and dwindling reserves, the shilling reflected market concerns of a potential sovereign debt default on a $2bn Eurobond that matures in June 2024. Over the period between March 2022 and December 2023, the shilling weakened by 22 percent to the dollar. The freefall was more elevated at the beginning of this year. It was only arrested after the Kenyan government concluded a buyback operation of the maturing Eurobond.

“It has not been easy for most African countries to weather the storm of the global recession, monetary tightening and disruptions to global markets,” observes Christopher Adam, Professor of Development Economics at Oxford University.

While depreciations have battered the operations of foreign companies and investors, hysterical efforts by governments to stabilise domestic currencies have not made the situation any more bearable. Repatriation risks are most acute in countries relying on rigid forex regimes with currency convertibility issues also persisting in countries with flexible regimes. “Persistently high external financing needs tend to stand at the root of repatriation challenges,” explains Erasmus.

Across the continent, it has been a playbook of desperate measures to arrest the currency crisis. In Nigeria, the reform-minded administration of President Bola Ahmed Tinubu is implementing policies like unifying the multiple exchange rates and enabling market forces to set the exchange rate. The administration also intends to raise $10bn to boost forex liquidity.

Crippled by a prolonged economic crisis, Egypt is finally acknowledging that the path to economic transformation requires painful adjustments. The country has agreed to adopt a flexible exchange rate regime in line with International Monetary Fund demands in order to access an $8bn bailout. Beside the bailout, the country has also since secured an investment deal worth $35bn from the United Arab Emirates and mobilised $7bn and $6bn from the European Union and the World Bank respectively. Apart from helping stem a suffocating forex shortage, the war chest has enabled the country to float its currency, easing pressure on the pound.

The effects of policy interventions to tackle structural imbalances cutting across liquidity constraints, market distortions and lack of transparency in the forex market are somewhat yielding fruits. The Naira, for instance, has since taken a drastic turn in fortunes. In April, it was the world’s best-performing currency after gaining 12 percent against the dollar, building on a 14 percent surge in March, according to Goldman Sachs.

“Currency reforms will be welcomed by foreign investors and could spur capital inflows if they are successful in stabilising the exchange rate,” reckons Munemo.

A hard road ahead
A growing number of African countries are showing willingness to accommodate unpopular policies for long-term domestic currency stability. A few, like Ethiopia, are still clinging to a rigid forex regime. The net effect is subdued foreign interest in the government’s ambitious privatisation and sectoral liberalisation agenda. Despite its rigidity, the country is, however, dangling the carrot to ensure foreign direct investments keep flowing in. In September 2023 the National Bank of Ethiopia approved offshore accounts for strategic investors. Apart from making it easy for investors to manage their financial obligations, the directive also guarantees foreign currency convertibility for dividend repatriation and loan repayments.

Currency reforms will be welcomed by foreign investors and could spur capital inflows

“When restrictions are imposed in order to stabilise the exchange rates, private companies and individuals have the incentive to bypass official channels. This forms the basis of parallel or black markets in foreign exchange,” states Adam.

The parallel or black market continues to thrive in Africa. In some countries, it serves as the lifeline owing to the fact that it typically offers higher rates than the official exchange rate. Granted, the black market is a crucial component of the economy. Primarily, it offers a channel for individuals and businesses to access forex that may be scarce or overregulated in the official market. However, it also has damaging effects. For foreign investors who want to operate in stable, predictable and transparent environments, it can be a huge deterrent.

That deep entanglement with the dollar, and other hard currencies, has caused immense suffering for African countries, is indisputable. This explains why leaders in the continent led by Kenya’s William Ruto have been clamouring for de-dollarisation and development of homegrown local currency debt markets. The anti-dollar revolt is fuelled by popular consensus that advanced countries are often insensitive to how policies designed to provide stability in their own economies end up exporting currency instability to Africa. Additionally, if African countries borrowed more in their own currencies, they would escape the pains of exchange rate fluctuations spurred by rising global interest rates. The continent, however, understands that this is easier said than done.

The race is on in the electric vehicle revolution

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Words like ESG, circular economy, sustainability, global warming, carbon footprint, carbon offset, and net zero have become entrenched in everyday language, and, like it or not, when it comes to transportation, the electric vehicle (EV) revolution is in full swing. We are being encouraged to ditch our combustion engines in favour of cleaner energy, and with good reason: not only is electric kinder to the planet, but oil is a limited commodity and won’t last forever.

However, despite media reporting of a slowdown in sales, EV Volumes’ recent report showed that sales of electric vehicles, both battery electric vehicles (BEV) and plug-in hybrids (PHEV), increased by 35 percent in 2023. Additionally, Statista reports that in 2024, the global revenue in the electric vehicles market is projected to reach $623.3bn.

All of which is good news for investors looking to capitalise on this emerging trend. By looking further down the supply chain beyond car manufacturers, there are many areas in the sector that present attractive investment opportunities, such as battery and other technologies, supporting services and infrastructure, and with enough research investors can position themselves to reap the benefits.

The case for EVs
Excluding water vapour, which varies between 0–4 percent, Earth’s atmosphere comprises approximately 78 percent nitrogen, 21 percent oxygen and 0.93 percent argon, with the remainder made up of trace gases, including the so-called greenhouse gases; carbon dioxide, methane, nitrous oxide, and ozone. While greenhouse gases account for only 0.04 percent, or 400 parts per millions (ppm), of gases in the atmosphere, they, along with water vapour, absorb the heat energy that the Earth gives off, trapping some of it in the atmosphere and emitting the rest back to Earth and space. And this causes a vicious cycle. As the heat energy in Earth’s atmosphere increases, humidity increases, which heats Earth further.

Transportation accounts for approximately 15 percent of all global energy-related energy emissions, and EVs have emerged as one solution to help mitigate the impact of combustion engine emissions and reduce the effects of climate change.

Growth drivers of the EV market
20 years ago, car buyers were encouraged to buy diesel vehicles as they were better for the planet. Obviously we know now that wasn’t the case and with more information at our fingertips, car buyers are more aware of the environmental benefits of EVs, but market growth is determined by several factors that affect EV adoption.

EV manufacturers promise both risk and reward in equal measure

Buying or leasing a car is a huge investment, so price remains a major driver of the market. And while prices are slowly coming down, the cost of an EV is still higher than that of a petrol equivalent. Thankfully though, with more manufacturers hopping on the proverbial electric bandwagon, there is now considerably more choice for consumers.

The next growth driver is battery life and range, and though it’s fair to say that while both battery life and range have significantly improved over the last few years, there is still a way to go before consumers feel confident about their EV comfortably covering a long drive without the need to stop and charge several times. A continuously expanding charging infrastructure along with the potential improvements to use faster, universal charging points will help drive market growth and assuage concerns when it comes to range and journey time.

The final growth driver is the availability of government incentives and subsidies that help consumers reduce the cost of swapping from petrol to electric. Alongside policies that improve and expand the charging infrastructure, this will help to make EVs a more attractive option for consumers.

Investment opportunities
If you are an investor looking to diversify your portfolio and take advantage of the headway being made in the EV market, where should you look? Starting at the top of the supply chain, EV manufacturers are the obvious place for a potential investor to begin sizing up the shape of the market and analysing the relevant data.

Many of the ‘old guard’ car manufacturers such as Ford, Volkswagen and General Motors have added plug-in hybrids to existing car marques while some have even designed futuristic-looking pure electric ranges. Then, of course, there are the new kids on the block such as Tesla and Rivian, to name two, that would require much deeper analysis as they sit firmly on the riskier side of a balanced portfolio. So, whether you are after the stability of the tried and tested or a bit more risk with exciting innovation, EV manufacturers promise both risk and reward in equal measure.

With recent advancements in lithium-ion chemistry, energy density, battery life and safety, and the development of solid-state batteries, and more, these links in the supply chain, which includes leading manufacturers, materials suppliers and R&D firms, plays a vital role in shaping the future of EVs. The companies leading these technological innovations are the ones potential investors should analyse because as they position themselves as leaders in the race to power the future, they could yield significant returns.

Leading battery manufacturers include Panasonic, Samsung, LG Energy Solutions, and Tesla, and with the demand for EVs set to increase, it stands to reason that they should grow alongside the industry. Battery manufacturers provide investors with the opportunity to add to their ESG portfolio and potentially capitalise on the battery market. But what about the raw materials needed for the batteries? For an average EV lithium-ion battery, 60–75 percent of the weight comes from the energy cells, which is roughly 8kg lithium, 35kg nickel, 14kg cobalt and 20kg manganese, with the remaining 25–40 percent taken up by the battery’s metal casing and cables, along with the thermal and battery management systems.

As the demand for batteries increases so does the demand for the raw materials, and while it’s a very risky part of the market, a canny investor might want to take a look at the leading miners of these minerals.

As technology becomes ever more sophisticated, the EV battery of tomorrow will be completely different to that of today, thanks to the efforts of research and development, meaning that R&D firms should definitely make the cut when it comes to looking at potential investments, especially as many governments are providing incentives to support the development of EV technology. For example, the UK government recently announced a £71.5m combined government and industry investment for automotive R&D projects.

For investment purposes, it is also worth considering what happens to a battery once it has come to the end of its life. In the more sustainable conscious world we live in these days, batteries are recycled to help create a circular energy economy. And with about four times lower emissions than virgin materials, recycled battery materials help reduce the carbon footprint further.

When it comes to battery recycling, there are already some big hitters in the sector, such as Ecobat and Li-Cycle Holdings, which is projected to grow from $9bn in 2023 to $56.3bn by 2031. According to McKinsey, driven by several factors including technological progress, supply-chain stability consideration, decarbonisation and ethical supply-chain targets, as well as regulatory incentives and pressure, the battery recycling space is set for significant growth.

Currently, most EVs are charged at home or work, but for higher EV adoption there needs to be a better network of faster chargers to provide the same level of accessibility and convenience that refuelling petrol-powered cars has. In 2022, there were over 450,000 public EV chargers in Europe. This number is set to grow to 1.3 million by 2025 and 2.9 million by 2030. Thankfully there are already some global superstars in this sector including Blink Charging, EVgo and ChargePoint.

Risks and challenges
Investing in the EV market can look attractive, but like any investment, it comes with its fair share of risks and challenges, with the biggest risk being market volatility. As it’s a new(ish) market, stock prices can fluctuate wildly, making it difficult to accurately predict future trends to help make informed decisions. Additionally, not all companies may survive, especially as research and development of all this new technology requires a significant investment which can affect a company’s overall financial health.

Car buyers are more aware of the environmental benefits of EVs

Additionally, government policies and regulations play a vital role in the shaping and growth of the EV market, and any change to regulations or the availability of incentives and grants can impact a company’s potential profitability.

Even if you are a confirmed petrolhead who loves the sound of a V8 engine, there is no denying that, from an investment standpoint, the outlook for growth in the EV market appears promising as governments across the world implement policies to incentivise EV adoption, and advancements in battery technology and charging infrastructure make EVs more accessible and convenient.

However, despite plenty of investment opportunities, market volatility means the EV sector can be a riskier avenue than most, requiring thorough research and analysis to manage the associated risks.

Making IP rights more accessible

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IP protection often feels unaffordable for start-ups. With limited resources, demanding investors, and less experience with the necessary systems, many SMEs are reluctant to devote funds towards uncertain patent applications and legal proceedings. For those attempting to compete on the international market, these issues – and costs – are compounded tenfold, and founders and CEOs are quick to push it down the priority list.

Yet IP protection is an essential investment in the long-term future of businesses, and all innovators deserve the ability to defend their intellectual property. As part of continuous efforts to shape a fairer, more equitable patent system, the European Patent Office (EPO) has introduced a vital change to the systems for ‘micro-entities’. With this new fee structure, which joins pre-existing measures aimed at small businesses, traditional financial barriers are no longer debilitating, bringing new hope for the Davids in a world of Goliaths.

Building on solid foundations
With innovation central to economic growth, the EPO has already implemented a series of measures to ensure all businesses can compete on a global scale, regardless of their size. Already existing is the ‘small entities’ categorisation, applicable to natural persons; non-profit organisations, universities and public research organisations; microenterprises; and small and medium-sized enterprises (SMEs).

IP protection is an essential investment in the long-term future of businesses

Those under this umbrella can utilise the language-related fee reductions which aim to ensure organisations can protect intellectual property within a global marketplace. This assistance can be vital for smaller, often cash-strapped businesses, for whom translating patent applications (sometimes with limited time) is financially unfeasible. Under this scheme, those who file their European patent application in an official state language that is not English, French, or German, are entitled to a 30 percent reduction in filing and/or examination fees.

A new EPOch
A vital new scheme joined these measures from April 1, 2024: a new fee reduction scheme for ‘micro-entities’, heralding significant opportunities for small-scale innovators. Alongside the original 30 percent reduction in fees that ‘small entities’ are entitled to, crucially, ‘micro-entity’ organisations are able to apply this reduction to all major payable fees across patent prosecution, including filing, examination, search, designation, grant, and renewal fees.

The new status encompasses the same organisation types as ‘small entities’ excepting SMEs. However, crucially, the ‘micro-entity’ status is now no longer respective of an organisation’s nationality or domicile. Increasing the usability of the status comes at a highly welcome time considering the global economic climate and the EPO’s yearly fee increase that otherwise occurs on April 1.

Checking the terms and conditions
Like claiming ‘small entity’ status, to reap the benefits of being a ‘micro entity’, applicants are required to declare their status in front of the EPO. Reductions can then be applied to any relevant fee payments made alongside, or after, this declaration is filed (from April 1 onwards). If there are multiple applicants for a given application, each individual applicant must qualify. It is also the status of the new applicant which determines whether an application qualifies as a ‘micro-entity’ if any European patent application is transferred. Furthermore, these reductions are only applicable if the applicant has filed fewer than five applications in the past five years.

In order to maintain these benefits, it’s important to know that the EPO will be holding random checks on applicants’ status and so must be informed when there are any relevant changes. If any declarations are found to be false or incorrect, the reduced fee will be categorised as ‘not validly paid.’ The application can then be cast as withdrawn, and while organisations may be able to ‘revive’ it, this process can be even more financially significant. Compared to the USPTO’s 80 percent reduction in fees for ‘micro-entities,’ the EPO’s reform doesn’t appear quite as favourable.

Yet the progress still holds great potential for affected businesses, especially with the change to location determiners, and indicates that the EPO is increasingly aware of the value of smaller persons and organisations.

The future of digital corporate banking

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The digitalisation wave has set in motion a fundamental and inevitable change throughout the globe, triggering disruptive growth throughout all aspects of business in the corporate world as it accelerates. Corporate banking and finance services have significantly benefited from this trend alongside the growth in the global demand for innovative solutions that more effectively address the evolving needs of businesses and corporations.

Digital corporate banking is revolutionising the way businesses manage their finances. Thanks to these brilliant digital solutions, businesses can benefit from a variety of tailored banking services and financial tools via innovative, centralised, and secure digital platforms that are easily accessible around the clock and from any place with internet access.

Such banking solutions pave the way for banking providers to build dynamic and highly customisable financing products that best fit different market sectors. ICSFS has been serving the financial and banking industry for many decades, observing and supporting its customers’ transformation journey.

From the early adoption of online and mobile banking to the modernisation of core banking systems, ICSFS has been at the forefront, enabling clients to evolve into true global digital banks through its innovative solutions such as ICS BANKS Global Transaction Banking (GTB). This is our powerful online service which allows corporate banking customers to access their accounts, initiate payment instructions and use other vital banking activities in a secure and agile way, anytime, anywhere.

This next-gen finance management platform is designed on a digital 360° architecture infrastructure to work harmoniously within the modern payments landscape. It also comes packed with intelligent features that encompass transaction capabilities that are not normally found in standard online banking systems.

These clever features cover the entirety of corporate finance tools like cash management, remittances and transactions, standing orders, time deposits, trade finance, reports and analytics, liquidity management, merchant management, corporate setup, and liquidity management services to streamline working capital and maximise ROI.

The appeal of digital corporate banking
The corporate world is no stranger to the monumental benefits of digital transformation. Companies and businesses from across the globe have always been at the forefront of the digitalisation movement. So it is only natural for new banking technologies that are capable of addressing the specific requirements of corporate financing and finance management to garner a great deal of interest from a wide range of corporate customers regardless of their type, size or sector. Large and multinational corporations can benefit greatly from the automated and streamlined processes, detailed reporting and financial planning tools that are offered by these platforms.

With digital banking, businesses have 24/7 access to their accounts and financial services

On the other hand, start-ups and SMEs benefit from digital corporate banking too. These smaller businesses stand to gain value from unrestricted access to the advanced tools and different facilities offered by corporate cash management platforms, including enhanced account management, credit facilities, payments and more.

In addition, tech-savvy managers, financiers and CFOs are especially drawn to the sophisticated capabilities of digital corporate banking, making this an attractive solution for any business looking to improve financial management and operational efficiency through digital means.

What are the advantages of digital corporate banking?
There are countless ways digital corporate banking can transform how businesses manage their finances. Companies that switch to digital corporate banking platforms like ICS BANKS Global Transaction Banking will experience a significant boost in operational efficiency.

With these technologies, routine tasks like payment processing, payroll, account reconciliation and cash management are automated, freeing up valuable time which can be better utilised for strategic growth and innovation. Additionally, with advanced analytics and reporting tools, companies gain real-time insights into their financial health, helping them make smarter, data-driven decisions.

Enhanced customer experience is another significant advantage. With digital banking, businesses have 24/7 access to their accounts and financial services, making it easier to manage finances on their own schedules. This is particularly beneficial for global operations that need to navigate different time zones.

ICS BANKS GTB also offers a high degree of flexibility and parametrisation, enabling businesses to tailor services to meet their unique needs. Features like personalised dashboards, customisable alerts, and integrated financial tools enhance user satisfaction and engagement, whilst opening up new opportunities and revenue streams for the banking provider.

What are the drawbacks of digital corporate banking and how is this being addressed?
Despite the many benefits of digital corporate banking, there are still certain challenges that may arise. Perhaps the biggest drawback is the security risks. For example, if the user neglects to follow cybersecurity protocols and recommended practices, it may expose the company to serious damage including financial loss, cyber-attacks, identity theft, data breaches, and fraud.

AI and ML can enhance various aspects of corporate banking, such as fraud detection, risk management, and customer service

Addressing this issue correctly requires a collective effort by everyone involved to mitigate possible risks. ICSFS places great importance on security: all ICS BANKS systems, modules, and components go through rigorous and thorough scrutiny regularly, with ongoing releases of security updates and patches, and scheduled security audits with all of our clients.

Technical issues and system downtimes are also drawbacks that come with any digital solution, as technology is inherently not immune to outages, glitches, and maintenance periods. Such unavoidable disruptions can come at a time of inconvenience to the user. To mitigate this, ICSFS works on implementing emergency plans and using different system deployment methods to minimise these disruptions and ensure high availability and uninterrupted access, on top of continuously refining ICS BANKS solutions and improving their resilience and reliability.

Is digital corporate banking safer?
Modern technology is certainly capable of offering enhanced security measures that far exceed traditional paper-based methods in any process – and even more so in banking technology in light of continually emerging technologies such as blockchain, RPA’s, Big Data, and AI.

However, technology being inherently more secure doesn’t necessarily mean it is always ‘safer.’ Several key factors must be considered before deeming a system to be safe. These include encryption and authentication procedures, fraud detection and prevention measures, compliance with data privacy regulations such as GDPR and CCPA, cybersecurity and attack prevention, and last but not least, human error.

The takeaway here is that while digital banking technologies do offer a much higher level of security, it is ultimately up to the users to follow best practices and remain vigilant to ensure the safety of their transactions and financial activities. As a global banking technology provider, ICSFS allocates a substantial portion of its resources and manpower to the continuous fortification of its security infrastructure and procedures.

The latest of these endeavours is the acquisition of the Information Security Management System (ISMS) ISO/IEC 27001 Certification for the Data Centre, IT Department, and ICS BANKS Banking & Digital Software Solution Services. Furthermore, ICSFS conducts regular and rigorous security audits of all its systems, as well as closely monitoring all client systems and performing regular updates to their different security and data protection protocols.

What is the future of digital corporate banking?
The future of digital corporate banking is set to be shaped by rapid technological advancements and evolving business needs. One significant trend is the increasing integration of Robotics, artificial intelligence (AI), and machine learning (ML) into banking platforms.

AI and ML can enhance various aspects of corporate banking, such as fraud detection, risk management, and customer service. For instance, predictive analytics powered by AI can help businesses forecast cash flows and manage liquidity more effectively. Chatbots and virtual assistants, driven by AI, will offer more personalised and efficient customer interactions, addressing queries and providing support in real time.

Blockchain technology is also poised to play a transformative role in digital corporate banking. By providing a secure, transparent, and immutable ledger, blockchain can streamline processes such as cross-border payments, trade finance and compliance.

Smart contracts, which execute automatically when predefined conditions are met, can reduce the need for intermediaries and enhance the efficiency of complex transactions. As more banks adopt blockchain, the industry can expect faster, more secure, and cost-effective services, benefiting businesses globally.

ICSFS had the foresight to adopt blockchain technology a few years ago, setting a regional precedent on the commercial use of blockchain technology and demonstrating its benefits in cross-border transfers. The rise of open banking is another crucial development. Open banking allows third-party developers to build applications and services around the financial institution, using APIs to access banking data.

Blockchain can streamline processes such as cross-border payments, trade finance and compliance

This fosters greater innovation and competition, leading to a wider range of financial products and services tailored to specific business needs. Companies can benefit from improved financial management tools, better lending options, and enhanced integration with other business applications.

One of the brightest features of ICS BANKS Banking Solution is that it is built entirely on an open banking backend, offering a rich and diversified catalogue of APIs which allows ICS BANKS solution to communicate clearly and easily with virtually any system. As regulations around open banking continue to evolve, ICS BANKS is fully capable of adapting to any changes quickly and seamlessly, driving further advancements in the sector.

Overall, the future of digital corporate banking will be characterised by greater automation, enhanced security, and increased collaboration. These advancements will not only improve operational efficiency and customer experience but also create new opportunities for businesses to optimise their financial strategies and drive growth.

Maritime trade is sailing to a tipping point

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They are known as ‘choke points,’ the canals and rivers through which the world’s trade is transported by ships of all kinds and sizes. And suddenly they are under threat. In fact, two kinds of threat. Missiles fired from Yemen have dramatically cut traffic in and out of the Suez Canal via the narrow Strait of Bab-el-Mandeb in the Red Sea, a historic choke point between the Indian Ocean and the Mediterranean Sea. It may be years before maritime companies feel safe sending their ships through this route.

Simultaneously, long-running tensions between Iran and neighbouring states continue to jeopardise passage through the Strait of Hormuz, the only sea passage from the Persian Gulf to the open ocean. The importance of these straits can be gauged by the fact that more than half of the world’s total shipped crude production passes through Hormuz, Bab-el-Mandeb and the Suez Canal. That’s quite apart from a huge variety of other cargos. While relief to these sea passages can only come through peace, the Panama Canal and other great waterways face a threat that cannot come through politics.

It is the existential risk of record-breaking droughts that affect the Rhine, Mississippi, Mekong and other waterborne trade routes. The prevailing situation proves the vulnerability to terrorism and climate of the supply chains that have evolved over many years, in some cases over centuries.

A thousand ships
To take the Panama Canal first. In more normal times about 1,000 ships go through its locks each month, carrying some 40 million tonnes of goods. As the International Monetary Fund explains; “The Panama Canal can reduce the sailing distance from the Atlantic to Pacific and vice versa by a vast 8,000 nautical miles. Its efficiency and time-saving nature make it a crucial resource for the shipping industry, with an estimated six percent of global trade passing through it.”

Climate change is now threatening the shipping lanes that underpin global commerce

But when slots are in short supply, ships that cannot book one (or cannot afford to do so) must find a different route. In times of peace this would be the Suez Canal, which typically transits 12 percent of global trade, worth around $1trn a year. But with no other option available the shipping giants have been sending their vessels around Africa’s Cape of Good Hope, which extends the voyage by up to two, often extremely rough, weeks of sailing. This raises fuel and operating costs, causes delays and increases the price of the landed goods. According to consultant LSEG Shipping Research, the transit times from diverting a tanker from Asia to northwest Europe via the Cape of Good Hope have doubled to 32 days and added nearly $1m for each voyage. The extra costs for a container ship are less but still significant.

Happily, there has been some relief in the Panama Canal. The restrictions on passage have been progressively eased – but not lifted – as the El Nino-triggered drought throughout Central America goes on its way. In mid-April the hard-pressed Panama Canal Authority approved the passage of up to 32 ships a day including those with deeper draughts of nearly 14 metres. At the height of the drought in early 2024, approvals had been roughly halved. Some vessels could scarcely clear the bottom of the canal. The resulting disruption to supply chains was profound.

Due to restrictions, tonnage passing through collapsed by a third, according to maritime consultancy Clarksons Research. And although the drought is lifting, if the rainy season is late then restrictions could return.

Golden waterway
In the meantime, major natural waterways are at risk and the economic implications are profound. Dubbed China’s ‘golden waterway,’ Asia’s longest river, the Yangtze, which ferries some three billion tonnes of a hugely diverse range of products in a good year to about 100 countries, suffered a nearly cataclysmic drought in late 2022 that made the shipping world wonder about the river’s future navigability. And it still does.

Water levels at one of the giant ports on the 3,915-mile-long river fell to the lowest level since records began in 1865 as simultaneously depths at the river’s many tributaries followed suit. Although officials preferred not to tell the worst, the truth is that the Yangtze was reduced to half its normal width. If another drought hits the region, nobody knows how low the Yangtze could go.

Other logistically important and historic waterways like the Rhine, Mississippi and Mekong are also under threat. The Mississippi, which also experienced drought-induced bottlenecks in 2022, ranks second globally in inland waterways in terms of freight carried, with 600 million tonnes a year, while third-ranked Rhine carries 300 million tonnes.

The Mekong, the longest river in Southeast Asia along which some 60 million people live and work, has suffered increasingly severe droughts for two decades. Although it is floods that make the headlines as houses, cars, cattle and people are swept along a muddy torrent, it is droughts that create the most damage. “Unlike flood, drought only brings socio-economic hardship to riparian countries, especially riverine communities,” notes the multinational Mekong River Committee, pointing to ruined crops, fresh water shortages and disappearing fish.

Considerable uncertainty also hangs over the war-torn straits. If peace is restored, which looked unlikely in mid-April, their militarily strategic position in an increasingly volatile region makes the case for alternative supply chains even more urgent. Supply chains have many elements and, as Oxford-based PortWatch explains, delays in these choke points lead to further disruption all along the route, including ports that depend on the smooth functioning of the canal. Most of the research points in one direction. In early 2024, a report by the Atlantic Council, a respected US think tank, feared that “climate change is now threatening the shipping lanes that underpin global commerce.”

Citing a massive imbalance in the way that weather works, the report said; “The disruption to the way water moves between the Earth and the atmosphere – the patterns of rain, evaporation, condensation, and runoff that affect how much water flows through the world’s waterways – appears to be here to stay. Global supply chains depend on these waterways. With climate change expected to make extreme weather more frequent, a big rethink of how goods move around the globe is necessary.”

Beached business
Others express similar concerns about future disruption to the world’s complex highways to the sea. “Pressure on global shipping routes is creating stress in global supply chains again, soon after the acute disruption experienced in the pandemic,” insurer Swiss Re noted in a much-quoted February 2024 report. Entitled Navigating shipping disruptions: signs of rougher seas ahead, the author more or less echoed the Atlantic Council: “More frequent droughts are likely to jeopardise transit volumes in the Panama Canal, and climate change is already affecting river shipping, as seen in the Rhine and Mississippi. We view these as headwinds to the long-term resilience of global shipping trade.”

A big rethink of how goods move around the globe is necessary

But what can be done? Some have suggested shallower-bottomed vessels, others deep dredging. While the first is practicable but would send half the world’s river-going fleet to the scrap yard, the second is routine on most of the great waterways but on nothing like the required scale. Then there are ‘road bridges,’ basically overland transport by trucks and trains that would supplement or even replace waterways when they become impassable.

The boldest alternative by far would be another canal connecting the Pacific and Atlantic Oceans through Nicaragua. A Chinese company established by a certain Wang Jing, supposedly having ties to the Beijing government, has claimed a 100-year concession and a 173-mile route has been drawn up for a waterway that would take far bigger vessels than the Panama Canal, in fact ships like giant bulk carriers with depths of 26 metres. But the project would cost $40bn and would pass through pristine Lake Nicaragua, rainforest and wetlands, not to mention a geophysically unstable region.

As the Smithsonian magazine reported in 2014 when digging was supposed to begin, “the canal route lies in the middle of a hurricane belt.” Other more definite initiatives should help plug emerging gaps in the global supply chain. Abu Dhabi has signed a preliminary deal with Iraq to jointly develop a strategically located new port on the northern tip of the Persian Gulf near Basra. Named Al-Faw Grand Port, it is expected to open by the end of 2025 and link ‘east and west,’ according to its supporters. It will be big enough to take containers, dry bulk and tankers.

As war disrupts sea routes in the region, new supply chains are emerging. In early 2024 Turkey and Iraq unveiled a 1,200-km, $17bn road and rail link project – a land bridge, in short – that will connect Iraq’s main port to the Turkish border and then into Europe.
Ominously for Egypt, it will avoid the Suez Canal entirely.