The Trump administration has accused China’s Bank of Dandong of illicit financial dealings with North Korea, including the laundering of money for the totalitarian state. The US Treasury is now considering cutting the modest bank from the US financial system, increasing pressure on Beijing to clamp down on its wayward neighbour.
In a statement released on June 29, the US Treasury said: “Bank of Dandong acts as a conduit for North Korea to access the US and international financial systems, including by facilitating millions of dollars of transactions for companies involved in North Korea’s WMD [Weapons of Mass Destruction] and ballistic missile programmes.”
Last week, President Trump said China’s efforts to rein in North Korea have “not worked out”, indicating he may be prepared to adopt a more aggressive stance on Pyongyang. Trump has been leaning on the Chinese leader to help curb North Korea’s nuclear ambition ever since President Xi Jinping made his historic visit to the US in April. As a result, China is coming under increasing pressure to fully comply with international sanctions on the state, which include cutting economic ties with the nation.
Trump has been leaning on Chinese President Xi Jinping to help curb North Korea’s nuclear ambitions
However, China has been the reclusive nation’s sole trading partner and only international ally for some years now. North Korea not only relies on Chinese trade to keep its economy afloat, but is also thought to funnel much of this revenue into its flagship nuclear missiles programmes.
Despite mounting international pressure to end the economic relationship, China has been keen to maintain trade relations with the state. However, since the summit in April, President Xi Jinping has taken a somewhat tougher stance on China’s neighbour, halting imports of coal from North Korea.
The US Treasury will now carry out a 60-day review of the Bank of Dandong, after which it will decide whether to fully sanction the Chinese bank. The bank in question is based in the northeastern city of Dandong, which sits on the border of China and North Korea. The border serves as a gateway for trade between the two nations, and has been described as the isolated state’s lifeline to the outside world.
In response to the possible blacklisting, US Treasury Secretary Steve Mnuchin confirmed the US is still keen to work with China to combat the North Korean nuclear threat. “We are in no way targeting China with these actions,” Mnuchin told reporters at a White House news briefing.
Our shopping habits have changed dramatically over the past 20 years. On August 11, 1994, the Sting album Ten Summoner’s Tales became the world’s first secure online purchase, marking the launch of e-commerce as we know it today.
In the years since, the astronomical rise of online shopping has steadily pushed physical stores into decline, with an average of 15 high street shops closing each day in the UK alone. Delivering another blow to the once mighty bricks and mortar, the smartphone era has further digitalised our shopping habits.
With a world of buying options now at shoppers’ fingertips, mobile purchases have boomed: in 2010, mobile visits to e-retail sites accounted for less than three percent of web traffic. Today, that figure has skyrocketed to over 50 percent. As on-the-go mobile payments have become the norm, retail has evolved from its pre-internet form. But as the industry adjusts to this new landscape, another retail transformation is on the horizon: just as smartphones changed the face of retail, Instagram is making inroads into mobile retail.
The ultimate fashion magazine
Since its launch in 2010, the photo-sharing app has been a source of inspiration to its predominantly young user base, with endless beauty, fashion and lifestyle accounts filling users’ feeds with exciting new brands. Now, Instagram wants to monetise this aspirational content, introducing shoppable features and ‘buy now’ buttons to facilitate impulse purchases in-app. Catering to the personalised tastes of its 700 million users, the Instagram store could be the future of retail.
Long before the launch of its ‘shop now’ features, Instagram was already influencing the world of retail. As brands quickly discovered, the visual nature of the platform allows companies to showcase products in an engaging and aesthetically pleasing way. By using hashtags, locations and photo tags, brands are able to reach a wide-ranging audience, and can enjoy a profile boost if featured on the app’s popular ‘explore’ page.
Photo-based apps such as Instagram and Snapchat have created an image-conscious culture within Generation Z
“Instagram is like a fashion magazine with an infinite number of pages”, said Gregory Galant, co-founder of the social media-focused Shorty Awards and CEO of Muckrack. “It’s always been about great photos and finding new people to follow, whereas a site like Facebook is mostly about following friends.”
With a broad reach and visual focus, Instagram has proved incredibly useful for an ever-growing number of fashion and beauty start-ups. By prioritising Instagram in social strategies, brands can effectively use the platform to build a brand identity, gather a following and generate sales. Indeed, some of the largest beauty lines in the world today are independent brands that have successfully grown an audience through Instagram.
One such example is makeup phenomenon Huda Beauty. Launched by Instagram star Huda Kattan in 2013, the high-end makeup line now boasts close to 20 million followers, and has succeeded in turning online attention into physical sales. In the four years since its launch, the brand has developed a global following, frequently appearing among Sephora’s top selling brands in both the US and the Middle East.
While Huda Beauty may be one of Instagram’s brightest success stories, Kattan’s social media might is by no means unique in the beauty world. Independent brands are now thriving on the app, with companies such as Anastasia Beverly Hills, Kat Von D Beauty and Kylie Cosmetics each boasting several million Instagram followers. Of course, this popularity is reflected across all the major social media channels, but Instagram is where these brands have truly found a home.
“Instagram is seeing a lot of traction at the moment – it’s kind of the hot platform”, said Callum McCahon, Strategy Director at Born Social, a London-based social media agency. “According to our research, Instagram has the highest volume of sharing in the UK at the moment, meaning that it’s where people are actively sharing the most content. It’s definitely the key platform right now for the majority of brands.”
It’s a similar story on the other side of the Atlantic. Among US teens, Instagram has dramatically leapfrogged Facebook in terms of popularity, with Generation Z abandoning the social media behemoth in favour of its younger rival. According to research carried out by the University of Chicago, 76 percent of 13-to-17 year-olds use the photo-sharing app, while just 66 percent use Facebook. What’s more, Facebook users are consistently posting less original content, and are increasingly looking to share personal posts elsewhere.
While Facebook struggles to reverse its substantial 21 percent decline in ‘original sharing’, Instagram is enjoying a surge in content creation, helped, in part, by new updates allowing users to upload multiple photos in one post. With a rapidly growing audience of active users, Instagram is fast becoming the app of choice for social-media-savvy brands.
Social spending
Having succeeded in connecting users with brands, Instagram is now hoping to take that relationship one step further. In November 2016, the platform announced it would be rolling out a new ‘shop now’ feature, allowing users to buy the products they see in a photo. With one tap of the shoppable photo tags, users can now make a purchase entirely inside of Instagram without having to leave the app. While the feature is currently only available for a handful of brands, users will likely see much more of the ‘shop now’ feature over the coming months.
“If there’s one thing we’ve learned about consumer behaviour on the internet, it’s that the easier you make things, the more people will do it – a prime example being Amazon’s 1-Click Ordering”, Galant explained. “Until now, Instagram has prevented a lot of behaviour by not allowing links in descriptions. Adding a ‘buy it now’ link will drive a lot more action than before.”
With a rapidly growing audience of active users, Instagram is fast becoming
the app of choice for social-media-savvy brands
Along with facilitating purchases, the platform may also be fuelling spending among young users. The pervasive influence of social media means likes, followers and views are defining the lives of teens across the globe, with photo-based apps such as Instagram and Snapchat creating an image-conscious culture within Generation Z.
As such, teens are coming under increasing pressure to maintain an active online presence, and may be reluctant to repeat the same outfits and make-up looks in the photos they post to social media. This focus on online appearance is quickly driving changes in the way that young people shop, with Generation Z showing an appetite for premium beauty brands and an interest in easily-styled, ‘mix and match’ clothing sets.
“More and more, we’re seeing that the main event of a night out is the photos that get posted, rather than actually being there”, said McCahon. “There’s definitely an added social pressure.”
Aside from encouraging spending on beauty and fashion, however, the rise of photo-sharing apps is similarly driving young people to go out and spend more on experiences, from meals out to holidays with friends. As the first generation to truly grow up online, teens of today are under increasing pressure to live an ‘Instagram-worthy’ life: one full of adventure, socialising and aspirational experiences.
While most members of Generation Z are not yet earning, they are still some of the world’s most active consumers, wielding an impressive $44bn of purchasing power in the US alone. As this generation matures, their buying power is only set to grow, along with the social media impact on global spending habits.
From public to private
Brands may be mastering the art of social media strategy, but the latest online trends could well throw a spanner in the digital works. Our social media habits are rapidly evolving, and experts are noticing a shift from public posting to private sharing. Our Facebook feeds may once have been flooded with personal updates, but today’s social media users are more likely to share these details in the private confines of a WhatsApp Group Chat or a simple Snapchat message.
Mobile visits to e-commerce websites (share of web traffic)
3%
2010
>50%
2017
“Sharing has become less public and more private”, explained McCahon. “Whereas three or four years ago people would share publicly straight onto Facebook feeds, for example, now we’re seeing that sharing happening in more private, curated, small groups.”
As users abandon traditional newsfeeds and embrace ‘private’ social media spaces, brands and advertisers are presented with a conundrum. Until now, social media has made it relatively easy for marketeers to gauge public reaction to content, whether through views, impressions, shares or comments. This has enabled brands to measure the effectiveness of online marketing campaigns and apply the results to future creative processes. However, as private sharing becomes the new norm, it will become increasingly difficult for brands to measure the success of targeted online campaigns.
“’In the past, you would be able to see very clearly how people are engaging [with] and sharing your content, because it all happens in public”, said McCahon. “But now, if someone screenshots something and puts it in a WhatsApp group, or shares a link in Facebook Messenger, then you can’t track that as well.”
With up to 77 percent of content now being shared in this ‘dark social’ space, brands will have to get creative in order to re-engage with social media audiences. However, while their sharing activity might be hard to track, we know social-media-savvy generations are taking to their favourite platforms in their millions to discover new brands and browse products. The internet may have killed the high street, but social media might just save retail.
On June 29, Rio Tinto shareholders approved the sale of the company’s Australian coal assets to the Chinese-backed company Yancoal for $2.69bn, ending a bidding war that also involved Swiss mining company Glencore.
Yancoal had been touted as Rio Tinto’s preferred buyer since announcing its intentions in January, and eventually bested Glencore’s offer of $2.68bn in a heated bidding war, which saw both companies overshoot analysts’ valuations of $2bn.
With some deeming Yancoal to be party to one of Rio Tinto’s major shareholders, Yankuang Group, the dually-listed company held the vote in London to avoid any conflict of interest. Yancoal is a subsidiary of Yanzhou Coal Mining, which is also majority-owned by Chinese state enterprise Yankuang Group.
The deal further illustrates the divergence in companies’ strategies to deal with shrinking fossil fuel reserves
The vote saw 97 percent of shareholders agree to the sale, but, as Rio Tinto Chairman Jan du Plessis revealed, did not specify how the funds would be used in the future: “What to do with the money? That’s a good problem to have.”
As well as offering more money than Glencore, Yancoal also agreed to follow a stricter timetable, setting out plans to complete the transaction by the end of 2017, rather than mid-2018.
The deal further illustrates the divergence in companies’ strategies to deal with shrinking fossil fuel reserves. While some firms have attempted to gradually divest and ease the shock of a move towards greener production methods, like Rio Tinto, others have chosen to monopolise supply in anticipation any future strategies will still require fossil fuels to provide backup.
Yancoal’s purchase, which has given it ownership of coal production facilities at the Hunter Valley, suggests the company has adopted the latter strategy, buying coal in anticipation of the market’s medium-term need.
As US President Donald Trump receives bids to build his supposed “beautiful wall” along the border with Mexico, his administration is also poised to build some figurative walls with America’s southern neighbour by renegotiating the North American Free Trade Agreement (NAFTA). Before US officials move forward, they would do well to recognise some basic facts.
Trump has called NAFTA the “single worst trade deal” ever approved by the United States, claiming that it has led to “terrible losses” of manufacturing production and jobs. But none of this is supported by the evidence. Even NAFTA sceptics have concluded that its negative effects on net US manufacturing employment have been small to non-existent.
Trump may prefer not to focus on facts, but it is useful to begin with a few. Bilateral trade between the US and Mexico amounts to over $500bn per year. The US is by far Mexico’s largest trading partner in merchandise – about 80 percent of its goods exports go to the US – while Mexico is America’s third-largest trading partner, after Canada and China.
An exchange of goods
After NAFTA’s passage in 1994, trade between the US and Mexico grew rapidly. America’s merchandise trade balance with Mexico went from a small surplus to a deficit that peaked in 2007 at $74bn, and is estimated to have been around $60bn in 2016.
But even as the US trade deficit with Mexico has grown in nominal terms, it has declined relative to total US trade and as a share of US GDP (from a peak of 1.2 percent in 1986 to less than 0.2 percent in 2015).
The US and Mexico are not just trading goods with each other; they are producing goods with each other
Perhaps more important, the US and Mexico aren’t just exchanging finished goods. Rather, much of their bilateral trade occurs within supply chains, with companies in each country adding value at different points in the production process. The US and Mexico are not just trading goods with each other; they are producing goods with each other.
In 2014, Mexico imported $136bn of intermediate goods from the US, and the US imported $132bn of intermediate goods from Mexico. More than two thirds of US imports from Mexico were inputs used in further processing – cost-efficient inputs that boost US production and employment, and enhance the competitiveness of US companies in global markets. Goods often move across the US-Mexico border numerous times before they are ready for final sale in Mexico, the US, or elsewhere.
Crossing the border wall
When cross-border trade flows are occurring largely within supply chains, traditional export and import statistics are misleading. The auto industry illustrates the point. Automobiles are the largest export from Mexico to the US – so large, in fact, that if trade in this sector were excluded, the US trade deficit with Mexico would disappear.
But standard trade figures attribute to Mexico the full value of a car exported to the US, even when that value includes components produced in the US and exported to Mexico. According to a recent estimate, 40 percent of the value added to the final goods that the US imports from Mexico come from the US; Mexico contributes 30 to 40 percent of that value. The remainder is provided by foreign suppliers.
When the value-added breakdown is taken into account, the US-Mexico trade balance changes drastically. According to OECD and World Trade Organisation calculations, the US value-added trade deficit with Mexico in 2009 was only about half the size of the trade deficit measured by conventional methods.
Trump claims that high tariffs on imports from Mexico would encourage US companies to keep production and jobs in the US. But such tariffs – not to mention the border adjustment tax that Congress is considering – would disrupt cross-border supply chains, reducing both US exports of intermediate products to Mexico and Mexican exports (containing sizable US value-added) to the US and other markets.
That would raise the prices of products relying on inputs from Mexico, undermining the competitiveness of the US companies. Even if supply chains were ultimately reconfigured, the US and Mexico would incur large costs – to both production and employment – during the transition period.
New links in the chain
Imports from Mexico support US jobs in three ways: by creating a market for US exports; by providing competitively priced inputs for US production; and by lowering prices of goods for US consumers, who then can spend more on other US-produced goods and services. A recent study estimates that nearly five million jobs in the US currently depend on trade with Mexico.
Given all of this, it is good news that Trump has lately toned down threats to withdraw the US from NAFTA and to impose large unilateral tariffs on Mexican imports (his position on the border adjustment tax is unclear). Instead, in a draft proposal to Congress, his trade officials are calling for flexibility within NAFTA to reinstate tariffs as temporary “safeguard” mechanisms to protect US industries from import surges.
Importing from Mexico supports US jobs in three ways: by creating a market for US exports; by providing competitively priced inputs for US production; and by lowering prices of goods
for US consumers
The Trump administration also wants to strengthen NAFTA’s rules of origin. As an illustration, current rules dictate that only 62.5 percent of a car’s content must originate within a NAFTA country to qualify for a zero tariff. That has made Mexico an attractive location for assembling Asian-produced content into final manufactured goods for sale in the US or Canada.
If the Trump administration succeeds in raising the share of content that must be produced within NAFTA to qualify for zero tariffs, both the US and Mexico could reclaim parts of the manufacturing supply chain that have been lost to foreign suppliers. Stricter rules of origin could also boost investment by these suppliers in production and employment in both Mexico and the US.
The Trump administration’s draft outline for NAFTA renegotiation also sets objectives for stronger labour and environmental standards – important priorities for Congressional Democrats who share the president’s opposition to the current agreement. Stronger standards could create benefits for all of NAFTA’s partners, but with the Trump administration actively dismantling labour and environmental protections at home, a US-led effort to strengthen them within NAFTA in any meaningful way seems farfetched. Perhaps Canada will take the lead.
Uncertainty over the fate of NAFTA has already hit the Mexican economy. It has also weakened the position of the reformist and pro-market President Enrique Peña Nieto, just over a year before the general election in Mexico. This may aid the rise of right-wing populists riding the wave of anti-Trump nationalism.
A strong, stable Mexican economy, led by a government committed to working with the US, is clearly in America’s interests. Trump would be well advised to work quickly to ensure that the NAFTA renegotiations he has demanded generate this outcome.
There are very few companies that can claim to have had as big an impact on the world as McDonald’s. From humble beginnings, the fast food chain has grown to wield the sort of global influence that is often reserved for finance or technology companies. A true household name thanks to its 36,000-plus locations over 100 countries, a modern cityscape just doesn’t seem right without its own branch.
The McDonald’s business model, revolutionary at its outset, has allowed the company to expand while still keeping a focus on local communities and their tastes. A 1995 study by Sponsorship International in Germany found that a greater proportion of respondents recognised the McDonald’s logo than they did the Christian cross.
However, today McDonald’s is no longer the new kid on the block, and more modern restaurants have drawn customers away from the fast food format pioneered by the ‘Golden Arches’ (see Fig 1). Despite the company’s almost unmatched market presence, it has been slow to adapt to the rise of ‘fast casual’ restaurants. It is also bruised from various campaigns that have attacked its business practices, its marketing campaigns and the content of its food. With all these pressures beginning to impact its bottom line, in 2015 McDonald’s then-newly appointed CEO Steve Easterbrook famously declared that the business would begin a transformation to become a “modern and progressive burger company”.
After leading the market for so long, McDonald’s is unlikely to settle for second best
McDonald’s has indeed made progress, but with its international arms stuck in the experimentation phase, the company is still figuring out exactly what its future will look like. Whether this will see it become a French patisserie or a rather more automated experience, eating at McDonald’s in the future will likely be a very different experience to what it is today. But after revolutionising the food industry once, only time will tell if it can do so again.
Grinding it out
McDonald’s history is tied to the surge of drive-in eateries that emerged in southern California during the 1930s. The McDonald brothers, Maurice and Richard, worked as prop managers for Hollywood movie studios before they went into business for themselves in 1932, purchasing an old movie theatre on a shoestring budget. After seeing the overwhelming success of a hot dog cart across the street from the theatre, they decided to enter the restaurant business in 1937.
Their first restaurants were successes, but the brothers noticed that, despite generally being full, they were unable to significantly increase their customer count or profit. Spying the opportunity for even greater growth, they took a gamble on starting a new burger restaurant from scratch.
The restaurant they opened in 1948 would transform the food industry. Stripped down to the barest of components, the limited menu was prepared on an assembly-line-style system, with speed and simplicity the main focus. Food was prepared to order, with workers making every burger fresh while still maintaining attention to detail. Customers were given their food at the counter, meaning there was no need to hire floor staff. The hamburgers, fries, soda, coffee and milkshakes that were sold were cheap and were soon beloved by locals.
In 1954, the restaurant caught the attention of businessman Ray Kroc, who was surprised to learn that eight of the large milkshake machines he had sold were being used in a single location. In Kroc’s 1977 autobiography Grinding it Out, he recalled the excitement he felt when he first saw the simplicity and effectiveness of the McDonald’s operation.
Kroc saw the potential this establishment had – and the opportunity to sell more milkshake mixers – but the McDonald brothers initially said they were content with the small operation they had established. Undeterred, Kroc struck a deal with the brothers that would allow him to open a series of franchises of his own, based on the McDonald’s process. They were a wild success, and by 1960 McDonald’s had become a nationwide sensation, with its chain of franchised restaurants grossing $56m annually.
However, relations between the McDonald brothers and Kroc grew sour, with each feeling entitled to a greater share of the operation than they received. Kroc eventually bought the brothers out for everything except the original location. He then opened a McDonald’s chain across the street from the original store and cut the McDonald brothers out of the company’s history. It would take until 1991, seven years after Kroc’s death, before the company acknowledged the McDonald brothers on the company’s ‘founder’s day’.
Despite the countless fast food imitators that emerged in its wake, McDonald’s remained the leader of the industry for decades. Its model of food – quickly prepared and both ordered and served at the counter – was efficient, cost effective and, most importantly, loved by the public. The structure of franchised businesses, which roughly 80 percent of the company’s stores still observe today, gives each store a substantial amount of autonomy.
The impact of the company was just as great abroad as it was at home in the US. In 1996, the franchise’s global success and prosperity was used as the basis of a political theory put forward by author Thomas Friedman, who proposed that any country with a McDonald’s within its borders wouldn’t go to war with another country with its own McDonald’s. This assertion proved false in 2008, however, with the beginning of the Russia-Georgia conflict.
Nutrition nightmare
After the peak of its success in the 1980s and 90s, McDonald’s became the subject of increased scrutiny by the public and health organisations. In 1986, the environmental anarchist group London Greenpeace (no affiliation to the international organisation) distributed flyers attacking McDonald’s for its treatment of both animals and workers, its destruction of rainforests, and encouraging litter. McDonald’s engaged in a libel battle with members of this group in a case that dragged on until 1997, but the trial was more damaging to its reputation than the allegations themselves – a multinational corporation attacking a few protestors was compared by many to David and Goliath.
Investigative journalist Eric Schlosser’s 2001 book Fast Food Nation took aim at the practices and poor nutritional content within the fast food industry, including McDonald’s, which became the basis of a film of the same title released in 2006. In 2004, documentarian Morgan Spurlock released Super Size Me, a gonzo-style film where he only ate McDonald’s for a month. Predictably, he saw his health significantly deteriorate.
Shortly after the film’s release, McDonald’s began to phase out its super size meals, while also responding directly to the documentary with an advertising campaign stating: “We do agree with… [the film’s] core argument, that if you eat too much and do too little, it’s bad for you.” Amanda Pierce, a spokesperson for McDonald’s, added: “We wanted to ensure there is a balanced debate so people hear our side of the story.”
However, this string of bad press, combined with growing public interest in the company’s practices, contributed to a sales slump McDonald’s has endured ever since. In January 2017, the firm announced US sales had dropped 1.3 percent over the previous quarter (see Fig 2). Sales in US stores dropped for the first time in 18 months, and group-wide revenue fell five percent. While menu changes like the all-day breakfast offered short-term boosts, they were unable to sway American consumers to make McDonald’s a regular hangout. A note of positivity came from its international business arm, with sales rising 3.8 percent beyond the US.
Speaking to World Finance, IBISWorld fast food industry analyst Andrew Alvarez said McDonald’s is contending with a more discerning customer base in the US: “The country may not be getting healthier here in the US, but people are clearly more educated and aware of what they’re putting in their mouths for the first time in a long time… They are not interested in super salty foods anymore, in the same way that they were back in the 1980s and 1990s.”
However, simply moving away from salty food is not enough for McDonald’s. Despite its popularity being slowly eroded, the firm has spent years building up a customer base with very specific expectations as to the food they will receive.
“You don’t just throw away [your] entire menu because it’s [not] working – you know, you’re still the largest company, you’re just waning a bit”, Alvarez added. The challenge for McDonald’s is creating a menu that keeps its current customers happy, while attracting new ones. “I think that’s a very difficult question for McDonald’s to answer.”
From farm to table
While public relations setbacks may have gradually battered consumer belief in McDonald’s, the other threat the company is facing comes from the dramatically changing restaurant landscape. Whereas McDonald’s may have once counted its biggest rivals as being franchises like KFC and Taco Bell, boutique chains and independent players are now encroaching on the company’s core demographic.
Boasting a more modern restaurant setting, a streamlined menu and a focus on fresh ingredients, fast casual chains like Chipotle, Five Guys, Shake Shack and Bareburger have won over a huge wave of customers. They usually offer some form of limited table service and charge slightly more than a traditional fast food establishment. The rise of the fast casual restaurant has dramatically shifted the dining habits of US consumers.
Another edge is the more limited menu these chains offer. McDonald’s core menu has increased to dozens of items, whereas many of these newer restaurants only offer a few. “You have so much more of a scope with three things on the menu than 20”, Alvarez explained. “You can’t really customise anything significantly when you have 20 different things on the grill, there’s only so much space.” In some ways, these chains have recaptured the simplicity that attracted Kroc to McDonald’s in the first place: a limited menu with a focus on food made fast and well.
Also competing against McDonald’s are small, individual operations set up by well-known chefs. Big names such as April Bloomfield and David Chang have opened their own fast casual restaurants, injecting a sense of creativity and diversity into the sector that McDonald’s just cannot match. While perhaps not a threat on their own, in sum these single stores are putting a huge pressure on the industry.
Alvarez explained: “It’s not a big company’s game anymore – sometimes even having a micro operation is more conducive to creating a better and more appealing product to consumers… It’s harder for a juggernaut to be able to be everything for everyone these days because you have this plethora of options available.”
The last piece of the puzzle may be the store environment. In the US, many McDonald’s restaurants have not seen significant refurbishment for the better part of 20 years. From seating to the way food is displayed, McDonald’s is in some ways looking very out of touch.
“People want to go to these fast casual spots with nice, young and bright chefs because they’re with the times and they understand what it means to build a good atmosphere for their consumers, and an atmosphere those consumers are going to want to participate in”, Alvarez said. “McDonald’s, having to appeal to such a general audience, may have lost a bit of that glamour and a little bit of that pizazz that it may have had back in the day as it continues to experiment with new store formats.”
Morgan Spurlock of Super Size Me
Trial and error
After being a leader in the industry for so long, McDonald’s is a company unlikely to settle for second best. While it has been slow to change in the US, internationally it has been constantly experimenting with new store formats and menus. At the end of 2014, McDonald’s opened a store called The Corner in Sydney, Australia.
The restaurant looks a lot more like a café than a regular McDonald’s, with a menu featuring quinoa salads and pulled pork sandwiches. Last year, the company launched a McCafé in Paris that served club sandwiches, pastries and soups instead of the typical burgers and French fries. While regional differences have always been apparent in McDonald’s menus (like shrimp burgers in Japan and curry bowls in India), these experimental stores are turning the idea of what McDonald’s can be on its head.
Alvarez said these experiments are being closely watched to see if they could be applied to the US market. The company’s international footprint and willingness to experiment is perhaps its greatest asset at the moment. He told World Finance: “I think that… one of the best things about this kind of company is when their tentacles sort of extend so far out, they’re able to develop a playbook that’s much more sophisticated and much more in tune with local communities than a smaller competitor who hasn’t had that experience before, and doesn’t necessarily know what it can do with scale.”
One location where McDonald’s has been continually successful – and so may offer a window to the future of the company – is the UK. McDonald’s opened its first UK location in Woolwich, south-east London, in 1974. By 1993, the number of stores in the country had grown to 500. Today, there are more than 1,250 (see Fig 3).
Trish Caddy, a foodservice analyst at market research company Mintel, said that in the UK market, McDonald’s has been undergoing a transformation into an all-day dining concept: “It’s now offering barista-style coffee, lighter meal or snack options, as well as pushing its 24-hour offers, especially when London launched its Night Tube in 2016. So it has repositioned itself as ‘we’ve got breakfast, you can come in for very cheap barista-style coffee, you can also have a snack, any time of the day’.” Caddy added that, in comparison to its competitors, the company has done this very well.
Another priority for McDonald’s in the UK has been driving home the message that its food now has reduced salt, sugar and fat content wherever possible. Caddy said this has prompted a change in the company’s messaging: “Instead of focusing on price details of its products, McDonald’s ads are now driving the message of food quality. For example, the ‘made with 100 percent chicken breast’ branding from its Good to Know campaign.”
Caddy continued: “All of these efforts should reinforce trust, so again it’s spending money to reposition itself as ‘you can trust us for our food quality, you can trust us that we care about [you]’. It’s got a very caring proposition – ‘we care about you and your children’s health’… This is all paying off, when our Mintel brand research found that McDonald’s in the UK really leads here.”
A fresh look
McDonald’s in the UK is also modernising both its restaurants and its services: customers now have the option of placing an order on large interactive touchscreens, and a mobile order and pay app is currently being trialled in selected locations.
“Its move to digital, I think, is necessary”, Caddy said. “It’s relevant because other brands are doing it, and it can potentially boost revenue. Customers save time, your staff don’t have to spend time on the till, managing orders and processing payments, so I think there is quite a clear kind of benefit that McDonald’s can get from technology and innovation as well.”
Ultimately, the priority for McDonald’s in the UK appears to be giving customers more reasons to visit and more reasons to choose the brand over the multitude of other options that have opened up. While places like pubs and coffee shops were never McDonald’s competitors before, as they operated in entirely different markets, all are now competing for the same diners.
1948
The year the first McDonald’s restaurant was opened
$56m
The company’s annual gross income by 1960
$10.2bn
The company’s gross income in 2016
1.3%
McDonald’s drop in sales during Q4 2016
“This kind of category blurring is very significant and important in the UK, which makes analysing very difficult for us when we talk about specific markets, but it’s a very exciting time for consumers as well”, Caddy said. “And for operators like McDonald’s, Starbucks and pubs, it’s very exciting because for them, it’s like, ‘what [do] I do to grab some of that share?’ [or] ‘what can I do to be relevant to our consumers today?’ I think that makes eating out very exciting in the UK.”
Though the franchise is in a difficult situation back in the US, internationally McDonald’s has proven it is capable of modernising and adapting to the changing tastes and expectations of its customers. Alvarez said: “It does seem that the company is experimenting fervently to see what sticks… They want to still be relevant, and they want to still be significant, and as it stands they still are significant; their market share is just waning.” Alvarez added that, while no company stays on top forever, anyone who is considering McDonald’s to be out of the game doesn’t understand how much of a hold it has on the industry.
While McDonald’s may be facing challenges, the company has time and time again proved it is capable of changing to meet new customer expectations. With its international footprint, McDonald’s has the perfect laboratory to test out the ideas that will come to define its future. While not there yet, it still has the potential to transform into the modern and progressive burger restaurant it is determined to be.
Brazil’s attorney general has formally charged President Michel Temer with corruption, delivering another significant blow to the nation’s turbulent political class. Temer’s indictment marks the first time a Brazilian leader has faced criminal charges since the country returned to democracy in the 1980s.
The charges against Temer have been submitted to the nation’s Supreme Court, and the lower house of Congress must now decide whether to proceed with a trial. If two-thirds of the house votes in favour of trying the conservative leader, then the president will be suspended from duty for up to 180 days while the trial plays out. In such an eventuality, House Speaker Rodrigo Maia will assume the role of president in the interim.
The accusation follows the release of an audio recording, which appears to show Temer discussing bribes with former JBS Chairman Joesley Batista
The accusation follows the release of an audio recording, which appears to show the president discussing bribes with Joesley Batista, the former Chairman of the world’s largest meatpacking company, JBS. Upon hearing the tape, the Brazilian attorney general has accused Temer of accepting a bribe in the region of $150,000 from Batista. Batista, who has previously been charged for allegedly bribing the former president of the Brazilian parliament, is currently under investigation for insider trading at JBS.
In recent years, Brazilian authorities have uncovered widespread corruption at the highest levels of politics and business. Scores of politicians are currently being investigated in the so-called Car Wash probe, a high-profile investigation into corruption and money laundering in Brazil.
More than 90 people have been convicted under operation Car Wash to date, while a third of Temer’s cabinet and four former presidents are still under investigation. Temer’s predecessor, Dilma Rouseff, was impeached for breaking fiscal laws in August of last year, but she has never been formally accused of corruption or taking bribes.
The latest charges come as Brazil struggles to emerge from its worst recession in recorded history. Latin America’s largest economy has now been in recession for two years, with recovery seeming increasingly unlikely as Brazil’s political crisis deepens.
With Temer potentially facing a criminal trial, the government may struggle to push through any of its planned public spending reforms , setting the economy back even further at one of the most crucial times in the nation’s economic history.
After being the focus of the automotive industry’s largest ever product recall, Japanese part maker Takata has filed for bankruptcy in both Japan and the US. The company has announced it will sell all assets – except those relating to its airbag business – to US firm Key Safety Systems (KSS) for $1.6bn.
Following the announcement, Jason Luo, Chief Executive of KSS, said: “Although Takata has been impacted by the global airbag recall, the underlying strength of its skilled employee base, geographic reach and exceptional steering wheels, seat belts and other safety products have not diminished.”
Takata has been at the centre of an ongoing safety scandal for well over a decade, after defective airbags built by the company were linked to at least 17 deaths
The deal has reportedly taken 16 months to finalise, and should allow for Takata to function as normal throughout the process. Takata’s management plans to resign once the “timing of the restructuring is set”, a statement from the company revealed.
As reported by Reuters, Takata has been at the centre of an ongoing safety scandal for well over a decade, after defective airbags built by the company were linked to at least 17 deaths. An ammonium nitrate compound used in the airbags was found to become volatile with heat and age, prompting unexpected explosions.
The first recorded explosion occurred in 2004, but was dismissed by the company as a freak accident. However, when The New York Times revealed a sweeping cover up in 2014, Takata was forced to accept responsibility and recall all airbags built between 2000 and 2008.
Over 100 million cars fitted with the dangerous airbags have since been recalled, however an unknown number are still on the road. While car manufacturers have often footed the bill for the recalls, Takata still faces a series of ongoing fines and lawsuits relating to the scandal, leaving the company’s final liabilities unclear.
Takata was originally founded in 1933 as a textiles maker, and still produces approximately one third of all seatbelts used in all vehicles globally.
When it comes to manufacturing, China suffers a reputation problem. A recent survey conducted by German market research firm Statista asked consumers how high they expect the quality of products to be, based on where they were manufactured. Ranking first out of the 50 countries included in the survey was Germany. Second to last, ahead of only Iran, was China (see Fig 1).
At least according to respondents outside the country, the ‘made in China’ stamp is synonymous with cheap, poorly assembled and flimsy products. The only bright spot in the survey was that people at least associated the country with decent value for money.
The story of China’s economic development over the past 40 years is both well documented and widely known. Thanks to low labour costs, the increasing ease of doing business globally and large amounts of state investment, China’s GDP, population and almost every other economic measurement you can think of posted overwhelming growth. However, while once regarded as the world’s factory, China can no longer maintain the level of manufacturing growth its government has become accustomed to. The particular industries it once excelled in, such as steel and concrete, are shrinking in importance when compared with the emerging fields of robotics, renewable energy and other hi-tech pursuits.
Many Chinese companies operating in these fields are dependent on parts and systems produced elsewhere. When one combines this reliance with the perception that Chinese products are simply not as good as their western counterparts, the future of China’s emerging technology sector seems bleak.
What came from this need to compete with the rest of the world was Made in China 2025, a comprehensive government plan designed to rejuvenate and reinforce the country’s hi-tech manufacturers. The programme intends to get the country to a point where it is not just a world leader in building these products, but where it is also designing and manufacturing them from the ground up.
In the two years since Made in China 2025 was announced, results of the plan have begun to emerge. However, as hi-tech manufacturers increase, international firms and bodies are growing critical of how the policy is affecting global markets. Though China’s plan is effectively still in its earliest stages, a battle for technological supremacy is emerging.
Made in China
Announced in May 2015, Made in China 2025 is designed to be a sweeping and substantial overhaul of China’s manufacturing sector. The motivation behind the initiative was a desire to help Chinese manufacturers escape rising pressure from both ends of the global market.
On the one hand, China’s low cost manufacturing sector looks set for greater competition from countries like India and the Philippines: according to Euromonitor, the average hourly wage in China’s manufacturing sector tripled between 2005 and 2016, making it far harder to compete solely on price. On the other hand, many of China’s industries lag behind their western competitors in terms of ingenuity, and are often reliant on parts designed and built overseas. Combined with the perceived lack of quality in Chinese-built products, the Chinese Government has focused on making sure the country’s products improve in quality, are more innovative, and are built using a greater proportion of locally sourced components.
Made in China 2025 also draws significant inspiration from Germany’s Industrie 4.0 and the US’ Industrial Internet strategies. The vision for the future is a manufacturing sector that is far more automated and connected through the Internet of Things than it is today. While automation in itself is not particularly new, connecting various automated manufacturing processes in a way that allows greater efficiency and lower costs is only now becoming more feasible. With this, the information and programs that underlie manufacturing processes are just as important as physical hardware. In this sense, China has a long way to go; whereas Germany averages more than 300 industrial robots per 10,000 industry employees, China only averages 19.
Once regarded as the world’s factory, China can no
longer maintain the level of manufacturing growth its government has become accustomed to
While these policies will be applied to the steel, aluminium and cement industries China has been traditionally competitive in, these sectors are gradually falling in both importance and potential for future growth compared with other sectors. To make sure China ends up designing the future as well as building it, Made in China 2025 emphasised 10 industries as particularly important priorities. These sectors include robotics, aerospace, new energy systems, electric vehicles and medical products.
Jost Wübbeke is Head of Programme Economy and Technology at the Mercator Institute for China Studies (Merics) and author of a recent report looking at the consequences Made in China 2025 may have on industrial countries. “The industries that are covered [in Made in China 2025] are mainly hi-tech industries, and the Chinese Government is saying that these will decide the future competitiveness of enterprises and countries”, Wübbeke told World Finance. “Some of these industries are not as important now as they are likely to become in the future, such as electric vehicles, wind turbines and photovoltaic systems. The Chinese Government perceives these industries as the perfect opportunity to leapfrog technologically and boost its international competitive positioning.”
Another aim is to discourage reliance on international markets. As part of the plan, the domestic content of core components and materials used in manufacturing is anticipated to grow to 40 percent by 2020, and 70 percent by 2025. It is also targeting the creation of a number of manufacturing and innovation centres. The plan has a tremendously broad scope; while the initial plan aims for 2025, extensions have resulted in even more ambitious targets set as far forwards as 2049 – the 100th anniversary of the People’s Republic of China.
To reach these goals, the government is committing substantial funds. Two recently established funds in China – the National Investment Fund for the Advanced Manufacturing Industry and the National Integrated Circuit Fund – have received RMB 20bn ($2.9bn) and RMB 139bn ($20.1bn) respectively.
The plans in place are not just limited to direct funding from the government, but include a variety of initiatives that see state investment working in cooperation with private investment. “Their aim is indeed to build up these national champions and provide the perfect environment for them”, Wübbeke said. “You need to see it in context with other policies, which have been there before and are also running in parallel, but Made in China 2025 is indeed China’s most comprehensive strategy to upgrade its industry.”
Short-term gains
Given China’s role in the global economy and the sheer amount of money being poured into the project, the Made in China 2025 policy has the potential to transform not just the country’s economy, but the world’s business landscape. In the short term at least, there may be a significant number of opportunities for foreign companies.
In order to catch up with the rest of the world, Wübbeke said China is going to have to purchase a lot of components: “Smart manufacturing is a core component of the Made in China 2025 strategy, and it’s mostly foreign enterprises from Japan and Germany providing the smart manufacturing components and the machines behind it. So in the short term, it’s quite a big opportunity for foreign companies.”
Given China’s role in the global economy, the Made in China 2025 policy has the potential to transform the world’s business landscape
However, in the long term, the picture looks very different. With China aspiring to become both more independent from other nations’ hi-tech manufacturing fields and a leader in its own right, foreign companies could lose a customer and gain a competitor.
“It’s another matter if this strategy will turn out as intended, but the intention of the Chinese Government is to replace foreign technology”, explained Wübbeke. “To these things, Europe should not be naïve; the goals of technology substitution are obvious, and so are the instruments for implementing these goals.”
Naturally, the Made in China 2025 plan has been on the receiving end of strong criticism. In March, the European Union Chamber of Commerce in China released a scathing report on the plan, describing it as a “large-scale import substitution plan aimed at nationalising key industries” that would “severely [curtail] the position of foreign business”. The report also suggested companies might be forced to hand over key technologies in order to secure near-term market access.
“The worry that we have is that this unbalanced competition landscape that we face in China might be replicated in our home turf”, Chamber President Joerg Wuttke announced before the report’s release, Reuters reported. “Are you up to it to compete against state-sponsored companies in China, as well as globally?”
Chinese officials quickly denied the suggestion foreign firms would be treated unfairly. Miao Wei, Minister of Industry and Information Technology, said at the annual plenary session of the National People’s Congress after the report was released: “Foreign and Chinese enterprises will continue to be treated equally. We have never forced foreign companies to transfer technology.” While we are still very early in the transformation strategy, international pressure to alter the plan is growing.
Product of change
China’s focus on rejuvenating its manufacturing sector represents a significant turn in the country’s export history, but is also representative of the nation’s increasingly wealthy population. Frankie Leung, a Los Angeles-based attorney and specialist in Pacific trade, said that in the past, China’s policy of trade placed an emphasis on exports in order to gain foreign currency: “But now China’s own consumers are so numerous, and the market has become very sophisticated, they are trying to change the strategy. So this is a paradigm shift.”
3x
Increase in the average hourly wage in China’s manufacturing sector between 2005 and 2016
40%
The anticipated growth of Chinese materials being used in manufacturing by 2020
300
The number of industrial robots per 10,000 manufacturing employees in Germany
19
The number of industrial robots per 10,000 manufacturing employees in China
But local consumers are not the only priority. In terms of the traditional manufacturing industry, Leung said he sees south-east Asia and Latin America – where Chinese companies are generally more highly regarded – as being significant growth opportunities. However, he added that in general he is quite cynical about the multiyear plans the Chinese Government employs: “First of all, they haven’t done enough research to understand the real economy, and secondly they don’t have the heart in it. When they show that the results do not prove what they want to achieve, they either fake data to fit the propaganda, or abandon it very fast to move on and do something else. That’s my general approach [to their policies], and I think that, with that general approach, you can understand the dynamic behind any kind of social engineering measures put out by the government.”
But despite the emphasis on smart manufacturing, the transformation of China’s economy could just as easily take a different form. “If you talk to Chinese industrial [workers], they know that the fastest growing industry is in businesses like Tencent and Alibaba”, Leung said. “They have no products, they deal with soft stuff like information; it’s very much like a service industry.” Leung said he believes many Chinese Government officials still place a greater importance on physical products than these service exports. However, this is slowly beginning to change.
Leung also believes it will be harder in the future for international service industries to compete with homegrown competitors: “Take, for example, Uber. They tried to go into China, and they gave up. They sold to Didi, the Chinese counterpart. They have a licence fee arrangement over there with the Chinese because they know that, if you really have to go into the Chinese market, to have daily contact with the consumers, foreign interests and foreign business have a very distinct disadvantage.” Leung said he believes the better tactic will be the creation of partnerships and the leasing of technology to rivals already established in China.
Still, it’s impossible to deny that China is making progress in its manufacturing sector. There is perhaps no bigger symbol of the progress China has already made towards this goal than the Comac C919, a passenger aeroplane that took to the skies for the first time in May 2017. The one-hour test flight, though small, is a chip in the armour of the Boeing/Airbus duopoly that dominates the industry. The development of a passenger aeroplane – one of the most challenging machines to build – is a significant milestone in engineering and construction for any nation.
Despite this, the flight comes with some caveats: the plane is almost certainly less capable than its competitors, and is built using a significant portion of western-made components. However, the intent of Made in China 2025 is that, in just a few years, the C919 could be built entirely from Chinese designed and manufactured parts. “We used to believe that it was better to buy than to build, better to rent than to buy”, Chinese President Xi Jinping told workers at the plant that built the C919, The New York Times reported. “We need to spend more on researching and manufacturing our own airliners.”
It seems inevitable that more Chinese companies will grow their international footprint with the support of the government, perhaps eventually becoming as well known globally as Apple, Nike or Mercedes-Benz. While many countries push against China’s growing independence, there seems to be little that could be done to stop the country continuing to develop its manufacturing sector: the stigma attached to ‘made in China’, however, may not be so easy to shake off.
In recent years, Turkey has turned its attention to infrastructure, with everything from new airports and hospitals to bridges and roads being built in spite of a challenging political climate. In 2015 alone, the government invested $30bn into the sector, while the total value of projects is set to amount to more than $100bn by 2023 – which means big news for the project finance sector.
Among those leading the field is the YDA Group, a collection of companies in Turkey that specialises in build-operate-transfer, public-private partnerships (PPP) and turnkey projects across nine fundamental fields of business: construction and contracting, real estate development, airport management, medical and healthcare, energy, facility management and services, agriculture, IT and outdoor digital advertising.
With operations both in Turkey and overseas, YDA Group has been a pioneer in the sector for more than 40 years, establishing side-industry and service branches to meet the ever-changing needs of the market. By taking an innovative approach, the company has managed to stand out from the rest – and reap the rewards of trying out new financial structures.
Nowhere has this been more clearly demonstrated than in its Konya Karatay Integrated Healthcare Campus project, which saw the group introduce a new form of financing to the market and bring Islamic funding into the country for the first time in history. It is this forward-thinking attitude that has earned the company the 2017 World Finance Project Finance Award for Healthcare Deal of the Year.
Building on a history of success
This year we’re celebrating our 24th anniversary, but our origins go even further back to 1954, with the founding of AKSA Construction (1975) – the group’s first company. We’ve come a long way since then, witnessing sustained and steady growth across all of our sectors with a particular emphasis on real estate, airport and city hospital projects.
Our portfolio is broad, however, with airports, schools, shopping malls, business centres, industrial plants, highways, railway lines and more all part of the mix. We’ve completed around $6.8bn worth of projects over the past few decades and, since we began expanding internationally in the early 2000s, have carried out projects in Kazakhstan, Ukraine, UAE, Russia, Saudi Arabia, Afghanistan and beyond.
Taking an innovative approach and challenging the status quo can have a long-term, positive effect on the success of individual projects and the wider market
We continue to be a pioneer both in Turkey and overseas, and are proud to hold several international quality certificates, including ISO 9001:2000 Quality Management Standard, ISO 14001:2004 Environmental Management Standard, and OHSAS 18001 Occupational Health and Quality Management Systems Standard, all of which help to demonstrate the reliability of our group as a whole.
What we believe truly sets us apart, however, is our innovative and groundbreaking approach to projects. We recently took on the Konya Karatay Integrated Healthcare Campus project and became the first company in Turkey to use Islamic financing to fund a PPP deal. In line with our diversification strategy and ambition to try out new, innovative financial structures, we got the Islamic Development Bank (IsDB) on board, combining Sharia-compliant financing with conventional forms to reduce costs and explore new ground. This marked the first time in history that both of these structures had been used to finance a PPP healthcare project under the same documentation in Turkey, and the first time the IsDB had ever entered the Turkish market with a project finance deal. It was also the first time the IsDB had financed a healthcare PPP project of any kind.
This meant we were able to introduce a new low-cost international financial institution, with vast experience and access to outside resources, into the country. Success followed; the project achieved an 18-year tenor, one of the longest in Turkey among PPP and BOT projects, thanks to a considerable amount of non-recourse and a ringfenced loan facility, alongside the innovative financing structure. This was exceptional for a market where longer tenor financing is relatively rare.
This structure lowered the costs compared with other Turkish healthcare deals supported by ordinary project finance credits and, despite the complexities, closing the deal also took less time compared with others of a similar scale. We now expect Sharia-compliant funds from elsewhere in the world to mimic the IsDB by moving into the market.
There were several factors that helped us secure the project in the bidding process. Among them was our extensive experience in the healthcare sector (especially in terms of PPP projects), a strong track record in large-scale infrastructure work, credibility, a healthy balance sheet, and smooth and easy access to financial markets. Careful, advance planning of the new financial structure, so as to ensure the Islamic and conventional tranches were combined under the same documentation as smoothly as possible, was also central to our success.
Attracting international finance
The deal was financed entirely by international institutions. Both the Islamic and conventional lenders came from outside Turkey, although a local bank – Ziraat Bank – was used solely for the local account and to act as the security agent. The project comprised both conventional commercial banks – namely UniCredit Bank Austria and Siemens Bank – and international financial institutions; among the latter were the European Bank for Development (EBRD), the IsDB and the Black Sea Trade and Development Bank (BSTDB). The deal was made up of a mixture of western (European) and eastern (Islamic) financiers.
The specific form of Islamic financing used was Istisna, used for the advance funding of construction and development projects, whereby rules include setting a fixed price at the start and fully committing to the contract once work has begun.
As part of a comprehensive long-term financial package, the EBRD arranged a €147.5m ($165.9m) syndicated loan under its A/B loan structure, with €67.5m ($75.9m) for the bank’s own account and €80m ($90m) syndicated to UniCredit Bank Austria and Siemens Financial Services. The BSTDB and the IsDB, meanwhile, provided parallel financing of €50m ($56m) and €67.5m ($75.9m) respectively.
The EBRD has been one of our key partners for many years in terms of both bond issues and project financing, so working with them again was a natural choice. The bank has been a pioneer in Turkey’s PPP sector, with prior experience financing several PPP healthcare campus projects and the Dalaman Airport project. This strategic partnership has in turn drawn other IFIs to look towards YDA Group.
The IsDB has likewise firmly established itself as a key partner for us. This relationship has been further strengthened by its involvement with the Manisa Healthcare PPP project that followed which, as with Konya, achieved an 18-year tenor.
Innovative approach
There were several other positive outcomes achieved through the Konya project. The announcement of the deal by the EBRD and IsDB encouraged other IFIs to look to YDA Group, while the combination of both conventional and Islamic financing attracted widespread attention to Turkey’s healthcare sector as a whole.
Prior to the deal, there was concern over the potential challenges that hybrid financing structures in the same documentation would entail; our groundbreaking approach has helped dispel those fears.
In the Global Infrastructure Forum, which was sponsored by the IsDB and took place on April 16, 2016 in Washington DC, the Konya deal was held up as a pioneer in the project finance sector and was used as an example of how Islamic and conventional financing can be combined in the same project. It was introduced to all participants at the forum, thereby increasing public awareness among an influential audience.
Furthermore, by successfully closing the deal, YDA Group has helped bolster confidence in the Turkish market and its PPP healthcare sector. In using financiers from different markets and providing a relatively large credit facility – with a long tenor and low costs – we have also proved hybrid financing is feasible when it comes to financing PPP healthcare projects. This has helped encourage others to try out new, innovative financial structures to achieve success, while putting forward the IsDB as an eligible alternative for financing future large-scale projects.
Despite the previously untested and relatively complex structure involved in merging the IFIs and foreign commercial banks under the same umbrella, the loan extended to the company achieved the longest tenor of any PPP healthcare project in the Turkish market. It has paved the way for other global funds to move in, encouraging companies to diversify their funding channels in unprecedented ways. We have shown that taking an innovative approach and challenging the status quo can have long-term, positive effects on both the success of individual projects and the wider market around them, and we believe that in doing so we have helped shape the future of project financing in Turkey.
On June 21, Saudi Arabia’s King Salman issued a royal decree elevating his favoured son, Mohammed bin Salman, to crown prince and heir to the throne. The move represents a show of support to Mohammed bin Salman’s plans to reform Saudi Arabia’s economy, which centre on making the country less dependent on oil.
The shuffle in succession ousts former Crown Prince Mohammed bin Nayef, who oversaw the kingdom’s domestic security policy and boasted a close relationship with the US. Nayef had played a key role in a number of counter-terrorism operations between 2003 and 2006, most notably helping the US during a series of al Qaeda bombings.
As reported by Reuters, the king’s announcement had been widely expected, but, with mounting tensions between Saudi Arabia and Qatar, the timing is somewhat surprising. The kingdom’s Allegiance Council – the royal body that oversees successions – supported the change, with the king’s decision garnering approval from 31 of the council’s 34 members.
King Salman’s announcement has dampened the chance of a power struggle between Mohammed bin Salman and Mohammed bin Nayef
By clarifying succession, the move has dampened the chance of a power struggle between Mohammed bin Salman and Mohammed bin Nayef. A replacement deputy crown prince is yet to be named.
Crown Prince Mohammed bin Salman has completed a swift ascension to his current position. The 31 year-old is the driving force behind a number of economic reform initiatives, including the diversification of the country’s economy to sources of revenue beyond oil. This involves the planned sale of a stake in the state-owned oil company Saudi Aramco. Salman also controls the country’s defence portfolio.
With an ongoing slump in the price of oil and a gradual global shift towards renewable energy sources, the move away from oil has become a necessity for Saudi Arabia. The change in succession cements the current diversification efforts devised by Crown Prince Mohammed bin Salman, with the additional power effectively removing any obstacles that may have been in his way.
“There are so many people in Africa that are outside the banking system,” said Segun Agbaje, Managing Director and CEO of Guaranty Trust Bank (GTBank), one of the continent’s leading financial institutions. “For you to be part of organised society, financial inclusion is a must.”
Slowly but surely, financial inclusion in Africa is improving. In fact, the Central Bank of Nigeria predicts that, by 2020, the number of adult Nigerians with access to payment services will increase to around 70 percent (see Fig 1). “It’s not as superfast as we would like it to be, but there are marked improvements, and this is steadily increasing,” said Agbaje, speaking to World Finance. “Just 10 years ago, data on financial inclusion was hard to come by. Now we know just how much better we must do in order to expand access to financial services.”
Access to savings, credit, insurance and pensions is also growing rapidly. “Encouraging as these projections are, we know that there’s a lot more to be done. This is why, at GTBank, we are keen to leverage digital technology to expand the reach of our products and services. Mobile has become very, very big and we have begun to see people doing a lot using their mobile phones.”
Agbaje points to the example of Kenya’s M-Pesa, a mobile-based money transfer and finance platform that is now used by more than two thirds of the country’s adult population. The mobile app serves as a channel for approximately 25 percent of Kenya’s GNP. “When I look at our mobile technology compared to a lot of developed economies, I think we’re a lot further ahead. You know, I actually think that the African banking sector is very much ahead in terms of mobile banking. And I think African banks are probably embracing disruptive technologies a lot quicker, because we don’t have as many legacies.”
Making banking more mobile
This readiness to embrace new technologies has helped a large proportion of the African population skip whole stages of traditional digital development altogether. Indeed, for many, a smartphone is their first computer. Agbaje said: “From experience, we know that the major reasons for financial exclusion include the lack of physical access to financial institutions, inadequate understanding of financial institutions and their products, general distrust in the system, and the affordability of products as a result of minimum opening balance requirements.”
Despite these hurdles, technology is helping forward-thinking institutions tackle such challenges head on, prompting financial inclusion to leap forward on the African continent. Agbaje explained: “The world is changing around us and the future of banking is digital. To protect our traditional business and maintain our social relevance, we are incorporating another model, which involves mobile phones, use of data, partnerships and collaborations. Simply put, we are creating a platform to support our traditional business model by leveraging digital solutions.”
GTBank’s Bank 737 provides banking services to millions of Nigerian mobile phone owners, and does not require internet access to perform basic banking services. Anyone with a phone registered in Nigeria can open an account, transfer money, buy airtime or check their balance by dialling *737#. The convenience of Bank 737 lies in the fact that all of its services can be accessed through a customer’s mobile phone, at the dial of *737#. And because stable internet access is still not ubiquitous in Africa, Bank 737, being USSD-powered, side steps the need for an internet connection.
“Through this service, which makes banking simpler, cheaper and faster, we continue to pull into the banking stream many of those who have long been excluded from the country’s financial framework,” said Agbaje. “Since its introduction, we have recorded an uptake of over three million customers and over NGN 1trn [$3.1bn] in transactions via the platform.
“The reception of Bank 737 has been phenomenal, with it gaining recognition as Product of the Year in Africa from The Asian Banker and Best Digital Bank in Africa from Euromoney. The bank was also the recipient of six awards at the 2017 Electronic Payment Incentive Scheme Awards, which was organised by the Central Bank of Nigeria in conjunction with the Nigeria Interbank Settlement System to recognise financial institutions, merchants and other stakeholders at the forefront of driving electronic payments in Nigeria.”
Digitally minded
“Core to our digital strategy is both our understanding that the future of banking is digital, and our determination to lead that future,” Agbaje said. “We know, because digital technologies have dissolved the boundaries between industry sectors, that our competition is no longer just banks. It now includes fintechs, telcos and tech companies that can provide speed and flexibility to customers as we can. This creates tough challenges for the banking sector, but it also creates ample opportunities to extend our footprint.”
A readiness to embrace new technologies has helped large portions of the African population skip whole stages of traditional digital development altogether
For example, the bank’s SME MarketHub is an e-commerce platform that allows business owners to create online stores. Agbaje told World Finance: “Our strategy is to take advantage of the new opportunities born from the digital revolution by moving beyond our traditional role as enablers of financial transactions and providers of financial products, to playing a deeper role in the digital and commercial lives of our customers. In pursuit of this strategy we have created our own in-house fintech division, while also actively seeking partnerships and collaborations with other fintechs.
“Our immediate focus is three-pronged; to digitalise our key processes, build a robust data-gathering infrastructure, and create a well designed, segmented and integrated customer experience, rather than a one-size-fits-all distribution. In the long run, our goal is to build a digital bank that consistently delivers faster, cheaper and better solutions for the constantly evolving needs of our customers.”
The lack of digital and electrical infrastructure, as well as lower levels of wealth than those found in more developed markets, means that there are some barriers to the full adoption of digital banking that are particular to Africa. “Another obvious challenge is the little focus given to innovation in the banking industry.
African banks, like most banks across the world, tend to innovate in bite sizes, and generally around products, rather than service delivery. It was almost as though banks believed that ownership of the customer was their right, as long as they had the branch network to support customer footfall. Now, facing the real threat of losing relevance, banks are waking up to this need to innovate – not just out of dire necessity, but as a strategic objective.”
Agbaje also pointed out that, while GTBank has made significant gains in getting customers to accept digital banking as a viable alternative to traditional forms, there is still more to be done. That said, he is hopeful that the Central Bank of Nigeria’s ‘Cash-less Nigeria’ policy, which discourages the use of cash, will drive greater migration to e-banking platforms.
“We are also tackling the innovation challenge. We now operate an open innovation policy, through which we invest significantly in building our in-house digital capabilities. At the same time, we are seeking effective partnerships and alliances to drive operational efficiency and boost our competitive advantage.
“We want to become a fully digital bank that offers everyday banking services outside of traditional bank walls, but more than that, we want to create digital touch points that ensure we are constantly interacting and playing a deep role in the lives our customers. This of course requires a sustained commitment, and we have repositioned our business structures in such a way that makes us very confident in our continued leadership of Africa’s digital frontier.”
Gaining interest
Despite the difficult business environment in 2016, GTBank enjoyed “a fairly decent year”, according to Agbaje. The bank overcame these challenges by growing its retail business and leveraging technology to deliver superior payment solutions to make banking simpler, faster and better. Gross earnings for the period grew by 37 percent to NGN 414.62bn ($1.3bn), from NGN 301.85bn ($959m) in December 2015 (see Fig 2).
This was driven primarily by growth in interest income, as well as foreign exchange income. Profit before tax stood at NGN 165.14bn ($524.7m), representing a growth of 37 percent since December 2015. The bank’s loan book also grew 16 percent, from the NGN 1.37trn ($4.4bn) recorded in December 2015 to NGN 1.59trn ($5.1bn) in December 2016, with corresponding growth in total deposits increasing 29 percent, to NGN 2.11trn ($6.7bn).
Likewise, the bank’s balance sheet remained strong with a 19.7 percent growth in total assets and contingents, reaching NGN 3.70trn ($11.8bn) at the end of December 2016, while shareholders’ funds reached NGN 504.9bn ($1.6bn). The bank’s non-performing loans remained low at 3.29 percent – below the regulatory threshold of 3.66 percent, with adequate coverage of 131.79 percent. Against the backdrop of this result, return on equity (ROE) and return on assets closed at 35.96 percent and 5.85 percent respectively.
According to Agbaje: “The vision of the bank is to build an oasis in a country that was not necessarily known for doing things properly, so we focused on ethics and integrity. And once you build anything on that type of foundation – because even though things change, values never change – and bring in very young people who imbibe this culture along with a healthy attitude towards work, you have a workforce that’s very young and dynamic, possessing all the right values to enable you to build a successful organisation.”
Pan-African
GTBank is building on its successes both at home and abroad through its ‘Pan-African’ growth strategy. Apart from its home market in Nigeria, the bank enjoys a presence in three countries in east Africa (Kenya, Rwanda and Uganda), five in the west (Ivory Coast, Gambia, Ghana, Liberia and Sierra Leone) and has plans to have another in Tanzania by the end of the year.“Our strategy has always been to go into a country and take the high end of the middle market, and then as we grow, enter into the corporate markets.
“We are building a high-end type retail business because the middle class is emerging in most countries in Africa, and where you have an emerging middle class, you have a lot of banking opportunities. So far, we have been fairly successful, delivering an ROE after tax of over 25 percent.”
The bank’s expansion strategy has enjoyed remarkable success, with businesses outside Nigeria now accounting for 15 percent of total deposits, 11 percent of its loans and around 8.2 percent of its profit. Over the next three years, Agbaje expects subsidiary contribution to grow further, to approximately 20 percent.
He told World Finance: “I’m pretty excited about the fact that the profit of the bank has grown by over 300 percent in the last five years. Our customer base has grown from around two million to over 10 million, and we have built a very strong e-business as well.
“We are driven by a vision to create a great African institution; an institution that can compete anywhere in the world in terms of good corporate governance culture and performance. We are driven by the desire to be, in terms of best practices, as good as any institution in the world. As a bank, we always want to do better than 25 percent ROE, and if we have the corporate governance that you’d find anywhere else in the world, then we’ll always be an attractive destination for discerning international investors.”
Growing the SME sector
According to Agbaje: “At GTBank, we have been enriching lives since 1990. We do this by giving people a source of livelihood, growing businesses and offering them scale and infrastructure that might not have been available to them otherwise. We are doing things that people never thought possible, and doing most of it for free. Our aim is to continuously transform our organisation into a business enterprise that is all about creating value for our customers, shareholders and the communities in which we operate.”
A key area of focus for GTBank has been widening financial access and building capacity for SMEs. “What we have found with a lot of SMEs is that the financial capacity to borrow isn’t there yet,” said Agbaje. “This is why we created the MarketHub, so that our customers can have an e-commerce platform in addition to their traditional market places so they can grow their revenues.”
Building this online economy is important for both customers and the host economy as a whole, as well as for GTBank. “If we can help increase your sales, then we increase your cash flow and we increase your ability to repay loans. We give loans, but what people must remember is that we have no money of our own, so whatever loans we give must come back.”
As part of the bank’s long-term growth strategy, it has developed a rapidly growing SME franchise that is radically positioning the bank as the apt financial institution for small and medium-size enterprises. This is built on the bank’s understanding of the crucial role of small businesses when it comes to the sustenance of economic growth and development.
Facing the real threat of losing relevance, banks are waking up to the need to innovate – not just out of dire necessity, but as a strategic objective
“As a foremost financial institution, we have a huge obligation to our host communities: not only must we never fail, we have to remain consistent in delivering superior performance and creating value for our stakeholders. We are constantly innovating how we give back to our host communities by going beyond traditional corporate philanthropies. We intervene in key economic sectors to strengthen small businesses through non-profit, consumer-focused fairs and capacity building initiatives that serve to boost their expertise, exposure and business growth.”
In May 2016, the bank held the first of its consumer-focused initiatives: the GTBank Food and Drink Fair. The aim was to promote enterprise within the Nigerian food industry by connecting small businesses involved in the production and sale of food and food-related items to a large audience of consumers and food enthusiasts. The event hosted more than 90 exhibitors from the food sector and attracted around 25,000 guests over its two-day period.
This event was shortly followed by the GTBank Fashion Weekend in November 2016, which targeted the country’s fast-growing fashion industry. The event was a huge success, becoming a meeting point for all stakeholders in the industry and providing a space for retail exhibitions, masterclasses and runway shows.
“We plan to continue such initiatives across viable sectors where we can help small businesses boost their growth potential and productivity. These initiatives are driven by our ambition to play a deeper role in people’s social and commercial lives, thus positioning ourselves at the centre of an extended ecosystem that serves both their banking and non-banking needs, while allowing for frequent interaction between them and our organisation.”
It is hard to overstate the role productivity has played in the prosperity we enjoy in the developed world today, and harder still to exaggerate the dire ramifications we now face as the OECD’s productivity growth grinds to a halt. The patchwork of reasons offered to explain the slowdown in production has failed to pinpoint the true cause, but recent research into ‘frontier firms’ has suggested they may provide some clue as to the solution.
Coined by Paul Krugman, the widely adopted assertion “productivity isn’t everything, but in the long run it is almost everything” identifies two crucial points: first, the extent to which productivity shapes an economy, and second, the metric through which we discuss productivity’s impact on living standards.
Productivity, by definition, is the fraction of GDP produced per hour worked, so it’s easy to see the vital role any growth in productivity plays in the wealth of a nation. It’s also important to note – in terms of raising living standards – growth should be considered relative to a state’s own past, and not compared to other countries.
Historically, high levels of productivity growth have afforded citizens of the developed world privileges so ubiquitous they have been construed as rights, but this may not be the case for coming generations. Until 2000, OECD area countries maintained a steady growth rate of around two percent year-on-year, while in emerging markets this was often zero, or even negative. This is why living conditions in richer countries improved colossally in the second half of the 20th century while developing economies witnessed little change.
However, in the years prior to the global financial crisis, productivity growth in the OECD area began to falter, eventually coming to a dead halt in 2008. Despite a brief period of improvement in 2010, growth in the OECD area has never fully recovered, and now stands at around one percent.
High levels of productivity growth have afforded
citizens of the developed world privileges they have construed as rights, but this may not be the case for coming generations
This sluggish productivity will likely create two distinct problems for younger generations: for the first time in living memory, children in the developed world won’t experience a better quality of life than their parents, and, perhaps more worryingly, with debt payments contingent on GDP rising, developed countries will struggle to pay off mounting levels of public and private debt.
Unproductive problems
The stall in productivity has been particularly pronounced in Europe: in 1995, productivity growth in Europe stood on par with the rest of the world at two percent, but has since slumped to 0.5 percent. This figure trails the 3.2 percent registered in emerging economies, as well as the one percent posted in the stalling US.
Ageing populations and a fall in the number of births within the eurozone have only acted to compound the issue, with the workforce expected to shrink in the coming years. Therefore, if productivity remains flat, GDP is expected to fall across Europe. In the worst-case scenario, GDP could decrease by as much as 14 percent in Germany, 16 percent in Italy and 22 percent in Spain by 2050.
The effects of this slowdown are already visible in the UK, where productivity growth has been among the worst in Europe. Since the recession, wage growth in the UK has been paltry, with data published by the OECD showing wages grew faster in France, Germany and Italy. This downturn has also impacted public investment, with literacy among the UK’s 18 to 24 year-olds trailing Europe’s elite.
But, while the problems resulting from a slowdown in productivity are clear, the reasons behind the slump are less so. Productivity growth is driven by labour saving inventions, and is, therefore, contingent on firms investing funds into new technologies. A lack of investment during the recession has not helped the problem, but, equally, cannot be held wholly accountable, as the slowdown predates the financial crisis. Some economists, notably Robert Gordon, argue the problem is due to a lack of good innovation, rather than a lack of investment.
Frontier firms vs. laggard firms
However, recent research examining so-called ‘frontier firms’ casts doubt on Gordon’s pessimistic take. Frontier firms are companies that exist at the top end of productivity in any industry. Tech companies such as Google or Amazon are obvious examples of frontier firms, as are the likes of BMW, L’Oréal and Nestlé. Firms like these are often quick to adopt new technologies and implement innovative management practices, meaning if Gordon is correct, and the fault lies with technology, then these companies should have also suffered a slowdown in productivity – this has not been the case.
Speaking to World Finance, Daniel Andrews, a senior economist at the OECD and author of Frontier Firms, Technology Diffusion and Public Policy, said: “Productivity performance [among these firms has] continued to grow quite strongly… the problem was everyone else, or, rather, what we call laggard firms.”
With wage growth across OECD countries remaining low since the recession, companies haven’t been forced to invest in labour saving innovations… simply put, the cost of investing in new equipment isn’t worthwhile
While frontier firms are still investing and innovating, Andrews believes “the benefits of their innovation and productivity aren’t diffusing to everyone else”. Andrews explained this discrepancy between hyper productive firms and laggards may lead to an upheaval in developed economies: “What we had before was a growth model in which the most technologically advanced firms innovate and the benefits of these innovations spill over into other firms, that has essentially driven economic growth for the last 50 years or so – since the Second World War. There seems to be a number of indications that process has broken down in the early 2000s.”
The reason for this lack of “innovation diffusion”, as Andrews calls it, is still unclear. Certainly, the cost of implementing new technologies is one barrier. But Andrews also cites bad management, and the fact laggard firms are “not doing the things that are complementary to technology adoption”.
As Andrews is quick to point out, if firms lack a carrot, they also lack a stick. With wage growth across OECD countries remaining low since the recession, companies haven’t been forced to invest in labour saving innovations. Simply put, with labour so cheap, the cost of investing in new equipment isn’t worthwhile.
“This is also about lack of competition in the market”, Andrews said. “Zombie firms – that is really weak firms – are increasingly able to survive in the market because they’re kept alive by creditors and weak banks.”
Frontier firms like Google are often the quickest to develop new technologies and innovative management processes
Developing frontier skills
There have, of course, always been frontier firms, but a combination of globalisation and heightened connectivity has given rise to what Andrews calls “winner takes all dynamics”. Andrews suggests this could occur even if firms were only “fractionally better than the next best firm”, with the best digital technology firms able to “essentially capture all of the market”.
A troubling side effect of the breakdown in innovation diffusion is the negative impact it seems to have on wages, with a growing inequality between salaries at frontier firms and their laggard counterparts.
Andrews also identified a mismatch in the level of skill: “On average across the OECD, about one quarter of workers have skills that don’t align with their job… it’s two-and-a-half times more likely that this reflects overskilling than underskilling… there are a lot of talented people trapped in quite marginal firms.”
The wage divergence between frontier firms and laggards means not only are talented people trapped in low skill jobs, they are also trapped with low wages. This may mean that, on top of a decline in living standards, the productivity crisis will limit the skills and salaries of future generations, with frontier firms hiring relatively few people.
The wage divergence between frontier firms and laggards means not only are talented people trapped in low skill jobs, they are also trapped with low wages
According to Huw Morris, an advisor to the Education Secretary in Wales, this is increasingly becoming an area of policy focus. Morris said: “[Frontier firms] tend to take on a small number of very, very skilled young people; they’re not interested in the bulk of graduates.” The opportunities to join a frontier firm also diminish as a person climbs the career ladder, and Morris believes this is compounded “because young people have indebted themselves so much, they’re not able to pay for their own training later in life”.
Morris also suggests our education systems are increasingly ill equipped to provide people with the necessary skills for a changing economy: “Technology is moving so quickly that lecturers in universities don’t have the skills to teach what industry wants”. This has been made worse by a lack of in-work training. Morris added: “I anticipate people in their 20s now, as they move up the career ladder will tell younger generations to think twice before doing a degree.”
Therefore, in order to avoid a future in which living standards are frozen and pay varies drastically depending on the employer, the productivity problem needs to be solved. Encouraging innovation diffusion throughout the entire economy will be key to any solution, and this could take the form of levies on companies failing to invest in staff training, schemes in which senior staff from frontier firms teach good management practices to those in laggard firms, or even a rethink of traditional one-subject degrees.
As Andrews puts it: “[The] productivity benefits are potentially unbounded, so you don’t want to come down too hard on frontier firms… but there are challenges to [the] old policy [which need to be] raised.”
In a vote of confidence for the US economy, the US Federal Reserve has agreed to raise its key rate by 0.25 percent to a new target ranged between one and 1.25 percent. The rise represents the third hike in six months and pushes the key rate to levels not seen since 2008. While the increase reflects renewed confidence in the US job market and the wider economy, some critics remain concerned the current level of inflation still isn’t high enough to justify the decision.
The rise represents the third hike in six months and pushes the key rate to levels not seen since the global financial crisis
Upon the announcement of the increase, Fed Chair Janet Yellen said: “Our decision… reflects the progress the economy has made and is expected to make.”
While the increase had been widely expected – thanks to positive numbers in the US job market – the country’s weak inflation figures had cast doubt on the overall strength of the US economy. Acknowledging this, Yellen suggested the readings had been driven by price reductions in specific categories, such as mobile telephone plans and prescription drugs, and asserted these figures would level out in the near future. “The committee still expects inflation to move up and stabilise at around two percent in the next couple of years”, Yellen said.
Like the Fed’s increase in March, the rise was approved with only one dissenting vote, cast by Minneapolis Fed President Neel Kashkari who preferred the rate remained the same. A further increase is scheduled for later this year, but the Fed has stated it will closely monitor the economy before implementing any future rise.
As reported in The Wall Street Journal, the Fed also announced it would begin the process of gradually shrinking its $4.5trn portfolio of Treasury and mortgage-backed securities, reversing a purchasing policy initiated during the global financial crisis. Although it didn’t specify a date, the Fed said the roll-offs would begin later this year.
Digital services are no longer an afterthought in banking. The success of digital only banks, like Atom and Monzo, has proven an app is the most important service a bank can provide. In this intensely competitive landscape, World Finance is looking for industry’s finest, and is welcoming nominations for the Digital Banking Awards 2017.
Armed with a smartphone, the average person now has access to almost all the financial tools they could possibly imagine. As a result, competition is growing fiercer between the biggest names in banking, and the demand to build on top of old, complex systems has left banks fighting an uphill battle to modernise.
This has led a wave of new start-up banks to take advantage of this slow rate of development. By offering only an app and a card, these new banks are free from the constraints of a legacy architecture, and are able to offer greater flexibility in their services.
Offering only an app and a card, new start-up banks are free from the constraints of a legacy architecture, and
are able to offer greater flexibility in their services
Consequently, this is having a significant effect on profitability. A recent study by McKinsey, entitled A Brave New World for Global Banking, revealed banks in both the UK and Europe are at risk of losing $35bn in profits thanks to digitalisation causing greater competition.
New institutions will continue to emerge, and existing tech giants could increase competition further as they seek to tap into the market. A recent survey by Muelsoft found almost a third of UK consumers would consider using Amazon, Google, Facebook or Apple for banking services if they were made available. With services like Samsung Pay and Apple Pay already popular, these multifaceted companies could move one step further and soon be offering their own banking services. If banks haven’t modernised by then, they may be unable to compete altogether.
In this exciting time for the global banking industry, World Finance’s Digital Banking Awards 2017 are looking to celebrate the organisations that will not only survive, but flourish in these conditions. Nominations for the awards are now open, with World Finance‘s panel of experts working with readers to find the institutions best prepared for the future.
The UK has witnessed another stunning result at the polls, with Theresa May’s Conservative Party failing to retain its outright majority in parliament. The hung parliament has presented both May and Labour leader Jeremy Corbyn with a claim to govern, creating yet more uncertainty ahead of the UK’s negotiations to exit the European Union.
The results come as a huge shock, and represent a significant backfire on the Conservative Party’s gamble to call a snap election before the upcoming Brexit negotiations. Ahead of the election, May’s majority government commanded a healthy lead in opinion polls and had hoped to strengthen its position ahead of the talks commencing June 19. But the Conservatives’ lead was steadily eroded over the course of the campaign as Corbyn amassed a surge of support while May struggled with controversial policies and weak public appearances.
The Conservative Party’s gamble to call a snap election before the upcoming Brexit negotiations has backfired
“At this time, more than anything else, this country needs a period of stability”, May said as the results came in. “If, as the indications have shown, the Conservative Party has won the most votes and the most seats, it will be incumbent on us to ensure that period of stability and that’s what we will do.”
Corbyn said the results represented an end to austerity policies, and called on May to resign: “The prime minister called the election because she wanted a mandate, the mandate she’s got is lost Conservative seats, lost votes, lost support. That’s enough to go.”
Amid the uncertainty, the pound has been placed under significant pressure. The Financial Times has reported the pound fell two percent in early trading, with a political risk premium likely to cause further instability. Meanwhile, the FTSE 100 climbed, with companies generating sales outside the UK benefiting from the fall in the pound.
The result may also alter the timetable for Brexit negotiations, previously due to begin on June 19. But, in order to avoid delays, it is widely expected the Conservatives will look to the Democratic Unionist Party to establish an informal coalition.
Growing the SME sector
