Author: Max Tomlin

Insuring success in the digital age

Posted on by Max Tomlin

The full digitalisation of products and processes is at the core of recent developments in the Hungarian insurance market. In the past 10 to 15 years, several technologies have appeared in our daily lives that we previously did not have access to.

Advances in technology have resulted in a huge amount of new information being released to us, which has not only changed the insurance business itself, but also customers’ needs and their own everyday lives.

In today’s world, it is essential to follow the trends and constantly live with the opportunities provided by technology. After all, if we fail to do so, we fall behind, and this is also true in business.

At Allianz Hungária, the last few years have been about continuous renewal in order to meet customers’ changing needs. Allianz Hungária has built its future on the progress made in the innovation of operation; the key to competitiveness in our rapidly changing and developing world is the exploration of opportunities in digitalisation.

Meeting customer needs
Technological developments should serve the needs of all customers, while individual processes must be simplified, cost-effective and more convenient. In order to increase efficiency, we had to complete more and more technological improvements in the past few years.

The first step was the renewal of fast quotes and other calculators on the website, while the MyAllianz Portal has also been improved. With MyAllianz, customers can take control of their insurance, allowing them to see details of their cover, make payments, view insurance documents, request policy changes and notify Allianz of a claim.

The web interface has been also refreshed. It now boasts a uniform appearance across all platforms, making it easier to use, based on providing solutions complying with the latest trends.

We have to prepare for a world where ignoring IT developments and the failure to track trends will be great barriers to competitiveness

In the customer service division, more and more enquiries now come from social media platforms. As a result, Allianz Hungária has built up the same operational structure on Facebook and LinkedIn as in its call centres. Customers can follow the company on social media platforms; they often choose to reach out through Facebook, and Allianz offers assistance through Facebook Messenger. Almost 250 people sent their queries via Facebook Messenger in 2016.

The central Allianz Hungária Facebook page has nearly 50,000 followers, but if we count the official pages managed by its tied agents, Allianz Hungária has almost 80,000 likes in total. Tied agents’ activities on social media are necessary, not only because of potential sales, but because this grants the company easier access to its customers (and vice versa). The agents are quite active on these sites, generating 98 percent of all Allianz Hungária posts across 400 Facebook pages.

Payment possibilities
Cashless payment solutions are becoming more and more commonplace. Due to the introduction of the QR code on paycheques, it is accepted that customers can pay their premiums via their smart phones. If customers prefer to manage their account over the phone, Allianz Hungária – as the first company in the Hungarian insurance market – provides them with the possibility to pay the premiums through a secure phone platform.

In Hungary, customers prefer a wide range of payment options – while older customers prefer to pay in person, young adults favour online services and processes with limited personal contact. Last year, Allianz Hungária and Ingenico Group introduced a new method of credit card payment in the customer’s home, which utilises secure card reader terminals and a connection with smart phones.

Beyond the risk management involved in the use of cash, the traffic management and the control of the records was very expensive. We have therefore decided that our tied agents will also have mobile terminals. We keep the needs of our customers in mind when allowing them to pay on the site and at the time they prefer, safely and quickly, providing not just the paycheques, bank demand or bank transfer form to choose. The transaction figures show that this innovative solution is appealing to our customers, but of course we are also aware that some people prefer to pay in cash. They may be more difficult to reach with these developments.

Digital products
As the Hungarian insurance market continues to grow, more people would like to obtain insurance and asset management solutions anywhere, through the channel that is the most convenient to them. Modular, digital products and solutions are an ever-increasing demand, and so in most of Allianz Hungária’s business and segments, only digital products have been introduced since 2016. Digital products incorporate online processes, from calculating the expected premiums, sales and administration to the claim management processes. These processes could allow everything to be done online by customers as a self-service.

Of course, to promote the opportunities of digital products, Allianz Hungária offers online discounts to those who take out an insurance policy online. For example, there is the travel insurance loyalty programme, which is actually a discount programme that rewards customers’ allegiance. If somebody joins the programme and collects the discounts, he or she can get a 25 percent discount on their travel insurance.

Allianz Hungária on Facebook

48,000

Allianz Hungária’s Facebook likes

30,000

Tied agents’ Facebook likes

78,000

Total likes

The biggest development in the insurance sector comes from the consolidation of the claims management processes. In 2016, Allianz Hungária’s claims experts received tablets to improve the service they give to the customers. The Wi-Fi tablets are optimised for outdoor activities and extreme weather conditions, allowing claims experts to strengthen their mobility and enjoy a more efficient workflow. The application running on the tablets means digital damage assessments, damage calculations, diagnostics and settlement agreements are all available on-site.

The main advantage of such developments is that they improve service quality by allowing optimisation and, following the repair costs, improving efficiency of claims management. Moreover, they help to evaluate the work of claims experts and repairers. The current status of the entire claims process can be constantly monitored, and the automatic data upload function minimises manual data entry.

Inside the call centre
Reducing manual work processes plays an increasingly important role in the sector’s growth, primarily because speed is key in competitiveness. This is also true for the reaction time of responses to customer inquiries. Since 2012, Allianz Hungária’s Contact Centre has received 70,000 customer requests a month on average, and more than 100 employees are tasked with responding to these.

More than 80 percent of these cases are answered and solved by the Contact Centre, which is an outstanding result internationally. On an annual basis, every 15th call results in contracting, a figure which represents a benchmark on an industrial level.

The consolidation of processes allows the available data to be treated and used as a resource for business decisions. In general, it is true that high-level business analytics capabilities should be the body for the available data to obtain information. This depends not only on expertise, but also on organisational, cultural and mind set changes. Inside the organisation, the attitude to data should change.

Challenges in business
Although digital services are growing in popularity, this does not mean the role of agents and brokers will significantly decrease. However, we have to prepare for a world where ignoring IT developments and the failure to track trends will be great barriers to competitiveness.

This could be frightening for a company with an international background and with decades of experience, because it has to present an extremely high adaptability to customers. However, all types of new thinking or mindset changes when approaching new opportunities show high degrees of flexibility and adaptation.

Companies around the world expect an unfavourable situation in the market, but this must not dissuade the larger efforts. You can never sit back, because the constantly changing environment presents us with new challenges. The future is not what we thought it would be a few decades ago: the world has accelerated, and unexpected turns and unpredictable changes now characterise our lives.

Global renewal agenda
This constant change is a characteristic of financial services too. Those firms that wish to retain their competitive edge and continue to grow are those who anticipate the changes. In 2016, Allianz instigated a multi-annual, group-wide renewal agenda that aims to strengthen the pillars of group operations and set a new growth path for subsidiaries. The subsidiaries in 70 countries should strive to do their business by paying attention to customer needs.

Those firms that wish to retain their competitive edge and continue to grow are those who anticipate the changes

Allianz Hungária’s German parent company aims to improve efficiency by digitalising the entire company. The profit achieved will then be turned back for investments related to resources and growth promoters.

Allianz is also looking to create global businesses that can take advantage of economies of scale. This renewal agenda is adapted in Hungary according to market conditions. All of the development projects start with asking customers what they think about Allianz Hungária and its services. Any valuable feedback is built into the subsequent processes.

In these surveys, the company focuses on exploring the key areas for improvement and examining the cases through the eye of a customer. This helps to identify points where intervention is needed in order to achieve higher levels of customer satisfaction.

Continuing work begun in recent years, we will improve communications, significantly decreasing paper-based communication in parallel with increasing electronic data, and moreover we make available online payment options the widest.

In 2016, Allianz Hungária celebrated its 30th anniversary. It has been the leading insurance company in Hungary for three decades, and it is appreciated by the society as a responsible, innovative and reliable company.

Why the world depends on our need to travel

Posted on by Max Tomlin

China’s economy is preparing for the future. No longer able to count on growth in the manufacturing and export industries, the government is fostering a number of more self-sustaining sectors that are better able to maintain growth in the long term. Such efforts are necessary should the country wish to continue its remarkable economic development beyond the next few years.

In December, China’s National Development and Reform Commission (NDRC) announced that tourism would be one of its areas of focus for the next four years. The country is aiming to invest RMB 2trn ($290bn) into tourism projects by 2020, an ambitious figure designed to renew the country’s infrastructure and public services.

In a joint release with the China National Tourism Administration, the NDRC said that, by 2020, the Chinese Government aims for the total sum of tourism services purchased in the country to reach RMB 7trn ($1trn). That figure would contribute more than 10 percent of the country’s annual economic growth and employ around 50 million people; more than 10 percent of the country’s total workforce.

Economic mountains
When pressed to list the biggest and most important industries in the global economy, most people would say some of the more visible and tangible mainstays on the world’s stock market indexes: energy, finance, pharmaceuticals and so on. In terms of the industries that may have the most transformative impact on a country, the majority of people would list the same. The tourism industry is often overlooked, with few taking notice of its ability to not only to transform an economy, but to change the entire identity of a location. Throughout history, tourism has been a force of wealth, status and power that is capable of producing more than just economic growth.

The contribution that the tourism industry makes to the global economy is difficult to exaggerate. In an interview with World Finance, President and CEO of the World Travel and Tourism Council (WTTC) David Scowsill said that in 2015, the travel and tourism industry contributed $7.2trn to the global economy, a little less than 10 percent of the world’s total GDP. In total, the tourism industry is expected to support 11 percent of all jobs by 2026 (see Fig 1).

The industry’s rate of growth is only accelerating as well. Scowsill explained: “We expect travel and tourism to have grown over three percent in 2016, which will be the seventh consecutive year we are growing ahead of global GDP. Generally speaking, our sector grows about one percent ahead of the global economy.”

According to WTTC data, travel and tourism’s overall GDP contribution grew by approximately 29 percent in US dollar real terms between 2006 and 2016, increasing from $5.8trn to $7.4trn. Its direct contribution, through industries such as hotels, airlines and leisure activities, reached $2.23trn in 2016 – a figure that is expected to reach $3.47trn by 2026 (see Fig 2).

Scowsill said the last decade has seen a significant shift in the global tourism industry, as international travel has fallen within reach of more people: “This means that more people with higher disposable incomes have been able to travel over the last 10 years; the Chinese market in particular has witnessed significant growth.”

Besides efforts to make the country a more attractive tourism destination, China has also been the source of tourism development beyond its borders, thanks to an increasingly wealthy population. In the coming years, as long as China’s economy continues to grow, numbers are only going to increase. Writing in the Nikkei Asian Review, Morningstar analysts Dan Wasiolek and Chelsey Tam stated only nine percent of China’s population are frequent international tourists (see Fig 3). When that number is compared to the 38.3 percent of South Koreans and 51.1 percent of Taiwanese who regularly travel internationally, one can see that China still has a lot of room to grow.

Together with rising incomes, the falling cost of travel and its increased ease have contributed to the growth in global tourism. Scowsill said: “The increase in connectivity and travel facilitation have helped boost the mobility of people, specifically the rise of low-cost carriers has made flying more economical.” With a hotel on the other side of the world bookable in just a few clicks, an international trip can be a spur of the moment decision, with travel agents now far less of a necessity. “Another factor is the increase in visa-free travel”, Scowsill added. “Over the last 10 years, the percentage of the global population requiring a traditional paper visa has decreased from 75 percent to 58 percent.”

Grand Tour
What has been particularly remarkable about the global tourism industry is the consistency of its growth, not just over the past decade, but the past 70 years. Tourism has always carried a high social currency, and financial barriers are often the only things stopping people travelling more. Though now a long way from its elitist beginnings, the status associated with international travel has ensured it remains an industry whose growth may slow, but will never truly stop.

Eric G E Zuelow is an associate professor of European History at the University of New England and author of the book A History of Modern Tourism. Speaking to World Finance, he said that, while it is a debated subject, tourism as a concept is generally accepted to have started in the late 17th or early 18th century with what was know as the ‘Grand Tour’.

“The initial impetus was that, in the wake of the Renaissance, diplomacy was becoming more complicated in Europe, and it was necessary to, instead of simply sending a diplomat to another court to negotiate a treaty, have people on the ground at all times”, Zuelow explained. During this time, Queen Elizabeth I began funding England’s best and brightest to travel, meet people, gather intelligence and ultimately embed themselves in another culture.

“As that happened, other elite families and members of the gilded elite wanted their sons to have a similar experience, and so more and more people started going [abroad]”, Zuelow said. “And by the middle of the 18th century, it was a kind of finishing school for the elite.”

With tourism and travel originally being exclusively the domain of only the wealthiest, new technology has always played a role in gradually lowering the financial barriers that stop people from travelling. Zuelow explained: “The Grand Tour more or less came to an end with the Napoleonic Wars. In the immediate aftermath of that, or even against the backdrop of the Napoleonic Wars, steam ships, and then railways, were developed.”

This point marks the beginning of tourism falling within reach of working-class people, with day trips emerging as a popular and affordable pastime. For middle-class people, an overnight or even slightly longer trip was an option.

Zuelow said for many, the act of travelling was just as exciting as the destination: “The technology itself was exciting, so it wasn’t even just about the place that you went to, but it was about the experience of getting on one of these vehicles. And that was particularly true of the train because they went faster than people were used to going, and they were big, and noisy, just exciting in and of themselves.”

With travel and tourism becoming cheaper, businesses that directly targeted the growing number of people keen to experience other places began to emerge, including the first travel agency. Founded by Thomas Cook and his son John Mason Cook in 1841, Thomas Cook & Son became the first of what would soon be a worldwide phenomenon. A deeply religious man, Cook saw tourism as a path to social reform and higher education for the masses. His company made a particularly significant impact arranging travel for many living in the English Midlands to visit London for the Great Exhibition of 1851.

Planes, trains and automobiles
Today, tourism tends to be described as an industry, albeit one that is difficult to categorise due to how large, expansive and varied its members are. Tourism began to expand at an almost overwhelming rate following the Second World War. Technological developments also accelerated, with improvements to automobiles allowing people to easily travel greater distances on their own.

In the 1960s and 1970s, air travel became more affordable and inspired a new, less affluent class of international traveller. Scowsill pointed out the price of a flight today is a fraction of what it once was: “Furthermore, people increasingly value new experiences rather than investing in other goods or repeatedly going to the same local holiday destination. These factors have all contributed towards making the industry far more competitive and diverse.”

While technology has made tourism easier, faster and cheaper, what hasn’t changed is the sense that travel creates better people. Just as aristocrats sent their children out to learn and become more ‘well rounded’ individuals, the notion of becoming more ‘worldly’ is the overwhelming motivation behind many people’s desire to travel.

Zuelow said tourism’s development is also tied to the rise of nationalism in the 19th century. At the height of the British Empire, the infrastructure that allowed larger numbers of people to travel ultimately helped them form a deeper opinion of themselves by experiencing other cultures.

The tremendous growth of tourism on a global scale suggests there is little that could stop the industry from continuing to flourish

“What that meant was that people were travelling and they were seeing themselves, and what scholars and academics would call the ‘other’, and they were able to define themselves relative to that other”, Zuelow explained. “I think that one of the things that’s really significant is that tourism plays a central role in the shaping of who we think we are. We imagine ourselves to be relative to other people, which strikes me as a pretty huge thing.”

Tourism has now fragmented into a number of different branches. After the rise of urban tourism (which is popular for cultural learning) and rural tourism (often seen as beneficial for health), specific tourism products began to emerge. By this stage, tourism had become a product rather than just an activity or intellectual pursuit.

“Disneyland, for example – the first big theme park – opened in the middle of the 1950s, and others followed suit after that”, Zuelow said. “Heritage tourism started to take hold in the 1970s, and different forms of outdoor tourism grew in popularity. Things that had been developing for a long time really took hold.”

Reshaping cities
Tourism is also capable of initiating a tremendous amount of change in a single place. Since the days of the Grand Tour, cities have been an important destination for tourists, but it has only been more recently that destinations have branched out and offered a diverse range of activities, often permanently reshaping cities. Zuelow said London is a prime example: “London has a wealth of historical sights, a lot of heritage, so there’s the experience of going to see history. It also has rather less intellectual things that you can take part in, like Madame Tussauds. By the 1980s you’ve added the London Dungeon and other kinds of things like that, that don’t tend to be much more than entertainment. And a whole lot more besides; art museums, history museums, anthropology museums, technology museums, all these kinds of different things that people can do.”

However, the transformational aspect of tourism can have an impact beyond cities. Zuelow gave as an example Ireland’s TidyTowns Competition in the 1950s: “The idea being to take essentially poor Irish towns and brighten them up with paint and flowers, so Irish townscapes came to look like the brightly coloured towns that we all recognise from postcards. That was directly a result of tourism. That competition was implemented by the Irish Tourist Board in order to create something for a tourist to see.”

Some towns go in the other direction, and renew efforts to preserve history in order to maintain appeal; cities like Athens and Rome, for example.

Tourist crowds surround a pair of snow monkeys in northern Japan

Deteriorating destinations
The tremendous and continued growth of tourism on a global scale suggests there is little that can stop the industry from continuing to flourish. While individual destinations’ tourist appeal may suffer if they deteriorate into conflict (as has happened in Egypt in the wake of the country’s revolution) it would take a truly disastrous international event or economic catastrophe to impede overall tourism numbers.

However, Scowsill said something that could impede the tourism industry is deteriorating global security: “It is extremely important that the public and private sector work together on a coordinated approach across borders. We are living in a time where countries are beginning to look more inwards than outwards out of fear of the unknown. WTTC believes that people have the right of freedom to travel and it is therefore of extreme importance that governments do not shut down their borders, but look at other ways of enhancing security through intelligence sharing and the implementation of electronic visas.”

Another threat is the gradual deterioration of destinations, either through sheer volumes of visitors or global warming. While occasionally stories of ungrateful or out of control tourists emerge in the media – such as people trampling wildlife, or even knocking over priceless statues while posing for selfies – more consistent damage is emerging.

The gradual deterioration of destinations, either through sheer volumes of visitors or global warming, is a real
threat to tourism

In May 2016, authorities in Thailand announced the island of Koh Tachai would be closed to tourists until further notice due to the damage visitors were causing to the natural habitat. “We have to close it to allow the rehabilitation of the environment both on the island and in the sea without being disturbed by tourism activities, before the damage is beyond repair”, said Tunya Netithammakul, Director General of the Department of National Parks, Wildlife and Plants Conservation, in an interview with the Bangkok Post.

However, the negative impact of tourism is not just limited to its effect on nature: from an economic perspective, Venice is another example of there being too much of a good thing.

A beautiful and enduringly popular destination, the Venetian tourism industry has cannibalised local industries to the extent where the city would simply cease to function without visitors’ money. As residents depart the city, the local culture, industry and the city itself are eroding.

For many of these popular destinations – in particular, poorer countries that see increasing visitor numbers as an opportunity to tap into an international inflow of cash – the long-term impact of tourism is often overlooked. However, the longer-term, negative impact of tourism is increasingly being looked at, with some destinations even considering limiting visitor numbers to sacrifice short-term gains for long-term sustainability.

$290bn

China’s planned investment into tourism projects by 2020

50m

people will be employed by china’s tourism industry if these plans are successful

$7.2trn

Travel and tourism’s contribution to the global economy in 2015

1 in 11

jobs are related to tourism

29%

Growth in the industry’s contribution to global GDP between 2006 and 2016

“As travel and tourism continues to grow, it is of [utmost] importance that we safeguard the world’s assets, ensuring we balance growth while preserving the environment, local communities and cultural heritage”, said Scowsill. “Sustainable policies and operations should be at the forefront of government bodies and companies that operate within our sector.”

Needing to get away
With the substantial investment being made into it, the tourism industry is continuing to evolve, placing travel in reach of even more people. Scowsill said: “We will continue to see an increase of the circular economy, changing the way people travel, not just for leisure but also for business. Boundaries are being pushed with new technologies, such as virtual reality. Also we see the role of social media impacting the way people experience travel, as many unique experiences are being shared.

“Additionally, we see the parameters of sustainability widening to include accessibility, consumer awareness and more technological innovation. Especially when it comes to accessibility, there is a lot that can and needs to be done within our sector. There is a huge economic and social opportunity to cater for those with accessibility needs, including wheelchair users, the hearing and vision impaired, and also the ageing population.”

Ultimately, the need humans have to travel will be enough to last for many years to come. Zuelow said the social wealth that comes with being well-travelled makes it an incredible force in people’s lives: “It makes it kind of one of the ultimate consumer goods, and I think that the tourism industry plays on that to a certain extent… Closely tied up in that is the idea that we all use this phrase, ‘I need a vacation’ – well, not really. But of course we feel like we do, because we’ve learned to feel that it will make us healthier to be away from work and to engage in leisure.”

With this ultimate consumer good capable of both economically and socially transforming destinations, China’s efforts to support its future make complete sense. While other industries may boom and bust, tourism is one that has endured over the centuries – and can be counted on to continue to do so in a way that most others cannot.

Becton Dickinson to acquire Bard for $24bn in latest medical technology merger

Posted on by Max Tomlin

On the evening of April 23, Becton Dickinson announced it had reached a deal to acquire Bard for $24bn in cash and shares – the latest in a series of major deals in the medical technology sector.

A sector-wide slowdown in revenue growth, coupled with a consolidation among healthcare providers, has prompted several companies to turn to acquisitions in a bid to defend profits. Abbot Laboratories, Medtronic and Zimmer Holdings have all made large acquisitions in the past few years, while Becton Dickinson’s purchase of Bard follows its $12.2bn acquisition of CareFusion in 2015.

The deal, which was unanimously agreed by both boards of directors, aims to position the merged company as a provider of “end-to-end medication management”, combining Bard’s innovation pipeline, midlines and drug delivery ports with Becton Dickinson’s expertise in drug preparation, dispensing, delivery and administration.

A sector-wide slowdown
in revenue growth has prompted several companies to turn to acquisitions in a bid to defend profits

The acquisition also presents Becton Dickinson with an opportunity to drive its expansion into international markets. Bard registered approximately 500 products internationally in 2016 and is among the fastest growing medical technology companies in emerging markets. Once combined, the company will boast annual revenue of $1bn in China.

A statement from Becton Dickinson described the deal as “financially compelling”, claiming it is expected to generate high single-digit growth to earnings per share for 2019. The company has further estimated the acquisition will create cost synergies in the region of $300m.

Bard’s Chairman and CEO Tim Ring said: “We are confident that this combination will deliver meaningful benefits for customers and patients as we see opportunities to leverage [Becton Dickinson’s] leadership, especially in medication management and infection prevention. We also believe that we can expand our access to customers and patients through [Becton Dickinson’s] strategic selling capabilities, and that our fast-growing portfolio in emerging markets can significantly benefit from their well-established international commercial infrastructure.”

The deal, which is due to close in autumn this year, will offer Bard common shareholders $222.93 in cash and 0.5077 shares of Becton Dickinson stock per Bard share. Alternatively, shareholders will be entitled to $317 per Bard common share, based on Becton Dickinson’s closing price on April 21. In total, Bard shareholders will own around 15 percent of the combined company.

UAE metal shines in tough business climate

Posted on by Max Tomlin

As oil prices languished at near-historic lows, November 2016 saw OPEC agree to its first production cut in six years. In a curtailment that amounts to almost two percent of global output, members of the oil producers’ council have pledged to remove an ambitious 1.2 million barrels a day from worldwide oil production, while non-OPEC member Russia has agreed to contribute by cutting a further 600,000 barrels a day.

Although the cut has had a somewhat positive effect on oil prices since coming into effect on January 1, the oil-dependent Gulf economies are still struggling to adjust to continued low oil revenues. Moreover, the International Energy Agency has predicted 2017 will prove to be another volatile year for the market, highlighting the pressing need among the Gulf States to reduce their reliance on oil.

Unlike its neighbours, the UAE has a more diversified economy, and has thus been less affected by the drop in oil prices. Despite an uncertain business climate in the region, the nation’s construction market has enjoyed stable and significant growth. Over the past few years, the UAE’s steel industry in particular has shown great potential, boasting an average annual growth between five and 15 percent.

With six major steel producers operating within the UAE, the nation has emerged as one of the region’s largest steel markets, producing around 3.2 million tonnes of the alloy in 2016 alone. With the UAE’s steel industry poised for further growth in 2017, one company in particular is now gearing up for expansion.

Making steel work
Beginning life as a start-up in 2008, Al Ghurair Iron & Steel (AGIS) has steadily grown its operations year on year, emerging as the largest galvaniser in the Middle East by 2016.

Undeterred by the worsening economic fallout from the global banking crisis, AGIS, rather optimistically, launched its operations in Abu Dhabi in the midst of the financial crash. Despite the lack of demand and a significant drop in prices in the sector, the firm set out to supply the local real estate and construction markets with a consistently good product.

There is a pressing need among the Gulf States to reduce their reliance on oil

Abu Bucker Husain, Chief Executive Officer at AGIS and World Finance’s Man of the Year 2016, said: “It was a real uphill battle for us. Every sale we made was a challenge, but when the customers used our material and saw the value in it – not only in terms of quality but also the benefits of buying from a local mill and our superior service – they realised the benefits of buying from us.”

While this uncertain business climate certainly proved challenging for the company, AGIS also faced another significant hurdle in the early years of its business. Upon launching, the UAE-based company soon realised it faced stiff competition from low-cost iron and steel mills in India and China. Using cheap labour and lower quality products, these foreign mills are able to sell to the Middle Eastern market at an attractive rate, thus undercutting local mills in the region.

With both Asian nations churning out record quantities of steel at remarkably low prices, iron and steel manufacturers in the Middle East are focusing on quality in order to compete with these cheaper, imported alternatives.

AGIS achieves this level of quality through its joint venture with Japan’s Nippon Steel & Sumitomo Metal – one of the world’s most prominent steel producers. Renowned for its top quality product, Nippon Steel supplies AGIS with the majority of its raw material, therefore ensuring the end product meets a high standard. “We have adopted many of our best practises from Nippon Steel”, Bucker Husain told World Finance. “Our customers also take cognisance of our association with them and value the quality of our products.”

Though AGIS has managed to overcome the challenges posed by cheap, foreign mills, the company has also faced the issue of setting up business in a region that lacks an established flat steel galvanising mill. As the largest flat steel galvanising mill in the Gulf region, AGIS has been forced to recruit almost the entirety of its workforce from overseas. In addition to sourcing these skilled workers, the cost of hiring remains high.

Nonetheless, despite the associated costs of hiring from abroad, the firm has now amassed a talent pool of highly skilled employees who work diligently to produce the top quality goods that AGIS is proud to put its name to.

Ahead of the competition
In the early years of its operations, AGIS successfully surmounted numerous difficulties, navigating a volatile economic environment to emerge as the region’s largest galvaniser by 2016. Yet AGIS’ ambitions do not stop there – the company is now looking to maintain a competitive edge on its main industrial rivals in the Gulf States.

The main way in which AGIS aims to set itself apart from its competitors is in terms of the quality it offers customers. The company’s client base is mainly found in the GCC region, with up to 80 percent of its business concentrated in the UAE and neighbouring Saudi Arabia. While customers in the region have historically favoured importing cheaper goods from international mills, AGIS now offers a top quality alternative.

5-15%

Average annual growth of the UAE’s steel industry

400,000 tonnes

Al Ghurair Iron & Steel’s annual production capacity

80%

of the company’s clients are repeat customers

“Our customers are aware of our association with Nippon Steel and the importance we give to ensuring quality”, said Bucker Husain. “Over the past 10 years, they have witnessed first-hand how they consistently get a superior quality when they book with us over our competitors.”

It’s not just the company’s guaranteed quality that is winning customers over. In addition to offering premium galvanised steel, the company prides itself on its service. When a customer has any specific or special requirements, these are efficiently taken care of by the AGIS team, along with any queries or issues that the customer may have. The firm places the client at the very heart of its business, ensuring that customer interactions are always positive and constructive. Due to this level of customer care, it may come as no surprise that around 80 percent of the company’s clients are repeat customers.

Importing materials from cheap foreign mills might prove tempting to GCC-based construction companies, but the advantages of using a local mill are all too clear. When using a UAE-based company such as AGIS, customers in the Gulf region can receive their materials much faster than if they were ordering from abroad. With a local mill, there are no shipping delays, as deliveries can be swiftly made using trucks as opposed to large container ships.

Building on foundations
In September 2016, AGIS reached its long-term expansion goal through relentless research and development, with the introduction of a brand new galvanising complex. This move took the company’s production capacity from 200,000 to 400,000 tonnes per annum.

With this achievement under its belt, AGIS is hoping to run the new plant at full capacity throughout 2017, and is optimistic about selling record quantities of galvanised iron and steel to a wide variety of local clients during this time. The next step for the company includes ramping up capacity at its cold rolling mill, enabling AGIS to further expand its operations. Regionally networked with a solid foundation, AGIS prides itself on building businesses that offer customers the best products in their sectors and therefore contribute to the overall prosperity of the region.

The UAE’s construction industry is also set for a significant boost in the upcoming years as building work intensifies for Expo 2020, an international exhibition that will take place in Dubai in just three years. According to Bucker Husain: “Expo 2020 is definitely a big booster for the UAE and GCC economies. The UAE is expecting to receive 25 million visitors for this event, and that means that a lot of malls, shops and hotels need to be constructed.”

In total, the central expo site will cover more than four kilometres of space at a midway point between the two urban capitals of the UAE. In choosing a previously underdeveloped site as the centre of the conference, the event requires a large-scale construction project, providing a significant boost to the UAE’s local iron and steel mills. In order to boost transport links around the new site, an extension will be added to the Dubai metro system, while a new, world-class road network is also set for construction.

As plans get underway at the site, the expo expects to create an incredible 277,000 jobs in the UAE, mostly in the travel and tourism sectors. “There is a lot of construction that has already been undertaken for this project”, said Bucker Husain. “All that means more business, not just for us at AGIS, but for everyone.”

Caribbean banking: upping the ante in Antigua

Posted on by Max Tomlin

Located in the eastern Caribbean islands, Antigua and Barbuda provides the perfect crossroad for financial services in the region. Although best known for its 365 white sand beaches, Antigua enjoys a growing reputation as a trusted destination for both tourism and international financial services. To this end, the government is vigorously pursuing a number of programmes to establish these sectors as the pillars of the islands’ economy.

Today, business is thriving in the Caribbean, and while Antigua’s international financial centre is relatively small, its non-volatile, politically stable and sovereign jurisdiction attracts clients seeking a more personal devotion to their wealth management portfolios. Moreover, the centre also boasts more than 30 years of experience and benefits from a time zone that is perfect for conducting international trade.

Regulatory environment
Antigua and Barbuda has always been regarded as an upmarket tourist destination – even for the most discerning of visitors – but with a host of financial services also on offer, these Caribbean islands are now an equally attractive proposition to businesses and investors from all around the world.

Antigua has successfully created a safe environment for foreign direct investment, providing stability to a host of international banking and business services

Taking advantage of its satisfying financial stability, Antigua has successfully reshaped its regulatory operations to create a safe environment for foreign direct investment, providing stability to a host of international banking and business services. This jurisdiction strives to cater to a client’s need for confidentiality, while also meeting all international financial standards. As such, the governing legislation for the management of its international financial centre is regularly updated in order to ensure international standards are always met.

The Global Bank of Commerce (GBC) is an indigenous financial institution that has offered a wide range of financial products to its regional and international customers since opening its doors in 1983. The first bank in Antigua and Barbuda to be licensed under international banking legislation, GBC has the distinction of being named the ‘grandfather’ of international financial services in the islands’ financial sector.

Customer satisfaction
Since its inception, GBC has earned a reputation for its strong relationship management services, and prides itself on delivering exceptional results to its clients, generation by generation. Loyal customers benefit from the bank’s dedicated team of professional executives, who provide services ranging from interest bearing and multi-currency accounts to worldwide wire transfers and portfolio management.

With a tradition of excellent service, GBC understands the needs of its customers, and consistently meets the demands of even the most discerning investor. Providing customers with superior wealth management, private banking and even immigration services, GBC caters to both corporate and personal clients.

Offering efficient and secure financial services, GBC gives its clients complete control of their accounts. With around the clock internet banking, customers can monitor account activity, initiate wire transfers, establish bill payments and communicate with the bank whenever necessary. Card products are also available to access funds the world over, thereby putting the bank’s financial services in customers’ hands – no matter where they are.

Payment solutions
The financial group of which GBC is a part does not simply work to attract deposits. GBC’s expansion of technology-driven facilities also allows it to provide microfinance and payment services that meet the demands of the Caribbean’s regional economy and, in doing so, provide a safe and efficient means to conduct regulated money transfers.

SugaPay has helped improve the islands’ financial services, and has ultimately made banking more convenient

GBC has also invested in its own fully certified local data centre: Global Processing Centre (GPC). GPC was established as a Payment Card Industry Data Security Standard processor of financial transactions, and operates an integrated processing platform for all card, electronic wallet, e-commerce and digital services.

Both GBC and its shareholder-affiliated entities are committed to supporting retail trading, government payments and international remittances. In an effort to make banking more engaging, GPC works with Caribbean Union Bank to provide an alternative payment solution called SugaPay. Running on an electronic funds transfer platform, SugaPay has helped improve the islands’ financial services, and has ultimately made banking more convenient.

Antigua’s international financial centre consistently meets the demands of a connected financial world, reorganising itself to accommodate modern business, foreign direct investment and the surge in global activity. International businesses now need a host of technology-driven solutions to cater to their financial needs. With a collection of well-regulated financial service providers and modern financial solutions, Antigua and Barbuda provides a stable environment and premier location for conducting global business.

Emirates reduces flights to US following Trump’s controversial travel restrictions

Posted on by Max Tomlin

Emirates has announced it will reduce the number of flights on five US routes – Fort Lauderdale, Orlando, Seattle, Boston and Los Angeles – after witnessing a fall in demand among Middle Eastern travellers. The airline said the reduced demand stemmed from US President Donald Trump’s efforts to restrict the movement of travellers hailing from a number of Muslim-majority countries in the region.

Trump has so far signed two separate executive orders attempting to ban refugees and citizens from Iran, Iraq, Libya, Somalia, Sudan, Syria and Yemen from entering the US. However, both orders were blocked by US courts before they could be enforced. In March, The Trump administration introduced restrictions limiting devices larger than a mobile phone being taken into cabins on US-bound flights.

Trump has so far signed two separate executive orders attempting to ban refugees and citizens from Iran, Iraq, Libya, Somalia, Sudan, Syria and Yemen from entering the US

An Emirates spokeswoman stated: “The recent actions taken by the US government relating to the issuance of entry visas, heightened security vetting and restrictions on electronic devices in aircraft cabins have had a direct impact on consumer interest and demand for air travel into the US.” She added that all of the company’s travel segments have seen a decline.

Emirates has faced concerns surrounding its future for some time now. In November, the company reported a 75 percent drop in net profit for the first half of its 2016-17 financial results.

Profits were affected by a strong US dollar and an overall slump in the global travel industry, which was dampened by economic challenges and security risks. In the same period, the percentage of filled seats on flights dropped from 78.3 percent to 75.3 percent.

As reported by the Financial Times upon the announcement of the results, Emirates’ Chairman and CEO Sheikh Ahmed bin Saeed Al Maktoum said: “The bleak global economic outlook appears to be the new norm, with no immediate resolution in sight.”

Exxon Mobil seeks relief from US sanctions to resume Russian oil project

Posted on by Max Tomlin

Exxon Mobil has requested a waiver from US sanctions against Russia in order to restart its joint venture with state oil company Rosneft, The Wall Street Journal has reported. According to media reports, the US oil giant is looking to reinstate its Black Sea oil exploration rights, which were established in 2012 by then-CEO Rex Tillerson. As of yet, Exxon Mobil has declined to comment on the reports.

In 2012, Tillerson signed a landmark deal with Russia’s Rosneft, said to be worth up to $500bn in joint investments. The joint venture granted Exxon Mobil permission to explore oil deposits in the Black Sea, the Arctic and the Russian Far East. However, the deal was prematurely shelved in 2014, when the Obama administration issued an executive order imposing sanctions on Russia in response to the nation’s annexation of Crimea.

The sanctions prohibit US companies from dealing with Rosneft CEO Igor Sechin, rendering any future negotiations between Exxon and Rosneft near impossible. With the sanctions still in place under President Trump, Exxon’s Black Sea exploration rights are almost due to expire, putting pressure on the oil company to negotiate a waiver from the US Treasury Department.

The waiver request is due to face tough scrutiny from various government bodies, as tensions run high over suspicions of Russian interference in last year’s US presidential election

The reported waiver request is due to face tough scrutiny from various government bodies, as tensions run high over suspicions of Russian interference in last year’s US presidential election. Following Trump’s surprise election victory, former Exxon Mobil CEO Tillerson has been appointed US Secretary of State.

During his time at Exxon Mobil, Tillerson negotiated several major deals with Rosneft, forging close working relationships with the company, its CEO and even Russian President Vladimir Putin.

In 2013, Tillerson received the Russian Order of Friendship award from President Putin. Since taking up the position of Secretary of State, Tillerson has sworn to recuse himself from matters related to Exxon for at least two years, and will play no role in reviewing the company’s waiver request.

The oil giant was previously given a waiver in 2014, granting the company permission to finish drilling projects in an Arctic well before the sanctions fully came into effect. In the years since, Exxon has been forced to wind down its operations in the region, while some of its European competitors have enjoyed continued access to the oil-rich seas.

Thanks to sanction waivers granted by the European Union, Norway’s Statoil ASA is currently drilling in the Arctic Barents Sea, while Italy’s Eni is operating in both the Barents and the Black Sea.

With an estimated 100 billion barrels of untapped oil in Russian territory, Exxon is seeking to maintain its Black Sea exploration rights as a matter of priority. As a wave of competitors move in on the lucrative Black Sea region, the US oil giant could stand to lose out if it doesn’t act quickly.

IMF: Donald Trump’s policy mix could trigger credit cycle downturn

Posted on by Max Tomlin

On April 19, the IMF released its bi-yearly Global Financial Stability Report, outlining the escalating vulnerabilities in US corporate balance sheets. The report warned the Trump administration’s proposed tax cuts and deregulatory policies could act to exacerbate fragilities in the heavily indebted corporate sector.

Following the 2008 financial crisis, the US corporate sector reverted to debt financing, and has taken on $7.8trn in extra debt and other liabilities since 2010. This debt binge could have serious implications for the health of the corporate sector, as well as financial stability.

The IMF stated: “Corporate credit fundamentals have started to weaken, creating conditions that have historically preceded a credit cycle downturn.”

The median net-debt across S&P 500 firms is approaching an historic high, with nearly 4,000 firms currently at levels exceeding those recorded prior to the global financial crisis

The report also noted there were signs the US had reached a “late stage” of the credit cycle, with many firms holding highly leveraged balance sheets: “The number of firms with very low interest coverage ratios – a common signal of distress – is already high: currently, firms accounting for 10 percent of corporate assets appear unable to meet interest expenses out of current earnings.”

Furthermore, the median net-debt across S&P 500 firms is approaching an historic high, with a broader set of nearly 4,000 firms at leverage levels exceeding those recorded prior to the global financial crisis.

Looking ahead, the concern for financial stability is twofold. First, a sharp rise in borrowing costs could be an implication of Donald Trump’s proposed expansionary fiscal policies. This is a dangerous prospect, as the heavily indebted state of the corporate sector renders it vulnerable to an increase in interest rates.

The second fear is a reduction in tax rates could exacerbate the current vulnerabilities, emboldening firms to engage in more risk taking behaviour.

The report stated: “Historical experience suggests that financial risk taking in the form of asset acquisition, mergers and acquisitions, and net payouts often follows tax policy changes. In general, increased financial risk taking is associated with pronounced leverage cycles that gradually build up and end abruptly in recessions, as for example in both 2001 and 2008.”

The impact of economic sanctions

Posted on by Max Tomlin

In our post-Cold War society, economic sanctions have become one of the defining features of the political landscape. Since the early 1990s, the US, Europe and other developed economies have employed sanctions on other nations more than 500 times, seeking to assert their influence on the global stage without resorting to military interventions. From nuclear non-proliferation to the promotion of fundamental human rights, the political goals behind such sanctions are diverse and ambitious, while the measures themselves can take many forms. And yet, though sanctions are often intended to serve as a peaceful alternative to military action, their use is not without controversy.

As the comprehensive trade sanctions on Iraq came to dominate newspaper headlines throughout the 90s, the humanitarian impact of the embargo became hard to ignore. The economic stranglehold of the stringent sanctions saw Iraqi children fall victim to malnutrition and prolonged suffering, while a lack of medical supplies and a shortage of clean water led to one of the worst humanitarian crises in modern history. For many academics, diplomats and activists, the Iraq embargo shone a light on the ethical cost of sanctions, generating widespread caution concerning the future use of such comprehensive measures.

Economic sanctions are employed by nations seeking to assert their influence on the global stage without resorting to military interventions

Ethics aside, however, the proliferation of sanctions cases over the past two decades has also sparked extensive academic debate over their effectiveness as a tool in international diplomacy. In terms of changing behaviour, sanctions have a poor track record, registering a modest 20-30 percent success rate at best.

With the US currently extending economic measures against both Russia and North Korea, sanctions are again being debated. As they continue to shape 21st-century foreign policy, it is high time to reflect on both the effectiveness and the ethics of this frequently employed policy tool.

A complex history
The very first case of sanctions as we now know them occurred some 2,400 years ago, when ancient Athens declared a trade embargo on neighbouring Megara, essentially strangling the city’s economy. After that, sanctions were used sparingly until the 20th century.

In 1966, the United Nations Security Council took a historic step by imposing its first set of comprehensive sanctions in its 21-year existence. The measures, which were enforced in an effort to undermine Ian Smith’s white supremacist regime in Rhodesia, were soon followed by another set of comprehensive UN sanctions, this time enforced in 1977, in response to South Africa’s apartheid system.

The history of economic sanctions

432 BC

The Athenian Empire levied economic sanctions against neighbouring Megara

1960

The US implemented sanctions against Cuba in an attempt to destabilise the Castro regime

1963

The US used sanctions to destabilise Vietnamese Prime Minister Ngo Dinh Diem

1966

The UN Security Council imposed mandatory sanctions against Rhodesia

1977

The UN imposed an arms embargo on South Africa in response to its apartheid system

1981

Europe enforced sanctions against Turkey in an attempt
to restore democracy there

1982

During the Falklands War, the UK imposed economic
and military sanctions against Argentina

1984

The US first implemented sanctions against Iran over its nuclear ambitions

1999

The UN imposed sanctions against Afghanistan in an attempt to extradite Osama bin Laden

2002

North Korea was subjected to sanctions from the US as a result of its nuclear proliferation

Despite these noteworthy cases, the use of sanctions remained limited in the decades that followed, partially due to the tense geopolitical climate during the Cold War; if the US had imposed sanctions on a nation during that time, the affected country could have turned to the USSR for trade, rendering the measures worse than useless. By 1991, however, the standoff between the superpowers had cooled, and the two nations began working together on international peacekeeping.

David Cortright, Director of Policy Studies at the Kroc Institute for International Peace Studies, told World Finance: “After the end of the Cold War, there was unprecedented cooperation at the UN Security Council level, and that led to an explosion of UN peacemaking and conflict mediation efforts across the board. This was this unique historical moment with Gorbachev and the transformation of the Soviet Union, combined with the Iraqi invasion of Kuwait and the ensuing international response, that really brought sanctions to the fore.”

Following the end of the Cold War, the sanctions imposed by the UN Security Council largely took the form of far-reaching trade embargoes – the same ‘comprehensive’ sanctions referred to previously. As the link between such sanctions and immense civilian suffering became increasingly unavoidable, however, the new millennium saw targeted measures emerge as an alternative to the all-encompassing sanctions of the past. These ‘smart’ sanctions – the likes of which are now in use against Russia – are specifically aimed at high-profile individuals or powerful groups within a targeted country in an effort to reduce the collateral damage and suffering inflicted on vulnerable civilian groups.

Limited impact
Despite their widespread use on the international stage, economic sanctions are largely ineffective in achieving their objectives. According to leading empirical analyses, between 1915 and 2006, comprehensive sanctions were successful, at best, just 30 percent of the time. What’s more, data has shown that the longer sanctions are in place, the less likely they are to be effective, as the targeted state tends to adapt to its new economic circumstances instead of changing its behaviour.

But this is not to say sanctions are completely ineffective: in the past half-century, such measures have proved successful in peacefully resolving a number of high-stake political issues. For example, economic sanctions played a crucial role in bringing Iran to the negotiating table over its nuclear ambitions. After 30 years of disruptions to the country’s trade levels, oil production and economic performance, the UN lifted its sanctions on the nation in January 2016, having successfully convinced the Iranian leadership to comply with limits to its uranium enrichment programme.

“If we go back to the 90s, sanctions were also famously imposed on Libya because of the Lockerbie bombing”, said Cortright. “The demands were that Libya ceased its support for international terrorism and that it turn over the suspects wanted in connection with the bombings.”

While the Gadaffi regime initially refused to cooperate, years of pressure from the US and the UN eventually saw the Libyan leader hand over the suspects for trial, in addition to renouncing the nation’s weapons of mass destruction and ending its support for terrorist activities.

Despite these successes, sanctions have fallen short of achieving their objectives on numerous occasions. From Somalia and Rwanda in the early 1990s to today’s restrictions on Cuba and Russia, economic sanctions ultimately prove ineffective when there is limited international participation in the measures. Cortright explained: “In cases where the targeted country has other trading options – which is almost always the case nowadays – as the volume of world trade and investment grows, unilateral measures have no real impact.”

In our globalised world, nations are no longer required to be self-sufficient, and are able to profit from a wealth of different trade avenues. As one market closes with the imposition of sanctions, globalisation means the targeted nation can simply shift its economic focus to new markets and trading partners, bypassing sanctions and maintaining a healthy level of trade. This issue of non-participation has largely undercut the current western sanctions imposed on Russia, as the nation remains free to trade with some of Asia’s largest economies.

“Although the US and the European Union are supporting the sanctions, there are many other major economies – such as China, India and South Korea – that are not participating in the sanctions”, said Christopher Davis, a lecturer in Russian and East Asian Political Economy at Oxford University. “My calculations are that participants in the sanctions have a GDP totalling around $42trn, whereas non-participants have a total GDP of $31trn.”

Thanks to these burgeoning Asian trade partnerships, Russia has effectively created an economic bulwark against western action.

Human rights
Aside from this question of effectiveness, a significant ethical debate also surrounds the use of economic sanctions. As history has shown, such measures can have unintended, catastrophic consequences, often creating widespread suffering among the populace of a targeted state. Even when sanctions are employed in an effort to discourage human rights abuse, their severe humanitarian impact can in fact cause further harm to the vulnerable populations they originally set out to protect.

The most frequently cited example of sanctions-related suffering is the aforementioned comprehensive embargo imposed on Iraq from 1990 to 2003. Four days after Iraq’s invasion of Kuwait, the UN Security Council put in place a near-total financial and trade embargo on the nation, which, over the course of the following decade, would come to profoundly impact the daily lives of all citizens.

Prior to the embargo, Iraq had relied on imports for two thirds of its food supply. With this source suddenly cut off, the price of basic commodities rose by a staggering 1,000 percent between 1990 and 1995, leading to widespread malnutrition and starvation, particularly among children. Infant mortality increased 150 percent, according to a report by Save the Children, with researchers estimating that between 670,000 and 880,000 children under five died as a result of the impoverished conditions caused by the sanctions. During the Gulf War, almost all of Iraq’s essential infrastructure was bombed by a US-led coalition, leaving the country without water treatment plants or sewage treatment facilities, prompting extended outbreaks of cholera and typhoid.

While analysts and policymakers have attempted to minimise the humanitarian impact of sanctions by shifting towards targeted measures, there is evidence to suggest sanctions may still exacerbate suffering in some targeted nations today. Although North Korea’s food situation has improved since the devastating famine of the 1990s, more than 70 percent of the population remains food insecure, with just 20 percent of the nation’s terrain serving as arable land. As trade sanctions and Pyongyang’s restrictions on aid prolong food insecurity in the nation, some 300,000 North Koreans have fled into north-eastern China in recent years, looking to escape years of drought, hardship and famine.

The longer sanctions are in place, the less likely they
are to be effective, as targeted states tend to adapt to
their new economic circumstances instead of changing their behaviour

According to Nicholas Eberstadt, a founding board member at the US Committee for Human Rights in North Korea: “The North Korean economy appears terribly dependent on constant net transfers of resources from abroad, either as explicit or implicit aid, or extracted through international military extortion or through fraud.”

Due to the isolationist nature of the secretive state, it is difficult to quantify the full effect sanctions are having, although we can assume they are at least relatively effective at limiting the net transfer of resources to North Korea. Sadly, those who are likely to suffer most from this shortage of resources are those who have already been victimised by songbun, the regime’s stringent political classification system.

“Assuming that foreign sanctions have been effective in inflicting economic shocks, it is safe to say that the victims will always be the same suspects that the North Korean Government wants to round up”, Eberstadt explained. “All of the suffering takes place among groups that the North Korean Government is not sorry to see perish.”

Just as the comprehensive economic sanctions against North Korea may be exacerbating the already significant hardships suffered by its vulnerable citizens, targeted measures can also have an equally unintended negative impact. In 2010, the US ratified the Dodd-Frank Act which, in addition to establishing enhanced Wall Street regulation, discouraged companies from sourcing ‘conflict minerals’ from the Democratic Republic of the Congo. While motivated by humanitarian concerns, the US’ attempts to undermine this bloody industry have ultimately harmed many innocent Congolese citizens.

According to a recent UN report, the de facto boycott on Congolese minerals has led to the loss of more than 750,000 jobs in the nation’s mining sector. The loss of income resulting from this mass redundancy has had a severe impact on child health in the nation, with conservative estimates recording a 143 percent increase in infant mortality. Despite an international shift away from comprehensive sanctions, this Congolese suffering indicates targeted measures are still not free from ethical quandaries.

The Russian question
In mid-2014, the beginning of an undeclared war in eastern Ukraine saw economic sanctions rise to the top of the international political agenda. The Kremlin’s annexation of Crimea and the downing of Malaysia Airlines Flight 17 triggered a wave of EU and US sanctions specifically aimed at blacklisting influential Russian individuals. These targeted measures, which remain in place today, take aim at key sectors of the Russian economy, including the oil and gas industries, the arms sector and state finances. Many of these key sectors are managed by a network of powerful individuals, each of whom has connections to the upper echelons of Russian Government.

Since the sanctions came into place some three years ago, Russia’s economy has struggled. Between 2014 and 2015, the country’s GDP growth contracted by 3.8 percent (see Fig 1), while inflation accelerated to 15.5 percent. Now more isolated than at any point since the end of the Cold War, the nation has seen an increase in its budget deficit, wide-ranging budget cuts and even noticeable food shortages. While these meat and dairy deficits can be attributed to limits on imports, many experts believe the true economic impact of sanctions has been limited, with Russia’s slowdown in actuality stemming from the global drop in oil prices.

“It’s important to remember that the Soviet Union and Russia have been subjected to western sanctions for 100 years, ever since the Bolshevik Revolution”, said Davis. “This means that they’ve developed ways of getting around western sanctions.”

Significantly, western efforts to disrupt Russia’s economic performance have simply brought the nation closer to its eastern neighbours: in an effort to bypass the measures, Russia has been shifting its trade focus towards the fast-growing Asian markets, taking steps to improve its economic and financial links to the rest of the region – to neighbouring China in particular (see Fig 2). Asian non-participation in the sanctions has given Russia a lifeline, with the nation expecting to grow its trade with China to an impressive $200bn by 2020.

“It takes a long time to reorient an economy, but Russia’s relations with Asia could change significantly over the decade ahead”, said Davis. “In the long term, major infrastructure projects such as gas and oil pipelines have the potential to generate a lot of revenue and trade.”

European divide
While sanctions against Russia have now been in place for three years, the Ukrainian crisis is far from resolved. With Russia seemingly unwilling to change its political stance, some sanctions-compliant nations are beginning to question whether the measures are worthwhile.

20-30%

The average success rate of economic sanctions

1,000%

The rise in commodity prices in Iraq after sanctions were imposed

250%

increase in infant mortality in Iraq between 1990 and 1995

$42trn

The total GDP of countries engaging in sanctions against Russia

$31trn

The GDP of those countries that continue to trade with Russia

For several countries in western Europe, the sanctions have been a double-edged sword, proving particularly counterproductive in the midst of the ongoing eurozone crisis. Russia is the European Union’s third largest commercial partner, and the EU, reciprocally, is Russia’s chief trade partner, accounting for almost 41 percent of the nation’s trade prior to the sanctions. In 2012, before the Ukrainian crisis began, the EU exported a record €267.5bn ($285bn) of goods to Russia, after years of carefully fostering close economic ties with the country.

With sanctions now hurting both sides, divisions are growing in Europe over whether to uphold the stringent measures. While Germany and the UK wish to maintain a hard line on Russia, other countries, including Greece, Spain, Italy and Cyprus, advocate lifting the sanctions. As the situation in eastern Ukraine approaches an apparent deadlock, sanctions are proving to be a significant point of contention in what is an increasingly divided EU.

According to Davis: “2017 promises to be a momentous year for Europe. In addition to the Brexit process, we have elections… in France, the Netherlands and Germany. There are ongoing problems in Greece, Italy and Spain. Europe is no longer a stable region where the European Commission can control all processes.”

On the other side of the Atlantic, however, President Donald Trump’s unconventional attitude towards Russia has fuelled concerns he may well use executive orders to lift US sanctions, against the wishes of many within his own Republican Party. While such a move could prove costly to the newly inaugurated president, his first months in office have shown he is by no means afraid of ruffling a few feathers.

An apparent sanctions sceptic, Trump stands at the opposite end of the scale from former president and leading sanctions proponent Woodrow Wilson. He said in 1919: “Apply this economic, peaceful, silent, deadly remedy, and there will be no need for force.” The true tragedy of this assertion is just how deadly sanctions have turned out to be.

Microfinance: empowering female entrepreneurs

Posted on by Max Tomlin

As well as being a seminal quote from John F Kennedy’s inaugural address, “help them help themselves” is an idea that has long been discussed and explored with respect to the global poverty agenda. As a result, when microfinance – a mechanism that provides financial services to those who do not otherwise have access – was unveiled in 1983, it was hailed as revolutionary. Finally, here was a method designed to alleviate poverty the world over, precisely by helping people to help themselves.

Yet in the years that followed, criticism from various outlets has clouded much of the good that microfinance can still achieve. Of course, there is no smoke without fire, and unfortunately there are those who seek to profit from vulnerable individuals – but that is not the only ending to this particular story.

The incredible thing about microfinance is its potential to both spur economic activity within a community and challenge the status quo. This is particularly the case for women in developing economies, who face even greater barriers when it comes to accessing financial services than their husbands and fathers. Given that 80 percent of microfinance institutions’ poorest clients are women who live on less than $1.25 a day, according to the State of the Microcredit Summit Campaign Report 2012, microfinance products, from micro-loans to micro-insurance, can be life changing.

The ripple effect
Without access to their own bank accounts, individuals living in poverty-stricken communities must rely on informal employment, which affords them little security and very few rights. Furthermore, as starting and growing a business is virtually impossible without access to financial services, people in these communities are extremely restricted in terms of the opportunities available to them. These restrictions, together with an informal vehicle for saving, mean a significant segment of the populace is simply unable to push their way out of poverty.

Such scenarios are not only prevalent due to the nature of living within a low income society; in the case of women, they are also driven by cultural nuances and governmental regulations.

Supporting women’s entrepreneurship has become a preferred method for economic development

Rupert Scofield, Founder and CEO of microfinance institution Finca, told World Finance: “In many countries where we work, cultural norms deny women the opportunity to seek employment or start their own businesses. At Finca, we made it our mission to redress this enormous waste of valuable and productive human resources. We provide many enterprising women with the resources to start their own businesses.”

As argued by Linda M Scott, Professor of Entrepreneurship and Innovation at Oxford University, in her paper Thinking Critically About Women’s Entrepreneurship in Developing Countries, in developed nations, women’s entrepreneurship is supported as part of an overall drive to promote growth. In developing countries, however, international dialogue is centred on it being a strategy for poverty alleviation.

In part, this is due to the cumulative effect women’s entrepreneurship can have within a community. Scofield agreed with Scott: “Micro-credit schemes, for example, have been directed almost exclusively at women, because, it is argued, women invest the money in goods and services that improve the wellbeing of families, in goods that are conducive to development.” As the income of men does not produce the same ripple effect within a community, supporting women’s entrepreneurship has become a preferred method for economic development.

It has been argued that there is a bidirectional relationship between women’s empowerment and economic development, because with the former comes access to the crucial components of the latter. This includes healthcare, education and income opportunities, social rights and political participation – and vice versa.

In her paper Women Empowerment and Economic Development, Esther Duflo wrote: “In one direction, development alone can play a major role in driving down inequality between men and women; in the other direction, continuing discrimination against women can, as [Amartya] Sen has forcefully argued, hinder development. Empowerment can, in other words, accelerate development.”

Fortunately, it has become increasingly evident within the international community that gender inequality is a cause of poverty, rather than an outcome, and should be treated as such. As Scott wrote: “‘Gaining the benefits’ of inclusion is a purposefully positive way to spin ‘avoiding the damage’ caused by inequality.”

Education, Education, Education 
Access to financial services can help to reduce gender inequality in developing nations by establishing a new role for women within the household: by bringing in her own income, a woman’s dependency on her husband is reduced and her bargaining power is increased.

“The most empowering thing for women in the developing world is having their own income that is not controlled by their husbands”, Scofield explained. “When they have resources of their own and don’t have to beg their husbands for money, it completely changes the family dynamics. Suddenly the woman in the family is seen as an important and vital contributor by the husband and children. Sadly, before this transition, women are often disrespected and treated no better than the animals”.

This too has a cumulative effect: the more women who are empowered in this way, the more likely it is their peers will follow suit. Scofield told World Finance: “We have further noted that women-owned and women-operated businesses generally employ other women, so there is a ripple effect in the community. As one successful woman social entrepreneur put it, when women run their own businesses, there is no problem of a glass ceiling.”

Importantly, the daughters of such women will be afforded more opportunities than their mothers, particularly in terms of education – something that is fundamental in the fight against poverty. In his address to the UN World Conference on Women in 1995, then-President of the World Bank James Wolfensohn highlighted: “Education for girls has a catalytic effect on every dimension of development: lower child and maternal mortality rates; increased educational attainment by daughters and sons; higher productivity; and improved environmental management. Together, these can mean faster economic growth and, equally important, wider distribution of the fruits of growth.”

As argued by Wolfensohn, the more education girls receive, the more women there will be in leadership roles in all aspects of society. The way in which communities resolve problems and make decisions could therefore be transformed.

Members of a microfinance institution in Bangalore

Obstacles to overcome
While it is evident that empowering women is crucial for economic development, and that microfinance can act as a key to unlocking this door, there is a snag in the system: microfinance supports women’s empowerment – and, in turn, more education for girls – but without education in the first place, the power of microfinance can be limited.

Many women in eastern and southern Africa, for example, seldom attend primary school for more than a few years, while secondary school attendance is even rarer. However, as education is a crucial accompaniment to financial services, eliminating the barriers around obtaining credit can often be futile. Without business training and financial literacy, many women living in extreme poverty are simply unable to understand the caveats of the loans they are taking out, nor are they able to keep track of their finances, and spiralling credit can be a result.

Poverty is a battle – to successfully conquer it, those living in its grip must have the right weapons and tools

What’s more, even with access to capital, proficiency in the skills needed to navigate financial products, and the entrepreneurial drive and creativity to create a successful business from scratch, circumstances can simply limit what these women achieve. For example, as discussed in Scott’s paper, if a woman selling fruit wished to add value to her products by making jam or chutney, her circumstances may prevent her from doing so, even if she had financial backing.

Specifically, many homes in remote areas have makeshift stoves, meaning heat cannot be controlled, while ingredients or condiments to add variation to the products are not obtainable. Neither may it be possible to sterilise jars – indeed, the jars themselves may not even be available.

As such, there are places in which micro-loans are offered to the poor, even when there is little opportunity for investment. In such situations in Bangladesh, it has been noted that women use their loans to purchase plane tickets for their husbands to work abroad, many of whom send remittances but never return home. Though these payments can help, they do little to provide a sustainable income or empower women, so that all-important ripple effect within a community is not catalysed.

Fortunately, even in the remotest areas with very few investment opportunities, there are alternative systems that can be more effective. The likes of Avon, Jita and Living Goods, for example, provide women with fast moving, novel products to sell within their communities. Not only is this essential for enabling women to achieve a sustainable income, this business model also provides female entrepreneurs with the training and logistical support needed to make their businesses viable.

The battle for equality
According to the Microcredit Summit Campaign, between 1990 and 2008, microfinance lifted 10 million people out of poverty in Bangladesh. Globally, the number of people who have borrowed from microfinance institutions reached 211 million by December 2013 – more than half of whom were women (see Fig 1).

Evidently, microfinance can transform lives and communities by acting as a springboard to entrepreneurship, providing education for children and delivering insurance if a natural disaster strikes – yet microfinance alone is not enough. With it must come financial training, realistic opportunities and the support people need in order to invest capital successfully. Clearly, as argued by Scott and others, financial products alone are just part of a much larger parcel needed for poverty alleviation.

And yet, with the right backing, microfinance can provide the impetus women in poverty need to challenge the status quo and make something more of their lives than previous norms and customs have dictated. In doing so, they create a ripple effect that lifts others out of poverty. This cumulative effect swells further as the children of these women have greater access to education, healthcare and employment opportunities, meaning they can create even better lives for themselves and their own families.

Through such a transition, greater equality within a community can transpire, and women in developing states may no longer have to face discrimination and violence. In such a future, women are enabled to fulfil their potential, and in doing so they can benefit their entire community. As shown by numerous studies, only with equality can genuine, long-term economic development occur.

Poverty is a battle – to successfully conquer it, those living in its grip must have the right weapons and tools. Governmental entities, the international community and private institutions are therefore charged with not only promoting financial inclusion, but also providing the education and opportunities needed to maximise the possibilities brought forth by microfinance.

Economic development is a highly complex, multi-faceted phenomenon, which is why it requires all citizens to contribute to its success – and that means empowering women in order to ‘help them help themselves’.

El Salvador’s economic shackles

Posted on by Max Tomlin

El Salvador is a small country with big problems. Just over a quarter of a century ago, it was engulfed in an intrastate war that mutilated both the nation’s economy and its infrastructure, all the while leaving deep social scars – the type that can take generations to heal. And yet, despite the atrocities carried out throughout the 12-year civil conflict – including the death of around 75,000 citizens, most of whom were non-combatants – El Salvador’s reconciliation process was exemplary. Its model has even been used by others since.

Efforts towards greater economic liberalisation have led to a remarkable increase in exports, which have now become El Salvador’s biggest economic driver

Yes, El Salvador has come a long way since its government and the left-wing guerrilla group Farabundo Martí National Liberation Front signed the Chapultepec Peace Accords on January 16, 1992. Notably, efforts towards greater economic liberalisation have led to a remarkable increase in exports, which have now become El Salvador’s biggest economic driver (see Fig 1). Daniel Lacalle, author, international advisor and professor of global economy, told World Finance: “The opening of the El Salvador economy has helped the country achieve impressive growth and increase GDP by more than 150 percent in the period.”

The economy progressed further still in 2001 as a result of the currency’s dollarisation, which helped to improve the country’s business climate with lower interest rates, reduced transaction costs and cheaper international financing. The agricultural industry too has remained crucial to the state, accounting for some 17.3 percent of total employment in 2015, while the banking sector has helped the inflow of foreign capital significantly, with the country’s five biggest banks now being foreign-owned entities.

Expediting exports
With the peace treaty in hand, the Salvadoran government was able to implement a series of reforms, which proved to be far more successful than previous attempts at tackling the economy’s once intractable imbalance. As well as structural reforms, improved legislation, better investment security and far more robust government support mechanisms all assisted in encouraging El Salvador’s export potential.

“A solid monetary policy that avoided constant inflationary pressures and devaluations helped to stabilise imports [and] improve productivity through efficiency and added-value”, said Osmel Manzano, Economics Principal Advisor at Inter-American Development Bank. “Exports multiplied from an all time low of $47.7m in November 1991 [just before the end of the Salvadoran Civil War] to almost 10 times higher at $400m in December 2016. In my personal opinion, the reasons for the economic miracle of El Salvador have been a successful set of reforms, control of monetary policy and impressive trade improvement.”

The consolidation of a vital export-led development plan, together with the opening up of the economy to foreign investment, has led to the noteworthy expansion of El Salvador’s biggest sectors: low added-value manufacturing, known locally as maquila; business process outsourcing, most notably in the form of call centres; and, of course, agriculture.

Before the civil war, around 55 percent of El Salvador’s population had lived in poverty, while some 110 family groups reigned over the economy. According to Manzano: “The civil war left a poor and undermanaged agricultural sector, where large parts of the land were left behind and unexploited.”

The peace accords, however, involved a redistribution of agricultural land to families that had been affected by the war. Manzano explained: “This improvement in the wealth distribution – added to a policy of avoiding the previous mistakes of constantly devaluing – has helped double GDP per capita. In this, the agricultural sector has been the biggest contributor to families’ improvement of prosperity.” Indeed, the reforms significantly reduced poverty in El Salvador to 26 percent, while also leading to a positive trade balance.

The country’s economic growth has been aided further by a significant shift towards tertiary services, including call centres, media and communications, and aeronautics. “The rise of industrial and service exports came hand in hand with FDI”, said Manzano. “The process of internationalisation of the economy reshaped the labour force, which became less agrarian and more industrial and services-oriented.”

It would be remiss to not mention the vast impact that foreign remittances have had on the Salvadoran economy since the 1990s: in 2016, they accounted for approximately 17 percent of El Salvador’s GDP, making them a key source of foreign currency.

“On the one hand, the steady increase in the value of remittances has fuelled a consumption boom that in turn feeds imports and fosters the growth of the economy’s non-tradable sector”, Manzano noted. “Therefore, a key policy challenge is to avoid remittances to promote a Dutch-disease-type process, leading to sustained real exchange rate overvaluation, inflating the non-tradable sector at the expense of the tradable sector. On the other hand, remittances have played a role in reducing poverty and income inequality, and have otherwise cushioned the economy from financial and trade shocks.”

Gang crime 
Despite such progress, prevalent gang violence across the country continues to stunt the potential and persistent development of the economy. In a population of around 6.5 million, it is estimated that as many as 60,000 citizens are involved in gang activity, wreaking havoc in some 247 out of 262 municipalities. According to a study by the Central Bank of El Salvador, gangs are responsible for around 49 murders per 100 citizens, while the cost they incurred to the economy in 2014 was approximately $4bn – equivalent to a whopping 16 percent of its GDP.

Consequently, the country exhibits an extraordinarily high rate of corporate extortion and theft. It is estimated that approximately 70 percent of businesses in El Salvador are subject to gang-related crime. According to Lacalle: “This problem is one of the reasons why industry and investment remain below the potential of the economy.”

75,000

Number of citizens killed in El Salvador’s 12-year civil war

17.3%

Share of total employment in 2015 attributable to the agriculture industry

$4bn

The cost gangs incurred to the country’s economy in 2014

The threat of gang violence is not only limited to businesses – it remains a titanic menace to the general population, with entire villages having been forced out of their homes in recent years. In fact, in September, a local government entity in the country’s western region created the first settlement camp for internally displaced citizens since the end of the civil war. “Worst of all, gang crime feeds on the more disadvantaged parts of the El Salvador economy”, Lacalle told World Finance.

This threat of violence and extortion, together with mushrooming costs to the state in terms of healthcare and security, have severely stunted the country’s economic progress in the 25 years since the end of the civil war.

Manzano agreed with this theory: “Rising crime and the deterioration of security conditions have clouded the investment climate. Aside from the obvious human cost of criminal activity, poor security conditions directly increase business costs, for example, as firms are forced to pay for private security services. Although firms of all sizes are being affected, smaller firms are hurt more than proportionately.”

Fiscal responsibility 
Last year, the Salvadoran economy faced even further peril as it teetered on the brink of collapse – a result of substantial pressure on the fiscal cash flow after years of overspending and slow growth. This could be largely attributed to the government’s failure to fully recognise the consequences of the global financial crisis, and specifically the endemic risk it faced as a result of plummeting export revenues.

“Exports fell from $500m to around $100m less very rapidly, at the same time as expenses increased”, Manzano told World Finance. “The government failed to adapt to an environment in which investment and capital inflow seen during the US quantitative easing period changed, and at the same time commodity and agricultural prices fell, while expenses did not.

“The cash crunch had multiple effects. On the one hand, government authorities started prioritising expenditures more carefully, and there is now a sense that they can continue running a leaner operation. On the other hand, the cash shortage in fact signalled the continuation of highly polarised political conditions, making the need for a dialogue and a national agreement more urgent.”

Despite the potential catastrophe of 2016, the state managed to avoid a complete shutdown and even continued debt servicing as usual. This was aided by the approval of the Fiscal Responsibility Law, which decreed an adjustment of three percent of El Salvador’s GDP.

Manzano explained: “There is a consensus that an adjustment of such magnitude would not only stabilise the public debt-to-GDP ratio, but would in time reduce the vulnerability of public accounts by reducing the debt ratio.

“To comply with the [Fiscal Responsibility Law], a balanced approach is recommended, encompassing both revenue and expenditure measures. Increasing revenues – particularly tax revenues – would require a combination of an adjustment in tax instruments and, of course, stronger tax administration.”

In terms of expenditure, the state must decelerate improvident spending, while also improving targeted subsidies. “Fiscal adjustment measures should be designed so that the burden of adjustment falls primarily on those able to shoulder it, while protecting the poor and vulnerable”, said Manzano.

Agriculture is among El Salvador’s largest sectors

Investing in security
Clearly, investment growth is of supreme importance in further developing the Salvadoran economy. Lacalle explained: “Increasing taxes is not a solution in a small economy that needs investment and inflow of capital. This, not interventionism, is what will help the economy strengthen, continue to reduce poverty and develop a successful middle class.” Yet in order to encourage a greater inflow of investment and capital, tackling the country’s rampant gang problem is absolutely crucial.

In the short to medium term, a more robust security system must be enforced to better protect businesses and in turn inspire greater confidence. As of late, the state has been cracking down on gang violence with some success. One method that has proved beneficial was cutting the communication between imprisoned members and their accomplices on the outside. Last year, the number of murders fell by 20 percent to 5,278, while street gang Barrio 18, having been weakened by the government’s increasingly vigorous offensive, offered to renounce extortion.

This offensive must continue. The impact of this will be twofold: giving businesses more breathing space, and encouraging greater confidence as a result of a demonstrable crackdown. Greater confidence, however, must start at home. Concerns about corruption within judicial systems, police and prisons not only remain rife, they appear to be worsening: in 2016, El Salvador fell 23 places, to 95 out of 176 countries, in Transparency International’s Corruption Perception Index.

El Salvador’s problems can be largely attributed to the government’s failure to fully recognise the consequences of the global financial crisis

Though the arrest of former President Antonio Saca for embezzlement last October was a clear check on power that bodes well for reducing state corruption, there has been a notable push back by the ruling party, which reportedly encouraged threats made by its supporters against constitutional judges.

In order to truly crackdown on the problems facing the country, the state itself must be strong and adhere wholly to the rule of law, penalising those who don’t do the same. Many argue that, for El Salvador to enter into a new stage, both as a country and as an economy, a new peace accord is needed.

Manzano agreed with this theory: “25 years ago, Salvadorans showed that they can sit together and get to an agreement that gives its economy and population a chance. Today is probably a good opportunity to revive the spirit of that agreement and rethink the next steps that El Salvador needs to take to further develop its economy.

“The key issue is to mobilise investment in the country. Investment is an essential ingredient of job creation, and productive jobs are in turn the best way to lift people from poverty on a sustainable basis.”

Better opportunities will also tackle a root cause of gang crime in El Salvador, for individuals often turn to such activities out of desperation and poverty, not because of some innate immorality that they possess. The cycle of repair will continue to feed into itself: with more investment, there will be less violence, and with less violence, there will be more investment.

El Salvador may face sizeable problems, but it is not a lost cause – far from it. With strong government efforts and increasing investment, this economy can be freed from its current shackles to advance into a new beacon of prosperity, which once again acts as a model for others, both in the region and beyond.

How powerful is Donald Trump?

Posted on by Max Tomlin

In 1952, President Harry S Truman sat at his desk in the Oval Office and mused about what was in store for his successor, Dwight D Eisenhower. “He’ll sit here”, said Truman, tapping his desk for emphasis, “and he’ll say, ‘Do this! Do that!’ And nothing will happen. Poor Ike – it won’t be a bit like the army. He’ll find it very frustrating”.

This moment has been immortalised by political scientist Richard Neustadt, who argued in his seminal book Presidential Power and the Modern Presidents that the President of the United States is not as powerful as many might believe. In fact, he deemed the office of the US president to be plagued by weakness, arguing that a president can only get his way by eliciting the cooperation of other powerful players in the system. Thus, rather than simply making commands, a US president can only enact his agenda by playing a delicate game of persuasion, bargaining and conciliation – a game that requires extensive experience in the machinery of government.

This comment on the strength of checks on a president’s power is damning for Donald Trump, whose business background as the unitary leader of the Trump Organisation has left him accustomed to his word carrying the weight of an order. It may, however, be comforting to those concerned that certain aspects of the unpredictable businessman’s economic strategy could do real damage.

Trump’s flurry of executive orders at the start of his term certainly showed he has a taste for unilateral action

John Hudak, Deputy Director of the Centre for Effective Public Management and a senior fellow in governance studies, told World Finance: “Being sensitive to the realities of the Congress as a coequal branch is something that every president needs to do… I think that [Trump] is going to be floored by the limitations on his ability to execute the policies that he wants, and this is something that we are absolutely already seeing.”

Fixing America, alone
Despite having next to no experience in politics, Trump has gone to great lengths to cast himself as fast acting and all powerful, making a grand claim upon receiving the Republican nomination: “I alone can fix [America]!” He invokes his business background to present himself as someone who is an expert in “thinking big” and “getting stuff done” – and yet, his impulsive style of announcing grandiose policy measures has left many concerned about the possible implications of his leadership of the world’s largest economy.

For one, Trump’s signature ‘America first’ stance has drawn wide-scale criticism from economists, who generally see global trade as a positive-sum game. Many have warned of the economic costs to business, growth and productivity that could ensue as a result of Trump’s planned return to protectionism, particularly given the possibility of an all-out trade war if international tensions escalate.

Furthermore, his proposition for a vast fiscal stimulus package has drawn criticism for being introduced at a time when the economy is already nearing full employment, as well as for its inevitable implications for national debt. Notably, both of these policies go against the sway of Trump’s own party, which is traditionally pro-trade and fiscally conservative.

Trump’s flurry of executive orders at the start of his term certainly showed he has a taste for unilateral action, as he followed through on many campaign promises that commentators had predicted he might let slide. However, despite his strongman image, he cannot single-handedly command the full breadth of his economic plans with the swipe of a pen.

Presidential power
The US Constitution artfully plays the three branches of government against each other in a system of shared powers, created explicitly to ensure no single branch could become too powerful. In theory, US Congress alone has the power to create laws, while the president’s role is simply to ‘recommend’ legislation – as well as to veto it as he wishes. This system substantially checks the president’s power, especially as Congress is not obligated to play ball with a president’s agenda.

The system also elucidates the source of Truman’s frustrations as he sat at his desk all those years ago. In order to implement his crowning achievement – the Marshall Plan – Truman had to perform a complicated bargaining game, building a coalition in Congress through a long-winded strategic process of gaining loyalties and amassing political capital.

This said, over recent decades, the scope of presidential power has been stretched and expanded in various capacities, with some presidents relying heavily on executive orders to act alone, without the approval of Congress. This has been the subject of considerable controversy, with some arguing the president’s office has become overly powerful. Roosevelt, for example, issued a massive 3,522 executive orders over the course of his presidency. Nixon, in comparison, issued 346, Bush 291, and Obama 276. The nature of such orders varies massively, but some have had extensive implications for policy.

Of course, the Constitution ensures the scope of executive orders has boundaries. Indeed, members of Trump’s own party have felt the need to emphasise that he will be constrained from overstepping his limits.

The scope of presidential power has been stretched… with some presidents relying heavily on executive orders to act alone, without the approval of Congress

“I still believe we have the institutions of government that would restrain someone who seeks to exceed their constitutional obligations”, Senator John McCain was quoted as saying in The New York Times. “We have a Congress. We have the Supreme Court. We’re not Romania – our institutions, including the press, are still strong enough to prevent [unconstitutional acts].”

Rather than giving presidents full reign over policy creation, executive orders work within limits that are largely set by Congress. The specific scope of a president’s ability to act unilaterally varies depending on the agenda item. World Finance spoke to Manfred Elsig, Professor of International Relations from the World Trade Institute, about Trump’s signature policy issue: trade. He explained: “Generally, when we are talking about tariffs, the prerogatives are with Congress. But over time, Congress has delegated certain powers to the president.”

Thus, while the powers to levy tariffs officially lie with Congress, a series of scenarios allow the president to single-handedly levy them. One example is the Trading With the Enemy Act of 1917, which allows the president to regulate, prevent or prohibit the importation of any good during times of ‘national emergency’.

From a common sense perspective, this would be difficult for Trump to invoke with regards to levying trade tariffs on countries such as China. However, there would be precedent for such an act: in 1971, President Nixon used the Korean War (which effectively ended in 1953) to justify the brash move of imposing tariffs of 10 percent on all imports. Even so, Elsig emphasised that, in drawing on this delegated power, Trump would be on “legally shaky ground”, and could be taken to court for acting outside the scope of his constitutional powers.

Donald Trump has signed a number of executive orders since becoming President

Cowed by Congress
This is not the only way Trump’s taste for invoking his executive power could run in to difficulties. Hudak emphasised that, even if Trump stays within the limits of his presidential power, he could still spark tensions with Congress: “There are responses even to those unilateral powers… Congress can reject what the president is doing in many circumstances. And you will see that that will be part of the norm if Donald Trump starts to disrupt global capitalism.”

Furthermore, the bulk of Trump’s broader plans would have to be formally ratified by Congress, including a wider tariff plan, a new deal with NAFTA, a fiscal stimulus, deregulation and tax changes. Across such rulings there will be plentiful instances when Trump’s agenda diverges from the interests of his party.

Hudak explained: “When someone from the party proposes something that is outside the mainstream of that party, then it is very difficult to get through. That is true if it’s a freshman Congressman or the President of the United States. And so, as the President begins to push policies that may be more liberal – like his views on trade – he is going to run into a brick wall in Congress.”

While Trump is working with a Republican majority, he must contend with the fact that his own party is notoriously pro-business. Many aspects of the President’s programme will appeal to them for this very reason – for example, deregulation, and corporate and income tax cuts will likely be well received – but many of his policies are alarming to the business community: in particular, his protectionist approach to trade and immigration, which is coupled with the added uncertainty that accompanies his erratic temperament.

Hudak told World Finance: “I think that at some point in the near future we are going to see that tension come to a head – we are going to start to see the business community work their very well developed and powerful connections with Congress in order to get to the president.”

Another key example of where Trump’s policies diverge from Republican orthodoxy is his plan for large-scale fiscal stimulus. Promises of extensive tax cuts together with a stimulus package were responsible for a rally in the dollar upon Trump’s election victory, yet Republicans have always been keen to rein in public spending. While his full plans are yet to be clarified at the time of going to print, the experiences of his predecessor do not bode well for Trump. According to Hudak: “President Obama, in the deepest days of the Great Recession, with a supermajority in the Senate and a tremendous majority in the House, couldn’t even get a trillion dollars in the stimulus bill.”

Ultimately, Trump’s promises and policy ideas must be approached with an emphasis on the context in which he finds himself, as well as his style of executive leadership. While his big character and unpredictable ‘rule by Twitter’ approach have instilled a new kind of uncertainty towards the US economy, he will soon realise his actions can trigger powerful reactions – and that there is only so far he can take his agenda alone.

Venezuelan economy runs dry as oil slumps

Posted on by Max Tomlin

Amid the tumultuous political situations in many Latin American countries, for a long time, Venezuela stood out as an exception. Rich in oil, the country boasted a stable, democratic government and a healthy GDP. In fact, between 2005 and 2012 the country boasted an average annual GDP growth of around five percent. According to government figures, poverty in the country fell from approximately 50 percent to 30 percent between 1998 and 2012.

However, since 2014, things have been different. With the price of oil falling from $111 per barrel to less than $40 over the course of mere months, the rivers of black gold that used to carry waves of bolívars into the Venezuelan Government’s pockets completely dried up. Suddenly unable to fund the sweeping social programmes that had destroyed the country’s private sector, the full extent to which Venezuela’s economy had been eroded became clear.

Far worse has been the effect on the Venezuelan people; reductions in poverty have now been reversed (see Fig 1), inflation is accelerating faster than it can be calculated, and shops now lack even the most basic products. The IMF estimated inflation could hit 1,660 percent in 2017, potentially reaching 2,880 percent in 2018. Even more disturbing are the results of the recent Venezuela Living Conditions Survey, which revealed that, due to food shortages, 75 percent of Venezuelans have lost 19lb since the crisis started.

While it may be easy to blame the current situation on the sudden drop in oil prices, Venezuela is alone in suffering a crisis this severe. Other nations that rely on oil exports have certainly felt some economic pressure from the slump, but none are suffering the same horrifying consequences. The situation, rather, can be attributed to decades of economic mismanagement, a surge in populism and a government refusing to admit defeat. Unfortunately there are no simple answers or clear solutions, with little chance of the situation improving in the near future.

Petro-populism
Oil drilling started in Venezuela in 1912 and almost immediately transformed the country. By 1929, Venezuela had become the world’s biggest oil exporter and second largest oil producer. This invigorated the country’s economy, and by 1935 oil accounted for 91 percent of the nation’s export income. But while this boosted the economy, it came at the cost of the country’s other industries.

Miguel Tinker Salas, a professor of Latin American History at Pomona College in Claremont, California, is the author of Venezuela: What Everyone Needs to Know and The Enduring Legacy: Oil, Culture, and Society in Venezuela. Speaking to World Finance, he said the country’s history has significantly contributed to the current crisis: “If you go back and think of Venezuela, for decades it promoted the idea of being the exceptional country in Latin America; of being the country that, because it had oil, had been able to construct a different reality, to view itself as a unique Latin American country. It didn’t have the experiences of scarcity and inflation, and economic crises.

“The current situation is a dramatic reflection of the fact that the oil has not, and will not, produce fundamental change for Venezuela on a long-term basis, and that it cannot sustain an economic development with the dependence on oil that it has had since the 1920s.”

Tinker Salas added that the warning signs that a situation like this could arise existed as far back as the 1930s: “Venezuela had, as I point out in my own book, been a net importer of food since the 1930s, so it never had food sovereignty. It never produced what it consumed.” Such a startlingly high reliance on imports should have set off alarm bells in more diversified economies, let alone one with such a high reliance on a single export.

More equal than others
Inseparable from Venezuela’s current situation is the rise of Hugo Chávez. A former lieutenant colonel in the Venezuelan army, Chávez attempted to mount a coup in 1992 in order to overthrow the government after years of what he perceived as a growing disconnect between the people and an elitist political class. While Venezuela’s economy grew substantially between the 1960s and 1970s, as in much of Latin America, the 1980s and 1990s saw a lot of stagnation. After being jailed for two years following the failed coup attempt, he turned his popularity and reputation as someone willing to stand up for the poor into a successful presidential run in 1998.

His policies aimed to redistribute the wealth generated from oil exports back to the people through generous and expansive social welfare programmes. Charismatic and tremendously popular, Chávez was overall quite effective at decreasing poverty.

While it may be easy to blame the current economic situation on the sudden drop in oil prices, Venezuela is alone in suffering a crisis this severe

Behind the scenes though, these policies proved to be tremendously inefficient and, in many cases, just plain unfair. Tinker Salas said subsidies managed to trickle into almost every aspect of the Venezuelan economy, including unsustainable contributions to education, food, transport and housing. Petrol subsidies reduced costs to lower than the commodity could be produced.

“The ludicrousness of the Venezuelan social and political situation is that not just this government, but previous governments would subsidise middle-class travel abroad”, said Tinker Salas, adding that these policies came from a time when Venezuela thought of itself as a Saudi country in Latin America – rich in oil and able to afford these expansive social programmes.

Dany Bahar is a Venezuelan economist and a fellow in Global Economy and Development at the Brookings Institute. He said Chávez’s efforts were not just limited to social spending, but transformed into a full-fledged war on the private sector. He told World Finance: “When the price of oil was very high, this was completely feasible because the government could control the economy, because it had an infinite inflow of cash from oil. At the same time that was happening there was an increase in regulations, and the government basically asphyxiated the private sector.”

Over the years, regulations tightened and the economy became increasingly locked down, eventually culminating in a coup attempt against Chávez in 2002. Following this, Chávez sought to take a firmer grip on the situation.

1,660%

The level of inflation in Venezuela in 2017 as predicted by
the IMF

75%

of Venezuelans have lost 19lb
in weight since the country’s crisis started

3m+ barrels

Venezuela’s daily oil production prior to the oil
price crash

2.55m barrels

Venezuela’s current daily oil production

“He put his own people in the military, then he put his own people in the Supreme Court”, Bahar explained. “He suddenly got all the different authorities under his power, basically, and while the price of oil was so large and so high for so long, he was indestructible.”

In 2003, Chávez introduced more policies that would contribute to the coming catastrophe. Venezuela implemented an exchange control system that set a fixed exchange rate. Bafflingly, the exchange rate system has since evolved to a state where it now operates on multiple tiers depending on what the currency is used for. With the complex, tangled diplomacy that is required to get access to foreign dollars, people began to find other ways.

“At the beginning it was working very well… but every time that you control a market, a black market emerges”, said Bahar. “So since the beginning there was a gap between the official exchange rate and the exchange rate in the black market, which was about two to three times. Today, this gap is about 1,000 times. And this gap was increasing year by year because, the worse the mismanagement became, the less they could do with the inflow of dollars that was coming in to provide to the private sector.”

Chávez died in 2013, passing on power to then-Vice President and Foreign Minister Nicolás Maduro. Maduro inherited a country with an almost unimaginable dependence on oil and a private sector that couldn’t stand on its own legs. A far less charismatic leader than Chávez, Maduro displayed the same unwillingness to transform Venezuela into an economy capable of sustaining itself, and when the collapse in oil prices began, Maduro’s grip on power began to weaken.

According to Bahar: “Maduro is highly unpopular. He was from the beginning, and even more so today.” However, it is difficult to imagine Chávez faring any better than Maduro currently is; both would have been stuck with the same chaotic system and humanitarian crisis. What could have been different is how the leaders dealt with the power.

State-owned oil
Petróleos de Venezuela (PDVSA), the country’s state-owned oil producer and exporter, is a similarly key figure in the Venezuelan economic crisis. In the 1980s and 1990s, PDVSA was one of the world’s premier oil businesses, capable of operating on the world stage.

However, according to Bahar, following the attempted coup against Chávez in 2002, PDVSA’s management was largely replaced by Chávez’s cronies. Since then, the company’s productivity has gradually fallen. When the price of oil was at its peak, this mattered little. However, in the depths of the global price crash, such a fall in income has scuppered any attempt of rebuilding or re-establishing PDVSA’s oil production capacity. As per the figures release by Venezuela’s oil ministry, production has dropped from a little over three million barrels per day to less than 2.55 million per day.

But despite the current situation, Venezuela’s government has continued to make payments on its debts, particularly those of PDVSA. After issuing bonds and taking loans to fund the company, PDVSA – and consequently the Venezuelan Government – has a debt far beyond what it can afford.

According to a report by CNN Money, Venezuela owes roughly $7.2bn in debt payments. The government had previously been paying this from its cash reserves, but according to the Central Bank of Venezuela, it currently holds only $10.5bn in cash.

“The government has up until now, in fact, contrary to most opposition arguments, actually paid the debt, something that social activism from those on the left critique the government for”, Tinker Salas said. “So the government has been very keen, and that’s something the Chávez administration was also very keen on doing – actually [paying] the debt and [trying] to find other mechanisms to either pay or leverage the debt.” Such payments allow continued relationships with several trading partners, including China, India and Russia.

Bahar said that, should Venezuela default, Maduro’s government would almost surely lose power: “They have been paying religiously to the people in Wall Street, even at the expense of having their citizens dying of hunger. It’s just absurd.”

Venezuelan students protest against the government of President Nicolas Maduro

Management crisis
The Venezuelan Government’s efforts to address the crisis have ranged from ineffective to ridiculous. Orders for a two-day workweek and rolling blackouts have cut back costs, but they are not much more than short-term solutions. To address hyperinflation, the government has been printing extra money; a move any economist would say is the worst thing you can do in such a situation. The desperate efforts by the current government to keep itself in power are only making the situation worse.

Many hypotheticals have been proposed as to how the current crisis could have been avoided. A theory often touted by Venezuela’s opposition party is that more money should have been saved for a ‘rainy day fund’, or that an increase in oil production could have improved the bank balance.

Tinker Salas said neither of these address the fundamental root of the problems facing the country. “First of all, the population has increased dramatically. When Venezuela discovered oil, we’re talking about [a population of] three to four million people – today, we’re talking about 35 million people. Even when Chávez came to power, we’re talking about something like 21 to 22 million.” This growing population naturally means a greater level of consumption, putting an increasingly heavy strain on oil dependence.

Inevitably, we must ask what is going to happen next. The strategy from Maduro’s government appears to be clinging onto power by any means necessary, hoping a rebound in the price of oil will be enough for them to resume the country’s subsidy programmes.

However, Tinker Salas said, even if the price of oil did skyrocket, it would only prolong the situation and fail to address the structural and cultural problems that caused the current crisis in the first place.

Bad policies stemmed from a time when Venezuela thought of itself as a Saudi country in Latin America – rich in oil, and able to afford expansive social programmes

He explained: “It requires… a cultural, social and political reimagining of Venezuela other than simply, as a US state department revealed in the 1950s, ‘a filling station for the US’. It has to be a reimagination of the country… One in which Venezuela has to be able to produce a significant portion of what it consumes. It has to have a completely different orientation where oil is part of an economic arrangement, but it is not the
only dominant sector.”

Bahar said that, in order to continue paying its Wall Street debts, Venezuela could potentially continue to mortgage off portions of its many state-owned businesses. While this may buy some time, it is unlikely to be effective beyond 2018. If Venezuela does default on its debt, what the political and financial situation would look like is very unclear.

In terms of what the global community could do, the options are few and far between. Bahar said: “It’s a question I ask myself every day, because sometimes I’m asked, not only by journalists, but sometimes people from government: ‘What can the outside world do?’ I think that the short answer to you is I don’t know, and I’m not very optimistic.”

A new government in the country is an absolute necessity, although the current opposition is disorganised and weak. Bahar said targeted sanctions on known criminals in government would most likely not be enough to incite change: broad sanctions would be the usual aggressive diplomatic move, but with people already dying of hunger, a ban on imports would only cost even more lives.

While economic collapses and surges of inflation are ultimately temporary problems, Venezuela’s current situation runs far deeper. With no easy answers, the world has little power over the catastrophe, which will surely only worsen before it improves.

Building defences against terrorism

Posted on by Max Tomlin

For the second half of 2016, what was once a casual stroll along Paris’ Champ de Mars became a markedly more stressful affair. In order to secure the site during the Euro 2016 football tournament, fences and security checks were put in place, surrounding the base of the Eiffel Tower and forcing visitors to pass through a gate before they could continue. It’s an understandable concern given recent events; terrorist attacks claimed 328 lives in France between January 2015 and July 2016.

In January 2017, the Paris mayor’s office proposed the construction of a 2.5-metre bulletproof glass wall around the Eiffel Tower as a more permanent solution to the problem of terror threats. The development would prevent both vehicles and people from attacking the site, while still allowing tourists to walk under the structure once they had passed a checkpoint.

“The terror threat remains high in Paris, and the most vulnerable sites, starting with the Eiffel Tower, must be the object of special security measures”, Deputy Mayor Jean-Francois Martins told a news conference, when the €20m ($21m) project was announced. Critics said the project would make the tower look more like a fortress. However fair this criticism, the looming threat of terrorism is too great to ignore.

Modern buildings are now equipped to survive larger strikes from aircraft, and boast much stronger foundations

The fear that public spaces could be turned into disaster sites with no warning is contributing to the future of both architectural design and city planning. From hidden and practical safeguards to entirely rethinking the way that cities are organised, streetscapes and buildings are changing in subtle (and not-so-subtle) ways in order to defend against unpredictable threats.

City planning
The challenge of how to design cities and buildings to resist – or at least discourage – terrorist attacks is one architects have been wrestling with for some time. The question is how to incorporate defensive measures while still allowing the city or structure in question to run smoothly.

Thomas Fisher, Professor of Architecture at the University of Minnesota, told World Finance the issue began to receive greater attention from US architects following the 1995 bombing of the Federal Building in Oklahoma City, and even more after the attacks on the Pentagon and World Trade Centre in 2001: “In the first case, it led to rethinking the landscapes around buildings, with bollards and setbacks being the primary response to stop truck-bombs.” The attack in Oklahoma took advantage of just how accessible many of the US’ government buildings were. Many were located close to the sidewalk, allowing anyone to walk up to the front door.

The incident prompted a number of swift changes. In the month following the attack, a two-block stretch of Pennsylvania Avenue, the location of the White House, was closed to traffic to prevent a similar attack. The General Services Administration also reviewed its regulations and established new standards for buildings. This included requirements that buildings be a certain distance away from the street, use blast-resistant glass, and implement designs that prevent floors collapsing.

In response to the September 11, 2001 attacks, modern buildings are now equipped to survive larger strikes from aircraft, and boast much stronger foundations. While these changes are mostly behind the scenes, more obvious and public security measures have also been taken.

Public security
Now a standard in any urban setting, bollards have become one of the leading recommendations when it comes to establishing permanent defensive structures. With the right construction, a few stumpy pillars can stop a truck in its tracks. In response to criticisms that bollards represent the militarisation of urban infrastructure, many are now disguised as lights, public art, or even planters. However, they do have their shortcomings. “Bollards are effective, but it is hard to defend public streets with them if shared by people and vehicles”, Fisher said.

One recent case in which bollards may have helped was the truck attack on the Breitscheidplatz Christmas market in Berlin. With a run up of 80 metres, a truck crashed into the crowded stalls, killing 12 people. While bollards may have been able to stop the truck, the site would have been far less accessible in the months when the Christmas market wasn’t there. The same could be said for the attack in Nice on Bastille Day 2016: bollards may have been able to stop the truck, but without knowing a specific target or location, fortifying an entire city is impossible without altering it beyond recognition. There is also the danger that excessive urban protection measures could slow down emergency response times.

There is a danger that excessive urban protection measures could slow down emergency response times

“A raised steel plate in the street, able to be lifted during events in which the street has a lot of pedestrians, and lowered flush with the street surface other times, is one way of accommodating both”, said Fisher, adding that Bourbon Street in New Orleans is already using such a system effectively.

Bourbon Street is located in the heart of the New Orleans French Quarter, and is home to countless bars. The street is a year-round tourist hotspot, but gets seriously crowded during Mardi Gras. In January, in light of the attacks in Berlin and Nice, New Orleans unveiled a $40m citywide public safety plan. As well as more security cameras and better lighting, the plan involved the installation of a rising steel barrier to limit vehicle access to the street.

These devices are common sights in the car parks of government buildings or embassies, but their use on the average street is uncommon. According to The Times-Picayune, New Orleans’ Director of Homeland Security Aaron Mille said the barriers are a more efficient solution than regularly closing the street with temporary barriers or police cars.

Digital haven
While defensive edifices (such as the proposed wall around the Eiffel Tower) and street-blocking structures are becoming more common, they do not make targets unreachable. Fisher said these efforts have the potential to backfire, and may even be regarded as a challenge by attackers.

“A bulletproof glass wall might stop gunfire, but what is to stop a terrorist lobbing a grenade over the wall or dropping something from the Eiffel Tower?”, he said. “There is no end to the possible ways that terrorists can cause terror, and so our response needs to be: first, refuse to be terrorised since the chances of dying at the hands of a terrorist are much less than, say, a lightning strike; and second, stop creating targets that tempt terrorists because of the publicity an attack there can create.”

In an article published on the Conversation website, Fisher argued that what could prevent or limit an attack was a rethinking of urban structures in more distributed ways. While a single large office building can be seen as a gigantic target, attacking a distributed and spread-out network of buildings would require substantially more effort. One example of more resilient design Fisher mentioned is the souk; a traditional marketplace common in the Middle East.

“We have designed cities to be full of targets, concentrating people doing a certain activity or working in a particular organisation in large buildings that become vulnerable to terrorism, either via a direct attack from a plane or truck-bomb, or via an indirect or distant attack that might, for example, bring down the power grid.”

We need to question the wisdom of concentrating people as we have in the past and consider a distribution strategy that is more resilient

The souk, on the other hand, is a connected maze of markets and can survive an individual attack. While a single incident may disrupt a number of shops, it could only ever affect a fraction of the market as a whole.

According to Fisher, the internet presents such an opportunity for keeping businesses safe: “In the digital age, when people can live and work remotely and when people can use a diversity of semi-public places to work and meet – libraries, coffee shops, co-working spaces – we need to question the wisdom of concentrating people as we have in the past and consider a distribution strategy that is more resilient, not only in the face of terrorist threats, but also in terms of energy use and community health.”

Rethinking society
Fisher believes that, in terms of terrorism and architecture, we are now at a fork in the road. “We can continue to turn our built environment into a set of fortress buildings, with pervasive surveillance and great distances between structures and streets, or we can respond more creatively by rethinking how we live and work, and by asking the most important question of all: ‘What has led to terrorism, and what can we do to mitigate the conditions that cause people to want to enact terror?’ The latter will be the only permanent solution, and will be much less costly than what we are doing now.”

While the more immediate responses to the growing threat of terrorism are likely to be the installation of blast proof windows, retrofitting older buildings is not entirely practical. Rethinking society in a way that is resilient to disruption, not just terrorist attacks, may be inevitable.