Author: Max Tomlin

Sing the blues: trade disputes and an ageing population are hampering Singaporean growth

Posted on by Max Tomlin

Since 2018, global growth has been hampered by the ongoing trade war between the US and China. But while this high-profile clash continues to make headlines around the world, it is just one of many disputes causing long-held trade agreements to crumble: for instance, diplomatic tensions have re-emerged between Japan and South Korea, and at the time of World Finance going to print, the UK’s future relationship with the EU remains uncertain.

These compounding forces have led the IMF to slash its growth forecasts for 2019 and 2020, with the organisation stating in July that trade disputes continue to “sap confidence, weaken investment, dislocate global supply chains and severely slow global growth below the baseline [rate]”. According to Vishnu Varathan, Head of Economics and Strategy at Mizuho Bank, these impacts have already begun “reverberating through more channels than was initially anticipated”. One major casualty is the small city-state of Singapore.

Recession risk
Since Singapore declared independence from Malaysia in 1965, the nation’s economy has boomed. In that time, the city-state has claimed one of the highest rates of GDP growth around the world, registering an average increase of 7.7 percent per annum (see Fig 1), according to the World Bank. In the first two and a half decades of independence, the economy grew even faster, recording an average rise of 9.2 percent per year.

Perhaps most notably, Singapore has flourished as a financial hub, boasting one of the world’s best regulatory environments for business. In 2019, the country was recognised by the Switzerland-based International Institute for Management Development as the most competitive economy in the world, due to its favourable immigration laws, strong technological infrastructure and highly skilled workforce.

But with one of the busiest ports in the world, the South-East Asian nation’s economy relies heavily on exports. “Where trade is a means to get goods from A to B for most countries, it is a direct source of income for Singapore,” Robert Carnell, Chief Economist and Head of Research for Asia-Pacific at ING, told World Finance. In fact, according to World Bank data, trade represented 326.2 percent of GDP in Singapore in 2018. “[A] global trade slowdown… is a considerable hit to Singapore’s trade hub role in South-East Asia,” Carnell added.

Unfortunately for Singapore, the simmering trade dispute between the US and China is unlikely to end any time soon, with US President Donald Trump blacklisting (albeit with temporary exemptions) Chinese telecoms firm Huawei and announcing fresh tariffs on $300bn worth of Chinese products in August. And even if Trump were to be ousted in the 2020 US presidential election, Carnell believes a change of leader would not be unambiguously positive for global trade: “What happens next is an open question. Tariffs may be here to stay.”

This prognosis is bad news for Singapore, which recorded its slowest annual rate of growth for a decade in Q2 2019: according to Singapore’s Ministry of Trade and Industry, GDP grew by just 0.1 percent year on year, significantly slower than the 1.1 percent growth that had been registered in Q1. On a quarterly basis, GDP shrank by 3.4 percent. Singapore’s non-oil exports, meanwhile, dropped by their greatest margin for more than six years in June, marking a fourth month of consecutive decline. According to Enterprise Singapore, exports of non-oil products fell by 17.4 and 11.2 percent in June and July respectively when compared with the previous year.

In the short term, Carnell expects economic growth to remain “very sluggish” at a rate that is “well below two percent, and nearer to one percent – if that”. In fact, Singapore cut its 2019 GDP forecast to between zero and one percent, down from 1.5 to 2.5 percent. The IMF, which also trimmed its expectations in July, was slightly more optimistic with a prediction of two percent growth, down from its earlier forecast of 2.3 percent.

With the economy teetering on the edge of recession, Varathan told World Finance that the situation cannot be ignored any longer: “If the trade conflict takes a turn for the worse, then 2020 recession risks start rising.”

The chips are down
Trade troubles have heaped pressure on Singapore at a time when one of its pillars of economic strength, the semiconductor industry, is already faltering. Electronics manufacturing is an important source of economic growth in Singapore: according to the government’s Economic Development Board (EDB), the industry generated $64.8bn in 2015, accounting for more than 31 percent of its total manufacturing output. The industry also employed more than 68,000 workers that year, or 17 percent of Singapore’s total workforce.

Unfortunately for Singapore, the simmering trade dispute between the US and China is unlikely to end any time soon

Singapore is responsible for manufacturing a significant portion of the world’s memory chips, microprocessors and other electronic components, with the EDB calculating that the country’s semiconductor equipment output accounts for approximately 20 percent of the global total. These parts are then shipped out to be used in mobile phones, computers, televisions and cars, as well as many other everyday products.

The sector has enjoyed explosive growth in the past, but the non-profit organisation World Semiconductor Trade Statistics (WSTS) predicted the global semiconductor market would shrink by 12.1 percent in 2019. This decline follows year-on-year growth of 21.6 percent and 13.7 percent in 2017 and 2018 respectively. While the WSTS expects the sector to grow by 5.4 percent in 2020, slowing demand and trade tensions have already led chipmakers in Singapore to reduce production and begin cutting hundreds of jobs, according to an investigation by Reuters.

For instance, John Nelson, President and CEO of UTAC Group, a Singapore-based company that assembles and tests semiconductors, told Reuters the firm’s consolidation process could result in a 10 to 20 percent drop in its local headcount. According to Reuters, local media even reported that AMS, a chipmaker that supplies Apple, had cut as many as 600 jobs in Singapore. Carnell warned that this downturn could worsen as the slump spreads to other industries: “The bulk of the pain right now is in tech, but it is not totally isolated.”

Varathan also expects job cuts to seep beyond the semiconductor industry: “In today’s context, the tech sector job cuts could expand.” He told World Finance that the “cascading effect” of the convergence of numerous trade conflicts around the world could lead to a supply chain backup, causing job losses to start spiralling. With the decline forcing companies to hold back on spending and hiring, Singapore’s continued drive for digitalisation and streamlining will only exacerbate the downturn. “A widening job shock could very well be something that stares us in the face, rather than being a distant risk,” Varathan said.

Others are more optimistic about the immediate future of chipmakers. In an interview with Reuters, Lim Kok Kiang, Assistant Managing Director of the EDB, said the nation remains competitive in the electronics manufacturing sector and has even attracted new investment. Meanwhile, Ang Wee Seng, Executive Director at the Singapore Semiconductor Industry Association, told World Finance that the current bout of slow growth is different from previous downturns in the market, in that demand effectively still exists. The growth of 5G, the Internet of Things and automobile technology will continue to fundamentally drive demand even as trade tensions and supply chain issues mask it.

“The slow growth is happening because of the lack of confidence by the consumer and because of the trade war and trade tensions – that’s why we’re seeing a slowdown,” Ang said. As such, he believes widespread retrenchment and shutdowns are unlikely “because, technically speaking, there is still business”.

With an older population equating to a shrinking labour pool, Singapore will be charged with maintaining economic growth as its workforce dwindles

Silver tsunami
On top of the worsening environment for international trade and the downturn in the semiconductor industry, Singapore faces structural hurdles to growth, including a rapidly approaching demographic time bomb. In recent decades, the city-state has experienced both a sharp decline in fertility and large gains in longevity. According to the Singapore Department of Statistics, the country has one of the world’s highest life expectancies at 83.2 years, while its fertility rate stands at just 1.14.

In its 2017 World Population Ageing report, the UN said Singapore’s population would continue to skew older: “The Republic of Korea and Singapore… are projected to see the largest change in the proportion of persons aged 60 years or over between 2015 and 2030, with increases of about 13 percentage points.” UN data also shows that the median age of Singapore’s population is expected to climb to 46.8 years by 2030, up from 39.7 in 2015 (see Fig 2). By 2050, the number of citizens aged 60 or over is forecast to grow by 137 percent, the report said.

With an older population equating to a shrinking labour pool, Singapore will be charged with maintaining economic growth as its workforce dwindles. To address this, the government has embarked on a programme that prioritises innovation and the upskilling of workers. “Singapore is trying to re-engineer itself as a tech and innovation centre,” Carnell said. “Considerable resources are being aimed at this – from education to infrastructure. [But] in my view, it is very hard to legislate for innovation.”

Ang told World Finance that Singapore’s workforce training programmes are more important than ever: “If anything, [the economic slowdown creates a] bigger objective for companies to upskill their workforce.” Varathan, meanwhile, said retraining programmes are likely to help ease some of the pain of Singapore’s headwinds, but believes they will not be enough on their own: “We have to be very clear – reskilling, upskilling and all of this will help to smooth out the transition, but it wouldn’t completely eliminate the job losses that come about. It is a case of some kind of pain relief.” With the “colliding forces” of greater digitalisation and trade conflicts creating uncertainty around hiring, Varathan said: “It’ll be very difficult to fully address and mitigate against the confluence of challenges.”

Fortunately, Carnell thinks Singapore is “far from helpless” when it comes to taking steps to provide a fiscal stimulus to the economy, as it has one of the world’s largest war chests of reserves to draw upon. He did, however, concede that “strong construction activity in recent years makes the possibility of speeding up infrastructure spending… very difficult”. It is more likely that relief will come in the form of tax breaks for companies providing employment and investment, or for individual incomes as a way of stimulating spending.

In fact, when polled by Reuters in July, seven of 11 economists believed Singapore’s central bank, the Monetary Authority of Singapore (MAS), would ease monetary policy at its biannual meeting in October – an event that had yet to take place at the time of World Finance going to print. MAS, which manages Singapore’s monetary policy by adjusting the exchange rate of the Singapore dollar rather than changing interest rates, tightened monetary policy twice in 2018 by raising the slope of its currency band, causing the Singapore dollar to appreciate. Carnell expects MAS to move to a neutral currency path from its current moderate appreciation. Such a decision, however, could be influenced by any developments to ongoing trade disputes.

The long game
Singapore often acts as a bellwether for the global economy, meaning any bad news for the country is likely to be just a small sign of what’s to come elsewhere. Some, however, view Singapore’s current economic woes as nothing more than a temporary setback, with foreign direct investment (FDI) continuing to flow into the nation.

According to the UN Conference on Trade and Development’s (UNCTAD’s) World Investment Report 2019, FDI inflows reached $78bn in 2018, up three percent from 2017. The city-state was the fourth-largest recipient of FDI last year – behind only the US, China and Hong Kong (see Fig 3) – largely as a result of robust investment in services and a rise in cross-border mergers and acquisitions.

In July, Lin Nguyen, an analyst in South-East Asian regional security who primarily focuses on economic and political activity, wrote in support of the country’s ability to bounce back in the South China Morning Post: “Official opinions that the country is not on the verge of recession are reassuring and underscore its economic fundamentals, making Singapore well-suited to weather any approaching storm.” In fact, even those who believe Singapore faces a bumpy road in the next few years expect the country’s long-term prospects to remain bright. “If Singapore were an equity, not a country, you wouldn’t call it a growth stock right now, but you would consider buying it from a value perspective,” Carnell said.

Slower growth and lower productivity are simply symptoms of Singapore’s transformation into a developed economy. “To some extent, Singapore simply has to get used to it,” Carnell said. “It is now more of a two percent [GDP growth] economy than a three to four percent GDP [growth] economy. That [comes] with development.”

Varathan echoed this sentiment, explaining that Singapore’s neutral growth rate could remain at around three percent moving forward – much lower than the previous average increase of 7.7 percent cited by the World Bank. “Insofar that we don’t compare [it] to the pre-global-financial-crisis days, I think growth will start picking up again in Singapore,” he said. With the property market gaining ground and fintech offering a vibrant space for further innovation and development, Singapore’s prospects do not look so gloomy after all. What’s more, the broader digitalisation drive that the government is leading “would automatically see some spending [and] some jobs [introduced]”, Varathan explained.

Although demographic challenges will remain a constant constraint for Singapore, the technological advances expected to sweep through the global economy in the coming years will provide a sure-fire boost thanks to the country’s grip on the global tech sector. “One day, when 5G becomes more of a reality, Singapore’s tech-ready, innovation-focused economy really will fly,” Carnell said. While these gains may still be a few years off, he added: “There is a period ahead of several years of extremely buoyant growth.”

Today’s economic environment poses a number of challenges to Singapore’s export-reliant economy, but while growth may continue to be hindered by trade wars in the short term, the nation’s long-term approach points to a brighter future. “[Singapore’s] future earnings are not reflected in the current market price [of GDP or the Singapore dollar],” Carnell said. “But as long as you have the patience of Warren Buffett, owning [a stake in] it for the long term could be extremely profitable.”

Crimea doesn’t pay: assessing the economic impact of Russia’s annexation

Posted on by Max Tomlin

In the early hours of February 23, 2014, as most of Moscow lay sleeping, Russian President Vladimir Putin sat in the Kremlin among his most trusted advisors. The political situation in Ukraine had become increasingly volatile, and Russia could not sit back and allow the crisis to simply run its course. Putin ended the meeting with a bold proclamation: “We must start working on returning Crimea to Russia.” A little over three weeks later, he had achieved his goal, with both states signing the Treaty on Accession of the Republic of Crimea to Russia.

In the five years that have passed since Crimea rejoined the Russian Federation, the peninsula’s economy appears to be showing few ill effects. On the contrary, things are going better than ever: in Q1 2019, Crimea grew faster than any other region in Russia. Sevastopol, a city within Crimea that Russia administers separately, followed in second place.

The peninsula’s success, however, is a little misleading. Since 2014, Moscow has pumped huge sums of money into the Crimean economy, funding a number of large infrastructure projects of dubious value. This expenditure has not only created the pretence of prosperity – it has also proved a monumental drain on Russia’s finances at a time when international sanctions are beginning to bite.

Paint the town red
In March 2019, thousands paraded through the streets of Crimea’s capital, Simferopol. They recited songs celebrating five years since the region’s reunification with Mother Russia, wore Cossack costumes and proudly waved Russian and Crimean flags above their heads. The celebrations, which lasted four days, were deemed to be of such importance that Putin himself attended.

If the West is intent on isolating Crimea, the peninsula will have to look eastward instead

The festivities were not simply an outpouring of nationalist fervour, though: for many in Crimea, things seem to have genuinely improved since the peninsula came under Moscow’s control. On paper, they certainly have: according to reports from Russian media company RBC, Sevastopol’s construction sector expanded by 70.9 percent in Q1 2019, while Crimea’s swelled 20.7 percent. Manufacturing in the two regions also grew by 5.2 and 20.2 percent respectively.

“According to [the Russian Federal State Statistics Service (Rosstat)], in terms of… growth in manufacturing production between 2014 and 2017, Crimea and Sevastopol were the champions,” Alexander Skorobogatov, a professor at the Higher School of Economics in Saint Petersburg and author of a blog entitled Economics and Applications, told World Finance. “Subsidies have played an important role, but… the state’s promotion of the peninsula as a health resort and the ongoing infrastructure projects heavily contribute, too.”

Economic growth has predominantly been fuelled by large-scale developments like the 18.1km-long Kerch Strait Bridge, which opened in May 2018 and cost $3.7bn to build. Other projects include a pipeline supplying natural gas from Krasnodar Krai, a new passenger terminal at Simferopol International Airport and the yet-to-be-completed construction of the Tavrida highway.

“The infrastructure projects – the new bridges and roads – induce… construction and related industries,” Skorobogatov said. “In addition, the state supports the agricultural sector, which leads to growing outputs. Tourism, after some decline because of lower visitor numbers from Ukraine, is now recovering. This, in turn, boosts the wholesale and retail industries.”

And while Crimea has suffered from significantly reduced trade with its European neighbours – Ukraine formally ceased all trade with the peninsula in 2015 – the region has forged workarounds, usually involving the Russian port of Novorossiysk. New export opportunities are also being explored: for instance, Russia has plans to build a grain terminal in Crimea that will reportedly increase shipments to Syria fivefold. Moves like this will help plug the economic gap to an extent, but bigger prizes are also being targeted. Collaboration with China is one major consideration, particularly given its Belt and Road Initiative. If the West is intent on isolating Crimea, the peninsula will have to look eastward instead.

From Russia with love
While the Crimean economy has done well on a surface level since its annexation, the region has received more than a little bit of help. Huge subsidies from Moscow have been a mainstay since 2014, fluctuating between $1bn and $2.7bn per annum (see Fig 1). These figures are not necessarily putting a significant strain on Russia’s economy, which is the world’s 12th-largest by nominal GDP, but they do appear to be contributing to a slowdown (see Fig 2).

Just a few months after Crimea formally rejoined the Russian Federation, Moscow launched a programme called the Socioeconomic Development in the Republic of Crimea and the City of Sevastopol. The initiative has a budget of RUB 669.6bn ($10.06bn), 95.9 percent of which comes directly from Russia’s federal budget.

Inefficiencies quickly became apparent, though. Keen to capitalise on the sense of patriotism spreading among ethnic Russians living on the Crimean peninsula, Russia drafted and implemented its federal programme rapidly after completing the annexation – perhaps too rapidly. Budgets were exceeded, targets were missed and, of course, any money being funnelled into Crimea could not be spent on the rest of the Russian Federation.

In 2017, only 10 new roadways were built across what is the world’s largest country by land area, in spite of the fact that it was gearing up to host a global showpiece event in the form of the 2018 FIFA World Cup. In fact, Russia has long lagged behind western states when it comes to infrastructural development. According to World Highways data, the country’s high-speed road network covers just 5,000km at present. By comparison, Germany, a country some 48 times smaller than Russia by land area, boasts around 13,000km.

“The subsidies are made at the expense of the rest of the Russian economy, but relatively, this should not be too burdensome,” Skorobogatov told World Finance. “The statistics suggest that a lot – if not the majority – of Russian regions depend on subsidies, and the Crimean peninsula is no exception. As for the attitude of Russian citizens, public opinion polls repeatedly report positive moods as a whole regarding the peninsula.

“People normally treat the situation with Crimea as one where the state has taken necessary and fair action to protect the people there and return territories previously lost due to policies that are now considered deeply fallacious and unfair. Therefore, Russian citizens believe it is a worthwhile sacrifice, especially since the sacrifice is not that great.”

Although still largely positive, the outlook throughout the rest of Russia has deteriorated as citizens have seen money that could have been used in other regions consistently pumped into Crimea. Research undertaken in March by Russia’s Public Opinion Foundation found that only 39 percent of citizens still believed that the annexation caused Russia more good than harm, down significantly from 67 percent in 2014.

“The prodigious sums spent on the Kerch Bridge have been criticised; not so much the subsidies to the Crimean economy,” explained Professor Philip Hanson, an associate fellow of the Russia and Eurasia programme at Chatham House. “Now that the ‘Crimean consensus’ in Russia is beginning to fade, one might expect more such criticism. Meanwhile, special treatment for Crimea does not seem to rank high [on] the list of grumbles.”

On the whole, then, public opinion appears to be mixed. As the half-decade celebrations earlier this year demonstrated, many citizens still believe that the decision to reclaim Crimea was the right one. Emotion often trumps economics, and even those based elsewhere in the Russian Federation who have had to watch Moscow pump money into vanity projects across the peninsula may feel it is a price worth paying.

Closing rank
Speaking to World Finance, Hanson underlined the notion that the occupation of Crimea is about more than financial gain: “I can’t think of any economic benefits that Russia might gain from controlling Crimea that would not have been available via friendly trade and investment with an independent Ukraine.” It is not difficult, however, to determine other reasons for the annexation.

In March, more than 500 troops from the Russian Black Sea Fleet’s ground force took part in a tactical exercise on the Crimean peninsula. On July 11, more than 2,000 Russian paratroopers landed at the region’s Naimanskaya military site. These are just two examples of the kind of drills that have become commonplace in Crimea since 2014.

This militarisation has helped Russia maintain an economic stranglehold on the rest of Ukraine. In particular, businesses have found that Russia is creating issues for cargo travelling to and from ports along the Sea of Azov. According to a report by the Financial Times, in the six months or so that followed the opening of the Kerch Strait Bridge in May 2018, the average delay for vessels travelling to the Ukrainian ports of Mariupol and Berdyansk rose from seven hours to more than five days.

The militarisation of Crimea has helped Russia maintain an economic stranglehold on the rest of Ukraine

By May 2019, these hold-ups had been reduced to around 40 hours – an improvement, but still the sort of delay that severely disrupts supply chains and causes businesses to go bust. According to the Ukrainian Government, cargo passing through Berdyansk and Mariupol has dropped by almost 50 percent and 70 percent respectively since Russia’s annexation of Crimea. Russia is using its newfound control of the Kerch Strait to flex its naval muscles and damage Ukraine’s economic interests in the region.

Evidently, ownership of the Crimean peninsula is of military importance to Russia, but this militarisation has also had knock-on effects for the regional economy – both positive and negative. “The military contingent creates a demand for various non-traded goods and thus stimulates the Crimean economy,” Skorobogatov said. “Meanwhile, there are signs of diminishing competition in some industries, such as transport and trade. This follows naturally from larger Russian firms entering the peninsula and replacing their smaller counterparts. This is… part of a broader process going [on] in most of the Russian regions.”

This trend has hit entrepreneurialism hard, with SMEs increasingly being squeezed out. According to a report by The Ukrainian Week, there were 15,553 private SMEs and 116,200 entrepreneurs in Crimea in 2014. By July 2018, these figures had plummeted to 1,382 and 55,328 respectively. As a result, the proportion of the Crimean workforce employed by small businesses has declined from 35 percent to 19.5.

Russia’s militarisation of Crimea has been comprehensive. While the assembled land, sea and air forces may have avoided much active combat, they could hardly be described as defensive. Already they have caused significant damage to Ukrainian trade and reshaped the Crimean economy through their presence alone, with army bases and artillery depots replacing the small businesses that once thrived on the peninsula.

In March, more than 500 troops from the Russian Black Sea Fleet’s ground force took part in a tactical exercise on the Crimean peninsula. This kind of drill has become commonplace in Crimea since 2014

Reduced to ruble
The construction of a bridge crossing the Kerch Strait may have connected Crimea to the rest of the Russian Federation, but in general, the annexation has had an isolating effect on the region. In the aftermath of the seizure, Ukraine severed rail and road links to the peninsula and cut off water supplies. In late 2015, Crimean Tatar activists blew up four electricity pylons in opposition to Russia’s annexation. Ties to the Ukrainian mainland are now significantly diminished compared to where they were before 2014.

The rest of the world is also keen to turn the peninsula into a pariah. The EU currently prohibits the importation of products originating in Crimea or Sevastopol, and bans investment in the two regions. Even the provision of technical assistance is forbidden. The US, Canada and, of course, Ukraine have also imposed economic sanctions on individuals and businesses operating in Crimea. An analysis conducted by Bloomberg Economics suggests that wider sanctions have reduced the size of the Russian economy by as much as six percent in the past five years. Low oil prices have hardly helped.

“Of course, economic sanctions have had an impact on the Crimean economy,” Skorobogatov said. “Among the sectors being affected are tourism, trade, banking, cellular communications, transport, manufacturing – in fact, all industries. Due to the sanctions, even many Russian… firms (from banking and communications) are not entering the peninsula, which, in turn, restricts its development.”

As well as preventing incoming investment, the economic straitjacket that Crimea finds itself in means money that would normally be spent domestically is escaping. Most western companies will not work in the area; if Russian firms cannot supply certain products or services, then people have to leave the region to acquire them.

“For a while, Visa and Mastercard weren’t working in Crimea, and although they are back now, Russian banks have… had to open more branches on the peninsula,” Nataliya Gumenyuk, an international reporter and head of the Hromadske Network, told World Finance. “In Crimea, there are no Ukrainian, Belarusian or… western goods, only those produced in Russia. Online payment systems do not work, so things are not delivered. For sure, any kind of small business connected to international payment systems or importing goods from outside Crimea has had to cease operating. Trade with Ukraine is non-existent. Crimea needs to import everything from Russia, which makes things more expensive.”

Russia’s $1.65trn economy can probably afford to prop up Crimea without much difficulty, but Crimean citizens may start to question whether this is the reality they envisioned when the annexation was taking place. Did they realise that turning towards Moscow meant turning their backs on the rest of the world?

Stuck in limbo
Sound bites emanating from Moscow claim that Crimea is doing better than ever, but economic metrics from the West state that sanctions are biting hard. As is often the case with Russia, it is difficult to know what to believe. It’s true that wages have risen markedly since the annexation, but so too has the cost of living. What’s more, while Crimea and Sevastopol have both grown rapidly, they remain among Russia’s poorest regions.

“Measuring real incomes in Russia as a whole is tricky,” Hanson said. “The official numbers show a net fall in per-capita real disposable incomes for the Russian population between 2014 and the first half of 2019. If real incomes have declined in Crimea, it would be part of a national experience. The same is true of inflation, which touched an annual rate in Russia of 17 percent in 2015. The average money income figures for Crimea and for Sevastopol show them as rising relative to the national average in 2015-18, though remaining below that average figure.”

If Russian firms cannot supply certain products or services, then people have to leave Crimea to acquire them

Perhaps most troubling of all is the fact that, five years after the annexation took place, the peninsula’s long-term fate remains up in the air. Most of the world still considers it a Ukrainian territory, but Ukrainian citizens must pass through a government checkpoint before making their way to Russian passport control to gain entry into Crimea. Why would businesses, either domestic or international, choose to operate in such a climate of uncertainty?

Although Chinese firms may come to Crimea’s aid, even this is far from guaranteed. Crimea’s population stands at around two million – perhaps not large enough of an incentive for businesses to risk being hit by sanctions at a time when global trade tensions are already inflamed. As a result, the likelihood of the region seeing much long-term investment – outside of what Russia sends its way – remains slim.

The wider corporate world may have taken a dim view of Russia’s annexation of Crimea, but that isn’t necessarily representative of the opinions being voiced on the streets of Simferopol and Sevastopol. “Surveys repeatedly show that the vast majority of Crimean citizens are happy about rejoining Russia – this mood has remained consistent,” Skorobogatov said. “My personal experience of talking with people from the peninsula is fully in line with the results of these polls.”

Gumenyuk has a different view, however: “No, I wouldn’t agree that there is optimism. I was in Crimea during the ‘anniversary’ and, yes, there was a small group of pro-Russians, but this is a marginal group. Most of the people are simply trying to adjust to the new reality of living in Crimea.”

Disinformation, unpredictability and confusion help explain why such opposing observations can exist alongside one another. These three strings of Putin’s political bow have proved hugely effective at catching the West off guard; they’re less successful when it comes to attracting investment. In Crimea – where the economy is concerned, at least – it appears there is more work to be done.

A defensive investment: the rise of multifamily housing in the US

Posted on by Max Tomlin

The US multifamily housing sector has long been characterised by robust cash-on-cash yields and low volatility, offering a defensive investment alternative throughout economic cycles. It has also been buoyed by strong demand dynamics from a large and growing renting population in the US, with renting being the preferred housing option for Millennials and Generation Z due to a number of social and economic factors. These include delayed marriage and childbearing, as well as a desire to maintain mobility and not be tied down to long-term mortgages.

Over the past few years, the renting population has faced an almost perfect storm: despite the long economic growth cycle, wage gains have been mostly modest and have not matched rising home prices; climbing student debt has prevented new graduates from saving for a down payment on a house; and the housing market’s high construction costs have pushed developers away from delivering starter homes to the market. Unfortunately, these trends look set to continue in the coming decade.

In the aftermath of the global financial crisis, markets reverted to requiring the typical 20 percent deposit on home purchases; consequently, the relatively dire economic situation faced by young adults has reduced their ability to qualify for home loans. According to the US Census Bureau, these factors have seen US homeownership rates drop to 64 percent from pre-crisis peaks of 69 percent, while ownership for young adults has reached near-record lows. Over the past couple of years, demand for rental housing has continued to exceed new supply, with net absorption increasing and rents continuing to rise. Despite high deliveries, occupancy rates remain high at 96 percent, according to figures released by the CBRE Group for Q2 2019.

The relatively dire economic situation faced by young adults has reduced their ability to qualify for home loans

Multifamily housing benefits
At SFO Group, we particularly favour the multifamily sector due to its resilience in a downturn, especially the mid-level (Class B) component of it. During the global financial crisis, occupancy decreased to a very acceptable level, while uninterrupted rental incomes of reasonably indebted assets allowed for debt repayment and undisrupted operations.

Multifamily housing also benefits from three aspects specific to the sector: first, there are the federal government’s agency programmes, which supply the market with steady financing on more favourable terms than the private market. Second, there is a shorter depreciation period for residential investment assets. And finally, the one-year leases that are typical of multifamily housing allow rents to rapidly adjust to changing market conditions, providing an effective hedge against inflation and rising interest rates.

With investors increasingly needing to optimise their asset allocation – especially in the later stages of the economic cycle – SFO Group’s US multifamily housing strategy continues to garner interest. Launched in 2016, it caters primarily to investors who seek to earn long-term, risk-adjusted income streams, and provides a hedge against potential inflation. Following a top-down approach, we focus on large, non-gateway cities across the US that exhibit defensive characteristics and sustained growth, and identify strategic locations within these cities – these are typically in areas with major employment and transportation hubs. Further, we focus on high-quality assets within these locations, making acquisitions at a discount to allow for value to be added by way of renovation, thus delivering both current income and capital appreciation.

Finding the right locations
Our geographical focus covers cities that benefit from low costs of living, have business-friendly and competitive fiscal environments, are home to leading universities, and offer a large talent pool. We particularly favour the south-eastern region of the US, which has seen high population growth (buoyed by domestic migration) and has posted the country’s strongest multifamily performance metrics. A case in point is Dallas, Texas, which is leading the nation in terms of employment growth. As such, we currently own more than 1,300 units in the city.

Another key location is Atlanta, Georgia: home to 16 Fortune 500 companies, Atlanta positions itself as the economic powerhouse of the south-east and is one of the top US markets in terms of job creation. With this in mind, we acquired approximately 500 units close to Hartsfield-Jackson Atlanta International Airport, which is one of the world’s busiest airports and the city’s largest employer. The Washington DC metropolitan area is also an interesting proposition, with high levels of absorption (supported by strong population growth), an increasingly diversified economy and a slower development pipeline pushing rents higher.

In line with our strategy, our acquisitions in this sector focus on delivering a defensive alternative to investors. Overall, SFO Group’s US multifamily housing portfolio exceeds 3,000 units and is spread across the states of Florida, Georgia, Kentucky, Ohio and Texas, providing a stable and well-diversified source of income for investors.

On the money: why Ross McEwan can take National Australia Bank forward

Posted on by Max Tomlin

“Banks need to come back and focus on those core customers, and that will generate a lot more competition in this market”

Ross McEwan

Ross McEwan is known as something of a firefighter in the financial services sector. Throughout his two-decade-long leadership career, the Kiwi banker has been called upon to extinguish blazes in some of the world’s most embattled institutions.

McEwan’s most famed achievement to date has been his transformation of the Royal Bank of Scotland (RBS), which the bank’s chairman called “one of the biggest UK corporate turnarounds in history”. When McEwan took up the role of CEO in 2013, the lender was floundering in the wake of a £45.5bn ($56bn) bailout that left the UK Government with an 80 percent stake. Just five years later, RBS has become a profitable enterprise once again and has recommenced dividend payments to shareholders – all on McEwan’s watch.

He now faces a similar challenge, this time closer to home: in July, it was announced that McEwan would replace Philip Chronican as CEO of National Australia Bank (NAB). The bank has seen its fair share of regulatory trouble in recent months, having been singled out as a perpetrator of bad banking practices in a report by the Royal Commission. But with his impressive arsenal of crisis-management experience, McEwan is one of few who can put NAB back on solid ground, making him the clear favourite for the top job.

Money over mind
McEwan has always been good with money. “If I put money on a credit card, I pay it off in the month,” he told The Scotsman in an interview in 2017. “I’m a bank’s worst nightmare.” He credits his parents with instilling this fiscal responsibility in him: when he was growing up in New Zealand, his mother would put away every spare penny of her shop assistant salary. His father, meanwhile, was not one to give handouts. “I remember I borrowed some money off my dad and him saying, ‘I want it back’,” McEwan told The Scotsman.

With his impressive arsenal of crisis management experience, Ross McEwan is one of few who can put NAB back on solid ground

Despite his financial prudence, he wasn’t particularly academic, and has described his degree from New Zealand’s Massey University as being “made up of C passes”. He even failed a key accountancy module twice and has since claimed he is “more comfortable with people than figures”. It’s this quality, combined with his penchant for wide-ranging strategic thinking, that facilitated his ascendance to the upper echelons of the Australasian insurance sphere. Less than two decades after graduating, he was appointed CEO of AXA New Zealand, having risen through the ranks at National Mutual, which was acquired by the French insurer in 1995. After six years in this role, he took on the same post at First NZ Capital Securities, the Kiwi affiliate of Credit Suisse.

In 2003, McEwan was headhunted for the top role at the New Zealand retail banking services division for the Commonwealth Bank of Australia (CBA). He jumped at the chance to bolster his institutional banking experience, shifting between retail and wealth management before becoming head of retail banking at CBA in 2007. While in the latter position, he got his first taste of the challenges involved in an entire strategic overhaul, when the 2008 financial crisis severely dampened public confidence in the banking sector and CBA was forced to find ways to restore the trust of its customers.

McEwan did this by improving access to the bank by enhancing mobile services, extending branch opening times and making it easier for customers to access loans. “His leadership of retail banking services has led to all-time highs in customer satisfaction, a strong performance for shareholders and a high level of people engagement,” CBA CEO Ian Narev said of McEwan in 2012.

Feeling the pinch
In 2011, McEwan was tipped for the top position at CBA but narrowly lost out to his friend Narev. This placed him in a difficult spot – he had achieved all he could within CBA’s retail division and wanted a new challenge, but did not want to move to a competitor within the Australian banking market out of loyalty and respect for his current employer. “To me, it was: step away from it, go overseas, try some new things,” McEwan told the Australian Financial Review earlier this year. “RBS was one of the businesses I’d discussed with my wife that actually I thought would be quite a challenge at a retail level to have a go at repairing.”

Many in the UK banking industry would have stared open-mouthed had he made that admission at the time. For the previous five years, RBS had been considered the basket case of the sector. Its troubles began in 2007 when the bank led a consortium acquisition of Dutch lender ABN AMRO for £49bn ($60.3bn). The deal, which was the largest bank takeover in history at the time, wiped out RBS’ capital reserves, leaving the bank dangerously exposed to financial shocks. In April 2008, recognising the fragility of its position, RBS raised £12bn ($14.8bn) through a rights issue, but this did little to plug the hole in its finances. Less than six months later, at the peak of the financial crisis, the bank crumbled and had to be bailed out by the taxpayer to the tune of £45.5bn ($56bn).

Following this, RBS’ troubles were far from over. When the bank was rescued, then-CEO Fred Goodwin stepped down but continued to claim a pension worth £703,000 ($865,000) a year, leading to outcry from investors and the public. His remuneration was subsequently reduced, while in 2012 he was stripped of his knighthood, a dishonour usually reserved for those who have committed a criminal offence.

Ross McEwan in numbers:

2013

The year McEwan became CEO of RBS

$56bn

Value of RBS’ bailout

$924.8m

RBS’ profit in 2018

62%

UK Government’s stake in RBS

It was in this context that McEwan joined the lender as the head of retail banking. During his time in the position, RBS’ reputation was further tarnished by two substantial regulatory fines of £50m ($61.5m) and £390m ($479.9m). The first came as a result of a mass IT failure in June 2012, which left customers unable to access their accounts for days, while the second, in February 2013, related to RBS’ role in rigging the LIBOR rate.

Back from the brink
McEwan inherited a mess when he was promoted to CEO in October 2013. His predecessor, Stephen Hester, failed to return the bank to an even keel, reputationally or financially; the government still owned an 80 percent stake and shares sat at £3.60 ($4.43) each, compared with the 2007 high of £21.51 ($26.48). “When he took on the CEO position, the bank was in a very distressed state,” John Cronin, a financial analyst at Goodbody, told World Finance.

McEwan’s recovery plan began with some tried and tested tactics to improve customer accessibility, such as extending branch opening hours and boosting the bank’s digital offering. In a speech in 2014 announcing the bank’s new strategy, he even attributed the bank’s failure to the fact that it had lost sight of who it was supposed to be serving. “It became detached from the customer-focused values that have to be at the heart of any bank,” he told his audience. McEwan also wound down many of RBS’ international and non-core businesses, reducing the lender’s cost base and paving the way for it to become a more agile institution. When he joined in 2013, the bank had operations in 30 countries, but that number had more than halved to just 12 countries by 2018.

This cost cutting paved the way for the bank’s return to profitability, which it achieved in 2018, posting an annual profit of £752m ($924.8m). It also allowed the UK Government to reduce its stake in the lender to 62 percent, meaning the bank could resume making dividend payments to shareholders. Today, RBS is “very profitable, well capitalised, very liquid, has coped very well with stress tests and should be in a position to withstand a very severe macro shock as a result of the changes that [McEwan] made”, Cronin said. “McEwan has done an exceptional job resuscitating the institution.”

The one main area in which he hasn’t succeeded is on the stock market, as RBS’ share price remained extremely low throughout Mc-Ewan’s tenure despite his restructuring efforts. However, according to Cronin: “When you look at the RBS share price today, relative to where it was 10 or 11 years ago, we’re comparing apples and oranges in terms of the wider environment.” Banks have far greater regulatory cost burdens today, their market position is under threat from disruptive fintech firms, and investors are unwilling to purchase bank shares in the way they would have back in 2007. “McEwan has come under criticism on occasion, but I think it’s almost inevitable when you’re firefighting on a daily basis,” Cronin added.

Repeat performance
Having successfully brought RBS back from the brink, McEwan is now looking to perform a similar feat at NAB. Australia’s fourth-largest bank has come under fire following a report by the Royal Commission that saw it accused of engaging in overly aggressive sales practices and charging customers a staggering AUD 100m ($68.3m) in excess fees. In the wake of the scandal, both NAB’s chairman and CEO resigned, leaving the lender to weather the storm rudderless. “There are some things that need repairing,” McEwan told reporters upon his appointment as CEO. “[But] one of the reasons I’m here is I find strength in those sorts of challenges.”

The Kiwi banker certainly has his work cut out for him. The Royal Commission’s report has stoked the flames of public anger, and NAB has borne the brunt of this given its centrality in the wider market scandal. McEwan must also tackle the bank’s corrupt corporate culture and brace himself for a slew of potential fines. On top of that, he will face macroeconomic challenges: Australia’s impressive GDP growth over the past decade has stalled in recent months, making consistent profitability harder to achieve.

It’s not a role for the faint-hearted, but if anyone is up to the job, it’s McEwan. “He’s somebody who has the experience and the gravitas to deal with both the politicians and the regulators,” Cronin said. “He’ll be able to move forward in terms of taking strategic action, changing governance and adjusting the business’ response to the demands of the environment. It’s an ideal fit.”

Curriculum Vitae

Born: 1957 |  Education: Massey University

1996
Ross McEwan took on his first top management role as CEO of AXA’s New Zealand operations, aged just 40 years old. He remained in this role for six years, before taking the same position at First NZ Capital Securities.

2003
McEwan transitioned from insurance to traditional financial services, becoming group executive for retail banking services at the Commonwealth Bank of Australia, where he was later tipped for the CEO role.

2012
The Kiwi banker swapped his homeland for rainier shores when he joined struggling British lender Royal Bank of Scotland as the head of retail banking. He described the move as “quite a challenge”.

2013
Within a year at the bank, McEwan was promoted to the top job at RBS following the resignation of former CEO Stephen Hester. He guided the lender through the next stage of its recovery process.

2014
McEwan hit the headlines when he told The Telegraph that the UK’s fixation on free-if-in-credit banking must come to an end. He called for banks to be more transparent about their pricing on transactions.

2019
Having nursed RBS back to health, McEwan revealed his plans to return to the Southern Hemisphere and give National Australia Bank, which has been accused of overly aggressive sales practices, the same treatment.

Striking a sour note: why the CFA franc’s days as legal tender could be spent

Posted on by Max Tomlin

Although filmed just two years ago, the video of pan-African activist Kémi Séba setting fire to a 5,000 CFA franc banknote (worth around $8.43) in front of a cheering crowd in Dakar, Senegal, is already a piece of West African lore. By burning the note, Séba, a French national who was born Stellio Gilles Robert Capo Chichi, ignited a tinderbox of anti-French anger. The stunt – provocative and controversial in equal measure – was an embarrassment for local authorities, who swiftly arrested Séba. It also made him a symbol of the struggle against the CFA franc, a currency used in 14 countries across West and Central Africa.

Anti-CFA demonstrations are not rare in these parts of Africa. In 2015, rallies against the currency were held in Cameroon and Togo, and even in France itself, activists frequently travel to the town of Chamalières to protest the CFA franc in front of the mint where the currency is produced. But it was Séba’s stunt that lent a face to a movement that had been simmering under the surface for many years – if not decades.

As Fanny Pigeaud, a journalist who co-authored the book L’arme Invisible de la Françafrique: Une Histoire du Franc CFA with economist Ndongo Samba Sylla, told World Finance, technology turned Séba’s actions into a piece of history: “Séba’s gesture was symbolic, but it had a significant impact on public opinion, thanks to the media and social networks where it was widely shared. Filmed and photographed, it made more visible the fight against the CFA franc that social movements have recently revived.”

A colonial legacy
Two separate currencies share the CFA acronym: the West African CFA franc, which is in circulation throughout the West African Economic and Monetary Union (WAEMU), and the Central African CFA franc, which can be found across the Central African Economic and Monetary Community. Combined, the currencies are present in Benin, Burkina Faso, Cameroon, the Central African Republic, Chad, the Republic of Congo, Côte d’Ivoire, Gabon, Equatorial Guinea, Guinea-Bissau, Mali, Niger, Senegal and Togo. As the French Treasury backs both currencies, they have always held the same monetary value.

Radical critics perceive the CFA franc as an odious remnant of the colonial era that encroaches on the sovereignty of African states

The CFA franc’s troubled history is apparent in its name. From 1945 to 1958, the acronym stood for ‘colonies Françaises d’Afrique’, but the wave of decolonisation that swept through Africa in the late 1950s compelled authorities to swap the controversial term ‘colonies’ for ‘communauté’. Eventually, the two monetary zones picked their own versions of the acronym, with West African countries sticking to ‘communauté financière Africaine’ and Central African ones opting for ‘coopération financière en Afrique centrale’. When French President Emmanuel Macron visited the region in 2017, he hinted that a name change would be welcome, expressing France’s determination to let members of the CFA zone decide the future of the currency for themselves.

Since its birth in 1945, the CFA’s status has been intrinsically interwoven with the economic history of the former colonial power. Following the end of the Second World War, the French franc was sharply devalued to reach a fixed exchange rate with the US dollar and meet the criteria outlined in the Bretton Woods Agreement. The devaluation was challenging for a country that had emerged from the war victorious, but in a far more precarious economic state than before. As a result, French authorities found it impossible to continue supporting the country’s African colonies, instead opting to create a new currency tailored to the economic conditions of Françafrique (French-speaking Africa) and sparing it the impacts of devaluation.

But as critics of the currency claim, what appeared to be an act of economic prudence was, in fact, a well-calculated gambit of the French Government to keep control of its African empire. Not all French colonies trod the same path, however: Guinea ditched the currency in 1959, with Mauritania and Madagascar following suit in 1973. Mali also briefly left in 1962, before rejoining in 1984.

Since France officially joined the eurozone in 1999, the CFA has been pegged to the euro. As such, monetary policy, including the crucial task of setting interest rates, is not designed in Paris (never mind Dakar or Abidjan), but in Frankfurt, home of the European Central Bank. For its part, France guarantees the currency’s convertibility to the euro. In return, the French Treasury retains half of the CFA zone’s foreign exchange reserves, while French officials sit on the boards of both CFA central banks.

Pan-African activist Kémi Séba ignited a tinderbox of anti-French anger when he set fire to a 5,000 CFA franc banknote (worth around $8.43) in 2017

The rise of the anti-CFA movement
For many decades, the CFA’s central position in the region’s monetary system continued unquestioned. Those days are gone: radical critics now perceive it as an odious remnant of the colonial era that encroaches on the sovereignty of African states. Dr Ken Opalo, an assistant professor at Georgetown University’s School of Foreign Service, told World Finance: “The anti-CFA movement is merely a reflection of a growing sense that the decolonisation settlements in the 1960s were not as good as many imagined them to be, and the CFA remains to be a clear expression of that imbalance.”

Dr Cheikh Ahmed Bamba Diagne, Director of the Laboratory for Economic and Monetary Research at the Cheikh Anta Diop University, believes it is a generational, rather than an economic, gap in the world’s youngest continent that explains the rise of the movement: “After 75 years, we can say that this currency has had its day and the continent’s young people want a break with France. That makes sense politically and ideologically, but an exit requires serious preparation to avoid macroeconomic destabilisation. Those opposing the CFA franc do not have technical arguments. [Instead,] they often use the terms ‘sovereignty’ and ‘freedom’ – and rightly so.”

Critics cite a sharp devaluation in 1994 – enforced by the French Government of Édouard Balladur in spite of opposition from a number of African leaders – as an example of the system’s flaws. Although the devaluation was followed by an economic growth spurt, it also sparked social turmoil, reducing purchasing power and increasing public debt. Opponents claim the status quo benefits France rather than French Africa: by keeping half of the CFA’s currency reserves, France finances part of its own debt.

Diagne, however, believes this amount is negligible: “The foreign exchange reserves of WAEMU represent less than 0.18 percent of France’s GDP, so how can they finance France’s debt?” The CFA monetary system also favours French companies operating in the region, with the likes of Castel, Bouygues, Bolloré, Total, Orange and Alcatel being able to avoid exchange rate risks and save on hedging and transaction costs.

While the CFA franc has avoided hyperinflationary episodes, it has deprived countries of learning how to manage a currency

A particularly contentious issue is the currency’s convertibility to the euro, which, according to opponents of the CFA, encourages capital flight. Martial Ze Belinga, an economist and the co-author of an influential book on the currency, told World Finance: “Free movement of capital, which was logical when African countries belonged to the French Empire and constituted a single institutional space, is now the source of tax evasion and outflow of capital that is not favourable for savings.”

The irony, according to Pigeaud and Sylla, is that the French guarantee of convertibility to the euro is practically non-existent – in the French budget for 2018, the amount allocated to the guarantee was zero. “If the French Government does not allocate any funds to honour its pledge to guarantee convertibility, it is because it relies on solidarity between African states through the centralisation of their foreign exchange reserves,” the pair noted in their book. “The currencies of major exporting countries like Côte d’Ivoire and Cameroon make it possible to offset the low levels of countries with fewer resources, such as [the] Central African Republic and Togo.”

From a macroeconomic perspective, critics claim the currency hinders industrialisation, as growth-driven policies are subordinated to the goal of monetary stability. The mandate of the two CFA central banks focuses on defending the fixed parity, effectively limiting the amount of financial credit accessible to African companies. Proponents counter that low levels of industrial development should be attributed to a lack of infrastructure and low productivity, rather than the currency itself.

Dr Abdourahmane Sarr, a Senegalese economist who previously served as the IMF’s macroeconomic advisor to the WAEMU central bank, told World Finance: “To the extent that the exchange rate may have been overvalued, at times it may have helped constrain industrialisation and subsidise imports to the detriment of exports. That was certainly the case before the devaluation of 1994.”

Déjà vu
For many, the currency’s biggest flaw is that it’s overpriced – its peg to the euro makes exports from the largely agricultural economies of the CFA zone more expensive than they should be. This arrangement, Pigeaud and Sylla argue, offers the African middle and upper classes valuable purchasing power, allowing them to buy foreign products that could have been manufactured locally. What’s more, Sylla told World Finance that France adopts a somewhat hypocritical stance when it comes to the eurozone: “French authorities are the most vocal critics of the euro’s overvaluation over the last 20 years. Yet, they always tell African governments that the peg to the euro is good for their economies and provides them ‘stability’.”

Supporters of the CFA claim that the peg – coupled with guaranteed convertibility – strengthens the zone’s attractiveness to foreign investors. According to Sylla, though, » this view is not supported by the data, with the UN Conference on Trade and Development’s (UNCTAD’s) World Investment Report 2019 showing that Ghana received a greater amount of foreign direct investment (FDI) between 2013 and 2017 than all of the WAEMU countries combined (see Fig 1). IMF data also shows that a fixed exchange rate is not necessarily a boon for sub-Saharan African countries: since 2000, those operating with fixed exchange rates experienced lower levels of economic growth than those with a floating currency.

The recent European debt crisis has added fuel to the fire, leading those who oppose the CFA system to question how a currency deemed overvalued for Southern European economies could meet the needs of sub-Saharan ones. “Debates around the euro have played a role, especially in the way critiques of the CFA are received in France, as the currency’s post-1994 architecture mimics the governance framework of the euro,” Belinga said. “Critics of the euro have thus become more sensitive to the issue of [the] CFA franc.”

One such critic is Luigi Di Maio, Italy’s deputy prime minister and leader of the ruling Five Star Movement, who has labelled the currency as a form of exploitation that encourages young Africans to migrate. “France is one of those countries that, by printing money for 14 states, prevents development and contributes to the departure of refugees,” Di Maio, whose party has toyed with the idea of holding a referendum on the euro, said in January.

France’s weak growth over the past decade has also raised questions over its role in African affairs. Douglas Yates, an expert in African politics who teaches at the American Graduate School in Paris, told World Finance: “The impression of France’s continual strength – that is, its ability to dominate through the CFA – [is] a paradox of sorts, [with] France being both too strong and too weak in its former African colonies.”

Serving the elite
Bar some exceptions – such as President of Chad Idriss Déby, who has called for a reform of the CFA zone – local elites are typically in favour of maintaining the status quo. As Pigeaud explained to World Finance: “African elites, especially those in power or aspiring to be in power, do not dare to publicly criticise the CFA franc because they are afraid of retaliation from France. Some of them also benefit from the CFA system thanks to the free transfer of capital, as they can freely invest their assets in Europe.”

Although no credible polls have been conducted on the issue, urban middle classes are thought to be in favour of the currency as it ensures price stability – inflation in the CFA zone rarely surpasses three percent, which is significantly lower than the average of nine percent recorded in the rest of sub-Saharan Africa. CFA countries have also dodged the hyperinflation crises that frequently hit countries like Zimbabwe, whose annual inflation rate stood at 175 percent in June.

“The benefit of the CFA franc for member countries is monetary discipline,” Sarr said. “It helps avoid [the] monetary financing of fiscal deficits [that] would most likely find their way [into] current account deficits.” But for those who reject the current monetary system, the price for stability is too high to pay. Belinga told World Finance that while the CFA franc has avoided hyperinflationary episodes, it has also deprived countries of learning how to manage a currency, including the use of hedging strategies and the anticipation of crises. For Belinga, those who oppose change by invoking the risk of hyperinflation suffer from a “lack of confidence in local [African] management and the irrational fear of assuming sovereignty”.

Eco worrier
If supporters and detractors of the CFA have one thing in common, it’s a shared belief that some kind of reform is necessary. Radicals suggest the use of a new currency that is purely African and unshackled from the CFA franc’s controversial past is the way forward. In fact, many have pinned their hopes on the ‘eco’, a proposed currency that the Economic Community of West African States (ECOWAS) hopes to launch in 2020. Leaders from ECOWAS nations – which include eight CFA countries – met in the Nigerian capital in July to discuss details of the plan, notably the currency’s exchange rate. The currency is expected to boost trade in West Africa by cutting transaction costs and creating economies of scale for exporters and foreign investors. According to BNP Paribas’ CFA Franc: A New Stress Test report, intra-zone trade within the WAEMU currently lingers around 10 percent of total trade flows.

The project is awash with difficulties, though, and has been postponed several times as a result. Like the eurozone, the ‘eco zone’ will include economies with varying degrees of development, making convergence a distant goal. Some economists have also raised questions over the extent to which a common currency would boost trade. As Opalo told World Finance, few countries are ready for such a radical change: “It is highly probable that, come next year, the currency launch will be postponed again. The region’s economies are still not able to support a common currency. Almost none of the countries will be able to meet the fiscal guidelines required.”

For smaller countries, the biggest worry is that Nigeria, which dwarfs all other economies in the region, will dominate monetary policy. In 2018, Nigeria’s GDP was more than three times that of all WAEMU countries combined (see Fig 2). “These fears are warranted,” Diagne said, pointing to the current imbalance within the West African CFA zone that sees Côte d’Ivoire practically call the shots. “The zone’s monetary policy is more in line with the needs of [Côte d’Ivoire] than the rest of the WAEMU members. So what do you think will happen with an ECOWAS currency where Nigeria represents 74.1 percent [of the zone’s GDP] and the remaining 14 countries 25.9 percent?”

Opponents of the CFA franc dismiss these fears as scaremongering. As Belinga told World Finance: “Nigeria is the natural leading country of this region. There is no reason to be alarmed. An irrational fear has been inculcated in the elites of French-speaking Africa against Nigeria and English-speaking Africans. It is time to free ourselves from these colonial complexes.”

Opalo, meanwhile, believes the advent of the eco may be a tipping point in the undeclared war between France and Nigeria for regional hegemony: “If the eco is launched – a big ‘if’ – it will signal a symbolic break with French domination of West Africa. France has always fought Nigeria for supremacy in the region, and the eco would be a significant coup for Nigeria.”

One continent, one currency
The prospect of a purely African common currency has sparked hopes that the whole continent could one day follow in the footsteps of the eurozone and share the same legal tender. One project that charters a path towards such a future is the proposed African Monetary Union, which, under the auspices of the African Union, mandates the establishment of a central bank by 2020, followed by the introduction of a pan-African currency. Critics, though, have continually questioned the feasibility of such a monetary union.

With the continent comprising 54 countries – ranging from the populous Nigeria to the tiny Lesotho; the economic powerhouse of South Africa to the laggard Niger – sceptics fear hopes of African unification are unrealistic. Belinga, however, believes that all hope is not lost and integration is possible, principally because Africans want it: “Paradoxically, the most powerful argument for integration does not lie in the economy, nor politics, but in the strong belief of people in pan-Africanism, which contrasts with the scepticism that always surrounds the idea of a common Europe or a single European currency.”

Changing lanes: the story behind Pininfarina’s self-branded electric supercar

Posted on by Max Tomlin

In the automobile sector, Pininfarina occupies a special position. The Italian design house is responsible for some of the most beautiful cars that have ever graced the roads – the Ferrari Daytona, Cisitalia 202 and Alfa Romeo Spider, to name a few.

In March, Pininfarina made a momentous announcement, unveiling its first own-branded car, the Pininfarina Battista. Not only is the vehicle a thing of beauty (you’d expect nothing less), but it’s also one of the world’s first all-electric supercars. After waiting decades to make such a massive move, Pininfarina pivoted from designer to manufacturer with as loud a bang as possible, producing a vehicle that is nothing short of pure ingenuity.

Describing the Battista, Michael Perschke, CEO of Automobili Pininfarina, told World Finance: “While it looks very modern, it’s still a very classic, timeless look. We have the ambition that in 15 [to] 20 years, the Battista will stand in a couple of car museums and is going to be celebrated as probably the most iconic first [electric vehicle] hypercar ever made and also one of the most classic designs in that segment.”

Building a brand
To understand the prestige associated with Pininfarina, it’s important to reminisce a little. The company’s founder and designer extraordinaire, Battista Farina, who later changed his last name to Pininfarina but was generally known as Pinin (meaning ‘baby of the family’), was born in Cortanze, Northern Italy – the 10th of 11 children. With so many mouths to feed in this rural setting, the family moved to the city of Turin in search of a better life.

Pininfarina has been making history for more than eight decades, recurrently breaking the mould and driving automobile design forward

Growing up, Pinin would often visit his brother Giovanni at his workplace, one of Turin’s many carrozzerias, or car body shops. It was there that he first fell in love with automobiles. In 1910, Giovanni set up his own carrozzeria, Stabilimenti Farina, alongside Pinin and another of their brothers, Carlo. Pinin, who was 17 at the time, was placed in charge of design and publicity. His time at Stabilimenti Farina was invaluable but, after two decades, Pinin decided to go it alone and establish Carrozzeria Pininfarina in Turin.

The business quickly found success. The first official Pininfarina design, the Lancia Dilambda, was showcased at the 1931 Concorso d’Elegance Villa d’Este, a prestigious classic car event. Soon after, Pinin wrote that he had “sold a Dilambda spider cabriolet to the Queen of Romania” and that he had begun “to have some of the nobility [among his] customers”.

With Pinin’s reputation blossoming, he continued to build close relationships with mainstream manufacturers. Pinin then made history with the Cisitalia 202 in 1947, which won first prize at the Concorso d’Elegance Villa d’Este that year. The car was not just a boon for the brand; it put Italian car design on the world stage for the first time. The vehicle even became the first car to be permanently showcased at New York City’s Museum of Modern Art.

Then came the partnership for which Pininfarina is most famous: in 1951, Pinin first met with Enzo Ferrari, founder of the eponymous luxury car manufacturer. They agreed on a location halfway between one another’s headquarters as both men were too stubborn to visit the other’s offices. Commentators said the partnership wouldn’t last; not only did it thrive, it produced some of the most iconic cars in history, with some 200 Ferraris designed by Pininfarina to date.

Expansion followed when, in 1953, Pininfarina began manufacturing complete body designs for high-volume manufacturers, starting with the Peugeot 403. The company’s growth continued, prompting it to move production from Turin to a modern factory in Grugliasco in 1958. The Alfa Romeo Giulietta Spider, another of the design house’s first mass-produced vehicles, was a huge success.

In 1961, Pinin handed the reins to his son, Sergio – Pinin passed away just five years later. Sergio pushed forward with his father’s vision, cementing the company’s relationship with Ferrari. Over the following decades, Pininfarina continued to design beautiful automobiles, but it had never manufactured its own – until now.

Shifting gears
At the end of 2015, the Mahindra Group bought Pininfarina for a reported €25.3m ($28m), an acquisition that signalled a major shift for the brand. The business that Pinin founded in Turin 89 years previously now lives on as “mainly a business-to-business company that sells industrial design and engineering services to other automotive industrial clients”, according to Perschke.

Perschke added: “Around one-and-a-half to two years ago, the Mahindra Group, as the key strategic investor behind Pininfarina, made a cautious strategic decision to spin off a separate legal entity that is solely focused on the sales, marketing and promotion of Pininfarina as a [business-to-consumer] business – so a purely client-orientated business unit.”

Anand Mahindra, Chairman of the Mahindra Group, was compelled to pursue an avenue of business that Pinin was never able to. Perschke explained: “[Pinin] always wanted to create his own branded car, but for many reasons, especially due to the very close ties with Ferrari, they never went out of that shadow [of] designing cars for others… and therefore always got limited [to] serving others. And that was something which… Mahindra very clearly said is an unfinished story.”

The road less travelled
In continuing this story, the company went down a surprising new route with an all-electric vehicle. Perschke puts this down to Mahindra too, explaining: “He’s a strong advocate of sustainability and a supporter of the anti-climate-change movement.” According to Perschke, Mahindra’s decision to pursue a self-branded vehicle was based on the requirement that the company would move towards electric vehicles. He told World Finance: “There are plenty of start-ups trying to get into the [electric vehicle] space and one thing they all lack is provenance, exclusivity, luxuriousness, storytelling and an authentic reason to be [ – unlike Pininfarina]… I think that’s where I got intrigued and said it’s a very unique idea because nobody else has [the] kind of opportunity [that Pininfarina does].”

It has undoubtedly helped that electric vehicle technology has progressed immensely in the last decade, while the reputation of electric cars has experienced a massive boost. But to manufacture an electric supercar that’s capable of 1,900 horsepower, 1,696Nm torque and that can go from zero to 186mph in less than 12 seconds, an industry pacesetter had to get on board.

To produce such a high-performing electric vehicle, Pininfarina partnered up with Rimac Automobili, the Croatian electric hypercar manufacturer behind the Concept One – one of the fastest electric vehicles in the world when it was unveiled in 2011. “When we met, Mate [Rimac] and myself professionally fell in love and said, ‘That’s a great partnership’,” Perschke said. “He’s straightforward, he knows what he’s talking about, he’s passionate and he also had the ambition to partner.” He compared their first meeting to that of Pinin and Ferrari: “That was the marriage in the 50s [and] 60s for the combustion engine marriage; I think we had an [electric vehicle] marriage. Rimac [Automobili] is a technology company and Pininfarina is a design company; this resulted in the Battista.”

This union has allowed Pininfarina to tick the three crucial boxes that would make its first own-branded car a success. “First and foremost, we have to give a cutting-edge design, which people fall in love [with],” Perschke told World Finance. “Secondly, we’re not falling short of any other hypercar. Our ambition [is that it] has to exceed any other hypercar because only then will you be recognised and cut through the clutter. And thirdly, we need to fulfil not only the performance level in terms of acceleration and top speed, but we also wanted to give a very good range. And that’s why our range in Europe will exceed 500km in a [worldwide harmonised light vehicle test procedure] cycle in a testing cycle.”

With these features cemented in the Battista, Perschke believes Pininfarina can succeed in its mission for its newest model to be an electric car that people fall in love with. Its reception suggests some already have. When the car was first unveiled at the 2019 Geneva Motor Show, for example, many commentators – from Forbes to Car magazine – highlighted the Battista’s beautiful design. “[It was] not the most stunning electric car, it was the most stunning show car in Geneva full stop,” Perschke said. With this striking, high-performing model, the Battista is helping to fight the misconception that electric cars are slow and ugly.

Pininfarina has been making history for more than eight decades, recurrently breaking the mould and driving automobile design forward. It achieved this again in 2019 with its first self-branded, all-electric car. The Battista is pushing boundaries in the industry, proving the incredible potential of electric vehicles – yet another testament to the extraordinary legacy of Pininfarina.

The devil and the deep blue sea – Japanese whaling brings surprising conservation benefits

Posted on by Max Tomlin

Humans share certain behaviours with whales – most notably what is referred to as ‘culture’. According to The Cultural Lives of Whales and Dolphins, a book by Hal Whitehead and Luke Rendell, culture is “behaviour or information with two primary attributes – it is socially learned and it is shared within a social community”. Whales also have sophisticated means of communication, using an assortment of noises and ‘songs’ to interact with one another. These songs can vary considerably across the globe, akin to the variety of languages we speak as humans.

It is this growing understanding of just how emotionally intelligent whales are that makes commercial whaling such a sore subject. But while it’s an issue that sparks rage in many, others defend it with the utmost ardour. Among the few nations that persist in the hunting and consumption of whales is Japan. For years, the island nation utilised a loophole in the International Whaling Commission’s (IWC’s) 1986 moratorium that permits countries to hunt whales for scientific purposes. According to the IWC’s website, Japan caught a total of 333 pelagic whales during the 2017/18 hunting season to conduct such research (see Fig 1).

It has widely been suggested, though, that this was simply a guise for Japan to continue its tradition of eating whale meat without drawing the ire of the international community. The facade finally faded away in late 2018, when news broke that Japan would be leaving the IWC – in July 2019, for the first time in 31 years, the country reinstated commercial whaling in its waters.

A market at sea
Advocates say that hunting and eating whale is an important part of Japanese culture. Indeed, coastal communities have partaken in the tradition for centuries. Nonetheless, it was not until the Second World War that the consumption of whale meat became widespread in the country – at that time, food was scarce and whale meat offered an alternative source of protein for many. By the mid-1960s, however, whale meat had once again become a niche product.

According to data from the Japanese Ministry of Agriculture, Forestry and Fisheries, the country’s annual consumption of whale meat has fallen from a peak of around 223,000 tons in 1962 to closer to 5,000 tons in recent years (see Fig 2). Hideki Moronuki, the director for international negotiations at the ministry, told World Finance that reduced consumption is not a result of a fall in demand, but rather a drop in supply: “[The] main cause of the decline [in] supply was [the] introduction of a series of regulations by [the] IWC, such as [the] prohibition of [catching] certain whale species i.e. blue, humpback and fin whales. In addition, the supply was drastically reduced due to the introduction of [the] so-called ‘commercial whaling moratorium’ in the late 80s. Since then, only by-products of whale meat derived from scientific research [have been] available.”

Moronuki insists that the consumption of whale meat in Japan has remained stable despite these obstacles: “No sign of decline [in consumption] is detected, although the quantity itself is very low [compared with] the peak period in the 60s.” But according to Rikkyo University researcher Junko Sakuma, this simply isn’t the case, as a considerable surplus of whale meat sits idle in frozen storage units across the country. In fact, earlier this year, Sakuma told Public Radio International that this stockpile amounted to some 3,700 tons.

As labour costs rise and local tastes change, the Japanese Government’s support of the whaling sector increasingly seems like a bad investment

Naturally, the industry has made attempts to increase demand, predominately through nostalgic marketing campaigns aimed at older citizens – whale meat being a familiar taste from their childhood. Success has been limited, though, with whale meat being increasingly unpopular among younger generations. “Most young Japanese prefer hamburgers,” Captain Paul Watson, Founder and CEO of the Sea Shepherd Conservation Society, told World Finance. “In fact, there are more vegans and vegetarians in Japan than there are people eating whale meat.”

Excess supply has caused prices to fall significantly – so much so that the meat started to appear on school lunch menus in 2007. That same year, The Telegraph discovered ‘whale bacon’ was being offered as a bar snack in Tokyo for as little as £3 ($3.70). Northern Japanese fast food chain Lucky Pierrot, meanwhile, began selling whale burgers for $3.50 as early as 2005. At the time, the company said it was hoping to increase the meat’s popularity among locals. There have even been reports of it being used as pet food.

Despite the fall in demand, a survey conducted by Sakuma found that 70 percent of Japanese people support whaling, as it is a point of national pride. “Some people who don’t eat the meat support the industry for nationalistic reasons,” Watson explained. This sentiment is clearly expressed on the Japan Whaling Association’s website, which seeks to justify the country’s whaling practices on its question and answer page: “Asking Japan to abandon [its whaling culture] would compare to Australians being asked to stop eating meat pies, Americans being asked to stop eating hamburgers, and the English being asked to go without fish and chips.”

Moronuki agrees with the website’s outlook: “It should be the people living in [a] respective region [who] decide what they eat in accordance with… availability… and in accordance with their culture, history, religion and so on. If you force others not to eat what you do not eat – since you do not have such [a] background – it is regarded as… cultural imperialism.”

In troubled waters
When asked why Japan had resumed commercial whaling, Moronuki told World Finance: “Japan is surrounded by the ocean and therefore has been dependent on marine living resources as one of [its primary] food sources [since] ancient [times]. We believe that marine living resources, including cetaceans, should be properly used in [a] sustainable manner based on science.”

The problem, however, is that the industry itself is unsustainable, relying heavily on government subsidies. According to The Washington Post, the Japanese Ministry of Agriculture, Forestry and Fisheries has allocated $463m to support the industry this year alone. “Commercial whaling in Japan exists only by virtue of massive government subsidies,” Watson explained. “Without these subsidies, the industry would die. The demand for whale meat in Japan is about one percent. There are thousands of tons in cold storage they can’t sell – it’s a glorified welfare project.”

And while the industry only employs around 300 people, these positions are often hard to fill thanks to Japan’s tight labour market – amid increasingly problematic labour shortages, the whaling industry has to compete with the higher wages offered by more lucrative subdivisions of the seafood market, such as crabbing and tuna fishing. As labour costs rise and local tastes change, the government’s costly support of the sector increasingly seems like a bad investment.

But Moronuki believes it isn’t so black and white: “You have to note that some jobs/activities are not always matters of lucrativeness. In many cases, they are connected to livelihood, culture, tradition, identity, etc. Japan does not have only big cities like Tokyo, Kyoto and Osaka, but hundreds of small communities, some of which [are situated] in remote areas, including islands. Some of them have been dependent on whaling and its related activities (processing, retail, restaurants and so on) [for centuries].”

Good whale hunting
It may surprise many to learn that, in spite of the surrounding controversy, Japan’s reinstatement of commercial whaling has brought some conservation benefits. “Japan never stopped commercial whaling,” Watson told World Finance. “[It] simply changed the name in 1987 to ‘scientific research whaling’ and [it is] now changing the name back.

“[But] the great news is that they have ceased killing whales in the Southern Ocean Whale Sanctuary and they have withdrawn from the IWC, which will now allow the IWC to implement conservation measures without being blocked by Japan. For the first time in history, there is no pelagic whaling and all commercial whaling today is restricted to the territorial waters of Japan, Norway and Denmark.”

With Japan now limiting its whaling activities to its own waters – moving away from the North Pacific and Antarctic – far fewer whales will be killed. “Japan has found a way out of high seas whaling,” Patrick Ramage, Director of Marine Conservation at the International Fund for Animal Welfare, said at a press conference on the topic earlier this year. “And they’ve done it in a way that is elegantly Japanese – it is a win-win solution that results in a better situation for whales, a better situation for Japan [and] a better situation for international marine conservation efforts.”

Many have been quick to express concern or criticise Japan, but as Ramage explained during the conference, the resumption of commercial whaling enables the country to preserve its cultural custom – which is important for both public perception and politicians – while also reducing its whaling activities in what he calls a “face-saving way out”. He added: “In terms of the body count, whales are going to do significantly better under the new commercial whaling programme.”

With Japan now limiting its whaling activities to its own waters, far fewer whales will be killed

Swimming against the tide
While the move is surprisingly positive, Japan is not alone in its perplexing attempts to revive this waning market: Norway also has a rich whaling tradition that dates back centuries, and is one of three countries (the other being Iceland) that still support the practice today. In fact, Norway revealed last year that it would expand its annual quota by 28 percent in a bid to prop up its whaling industry.

“The Norwegian Government has spent millions on PR and lobbying campaigns over the years to keep the whaling industry alive,” Fabienne McLellan, Director of International Relations at OceanCare, explained to World Finance. “But despite government subsidies and marketing campaigns over the past 33 years, domestic demand for whale meat is declining within Norway. According to a survey, many Norwegians eat whale meat only on special occasions and fewer than five percent of Norwegians eat whale meat regularly – and, if so, it is eaten by [the] older generation. So whale meat is not an everyday meal for the average Norwegian.”

To revive the industry, the government has been trying to reach out to students and young people by presenting whale meat as ‘hipster’ food. “Previously, you might have only come across whale meat in the form of a rather unappetising chunk of dark meat hidden in the back of a supermarket freezer counter, or in a restaurant frequented by locals prepared in [the] traditional way, as a ‘steak’ served with potatoes,” McLellan told World Finance.

“However, now we are starting to see the reappearance of whale meat in various… forms, such as whale meat burgers and whale meat skewers accompanied by exotic condiments and sourdough bread, [and] sold in trendy restaurants, [at] music festivals or street market stalls.” Tourists are another segment the government is targeting, with whale meat being offered aboard cruise ships and in dozens of popular restaurants alongside cocktails and craft beers.

With Japan now limiting its whaling activities to its own waters, far fewer whales will be killed

Still, a lack of demand is causing suppliers to turn to unconventional methods to rid themselves of their product: according to McLellan, Myklebust Hvalprodukter, one of Norway’s largest whale meat processors and exporters, donated around 60 tons of the meat to the poor in January 2017. “In the same month, we… learned that, in an apparent effort to boost sales, the supermarket chain SPAR [now] offers whale meat as a sale product,” she added. Even more controversially, McLellan said that more than 113 tons of whale meat – the equivalent of around 20 minke whales – was used as feed for foxes and minks on fur farms in 2014.

In addition to actively promoting whale meat consumption, the Norwegian authorities finance projects aimed at boosting domestic sales, such as the development of cosmetic products, dietary supplements and alternative pharmaceuticals. Myklebust Hvalprodukter, for example, has introduced a range of skincare products derived from whale oil, including a hand cream that can purportedly help treat chronic psoriasis. As explained by Sandra Altherr, Kate O’Connell, Sue Fisher and Sigrid Lüber in the 2016 report Frozen in Time: How Modern Norway Clings to its Whaling Past, the company also sells whale oil ‘health capsules’ that it claims can “increase energy levels and endurance”.

Going to such measures to stop the inevitable seems counterproductive, but as with Japan, there is a cultural component to preserving Norway’s dying whale meat industry. As McLellan noted: “The gap between increasing quotas and [a fall in] actual catches, as well as diminishing demand for whale products, is a clear indication that the Norwegian whaling industry is only kept alive for political reasons.”

End of the line
As evidenced by both Norway and Japan, the demand for whale meat continues to decline. People nowadays are more inclined to opt for a vegetarian option over a meat shrouded in moral ambiguity.

“[The] eating of whale meat is highly unethical because the animal dies an agonising death,” McLellan said. “The whales are killed with explosive harpoons that are meant to detonate in the whale’s brain, which should kill the whales instantly. However, in many instances, something goes wrong and it takes much longer for a whale to die – sometimes more than 14 minutes… and, in one case, even several horrendous hours. There is no humane way to kill a whale.”

There are health concerns to consider, too: according to the Environmental Investigation Agency’s 2015 report Dangerous Diet: Japan Fails in its Duty of Care Over Toxic Whale and Dolphin Meat, 56 percent of the cetacean products it tested contained levels of mercury that exceeded Japan’s legal limit. As stated on the World Health Organisation’s website, high levels of mercury can have “toxic effects on the nervous, digestive and immune systems, and on lungs, kidneys, skin and eyes”.

Whales also play an important role in the health of the environment, supporting the ocean’s delicate ecosystem by helping to regulate the flow of food and ensuring that certain species do not overpopulate the seas. And while whaling advocates argue that the hunting of minke, sei and Bryde’s whales, in particular, is sustainable due to recovered populations, there is no way of fully comprehending the impact that killing these mammals will have.

As explained by the 2014 report Ecological Role of Common Minke Whales in the South-Western East Sea (Sea of Japan) Ecosystem During the Post-commercial Whaling Moratorium Period: “Common minke whales are top predators that feed on commercially important fishes, especially small pelagic fishes such as Japanese anchovy, in addition to small crustaceans such as euphausiids, and thus play an important top-down ecological role in the marine ecosystem.”

It’s also important to note that whale faeces helps stimulate the growth of phytoplankton – photosynthetic organisms that absorb carbon dioxide. The very presence of phytoplankton helps to offset the carbon in our atmosphere and provide a cleaner breathing environment for all animals, making whales a vital contributor to the health of our planet.

But in spite of these facts, whaling persists. Tradition and culture are a crucial part of each and every society; even when we don’t agree with certain customs, there is still a strong inclination to stand by them, for fear of losing even a thread of the complex matrix that forms national identity. Telling a country that it cannot act in a particular manner is a slippery slope, and is likely to draw a fierce response.

But one cannot argue with the economics: tastes are swiftly changing, and the appetite for whale meat in particular is rapidly declining for a host of reasons. It seems almost certain that, despite initiatives to turn things around, this trajectory will continue. For commercial whaling nations, it is up to the relevant authorities and the citizens themselves to put an end to the practice once and for all – while international pressure invariably helps, it’s not a decision that can be made from the outside.

In the case of Japan, its recent move to reintroduce commercial whaling, as controversial as it may seem at first glance, is a good thing – it means that fewer whales will be killed and marks an important end to pelagic hunting. While it’s by no means the perfect solution, it is a step in the right direction. The next will be the natural phasing out of whale meat from the market. Given the cost of government subsidies and waning demand, this seems inevitable, but it’s a day that can’t come soon enough.

Liechtenstein’s financial sector is helping to make the world a better place – here’s how

Posted on by Max Tomlin

Climate change is an issue that is rightly on everyone’s lips. We need to transform our economies and societies swiftly – only then can climate change be combatted and the Paris Agreement become a reality. In order to achieve this, an investment of around €180bn ($201bn) is needed in the EU alone, a substantial chunk of which should come from the private sector.

But sustainability is more than just climate protection. The UN recognised this by adopting 17 Sustainable Development Goals (SDGs) in 2015. These provide a shared blueprint for nations to work in tandem to achieve a more sustainable future for all. They also recognise that ending poverty must go hand-in-hand with strategies that improve health and education, reduce inequality and spur economic growth. Hence, the goals attempt to address the societal challenges we face globally and to leave no one behind.

Shared responsibility
The Liechtenstein Government published its first interim report on the implementation of the SDGs in July, highlighting how sustainable development has been a key priority for some time. For instance, by promoting solar energy since 2015, Liechtenstein has become a global leader in the energy source. Liechtenstein has also launched pioneering public-private partnerships for environmental causes.

Liechtenstein’s financial community and regulatory authorities have considerable expertise in combatting illicit financial flows

To mark World Water Day in March 2017, Waterfootprint Liechtenstein was launched. The principle behind the project is simple: ‘Drink tap water. Donate drinking water.’ With this campaign, Liechtenstein is aiming to become the first country to provide access to clean drinking water to every resident, improving the living conditions of around 37,500 people in the process.

Waterfootprint Liechtenstein is well on the way to achieving its target: to date, more than 22,000 ‘waterfootprints’ have been activated. The government, schools and numerous organisations, including the Liechtenstein Bankers Association, support the initiative and practise the drink and donate mantra.

Collaboration and cooperation
Another of the country’s progressive projects is the Liechtenstein Initiative for a Financial Sector Commission on Modern Slavery and Human Trafficking, which aims to end human trafficking and modern slavery for good. The project is a partnership between the governments of Liechtenstein, Australia and the Netherlands, along with the United Nations University Centre for Policy Research and a consortium of banks and philanthropic foundations. The Liechtenstein Bankers Association and its members are part of these supporting organisations – for good reason.

According to the UN, more than 40 million people globally live in captivity, are exploited by forced labour or suffer another form of injustice. Some 25 million people are forced into labour, 16 million of whom are in the private sector. Although 58 percent of slavery cases take place in India, China, Pakistan, Bangladesh and Uzbekistan, around one million people in Europe also live in similar conditions.

The International Labour Organisation estimates that around $150bn is traded annually worldwide through slave labour and human trafficking. This is where the financial sector comes in: it can be implicated in various ways, such as by handling money generated from such practices, or by financing goods and services whose supply chains include modern slavery or human trafficking. In fact, modern slavery and human trafficking are the largest contributors to money laundering and terrorist financing in the world today.

Driving change
In light of the global nature of this crime and the need to access financial data in order to identify abuse, the involvement of the financial sector is essential. Liechtenstein’s financial community and regulatory authorities have considerable expertise in combatting illicit financial flows, and can play a pioneering role in tackling these crimes. This can be through the promotion of high due diligence standards, the development of responsible investments or the promotion of inclusive financial technologies. For this reason, Liechtenstein banks and the Liechtenstein Bankers Association actively support the Liechtenstein Initiative.

The Financial Sector Commission on Modern Slavery and Human Trafficking has been holding global consultations since September 2018 to discuss how the sector’s approach can be reformed to facilitate responsible lending and investment through industry-wide innovation. Based on these consultations, a catalogue of measures that places the global financial sector at the centre of worldwide efforts is now being devised. This catalogue will not only help to bring those who exploit others to justice, but it will also advise financial institutions on how to protect themselves against these investments and transactions.

It is time to ban unworthy working conditions and forced labour. A ban would also contribute to more climate protection, as legitimate jobs can be regulated to ensure less environmental pollution is caused and taxes are paid. The Paris Agreement can therefore be adhered to, and the holistic approach of Liechtenstein can be used to best implement the much needed-working and climate reforms.

Lacking common cents: how Zimbabwe went from economic star to financial basket case

Posted on by Max Tomlin

Imagine clean tap water running just once a week, or half the population struggling to rustle up a single meal every day. This, according to Eddie Cross, an MP for Bulawayo South and founding member of the opposition Movement for Democratic Change (MDC) party, is the reality of a “period of harsh austerity” in Zimbabwe that “has [drastically] reduced living standards”.

These tough conditions show little sign of letting up, with the country sinking deeper into an economic crisis that has drawn comparisons to 2008, when GDP growth in Zimbabwe fell to -17.7 percent (see Fig 1) and the currency was devalued to such an extent that a wheelbarrow full of notes wouldn’t even buy a loaf of bread.

In the aftermath of the 2008 hyperinflationary crisis, the country’s leaders were able to agree on a power-sharing arrangement that allowed Zimbabwe to emerge with some semblance of hope. This time round, with the nation’s ruling party refusing to relinquish control or acknowledge the depths of the crisis, no solutions – international or domestic – are forthcoming. Rather, the country seems doomed to sink deeper into a financial depression that will have devastating consequences for its citizens and could take decades to recover from.

Rocky Rhodes
In its short history as a unified country, Zimbabwe has seen its fair share of economic hardship. The area of land that makes up modern-day Zimbabwe had been home to various tribal communities for centuries before it was demarcated in its current form in the 1890s by imperialist Cecil Rhodes and the British South Africa Company. The new state, which was named Southern Rhodesia in honour of its coloniser, remained under the control of the UK until 1965, when it declared itself independent. The following 15 years would be defined by a brutal civil war, which pitted the white colonialist minority government against black guerrilla forces led by, among others, future Zimbabwean Prime Minister Robert Mugabe.

Zimbabwe seems doomed to sink deeper into a financial depression that will have devastating consequences for its citizens

Peace was achieved in the early 1980s, facilitating Zimbabwe’s emergence as an economic star. The country’s GDP grew by an average 5.2 percent during that decade, thanks to an extensive programme of public spending – notably on education and healthcare facilities. In 1992, a study by the World Bank found that more than 500 health centres had been built across the country in the preceding 12 years, while enrolment in secondary schools had increased by 902 percent between 1980 and 1990. For all intents and purposes, the country was well on its way to becoming mythologised as a great African success story.

Mugabe’s administration, however, made a series of poor decisions that impeded the country’s economic ascendance. The first was the manner in which the early 1980s investment drive was carried out. As a fledgling independent nation, Zimbabwe did not have the necessary productivity to support such high spending, so while the new societal infrastructure improved the quality of life for Zimbabwe’s citizens, it also meant the country racked up a significant budget deficit, leaving it extremely short on emergency funds.

The government’s second misstep came in 1998, when it chose to weigh in on the conflict in the neighbouring Democratic Republic of the Congo (DRC). Not only did the cost of this intervention drain what little remained of Zimbabwe’s bank reserves, it also alienated the country from the international community – in 1999, both the World Bank and the IMF suspended their aid provision due to an unwillingness to fund Zimbabwe’s military spending in the DRC. Three years later, the country was suspended from the Commonwealth and subjected to sanctions by both the US and EU amid allegations of political corruption. This isolation decimated Zimbabwe’s agricultural sector, which accounted for around 12.6 percent of GDP at the time.

“Zimbabwe was an agrarian industrial country, with emphasis on the word ‘industrial’,” Stephen Chan, a professor of international relations at SOAS University of London, told World Finance. “It was regarded as extremely hi-tech, growing food for modern international markets.” The application of sanctions, however, severely dampened exports. The industry was further crippled by a drought in 2003, which destroyed the meagre subsistence agriculture that remained and left 70 percent of Zimbabwe’s citizens living below the bread line.

Sick notes
Over the following five years, the country descended deeper into economic crisis. Inflation reached 1,000 percent in 2006 – leading the World Bank to declare Zimbabwe the fastest-shrinking economy outside of a war zone – and the government’s attempts to stop prices from skyrocketing were ineffectual, to say the least. While Gideon Gono, the former governor of the Reserve Bank of Zimbabwe, claimed hyperinflation peaked at 2.2 million percent in July 2008, Bloomberg estimates it was closer to 500 billion percent – a figure that Chan described as “metaphysical”. He added: “You couldn’t offer beggars anything in the street, because they’d just throw it away. It was meaningless. You’d have entire alleyways just full of worthless notes.”

Chan’s vivid image symbolises a wider truth: currency has always been at the heart of Zimbabwe’s economic troubles. In the 1980s and 1990s, as the country remained in relative infancy, one of the most vital tasks for Mugabe’s administration was to ensure the Zimbabwean dollar retained its value in order to support macroeconomic stability. It failed dismally for two reasons: first, it showed an inability to create and maintain national industries that would offer underlying productive value, and second, it proved itself too willing to devalue the currency, which, in turn, caused a greater international PR problem.

The destructive impact of the government’s failure was borne out most clearly in the hyperinflation crisis, but the repercussions continue to this day. In 2009, then finance minister Tendai Biti, who was part of an emergency government of national unity, implemented a recovery plan centred on the adoption of the US dollar as legal tender. While this succeeded in curbing hyperinflation at the time, it has subsequently caused significant issues when it comes to obtaining foreign currency – particularly given the rest of the world’s reluctance to lend to Zimbabwe, which stems from the country’s failure to prove that it has learned its fiscal lesson. “What has come home to roost very recently is that [Zimbabwe] really has no way of sourcing any more dollars,” Chan told World Finance. “No one will lend to [it] anymore, because there never really was a viable repayment plan.”

The government has not been entirely oblivious to these shortages and has, over the past few years, attempted to introduce various currency policies, each with little success. In 2016, bond notes and coins that would purportedly mirror the value of the US dollar were introduced, but they rapidly lost value when citizens realised they had no inherent worth and were not widely accepted as payment. In June 2019, the government – now led by President Emmerson Mnangagwa following the ousting of Mugabe in a military coup in 2017 – went a step further and attempted to introduce an entirely new currency. The RTGS dollar – the first iteration of Zimbabwe’s sovereign currency since 2008 – prevents citizens from using foreign currencies such as the US dollar and pound sterling as legal tender.

In August 2019, Zimbabwean Foreign Minister Sibusiso Moyo claimed that introducing the new currency had stabilised the economy, but with the government refusing to publish inflation data until February 2020, it’s difficult to know whether there’s much truth in his statement. Chan is unconvinced: “There was no real choice because of the lack of US dollars, but there’s no productive value [in the new currency] to pay for imports, so wholesalers are just going to charge more and more money for things.” In other words, the government’s reluctance to reveal inflation information smacks of a cover-up – it does not want to reveal to the world exactly how much of a failure its initiative was with regards to curbing inflation.

Trouble ahead
Anecdotal evidence emerging from Zimbabwe does little to suggest the government has averted an economic crisis. As of June, fuel prices had been hiked to such an extent that the average daily commute costs as much as $20, while 18-hour blackouts have become commonplace in Zimbabwe’s capital, Harare. According to the World Food Programme, an estimated two million people are facing drought-induced starvation, while the same number have no access to clean water.

The current scarcities pose an immediate threat to life for some of Zimbabwe’s citizens, but there are also deeper and more wide-reaching disasters on the horizon, particularly with regards to shortages in HIV and AIDS medication. According to the UN, the country has one of the highest prevalences of HIV in sub-Saharan Africa, with an estimated 12.7 percent of the population living with the disease in 2018. This figure has fallen dramatically from its peak in the early 2000s – thanks, in part, to increased awareness of transition methods and behavioural changes such as the use of condoms. Access to antiretroviral treatment (ART) has also improved as a result of a government programme that started to be rolled out in 2003.

According to the UN, 84 percent of those living with HIV in Zimbabwe were able to access ART in 2018. Within this group, 70 percent were provided with medication by the Global Fund to Fight AIDS, Tuberculosis and Malaria, a multinational organisation that provides grants to nations where HIV is prevalent. In order to unlock these grants, however, governments must contribute a certain percentage of the cost; in Zimbabwe’s case, its leaders must pay $24.2m between 2018 and 2021 to gain access to the full $483m grant.

As a result of the financial troubles currently afflicting the country, the Zimbabwean Government was unable to contribute the $6m sum required in July to unlock the Global Fund’s latest instalment. Consequently, access to ART for HIV patients has been severely restricted, with some being issued a two weeks’ supply at a time rather than the requisite three months, and others being given expired drugs.

“You’ve got the makings of a second stage of the pandemic [of the 1980s],” Chan said. If HIV sufferers cannot gain access to the life-saving medication needed to control their symptoms, cases of AIDS are likely to surge. Infection rates may also rise, as sufferers will not be visiting clinics to collect medication and, as a result, will not be offered condoms at the same time.

In 2016, bond notes and coins that would purportedly mirror the value of the US dollar were introduced, but they rapidly lost value when citizens realised they had no inherent worth and were not widely accepted as payment

Mine for the taking
Of course, not all of Zimbabwe’s citizens are suffering. “There’s an oligarchic class made up of elite governmental and military figures – or those related to such people – who have insulated themselves by some recourse to corrupt means,” Chan explained. Members of this class, which established itself during Mugabe’s reign and has gone unchallenged by Mnangagwa, reportedly enriched themselves through a combination of bribery, overvalued government contracts and the illegal seizure and sale of illegitimate property.

“Transparency International estimates that $100bn has disappeared from the Zimbabwean economy [as a result of corruption],” Cross told World Finance. “The military has been a major beneficiary and has fought to protect its privileged position [under Mnangagwa].” What’s more, this corruption is not the sort that offers a silver lining in the form of job creation or productive value. “Corrupt monies circulated within can be beneficial, even if not always traceable,” Chan said. “But when it’s taken out of the system – or spent on non-productive luxuries, as is largely the case in Zimbabwe – no good is done.”

The diamond market has proven a particularly popular breeding ground for corruption, with a 2008 cable (leaked in 2010) from the US Embassy in Zimbabwe calling the sector “one of the dirtiest” in a “country filled with corrupt schemes”. In 2006, Zimbabwe became a diamond hotbed overnight following the excavation of the Marange diamond fields, which were regarded at the time as the richest natural source of the gems to be discovered for more than a century.

It was hoped initially that the government would utilise the funds derived from mining to reduce the country’s budget deficit; in practice, though, profits have been concentrated in the hands of a select few political and military officials. According to the 2008 cable, these include Gono and former vice president Joice Mujuru, both of whom were accused of skimming hundreds of thousands of dollars a month in illegitimate profits from gem sales. Both Gono and Mujuru denied these allegations.

The Marange diamond fields were also reported to be the site of a torture camp run by the Zimbabwe National Army, the existence of which was revealed in 2011 by the BBC’s Panorama series. Victims told the broadcaster they had been subjected to beatings, sexual assault and dog maulings at the hands of the soldiers there, none of whom are known to have faced repercussions for their actions.

With the government paralysed by a crisis of its own creation, Zimbabwe’s citizens have been left to weather the storm alone

Military impunity remains a significant issue in Zimbabwe today. Not only does this reinforce the existence of corruption, it also creates a culture of fear and violence, robbing citizens of their right to peaceful protest. In January 2019, when trade unions led a work stoppage following a 150 percent hike in fuel prices, security forces shot dead 17 people and raped at least 17 women, according to Human Rights Watch.

No way out
Given the endemic nature of corruption, the dire economic situation and looming public health crisis, the outlook for Zimbabwe is bleak. The most pressing challenge remains the restoration of some kind of economic stability, but with other countries unwilling to offer budgetary support loans and national industry at a standstill, the government will be hard-pressed to drum up any sort of funding soon. Even if it did stumble upon some miraculous money tree, the notes growing on its branches would either be entirely worthless or not accepted as legal tender in accordance with current monetary policy. What’s more, given the level of corruption at the uppermost levels of government, it’s highly unlikely that any new funds would be directed to the sectors suffering critical shortages. Instead, they would find themselves lining the pockets of the well connected.

With the government paralysed by a crisis of its own creation, Zimbabwe’s citizens have been left to weather the storm alone – a nigh impossible task given the absolute lack of basic societal infrastructure. Even the informal economy, which has historically proven extremely resilient in Zimbabwe, is floundering. Last year, in a bid to maintain some sort of viable currency regime, a number of small operators began establishing a grassroots virtual economy, using mobile cash to pay for goods and services. However, this was quickly quashed by the country’s conservative-leaning finance minister, Mthuli Ncube, who introduced a two percent tax on transactions that priced out low-earning citizens.

In a functioning democratic society, the clear response to such an abject failure in economic policy would be to vote out the politicians responsible. In Zimbabwe, though, this is not an option given the monopoly held by Mnangagwa’s party, the Zimbabwe African National Union Patriotic Front (ZANU-PF). Even if there were to be an election, the likelihood of the results being manipulated is extremely high. What’s more, ZANU-PF’s main opposition, the MDC, is by no means squeaky clean, having experienced its own corruption scandals in recent years. “If you’re looking at democratic solutions for the future, then Zimbabwe is currently between a rock and a hard place,” Chan told World Finance.

The one glimmer of light at the end of the tunnel is Zimbabwe’s negotiations with the IMF regarding a bailout programme, which remain at an early stage. However, the IMF is highly unlikely to green-light any loans until Zimbabwe pays off its debts to other lenders, such as the World Bank. Even if loan agreements can be reached, the country will pay a high price for financial assistance. “Terrible austerities have to come and the poorest people will be hit the hardest,” Chan said. This would likely lead to further civil unrest, again culminating in military violence.

As it currently stands, Zimbabwe is a ticking time bomb. With domestic options exhausted, international intervention is crucial to supporting and sustaining the lives of its citizens. If the country is allowed to collapse entirely, the implications will stretch well beyond Zimbabwean borders, leaving the rest of the world to pick up the humanitarian and economic pieces for decades to come.

Waste-to-energy industry growth rests on firms’ ability to address public health fears

Posted on by Max Tomlin

Every day, Shenzhen, a rapidly growing city in Southern China, produces around 15,000 tonnes of waste. As a whole, China generates around 300 million tonnes of rubbish each year, according to the World Energy Council’s (WEC) World Energy Resources 2016 report. Due to swift population growth and urbanisation, this is expected to reach half a billion tonnes a year by 2025.

To answer Shenzhen’s growing waste management challenges, China is building the world’s largest waste-to-energy (WtE) plant on the outskirts of the city. WtE plants are able to generate electricity by burning waste – a particularly useful process for non-recyclables. Once operational in 2020, the Shenzhen East WtE plant will incinerate about 5,000 tonnes of waste each day, producing 550 million kWh a year, according to the project’s architects, Schmidt Hammer Lassen.

With China being one of the world’s largest energy consumers, WtE is viewed as a solution to both the country’s waste issues and its carbon emissions – but public concerns over negative health and environmental impacts threaten to hold the industry back.

Trash to treasure
Poor management of municipal solid waste (MSW) – the waste taken from residential, industrial and commercial sources – can contribute to increased air pollution, surface-water contamination, the spread of disease and increased methane production, all of which can cause numerous environmental and health problems. Following an analysis of Asia’s WtE industry, the International Energy Agency (IEA) wrote: “For these reasons, the impetus for cities to provide effective waste management is strong.”

Waste-to-energy provides a solution to the global waste crisis by converting surplus waste into a source of low-carbon energy

The WtE market makes up a small but growing proportion of the world’s waste management industry. According to the WEC, in 2015, the market was valued at around $25bn, with an average growth rate of 7.5 percent per year. This is expected to reach $36bn by 2020 – a projected increase of 44 percent in just five years.

According to Mark Sommerfeld, policy manager for the UK’s Renewable Energy Association, WtE is towards the bottom of the waste management hierarchy, suggesting authorities should first seek to prevent, reuse and recycle waste. Once these options are exhausted, WtE can be used to dispose of non-recyclables. “[WtE] provides a necessary solution for dealing with the section of waste that cannot be economically recycled, utilising it as a valuable energy resource, rather than seeing it sent to landfill,” Sommerfeld told World Finance.

WtE can produce energy in several different ways, Sommerfeld explained: “Most commonly, it is used in electricity generation, providing dispatchable low-carbon power and displacing fossil fuel use… Additionally, the heat from this process can also be captured and used within heat networks, which is now common across Europe, such as in Germany, Sweden and the Netherlands.”

Anaerobic digestion, meanwhile, is a form of WtE that uses organic waste from food or purpose-grown crops to produce biomethane to generate electricity, which can be used for the gas grid or transportation sector. Additionally, advanced conversion technologies (ACT) such as gasification and pyrolysis can produce green chemicals and renewable transport fuels. “In this way, ACT could help decarbonise difficult-to-treat sectors like aviation and shipping,” Sommerfeld said.

WtE essentially provides a solution to the global waste crisis by converting surplus waste into a source of low-carbon energy – a win-win result. However, there are concerns that when energy plants do not meet environmental regulations, they could end up damaging the surrounding ecosystem and harming public health.

Not in my backyard
China is emerging as the swiftest adopter of the technology; from 2011 to 2015, the country more than doubled its WtE capacity. The process was introduced in China in the 1980s, with the first modern plant built in Shenzhen in 1988. Since then, incineration plants quickly became an established means of waste management. China is the country with the largest installed WtE capacity in the world, with 7.3GW generated by its 339 plants in 2017, according to the IEA’s analysis. While the IEA expects the industry to continue growing – projected to reach 13GW by 2023 – the organisation warned that realising this growth would require responding to concerns raised by the public over air quality and health implications.

In Waste-to-Energy in China: Key Challenges and Opportunities, a 2015 report from the journal Energies, the research found public opposition was the industry’s biggest challenge to overcome. “With growing awareness of the need for environmental protection, public opposition has become the main obstacle to China’s WtE incineration [programme],” the report’s authors wrote.

The three main reasons cited were: opposition to the proximity of sites to residential areas, schools, lakes and rivers that provide drinking water; a lack of accountability; and a lack of public participation in decision-making.

“Due to the negative publicity of mainstream media and other factors, public opposition to the construction of MSW incineration plants has occurred in cities including Guangdong, Zhejiang and Shandong,” the report said. “Village demonstrations, student strikes and other protests affect social stability. These disturbances cause panic among members of the public.” In Shenzhen, for example, residents have been involved in a legal battle to halt the Shenzhen East project over fears pollutants will enter the air and nearby reservoir of drinking water, according to Yale Environment 360.

Hindering growth
China’s WtE plants take in a lower quality of waste due to the country’s lack of recycling programmes, meaning the waste has a higher organic composition and moisture content. This results in lower energy efficiencies and higher rates of pollutants. Where waste in Europe has an average net calorific value of eight to 11MJ/kg, China’s sits at around three to five MJ/kg. “[Improving] the quality of the waste that is fed into furnaces is crucial to achieving safe incineration”, the Energies report said.

Sommerfeld told World Finance it is important for WtE plants to have a good understanding of the nature of waste going into the site. “As such, the industry is supportive of policies that see different waste streams separated,” he said. “This also helps improve recycling rates. Avoiding contamination of waste streams as part of a modern waste management scheme is good for the whole waste industry.”

Along with promoting recycling, researchers in China have looked for ways to address this issue, including creating a new style of incineration plant that can extract more energy from waste with a high moisture content. This method also lowers dioxin levels to below EU limits. At the time of the WEC’s report in 2016, China had 28 WtE plants with this capability.

But even with these solutions, China still faces the challenge of high costs in the WtE industry. The WEC called high technology costs “one of the biggest barriers to market development”. These high costs often cause Chinese WtE plants to take the form of public-private partnerships, the Energies report found, which creates another problem for companies and results in an increased risk for fraudulent conduct. It also enables plants to avoid national emission standards or disclosing environmental monitoring information.

Even though many Chinese WtE operators claim to use advanced technologies in their environmental reports, there is little proof to back them up. In China, 16 percent of WtE incineration plants did not meet national standards in 2015, while more than three quarters did not meet EU standards. “Substandard incineration facilities and flue gas purification systems trigger a series of environmental pollution problems, and pollutants are generated in the process of incineration; in particular, emitted dioxins cause serious air pollution,” the Energies report said.

The prevalence of dioxins is one of the main reasons for public opposition to WtE, so firms must improve their standards to ensure they are not endangering public health.

Steps forward
Although China’s WtE industry faces controversy and challenges, the industry is a crucial part of the country’s response to its growing waste problem, especially as the region’s landfill are set to hit capacity in the next few years.

When built with state-of-the-art technology, WtE can deliver improved environmental and sanitary benefits when compared with landfill. For example, a WtE plant built to best-practice standards can reduce carbon emissions by up to 350kg of carbon dioxide equivalent to each tonne of waste processed.

According to Sommerfeld, WtE sites in the UK are subject to tight environmental legislation. He said: “Public Health England looked at WtE plants in 2013, with several studies also monitoring impacts since. They have concluded modern, well-managed WtE sites make only a ‘small contribution’ to local air pollution, and any health impacts, ‘if they exist, are likely to be very small and not detectable’.”

By continuing to research and develop new WtE technologies, pursue aggressive recycling programmes, create specialised regulatory agencies and guarantee public participation, China could enable its WtE plants to be safe for the environment and the surrounding population, while providing clear benefits in waste management energy generation.

As the global waste problem continues to pile up, WtE has a vital role to play. However, public health and environmental guarantees are needed to ensure incinerators aren’t doing more harm than good.

A new direction for the Saudi Arabian economy

Posted on by Max Tomlin

Saudi Arabia finds itself at a significant economic crossroads. Home to the second-largest oil reserves in the world, the kingdom’s economy has been largely defined by the crude industry since drillers first struck oil in Dammam in March 1938. The discovery marked a watershed moment in the nation’s history, sparking an economic boom and propelling Saudi Arabia towards becoming one of the world’s wealthiest countries. Today, the nation is recognised as a global economic powerhouse, sitting among the G20 countries and boasting one of the highest GDPs in the Middle East.

While oil has brought Saudi Arabia great wealth and prosperity, we know one thing for certain – it won’t last forever. Crude is a finite resource and, although there is much debate surrounding the extent of the nation’s vast oil reserves, some estimates predict that supplies will last just 70 more years. This looming time limit – coupled with a global push to create a greener future – has seen Saudi Arabia begin to craft its vision for a post-oil era.

In 2016, Prince Mohammed bin Salman launched the ambitious Vision 2030, a far-reaching reform plan that aims to diversify the economy away from oil, bolstering the private sector and improving employment opportunities for young people. The plan seeks to create a thriving economy where non-oil sectors such as tourism, manufacturing and renewable energy can drive growth, and entrepreneurial activities are encouraged. Small and medium-sized enterprises (SMEs) are a main focus for Vision 2030, with the project seeking to increase the contribution of SMEs to the Saudi Arabian GDP from 20 to 35 percent over the next decade. As the government forges ahead with its diversification drive, Saudi businesses must develop in line with these exciting transformations. A new economic ecosystem is emerging in Saudi Arabia and opportunities are plentiful for those businesses that contribute to its creation.

Burgeoning businesses
With Saudi Arabia ramping up its economic transformation plan, the nation’s private sector is truly coming into its own, and non-oil industries are beginning to drive growth. One such industry is the Saudi insurance market, which has shown great promise in recent years, emerging as one of the largest insurance sectors in the Gulf Cooperation Council (GCC) region. Since first opening its doors to customers in 1986, the Company for Cooperative Insurance (Tawuniya) has grown into one of the nation’s foremost insurance providers, offering more than 60 insurance products – including medical, motor, fire, property, engineering, casualty, marine, energy and aviation insurance – in order to protect Saudi citizens from all manner of risk.

A new economic ecosystem is emerging in Saudi Arabia, and opportunities are plentiful for those businesses that contribute to its creation

Throughout its long history in Saudi Arabia, Tawuniya has continuously adapted its offerings to meet both evolving customer demands and the country’s changing economic landscape, providing products that are practical and relevant for customers at every stage of their lives. This remains true today as Tawuniya continues to develop its business in accordance with the social and economic changes occurring in present-day Saudi Arabia, particularly focusing on the developments laid out in the wide-reaching Vision 2030 project. Given the integral role that SMEs are set to play in the Saudi economy of the future, Tawuniya hopes to assist burgeoning businesses by offering a range of practical insurance solutions.

It is with the nation’s nascent SMEs in mind that Tawuniya created its 360 Degree Integrated Insurance Programme. At Tawuniya, we understand that establishing and managing various insurance policies can be both arduous and confusing, taking up time and expertise that could be better used elsewhere. The 360 Degree Integrated Insurance Programme simplifies things for SME owners, allowing them to have all their insurance needs – including medical, motor and property policies – in one convenient place. This not only makes it much easier for SME owners and entrepreneurs to manage their policies, but it also reduces administration costs. By making life simpler for the country’s small-business owners, Tawuniya hopes that it will have a positive impact on Saudi Arabia’s emerging SMEs.

Hi-tech transformation
As the country continues on its path towards a brighter, more innovative future, it is clear that technological advances will play a key role in creating this new and improved Saudi Arabia. The nation is already in the midst of a technological transformation, with new technologies such as high-speed internet and contactless payments radically altering the daily lives of Saudi citizens. In the years to come, technology will also revolutionise the way we do business in Saudi Arabia, with cutting-edge developments such as artificial intelligence (AI), robotics and biometric identification all changing the world of business as we know it.

As Saudi Arabia embraces the digital era, businesses simply cannot afford to fall behind the curve. Future success is already largely dependent on the early adoption of new technologies, and companies of all sizes must put digital innovation at the very heart of their operations if they wish to stay relevant going forward. At Tawuniya, we recognise the importance of a strong digital strategy, and we fully embrace new technologies in everything we do.

As part of our digital drive, we have created a pioneering e-store, where customers can conveniently manage all their insurance needs. Available in both Arabic and English, the e-store is the first of its kind in Saudi Arabia and gives customers reliable remote access to their insurance accounts. At the click of a button, online users can quickly and efficiently update their insurance policies, manage their accounts, update their data, track their claims and find their closest sales office. The e-store also allows customers to compare various insurance products before purchasing a policy, helping them to find the package that is best suited to them and their needs.

Alongside this advanced e-store, Tawuniya is also introducing a range of cyber risk insurance products, specifically designed for clients who might be at a greater risk of cyberattack. Tawuniya understands just how valuable its customers’ digital data can be, and hopes to protect clients from every eventuality. The cyber risk insurance policy offers compensation for blackmail relating to cybercrime and makes provisions for reward payments for information leading to the arrest of anyone associated with a cybersecurity breach. The policy also provides compensation for losses related to illegal electronic publication, along with protection against losses to a company’s income that might be incurred during service restoration following a cyberattack. As technology continues to reshape our lives – both professional and personal – such protections are fast becoming indispensable.

Keeping it personal
While new technologies will prove critical to the future success of all businesses, large or small, we must not forget the importance of cultivating human relationships with our customers. It goes without saying that online solutions are practical, time-saving and convenient, but there are times when you might require an in-depth, face-to-face discussion with a trusted advisor.

Tawuniya has the largest network of sales offices of any Saudi insurance provider, with more than 115 branches open to customers. At any of these sales offices, customers can sit down with a knowledgeable advisor and discuss the various insurance options available to them, resolving any queries they might have and learning more about the policies that will best suit their needs. Tawuniya also makes sure to invest in human capital, ensuring it attracts and retains the very best industry talent and helps its workforce to grow.

In addition to offering a range of innovative insurance products – including cyber risk insurance, for example – Tawuniya also offers a range of traditional policies, such as health and travel insurance. Of course, even these more traditional offerings must change with the times and with evolving customer demands, so Tawuniya is continually reassessing its policies to ensure they are relevant and useful for modern Saudi citizens.

Travel insurance is one such area that has been updated to reflect modern trends. Tawuniya is set to introduce a new, low-cost insurance programme for those who frequently travel throughout the GCC region. The programme is primarily aimed at businesspeople and their families, and offers a 50 percent discount on coverage for children between the ages of two and 15, and free coverage for children under two years old.

The company is also looking to update its traditional health insurance offerings and recently signed a landmark agreement with Vitality, a global leader in integrating wellness benefits with insurance products. The agreement, which is the first shared-value insurance product created in the Middle East and North Africa region, will see Vitality’s health and wellness programme effectively developed and promoted across Saudi Arabia. The pioneering partnership aims to improve the health of customers and reduce the number of medical insurance claims.

From original insurance products to new digital solutions, Tawuniya is creating an exciting future for the Saudi insurance industry – one that’s very much in keeping with the nation’s Vision 2030 project. With innovation, entrepreneurship and ambition at the core of this long-term vision, Saudi Arabia is well on its way to crafting a dynamic new chapter in its history.

MENA Investment and Development Awards 2019

Posted on by Max Tomlin

The Middle East and North Africa (MENA) region is home to around 381 million people, comprising six percent of the total global population. It also functions as a yardstick for the world economy due to its vast reserves of oil and natural gas, both of which underpin the global energy industry and therefore, by extension, the global business community.

Oil in particular is highly susceptible to price shocks, either as a result of oversupply or trade tensions, both of which have afflicted the global economy in recent years. The 2015-16 oil glut, caused by the US and Canada’s decision to ramp up production, saw the value of Brent crude tumble to below $30 a barrel in January 2016, severely dampening the economic fortunes of oil-producing nations in the MENA region.

In 2017, several of these nations, which form part of the Organisation of the Petroleum Exporting Countries (OPEC), elected to implement supply cuts in a bid to prevent a further slide in oil prices. While these succeeded in driving prices back up, the oil sector remains volatile, as it has faced additional headwinds over the past 12 months in the form of the global economic slowdown, the US-China trade war and the application of sanctions to Iran.
Iran’s oil exports plummeted to just 300,000 barrels per day in June 2019, from a high of 2.5 million barrels in April 2018. While this has driven up oil prices due to a supply shortage, it has also posed challenges for oil-importing countries that trade heavily with the US. The sanctions mandate that these nations can no longer purchase oil from Iran, forcing them to find alternative – and often more expensive – suppliers.

These various factors have weakened the MENA region overall, with oil-exporting nations hit hardest; their growth is expected to dip to just 0.4 percent in 2019, according to the IMF’s Regional Economic Outlook. Oil-importing nations will fare better, posting collective GDP growth of 3.6 percent, although this is still a decline from last year’s rate of 4.2 percent.

Breaking down barriers
Among the world’s oil-exporting nations, the countries that are faring best are those that are diversifying their economies by investing in non-oil initiatives. The UAE is one such example: it has accelerated work on the Etihad Rail network, a 1,200km railway construction scheme that will link all major ports in the country and encourage freight transportation of goods. It has also implemented reforms to its business environment, such as improving online registration for new companies and strengthening access to credit, according to the World Bank’s Doing Business 2019 report.

For a number of nations in the MENA region, ongoing violence, political conflicts and corruption are inhibiting meaningful investment and development

These actions have served to encourage foreign investment in the UAE’s start-up sector: according to a report by MENA start-ups directory MAGNiTT, the country captured 26 percent of all deals and 66 percent of all funding in the region in the first half of 2019. In particular, the $3.1bn acquisition of ride-sharing app Careem by its US rival Uber has served as testament to the calibre of firms being incubated there, thereby boosting investor confidence.

Oman has also taken steps to create a more robust regulatory environment and attract foreign business, notably through the introduction of the new Foreign Capital Investment Law. This legislation, which comes into force in 2020, aims to attract international investment by offering incentives and expanding sectors to external investors.

These two nations, however, are largely the exception to the rule with regards to regulatory reform. Regional integration across the MENA region overall is extremely poor, meaning countries are not able to take advantage of some of the business opportunities on their doorsteps. Tariffs remain high, while bureaucratic barriers impede the flow of both goods and services across borders.

Unbalanced books
In oil-importing countries, meanwhile, large public debt burdens are limiting their capacity to invest in infrastructure and tackle social issues. Jordan is one such example: in 2018, its fiscal deficit stood at 3.3 percent of GDP – 1.4 percent higher than the budget target – due to limited tax revenue growth. As a result, it has been forced to slash public spending, notably on food subsidies, which has led to civil unrest.

Morocco is also grappling with an elevated budget deficit of 3.7 percent of GDP, compounded by its decision to increase public spending in the education and healthcare sectors. The country is the largest energy importer in North Africa, meaning its national finances have been hit by the rise in oil prices since their 2016 lows. In a bid to balance the books, the government announced in October 2018 that it would look to generate MAD 8bn ($827.43m) by privatising a number of state-owned firms.

The one exception to this trend is Djibouti, a rising star of the region, where the economy has been expanding rapidly. GDP growth is expected to reach seven percent by the end of 2019, thanks to the development of new infrastructure such as the Djibouti International Free Trade Zone, an initiative that has helped to establish the country as a key trade and logistics hub. Concerns have been raised, however, about the loans from China that underpin the project.

Grinding to a halt
For a number of nations in the region, ongoing violence, political conflicts and corruption are inhibiting any sort of meaningful investment and development. This is particularly evident in Yemen, where a brutal civil war has been raging since 2015. The country’s economy is estimated to have contracted by 39 percent since the end of 2014, as the violence has disrupted all business activity and hindered any sort of foreign investment. Even if the conflict were to end tomorrow, a significant degree of foreign aid would be needed to solve the humanitarian crisis and restore basic services such as healthcare and education before business could resume.

In Libya, a conflict that began in April between the UN-recognised Government of National Accord and forces loyal to the Libyan National Army has left more than 1,000 people dead and thousands more injured. Production of oil – the lifeblood of the Libyan economy – has dropped following a number of forced closures at the country’s largest oil field, which are believed to be politically motivated attacks. “The associated lack of security and reforms hinders investment and development of the private sector,” noted the World Bank in its economic update for Libya in April.

As a result of this violence, the overarching security situation in the region has worsened, which has brought foreign investment to a standstill. Moreover, May’s attacks on vessels in the Strait of Hormuz by the Iranian Revolutionary Guard Corps indicate a deterioration in US-Iran relations, which will further inhibit development in the region as a whole. Finding a solution to this conflict and achieving peace across MENA is therefore essential in securing long-lasting and equitable growth. In the World Finance MENA Investment and Development Awards, we recognise the firms that continued to invest in the region in order to drive vital growth over the course of 2019.

World Finance MENA Investment and Development Awards 2019

Best Islamic Bank
Kuwait International Bank

Best Retail Bank
Arab National Bank

Best Commercial Bank
QNB

Most Socially Responsible Bank
Bank Albilad

Best Bank for Trade Finance
Ahli United Bank

Most Innovative Insurance Product
Tawuniya

Best Asset Management Company
Clarity Capital

Best Fund Management Company
Qatar Investment Authority

Best Investment Banking Company
KAMCO Investment Company

Best Islamic Investment Company
A’ayan Leasing and Investment

Best Telecommunications Company
Ooredoo

Best Logistics and Transportation Company
DHL Express MENA

Best Islamic Private Wealth Management Company
SEDCO Holding

Most Sustainable Energy Company
ACWA Power

Best Customer Experience
Majid Al-Futaim Group

Most Customer-Focused Brokerage House
ANB Invest

Best Organisation for Female Empowerment
Al-Tijari – Commercial Bank of Kuwait

Best Full-Service Law Firm
Al-Twaijri and Partners Law Firm

Best SME Finance and Support Programme
Commercial Bank Of Qatar

Best E-Services Trade Facilitator
Gulftainer

Best Pharmaceutical Company
Teva Pharmaceutical Industries

Best Investment Destination
Invest in Israel – Israel

Best Tourism Destination
SMIT – Morocco

Individual Awards

Business Leadership and Dedication to Community
Sheikh Mohammed Al-Sabah, Chairman of Kuwait International Bank

Banker of the Year
Raed Jawad Bukhamseen, Kuwait International Bank

Fintech CEO of the Year
Wael Malkawi, ICS Financial Systems

Pharmaceutical CEO of the Year
Kåre Schultz, Teva Pharmaceutical Industries

Telecommunications CEO of the Year
Sheikh Saud bin Nasser Al Thani, Ooredoo

Investment CEO of the Year
Mansour Hamad Al-Mubarak, A’ayan Leasing and Investment

Energy CEO of the Year
Paddy Padmanathan, ACWA Power

Logistics and Transportation CEO of the Year
Nour Suliman, DHL Express MENA

Retail CEO of the Year
Alain Bejjani, Majid Al Futtaim Group

Jewellery Designer of the Year
Fatima bint Ali Al Dhaheri, Founder of Ruwaya Jewellery