Baker & McKenzie Continues to Expand its Global Reach

[caption id="attachment_790" align="alignright" width="300" caption="Eduardo Leite, Chairman of Baker & McKenzie’s Executive Committee"][/caption]

Baker & McKenzie seems determined to remain true to its founding principles of 60 years ago to be a truly global firm; it has just announced that it has opened a new office in Johannesburg with immediate effect with partners, lawyers and staff from Dewey & LeBoeuf South Africa. As the African economies grow Baker & McKenzie’s are ensuring that they maintain their market share.

With the world scrabbling for Africa’s resources an office in Johannesburg strengthens Baker & McKenzie’s presence in Africa and broadens its global platform in leading markets for energy and natural resources.

The Firm now has 70 offices in 43 countries, including 26 of the world’s 30 largest economies and 12 of the 15 most resource-rich countries.

The global firm, with 3,800 lawyers worldwide and $2.27-billion (U.S.) in revenue in 2011 “speaks” 75 languages.

Johannesburg is Baker & McKenzie’s third office opening in the past 12 months, following the launch of offices in Istanbul, Turkey, and Doha, Qatar.

The office is Baker & McKenzie’s second in Africa after Cairo, established in 1985.  However, Firm lawyers from Paris, London, New York, Chicago and other European, Asia Pacific and Latin American offices have long advised clients on high-profile transactions in Africa across a wide range of sectors, including energy, natural resources, healthcare, IT and telecommunications, retail and more.  According to mergermarket, the Firm has advised on more cross-border transactions in Africa over the past four years than any other leading M&A firm.

“The addition of this highly regarded team underscores our long-term commitment to Africa,” said Eduardo Leite, chairman of Baker & McKenzie’s Executive Committee. “As the continent’s largest economy and biggest recipient of foreign direct investment, South Africa is the linchpin for our expansion plans for the continent. We are pleased to add such a strong team to better serve clients’ growing interest in this fast-growing region.”

[caption id="attachment_791" align="alignleft" width="300" caption="Baker & McKenzie LLP, Chicago"][/caption]

“This respected team brings sophisticated knowledge and experience in areas of strategic importance to our clients,” added Koen Vanhaerents, chairman of Baker & McKenzie’s EMEA region. “Africa has vast resources and potential that will drive both inbound and outbound client investment. This is a big step in our continuing effort to expand our capabilities to serve client needs in the region.

At the same time, the law firm’s Toronto office is celebrating its 50th year in the city as the biggest U.S.-based firms in the world has had an outpost in Toronto since Kennedy was in the White House.

Brazilian Eduardo de Cerqueira Leite offered the following insight on the role of legal advisers role in the context of risk mitigation in the present economic climate:

“In many countries, the role of government is expanding. Legal advisers can offer the regulatory expertise needed to navigate the expanding governments' energy policies and regulations, which are often uncertain in the current economic climate. Additionally, taxes are expanding along with the expanding governments, and global banking and finance reforms can impact the ability of companies to obtain and raise money.

Legal advisers can advise companies and help mitigate any risks. Lawyers can also help companies manage the health, safety and environmental risks of oil and gas projects. Legal advisers often have high level contacts among industry participants so can facilitate relationships, which is especially advantageous in light of the increasing number of global alliances being formed.”

Baker & McKenzie’s long standing global reach, sheer size of its network, and sector specific competencies delivers a unique competitive advantage that is hard to replicate. Nevertheless, the company is not sleeping on its laurels. Against these difficult economic times, the firm continues to strive forward with expansion into the emerging markets.


To Converge or Not To Converge - the Greek Tragedy Continues

[caption id="attachment_802" align="alignright" width="300"] Athens, Greece[/caption]

It seems a long time ago, but when the Euro was introduced, one of the cornerstones for membership and for the long term success of the Euro was convergence of economies within the zone. Convergence does not seem to be on politicians' lips at the moment but what we are seeing happening across the Eurozone is as much a result of divergent economies as anything else.

Some countries under the cloak of the Euro borrowed way beyond their means, creating a false convergence of kinds in government coffers. The bond markets lent and the countries spent. Now the Eurozone finds itself in a difficult position, devaluation of individual currencies has been replaced by austerity and bailouts at the same time as the cost of the historic borrowing rises, dragging more and more money out of an already stressed economy.

So where does it end? We are in largely uncharted water at the moment - the Greeks have voted for more of the same “medicine” and to try and stay in the Euro. But this is an untested treatment and if one was to use a pharmaceutical analogy there is no certainty the treatment would get past the drug regulators as safe for human trials.

The situation is serious and the infection is spreading, if it was a medical decision to save a life maybe if would be safer to opt for a treatment that had been shown to work. But the Greeks seem to have chosen the new treatment - let’s hope they are right.


MIGA (World Bank): During the Storm - Shift from North to South FDI

By Manabu Nose and Moritz Zander[1]

At MIGA (the Multilateral Investment Guarantee Agency) we see the principal near-term risks for emerging market foreign direct investment (FDI) on the supply-side of financing. Despite a rise of emerging market risk perceptions, demand for project financing continues to be strong. In the medium-run, intra-emerging market financing will increasingly replace funding from developed markets.

2011 was a tumultuous year for emerging market investors. First, there were the upheavals in the Middle East and North Africa region, widely known as the ‘Arab Spring.’ Waves of popular unrest led to regime change in Tunisia, Egypt and later Yemen. Libya and Syria got tipped into open civil conflict. Sub-Saharan Africa, while scoring some successes in democratic transitions, also signaled uncertainty with elections, a number of which were surrounded by violence, most notably in Cote d’Ivoire. Rising food and oil prices led to popular unrest in a number of regions. And more recently, investors were scared by military coups in places as diverse as Maldives and Mali, Papua New Guinea and Guinea-Bissau.

Yet, this resurgence of political risk in emerging markets contrasts with last year’s economic performance. Despite the slowing growth momentum in North America and the euro zone, developing countries’ aggregate growth, thus far, has proven impressively resilient. Not only did developing countries contribute much of global growth in 2011, but many countries managed to strengthen buffers against shocks through the oft-cited channels of trade and portfolio flows. Global foreign exchange reserves in emerging markets rose to over US$6 trillion by the end of 2011. And fiscal space in many places remains comforting, albeit less so than in 2008. If EU-based global corporates continued to post impressive earnings growth in 2011, it is because an increasing share of their revenues came from emerging markets.

Moreover, the above-average growth has not been confined to the traditional high-performers. Real growth in Sub-Saharan Africa (5.3%), for example, was robust, helped by booming commodity prices and exploration successes in mineral and petroleum sectors. Accordingly, investment opportunities in the emerging world, well beyond East Asia and Latin America, remain aplenty. Take sub-Saharan Africa. It is estimated that the continent needs over $90 billion dollars per year over the next decade to meet infrastructure needs: speak multi-million dollar investments in road and rail networks, power, water and sanitation projects, many of which will be solicited through public-private partnerships. In addition, the expansion of access to submarine fibers will create new opportunities in broadband and telecommunication service providers in still underserved markets.

On the face of it, we see the principal peril to emerging-market FDI flows on the supply-side of financing. For, critically, 2011 was a tumultuous year in advanced economies also. As concerns over sovereign debt sustainability, credit quality and market pressures in the European financial system intensified, bank lending in the euro area slowed markedly in the latter half of the year. Facing the prospect of stricter capitalization rules and pressure from regulators to improve buffers, many EU-based banks accelerated their efforts to deleverage.

The magnitude by which deleveraging in the European banking sector may detrimentally impact greenfield investment into emerging markets remains hard to predict. However, what we do know does not make us optimistic. Particularly in the euro zone, financing for projects and large bank syndication may become harder to come by in the longer run. Faced with higher dollar-funding costs and rules that require banks to match long-term loans with funding from sources with similar maturities, these business lines, in which European banks previously had a particularly strong position, will become less lucrative. Even in the petroleum sector, oil-secured lending—which is mainly dollar-based—could contract further as European banks see dollar-funding cost remain high.

Data presented in the IMF’s recent Global Financial Stability Report suggests that the bank deleveraging process in the EU will weigh particularly heavy on project finance and longer-term bank syndication. Across all emerging markets, bank lending in specialty lines such as project finance and structured credit fell sharply in the second half of 2011.[2] Similarly, while overall capital flows into emerging markets appear to have held up in 2011, syndicated bank lending to developing countries from EU banks has dropped sharply since last fall.

This is unfortunate because funding for projects in a number of developing countries is badly needed. For investors the prospect of permanently higher real growth sustained by improving buffers and more resilience remain. In preliminary data it appears that FDI flows into developing countries, albeit less volatile than portfolio flows, slowed considerably since the summer of 2011. But if emerging-market greenfield investment flows have not contracted further it is also because a growing share of those flows—what the World Bank calls “South-South” investment flows—is now originating in emerging economies.

Over the last two decades, emerging economies’ share of total outward FDI flows multiplied from 5% in 1990 to almost 30% in 2010. With slowing growth momentum in North America and the euro zone haunted by crises, there is every reason to believe that this trend will continue. In MIGA we have observed this shift both from our client base directly, as well as in our annual surveys of global investors.

Aside from strong balance sheets and a robust appetite to expand into yet untapped markets, what drives South-South investments? The fastest growing and lion’s share has come from Asia, notably China.  Historically, much of it has been resource-seeking FDI: extractive industries enterprises in resource-abundant Middle East, Central Asia, sub-Saharan Africa, and South America. More recently, however, the sector composition is diversifying. Manufacturing firms, including from the metal, electronics, and chemicals industries, have joined the pack, benefitting from lower unit labor costs.

Second, strong cash flows from the revenue of booming commodity prices have boosted cross-border merger and acquisition activity in the energy industry, originating in traditional oil-exporter countries around the Gulf region, Russia and the Commonwealth of Independent States (CIS). Prominent recent examples include the joint-venture between CNPC (China) and Russia’s Rosneft, or the participation of ONGC Videsh (India) in the development of the Sakhalin I oil and gas exploration project, also in Russia. Notably, outward FDI in the Arab states is mainly undertaken by state-owned enterprises such as Dubai World, the Qatar Investment Authority, and SABIC.

Finally, in Africa, the level of outward FDI is still limited, but intraregional investment (along with trade) is picking up fast. South African investors in particular are leading the way with respect to foreign investment into neighboring countries. Indeed, the potential for intra-Africa investment volume to further grow is large, as a recent UNCTAD report suggests, since South investors may be better positioned to develop business and manage risk in places that other foreign investors still perceive as impenetrable and excessively volatile.[3]

Research on the origins and drivers of South-South FDI is still limited, but explaining capital outflows from developing countries (where the marginal return to capital is higher) might be related to the ‘Lucas puzzle’ in international investment flows debated since 1990s. Access to resources is surely important, but it applies to only a limited number of countries such as China and some of the CIS. A competing hypothesis, more consistent with intraregional FDI in Africa, is risk appetite. South investors may simply be more comfortable with investing in developing countries, as they have a comparative advantage at operating in similar political, economic, and institutional environments as they encounter in their home markets. Related to the notion of familiarity (or Lucas’ information asymmetry) is a different conception of risk. For South investors, institutional quality may be less of a barrier to enter a new market, particularly if the tail risks of political events can be mitigated through insurance.

Surely, the sooner Europe’s banking sector will get fixed, the less the impact will be felt by developing countries. Nonetheless, over the medium term, the shift from North to South as the principal origin of emerging-market FDI flows will likely accelerate. For South-based investors with the right animal spirits and strong balance sheets may be better placed to capitalize on emerging-market momentum.

[1] Manabu Nose and Moritz Zander are economists in MIGA’s economics and policy group. MIGA is a member of the World Bank Group.

[2] IMF Global Financial Stability Report, April 2012, Chapter 2 (p.44)

[3] UNCTAD World Investment Report 2011, Chapter II


G20 Summit: Merkel still wants both Austerity and Growth in the Eurozone… but still no clue as to who will pick up the tab

[caption id="attachment_835" align="alignright" width="300"] G-20 at Los Cabos, Mexico[/caption]

Angela Merkel brushed off criticism of her focus on austerity, as the leaders of the world's 20 largest economies focused their attention on the crisis in the Eurozone. In Los Cabos the EU largely postponed the discussion on the specifics on how to save the euro to the EU summit at the end of June. The G20 ended with (the usual) broad declarations against protectionism, for stabilising financial markets and for growth.

German Chancellor Angela Merkel shoulders remained broad, withstanding the combined criticism of the United States, some Europeans and emerging economies. She seemed little impressed and refused to move away from her stance and although her rhetoric soften the substance did not . On the contrary, she left no doubt that she expected Greece to fulfil its obligations as soon as possible. This is not a step closer towards including Greece in a solution to the Eurozone crisis.

The specific results of the G20 summit are limited. The Eurozone countries agree to step up their efforts to stabilize their common currency and regain the trust of the financial markets. In return, the G20 has acknowledged that Europe has already made some progress on the issue. US President Barack Obama, the strongest non-European critic of Merkel's austerity policy, has even said he sees a new mind set across Europe and has expressed his understanding of Brussels' approach to tackle the crisis. The key message leaders wanted to convey was that the quarrelling was over - as of now, the G20 members want to work together to foster growth and minimize tensions on the international financial markets.

It is the second time that a G20 summit has been dominated by the euro crisis. The crisis will need to be solved at EU level. The EU summit at the end of June must live up to the G20's expectations and not fall short of what's been promised in Los Cabos if market fears are to be permanently eased.

International Monetary Fund (IMF) chief Christine Lagarde was pleased with the promises made at the G20 summit. IMF resources are set to be increased up by some $456 billion (360 billion euros). The money is not explicitly earmarked for bailing out ailing Eurozone countries, but it can be put to that use.

...break the feedback loop between sovereigns and banks.

- Christine Lagarde, IMF

Lagarde said in her closing statements: “We all are concerned about Europe, particularly the euro zone. In Los Cabos the seeds of a pan-European recovery plan were planted. This must be recognized. European leaders committed to take all measures necessary to safeguard the integrity and stability of the euro area and break the feedback loop between sovereigns and banks. Their intention to consider concrete steps towards a more integrated financial architecture is important…”

[caption id="attachment_849" align="alignleft" width="210"] Christine Lagarde[/caption]

In their closing statement, the Eurozone countries promised to take whatever measures necessary to maintain the stability and integrity of the region and to keep financial markets functioning.

Merkel said that the Eurozone nations gave their political support to the shared currency. She said discussions took place concerning a "European institution that would embody the supervision of banks" and "more measures for growth, the adoption of guidelines for shared standards for deposit guarantees and bank reorganization."

[caption id="attachment_851" align="alignright" width="150"] Angela Merkel[/caption]

It remains to be seen if the European G20 leaders really recognized the challenges of the euro crisis and will in practise implement the steps urgently required. These steps must be concrete, quick and detailed if they are to restore confidence and include the creation of a banking union with effective regulation, to guarantee deposits and to supervise and regulate banks.

It seemed clear to most at the G20 that with the current Eurozone market conditions, austerity creates downward spirals of negative growth, lack of business and consumer confidence, and unemployment – thus perpetuating the economic problems, not solving them. The PIIGS (and the rest of Europe as well as the global economy) pay the price through youth and general unemployment. The weaker Eurozone countries are also picking up the tab in the form of paying higher yields when they issue their government bonds.

At the EU summit at the end of June there will be increased pressure on Merkel to pick up some (most!) of the tab before the un-employment soar further and the banking system implodes from the toxic feedback loop between sovereign debt and banks. If and when the Eurozone system is allowed to disintegrate, the size of the German tab could quantum leap to everybody’s regret.


TIM Participações Plays Their Hand Well in the Recent 4G Auction in Brazil

[caption id="attachment_876" align="alignright" width="300"] Andrea Mangoni, CEO of TIM Participacoes[/caption]

The Brazilian government has raised 2.93 billion Brazilian reals ($1.4 billion) from the auction of 4G wireless airwaves, president of national regulator Anatel, said that the average premium paid for the 54 frequencies sold in the auction was 31%.

Anatel stated that the operators that have won spectrum will have to set up 4G network in cities conducting soccer’s Confederations Cup by April. Telefónica Brasil submitted a bid worth 1.05 billion Brazilian reals ($507 million) to acquire 20 megahertz of national spectrum, while América Móvil vouched 844.5 million Brazilian reals ($407.7 million) for a similar block of spectrum.

TIM Participações offered 340 million Brazilian reals ($164.1 million) for 10 megahertz of spectrum, while Oi submitted a bid of 330.9 million Brazilian reals ($159.8 million) for it. América Móvil purchased 19 regional 4G frequencies for 144.3 million Brazilian reals ($69.6 million), while TIM Participações bought six regional 4G frequencies for 42.2 million Brazilian reals ($20.4 million).

George Soros’s Sunrise Telecomunicações paid 19.1 million Brazilian reals ($9.2 million) for two licences in São Paulo. DirecTV unit, Sky Brasil Serviços paid 90.6 million Brazilian reals ($43.7 million) for 12 regional frequencies that cover São Paulo and Rio de Janeiro states.

It would appear that TIM Participações played their hand rather better than most, paying an average premium of only 7.3% against an auction average of 31%. This leaves TIM well positioned to invest heavily in the frequencies purchased.


Bank for International Settlements – General Manager’s Speech: It’s Time to Address the Root Causes

[caption id="attachment_866" align="alignright" width="150"] Jamie Caruana, General Manager, Bank of International Settlements[/caption]

Speech delivered by Mr Jaime Caruana, General Manager of the BIS, on the occasion of the Bank's Annual General Meeting, Basel, 24 June 2012:

Good afternoon, ladies and gentlemen.

Five years after the start of the financial crisis, the world economy is still in a fragile state. This fragility is not primarily cyclical - rather, it reflects fundamental weaknesses shared by many countries. There has been progress in addressing these long-standing problems, but more remains to be done. This is why output in the advanced economies has barely returned to the levels reached at the outset of the crisis.

Confidence in the global recovery has eroded further over the past few months. Markets are jittery. Growth prospects in the advanced economies remain modest. European financial markets are under stress, and a number of European countries are in recession.

[caption id="attachment_871" align="alignleft" width="199"] BIS "Tower" building, Centralbahnplatz 2, Basel, Switzerland[/caption]

Emerging market economies are growing more strongly than the advanced economies. Over the past five years, their expansion has accounted for three fourths of global growth. It was thanks to earlier reforms - often pursued when domestic demand was contracting - that many returned to strong growth and were able to pursue countercyclical policies during this crisis. But emerging markets have recently felt increasing strains from unbalanced growth, and some are struggling with inflation pressures. They are not immune to the global slowdown.

In these difficult circumstances, calls for further economic stimulus are not surprising. Some advocate additional monetary accommodation; others suggest a softening of the new financial regulatory regime; and still others recommend postponing fiscal consolidation and structural adjustment in the private sector until happier times. The common basis for all of these proposals is that, if only policymakers were less rigorous and stimulated more now, growth would eventually come to the rescue. If only it were that simple!

The main roadblock to sustained growth is not a lack of economic stimulus. Instead, it is a vicious cycle of adverse feedbacks between three fundamental weaknesses, all related to balance sheets:

First, the financial sector is still fragile. Despite some progress, many banks remain overleveraged, and uncertainty about the quality of their assets prevents many banks from borrowing in unsecured markets. Government bond yields have soared for some sovereign borrowers in Europe as they have found it harder to attract foreign investors. The fragmentation of bank and bond markets along national lines is a cause of deep concern.

Second, large structural imbalances that existed well before the crisis still weigh on households and firms. In many advanced economies, their debt burdens remain too high. In some countries, the real estate sector is still adjusting; and in some others, growth remains too dependent on exports.

And third, government debt is unsustainably high in most industrial countries.

Central banks find themselves caught in the middle, forced to be the policymakers of last resort. They are providing monetary stimulus on a massive scale. They are supplying liquidity support to banks unable to fund themselves in private markets. And they are easing government financing burdens by keeping interest rates low far out along the yield curve. These emergency measures could have undesirable side effects if continued for too long. A worry is that monetary policy would be pressured to do still more because not enough action has been taken in other areas. While central bank actions can buy time, they cannot substitute for balance sheet repair or reforms to raise productivity and growth. Central banks cannot solve the problems neglected by other policies.

Source


ECB | European Central Bank: President’s Address at the 14th ECB and its Watchers Conference

[caption id="attachment_882" align="alignright" width="284"] Mario Draghi, President of the European Central Bank[/caption]

Mario Draghi, President of the ECB, Frankfurt am Main, 15 June 2012

Ladies and Gentlemen,

It is a great pleasure to take part in this fourteenth edition of the ECB watchers conference – and the first I am attending as President of the European Central Bank.

As you are all aware, the ECB has the crucial role of providing liquidity to sound bank counterparties in return for adequate collateral. This is what we have done throughout the crisis, faithful to our mandate of maintaining price stability over the medium term – and this is what we will continue to do. The Eurosystem will continue to supply liquidity to solvent banks where needed.

In normal times, “adequate liquidity” may be defined as a volume of refinancing in line with the need for banks to meet the obligatory reserve requirements and the financing of other autonomous factors.

In times of increased financial instability, “adequate liquidity” indicates a volume of central bank money that also counteracts a temporary inability of banks to refinance in the market, which could lead to systemic consequences for the banking sector as a whole.

In my introductory remarks this morning, I will talk in a little more detail about the ECB’s monetary policy. I will also discuss Europe’s agenda for growth and issues relating to a longer-term vision of our economic and monetary union.

1. Considerations on monetary policy

Let me start with monetary policy.

There are two features I would like to highlight.

The first relates to the effectiveness of the three-year long-term refinancing operations (LTROs) that we launched a few months ago.

As you will recall, these operations were introduced in an environment where money market spreads had surged, liquidity had dried up and banks’ access to market-based funding had eroded rapidly.

The uncertainty about market-based funding for banks – especially medium-term funding – was perhaps the most critical issue in that environment. It truly threatened to undermine bank lending and created pressures for a broad-based deleveraging.

A resulting credit crunch would have severely aggravated the slowdown in economic activity, hurt employment and given rise to acute downside risks to price stability.

We must always remember that over two thirds of external financing of firms comes from banks. This ratio is even higher for small and medium-sized enterprises, which account for about three quarters of corporate employment in the euro area.

It is against this background that we decided to launch the three-year LTROs.

Their objectives have been broadly met.

The April bank lending survey points to a marked decline in the net tightening of credit standards and a general improvement in banks’ funding conditions. This evidence is supported by a range of market and other indicators. Overall, it confirms that supply side constraints on bank credit have been removed. This has been a very important result.

The full supportive impact of the three-year LTROs needs time to unfold, so it is too early to draw firm conclusions about the behaviour of a single variable – namely, bank credit to the private economy – that is influenced by a multitude of factors. In the current environment of very weak credit demand and heightened risk aversion, a rebound in the volume of credit will be particularly slow.

Yet granular balance sheet data indicate that in February and March, banks domiciled in stressed constituencies could interrupt and partly reverse the sustained decline in loans over the previous months. Indeed, smaller banks in some of those countries could increase their supply of loans.

Inflation expectations remain well anchored and there is no inflation risk in any euro area country. Financial market-based inflation expectations over a ten-year horizon are consistent with our definition of medium-term price stability. And should risks to price stability emerge, the Eurosystem has sufficient tools at its disposal to absorb excess liquidity.

The second point I would like to highlight as a way of understanding the ECB’s current conduct of monetary policy is heterogeneity. The situation regarding economic growth is quite different across the euro area.

This is not the first time; we had clearly diverging cycles ten years ago. At that time, growth in Germany was very low and growth in other countries was buoyant. This is part of a normal degree of cyclical heterogeneity that we observe in very large continental economies. It is very similar to what we observe in terms of cyclical heterogeneity within the United States.

What is new in the current episode is the parallel fragmentation of financial markets. This first concerns the interbank market, which works almost exclusively on a national, collateralised and very short-term basis. It is also true for broader capital markets and private capital flows, where home bias is rising.

The prime reason for the current home bias is general risk aversion. In addition, we are very attentive in monitoring whether regulatory initiatives – including anticipation of future liquidity ratios – or initiatives from national supervisors are affecting this market, especially across borders.

We have partly responded to the fact of increased heterogeneity by allowing some national central banks to enlarge the collateral pool. This was essential to ensure sufficient outreach to the real economy in their constituencies in a context of significant heterogeneity. They could accept more direct credit claims, particularly to support credit to the small and medium-sized enterprises that are so important for investment and employment.

This collateral enlargement was crucial for addressing a situation of liquidity abundance in some countries and liquidity scarcity in others. The enlargement has taken place with prudence and its risk management framework is overseen by the Governing Council.

While the process will take time, the restoration of adequate credit flows and the renewed functioning of the interbank market remain our firm objectives.

2. Europe’s growth agenda

Let me now turn to the European growth agenda.

Strengthening the growth potential of our economies is crucial.

We have a whole range of pending reforms at the national level: the liberalisation of product markets; the removal of bureaucratic impediments to entrepreneurial activity; greater labour market flexibility, which facilitates the re-entry of the unemployed into the job market; and a growth-friendly composition of fiscal adjustment. Let me elaborate a little.

Product market regulations can be streamlined so as to foster competition, particularly in sheltered professions and the services sector. Extensive administrative reforms should facilitate the start-up of new firms. Moreover, judicial systems can be adjusted so as to resolve and avoid court backlogs, which hamper the conduct of business activities. Once a critical mass for such reforms is achieved, they will considerably strengthen economic dynamism, innovation and employment.

These efforts should be complemented by active labour market policies, targeted at the low-skilled, the elderly and young unemployed people. This would facilitate re-entry into productive activities for those who typically face the most difficult starting position. It would also foster social cohesion despite the burden of economic adjustment facing our economies.

Second, important reforms are pending at the EU level, with the implementation of the Services Directive being a very important initiative to facilitate cross-border trade in services. By reducing the market power of producers, these reforms will put downward pressure on prices and upward pressure on productivity.

Third, I believe that we should oversee national reforms to promote growth in a way that is a parallel to the way in which we oversee fiscal policies. Here we might draw inspiration from the fiscal compact and the idea of avoiding unsustainable policies in the first place and providing incentives for positive reform. In a single currency area, national reforms that affect growth potential and competitiveness are just as important as fiscal policies because they are equally essential for economic sustainability.

Fourth, many items that are considered at the national level could be considered at the EU level. For example, measures to foster labour mobility could be implemented, inter alia by facilitating the cross-border portability of pension rights. European funds could be reallocated to areas most conducive to long-term growth and durable employment opportunities. And the capacity of the European Investment Bank to finance infrastructure projects could be strengthened.

As you can see, there is a long-standing agenda on growth. It is time to implement it with determination and confidence about its longer-term benefits.

Collectively we can compete more effectively in the global economy. Collectively we can better support growth and job creation. And collectively we can preserve our common European values of fairness, social cohesion and social progress.

3. Considerations regarding the longer-term vision for economic and monetary union

Let me turn to the broader question about the evolution of the euro area towards a genuine economic union – one that is commensurate with our monetary union.

As you know, I am in close contact with Presidents Herman Van Rompuy, José-Manuel Barroso and Jean-Claude Juncker to reflect on elements of a longer-term vision for our economic and monetary union. Ultimately, such a vision can be the basis for a process where objectives, progress, conditions and deadlines are specified; and where credibility is substantiated by action in the short run that is in line with long-term objectives.

Since this is a joint effort and our work is still in progress, I cannot provide specifics about this matter as yet.

But I can tell you that my reflections are founded on the central aim of securing stability and sustained prosperity for the euro area.

Price stability will remain a cornerstone of economic and monetary union, as it has been since the beginning. But in order to preserve broader economic stability, we need strengthened foundations in the fields of financial, fiscal and structural policy-making.

The strengthened foundations should secure the past achievements of integration. They should improve the management of the euro area economy. And they should bring economic and monetary union closer to the hearts and minds of Europe’s citizens, whose ownership of our collective project of integration has been shaken by the crisis.

A key issue in this context is sovereignty.

In processes of economic integration, we often speak about giving up sovereignty. Yet integration is far from being equivalent to giving up sovereignty. There are many cases in which integration implies a “sharing” or “pooling” of sovereignty. And there are some cases where integration actually leads to more sovereignty and at a higher level.

For example, some smaller euro area countries actually regained sovereignty with the euro by regaining influence over monetary policy at a higher level.

Something similar may hold for countries joining the EU, when they can participate in the shaping of the single market rules rather than having to adjust to them. In a globalised economy, the dwindling of individual influence may actually be reversed through integration.

Of course, this is only true if countries and their citizens are involved in joint decision-making. The degree of participation is therefore much more important than the level of policy assignment to determine whether sovereignty is lost, shared or actually gained.

In the case of Europe, more and more decisions have been elevated to a supranational level because they could only be taken efficiently and effectively by accounting for interlinkages and spillovers. But at some point, when supranational institutions and processes continually gain influence, the need for greater political legitimacy becomes more and more pressing.

In some cases therefore, the first issue to consider with any possible further transfer of competencies would be the transfer of legitimacy through political accountability. If legitimacy is fully ensured at all levels, the policy assignment question can be answered on grounds of policy optimality.

Conclusion

Let me conclude.

As half a decade of crisis has forcefully demonstrated, macroeconomic and financial imbalances entail considerable challenges for the smooth functioning of our economic and monetary union.

Despite these challenges, our monetary policy framework, which is firmly anchored in central bank independence and a clear focus on price stability, has provided a robust basis for the ECB to deliver on its mandate. By preserving an unambiguous commitment to price stability, the ECB has made its best contribution to mitigating the fallout from the crisis. This commitment will continue to guide our policy in the time to come.

Thank you for your attention.

Source: http://www.ecb.europa.eu

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Confidence in Dubai Returns as Region's Largest Real Estate Event Reports Strong Growth

[caption id="attachment_896" align="alignright" width="300"] Cityscape Global 2012 is expected to grow by 25 per cent this year, fuelled by international exhibitor participation.[/caption]

Dubai, UAE, 19 June 2012: Cityscape Global, the Middle East’s largest and most influential international real estate event is expected to grow by 25 per cent this year, as international developers from the world’s emerging markets look to the region for potential investors.

Taking place from 2-4 October at Dubai International Convention and Exhibition Centre, the three-day event was repositioned three years ago to boost its international appeal, and is now seeing the results, with more than 50 per cent of exhibition space set to be occupied by overseas exhibitors.

Among the major international developers from emerging markets this year include the Russian developer Northern Caucasus Resorts Company (NCRC), and Turkish developer Agaoglu, which will showcase some of its flagship residential and office projects in the most prominent suburbs of Istanbul.

Nevra Dilmen, International Sales Director from Agaoglu said: “Agaoglu is one of the largest property developers in Turkey, with more than 50 per cent of our customers consisting of foreigners. The Middle East is particularly important for us, as lately most of our customers have come from the region.

“Our involvement at Cityscape Global 2012 is therefore a key part of our global marketing strategy, and we look forward to revealing at the show our latest project consisting of 7,000 units, which upon completion will be the largest project ever developed in Turkey.”

Meanwhile, Barwa Real Estate from Qatar, another headline exhibitor participating at Cityscape Global is having a big year in 2012, as it delivers its portfolio of mega developments – Barwa Al Sadd, Barwa Commercial Avenue, and Barwa City.

Eng. Abdulla Abdulaziz Al Subaie, Group CEO at Barwa Real Estate said: “Locally, we are establishing Barwa’s way of planning and delivering projects and we will replicate our excellence model to other global markets. “Through our participation at Cityscape Global, we are demonstrating our unique development approach and creativity focusing on delivering world-class quality standards.”

The repositioning of Cityscape Global to attract more international exhibitors from emerging markets is well timed. According to The World in 2050 report compiled by HSBC Global Research, by 2050, 19 of the 30 largest economies will be from the emerging world, fuelled by improved economic governance, human capital resources, and growing income per capita.

Wouter Molman, Exhibition Director for Cityscape Global said: “Cityscape Global has seen a significant increase of international real estate companies and developers seeking a new breed of international investor that Cityscape Global attracts. The growth of the event is largely due to overseas participation from countries including Qatar, Bahrain, Lebanon, Egypt and further afield including Russia, Poland, UK, Brazil, Chile, USA, India and Turkey.

[caption id="attachment_897" align="alignleft" width="300"] With more than 20,000 participants in 2011, the event is recognised as one of the most influential real estate events globally.[/caption]

“The involvement of exhibitors from across all continents is a testament to Cityscape Global’s growing international significance, and highlights that our 2010 strategy of repositioning Cityscape Global is really taking effect.”

Now in its 11th edition, Cityscape Global is the annual meeting point for key real estate investors, developers, investment promotion authorities, architects, designers and other real estate professionals to drive growth in real estate investment and development across emerging markets globally.

In addition to the large international contingent of exhibitors taking part this year, key Dubai developers will also be returning to showcase their latest real estate updates, including Dubai Properties, Nakheel, Meraas Development, DAMAC, Deyaar, and Dubai World Central.

Dubai’s real estate sector is also set for double digit growth in the next three years, due to a constant stream of fresh project handovers, while an influx of new supply entered the market in the first quarter of 2012.

According to the Dubai Real Estate Market Overview Q1 2012 report released by global real estate service firm, Jones Lang Salle, 3,000 residential units were completed in the first three months of this year, bringing the total number of units in Dubai to 341,000.

A further 28,000 residential units are expected to be delivered for the remainder of 2012, while another 15,000 units should be ready for handover in 2013 and 2014, presenting a supply increase of 12 per cent from the current amount of stock.

Office space in Dubai is expected to increase by 24 per cent by the end of 2013, reaching 7.2 million square metres, as the Emirate is likely to add an extra 1.4 million sqm to the current 5.8 million sqm, the report said.

The hospitality sector is also seeing strong growth, with the opening of Millennium Plaza on Sheikh Zayed Road, and Rixos The Palm in the first quarter of this year adding a further 700 hotel rooms to Dubai’s booming tourism industry, amounting to a total of 54,100 rooms. Another 11,300 rooms are expected to be injected by the end of 2014, up 20 per cent from the current amount of rooms.

Co-located with Cityscape Global are the Cityscape Awards for Emerging Markets on 3 October. The awards programme attracts hundreds of entries from developers and architects behind real estate developments across emerging markets globally. Entries from other Cityscape’s Awards programmes in Qatar, Egypt, Abu Dhabi and Saudi Arabia are also entered to compete for the ultimate accolade.

Also Co-located with the exhibition are three dedicated conference programmes, including the Global Real Estate Summit, the World Architecture Congress and the Retail City Conference, bringing together a combined 750 senior real estate professionals who will explore opportunities and find solutions to key challenges affecting the industry today.

Cityscape Global 2012 is supported by its Foundations Sponsors Dubai Properties Group and Nakheel, with Barwa as Strategic Sponsor.


OECD: Ominous Signs for International Investment

By Michael Gestrin, OECD

After two years of steady gains, international M&A activity plunged by $107 billion, or 45%, in the first quarter of 2012. This is the second lowest level of international M&A since the start of the global economic crisis. (figure 1)

The magnitude of this sharp reversal is due to its global reach, with countries from all regions simultaneously pulling back. The biggest industrialised outward investors accounted for most of the declines. The United States, the United Kingdom, and Japan reduced the most -- $76 billion in Q1.

This time the emerging economies also joined the trend. As a group they accounted for $12 billion of the total global decline, a share of 11%. This contrasts with the counter-cyclical role they played at the start of the crisis in Q1 of 2008. At that time, international M&A from the emerging economies increased by $6 billion, or 7%, while overall international M&A declined by $235 billion, or 37%.

This is the second lowest level of international M&A since the start of the global economic crisis.

The biggest change between these two periods is China (including Hong Kong, China). In Q1 of 2008, as the crisis started and global M&A fell by 37%, China (including Hong Kong, China) grew its international M&A by 70% to $33 billion. This year it contributed to the downward trend, reducing its international M&A by 36% to $19 billion.

The sharp decline in international M&A investment in Q1 of this year didn’t come completely unannounced since it was preceded by softer declines in Q3 and Q4 of 2011. This trend is also evident in data on foreign direct investment (FDI) flows, a broader measure of international investment that includes international M&A. Given that FDI flows and international M&A tend to move in lock-step, it is likely that global FDI flows have also declined sharply in 2012.

Just as the declines in outward M&A have been global in nature, inward M&A has also declined across all regions, with only one exception (table 3). Inflows of M&A into Europe, North America, Latin America, and Asia all declined by around 50%. The Middle East has been hardest hit, seeing M&A fall by 82% due to the combined effect of the downward cyclical trend and heightened political and economic instability in the region. The best performer was Africa, which enjoyed a 133% increase in inward M&A.

A feature of the crisis has been the growing importance of international M&A by state-owned enterprises (SOEs), a trend first reported in IN13 (June 2010). When international M&A reached its lowest point in 2009, international M&A by SOEs reached 30% of the global total, an historical record. This government-driven investment would seem to be motivated in part by bargain-seeking strategies. As the crisis reached its peak in 2009, SOEs mobilised their cash to acquire distressed international assets.  The latest sharp downturn in international M&A has been accompanied by another sharp increase in international M&A by governments. These accounted for 15% of total international M&A in Q1, the highest share since the record levels reached in 2009. (figure 2)

Although it is too early to predict whether to the steep decline in Q1 marks the start of a new downward trend, the magnitude of the decline in Q1 and continued sluggishness half-way through Q2 do not bode well for international investment in 2012. On current trend, international M&A would fall to levels not seen since 2004 (figure 3).

(Click for Figures and Tables)


London Stock Exchange (LSE) Facing Competition from NYSE Euronext

London Stock Exchange (LSE) is facing stiff competition from NYSE Euronext, which have already captured its first client to switch from LSE.

Groupe Eurotunnel, which operates the Eurotunnel between Britain and France, will start trading on NYSE Euronext London on July 19.

The announcement comes as NYSE Euronext looks to bolster its presence in London, Europe’s financial capital.

NYSE Euronext is headquartered on Wall Street and has over 3,000 employees.

The company already runs its derivatives business, NYSE Liffe, from London, but is looking to tap into the broader financial markets by tempting companies to switch their London-based trading activity to the exchange, as well as to entice new issuers to use its London bourse.

NYSE Euronext is a global operator of financial markets and provider of trading solutions. The Company offers an array of products and services in cash equities, futures, options, swaps, exchange-traded products etc.

NYSE Euronext consists of three business segments: Derivatives, Cash Trading and Listings, and Information Services and Technology Solutions.

On September 1, 2011, NYSE Euronext completed the acquisition of Metabit, a Tokyo-based provider of market access products with a trading community of more than 140 trading firms throughout Asia.

Despite NYSE Euronext’s global presence, its London operation is likely to face tough competition from the incumbent London Stock Exchange, and a current lack of new I.P.O.’s resulting from the financial crisis.


Nomura in New Insider Trading Scandal

Nomura is facing a new insider trading scandal. Nomura Holdings admitted to sweeping breaches of safeguards on confidential client information and will slash top executives' pay and shut an equity sales desk as Japan's largest brokerage seeks to resolve a damaging insider trading probe.

Nomura said CEO Kenichi Watanabe's pay would be halved for six months to take responsibility for the brokerage's third insider trading scandal since he took charge four years ago. In the year to end-March, 59-year-old Watanabe was paid US $1.6 million, including options.

Nomura has 27,000 employees and is Japans largest asset manager with US$ one trillion from private clients alone.

Nomura reported profits of $141 million for the 12 months fiscal year ending March 31st, 2012. This was a better result than in 2009 when the company lost $7.1 Billion. Nomura has $29 billion in shareholders equity. Nomura’s shares pay a current dividend yield of 2%.


BRIC Stocks Now Out of Favour … Later to Be an Incredible Investment Opportunity

With BRIC stock valuations currently low and yet with strong long term projected growth a great buying opportunity may materialize at some point going forward. Meanwhile, attractive dividend yields of 4%-5% and more are available.

The "BRICs" – Brazil, Russia, India, and China – are the four countries destined to be major world powers by 2050.

According to investment banking giant Goldman Sachs, the BRICs will grow to become four of the six largest world economies over the next 38 years.

Today's powers, like Germany and Japan, are expected to fall below them. And by 2050, China will become the world's largest economy… nearly twice the expected size of the United States…

With extraordinary growth comes extraordinary investment returns… if you buy at the right time.

Today, these countries are hated. They're cheap. And they're beginning what could be a new uptrend. We could have a near-perfect opportunity to buy the BRICs very soon.

The BRICs have outperformed the S&P 500 by six fold in the last 10 years.

A $10,000 investment in the BRICs in 2002 would be worth almost $40,000 today. The same $10,000 in the S&P 500 would be worth just $15,000.

While the BRICs offer enormous potential gains, they also come with increased risk. And when sentiment turns negative, these countries crash. This happened in 2008 as the BRICs fell 65%. And it's happening again today…

The easiest way to see this sentiment is to look at the shares outstanding in a major BRIC fund like the SPDR S&P BRIC 40 Fund (NYSE: BIK). When investors sell off their BIK shares, the fund's size shrinks. The fact that shares outstanding are falling shows investors want nothing to do with the BRICs…

Shares outstanding of BIK are down 32% in the last year. More important, they are down 20% since early April… That coincided with a 14% fall in its share price.

After the recent crash, major BRIC companies are now trading at crazy cheap prices. Take a look…

Company

Ticker

Fwd P/E

Dividend Yield

China Mobile

CHL

11.0

3.9%

Vale

VALE

5.5

5.8%

Petrobras

PBR

6.1

5.3%

Itau Unibanco

ITUB

6.9

4.6%

Another important detail here… These BRIC companies aren't speculative, small-cap stocks. They are giant, blue-chip companies. They all trade in the U.S. They are REAL, PROFITABLE businesses.

Looking at our table above… China Mobile is China's largest telecommunications company. Brazil's Vale and Petrobras, respectively, are two of the world's largest mining and oil companies.

You get the idea… When you invest in the BRICs, you're not speculating on questionable businesses. You're buying huge, blue-chip companies. Our real bet is on the growth of the underlying economies.

So we know these stocks are cheap and hated… but what about the uptrend? We don't have it… yet.

Follow the BIK and watch this space.

Source: S. Sjuggerud and B. Eversole,  Wealth Systems


Barclays' Libor Rate Fixing Leads to Resignations

Barclays last week agreed to pay $453 million to settle U.S. and British authorities' allegations that the British bank tried to fix and manipulate the London interbank offered rate, or Libor, which is the benchmark for interest rates on trillions of dollars of loans to individuals and businesses around the world.

Barclays executives initially believed they could ride out any resulting fallout from the settlement and accompanying admission that Barclays had acted improperly. But by Tuesday, the scandal had prompted the resignations of Mr. Diamond, Barclays Chairman Marcus Agius and Chief Operating Officer Jerry del Missier, some of the British banking industry's most prominent figures. No individuals were charged.

Libor: What You Need to Know

What it is: Libor – or the London interbank offered rate benchmark – is supposed to measure the interest rates at which banks borrow from each other. It is based on data reported daily by a 16-bank panel. Other interest rate indexes, like the Euribor (Euro interbank offered rate) and the Tibor (Tokyo interbank offered rate), function in a similar way.

Why it's important: More than $800 trillion in securities and loans are linked to the Libor, including $350 trillion in swaps and $10 trillion in loans, including auto and home loans, according to the CFTC. Even small movements – or inaccuracies – in the Libor affect investment returns and borrowing costs, for individuals, companies and professional investors.


Itaú Unibanco Forms JV With Banco BMG

Itaú Unibanco announced on Tuesday an agreement with the Banco BMG to offer, distribution and marketing of payroll services.

The joint venture will be called banco Itaú BMG Factored, and Itaú Unibanco will hold the control with 70% of the total capital of the new entity, while BMG will have the 30% remaining.

The initial equity capital will be US$ 500 milllion.

"Itaú Unibanco will contribute with their economic and financial capacity, administrative experience and controls and the BMG will contribute with their commercial and operational expertise, as well as the technological platform necessary for the development of the activities of the joint venture," said ITA in a statement to the market.

In addition, the joint venture will share "distribution channels with the BMG and shall have the right to finance 70% of claims reflected originated by such distribution channels. The remaining 30% will be hired directly by BMG. "

According to BMG, the Association will bring improvement in their leverage ratios, "with consequent release of capital required, bearing in mind that approximately 70% of payroll credits will be carried out signings by the joint venture."

The Bank also highlights the strengthening of brand, as "an important part of your business payroll loans will be held in association with Itaú Unibanco, Latin America's biggest private bank."


WTO: The Changing Nature of Global Trade

[caption id="attachment_1034" align="alignright" width="300"] Pascal Lamy, Director-General of the World Trade Organization[/caption]

By DG Pascal Lamy

Although global supply chains have been with us for several decades, their increasing prominence is rapidly changing the landscape of international trade in ways which will require fresh thinking about how trade affects national economies and how this impact should be assessed.

Today we trade in "tasks” and can no longer rely solely on gross trade flows as a measure of international trade. We need to think in terms of where the value is added in the production process. For example, a casual look at gross trade statistics could easily lead to the impression that an Apple iPhone imported from China is simply made in China and that all the jobs necessary to produce this good are Chinese jobs. But China adds a small fraction of value to such a product — as reflected in the final price — usually at the assembly stage. China’s share is well below 10 per cent. Meanwhile, many other countries, including Japan, the United States and Korea will have added value and created jobs through design, component production, branding, marketing and a range of other services that go into the product. For a number of products where after-sales service or after-sales software products can be incorporated, the supply chain lives on after a product has been retailed.

Measuring bilateral trade flows in value-added terms casts a decidedly different light on the way we consider surpluses or deficits. Seeing things this way can alter the trade policy debate. In value-added terms, China’s trade surplus with the United States in recent times, for example, is some 40 per cent less than the gross trade figures would have you believe.

Seven decades of trade-opening has significantly diminished the importance of tariffs.

- DG Lamy

The increasingly integrated nature of production has implications for trade policy too. To properly shape trade policy one needs to have a better handle on the data. One challenge is how to disaggregate the elements of complex supply chains into the individual components, both goods and particularly services. Some services are embedded in physical components and counted as goods. Others are part of the pre- and post-manufacturing stages of production. Together they are a large part of total production costs. Understanding services inputs better not only makes it possible for governments to think about how producers can capture more value-added along supply chains, but also how to set the best possible policy framework for services.

Another challenge concerns assessing and managing risks along supply chains. Cost minimization may entail risks that need to be addressed.

A third challenge is how to encourage the participation of small and medium sized enterprises in supply chain production, bearing in mind that it is the SMEs that have proven to be among the most successful creators of jobs. We are already tackling part of these issues in the Trade Facilitation Agreement negotiations. But probably more could be done in increasing transparency, through proper data bases.

Seven decades of trade-opening has significantly diminished the importance of tariffs. Today trade  rules weigh heavily on the minds of exporters: Sometimes regulations, standards and administrative procedures act as trade barriers.  Such rules are not necessarily designed to reduce or complicate trade. Some are just a matter of seeking out greater efficiency and improving governance.

Preferential trade agreements (PTAs) have contributed significantly to increasing trading opportunities, going beyond what has been attainable in a multilateral setting. But they have also given rise to multiple, criss-crossing rules of origin that can prove a veritable barrier to trade in their own right.

Divergent regulatory approaches within PTAs may also create confusion and higher costs for businesses that must adapt to a myriad of different regimes across such agreements. Where supply chains are concerned the impact of unnecessary obstacles to trade, especially at an early, upstream stage in the chain, will be magnified as affected components or services cross borders.

Obvious questions arise from the way politics, technologies and business practices have transformed production internationally. Clearly, we need to update our approach to negotiating greater co-operation among nations. Does it make sense, for instance, to negotiate goods and service along separate tracks, under separate agreements, as we do now? We have learnt enough about how supply chains work to appreciate how intimately linked policies are in the fields of goods and services.

Could we develop innovative ways of managing rules of origin, in cases where these are deemed necessary, so as to reduce or eliminate their inhibiting and cost-augmenting effects on trade?  Moreover, as non-tariff measures have become such a prominent part of the trade policy tool box, how should we address the necessary convergence of regulatory regimes? Harmonization? Mutual recognition? What is the proper forum to address such as convergence?

Given the organic links between trade and investment, should we continue to compartmentalize these two ways of accessing markets? Does it make sense to separate trade policy and competition policy? Considering the nature of inter-dependency among countries along supply chains, should we rethink the motivation and utility of trade remedies such as antidumping or countervailing duties?

The tectonic shift in trade patterns and practices confronts businesses and policymakers with a spate of new challenges. To meet these challenges means changing the way we think, the way we act and the way we govern.


European Council’s Van Rompey: Europe Must Overcome Crisis to Defend Democratic Values

[caption id="attachment_1063" align="alignright" width="127"] Source: The Council of the European Union[/caption]

European Council President Herman Van Rompuy’s speech "Europe on the World Stage" recently given in London emphasized the complete change of the global landscape, identifying three main trends: "One: the stage is getting more crowded. Two: the public comes closer to the stage than ever before, even to the extent of itself becoming an actor. Three: the nature of the play is changing. You may notice I use metaphors from the theatre. These may be less fashionable today in the field of foreign affairs than concepts from game theory, like "zero-sum" or "win-win", or geology, “shifting tectonic plates”. Yet they perfectly capture the nature of politics, its drama. Here in the London of William Shakespeare, I do not have to explain it: All the world’s a stage!"

From these three trends, the President drew the following conclusions for the European Union’s Member States: “First: on a crowded global stage, it makes even more sense to work together as a club. Second: in a world where public scrutiny plays an ever stronger role, we must defend our democratic values. Third: faced with the new play of global interdependence and global governance, we need a presence in all the world's regions.”

Europe has a role to play: politically, economically, and also militarily. And in most cases, European countries can perform better by working jointly. (…) The Union is not about giving up your own role; no, it is about leveraging our strength by aligning our positions, pooling resources, acting in the world as a club -- and increasingly as a team. Even if, for not having its own army, the European Union is seen as using mainly soft means, we achieve pretty hard goals.” Examples mentioned by the President in the field of security included stabilising the European continent through enlargement, putting pressure on the regimes in Iran and Syria, monitoring borders after wars, paving the way politically for the intervention in Libya.

“... we must defend our democratic values”

- Herman Van Rompuy

He also underlined the importance for trade, as “an engine for growth” but also as “an engine for change”. To conclude, President Van Rompuy stressed that "we already are a ‘club’ of states in the world, a Union – and perceived as such by the others. The Europeans share a certain vision and approach in foreign affairs, different from that of the Russians, the Chinese, the Japanese, or even the Americans. Sure, all Member States do not share every position on every issue. But single disagreements -- for instance on Palestinian statehood -- should not be seen as a proof that Europe lacks a common foreign policy. The fact is that today, in the most dangerous hot-spots, such as Syria, Iran or the Israeli-Palestine conflict, the 27 very easily find common positions, sometimes within hours."

“Now is the time to build on this confidence. European foreign policy is a daily reality for the 27 Member States. The financial and economic crisis, deep as it is, does not stop that. Yet overcoming the crisis is an absolute pre-requisite for much else. Restoring the Eurozone's stability is indispensable for us to punch our full weight at the
global stage. I am convinced that, for that, we also have to structurally increase our economic growth. Even if it is perfectly normal that ‘mature’ economies grow more slowly than emerging ones, a potential growth of 1.5 pct is simply too low. We must focus therefore internally as much on growth as on stability.

The world is looking at us. Our efforts to overcome the crisis have become a key issue in our dealings with international partners. Explaining our course of action, the political constraints under which we work, reassuring our partners on our ability to keep moving forward: these are among our highest foreign policy priorities at the moment.

[caption id="attachment_1067" align="alignleft" width="300"] Herman Achille Van Rompuy, President of the European Council. Source: The Council of the European Union[/caption]

Ii also involves making the case that the Eurozone is not the only region having to adjust its "internal balances". So have the others, and the US and China have to deal with big "external imbalances" on top of it. Maintaining strong relations and mutual trust with our international partners will be key for the recovery of our economies. In such times, a strong diplomacy isn't a luxury we could be tempted to disregard, but an absolute necessity. It concerns each and every member state. Since the 1950s, Member States have always intensified their cooperation as a result of ideas and ideals on the one hand, sheer necessity on the other. Once again today the pressure of events is huge: financially, globally.”

Source: The speech contributed by the European Council was given in London at Chatham House, 31 May 2012.

Herman Achille Van Rompuy is the first long-term, full-time President of the European Council. His now second term as the President of the European Council is set to last to November 2014 as he was re-elected by the heads of state or government of the 27 EU member states. Prior, as a Belgian politician Van Rompuy served as Prime minister until 2009.


World Bank Group: Create Jobs by Focusing Industries to be Competitive

[caption id="attachment_1092" align="alignright" width="300"] Janamitra Devan, Vice President, Financial and Private Sector Development[/caption]

Focusing Investment in Industries Poised for Growth Can Help Generate Jobs, Income and Wealth.

By Janamitra Devan

Job creation is the top priority of governments worldwide, as countries large and small struggle to overcome the prolonged global economic downturn. Amid the euro crisis in Continental Europe, the abrupt slowdown in the United Kingdom and the United States, and the sudden sluggishness in many once-vibrant emerging markets, policymakers everywhere are urgently seeking activist pro-growth strategies.

To energize their economies for the long term, both the wealthy West and the developing world would be wise to look toward countries where a disciplined approach to making strategic investments in specific industries has paid dividends. Such an industry-focused approach can be especially effective in developing countries, where about 1.5 billion “vulnerably employed” people are barely surviving on subsistence-level incomes – and where intensifying demographic pressures foreshadow an overwhelming unemployment threat.

"... policymakers everywhere are urgently seeking activist pro-growth strategies."

- Janamitra Devan

Propelling job creation will require a more comprehensive approach to focusing investment in integrated industrial ecosystems – networks of industries, innovators and investors that bring together all the creative elements that help economies thrive. The private sector must take the lead in organizing such industrial ecosystems, yet the public sector certainly also has a vital role to play. Sound policies must provide the enabling legal and regulatory frameworks that allow industries to compete – and not just by setting macro-level policies, but also by devising industry-specific strategies.

This challenge calls for countries to focus investments in industries with strong potential for success. Pursuing such a strategy will require both business and governments to reach deeper into their policy toolkit. Supportive public policies must ensure that a strong and agile infrastructure is in place; that a well-educated workforce is equipped with flexible job skills; and that advanced industries are incubated and encouraged with positive incentives.

Deciding where to promote job-creating investment will inevitably be a complex process, but policymakers can apply a range of targeted strategies, tailoring them for the particular conditions of each country. Such a pragmatic approach should aim to induce investment in industrial sectors where countries foresee that they can sustain a competitive edge, building on their distinctive but as-yet-unrealized comparative advantages in the global value chain.

The World Bank Group is now actively helping our clients – low- and middle-income countries – make careful plans for focused investments through what we call the Competitive Industries approach. The Bank’s industry-focused efforts are now most active in Africa. In Burkina Faso and Niger, for example, the Bank is supporting an analysis of the agribusiness value chain to identify potentially job-creating areas, prioritizing investments in industries and infrastructure while pursuing regulatory reforms and regional trade integration. Similarly, in Mozambique, the Bank is helping intensify the focus on expanding the country’s tourism industry and on developing its natural resources.

Competitive Industries engagements are also under way in fragile and conflict-afflicted states, where job creation is critical to stability and security. In Afghanistan, the Bank is helping the government leverage mining investments into a resource corridor. In the West Bank and Gaza, projects are focusing on the value chains in agribusiness and information technology. In Haiti, projects are helping develop tourism and textiles.

Responsiveness to market signals is a key factor in the Competitive Industries approach. Policymakers must be bold enough to double-down on early signs of progress – and must also be realistic enough to withdraw support when the marketplace sends signals that failure is likely. Transparency and good governance are essential to maintaining confidence in an era when instant information-flows provide real-time data about industries’ performance. Adjusting to trends in technological change is another priority that calls for agile decision-making by the public and private sectors, working in concert.

Such coordinated public-private approaches have long been pursued successfully in Singapore, South Korea and Malaysia. Each country, in its own way, has made successful strategic investments – focusing on high-value industries, such as financial services and chemicals in Singapore, electronics and shipbuilding in South Korea, and semiconductors and electrical equipment in Malaysia. The same type of strategic analysis that these countries have applied to their industrial ecosystems can help inspire other nations to creatively focus their economic plans.

Lower-income nations with limited resources are, in a sense, destined to make strategic choices about where to invest: Lacking the wealth to spread their bets too thin, they
must conduct shrewd analyses about where to channel their limited resources to try to create jobs. The developing world is in a race against time, as outlined in the latest edition of the Bank’s “World Development Report.” At least 350 million additional jobs must be created in developing nations over the next decade – just to keep up with the pace of population growth, much less to reduce today’s level of unemployment.

Taking a strategic approach to investment is increasingly important for wealthier countries, as well. Even the West’s most free-market-oriented economies – including the United Kingdom and the United States – have increasingly been pursuing activist economic policies to jump-start job creation in the private sector. Policymakers in the U.K. are often candid enough to use the term “industrial policy” to describe their initiatives, although that phrase sounds slightly off-key in the Washington debate.

Competitive Industries includes a somewhat more robust role for the public sector than Washington has been accustomed to, yet its logic is not out of step with the market-driven inclination of U.S. policymaking. Washington has traditionally preferred to let the private sector take the lead in industry-level decisions, but, in recent years, the federal government has been pursuing a range of more activist approaches. The Obama Administration launched a public-private Advanced Manufacturing Partnership and a new Office of Manufacturing Policy in 2011, and created a new National Network for Manufacturing Innovation in 2012, aiming to foster closer alliances among manufacturing companies, universities and federally funded research laboratories.

Public-private cooperation in shaping investment priorities does not amount to “picking winners and losers.” That approach, attempted in some countries in the 1960s and 1970s, sometimes merely propped up losers and cronies. Instead, the Competitive Industries approach considers such market-based criteria as agility, innovative capacity and responsiveness to global demand.

Many nations, both developed and developing, have come to grasp that shrewd industry-level interventions can help boost prosperity. Germany has long concentrated investments in high-value-added electronics and machinery, and it now enjoys an impressive lead over its competitors in many advanced energy systems. Brazil has made strong investments in its aerospace industry and clean-energy sector. China remains the standard-bearer for state-led dirigisme, yet its strong growth in recent decades illustrates the impact of targeted investment.

Making successful investment choices is especially important for developing economies – such as Indonesia, Vietnam, Morocco or Jordan – where rapid population growth makes the employment imperative most urgent. Strategic analysis of each country’s best opportunities, especially in tradable goods that compete in the global marketplace, can help policymakers calculate how to nurture the supportive innovation ecosystems that empower entrepreneurs.

Public policy may play only a supportive role in guiding each nation’s decisions about investment, with the private sector continuing to drive growth. Nonetheless, governments should play their role effectively rather than only grudgingly.

Nations can make strategic investments consciously, or they can take their chances blindly and hope to blunder into success – but, one way or another, the economic future will be shaped by those who analyze market forces and organize themselves strategically. Applying a pragmatic approach that targets a country’s comparative advantages through the lens of its industries is a promising way for each nation to strengthen its competitive assets. In a global economy that will relentlessly cull the losers and reward the most productive competitors, the winners will be those who anticipate events rather than merely react to them.

Janamitra Devan is a Vice President of the World Bank and International Finance Corporation, leading its network on financial sector and private sector development. Since joining the World Bank Group in 2009, he has focused on working with the Bank’s client countries to strengthen job creation; promote innovation and entrepreneurship; improve the climate for investment; provide broader access to finance for the poor; and oversee  resilient banking systems and capital markets. Devan also represents the Bank on the Financial Stability Board in Basel.

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to The World Bank or IFC.


Enterprise Europe Network: Helping SMEs Realise their Potential

Small businesses looking to succeed in today’s market need to trade across borders, invest in research and development and access finance and funding. A unique business support network set up by the European Commission and operating in 50 countries helps them to do just that.

The Enterprise Europe Network, made up of close to 600 local business and innovation organisations, is the world's largest business support network. It connects European small- and medium-sized enterprises (SMEs) to cross-border business and technology partners and offers valuable information and advice on how to access finance and apply for EU-funded programmes and protect intellectual property.

With branches around the globe acting as a one-stop shop, the Enterprise Europe Network helps companies to identify their potential, needs and relevant EU funding and finance opportunities. Active in the European and 23 countries in theAmericas, Asia, Africa and Middle East, the Network offers comprehensive advice and assistance to businesses and entrepreneurs free of charge, helping them make the most of the opportunities inEuropeand beyond.

After four years in operation, more than three million SMEs have already profited from the Network’s support.

Improving access to finance for SMEs

Accessing finance is a key concern for small businesses. They often struggle to convince financial institutions to invest in them or lend to them. The EU has established tools specifically targeted at SMEs, providing guarantees, loans and equity to financial intermediaries who can then lend to small businesses or make available equity finance.

The tools have been specifically developed to cover areas of the market where access to finance is difficult and to target companies’ start-up, expansion and business transfer phases. So far, more than 160 000 European small businesses have benefited from loans backed by the European Commission’s financial instruments. On average, each SME that gets a guaranteed loan creates 1.2 jobs.

Other EU initiatives also facilitate access to loans and equity finance for SMEs, such as the PROGRESS Microfinance programme, specifically designed to respond to the needs of the European microfinance sector, and the initiative JEREMIE, which makes use of the European Structural Funds for SME finance.

All these instruments are not directly available to SMEs but are implemented by the European Investment Fund (EIF), which acts on behalf of the European Commission and works with selected financial institutions at national and regional level, such as banks and venture capital funds.

To find out more about the financial instruments and how to get in touch with them, start by contacting your local branch of the Enterprise Europe Network. Its experts will help identify the sources of finance that best suit your business and offer tailor-made advice.

Accessing EU projects and funding

European programmes offer funding opportunities in many sectors, such as research and innovation, environment, energy and transport. Companies can apply directly for these thematic programmes, on condition that they present sustainable, value-added and transnational projects. The EU’s support comes in the form of subsidies which only cover part of the costs of a project, known as co-funding.

The major funding initiative is the Seventh Framework Programme for Research and Technological Development (2007-2013) or FP7 for short. The indicative budget for the SME is around € 1.3 billion.

The European Enterprise Network helps SMEs apply for FP7 funding, which can be a complex task. Network experts can help find international project partners, formulating their project ideas and increasing their proposal-writing and project management skills to prepare winning applications. So far, the Network has helped more than 1 500 SMEs to apply for EU research funding.

The Network also sees public procurement as a prime market opportunity for creative concepts, products and services. Members hold events to bring together buyers and sellers, and introduce companies to authorities who are actively seeking innovative products.

Case study: Uncorking new possibilities

Brought together by the Enterprise Europe Network, a Spanish SME has teamed up with German researchers in an EU-funded project to prevent contamination in wine corks.

A common fault in wine, ‘cork taint’ affects as much as 5% of the bottled wine inEurope, resulting in annual losses of €700 million. To combat the problem, a team at the Institute of Plasma Research in Stuttgart, Germany, is leading a project called Neatcork. The goal is to treat the corks in an atmospheric pressure air plasma process before sealing the bottles, eliminating any risk of cork taint.

For help assembling a research consortium the Institute turned to the Enterprise Europe Network branch Steinbeis-Europa-Zentrum, who invited the institute to meet with a group of companies brought to theStuttgartregion by the Network branch inBarcelona, ACC1Ó. One of them was the Catalonian Research and Innovation Centre (CRIC), a private research and innovation centre based inBarcelona. In fact, a local company with whom the centre has close ties, Maquinaria Moderna, an SME specialised in machinery for wine bottling, was looking for ways to avoid this spoilage.

The Neatcork project came to light soon after the company mission. The project has received €1.01 million in funding under the EU’s research programme FP7 and it expects to develop a technology that can potentially benefit thousands of European wine producers.

Promoting cross-border cooperation

The European Enterprise Network encourages SMEs to do business across borders through partnerships and technology transfer agreements. In three years, 4 300 cross-border cooperation agreements were concluded through the Network with a total impact on sales growth estimated at € 450 million. Participating firms created 2 400 new jobs.

The partner organisations have access to two powerful databases: one for business partnerships and one for technology transfer. Company profiles and offers are inserted into the databases and made available to the whole Network. Local offices use the databases to search for the right match for their clients and then help them to link up. The databases are among the world’s largest, and contain more than 23 000 profiles.

In addition, the Network organises brokerage events to bring companies together. Experts also provide advice on European regulations and intellectual property law.

Case study: Guided tours for the digital age

[caption id="attachment_1146" align="alignleft" width="150"] Oldest city in Germany - Trier[/caption]

Thanks to the Enterprise Europe Network and Icelandic technical know-how, two former radio journalists from Germany are selling their multimedia city tours to iPhone users.

Through their Trier-based SME called Audiobits, Markus and Ute Schneider-Ludwig produce audio books, podcasts and self-guided audio tours. For help building the business the husband and wife turned to the Enterprise Europe Network, based at the IHW/HWK Europa- und Innovationscentre.

Using the Network’s powerful business matchmaking database, Network expert Thomas Weinand came across an intriguing company, Locatify, a client of Reykjavik-based Network expert Kristín Halldórsdóttir at Innovation CentreIceland. The smartphone technology start-up was seeking content providers in the niche virtual tour guide field.

The companies agreed to cooperate, inspiring the Ludwigs to create a multimedia iPhone tour of Trier. The 30-minute tour of Germany’s oldest city, complete with maps and images, is led by fictional wine merchant Claudius Publicus and Medieval-era nun Sister Brunhildus.

Seizing global opportunities

A recent study carried out by the European Commission showed that trading abroad is of major importance for European SMEs, and the European economy, given that internationally active firms report employment growth of 7% compared with only 2% for companies that have not internationalised.

However, SMEs face particular obstacles to tapping the global market, not least when it comes to access to market information, locating possible customers and finding the right partners.

In addition to helping European companies to make the most of their opportunities in the single market, the Enterprise Europe Network opens doors to markets beyond EU borders. With branches in 21 countries outside the EU – in Europe, the Middle East, Asia and theAmericas– the Network is well-placed to help European enterprises establish themselves in foreign markets.

Network experts also help SMEs facing complex issues such as compliance with foreign laws, for example mandatory rules of contract law, customs rules, technical regulations and standards, managing technology transfer and protecting intellectual or industrial property rights.

Case study: The sweet smell of success for Swedish firm

[caption id="attachment_1148" align="alignleft" width="150"] Dalecarlian Horse[/caption]

Dalecarlia Chocolates' star product is a chocolate praline in the shape of the Dalecarlian horse, Sweden's national symbol. With exports to more than 30 countries worldwide, the company wanted to bring the taste ofSwedento an even larger audience and break into one of the most attractive foreign markets, China.

The company contacted the Enterprise Europe Network based in the Teknikdalen Foundation in Borlänge for help. As one of nearly 600 partner organisations across Europe and beyond, the Borlänge hub was able to quickly contact its Chinese counterpart in the city of Wuhanand the University of Dalarna.

Together they looked for the right partner to distribute and promote the Dalecarlia brand. The Swedish company is now opening a sales office in China.

The Enterprise Europe Network was set up by the European Commission’s Enterprise & Industry Directorate-General and is managed by the Executive Agency for Competitiveness and Innovation.


Brazil Oil Leak to Cost Chevron $25 million

Brazil’s National Petroleum Agency said Thursday that Chevron Corp. will be fined nearly 50 million reais (approximately $25 million) for an oil leak at an offshore field last November.

The U.S. oil producer was found to have committed 25 rules violations, each of them subject to a fine of up to 2 million reais, agency officials said at a press conference, while noting that Chevron’s prior good record in Brazil will be taken into account in determining the precise amount of the penalty.

The agency, known by the Portuguese initials ANP, says 3,700 barrels of crude have leaked from the Frade field, located 120 kilometers (75 miles) off the coast of Rio de Janeiro state.

“The accident could have been avoided if Chevron had complied with the Brazilian rules and its own guidelines,” ANP Director Magda Chambriard said. She also said a 68-page report detailing each of Chevron’s 25 rules violations will be released later.

The San Ramon, California-based multinational is the operator of the field with a 52% stake, while Brazilian state-controlled oil giant Petrobras and Japan’s Frade Japao Petroleo have 30 percent and 18% interests, respectively.

Frade lies in the Campos basin, where nearly 90 percent of Brazil’s oil and gas is extracted.


Brazil's World Cup Host Cities Will Have Additional Funds for Investing in Tourist Infrastructure

Resources from the Ministry of Tourism will be used for implementing tourist information centres, as well as putting up street signs and accessibility related construction works.

Less than seven hundred days away from the beginning of the 2014 World Cup, the Brazil Ministry of Tourism announced a tourist focused capital reinforcement for the tournament’s host cities. R$ 110.6 million ($55 million) has been allocated for tourist infrastructure related construction works in the World Cup's 12 host cities.

Another R$ 10 million ($5 million) in matching funds will be added to the investment, as financial matching for actions taken by state and municipal governments.

The resources will be allocated to projects for the implementation of Tourist Information Centres (CATs), putting up tourist signs and accessibility related construction works in the cities’ tourist sites. These three funding categories are part of the federal government’s preparation related commitments for the 2014 World Cup, which will be delivered by the ministry.

The resources were allocated in the following manner: Belo Horizonte (R$ 5.62 million), Brasilia (R$ 3.49 million), Cuiabá (R$ 3.31 million), Curitiba (R$ 8.57 million), Fortaleza (R$ 17.43 million), Manaus (R$ 1.84 million), Natal (R$ 17.58 million), Porto Alegre (R$ 11.29 million), Recife (R$ 14.97 million), Rio de Janeiro (R$ 17.92 million), Salvador (R$ 7.69 million) and Sao Paulo (R$ 896 thousand).

The resources announced for host cities are part of the total of R$ 323.7 million ($160 million) committed by the Ministry of Tourism for tourist infrastructure related construction works in the whole country.

Source: Ministry of Tourism and the World Cup Portal


Brazil's Salvador with Major Construction Ahead of World Cup 2014

Salvador will host at least three of the main teams that qualify for the 2014 FIFA World Cup. In the group stage, the city will be the stage of four matches. Three of them will involve the seeded teams from three different groups. The capital of the state of Bahia will host a second round match and one of the quarter-finals.

The confirmation of Salvador as a host city of the 2013 Confederations Cup has been conditioned to the progress of the constructions works of the venue until June 2012, according to information from FIFA.

The construction works are expected to be finished by December 2012, with a total investment of R$ 597 million (approx. $300 million)  of which R$ 323.6 million come from federal financing. The project anticipates that the original characteristics of the venue will be kept and the construction will be done as a model of a private public partnership, and the buildings will have car park, shopping centre, hotels and concert venues. The group in charge of the construction works will have the right to explore the facilities surrounding the complex financially for 35 years.

After ready, the Fonte Nova Arena will have a light metal rooftop structure, capacity for 50 thousand people, 71 boxes, 94 toilets – of which 23 adapted for disabled people – 39 food kiosks, panoramic restaurant, press area, roof covered car park with approximately 2 thousand spaces and a football museum.

At the side of the venue, a multimodal urban mobility system will be implemented to reduce the volume of traffic, which is very intense today because of the great number of cars on the streets and avenues of the city. Refurbishment works are also planned for the International Airport, including the increasing of the car park and other new facilities; a new passenger terminal will be built at the city’s port.

Around R$ 5 billion shall be allocated to the infrastructure works, with the conclusion of the metro line standing out. There are also plans for an express roadway to be built between the port and the city’s main access roadway. The security area and hotel sector will benefit from public and private investments.

Source: The World Cup Portal