European Commission: Helping SMEs Seize Global Opportunities

The priority for Europe now is to overcome the crisis boosting competitiveness and growth. Fast growing emerging markets such as China, India, Russia and Brazil, with strong growth rates and potential represent significant opportunities for EU companies. Exports outside the EU to expanding markets could trigger new dynamism for European economy. The Enterprise Europe Network helps European small and medium sized enterprises (SMEs) seize these opportunities and take the step into internationalisation.

The Enterprise Europe Network is the world's largest business support network, based in close to 600 local organisations in more than 50 countries. The partner organisations include chambers of commerce, enterprise agencies, regional development organisations, research institutes, universities, technology centres and innovation centres.

The EU-funded business and innovation support network eases the way for companies to start trading abroad, find business or technology partners and access EU funding. Its presence in Europe, the Middle East, Asia and the Americas gives SMEs a foothold in established and emerging global markets.

India is the latest country set to join the Network, with three new centres to start operating in New Delhi. An office will also shortly open in Canada, while four new branches in Shanghai and Nanjing have brought China's total to 27.

The Network also has branches in southern Mediterranean countries, with eight contact points in place in Tunisia, a longstanding partnership with Egypt and seven Moroccan offices set up recently.

The focus on Africa is conceived to be of mutual benefit for SMEs in the EU and in Mediterranean neighbour countries, where a favourable environment for SMEs and further economic development is essential for political stability.

Other countries to have recently joined the Network include Ukraine, Moldova and Mexico.

Case Study: Ticket to Ride for Tourism Web Developer

For more than 20 years, Italian SME Editel has been developing websites and applications for corporate clients in the northern Trentino region. Working with an Armenian partner it found through the Enterprise Europe Network, the micro-company is taking its business to the next level.

Editel, based in the town of Pieve di Bono, caters to corporate clients in several sectors including tourism – for which Russia is a growing target market.

For help finding a business partner Editel turned to the Enterprise Europe Network. Its local branch is hosted by business and innovation agency Trentino Sviluppo. Network business adviser Francesca Azzolini added Editel’s profile and request to the Network’s powerful business matchmaking database. “We can help even the smallest SMEs with international ambitions,” she says.

Many kilometres away, Network expert Ani Khandamiryan of the SME Development Center of Armenia flagged the profile to E-Works, an SME specialised in web design and multimedia for Russian, Swiss and American companies.

Soon after, the companies agreed to cooperate in some projects and develop Russian-language mobile applications.

“Armenia is at the forefront of research, development and production of high technology,” says Editel owner Pierlugi Ghizzi. “Thanks to the Network, we can benefit from this know-how and expand our offer in ways we never thought possible.”

And for E-Works, predicts commercial director Andranik Martirosyan, “this partnership will help us conquer Europe.”

Internationally Active SMEs Yield Better Results

SMEs play a key role in creating growth and jobs. Europe’s 23 million SMEs account for two thirds of jobs in the private sector and around 80 % of new jobs over the past five years have been created by SMEs.

Furthermore, 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.

There is also a strong relationship between internationalisation and innovation. According to the same study, 26% of internationally active SMEs have introduced new products or services for their sector in their country; for other small businesses this is only 8%.

However, SMEs’ international activities are mostly geared towards other countries inside the internal market and only about 13% of EU SMEs are active in markets outside the EU.

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. The Network helps SMEs dealing with these challenges.

Case Study: Plugging In to New Connections

Olympia Electronics, founded in 1979 by a pair of Greek entrepreneurs, has grown into one of the country’s most successful makers of emergency lighting, gas detection and fire alarm systems. Working hand in hand with the Enterprise Europe Network, the electrical and electronics manufacturer is now exporting its products to the world’s largest market.

High-tech fire-detection system made in GreeceOur dogma is to think globally – act locally,” says Dimitrios Lakasas, Olympia’s marketing manager. “We are now finally selling in the United States with small volumes, the first step towards further penetration.”

Based in the northern Greek city of Thessaloniki, the firm exports to more than 70 countries in the EU, Eastern European countries and the Middle East.

But gaining a foothold in the United States, the world’s largest and most competitive market, posed a huge challenge for the company, a leader in the Greek market for emergency lighting and fire alarm systems.

For guidance it went to the Enterprise Europe Network. Along with 15 other companies from seven other sectors, Olympia signed up for a trade mission to New York.

“There is no substitute for face-to-face contact in the business world,” says Vanessa Vlotides, international affairs director for Network partner, the Federation of Industries of Northern Greece. “This is something the Enterprise Europe Network proactively promotes, drawing on our wealth of resources and contacts.”

The Federation planned the mission with help from the New York-based European American Business Organization, which is also part of the Enterprise Europe Network, and the Greek general consulate.

A meeting between Olympia and a US firm arranged by the Network partners led to an agreement under which the two firms are now selling each other’s products in their respective markets.

Tapping Into World Markets

With branches in 25 countries outside the EU – in Europe, the Middle East, Asia, Africa and the Americas – the Network is well-placed to help European enterprises establish themselves in foreign markets.

The 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 contain more than 23 000 profiles.

In addition, the Network organises brokerage events to bring companies together.

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.

Opening the World for SMEs to Enhance EU Growth and Jobs

The sources of growth are changing rapidly in the world economy. The emerging market economies of Asia and Latin America are likely to more than double their output up to 2020, outpacing the growth of the more developed economies.

As part of the EU strategy for supporting SMEs in international markets, the European Commission launched in December 2011 a series of business diplomacy visits labelled "Missions for Growth", aimed at fostering industrial cooperation and business relations with fast growing emerging international markets and helping EU businesses, especially SMEs, to make the most of global opportunities.

On such visits the Commission delegation is accompanied by European representatives of European companies, industrial sector associations and horizontal business associations from all main industrial sectors.

The visits usually include a series of high-level political meetings, promoting policy dialogue for improving industrial and business cooperation, so as the organization of business to business meetings, where EU entrepreneurs will describe their profile and manifest their interest in order to be matched up with business representatives of the host country.

With branches around the globe the Enterprise Europe Network contributes to the business to business matchmaking events organized in the frame of the Missions for Growth, mobilizing European SMEs to participate and making use of its contacts and well developed tools to cooperate with the business organizations in the targeted countries.

So far, Missions for Growth have been organised to Brazil, Argentina, Chile, Uruguay, USA, Mexico, Colombia, Egypt, Morocco and Tunisia. Future planned Missions include Russia, China and India.

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.

To find the Network near you, visit ec.europa.eu/enterprise-europe-network

To find out more about Missions for Growth, ec.europa.eu/enterprise-europe-network /events/missions-growth


Replacing Aid with Trade

[caption id="attachment_2699" align="alignright" width="240"] Swaminarayan Akshardham Temple, Delfi[/caption]

Modern India, boasting its own space programme spends 70 billion pounds annually in fighting poverty and no longer needs British aid. Earlier this year, finance minister Mukherjee described Britain’s eight year, 1.6 billion pounds programme as ‘a peanut’. This peanut is hard to for India to swallow and the UK is working on plans to wind down aid from the International Development Agency. Some of the 650 million pounds due to be spent over the next thirty months will be saved as Britain replaces aid with trade.  It is widely thought that the UK government should not be providing millions in aid to booming countries such as Brazil, India and China.


Norway’s Prime Minister Jens Stoltenberg: Need to see Renewed Growth in the EU

[caption id="attachment_2705" align="alignright" width="210"] Oslo, 11 December 2012: Prime Minister Jens Stoltenberg today met President Jose Manuel Barroso of the European Commission and President Martin Schulz at the European Parliament.[/caption]

On Monday Dec 10th Norway’s Prime Minister Jens Stoltenberg hosted a working lunch for EU leaders who will be in Oslo to attend the Nobel Peace Prize Award Ceremony. The economic situation in Europe had been chosen as the theme for the working lunch.

Welcome to this informal lunch – and congratulations to all of you!

I think we are all deeply moved by today’s ceremony in Oslo Town Hall.

I welcome the Nobel Committee’s decision to award this year’s Peace Prize to the EU.

Europe has been transformed from a continent of war to a continent of peace.

You have helped former dictatorships towards democracy and prosperity.

Today is a day of celebration. And it is a day to look forward. Let us pay tribute to your achievements by also addressing Europe’s challenges.

"Europe has been transformed from a continent of war to a continent of peace."

The economic setbacks in Europe are a cause of serious concern. It is therefore encouraging to see that progress is made.

The EU has taken brave steps to rectify the situation.
Institutions are being reformed.
Policies are being changed on the basis of solidarity and sound economic management.

These efforts are now paying off. Economic imbalances in Europe are slowly declining.

Competiveness is increasing.
Deficits are being reduced.
The balances of payments are improved.

But economic growth is still weak. Unemployment is high and increasing.

And the character of the financial crisis is changing. What started as a crisis in the financial markets and in the banking sector has developed into a crisis in the labour market.

The fact that millions of people are without work is not only a human tragedy – it also represents a huge economic loss. Unemployment undermines future growth.

So the hard work must continue. Structural change is still needed. And this is urgent.

The challenge is to find the right balance between solidarity and responsibility.
Between growth and budgetary discipline.
We need both.

Norway is not a member of the European Union. But we are part of the European economy.

Norway is a small open economy, a close neighbour to the EU, and a member of the Internal Market. 80 per cent of our export goes to the EU. We are therefore very much affected by developments in Europe.

The future of Europe is the future of Norway.

The Norwegian Government and private companies are long-term investors in the European market.

We too need to see renewed growth in the EU.

We have stimulated our own growth by reforming the pension system, renewing the public sector, investing in education – and helping more women to enter the labour market.

These reforms have been based on social dialogue.

I am convinced that the current crisis also will make the EU and European integration stronger and more effective.

I look very much forward to hearing your views on these issues.


EU Receives 2012 Nobel Peace Prize

The European Union (EU) received the 2012 Nobel Peace Prize on Monday in recognition of over six decades’ contribution to the advancement of peace and reconciliation, democracy and human rights in Europe.

The EU ambassador to Tanzania Mr Filiberto Sebregondi said yesterday in the city that the prize shows that the EU is at the forefront of international efforts to preserve and develop the fundamental Human Rights and Freedoms giving as an example the recently adopted Action Plan on Human Rights.

He said that the Action Plan engages the EU to step up efforts to promote freedom of expression, opinion, assembly and association, the fight against all forms of discrimination and support to human right defenders.

“It is a great honour for me to witness and celebrate the award of the Nobel Peace Prize 2012 to the EU. The European citizens at large are very proud of this recognition,” said Mr Sebregondi.

The Nobel Prize Committee presented the prize in Oslo, Norway. Three presidents of the European Commission, of the Council of ministers and the European Parliament Mr Jose Barroso, Mr Van Rompuy and Mr Martin Schulz attended the awarding ceremony.

He said that the committee awarded the Nobel Peace Prize to the EU based on Europe’s historical record after World War II. Six decades ago, Europe was just recovering from the two world wars into which it had dragged Africa, America, and the rest of the world.He said that the European Union construction during the 55 years from its inception by six countries; represents the most successful peace project the world has witnessed in modern times.

[caption id="attachment_2720" align="alignleft" width="300"] José Manuel Barroso responds after the European Union won the Nobel peace prize, saying it had 'been awarded to all 500 million EU citizens'. Photograph: Thierry Tronnel/Corbis[/caption]

It could be taken as an example by the other part of the world where war still ravages the societies.

“Besides, the EU have provided a formidable inspiration for countries living without freedom or in high risk of destabilization,” he said.

He said that the commission has formally accepted the prize money on behalf of the European Union and states that the approximately Euro930, 000 will be allocated to children affected by war that are most in need. Mr Sebregondi said that the Nobel Peace Prize consists of an amount of SEK 8 million, a medal and a diploma.


Global Wage Report

Global wages remain far below pre-crisis levels, says a new United Nations report, which points to a continuing slowdown in developed countries alongside increases in emerging economies.

The Global Wage Report 2012/13, released on December 7th by the International Labour Organization (ILO), shows that global monthly wages grew by 1.2 per cent in 2011, down from three per cent in 2007 and 2.1 per cent in 2010. It also cites huge differences between countries and regions.

“This report clearly shows that in many countries, the crisis has had a strong impact on wages – and by extension, workers,” said ILO’s Director-General, Guy Ryder. “But the impact was not uniform.”

While wage growth suffered a double-dip in developed economies – where it is forecast at zero per cent in 2012 – it remained positive throughout the crisis in Latin America and the Caribbean, as well as Africa, and even more so in Asia.

“This report clearly shows that in many countries, the crisis has had a strong impact on wages – and by extension, workers.”

The biggest changes were seen in Eastern Europe and Central Asia, which went from double-digit pre-crisis rates to a “hard landing” in 2009, the ILO stated in a news release. In the Middle East, wages appear to have dropped since 2008, although the data is still incomplete.

The differences between the regions are particularly stark when examining wage growth from 2000 to 2011. Globally, wages grew by just under a quarter. In Asia, they almost doubled. In Eastern Europe and Central Asia, they nearly tripled, although following significant declines in the 1990s. And in the developed world, they increased by just about five per cent.

[caption id="attachment_2731" align="alignleft" width="210"] Worker in Philippines[/caption]

The report also cites considerable differences in wage levels across countries. A worker in the manufacturing sector in the Philippines took home $1.40 for every hour worked, compared to less than $5.50 in Brazil, $13 in Greece, $23.30 in the United States and almost $35 in Denmark.

Also included in the report are recent findings that show wages have grown at a slower pace than labour productivity – the value of goods and services produced per person employed – over the past decades in a majority of countries for which data is available.

“Where it exists, this trend is undesirable and needs to be reversed,” said Mr. Ryder. “On a social and political level, its clearest interpretation is that workers and their families are not receiving the fair share they deserve.”

In developed economies, labour productivity has increased more than twice as much as wages since 1999. In the US, hourly labour productivity in the non-farm business sector increased by about 85 per cent while earnings only increased by about 35 per cent since about 1980. In Germany, labour productivity surged by almost a quarter over the past two decades while wages remained flat.


A Future for Diaspora Women of North Korea?

Can UN Security Council resolutions help?

By Betsy A. Kawamura

Founder Women4NonViolence in Peace and Conflict Zones www.w4nv.com bkawamura10@hotmail.com

[caption id="attachment_2743" align="alignright" width="232"] Betsy Kawamura[/caption]

For the last ten years, I have been studying the plight of refugees from the Democratic Republic of North Korea and have been very concerned about the seemingly high rate of sex-trafficking occurring amongst the women fleeing to China or to another country. (Estimates reach as high as 75%) I have met with some diaspora women and men resettled in South Korea and more recently in parts of the United Kingdom. Some of those re-settled in the United Kingdom sought safety and refuge away from South Korea, where they experienced hurtful stigmatisation quite ironically. The tales of perseverance in their daily lives in and out of the North Korean gulags, as well as in Chinese prisons are truly appalling. It has also been as gruesome to listen to tales of North Korean women who had ‘volunteered’ to be trafficked to China or to a third country to experience a full stomach once in their lives, or to possibly present better lives for their children. Sources have indicated more women than men fleeing the country.

China to this day, still takes draconian measures to repatriate defectors from North Korea, violating several UN conventions to protect refugees. China is a permanent member of the United Nations Security Council that unanimously passed Security Council Resolution 1325 and other important ones on women, peace and security, and hosted the Beijing Platform on women’s rights back in 1995. It is appalling, therefore, to hear that China has refused to protect these women and children from forced repatriation on to potential torture or death. I strongly believe this action by China goes against the spirit of Security Council resolutions on women, peace and security. Where is China’s back-bone in protecting these women – or do North Korean women ‘not count’ as those who should be protected?

"It has also been as gruesome to listen to tales of North Korean women who had ‘volunteered’ to be trafficked to China..."

Looking at the mounting tension in Far East Asia, namely amongst North/South Korea, China and Japan and how the entire Asia Pacific region is affected by Kim Jong Un's regime,  it is unfathomable not to bring UNSCR 1325 into Far East Asian peace talks, including the 6-Party Talks.  Russia, China and USA who are permanent members of  the UN Security Council are also key members to the 6-Party Talks.

The perceived increased threat from North Korea has prompted the US military to augment its bases throughout the Asia Pacific region. The time is ‘now’ for women of Far East Asia to proactively bring these resolutions to the peace-negotiating tables, and to engage themselves in security discussions. As a survivor myself of gender-based violence in Okinawa during the Vietnam War, I feel it is critical for women of Asia Pacific to be seen as a force to be reckoned with in high-level peace-talks.

Women's rights and gender-equality are exceptionally vulnerable in practice in Far East Asia, with notable absence of women in high-level politics and advanced career engagement. Such economic marginalization and lack of opportunities can create an environment rife for exploitation of women into the sex industry. Japan's GNP was once alleged to be supported nearly 20% by the sex industry. The women entering China out of the DPRK are most vulnerable to sex traffickers. And their ordeal into being coerced into the sex industry once in a 'safe-country' such as South Korea can not be under-estimated. Without providing these women economic sustenance and empowerment, one can be assured that the voices of North Korean diaspora women will continue to be undermined. The lack of women in significant roles in politics and in distinguished high-level careers in general in Far East Asia can perpetuate their social and economic marginalisation. Such economic marginalisation of women could be seen as signs  of regimes hostile to democracy and human rights.

[caption id="attachment_2753" align="aligncenter" width="459"] Video: Under a Different Sky[/caption]

Let us not forget Bertha Von Suttner, the first woman Nobel Peace Laureate back in 1905 who captured the hearts and minds of people with her message and book, “Lay Down Your Arms!” in turbulent Europe.  She was the ‘torch light’ who convinced Alfred Nobel to create the Peace Prize. If Ms. Von Suttner were here today, I am sure that she would be very supportive of economic and political parity between women and men, and would catalyze the women diaspora from North Korea to be engaged in high-level peace talks. I personally look forward to enabling UNSCR 1325 and allied resolutions in Asian nations affected by the 6-Party Talks. Ban Ki-moon once noted that he wished to see the harmonization of North and South Korea during his life-time.  One of my important projects to empower DPRK diaspora women now in Europe via media and journalism training should catalyze his efforts.

About the Author

Betsy Kawamura, founder of Women4NonViolence is a social advocate who believes that the voices of survivors of gender-based violence (GBV) and diaspora women can help heal society. As a survivor she has worked internationally to empower women, including those of Asia-Pacific origin through instruments including UN Security Council Resolutions on women, peace and security. She has an undergraduate degree with honours in business administration and fine arts from the University of Hawaii, and an MBA in international marketing from San Francisco State University.

Her presentations and workshops in Europe, Asia and in the USA have been geared toward raising the personal voices of survivors of GBV and women diaspora, including from North Korea for political engagement. Her previous experience in the corporate sector has complemented her integrative programs for survivor well-being. Finally, her active network of advocates, state-level decision makers, legal experts, and media professionals helps further public awareness of women and children survivors in conflict and peace zones, all the way to the International Criminal Court in the Hague.


Hopes and Action for a Secure Colombia

During his eight year presidency, Alvaro Uribe tackled the criminal gangs, armies and random violence that held sway over large areas of his country. His government was virtually facing civil war against well organised forces.  He brought renewed confidence to Colombia and hopes for a brighter future. Mr Uribe’s efforts promise greater safety and prosperity for his people.

Uribe was convinced that his government had to show sufficient military strength – as well as a willingness to compromise - to bring the guerrillas to the negotiating table. His plan paid off.

During his presidency, Uribe made it clear that Colombia’s key priorities for a prosperous society were to challenge terrorism and drug trafficking. He understood that the rule of law is required for the economy in his country to flourish. And he did something about it.

"I will protect all Colombians regardless of whether the attacks come from guerrillas or paramilitaries. No one can feel the owner of the country and no one can feel excluded from the right of property. The basic dream of many Colombians is to have a secure nation, without exclusions, with equity, and without hatred. In the name of justice there cannot be subjection and in the name of peace there cannot be impunity."

- Álvaro Uribe, Former President, Colombia


Tough Operator: Dr. Ngozi Okonjo-Iweala

Harvard educated Dr. Okonjo-Iweala, a recent candidate for presidency of the World Bank, is one of the world’s most respected economists. She must be congratulated on ensuring Nigeria’s first sovereign debt rating. This achievement brought significant foreign investment to Nigeria.

Dr. Okonjo-Iweala is a tough operator who is keen on tackling corruption. She is the right person to see that the benefits from Nigeria’s oil revenues are distributed equitably throughout the nation. Nigeria is experiencing strong economic growth but the lack of a truly effective distribution of wealth is massively restrictive. Income inequality is a severe hindrance to sustainable growth. This is one of the major challenges she faces.

"....That's what this administration is focusing on: Job creation and inclusive growth,"


Dilma Rousseff: "You have one hour to solve this problem."

[caption id="attachment_2769" align="alignright" width="187"] Ms. Dilma Rousseff, Brazilian President[/caption]

There is no denying that the main challenges facing the Brazilian economy include the achievement of sustainable growth and the struggle for a fair distribution of its rewards throughout society.

The country is fortunate in having as its president Dilma Rousseff, a highly principled leader who may well prove to have the necessary qualities to build on the success of her predecessor.

Ms Rosseff, 62 years, was not so well known when former president Luiz Inacio Lula da Silva made clear his view that Brazil should have her as its first female president. He realised that under her leadership – as during his before- there would be full understanding that Brazil’s challenges start at home and that the country must mobilise its considerable potential for the benefit of all.

President Rouseff has indicated that her presidency represents continuity for the country and a strong role for the state. We expect her to be a resolute leader.

"You have one hour to solve this problem,"

(Brazil's President Dilma Rousseff calling on ministers to help the country's farmers who were suffering from the effects of bad weather. She extended the deadline, but there was no way they would be allowed to fail. One of the three, agriculture minister Mendes Ribeiro, describes the president as a very precise and direct leader.)

Life has been a struggle for the new president who has only recently recovered from lymphatic cancer. As a young woman she opposed the military dictatorship and was jailed for three years. A career civil servant, she was chosen by Lula partly because she had not been tainted by the corruption scandals surrounding some of the other likely candidates.

Once a left wing revolutionary, she is now tooting the horn for private enterprise and rightly so. It has been a long journey and a necessary one for her and her people.  The struggle continues.


Europe Has Nothing to Fear but Fear Itself

By Klaus Schwab, Dec 14th 2012

The eurozone will not break up. The price of departure is simply too great for any one country. Indeed, when Mario Draghi announced on 6 September that the European Central Bank (ECB) would undertake unlimited purchases of government bonds, the continent crossed the bridge to its future.

Europe’s leaders must see that the drawbridge has been lifted behind them. They cannot back out of this, and thus must steel themselves for the journey ahead. Moreover, they must also realize that for the European project to succeed – which it must – monetary union must be accompanied by four other kinds of union: a banking union; a fiscal union; a “competitiveness” union, or convergence; and, to all intents and purposes, a political union. And to be sustainable over the long term, the continent’s political economy must be capable of reintegrating its youth and present an ideal worth fighting for.

This is a long and ambitious list, but the deeper one thinks about the European situation, the more inevitable these conclusions become.

"The eurozone will not break up. The price of departure is simply too great for any one country."

Ever closer European integration, since Belgium, France, West Germany, Italy, Luxembourg and the Netherlands signed the Treaty of Paris in April 1951, has been of enduring benefit to generations. Can we imagine a European history without the development of institutions designed to bring European countries together under shared values and common ideals? It is unthinkable.

The euro itself has provided major economic rewards: it eliminated exchange risk, lowered inflation, increased trade across the eurozone, and more tightly integrated European financial markets. More generally, the single currency has contributed to an underlying culture of monetary stability and predictability within the eurozone, a critical point often forgotten in today’s discussions.

The crisis, however, surfaced critical flaws in the eurozone’s structure. Europe lacked a strong and common fiscal policy; divergence in competitiveness between the northern and southern economies created a risk of default that had gone unrecognized; and the absence of a banking union created intolerable systemic risks. Adding fuel to the fire, the complexity of European political institutions, and the increasing democratic deficit that it represents in the view of the public, has led to an “executive deficit”: an inability to make real decisions.

[caption id="attachment_2788" align="alignright" width="240"] ECB Headquarters[/caption]

What is clear is that the euro must survive in more or less its current form, but the deficiencies in the institutions that surround it must be addressed. The first is a banking union: an absolute prerequisite for a monetary union to succeed. A robust banking union must have shared bank supervision, a shared bank recapitalization mechanism and a shared bank deposit guarantee. The good news is that the first of these was put in place on 12 September with the proposal of a single supervisory mechanism under the ECB. The two other items are destined to follow, with the ever present caveat in Europe that negotiations will be complex and will take years to resolve.

As the talks of a banking union drag on, they will inevitably lead to discussion of a fiscal union, as the different pieces are intertwined and complement each other – the idea of a banking union without a fiscal backstop makes little sense. There will be three parts to any kind of fiscal union in Europe: a programme of direct bank recapitalization – in Europe’s case, by the European Stability Mechanism; an EU-wide system of deposit insurance that both prevents a run on banks in weaker countries and reduces moral hazard; and some form of debt mutualization.

Before the anti-federalists recoil in dismay, it is important not to fall prey to binary thinking – it is not “everything or nothing”. Between no fiscal union of any kind and a fully-fledged “United States” or Swiss-style confederation, many possible intermediate states exist that would contribute to a much greater sense of fiscal solidarity and discipline.

Reform of European financial governance is a necessary but not sufficient condition for success. It will not be able to gloss over the major issue at the centre of the crisis: the competitiveness gap between Europe’s north and its south. Fixing the EU banking system and regaining macroeconomic stability will do a lot to help southern countries increase their productivity but, importantly, these countries will need to engage in a long-term project to increase their labour market flexibility, foster competition and competitiveness, and make more and better investments in growth-enhancing areas such as education, technology and innovation.

A crucial consequence of all these reforms must be the injection of entrepreneurial energy into the continent’s “lost generation”. Youth unemployment is a cancer at the heart of the European economy, stealing its future and sapping its growth potential for decades to come.

The good news is that reforms are underway. Despite slow progress in implementation, the “Europe 2020” strategy is designed to kick-start competitiveness in the region. I believe that the path ahead is clear, that Europe’s leaders will begin to look forward with hope and optimism and not backward with fear, and that Europe is more likely to confound the pessimists as the year ahead unfolds.

The continent’s optimism will strengthen as leaders recognize that Europe stands together or falls apart. There is no country on the continent sheltered from the pain of this crisis. What is crucial now is that the continent’s polity is able to envision the gain that will emerge from the pain, and is able to articulate this in a way that pulls them towards their shared future.

Professor Klaus Schwab is Founder and Executive Chairman of the World Economic Forum. His e-book, The Re-Emergence of Europe, was published on 14 December and is available free of charge at http://www.weforum.org/re-emergence-europe


Global Investing: Italy or Singapore?

Many European countries have declining population growth and onerous business regulations. This creates a headwind against the region's share prices. Many Asian countries have healthy population growth and are embracing free markets. This creates a tailwind behind the region's stock prices.

One simple and useful way to monitor this idea is to compare the stock market performance of Singapore with the stock market performance of Italy.

Singapore sits at the center of the booming East Asia/Australia region. It's a global financial hub and is considered one of the world's easiest places to do business. It also sports a low corporate-tax rate. All this creates a powerful tailwind for Singapore investments and prosperity.

Italy, on the other hand, is deep in debt and tough to do business in. It's an economic basket case… And it's not the only European country that deserves the label.

The chart below shows this trend at work. It's a performance chart that displays the performance of the iShares Singapore Fund (the black line, up 33%) versus the iShares Italy Fund (the blue line, down 30%) over the past three years.

As you can see, stocks in low-tax, easy-to-do-business-in Singapore are doing well. Meanwhile, stocks in the high-tax, difficult-to-do-business-in Italy are sinking. This trend has been in place for years… and may continue for many more.


IBM's Virginia Rometty and Strategic Belief

CFI.co believes that Rometty, CEO of IBM, has been instrumental in developing services at the Company that will open up markets and help world economies converge. We must include her as one of our heroes because her project addresses concerns that are so very important to us.

New markets such as cloud computing and business analytics software are driving the growth objectives of IBM but at the same time are offering the necessary support to the global village.

"...And I actually think strategic belief could end up being more important than strategic planning in this day and age - how you keep the long view in your mind. Clients often say to me, "What's your strategy?"  And I say, "Ask me what I believe first, that's a way more enduring answer."  This idea of a strategic belief is saying that if you can agree amongst the firm about the future there are some really big arcs of change. For us, one of these is this era of cognitive computing which is about to start. And one of the biggest things all of us as have learned over this year is to keep reinventing.  Don't take for granted where you're at, but keep a long-term view is that thought."

It is not only the new technologies that support economic growth - the identification of new geographic markets is of critical importance too. And Virginia Rometty understands this very well.


IMF Mission Reports Positive Developments in Georgia

[caption id="attachment_2811" align="alignright" width="150"] Tbilisi, Georgia[/caption]

An International Monetary Fund (IMF) mission visited Tbilisi from November 27 to December 12, 2012 for discussions on the first review of the economic programme supported by a blend of a Stand-By Arrangement (SBA) and Stand-By Credit Facility (SCF). The 24-month arrangement with a total access of SDR 250.0 (about US$390 million), evenly divided between the SBA and the concessional SCF, was approved on April 11, 2012.

On December 18, 2012, Mark Griffiths, IMF Mission Chief for Georgia, commented, “The IMF mission and the authorities have made substantial progress during our visit. We have worked closely with the new government and have discussed how the existing IMF arrangement can support its economic and financial policies. The authorities have expressed their commitment to the main objectives of the Fund-supported program: promoting external sustainability through reduction of the current account deficit and lowering the budget deficit, so as to improve market confidence and generate sustained private sector-led growth.

“The IMF mission and the authorities have made substantial progress during our visit."

“Macroeconomic developments have been generally positive this year. Growth has been strong, while inflation has fallen sharply. While there are some signs that growth may have eased recently, reflecting lower growth in trading partners, some slowdown in foreign direct investment, and recent uncertainties associated with the elections and the political transition, the economy is expected to expand by 7 per cent in 2012.

“Performance under the SBA/SCF arrangement has been good: end-June 2012 targets as well as all structural benchmarks have been met. The authorities are on track to meet the end-December 2012 targets. Fiscal consolidation remains on track, with the fiscal deficit in 2012 targeted to decline to 3.5 percent of GDP, though the current account deficit has been higher than projected.

“For 2013, the mission projects that GDP growth could reach 6 percent. This forecast is subject to risks. On the upside, there is the possibility of increased trade with Russia and of new sources of foreign investment. However, if the current uncertainty persists or demand from trading partners falters, then growth could be lower. Strong domestic policies and communication are needed to instill confidence and to reassure markets that the new government is committed to prudent macroeconomic policies and further enhancing Georgia’s business-friendly environment.

[caption id="attachment_2814" align="alignleft" width="235"] National bank of Georgia[/caption]

“Inflation has remained very low in 2012 due to the earlier nominal appreciation of the lari against currencies of Georgia’s main trading partners, and declines in food prices over the last 12 months. As the impact of these temporary factors wears off, the mission projects that inflation will increase from -0.5 percent in November to 4 percent by end-2013, and gradually move toward the medium term inflation objective of the National Bank of Georgia (NBG). The mission considers that the monetary policy stance, including the recent cut in official interest rates, is broadly appropriate and consistent with the projected rise in inflation.

“The draft 2013 budget is socially oriented yet prudent. It increases social spending to protect the most vulnerable, while continuing with the path of fiscal consolidation. The fiscal deficit is projected to decline to 2.8 per cent of GDP in 2013. This will facilitate external adjustment and create room for countercyclical fiscal policy. This is consistent with the medium-term strategy to bring the deficit down to about 1½ percent of GDP by 2016 and should keep Georgia’s government’s debt-to-GDP ratio on a firm downward path.

“Georgia’s high current account deficit is a source of vulnerability and its reduction is a key macroeconomic challenge. The authorities plan to pursue a reduction in the current account deficit in 2013 and beyond through fiscal consolidation, a more flexible exchange rate, and structural reforms to improve Georgia’s competitiveness. As a result, the current account deficit is projected to fall to 10.0 percent of GDP in 2013 from 12.7 percent of GDP in 2012.

“The NBG should allow a greater degree of exchange rate flexibility in the context of its monetary policy dedicated to price stability and the need to maintain a comfortable level of international reserves. To fulfill these objectives and to continue safeguarding financial stability, it is important for the government to reaffirm and respect the independence of the NBG.

“Finally, the mission would like to thank the government, the NBG, and the many people it has met during its visit for open and constructive discussions and for their generous hospitality. The mission looks forward to finalising with the authorities the letter of intent, so that the review can be completed in early 2013. “


Poland Welcomes Migrant Workers

The only EU member state to avoid recession during the 2008/9 economic crisis, Poland looks set to become a magnet for migrant workers. Offering some relief following the mass emigration of their own people to other European countries, Poles are beginning to welcome unfamiliar faces around town.

At Bakalarska market, just outside Warsaw, Poles are served by workers from Turkey, Africa, China, Vietnam as well as some of the former Soviet states. Most of these new faces are working legally following an amnesty announced earlier this year. This ethnic mix in Poland would have been unthinkable until quite recently.

 "We understand them perfectly because up until now we were the economic migrants."

Rafai Rogola, responsible for Poland’s immigration policy is happy that his country is now a destination of choice for foreigners seeking to improve their economic situation. He has been quoted as saying, ‘We understand them perfectly because up until now we were the economic migrants.’


Suu Kyi and Hopes for a New Burma

[caption id="attachment_2830" align="alignright" width="150"] Ms. Aung San Suu Kyi[/caption]

Suu Kyi, daughter of a Burmese independence hero, has never been indifferent to the goings on in Burma. She is one of the most potent symbols of peaceful resistance to an oppressive regime.

Chair for the National league for Democracy, Burma, she became one of the world’s best known prisoners after years in jail and house arrest. Suu Kyi became involved in the struggle to replace the military junta 25 years ago.

The Buddhist faith brought a sense of inner freedom during her captivity and Suu Kyi has said that the concept of ‘Loving Kindness’ should govern Burma’s transition to democracy. This lady favours reconciliation rather than revenge.

"I could not as my father’s daughter remain indifferent to all that was going on."

There is great hope in the country and far further afield that Suu Kyi will lead a democratic Burma after the elections planned for 2015.


UN Downgrades Economic Forecasts for 2013/14

World economic growth has weakened considerably during 2012 and is expected to remain subdued in the coming two years, according to a United Nations report in late December, which calls for policy changes to spur growth and tackle the jobs crisis.

The World Economic Situation and Prospects 2013, states that the global economy is expected to grow at 2.4 per cent in 2013 and 3.2 per cent in 2014 – a significant downgrade from the UN’s forecast of half a year ago:

“This pace of growth will be far from sufficient to overcome the continued jobs crisis that many countries are still facing,” said a news release on the report. “With existing policies and growth trends, it may take at least another five years for Europe and the United States to make up for the job losses caused by the Great Recession of 2008-2009.”

Noting that weaknesses in the major developed economies are at the root of the global economic slowdown, the report stresses that most of them, but particularly those in Europe, are trapped in a “vicious cycle of high unemployment, financial sector fragility, heightened sovereign risks, fiscal austerity and low growth.”

“A worsening of the euro area crisis, the ‘fiscal cliff’ in the United States and a hard landing in China could cause a new global recession. Each of these risks could cause global output losses of between 1 and 3 per cent”

Several European economies and the euro zone as a whole are already in recession, and euro zone unemployment increased further to a record high of almost 12 per cent this year. Also, the US economy slowed significantly during 2012 and growth is expected to remain “meagre” at 1.7 per cent in 2013. Deflationary conditions continue to prevail in Japan.

The economic woes in Europe, Japan and the US are spilling over to developing countries through weaker demand for their exports and heightened volatility in capital flows and commodity prices.

“A worsening of the euro area crisis, the ‘fiscal cliff’ in the United States and a hard landing in China could cause a new global recession. Each of these risks could cause global output losses of between 1 and 3 per cent,” warned Rob Vos, Director of DESA’s Development Policy and Analysis Division and team leader for the report.

Stating that present policies fall short of what is needed, the report calls for changing course in fiscal policy and a shift in focus from short-term consolidation to robust economic growth with medium to long-term fiscal sustainability.

It also recommends avoiding premature fiscal austerity, while noting that the reorientation of fiscal policies should be coordinated globally and aligned with structural policies that support direct job creation and green growth. In addition, it recommends that monetary policies be better coordinated globally and regulatory reforms of financial sectors be accelerated to stem exchange rate and capital flow volatility, which pose risks to the economic prospects of developing countries.


Do Not Over-Heat

The IMF reports that powered by a resurgence in Asia, emerging markets, especially those of China and India are leading the world out of recession. In many emerging and developing economies, output is already above pre-crisis trends, suggesting that recovery is complete and expansion under way. But this brighter outlook is balanced by fears of possible asset bubbles produced by the flood of investment capital into the region.

Data suggest that inflation pressure is broadening. In several of the larger emerging market economies, headline inflation is running close to or above central bank targets. Furthermore, some economies are experiencing a credit boom.

The risk that food and energy price increases will start an inflationary spiral is much greater in emerging and developing economies than in advanced economies. In many such economies, monetary conditions appear very accommodative: real interest rates remain far below pre-crisis levels, and the extent of expected tightening seems limited relative to what is needed.


Investors Strongly Bullish on EMs

A December, 2012 Society Generale monthly survey covering 52 customers throughout Asia, Europe and the United States suggests that investors are strongly medium-term bullish on emerging markets.

The confidence shown by around 90 per cent of the 30 real money investors (pension funds etc.) plus 22 hedge funds polled represented an all-time high since the survey was launched in February last year. Uncertainty regarding the fiscal cliff led to a less bullish sentiment for the short term.

There were still more customers who felt they were under-invested (that their risk position should be raised if they were to be aligned with their sentiment) compared with November.


The Price of Pollution

How much does environmental activism affect a corporation’s bottom line?

By Valerie Ross based on the research of Ion Bogdan Vasi And Brayden King

When a big corporation is accused of running roughshod over the environment, it is big news. Protests and boycotts aimed at companies that have violated emissions standards or razed rare ecosystems can certainly make headlines, particularly as “going green” has become a common concern among consumers. Brayden King, an associate professor of management and organizations at the Kellogg School of Management, wondered whether the effects of those rallies might also play out on the companies’ finances.

“I was interested in how activist groups were making the environment important for them as a company—not just as something they should think about because it affects all of our well-being, but because it’s something that could affect their bottom line,” he says. King, with his colleague Ion Bogdan Vasi, an assistant professor at Columbia University, set out to study both how activism impacts that bottom line and how it alters the way companies perceive financial risk related to the environment. The line from boycott to balance sheet, they found, is not as direct as they might have expected.

Two Kinds of Activism

Not all activism, King points out, comes from outside the company; sometimes employees or investors try to change a corporation’s policies from within. The activism that often garners the most media attention—through rallies, protests, and petitions—is called secondary activism because it is done by secondary stakeholders, people who are not directly involved in the company but feel the effects of its policies as a customer, neighbor, or concerned citizen. Activism by people directly involved in the firm— its employees, investors, and other main stakeholders—is primary activism. Both kinds, King hypothesized, could hurt firms financially.

“Shareholder activists are indirectly leading to worse financial performance for firms because they lead analysts to see these companies as more risky,” King says.

King and Vasi wanted to find out not only whether these two types of activism can impact a corporation’s financials, but also whether they can change how a corporation thinks about its bottom line. To do that, they looked at what is called perceived environmental risk, or how much environmental risk a firm’s analysts believe it to have. (In this case, environmental risk represents the possibility that an environmental catastrophe or a company’s environment-related policies lead to a financial loss.)

“We were really interested in risk because that’s the language that corporate America uses,” King says. “You don’t make any type of decision in the corporate world unless you can explain the effect it’s going to have on the amount of risk a company faces.”

Earlier studies had shown that boycotts and protests lead some companies to adopt more environmentally friendly practices, while other companies appear to adopt green initiatives without fundamentally changing their policies. But previous work had not examined which changes in attitudes or perception might give rise to a change in policy. Because risk is such an important consideration in the corporate world, King and Vasi thought perceived risk might be a big part of what was making companies switch from polluters to planet-lovers.

To test their ideas, King and Vasi looked at how both kinds of activism affected the 700 largest corporations in the United States from 2004 to 2008. They gathered data about activism that originated within each company—such as shareholder resolutions—and without, as measured by media mentions of protests and other demonstrations. (Any protest that did not make the news, they figured, was probably not big enough to have much of an impact on the company.) They also collected data on each firm’s risk assessments and overall financial performance. In analyzing their data, the researchers controlled for factors like a company’s size, its research activities, and its record of pollution so they could isolate the effect of environmental activism on perceived environmental risk and financial performance.

Activism and Perceived Environmental Risk

Primary activism, it turned out, had a stronger effect on a firm’s perceived environmental risk than secondary activism, in part because it is driven by insiders, who analysts might assume have more detailed knowledge about internal policies and practices. For example, the potential costs of environmental litigation can be enormous. Although they rarely come up in a typical tallying of a company’s liabilities, investors may catch wind of potential problems before outsiders hear of them.

“Activism raises issues about practices these firms engage in that regular analysts or investors wouldn’t be aware of. People in the financial world don’t have time to do deep investigations of every company, or go to every plant and measure emissions,” King says. “By submitting a resolution to bring that information to the front of the agenda, shareholder activists are saying, ‘This is something that we should be concerned about, both as a planet and as a financial community.’”

Neither kind of activism, however, directly affected financial performance; firms did not lose money simply because of a protest. What King and Vasi did find, though, is that companies with higher perceived environmental risk fared worse financially. In this way, activism—especially activism by shareholders—had a more roundabout effect. It bumped up perceived risk, which in turn hurt the company’s bottom line. “Shareholder activists are indirectly leading to worse financial performance for firms because they lead analysts to see these companies as more risky,” King says.

‘This is something that we should be concerned about, both as a planet and as a financial community.’

King says this study along with his and others’ earlier work clearly shows how different types of activism influence corporations. “We know that boycotts and protests are an effective means of activism,” he says, “but it may be that their effectiveness in generating an immediate response from CEOs makes them less effective in increasing the long-term risk of the company.” Shareholder activism, on the other hand, often goes unnoticed by the general public, and slowly works its way through institutional channels rather than immediately grabbing the attention of—and eventually demanding action from—the company’s leadership. This gives it time to attract the notice of risk analysts, King says, who alter their assessments of the firm.

It is also possible these different types of activism influence firms’ environmental practices in the long term, King points out. Most companies feel pressured to go green, but the approaches can be vastly different. Some revamp their policies while others “greenwash,” or paint themselves greener than they actually are. “I would speculate that the institutional avenue for change may be fairly effective for creating lasting implementation of environmentally friendly policies,” King says, “whereas boycotts are effective at creating immediate change but they may also lead to greenwashing.”

 Reproduced with permission of the Kellogg School of Management and Kellogg Insight, http://insight.kellogg.northwestern.edu. © Kellogg School of Management at Northwestern University


Phased Time Table for Liquidity Coverage Ratio

A Basel Gift for EMEA?

[caption id="attachment_2885" align="alignright" width="284"] Simon Quijano-Evans[/caption]

The Basel Committee governing body endorsed the revised Liquidity Coverage Ratio (LCR) on 6th January 2013. The LCR is an essential component of the Basel III reforms, which are global regulatory standards on bank capital adequacy and liquidity endorsed by the G20 Leaders.  This development may be good news for emerging markets, especially Central and Eastern Europe.

The LCR is one of the Basel Committee's key reforms to strengthen global capital and liquidity regulations with the goal of promoting a more resilient banking sector. The LCR promotes the short-term resilience of a bank's liquidity risk profile. It does this by ensuring that a bank has an adequate stock of unencumbered high-quality liquid assets (HQLA) that can be converted into cash easily and immediately in private markets to meet its liquidity needs for a 30 calendar day liquidity stress scenario. It will improve the banking sector's ability to absorb shocks arising from financial and economic stress, whatever the source, thus reducing the risk of spill-over from the financial sector to the real economy.

The LCR was first published in December 2010. At that time, the Basel Committee put in place a rigorous process to review the standard and its implications for financial markets, credit extension and economic growth. It committed to address unintended consequences as necessary.

"The Liquidity Coverage Ratio is a key component of the Basel III framework."

- Mervyin King

The revisions to the LCR incorporate amendments to the definition of high-quality liquid assets (HQLA) and net cash outflows. In addition, the Basel Committee has agreed a revised timetable for phase-in of the standard and additional text to give effect to the Committee's intention for the stock of liquid assets to be used in times of stress. The changes to the definition of the LCR, developed and agreed by the Basel Committee over the past two years, include an expansion in the range of assets eligible as HQLA and some refinements to the assumed inflow and outflow rates to better reflect actual experience in times of stress.

Once the LCR has been fully implemented, its 100% threshold will be a minimum requirement in normal times. During a period of stress, banks would be expected to use their pool of liquid assets, thereby temporarily falling below the minimum requirement. The governing body agreed that the LCR should be subject to phase-in arrangements which align with those that apply to the Basel III capital adequacy requirements.

Specifically, the LCR will be introduced as planned on 1 January 2015, but the minimum requirement will begin at 60%, rising in equal annual steps of 10 percentage points to reach 100% on 1 January 2019. This graduated approach is designed to ensure that the LCR can be introduced without disruption to the orderly strengthening of banking systems or the on-going financing of economic activity.

2015
2016
2017
2018
2019

Minimum LCR Requirement
60%
70%
80%
90%
100%

The governing body agreed that, during periods of stress it would be entirely appropriate for banks to use their stock of HQLA, thereby falling below the minimum. Moreover, it is the responsibility of bank supervisors to give guidance on usability according to circumstances.

There was further agreement that, since deposits with central banks are the most - indeed, in some cases, the only - reliable form of liquidity, the interaction between the LCR and the provision of central bank facilities is critically important. The Committee will therefore continue to work on this issue over the course of 2013.

[caption id="attachment_2882" align="alignleft" width="203"] Mervyn King[/caption]

Mervyn King, Chairman of the governing body and Governor of the Bank of England, said, "The Liquidity Coverage Ratio is a key component of the Basel III framework. The agreement reached today is a very significant achievement. For the first time in regulatory history, we have a truly global minimum standard for bank liquidity. Importantly, introducing a phased timetable for the introduction of the LCR, and reaffirming that a bank's stock of liquid assets are usable in times of stress, will ensure that the new liquidity standard will in no way hinder the ability of the global banking system to finance a recovery."

Simon Quijano-Evans, strategist for Europe Middle East & Africa (EMEA) at ING Bank takes the view that, “these developments should play a tangible part in supporting the global recovery story in as much as a full implementation by 2015 would have meant continued tight bank lending practice.”

He also commented that EMEA is likely to benefit most from this “Basel gift,” as Western European banks have been gradually cutting exposure to Central and Eastern Europe, after rapid expansion during the boom times.


Unleashing the Economic Potential of the Maghreb - the Role of Foreign Investment

Excerpts of a speech given by Christine Lagarde, Managing Director, International Monetary Fund at a conference in Mauritania in January, 2013

[caption id="attachment_2892" align="alignright" width="220"] Christine Lagarde[/caption]

We meet in the wake of the great Arab Awakening, that outbreak of social consciousness in which citizens from all across the region stood up and spoke out for greater dignity, greater opportunity and equity in economic life.

For that, we need the economy of the Maghreb to work for the people of the Maghreb. We need strong and sustained economic growth. Inclusive growth that is generous in sharing its fruits: Growth that produces enough jobs to satisfy the yearnings of the younger generation.

The old economic model was not up to the task. It failed to provide an enabling environment based on fairness and transparency where private enterprises could thrive.

So the Arab Awakening must also lead to a “private sector awakening”—unleashing the productive potential of the Maghreb people and creating an environment that supports innovation, entrepreneurship, creativity, and jobs.

Foreign direct investment is a vital part of this strategy. It can kick start growth and set in train a virtuous circle of higher productivity, enhanced economic diversity, and greater resilience against external turmoil.

1. Current state of play of foreign investment in the Maghreb

"Basically, the Maghreb has great potential when it comes to attracting investment. But it has not always lived up to that potential."

For sure, foreign direct investment flows have risen dramatically over the past decade—from $3 billion a year during the early 2000s to $12.3 billion in 2008, the eve of the crisis. But even this peak, at 3 per cent of GDP, was lower than in other emerging regions of Asia, Latin America, and Europe. And that number has gone down to 6.5 billion dollars in 2011, less than 2% of GDP, which is not surprising given the recent period of instability in the region.

At the same time, investment was not diverse. Most foreign direct investment came from Europe—80 per cent for Tunisia and 60 per cent for Morocco, for example. And most of it—about 30 per cent—went to energy and mining.

Clearly, there is some room to do better. The Maghreb is rich in resources and rich in the potential of its people. Just look at some of the advantages enjoyed by the region:

It enjoys the advantage of location. It sits right next to the largest trade area in the world, the European Union, and is also on the doorstop of the bustling Middle East.

It enjoys the advantage of a young population. Unlike so many other parts of the world, the Maghreb’s labour force is growing, and will be bountiful for years to come. Your greatest asset is your people.

It enjoys the advantage of an educated population. The region has made great strides in improving school enrolment. The next step is to improve educational quality to make sure that people have the right skills for the right jobs.

I would add here that the Maghreb should continue to take steps to restore or maintain economic stability, which provides a solid foundation of certainty and predictability for the people who make investment decisions. Staying the course on sound fiscal and monetary policies and guarding against real exchange rate overvaluation is important.

The Maghreb is also taking steps to improve its investment climate and business environment. But this journey is far from complete. The region still has some way to go in removing remaining roadblocks so that the private sector can expand, invest, innovate, and create jobs. It needs to break down all vestiges of privilege and cozy connections and provide a level playing field for all.

How can the region make concrete progress in this area? Through regulation that makes economic sense and is impartial; through better quality infrastructure; through fair and predictable tax and customs administration; through a strong, independent, and impartial judiciary; through a financial system that supports productive activity and widespread access to credit.

By making progress in these areas, governments not only attract foreign investment, they earn the confidence of their own people.

 2. How greater openness can spur greater investment

Greater openness in the Maghreb can entice more foreign investment into the region: Openness to the world, and all that it can offer; openness to the region, and to the idea of a common destiny; openness to new ways of thinking and acting.

Within this broad framework, I think there are three specific areas that need attention—greater integration, greater internationalisation and greater diversification:

Greater Integration

This is the reason for the creation of the Arab Maghreb Union and the reason we are here today. Integration must begin with more open foreign direct investment regimes, including in extractive industries. After all, these industries need continuous cutting-edge investment.

The whole region would benefit from becoming more open to itself—by knocking down barriers to trade and opening wide the doors of mutual gain. A Maghreb that allows a free flow of goods and services offers limitless possibilities of a market of over 80 million people.

It was Ibn Khaldun who said that “only tribes animated by a strong esprit de corps are able to live in the desert”. It is time to widen that esprit de corps to encompass the whole region!

Of course, this should go hand-in-hand with efforts to create a common set of trade and investment rules—this will help provide a better investment environment for those who service the Maghreb market and those who locate here to service outside markets.

Greater Internationalisation

My second point is greater internationalisation. By this, I mean that small companies need to think big, national companies need to think international, domestic companies need to think of themselves as part of a wider region.

For when a Maghreb company breaks through and achieves transnational status, this can help with investment all across the region. After all, the local company knows and understands the region well. It can share wealth, knowledge, and experience. Of course, to make this work, we need standard foreign investment rules across the region.

Think of some of the practical advantages that could come with this kind corporate integration. For example, countries with less advanced agro-business sectors—such as Algeria, Libya, or Mauritania—would benefit enormously from the knowledge and know-how that come with investment from Moroccan or Tunisian agro-business companies’ investment.

"I mean that small companies need to think big, national companies need to think international, domestic companies need to think of themselves as part of a wider region."

This kind of integration and internationalisation could help the region take advantage of favourable geography. Maghreb companies would have an easier time investing in sub-Saharan Africa. The region could even become an important trade and investment hub that bridges sub-Saharan Africa and Europe.

Greater Diversification

The third aspect is diversification—in both sources and sectors of foreign direct investment.

For a start, the Maghreb should branch out and reduce dependence on Europe. I am really intrigued by the possibility of engaging the BRIC countries—Brazil, Russia, India, China—the new economic dynamos on the world stage.

To attract more investment from BRICS, Maghreb countries should of course continue to work on improving the investment climate and on upgrading skills and education. But governments can also be proactive in selling the many benefits of the region. You make your own futures.

Diversification also has another angle—developing new investment niches in new and dynamic sectors. Think beyond natural resources. Think about engineering, software development, computing. It is up to you to seize the initiative and step boldly into a new world of opportunities.

Conclusion

I believe that the “private sector awakening” must be an integral part of the Arab Awakening. A new society needs a new economy. And there is no better way to begin that new economy than through investment, by opening yourself up and tapping into the wisdom and resources of other countries and other regions.

Ultimately, it is about laying the groundwork so that every single person in the region can live up to their true potential. Again, it was Ibn Khaldun who said it best: “the welfare of the people is the best way to strengthen the empire”. We do not have empires any more, but the logic remains the same!

And let me assure you that the IMF will be there to help you along the way. We are deeply engaged with the countries of the Arab Awakening.

We are helping with advice across the region on how to secure stability, protect vulnerable people during the transition, and lay the basis for strong and inclusive growth. We are helping with our loans—we have committed 8½ billion dollars to Jordan, Morocco, and Yemen, and are in discussions with other countries. And we help countries like Tunisia and Libya with capacity building—creating the secure foundations of that new economy.

Through your efforts and your initiative, and with help from outside partnerships, I have no doubt that the Maghreb can succeed. You have laid the groundwork for the future; now you must continue to strive ahead. Do so in a spirit of openness.


IFC Study: Obstacles to Growth and Job Creation

A new study by IFC, a member of the World Bank Group, finds that much-needed jobs in developing countries can be created at a faster rate if policy makers and development institutions make it a priority to remove the key obstacles to growth that private-sector companies face.

The study, “Assessing Private Sector Contributions to Job Creation,” concludes that four obstacles pose a particular challenge to job creation in the private sector: a weak investment climate, inadequate infrastructure, limited access to finance for micro, small, and medium enterprises; and insufficient training and skills. Removing these obstacles can significantly increase job creation.

The study was released today as a companion report to the World Bank’s World Development Report 2013 on Jobs which was released last October.  In a joint communiqué issued at the launch, 25 leading international finance institutions immediately pledged to work together to address job creation, and learn from each other’s experience.

“Joblessness is a global crisis that is especially urgent in the poorest countries”

About 200 million people are unemployed globally. The World Bank estimates that 600 million jobs must be created by 2020, mainly in developing countries, just to keep up with population growth. The answer lies with the private sector, which provides nine out of every 10 jobs.

“Joblessness is a global crisis that is especially urgent in the poorest countries,” said Jin-Yong Cai, IFC’s Executive Vice President and Chief Executive Officer. “As the world’s largest development institution focused on the private sector, we believe that job creation offers the surest path out of poverty. Promoting it in developing countries is a top priority for us.”

Other key findings include:

Micro, small and medium enterprises (MSMEs) generate the most jobs in developing countries but they are also less productive, pay less, and do not offer as much training and development opportunities for employees. Smaller companies are also often most affected by obstacles to job creation, meaning they are unable to grow to their full potential.

Access to finance is a key constraint for MSMEs—easing it can result in significant job creation. For instance, IFC provides financing to a large network of financial intermediaries in emerging markets, which in 2011 financed 23 million MSMEs, which in turn employed over 100 million people.

The largest numbers of jobs are created within companies’ supply and distribution chains. For example, an IFC loan to an Indian cement manufacturer helped the company expand and create more jobs. For every job created within the company, more than 20 were created in the supply and distribution chains.

Lack of power is the most significant constraint in lower-income countries. Providing companies with reliable power could boost annual job growth by at least 4 percent.

Women and youth face specific employment challenges. Legal barriers, lack of access to finance, and cultural norms often force women to work in jobs that pay less and are less secure. Young people are almost three times more likely to be unemployed. They also are more likely to work in informal jobs.

The study found that 45 million people enter the work force each year. Yet more than a third of companies studied across the globe were unable to find employees with the skills that they needed.

“IFC and the World Bank Group have a number of programs that focus on closing the skills gap,” said Roland Michelitsch, an IFC Manager and the study’s lead author. “But the potential to do more exists—not only for us but also for other development institutions, policymakers, and the private sector itself.”

About IFC

IFC, a member of the World Bank Group, is the largest global development institution focused exclusively on the private sector. We help developing countries achieve sustainable growth by financing investment, mobilizing capital in international financial markets, and providing advisory services to businesses and governments. In FY12, our investments reached an all-time high of more than $20 billion, leveraging the power of the private sector to create jobs, spark innovation, and tackle the world’s most pressing development challenges. For more information, visit www.ifc.org.

About the Study:

The IFC report draws on an extensive literature review and the experiences of more than 45,000 businesses in over 100 countries, as well as macro and micro case studies conducted in South Asia, Africa, and the Middle East.

The study examines the constraints faced by private sector in developing countries, focusing on the most binding constraints to job creation that can be addressed by development finance institutions oriented toward the private sector.


World Economic Forum Calls for Resilient Dynamism

David Cameron, Angela Merkel and the prime ministers of Russia and Italy will address the World Economic Forum Annual Meeting, 2013 in Davos Switzerland (Jan23 - 27) under the theme Resilient Dynamism.

“To be resilient is to adapt to changing contexts, withstand sudden shocks and recover from them while still pursuing critical goals. We face a new reality of sudden shocks and prolonged global economic malaise, particularly in major economies experiencing economic austerity. Future growth in this new context requires dynamism – bold vision and even bolder action. Either attribute – resilience or dynamism – alone is insufficient, as leadership in 2013 will require both; thus, the theme of ‘Resilient Dynamism’,”

Klaus Schwab,

Founder and Executive Chairman,

World Economic Forum


Asia in 2013: Grounds for Optimism, but Challenges Ahead

By Anoop Singh Director, IMF Asia and Pacific Department

After a subdued economic performance in emerging Asia in 2012, growth in the region is set to pick up gradually in 2013 helped by external demand and accommodative monetary policy.

At about 5½ per cent, Asia’s growth in 2012 is estimated to have been about ½ percentage point below 2011, although the region still expanded about 2 percentage points faster than the global average.

Weaker external demand was the main factor, but China’s efforts to engineer a soft landing and supply constraints in India also weighed on Asian economies.

However, recent activity indicators suggest economic momentum is stabilising. A modest growth pickup to about 6 per cent in 2013 would result mostly from strengthening external demand, with accommodative monetary stances across the region also playing a role.

A Shift of Focus to Regional Risks

External risks for Asia remain considerable, especially those emanating from a further escalation of the euro area crisis. In the event of a severe global slowdown, falling external demand would exert a powerful drag on Asia’s most open economies, including through the second-round impact of lower investment and employment in export oriented sectors.

"A complicating factor is rapid population ageing, which will exert a drag on growth in many high- and middle-income countries alike, from Japan to China, and also poses new fiscal challenges."

However, if European policymakers fully deliver on their commitments and a major fiscal contraction is avoided in the United States, growth in Asia might surprise on the upside, especially as monetary conditions in advanced economies are projected to remain accommodative.

In fact the resumption of capital inflows since mid-2012 has already helped fuel record levels of corporate and sovereign bond issuance in many parts of Asia and, together with robust bank credit growth, played an important role in supporting resilient domestic demand.

But as global tail risks appear to recede, risks and challenges from within the region to Asia’s growth come more clearly into focus. The slowdown in 2012 is a powerful reminder that the high rates of growth Asia has been accustomed to during most of the first decade of this century cannot be taken for granted.

In fact, many economies in emerging Asia have now reached a development stage that in principle exposes them to the risk of falling into a “middle-income trap.” Historically, the odds of a sustained growth slowdown have been 1/7 for a fast-growing middle-income country versus 1/11 for frontier: that is low-income economies in the region.

A complicating factor is rapid population ageing, which will exert a drag on growth in many high- and middle-income countries alike, from Japan to China, and also poses new fiscal challenges. And even where demographic trends are more favourable, such as in India and many of Asia’s low-income economies, making growth more inclusive and broad based remains a major challenge.

Navigating Risks, Sustaining Growth

Calibrating the appropriate near-term support for growth without fanning inflationary and financial stability risks is the key near-term challenge for policymakers in the region.

Central banks kept or brought down policy rates to low levels in 2012. Against the backdrop of uncertain growth prospects and generally low and stable inflation, this accommodative stance is broadly appropriate.

Should activity fail to pick up as expected, there remains sufficient space to ease monetary policy further. But the need and scope for monetary policy action differs substantially across economies, mainly reflecting different exposures to growth and inflation risks, and risks to financial stability from past stimulus.

In addition, macro-prudential measures will have to play an important role where credit growth remains too rapid and could pose problems for financial stability, especially if accompanied by persistently strong capital inflows.

Appropriate Fiscal Consolidation

Country circumstances will also determine the appropriate pace of fiscal consolidation. Higher structural deficits than before the crisis imply the need to rebuild fiscal space in many Asian economies, and welcome improvements in fiscal balances across most of the region are expected for 2013.

If growth were to disappoint going forward, automatic stabilisers––that is, automatic tax revenue declines and spending increases that dampen the impact of the shock––should be the first line of defence. However, in part reflecting a narrow tax base and lack of social safety nets, automatic stabilisers are small in many regional economies, which would prevent them from cushioning the blow of a sharp downturn. This calls for contingency plans for discretionary spending, especially in countries with more fiscal space.

Medium-Term, Inclusive Growth

To sustain economic growth over the medium term and make growth more inclusive, a diverse policy agenda will be required in different parts of Asia, ranging from economic rebalancing to strengthening the sources of private sector–led investment, to reforms in goods and labour markets, and meeting the opportunities and challenges from rapid demographic change.

Strengthening fiscal policy frameworks can also play an important role in reprioritising spending and mobilising adequate revenue in support of new sources and more inclusive growth. And coordinated and collective action by Asian policymakers will also help, in particular by pursuing on-going initiatives to maintain and deepen strong regional trade integration.

Asia and the IMF: Working Together

The IMF–World Bank Annual Meetings in Tokyo in 2012, the largest ever Meetings, showcased how Asia and the IMF can successfully work together in meeting the above challenges for the benefit of the Asia region and the world.

Going forward our cooperation is set to strengthen further in 2013 and beyond, not least thanks to governance reforms giving the region a greater voice in the Fund. We also look forward to closer cooperation with new regional surveillance frameworks, and strengthening our engagement through technical assistance, including for members embarking on a new reform agenda such as Myanmar.