CFI.co Meets the InverCaixa Gestión Fixed Income Fund Management Team: Proactive Approach in Fixed-Income Fund Management

[caption id="attachment_10828" align="alignright" width="360"] InverCaixa Gestión: Fixed Income Fund Management Team[/caption]

InverCaixa Gestión, a wholly-owned subsidiary of CaixaBank Group, earlier this year received the Best Fixed Income Fund Management Team Spain 2015 Award.

Last year, InverCaixa Gestión registered a particularly strong growth of its fixed-income funds which ballooned by 89%, thus affirming CaixaBank’s new leadership position in the Spanish fund industry with a market share of 17,02%.

The InverCaixa Fixed-Income Team – with around EUR8bn in assets under management – is a seven-person group headed up by Carmen Lumbreras de la Gándara. The team’s professionals are euro market experts with vast experience in trading a variety of bonds ranging from investment-grade to high-yield securities.

“We strive to excel and are relentless in our pursuit of the best possible result,” says Mrs Lumbreras. Each individual’s opinions merit respect within the team: “When you are privileged enough to work with professionals of this calibre, you need to foster participation; respecting and pooling opinions and evaluating return versus risk on a joint basis. The client remains a key consideration at all times. Our approach to the market also involves a continuous evaluation of both what we did right and where improvements may be made.”

The team has been together since 2008. That year, Carmen Lumbreras and Guillermo Viñuales were brought in from Morgan Stanley Gestión. In 2013, Carmen Pinyol and M Antonia Muñoz joined the team to bolster management of fixed-income securities issued by financial institutions and corporations.

The remaining members of the Fixed-Income Team are Luis Merino, Juan Manuel Blanco, and Carlos Robles. All boast extensive experience working with InverCaixa. “There is genuine cohesion within the team, and strong ties amongst the members”, says Mrs Lumbreras.

As well as leading the team, Mrs Lumbreras runs FonCaixa Renta Fija Flexible – a euro fixed-income fund that registered rapid growth in 2014 and now has in excess of EUR3bn in assets under management. The FonCaixa Renta Fija Flexible is a flexible fund that can have a negative duration, allowing up to 30% investment in high-yield bonds and up to 10% in currencies. The fund’s portfolio is assembled taking into account the team’s best ideas.
Mrs Lumbreras also manages the recently established FonCaixa Estrategia Flexible fund which can invest up to 15% in equity. “We are very excited to take up this challenge”, she says.

Another of InverCaixa’s noteworthy funds is the FonCaixa Ahorro. Managed by Luis Merino, this fund caters to the requirements of risk-averse clients, offering highly attractive risk/return ratios. Mr Merino is also in charge of covered bonds and ABS (asset-backed securities).

Another key product is the FonCaixa Monetario Rendimiento, a fund managed by Juan Manuel Blanco. Mr Blanco has extensive experience and is a money market specialist. He helps enhance the value generated from investment products appealing to more conservative clients.

Guillermo Viñuales is in charge of FonCaixa Renta Fija Corporativa. He is also head of credit. Mr Viñuales, Carmen Pinyol, and M Antonia Muñoz create these portfolios and offer recommendations that are applied to the entire range of InverCaixa funds.

Finally, Carlos Robles is a specialist in sovereign and supranational bonds. His main contributions come in peripheral bonds; managing products for all kinds of customers, including institutional clients.

In addition to an outstanding team of individuals, Mrs Lumbreras emphasises the importance of the investment process itself which combines top-down and bottom-up decision-making, as well as internal and independent analysis: “We are perpetually engaged in brainstorming. The team believes in sharing ideas and monitoring positions on a daily basis. If a strategy isn’t working, it gets promptly changed.”

The results provide ample evidence of the team’s superior quality and professionalism. Over the last three years, all funds representing the different fixed-income risk profiles have consistently outperformed their benchmark indices.

“What is particularly striking about the InverCaixa Fixed-Income Team is its proactive approach and the exceptionally high levels of cooperation and trust between the members,” concluded Mrs Lumbreras after accepting up the CFI.co award.


CaixaBank’s InverCaixa Gestión: Spain’s Leader in Asset Management

[caption id="attachment_10834" align="alignright" width="225"] Isidro Fainé, Chairman of CaixaBank and Gonzalo Gortázar, CEO[/caption]

CaixaBank is Spain’s third largest banking group and the biggest in the domestic market by business volume with a customer base of 13.4 million. CaixaBank is also one of the most solvent amongst banks in the Eurozone with a CET1 fully-loaded of 12.3% by the end of 2014.

In 2015, CaixaBank also became leader of the Spanish asset management market, supported by a robust performance from InverCaixa Gestión – a wholly-owned subsidiary of CaixaBank Group.

CaixaBank is an integrated financial group engaged in banking, insurance, and asset management. The group also holds stakes in a number of international banks and leading companies in the services. At the end of December 2014, attributable profit had more than doubled from EUR316 million to EUR620 million while net interest income was up to EUR3,955 million (up 5.1% on 2013), seeing the bank consolidate its leadership position in the Spanish retail banking market.

CaixaBank assets amounted to EUR338,623 million and gross customer loans totalled EUR197,185 million, with total customer funds standing at EUR271,758 million. Moreover, the bank has a strong liquidity position of EUR56,665 million and is one of the most solvent amongst banks in the Eurozone with a CET 1 (Common Equity Tier 1) fully-loaded of 12.3% by the end of 2014. Furthermore, CaixaBank shares gained 15.1% in 2014 with a quoted price of EUR4.361 per share as of December 31, 2014, outperforming the average for the Spanish financial sector by 2.5%.

“In 2015, CaixaBank also became leader of the Spanish asset management market, supported by a robust performance from InverCaixa Gestión.”

On January 2, 2015, CaixaBank acquired the retail banking, asset management, and corporate banking arms of Barclays Bank in Spain (excluding investment banking and Barclaycard).

CaixaBank leads the Spanish financial sector in terms of innovation. The bank has four million mobile service users and has registered over ten million downloads from its mobile app store. It also has more than nine million online banking customers and, according to the American Internet analytics company Comscore, is the most visited banking website in Spain. CaixaBank is widely considered a global leader in innovation and new technologies.

While CaixaBank’s focus is on Spain, it has also established an international network via strategic investments in banks. CaixaBank’s foreign banking interests comprise Banco BPI (Portugal - 44.1%), Boursorama (France - 20.5%), Grupo Financiero Inbursa (Mexico - 9%), The Bank of East Asia (Hong Kong - 18.7%), and Erste Group Bank (Austria - 9.9%). CaixaBank also has stakes in Telefónica and Repsol.

CaixaBank’s strategy is to internationalise operations in economies with high growth potential and to work closely with international partners to expand services. CaixaBank also maintain a number of representative offices around the world: four in Europe (Frankfurt, London, Milan, and Paris) and nine in the rest of the world (Beijing, Shanghai, Bogotá, Cairo, Dubai, Istanbul, New Delhi, Santiago de Chile, and Singapore). Offices due to open in New York, São Paulo, and Algiers. International branches are operating in Warsaw, Casablanca, Tangier and it will open soon one in London.

On the other hand, “la Caixa”, the main shareholder of CaixaBank, also funds social, environmental, scientific, cultural, and research initiatives via its social programme. The “la Caixa” Banking Foundation is Spain’s leading private foundation and the second largest in Europe. The foundation intends to keep its Welfare Projects budget unchanged at EUR500 million for 2015. This figure has remained unchanged for the last seven years.

InverCaixa Gestión, founded in 1985 with Asunción Ortega as chairwoman and Guillermo Hermida as CIO, is the specialised asset management arm of the CaixaBank Group. The firm is one of the most outstanding subsidiaries of the group and is expected to play a major role in CaixaBank’s internationalisation.

[caption id="attachment_10835" align="alignleft" width="233"] HQ: Barcelona[/caption]

InverCaixa Gestión is a consolidated management company based in Spain and committed to attracting foreign institutional investors. With close to EUR40bn under management and advisory and close to a million clients, InverCaixa Gestión has now overtaken its nearest rival for the top spot on Spain’s ranking of the largest domestic mutual fund managers. InverCaixa Gestión has seen its AuM (assets under management) grow significantly over the last two years.

Investors added EUR12bn to the total net assets during this period. Though overall market trends helped, performance excellence and savvy decisions on the part of the management team underwrote the outstanding growth of InverCaixa Gestión’s AuM. The integration of financial groups has also contributed to the growth in net assets, albeit to a lesser extent. The integration of Barclays Wealth Management, with EUR2.4bn AuM, is scheduled for the first half of 2015.

The Spanish mutual fund market is not only exceptionally buoyant, it is highly competitive as well, with volumes growing at an annual rate in excess of 25%. Being part of a financial services group that includes the Spanish leader by market share, InverCaixa Gestión benefits from privileged access to a universe of over 13 million clients.

InverCaixa Gestión’s growth is powered by the expertise of close to 140 professionals, 50 of whom work exclusively in analysis and identifying investment opportunities, examining a range of different assets and investment management styles.

At InverCaixa Gestión investment decision-making is a top down process based on a structure of committees composed of experienced asset class managers. Ongoing portfolio monitoring and risk control is conducted by an independent department.

InverCaixa has five specialised management teams: Fixed-Income, Equity, Alternative Investment, Value at Risk (VaR), and Funds of Funds. Focused management teams provide assessment to the Asset Allocation Team which manages balanced and global funds by optimising strategic risk and tactical implementation.

The Equity Team has ten industry/sector specialists covering Europe and Global Mega Caps. The investment process is based on fundamental analysis of companies, seeking GARP (growth at a reasonable price) or valuations with clear catalysts. Said analysis is specialised by major sectors and regions and closely supported by third-party research. The team places emphasis on company selection based on high conviction investment ideas.

InverCaixa Gestión’s management capabilities are focused on Europe where it directly implements investment decisions in both equity and fixed income assets. Investment decisions in other universes are implemented via funds of funds, making use of international third-party fund managers of demonstrable excellence.

To this end, InverCaixa has developed a proprietary model for fund selection with a track record extending over more than twelve years. It identifies the best funds not only based on quantitative and qualitative analysis, but also on the right strategies. Portfolios are built by optimising fund weightings, taking into account their contributions to differential risk and harnessing active fund strategy management.

InverCaixa also has two teams specialising in total return investment: the Value at Risk Team, focused on discretionary mandates for institutional investors (with close to EUR3bn under management), and the Alternative Investment Team which selects the top managers for each strategy option and establishes optimal combinations.

The fund management firm designs and manages an extensive range of products – funds, SICAVs (open-ended collective investment schemes), and discretionary mandates – investing in a wide variety of assets and harnessing different management styles. Thus, InverCaixa Gestión is able to provide clients with products carefully tailored to their needs, catering to different levels of risk-tolerance and income expectations, as well as addressing all personal requirements.

“InverCaixa Gestión is a consolidated management company based in Spain and committed to attracting foreign institutional investors.”

On the other hand, the CaixaBank Global SICAV was launched in late 2013. This UCITS (undertakings for the collective investment in transferable securities) established by CaixaBank, and managed by InverCaixa, was designed to cater to growing customer demand for asset management in Luxemburg. With more than EUR600 million under management as of January 2015, going forward InverCaixa may launch further mirror funds in Luxemburg for its Spanish product range.

InverCaixa Gestión’s strategic approach is grounded firmly on the specific values and convictions it shares with CaixaBank. These include providing added value for clients, product quality, transparency, flexibility, responsibility, efficiency, and security.

The Fixed-Income Team won the 2015 award for Best Fixed-Income Fund Management Team Spain. The CFI.co judging panel was particularly impressed by InverCaixa Gestión’s active fixed-income team, boasting unique insight into long-term trends and an ability to capitalise on short-term opportunities. The expertise of the Fixed-Income Team also means it is able to directly and efficiently harness such insights and opportunities that most benefit funds under management.

InverCaixa’s success has been reflected in the awards that it has won over the years. The 2015 CFI.co judging panel was emphatic: “Successfully pursuing transparency in its management of assets, while maintaining streamlined operational procedures, has taken InverCaixa Gestión to the very top.”


Proposed China Pakistan Economic Corridor: With a Price Tag of $46 billion

[caption id="attachment_9665" align="aligncenter" width="680"] Pakistan's Prime Minister Nawaz Sharif shakes hands with China's President Xi Jinping. Photo: Xinhua.[/caption]

China’s president Xi Jinping arrived in Islamabad on Monday 20 April for talks with Pakistani president Nawaz Sharif, to address parliament and make clear to the world a very obvious power shift from West to East.

Xi Jinping has agreed a ‘superhighway’ investment for Pakistan valued at $46 billion which represents three times the total foreign direct investment achieved by the country during the course of the past seven years. The United States has spent $31 billion in Pakistan since 2002.

The 3000 km network of roads, railways and pipelines will run from Gwadar on the Arabian Sea to Kahgan in the Xinjian region of China via Pakistan administered Kashmir. This highly ambitious programme will help China further control key maritime trade routes, massively extend its influence in central and south Asia and perhaps bring an economic miracle to Pakistan – putting an end to the insufferable power outages now experienced throughout the country (this latter improvement was promised by Mr Sharif during the 2013 election campaign).

There are, of course, major worries over Pakistan’s ability to absorb investment of this magnitude given political fears, official corruption, calls for separatism, criminality and Islamic militancy. As ever, New Delhi focuses intently on developments in the country and low-income Pakistanis remain unconvinced that they will be significant beneficiaries of all this largesse.


CFI.co Meets the Chief Executive of Business Banking at Absa Bank: Roy Ross

For banks, shuffling deposits around is so last century. While taking deposits and extending credit – both in a plethora of often highly complex and innovative ways – remain at the heart of the banking industry, this stripped-down business model no longer suffices. In a sense, the modern bank – properly geared for future growth – is rediscovering its earlier function as an enabler of business and a driver of overall economic growth and, indeed, prosperity. Though still very much a provider of financial services, such a bank also operates in a social space – empowering local entrepreneurs and facilitating the growth of small and medium-sized businesses.

The story of Lethabo Milling, a black-owned company in South Africa, illustrates what a bank can accomplish once it decides to lend a helping hand to budding businesses. Through its Enterprise Development Fund, Absa Bank – one of South Africa’s Big Four banks and part of Barclays Africa Group – managed to forge a deal between Lethabo Milling and local Walmart subsidiary Massmart.

The miller is to supply the retail giant with 10,000 tonnes of maize meal. With this order in place, Lethabo Milling received a R8.2m (GBP467,000 / USD685,000 / EUR646,000) loan that enabled the company to buy a new mill, upgrade its plant, and acquire new packaging machinery. Meanwhile, Massmart contributed with a grant of R1.6m and is a guarantor for half of the loan amount.

According to Lethabo Milling CEO Xolani Ndzaba, the company’s growth has been hampered not so much by slack demand, but by a lack of financing. A relatively new company, Lethabo Milling was founded in 2010 on the premise of delivering quality products at convenient prices. However, breaking into the market and the various supply chains proved an uphill battle for the newcomer.

“SMEs are close to our heart,” says Roy Ross, Chief Executive of Business Banking at Absa Bank: “We do not just lend money to people; we can help them with almost any aspect of their business, from financial management to human resources and marketing.” Mr Ross is quite passionate in maintaining – and expanding – Absa Bank’s long-standing leadership role as the go-to and can-do bank for start-ups and micro, small, and medium-sized business in South Africa.

Mr Ross explains that the market may be divided into four distinct segments, each facing both unique needs and challenges. The lion’s share of that market is taken up by medium-sized businesses that are firmly established: “Since decades, these have been the companies we focus on: businesses with an annual turnover anywhere from R10m to R500m. They often need assistance to break out and embark on a trajectory of sustainable growth.”

Smaller businesses, likewise boasting a solid track record, may also count on Absa Bank to provide the wherewithal and expertise necessary for growth: “These businesses are often run out of domestic premises and attain an annual turnover of between R1m and R10m. Not all of them are keen to pursue growth. In fact, only about twenty percent actively seek help to expand their business.”

That help is available at the nine Enterprise Development Centres maintained by Absa Bank throughout South Africa. Mr Ross: “It is here that emerging business can find the tools and knowhow needed for success. At the centres, our professionals are able to help smaller businesses plug into the value chains of our larger clients. Providing such linkages is an essential part of our business as a bank.”

Absa Bank also maintains an online portal where SMEs may display their products and services and find a wealth of business-related information. So far, over 20,000 small and medium-sized South African companies have registered at the portal which, crucially, also provides up-to-date specifics on contracts open to bidding and other business opportunities.

Throwing its not inconsiderable corporate weight behind a broader push to support and empower SMEs, Absa Bank has developed a framework of enterprise development policies that may come to serve as a blueprint for similar initiatives by the Barclay Africa Group elsewhere on the continent. Mr Ross explains: “Our model of business segmentation has proved quite successful and the idea is to extend it to other markets such as Kenya, Ghana, Botswana, and Zambia.”

The Absa Bank head of Business Banking is also leveraging the bank’s network of over 800 branches to keep in close proximity to clients and to roll out other initiatives. In the Tshwane Metropolitan Municipality (Pretoria and environs), Absa Bank is working with local authorities to develop and support micro businesses. With French development agency AFD (Agence Française de Développement) the bank has an agreement in place to install green energy supply systems for small businesses and farms.

“Recognised as key drivers of the economy, SMEs and agriculture sit high on the government agenda. In fact, a special Department of Small Business Development has now been created to coordinate efforts aimed at furthering entrepreneurship in the country. This shows the strong support the sector is awarded by the government. For a long time, Absa Bank has been one of the lead advocates of SMEs and agriculture. We already have a number of programmes in place to support small and emerging farmers. Partnering with the government, to help it attain the goals set, fits really well with Absa Bank’s own priorities and business model.”


Ahmed Mater: Flower Power, Saudi-Style

I shop, therefore I am. Globalisation has arrived in the Middle East and with it the brand-name accoutrements of the consumer society. Entire cities have been erected to celebrate this new age of unbound consumption, or of consumerism on steroids. Ikea may have descended on Riyadh and Abu Dhabi; the real impact is made by the likes of Hermès, Harry Winston, Bréguet, and other purveyors of ultra-high-end indulgencies. This is a rarefied segment of the luxury market that considers Louis Vuitton merely a staple – rather too ordinary to be publically associated with.

What is an artist to do? Well, join the hype.

Surrounded by the relentless demand for instant gratification generated by a society cast adrift from its roots, the art scene is positively buoyant – if not flourishing – in Saudi Arabia and the adjoining countries along the southern shore of the Arabian Gulf.

It makes perfect sense: in times of plenty, patronage of the arts goes on the ascendant. In fact, Saudi Arabia is currently in the midst of a Golden Age not unlike the one that produced the Dutch masters of 17th century – Frans Hals, Johannes Vermeer, Jan Steen, and Rembrandt van Rijn. At that moment in history, the Dutch Republic was the most prosperous country in the world. This is no coincidence: the analogy holds.

In keeping with the times, art is now a globalised industry. At its Saudi vanguard is Edge of Arabia, a collective of independent artists pushing Arab art onto the world stage. In 2009, Edge of Arabia presented eight Saudi artists at the 53rd Venice Biennale, widely seen as a portal to Art Basel – the world’s largest commercial venue for modern and contemporary art.

After its debut in Venice, Edge of Arabia embarked on a world tour to the wide acclaim of critics, dealers, and the general public. Returning home to the kingdom, the collective’s founders extended the scope of their initiative to include educational programmes offering mentoring, workshops, and symposia to budding artists from the region.

One of those founders is Ahmed Mater who, through his art, seeks to address the deeper questions facing the nation: its transformation, religious heritage, and related existentialist queries. Is humanity more than just the sum of bodily parts, and if so: what is it?

The interest of the British Museum was piqued and it promptly acquired Mater’s opus magnum Prognosis: a series of collages depicting quintessentially Saudi vistas – the Ka’aba, the Grand Mosque, and other cultural references – superimposed on x-ray sheets in a nod to the artist’s background as a physician.

Concerned about the impending loss of heritage, Mr Mater has moved to the forefront of the opposition against the large scale redevelopment of Mecca that threatens a number of historical sites, including what some Islamic scholars contend was the birthplace of the Prophet – the Mawlid House.

The multi-billion dollar project aims to adequately equip the city so that it can safely handle the growing number of pilgrims arriving annually to carry out the Hajj. Mr Mater’s Artificial Light / Desert of Pharan – an urban exploration – illustrates the dissonance, questions the makeover, and expresses the concerns.

Often described as an illuminator of forms and ideas, Mr Mater abhors habits and routine, preferring lightness and surprise instead. His art is also served with a dash of humour. Mr Mater’s Yellow Cow Project – a self-described “ideologically-free product” – constitutes a frontal assault on the naïve presumption that humans may gain value by drifting away from the primordial mud of creation. “Real power is the ability to be a flower.”

Not entirely unlike Andy Warhol’s Exploding Plastic Inevitable of the late 1960s, Mr Mater strikes a blow against the grain: “When everything is materialised, everything becomes stony – even one’s heart.” He takes no prisoners either: “If this sounds absurd, just rush out and buy some Yellow Cow products. It is an open market, ready to consume you – bon appétit.”


Otaviano Canuto, World Bank Group: BRICS Apart as  Oil Prices Plunge

The oil price plunge since last June has been deemed, overall, as a boon for the global economy. However, that depends on where one stands as a producer or user, as illustrated here with the divergence of impacts on BRICS economies.

Lower Oil Prices Here to Stay

Brent crude oil prices fell to US$45 a barrel at the end of January, from as high as US$115 in June last year, marking the end of a four-year period of fluctuations in the range of US$93-$118 (Chart 1 – left side). They have recently rebounded to levels close to US$60 but most forecasts point to prices oscillating between $50 and $80 a barrel through 2016.

“Supply-side developments have played a major role. The steady increase of US shale oil production – together with other unconventional oil sources elsewhere – during the long-period of high prices led to a persistent excess of global production over consumption.”

Supply-side developments have played a major role. The steady increase of US shale oil production – together with other unconventional oil sources elsewhere – during the long-period of high prices led to a persistent excess of global production over consumption.

[caption id="attachment_9686" align="aligncenter" width="688"] Chart 1: Oil market - recent developments. Source: Baffes et al (2015).[/caption]

Saudi Arabia, the “swing” global producer, started breaking the previous price-setting norm in August of last year, by discounting prices to Asian consumers to protect market share. In November, the OPEC decision to uphold its production level corresponded to a structural break in oil price formation, in the sense that maintaining market shares clearly superseded targeting any oil price band. Given that shale oil production units can rise or decrease faster than conventional oil, responding to market price fluctuations, the change of the price-setting regime seems to have come to stay for long (Chart 1 – right side).

The Winners and Losers

The overall net impact on global GDP is expected to be positive. Besides a boost to global demand derived from the transfer of purchasing power from oil producers to consumers, lower oil prices have widened the space for (temporary) expansive monetary policies and enabled lower government spending with fuel subsidies.

There have been winners and losers across countries and regions, but negative impacts on the latter are expected to be less globally significant than benefits to the former. According to World Bank estimates: “… a decline in oil prices of about 50 percent could be associated with a 0.7-0.8 percent increase in global GDP over the medium term. (Basu, 2015)”

From a country standpoint in particular, it has all depended on the role and weight of oil production and consumption in its economy. Net exporters (importers) of oil have received a negative (positive) impact from the deterioration (improvement) of terms of trade, accompanied by corresponding income shifts between producers and users within the country – Chart 2 exhibits non-advanced economies as net oil exporters and importers.

[caption id="attachment_9687" align="aligncenter" width="681"] Chart 2: Oil prices - winners and losers. Source: Institute of International Finance (IFF).[/caption]

Fiscal impacts have been negative where taxes on exports/consumption of oil constitute an important source of government revenues, while positive with respect to outlays with energy subsidies – Chart 3 shows how some countries are fiscally dependent on oil revenues (left side), as well as that fossil fuel subsidies can be found on both net exporter and importer groups of countries (right side). Country-specific contexts and policy responses have also weighed on the final outcome.

The country-specific nature of impacts of lower oil prices can be illustrated with the diversity of situations among the group of BRICS (Brazil, Russia, India, China, and South Africa) economies. Three distinctive positions can be pointed out.

Russia Faces Additional Whammy

As oil and gas account for more than 70% of Russia’s exports and nearly half of its budget revenues (Chart 3), its economy has suffered a strong negative impact from lower oil prices. The energy sector is responsible for 17-25% of its GDP.

The oil price drop has come on top of economic sanctions from the EU, Japan, and the US related to the Ukraine crisis. While current account balances have remained positive, annual resident capital outflows were running at 4-5% of GDP last December.

[caption id="attachment_9688" align="aligncenter" width="668"] Chart 3: Oil & gas revenues and fiscal costs of subsidies. Sources: IFF (left); Balles et al, 2015 (right).[/caption]

Devaluation pressures on the rouble stemming from geopolitical risks increased after the oil price fall gathered pace. As a result, not only has annualised inflation moved above 10% this year, but the $600bn foreign debt of Russian banks and non-banking firms – already facing the sanctions bar from refinancing with US and European banks – became an increased source of concern. Although large foreign reserves may still serve as a buffer, real GDP is expected to slump by more than 3.5% this year, followed by another 1.5% in 2016.

China, India, and South Africa Benefit

According to estimates by the World Bank (2015a), a 10% decrease in oil prices is expected to lift growth in oil-importing economies by something in the range of 0.1-0.5 percentage points, depending on the share of oil imports in GDP. Positive fiscal and current-account impacts are also expected. China, India, and South Africa are beneficiaries.

In China, the World Bank estimates an activity-boosting effect of lower oil prices in the range of 0.1-0.2%, given that oil comprises only 18% of energy consumption. A deflationary impact is also on the cards, although it will be limited as energy and transportation correspond to less than 20% of the CPI. Fuel subsidies amount to only 0.1% of GDP, so fiscal impacts will not be significant. On the other hand, as China remains the second-largest world importer, lower oil prices throughout 2015 will likely raise its current account surplus by 0.4-0.7 percentage points of GDP.

[caption id="attachment_9692" align="aligncenter" width="526"] Chart 4: Commodity price indices. Source: World Bank (2015).[/caption]

India has an oil import bill of 7.5% of GDP (Chart 2) and has derived high terms of trade gains from the oil price evolution. Furthermore, its challenges with fiscal deficits and high inflation have been made easier. The government has already taken the opportunity to phase out diesel subsidies and hike taxes on oil derivatives. Falling oil prices have also helped to bring inflation down to less than 4.5% a year last December, opening space for some monetary policy loosening ahead.

South Africa is also a net importer of oil and a beneficiary from lower prices, including by corresponding effects on inflation and the import bill (Chart 2). As far as current-account deficits and GDP are concerned, recent oil price developments have come as a relief after the previous decline of prices of metals and minerals – see Chart 4 – that comprise a substantial chunk of the country’s exports and GDP.

Mixed Impact on Brazil

Brazil has a small deficit on its oil foreign trade - as compared to the countries above (Chart 2) - and that qualifies it for potential benefits of declining prices both on its current-account deficit and as a facilitator for an undergoing domestic price realignment of oil derivatives. On the other hand, the new international price regime and levels have come at a moment in which strong bets on future oil-related investments had been made in previous years, toward an expected crossing of the threshold to the group of net-exporting countries. Together with the unfolding corruption scandals in state-controlled Petrobrás, world oil price developments have prompted a full downward review of such investments.

Price Plunge Brings Opportunity

Those oil-exporting countries that prepared themselves for the downward phase of the price cycle, constituting fiscal, and international reserve buffers during good times, have been able to cope better with the new scenario. For all the others, besides realising what a high premium must be attached to diversifying the economy from an excessive dependence on a single commodity, there is the template for future upward cycle phases left by those successful hoarders.

Finally, across the whole range of countries, the current oil price phase constitutes an opportunity to suppress existing distortive fossil-fuel subsidies. As argued by Basu and Indrawati (2015), government expenditures with fuel subsidies should be reallocated to effective pro-poor policies. If that is accompanied by some sort of carbon taxation, cleaner energies may keep their development.

About the Author

Otaviano Canuto is Senior Advisor on BRICS Economies in the Development Economics Department, World Bank, a new position established by President Kim to bring a fresh research focus to this increasingly critical area. He previously served as the Bank’s Vice President and Head of the Poverty Reduction Network (PREM), a division of more than 700 economists and other professionals working on economic policy, poverty reduction, gender equality and analytic work for client countries. He also served as an Executive Director of the Board of the World Bank from 2004-2007. Outside of the Bank he has held leadership positions at the Inter-American Development Bank where he was Vice President for Countries, and for the Government of Brazil where he was Secretary for International Affairs at the Ministry of Finance. He also has an extensive academic background, serving as Professor of Economics at the University of São Paulo and University of Campinas (UNICAMP) in Brazil.

The opinions expressed here are the author’s and should not be attributed to the World Bank.

Follow Otaviano Canuto on Twitter: www.twitter.com/ocanuto

References

Baffes, J et al, 2015. The Great Plunge in Oil Prices - Causes, Consequences, and Policy Responses, World Bank, Policy Research Note No.1, March.

Basu, K. 2015. Oil Price Plunge holds promise and peril, Let’s Talk Development, March 3.

Basu, K. and Indrawati, S.M. 2015. Cheap oil for change, Project Syndicate, February 9.

World Bank, 2015a. Global Economic Prospects, January.

World Bank, 2015b. Commodity Markets Outlook, January.


Evan Harvey, Nasdaq: Stock Exchanges, European  Capital Markets, and Sustainability

Sustainability is already part of the global market ecosystem. Exchanges and regulators have embraced it, researchers and academics have validated it, and the law in many places already requires it. Even if the perspective remains limited to the US Supreme Court’s definition of materiality or SEC disclosure guidance, sustainability data is likely part of the total mix of information that investors require.

As listing venues, stock exchanges do everything possible to support their issuers, provide them with access to long-term capital, and help them grow their business. They have no desire to simply pile new requirements on top of old ones, even if it results in better sustainability data flows. But exchanges also have more far-reaching obligations. To be sure that the interests of many different market participants are fairly represented, exchanges are working together to create change in their industry.

The Sustainable Stock Exchanges (SSE) initiative is an UN-backed project, exploring how exchanges can collaborate with investors, regulators, and companies to enhance corporate transparency, and ultimately performance, on environmental, social and corporate governance (ESG) issues. It is dedicated to finding ways to encourage responsible, liquid, and long-term investment.

“The Helsinki Exchange was also the first exchange in the world to receive a WWF Green Office diploma, and one of the first in the world to go carbon neutral.”

Another effort comes from the World Federation of Exchanges, which is the only trade association binding virtually all of the world’s stock exchanges together. Their Sustainability Working Group (SWG) has been embarked on a two-year quest to determine the material need (if any) for exchanges “to seek, standardise, and/or publish environmental, social, and corporate governance (ESG) data.” The SWG has been scouring traditional sustainability data disclosures and reporting frameworks for fresh insights. Its group members are tasked with interpreting the real impacts of exchange intervention, both positive and negative, on their business.

But because several kinds of exchanges participate in this group – and make up the membership rolls of the WFE – it does not limit its investigation to the ESG disclosure space. This group also considers sustainability indexes and financial instruments, energy futures and commodities, and the larger role that exchanges as financial engines can play in the formation and sustenance of a fair, open, and transparent national economy.

Three Leading European Exchanges

These projects are made up of multiple exchange participants from a diverse array of economies and markets. European participation is an integral driver. Five of the nineteen exchanges in the SSE, for example, represent European markets.

Deutsche Börse (DB), an active member of both the SSE and SWG, makes its case for corporate transparency directly to issuers. DB provides detailed sustainability reporting guidance (the ESG Practice Guide) to all of its listed companies. The reasons for doing so are deeply rooted in investor concerns: “ESG information goes beyond a company’s financial figures to show an additional facet of the company in question and is therefore significant to its well-founded evaluation and reliable assessment of the risk/return profile of an investment.”

DB has publicly signalled its support for the Global Reporting Initiative (GRI), the German Sustainability Code (GSC), and the International Integrated Reporting Council (IIRC). It provides thorough training on sustainability issues, ranging from capital market communication strategies to specific ESG reporting frameworks. The exchange has created a number of sustainability-based indexes as well.

In some notable cases elsewhere (South Africa, Brazil, and Singapore), exchanges have simply mandated sustainability disclosures as part of their listing rules. Listing rules at the London Stock Exchange (LSE), however, are set by the regulator – not the exchange. The UK market has better corporate disclosures (thanks to the 2013 debut of the Companies Act) for greenhouse gas emissions, human rights, and diversity performance. Companies must now disclose those metrics in annual reports.

The LSE has organised seminars and other events on best practices in ESG disclosure for corporate audiences, in collaboration with established partners like the Carbon Disclosure Project and the IIRC. FTSE, which is owned by the LSE Group, provides some of the oldest and most detailed ESG ratings and data to the global investment community. FTSE also works with asset owners, asset managers and banks to develop specialized ESG services.

A 2014 Corporate Knights study, which measured corporate disclosure of first-generation sustainability indicators, put the Helsinki Exchange (part of the Nasdaq OMX Group) at the top of the list. “No stock exchange in the world,” the authors of the study concluded, “comes close to the Helsinki Stock Exchange when it comes to the proportion of large listings disclosing quantitative sustainability data.”

The Helsinki Exchange was also the first exchange in the world to receive a WWF Green Office diploma, and one of the first in the world to go carbon neutral. It has continued to maintain its carbon neutral status for several years in a row. It has also been a member a member of the Finnish Business & Society Ry (FiBS) since September 2011.The FiBS enterprise network was established in 2000 to specifically promote financially, socially, and ecologically sustainable business in Finland.

The Far Reach of European Regulators

It’s not just exchanges that are making significant headway. European regulatory moves are not only part of the global discussion; they are driving compliance measures in non-European markets. The European Union (EU) Council adopted a new directive in 2014, establishing guidelines for non-financial disclosure by companies with 500 or more employees.

This directive imposes a comply-or-explain obligation on its corporate targets, asking them to disclose “existing policies on environmental, social, employee, human rights, anti-corruption, and bribery matters, including a description of the outcomes of their policies, relevant non-financial key performance indicators, and main risks related to these matters. Companies which do not pursue policies for these matters will have to provide a clear and reasoned explanation for their choice.”

More than 6,000 companies both inside and outside the EU are apparently subject to the directive.

Sustainability vs. Short-Termism

Preparing detailed reports is nothing new for public companies. They must constantly research, publish, and defend repetitive financial disclosures. Analysts and investors draw meaningful inferences (and make economic decisions) based on quarterly achievements or setbacks. This unrelenting pattern churns data every quarter without offering real or enduring insight – and it sometimes prohibits companies from engaging the public on longer-term strategies.

Stock exchanges see this dynamic played out every day. Sustainable capital formation starts with informed investment decisions, because they tend to produce longer-term investments. Providing investors and other stakeholders with a better understanding of key performance metrics makes markets more transparent, efficient, and sustainable.

Comprehensive and common-sense disclosure of even a small number of sustainability metrics can propel businesses to better plan and execute long-term strategy. In theory, this offsets any resource or cost burdens related to developing expertise in sustainability management.

[caption id="attachment_9701" align="alignleft" width="219"] Author: Evan Harvey[/caption]

Simply getting more corporate data into the system may not suffice; there must also be an eventual shift of focus from reporting to performance measurement. But better data access (and more harmonised structure) will lead to better analytical research and modelling of shareholder returns, rates of turnover, and so on.

ESG screens are now part of equity strategy, but also increasingly essential to fiduciary oversight.

About the Author

Evan Harvey is the Director of Corporate Responsibility for Nasdaq. He also serves on the Board of Directors for the UNGC US Network and chairs the Sustainability Working Group at the World Federation of Exchanges.


Grant Thornton: Governance vs Corporate Governance

When we hear the term “corporate governance”, we instantaneously parallel the phrase with rules and procedures, stock market regulations, codes, standards, compliance, etc. Corporate governance is perceived by many publically-listed companies as a burden that limits their freedom because of the strict reporting and operating requirements that they believe are imposed. However, this perception is deemed by many as a misapprehension.

Governance is related to doing the “right things” in the “right way” by following a framework which is ultimately designed to achieve the desired goals of any organisation. Governance is not only required for publically-listed companies, but also for other companies of different types and sizes. What all these entities have in common is their aim of maintaining ongoing and profitable operations that meet their long term strategic goals and which ultimately satis-fy their stakeholders.

Business governance, whether for governmental, public or private organisations, eventually aims to ensure the following:

Business processes, either technical or supporting, are functioning in an efficient, ef-fective, and consistent manner.

All types of business risks are identified, monitored, and managed.

Internal controls are in place and functioning as designed to minimise the probability of a risk occurring.

Owners, board of directors, and management have the appropriate tools that enable the organization to make the right decisions in an effective manner.

So why does the GCC (Gulf Cooperation Council), specifically the UAE seem to be lenient when it comes to corporate governance?

The majority of the business capital is held by government and wealthy families. Companies owned by these parties tend not to have an independent board of directors, a sense of busi-ness transparency and hence lack of information disclosure. In the GCC region, the govern-mental institutes tend to run a bureaucratic business with many senior stakeholders, in com-parison family owned businesses tend to have a tight knit structure. In both cases, continuing such practices may expose their business to major unforeseen risks.

If we consider large family business groups as an example, we have observed that the sec-ond generation have realised the risk which is of a growing concern for them. They are definite that in order to ensure a successful business, an appropriate governance framework must be adhered to, implemented and executed irrespective of who is leading the company. As the market dynamics and competition changes, it is imperative to have a stringent gov-ernance framework to safeguard the business and its assets given the number of increased internal and external risk factors.

Governance, if applied appropriately, can protect organisations against decay caused by poor performance, financial crisis, fluctuations of market trends, and change in leadership styles.

What does good corporate governance require from the organisation in order to support growth, sustainability, and profitability? We believe the following is required to build an infra-structure of an organisation based on appropriate policies and procedures:

Enhance independence of directors who oversee the organisation’s affairs. In case of family businesses, independent experienced, and knowledgeable individuals should be added to the board of directors.

In case of governmental entities, only highly competent officials should be appointed to sensitive positions that can have the vision to direct, monitor, evaluate, and take the appropriate actions.

Establish specialised committees to oversee certain vital activities and functions, such as: the audit committee, investment committee, budget committee, executive committee, etc.

Roles and responsibilities of each of the board and committee members or senior management should be specified and formalised, agreed upon and signed by each position holder so that he/she becomes accountable for decisions and results which establishes a base for measuring performance.

Develop comprehensive and integrated policies and procedures for all processes and sub-processes to ensure consistency and standardisation of flow of operations in the most efficient and effective manner.

Establish a firm-wide ongoing risk management process to identify, assess, monitor, and mitigate all types of strategic, financial, operational, informational, and reputa-tional risks.

Encourage and support the establishment of an independent internal audit function either in house or outsourced to continuously examine and evaluate the system of internal controls and the process of risk management.

Develop a business continuity plan and crisis management plan to ensure the organi-sation is protected under any scenario or circumstance.

Develop a succession plan to avoid gaps and failures in certain functions and posi-tions.

Develop a code of ethics to encourage certain styles of behaviour in certain situations and with various parties.

Develop fraud prevention policies and a whistle blowing system to define what is considered an un-desired / illegal act and explains the related disciplinary actions.

The above are just some of the elements which need to be adopted by organisations to dis-tinguish and establish corporate governance within the organisation. This will provide meas-urable results which leads to business success and long term prolific success for organisa-tions. The practice of corporate governance is embraced in Europe and the western world, whereas the GCC continues to make steps towards embedding these practices which will eventually promote business efficiency and ultimately contribute towards business success.

So how do you put these practises into action?

Without getting senior stakeholder buy in, change is difficult if not impossible to implement. The owners, directors, or senior management should realise the need for having certain management processes, tools, and mechanisms embedded within their entities operations and aligned with the overall operating style of the entire organisation. The return on invest-ment would be enhanced business sustainability, profitability, and safeguarding the business for any adverse external and internal influences.

With anything, management philosophy and operating style are the main drivers of any or-ganisation. However, people are known to resist change. If senior management drive the change it is known that the engagement will be enhanced and in due course change will be embraced.

Governance cannot achieve the aimed results unless the following values are embedded in the organisation culture and encouraged by senior management on a regular basis:

Transparency

Integrity

Accountability

Competency

The introduction and implementation of corporate governance is dependent upon manage-ment who then filter the message down to ensure the organisation embraces the level of change management that is required. Once done, it becomes the responsibility of each and every internal stakeholder within the business to continue raising internal awareness on best practice methods and specifically governance. Adopting corporate governance has a two-pronged approach, as it enhances a company’s efficiency which results in increased profits and therefore benefits the wider economy.

Today’s fast-paced business environment, shifting economic conditions, access to the global marketplace, evolving information technology and increased demand for enhanced corpo-rate governance and accountability are all contributing factors in propelling the board’s role in corporate governance. These new demands require boards to be more involved, knowl-edgeable, and proactive.

The need to develop, adopt, and demonstrate a high level of corporate governance is far greater than it has ever been, it is therefore essential to choose a partner who is knowledge-able, constructive and independent, which coupled with senior internal stakeholder en-gagement can drive growth for any business.

About the Author

Mohamed Nassar is the business risk services partner at Grant Thornton UAE and has over twenty years of experience. His professional portfolio includes ten years within professional services prior to joining Grant Thornton working in Cairo, Jeddah, and Dubai. He has also worked for some of the most reputable government agencies and one of the largest oil and gas suppliers in the world. Mr Nassar specialises in a wide range of industries, such as oil and gas, hospitality, facility management, and financial services, amongst others. Mr Nassar is a US-certified professional of CIA and CCSA. He is also a registered public accountant.


Ross Jackson: A Silver Lining to Europe’s Troubles

As we await the outcome of the four-month extension of the Greek credit arrangement with the Troika (EU, IMF, ECB), this is a good time to consider various possible scenarios. Indeed, I would like to outline the one scenario that has not been mentioned anywhere, as far as I know, but may well be the most satisfying for the Greeks in the long run. This scenario could well become an alternate strategy for a more humane solution to the raging economic crises suffered by Greece and many other countries.

I am talking about a complete exit not only from the euro, but from the European Union and the World Trade Organisation (WTO) as well; I am talking about the Greek finally taking back control of their country from foreign interests. This may not seem likely right now in the midst of negotiations, but if the Troika upholds its hard line, as I expect it will, it may well be the least painful option open to Greece, and the only way for Syriza to survive as a political party with a minimum of credibility.

“The fundamental problem – the one that has not yet been widely recognised – is that the playing field on which both domestic and foreign companies compete is strongly biased in favour of large multinational corporations.”

Let me put the problem in a larger framework as one facing Europe as a whole, and indeed the entire world. It is caused by a failed, but still dominant, economic system – the neoliberal model – that is literally strangling the global middle classes for the benefit of the wealthiest 0.1%. This elite is sucking real value out of everyone else, using a system that EU political leaders continue to support even as it slowly but surely destroys the European welfare state.

Many of us have warned for years what would happen if we failed to take action. My book Occupy World Street is just one warning out of many. Mainstream media have been very sceptical about such warnings. However, now reality is starting to bite even those who until now have ignored the opponents of neoliberalism.

Wake-Up Call

Let me mention a recent wake-up call given to my own country, Denmark. This was an “aha” experience for many middle class working families as well as the trade unions – like “oh, is that what you meant all along?”. The consequences hit all concerned suddenly and harshly and did so in their own backyard, so to speak.

Scandinavian Airlines System (SAS), an icon of Nordic pride and cooperation for decades, is now fighting for its life as foreign competitors – not bound by the same high standards of labour relations, liveable salaries, and quality and safety – undercut SAS prices by using a combination of tax evasion and employee exploitation in a period of high unemployment. For example, pilots and cabin employees are forced to take employment with daughter companies based in countries with no worker protection. They must work 60 to 70 hours per week for a minimal wage. They are also forced to pay for their own uniforms, pensions, etc.

In some cases, employees must become sole traders for tax reasons. One such low-cost airline, having forced all its pilots into a single daughter company, threatened to let that company go bankrupt if the pilots did not accept a further pay cut. In case they refused, the pilots were given the option of reapplying for their old jobs, albeit at a lower salary.

At some companies, employment conditions have deteriorated to such a degree that they have become akin to slavery. SAS is obliged to follow suit if it wishes to survive. The company took that course – with limited success – during its latest conflict with cabin personnel. It shocked the general public.

Mainstream media op-ed writers commented that the wages being offered were insufficient to actually live on in Scandinavia. The expression for this phenomenon is the “working poor” – people with fulltime jobs that cannot manage to make end meets even while pursuing the most modest of lifestyles.
The trend started in the USA and is now common in Germany and Southern Europe. It is a bit of a shock to Scandinavians, who are experiencing the working poor phenomenon for the first time. All the big network airlines are facing the same issue as are other industries.

And this is just the beginning: it will continue to get worse as long as neoliberalism reigns. Consumers can only see the benefit of low prices. They simply cannot envision the much higher price society will eventually pay as a way of life disappears and the tax base slowly crumbles. Unfortunately, SAS is not likely to survive. Slave-like employment conditions are not about to improve.

Biased Playing Field

The fundamental problem – the one that has not yet been widely recognised – is that the playing field on which both domestic and foreign companies compete is strongly biased in favour of large multinational corporations. Almost all of the world’s countries are members of the WTO which was designed to satisfy the requirements of the largest multinational corporations – to be able to produce anywhere without regard for social and environmental impact; to sell anywhere; to use transfer pricing and intercompany loans to exploit differences in tax regimes; and to ultimately place their profits in tax havens where to are safe from their home jurisdictions.

No domestic company can compete with that. The stark choice is between joining their ranks and foundering in what has been described as a race to the bottom. Many multinationals are now moving even their corporate headquarters to tax havens for even greater protection. It is the 0.1% elite that to all practical intents and purposes control these companies. This is, of course, why their wealth has exploded over the past thirty or so years. It is also how they managed to prosper in the aftermath of the 2008 financial crisis.

Recently, Oxfam reported that the 85 richest billionaires now own more wealth than the poorest three billion people of the world do. A few years ago, it took 300 billionaires to equal this wealth. It gets worse each day. How many billionaires will it take a decade from now?

In some countries, such as the USA, the 0.1% elite also control most politicians. It may be too late for reformers to rescue the American political process from the excessively rich; however, it is not too late to do so in Europe.

To me, the most fascinating aspect of what goes on is the apparent surprise of journalists, politicians, and citizens in general, as to what is happening to their societies as inequality grows. I say fascinating because acerbating inequality was from the very beginning the whole point of neoliberalism and its global agents – WTO, IMF, World Bank. It was, of course, never openly stated in this way.

Furthermore, it was never intended that the “developing countries” would actually develop. Their assigned role in the neoliberal world is to supply the rich countries with cheap raw materials. End of story.

Boats Stranded

The actual selling point of neoliberalism was that free markets benefit everyone as in “the tide lifts all boats” and other analogies. It was never actually about economics: that was merely a façade. Neoliberalism constitutes an ideological / political plan conceived and executed very cleverly and cunningly by billionaires and their hangers-on.

All is going according to plan and we are currently observing precisely what was intended from the original game plan masterminded some thirty years ago. I find it incredible that so many commentators and politicians cannot fathom the real dynamics of what is going on, but continue to buy into a story that is destroying the very basis of their existence.

In principle, it is a relatively simple political problem to solve – provided the will is there. In practice it is, however, a rather complex issue. Real change requires first and foremost rejecting a lot of our politically correct beliefs about the present economic system. For example, reformers will have to leave the WTO and establish new principles of trade with the sovereign nation state – and not foreign predators – in charge; not an easy task when we are constantly told that the sky will fall if we ever leave the WTO.

For a Eurozone member state, change will prove particularly hard to implement due to a design-flaw that prevents countries using the euro from issuing their own currency and tinkering with its exchange rate as their economies and inflation rates diverge. I have stated before that the only viable long-term solution for the Eurozone is its split into two blocks: one group of countries that revert to their own currencies, and another group that forms a new Euro State with both a single currency and government.

Until such a division happens, the European Union will be in continually plagued by crises and may even come to collapse. However, with a split the EU could possibly continue as a major political and economic force with a viable and unified internal market.

The very concept of a single currency zone was a disastrous one and totally uncalled for. What the EU should have done, is to allow – as it once did – national currencies to float within a set, and periodically adjusted, range. Ironically, the most peaceful period in the history of the European Monetary System (EMS) ran from 1993 to 1999 when the system collapsed just before the euro came into being.

During this unique period, European national currencies floated within a range of +/- 15% which allowed for a gradual adjustment of exchange rates without speculator movements or other disruptions. Speculators are often most attracted to pegged – as opposed to floating – currencies. Traders are usually ogling a central bank’s currency reserves and love nothing better than a central bank depleting its reserves defending a hopelessly out-of-date exchange rate set in stone.

It is here that Greece may inadvertently have been assigned the role as the first (but not the last) country that gives up the whole system as the nation realises that it has nothing to lose. Should it come to this, Greece will at least have control over its own destiny and has the opportunity to will and re-establish a new sense of community and solidarity.

In practice, giving up on the system would mean leaving the euro, the European Union, and the WTO. So why must Greece leave the WTO and the EU once a new drachma has come into being? Rebuilding the economy will require capital controls which are not permitted by the EU. It will also require checks on imports which the WTO disallows. Without these controls, the Greek economy would be like a cork floating in the sea and, as such, remain under the continued influence of foreign interests.

End not Nigh

Greece may have to declare bankruptcy. Of itself, that would probably not be the end of the world as we known it. The American economist Michael Hudson repeatedly reminds creditors that “debts that cannot be paid, will not be paid.”
The Greek will have to reorganise the economy and will need to produce essential goods domestically – creating many jobs in the process. The export of products and services should be limited to the bringing in of the foreign exchange needed to acquire essential imports the country cannot produce itself.

A policy of no new foreign loans must be implemented. An exception could be made for the financing of export-oriented projects that will generate enough foreign exchange to allow the initial loan to be paid off quickly. Also, the privatisation of public assets should stop immediately.

Greece should decide unilaterally which foreign companies and products will be allowed into the country and which foreign investment is aligned with domestic priorities. This will require new trade patterns with a few selected partners on a quid pro quo basis. It is quite doable. Note that if all countries did the same (they will eventually), the 0.1% elite would soon be consigned to history along with the destructive and undemocratic neoliberal system they espouse.

I predict that all countries will eventually ditch neoliberalism and take back control as a simple matter of survival. In fact, I predict that the above-mentioned model will be used to reorganise the nation state within one or two decades from now. This is when the current system will be replaced by one that celebrates the almost forgotten concept of a sovereign nation actually controlling its own economy.

Of course, all this will take time. However, bottom-up radical reforms – inspired by new political parties like Syriza in Greece, Podemos in Spain, and The Alternative in Denmark – will inevitably happen and hopefully before the current system collapses entirely. The only long-term alternative is that of an unacceptable neo-feudal world order, cleansed of its middle class and with a handful of superrich masters controlling the destinies of billions of working poor trying to survive on $2 a day. This is the bleak future that awaits us should business continue as usual.

Greece has an historic opportunity to become the first country to experiment with the new economic model – perhaps a silver lining to its current hardships.

About the Author

Ross Jackson, PhD, worked for close to a quarter century in the foreign exchange world as currency adviser to international corporations, a currency fund manager, and research head of a team of mathematicians and IT experts. Mr Jackson is currently the owner of Urtekram, Denmark, the major Scandinavian organic foods wholesaler. He is the author of Occupy World Street: A Roadmap for Radical Economic and Political Reform (Chelsea Green, 2012).


Martha Lane-Fox: Dot Everyone to Reclaim the Net for Civil Society

Seeking succour for the digitally-challenged, Britain’s Martha Lane-Fox – or Baroness Lane-Fox of Soho as she is known around Westminster – is determined to get Britain online – all of it. Appointed digital commissioner by the last Labour government, she was kept on by the present Tory one to talk, and sometimes gently cajole, especially older people to venture onto the Internet.

In Britain, over ten million people are still reluctant to navigate the web. Most are hampered by either misconceptions about the Net or a dearth of knowledge regarding its possibilities: “This precludes them from leveraging the transformative power of the Internet,” says Lady Lane-Fox who emphasises that mastering basic digital-literacy skill is as essential as learning to read and write.

Co-founder of the online travel agency Lastminute.com – acquired in 2005 by Sabre Holdings of Travelocity fame for £577 million – Lady Lane-Fox pocketed a cool £13 million for her share of a company that never produced a penny in profits. In all fairness, the baroness could have stepped out at the height of the dot com bubble when Lastminute.com was floated on the London Stock Exchange. She preferred to stay on instead and managed to guide her company through the worst of the crisis that followed the burst of the bubble in 2000.

From 2009 onwards, Lady Lane-Fox has held a number of official appointments to further the digital cause in Britain. She also chairs the Go ON UK charity dedicated to transforming Britain into the world’s most digitally-skilled nation. Delivering this year’s highly-anticipated Dimbleby Lecture, Lady Lane-Fox proposed the creation of a new entity – provisionally named Dot Everyone – to represent civil society in the debate about the Internet’s future.

Dot Everyone would seek to rebalance the power over the Net, now mainly entrusted to large corporations and purely technical agencies such as the World Wide Web Consortium (W3C) established by British computer scientist Tim Berners-Lee who in 1989 invented the web. The entity Lady Lane-Fox envisions must keep digital citizenry alive – safeguarding individual freedoms, and ensuring equal access to the virtual world.

“It is in within our reach for Britain to leapfrog every nation in the world and become the most digital, most connected, most skilled, most informed on the planet. We need a new national institution that would lead an ambitious charge – to make us the most digital nation on the planet. We’re going too slow, being too incremental. We need to be bolder. A new institution could be the catalyst we need to shape the world we want to live in and Britain’s role in that world.”

Paraphrasing Internet activist Aaron Swartz, who in 2013 committed suicide after suffering legal harassment and intimidation by US prosecutors, Lady Lane-Fox said that it is now “no longer ok not to understand the Internet.” More than just a voice of the online civic society, Dot Everyone is to become an educational institution, guiding and coaxing millions of Britons onto the Internet. As such, Dot Everyone is envisioned as the vehicle of choice with which to tackle the Internet’s three main challenges: education, inequality, and regulation.

Lady Lane-Fox has her work cut out: speaking at a digital conference, she recently expressed doubts that any of her peers in the House of Lords understands the Internet and its importance: “I would argue that a kid mucking around on Facebook doesn’t understand the internet as much as I would argue one of my fellow peers doesn’t understand the internet. Lady Lane-Fox also expressed dismay at the lack of interest displayed by most political parties in issues relating to the Internet and its transformational power.


Ten Guiding Principles to Encourage Foreign Direct Investment

[caption id="attachment_9732" align="aligncenter" width="867"] CFI.co moderating a plenary session at the 2015 Annual Inevstment Meeting (AIM) which took place from March 30 to April 1 in Dubai and was hosted by that country’s Ministry of Economy. CFI.co was a knowledge partner of the event. Photo Copyright © CFI.co.[/caption]

Worldwide, foreign direct investment (FDI) volumes are shortly expected to breach the $3tn mark – representing fully 4% of the global GDP. Foreign direct investment and trade liberalisation, two faces of the same coin, are seen as key drivers of economic development and powerful enablers that allow countries to escape poverty and thus realise their full potential.

However, as was pointed out at this year’s Davos Summit of the World Economic Forum, there is currently no comprehensive multilateral legal framework or global institution that oversees investment flows and activities. Instead, investment flows face a bewilderingly complex overlay of bilateral, plurilateral, and interregional treaties that do little to encourage the growth of FDI volumes. If investment volumes grow, as they do, it is in spite of – rather than because of – this mesh of countervailing agreements.

Ten Guiding Principles for Governments’ Effective FDI Policies

Play on Strengths (comparative advantage)

Be predictable and Friendly (clear rules and welcoming attitude)

Create Incentives (encourage investors)

Do Not Discriminate (all are equal in the eyes of the law)

Regulate for Sustainability (growth now and in the future)

Protect Intellectual Property Rights (shield creativity from pirates)

Remove Red-Tape (minimise bureaucracy)

Provide Access to Finance and Risk Management Services

Fund FDI-Agencies and Listen to their Feedback (data and research are essential)

Communicate, Communicate, Communicate (keep talking and listening)

Trying to make sense of the FDI universe, participants of the fifth Annual Investment Meeting (AIM) celebrated in Dubai between March 30 and April 1, at length debated ways to ease and encourage investment flows. The 2015 edition of the meet focused on FDI as an agent for sustainable development via innovation and the transfer of technology.

In their final declaration, attending ministers and other government representatives called upon the United Nations to include the critical role of foreign direct investment in the attainment of the sustainable development goals (SDGs) that are expected to be adopted later this year by the UN General Assembly. The ministerial declaration emphasises that FDI can contribute towards ensuring food security and help countries exploit their competitive advantages. The ministers further concluded that in order to increase investment volumes to the level necessary for SDGs to be fully met, it is necessary for recipient nations to put a stable and predictable policy framework in place.

“In their final declaration, attending ministers and other government representatives called upon the United Nations to include the critical role of foreign direct investment in the attainment of the sustainable development goals (SDGs) that are expected to be adopted later this year by the UN General Assembly.”

As an AIM 2015 knowledge partner, CFI.co teamed up with the Deputy-Director Ann Low of the Office for Investment Affairs at the US State Department and officials of the UAE Ministry of Economy to draw up a list of ten guiding principles for effective FDI policies.

The principles aim to help countries compose a legal framework that facilitates FDI flows and ensures key elements are put in place that encourage sustainable development.

The objective of these principles is to be effective: the government policies and actions they encourage should result in the transfer of technology and encourage innovation, including by small and medium-sized enterprises.


Nigeria: An Economic Upswing Foretold

[caption id="attachment_9744" align="alignright" width="285"] Muhammadu Buhari[/caption]

Oil prices have rebounded from their recent lows and may yet provide temporary relief to Nigeria, allowing the incoming administration of President-elect Muhammadu Buhari to forego some of the proposed budget cuts or, alternatively, increase capital expenditure. Though market watchers widely expect oil prices to remain weak for the foreseeable future, Nigeria’s economy for now boasts enough resilience to keep its annual growth rate at five to six percent – a clip most other countries would find positively dizzying.

Still, lower than expected oil revenues will, in all likelihood, necessitate an increase in government lending. However, with public debt hovering around 12% of GDP, the country should have some financial wiggle room. Nigeria’s poor B+ credit rating, recently downgraded by Standard & Poor’s and now four notches beneath investment grade, will make that a fairly expensive proposition. Already now, the government needs to earmark 9% of its revenue for interest payments.

President-elect Buhari has his work cut out and expectations run high. Mr Buhari promised to tackle the endemic corruption holding back the country’s advancement and said his administration will address the chronic shortfall in infrastructure development as well, starting with upgrading the strained power grid.

“Nobody doubts the resolve of the incoming president,” says Tola Odukoya, managing-director of Dunn Loren Merrifield Asset Management and Research. Mr Odukoya notes that expectations are high: “There is a palpable sense of optimism bordering on euphoria now that the elections are over and an orderly transfer of power is in the making. However, those in the know realise that the new administration must tackle a number of difficult issues and cannot run away from tough austerity measures.”

“Nobody doubts the resolve of the incoming president.”

- Tola Odukoya

Mr Odukoya mentions the fuel subsidies: “These must end. We will be much better off without them as they encourage corruption. However, most Nigerians will want to keep the subsidies in place.” Mr Odukoya also emphasises that President-elect Buhari must find ways to work with the National Assembly and the powerful state governors who may fight any future austerity drive. “State governors enjoy vast constitutional powers and will likely oppose any attempt at reducing the flow of federal funds to which they are entitled. Mr Buhari is now no longer a dictator and will need to impose his administration’s policies without the use of strong-arm tactics.”

Whereas Africa’s largest economy does not lack in either ambition or potential, structural deficiencies are blocking an economic breakout. International investors, until recently quite bullish on Nigeria, are pulling up stakes and, as they move their billions elsewhere, dragging the stock exchange down. Though a post-election rally recouped some of the losses, the All Share Index is still close to 21% down from its July 2014 high.

Meanwhile, inflation inched up to 8.4% and may move into double-digit territory before long. At investment bank Merrill Lynch, analysts predict inflation may reach 15% by year’s end. Governor Godwin Emefiele of the Central Bank of Nigeria had to make a U-turn on interest rates driving the prime lending rate up to 16.7% in an attempt to halt the naira’s vertiginous drop – over the past six months, the currency lost 18% of its value against the US dollar.

According to Dare Fajimolu, chief economist and head of research at Marina Securities, the key is the new administration’s ability to pool its resources and cash-in on the upbeat mood now prevalent throughout the country: “the tense pre-election atmosphere has now relaxed. It was extremely important that the outcome of the vote was not contested which allowed the stage to be set for a smooth transition of power. With the political risk gone, the wait is on for new policies to be announced.”

Mr Fajimolu stresses that the Buhari Administration will need to act fast and start delivering on its campaign promises soon: “The tone will be set in the first two months and by July we should already have a clear picture of where the new government will be heading and how it aims to get there.”

Meanwhile, investor interest is picking up. “The markets have rallied and wiped out earlier losses. Confidence is returning as well with investors turning to equities. The market is still undervalued and presents a number of good buying opportunities, not least because of the weakened naira.”

Mr Fajimolu has already noted increased interest amongst both FDI (foreign direct investment) and portfolio investors: “I fully expect this trend to continue as the new administration unfolds its policies in the months ahead. I’ll be looking in particular to the Buhari government’s fiscal policy in order to see if the emphasis will lie on tax raises, expenditure cuts, or a combination of the two. I’m encouraged by the fact that President-elect Buhari has chosen widely respected technocrats and academic experts to help trace the vectors of future policy initiatives. This bodes well for Nigeria.”

However, Nigeria’s prospects for sustained growth remain excellent. The country’s budding non-oil sector is consistently outperforming the overall GDP with annual increases averaging well over seven percent. According to the African Development Bank (ADB), agriculture and trade and services are underpinning the economic diversification drive. In its annual African Economic Outlook Report, the bank is particularly optimistic about the positive effects that the reform of the energy sector is to have on the country.

“The reform of the power sector will boost both industrial activity and crop production, helping Nigeria fully implement its Agricultural Transformation Agenda – one of the main drivers of the non-oil sector.” The ADB report notes that improved crop yields will facilitate Nigeria’s ascendancy up the value chain, enabling food processing industries to prosper and nudge informal businesses into the economic mainstream. The bank concludes that notwithstanding its many challenges, Nigeria continues to lift millions out of poverty with real GDP per capita growth averaging four percent annually since 2010.

With a current account surplus of five percent (2015) and continued GDP growth of around seven percent for this year, Nigeria’s outstanding issues are, at the very least, manageable. The election of Mr Buhari, a smooth and violence-free process that received lavish international praise, has ended months of inactivity and stalling. In fact, days after the election the stock market registered its single biggest gain in a few years, jumping 8.3% in a sign that the economy just itches for an immediate take-off.

Since the late-March election, bond yields have come down and discount rates eased up while the naira remained stable. Wle Abe of the Financial Market Dealers Association said that the successful execution of the electoral process offers ample proof that Nigeria is a safe destination for investments: “Those who have been waiting on the side lines will perhaps wait a bit to see the new policies taking shape before jumping back in.”

Mr Abe said that most investors became jittery in the lead-up to the election: “Political uncertainty before the vote, as well as the sharp fall in the global price of oil triggering a devaluation of the naira in November, played their part. Now that a new business-minded government is about to assume power, things will undoubtedly soon improve, allowing Nigeria’s economy to reassert its commitment to accelerated growth.”


British Referenda and Europe: Patience Is a Conquering Virtue

[caption id="attachment_9750" align="alignright" width="229"] David Cameron[/caption]

Afflicted by a veritable referendum craze, Britain seems set to question its very existence. In the wake of a stunning victory at the polls, the Scottish National Party (SNP) is looking to exploit its near-monopoly on politics north of The Border – the line running for 154km between Marshall Meadows Bay in the east and the Solway Firth in the west as established in 1237 by the Treaty of York and now again separating two diametrically opposed camps.

On Monday, SNP leader Nicola Sturgeon – surprisingly popular throughout the United Kingdom and widely celebrated as a welcome respite from her curmudgeon-like predecessor Alex Salmond – reminded Prime-Minister David Cameron that political realities have changed. She warned him not to rule out a second referendum on Scottish independence. Mrs Sturgeon appeared unimpressed by the prime-minister’s promise to heap additional powers on the devolved government in Edinburgh.

The SNP now wishes to move even beyond the proposed devo-max solution that awards the Scottish government full fiscal autonomy. The party suggests a loose federation is perhaps better suited to answer the aspirations of the Scots.

"As the election results have shown, Prime-Minister Cameron is singularly well versed in safely navigating political minefields."

Though Mr Cameron’s Tories caught most pundits off guard, expertly tricked pollsters, and left all but a few talking heads speechless; the prime-minister’s position at the head of the first all-Tory government in almost twenty years is everything but comfortable. Not only must he calm the buoyant spirits of emboldened Scottish nationalists, Mr Cameron also has to fend off his own party’s more radical backbenchers who are more likely to take their cue from Katie Hopkins, and like-minded loonies, than listen to any voice of reason.

Take, for instance, the right honourable Peter Bone who last week claimed no less than 52.1% of the popular vote in Wellingborough, Northamptonshire. Undoubtedly inspired by his big win, Mr Bone immediately dismissed any and all attempts at securing a better deal for Britain with the European Union as a pointless exercise: “I think he [David Cameron] will go to Europe. I think he'll negotiate very well, but I think he'll fail to get what the British people want, not because of his efforts, but because [of] the European bureaucrats. They live on a different planet.”

Apparently, Mr Bone is given to thinking a lot. He is also either woefully ignorant or maliciously uninformed. The MP should know better than to take pot shots at Brussels bureaucrats or blame them “avant la lettre” for the failure of any future mission Prime-Minister Cameron may undertake.

In Brussels, Mr Cameron speaks and deals with his continental peers in the European Council – comprised of 28 democratically-elected heads of government. This is the arena where EU policy is defined and priorities are set. As such, the council is the union’s highest body. Pointedly, Mr Cameron does not ever negotiate with EU bureaucrats, much less extra-terrestrial ones. Bureaucrats in Britain, the EU, and elsewhere merely carry out policies set by their political masters. To imply otherwise is to twist reality and perpetuate silly myths regarding devious bureaucrats plotting a power grab.

Part of the Cornerstone Group of ultra-conservative MPs, Mr Bone is on the record stating that the National Health Service (NHS) would not be out of place in Stalin’s Soviet Union. He also wishes to reintroduce the death penalty, sell off the BBC, award tax breaks to any and all faith-based groups, outlaw blasphemy and same-sex marriages, and scrap Britain’s adherence to the European Convention on Human Rights. Undoubtedly, Stalin would have approved of such drastic, if not forceful, measures.

However, Mr Bone has no issues with nepotism and merrily employs his wife as his personal assistant at the tax payers’ expense. Receiving a salary in excess of £45,000 per annum, Mrs Bone is the highest paid spouse of any member of parliament. In 2014, this MP for Wellingborough barely escaped criminal prosecution for fraud in relation to benefit payments of over £100,000 destined to pay for his mother-in-law’s care home fees.

To sustain his slim majority in the House of Commons, Prime-Minister Cameron must by necessity kowtow to, and appease, slightly odd backbenchers such as Mr Bone and others who seem tragically out of sync with reality. Before long, these contrarians may don tinfoil hats and propagate visions of black helicopters menacingly hovering over their green and pleasant land.

As the election results have shown, Prime-Minister Cameron is singularly well versed in safely navigating political minefields. With a helping hand from the quintessentially British first-past-the-post electoral system, he kept the UK Independence Party (UKIP) at bay by promising voters disenchanted with the European Union a referendum on Britain’s membership of the world’s largest market.

Originally planned for 2017, the prime-minister now proposes to organise the in-or-out vote already next year. Though the referendum itself constitutes a most unfortunate idea, born out of political expediency rather than conviction, shortening the lead-up time to this momentous event will diminish the impact of the array of uncertainties that may condemn the UK to economic limbo as private business awaits the outcome.

Although opinion polls have again been shown as less than trustworthy, online pollster YouGov in February found that support for Britain’s EU membership has in fact reached an historic high of 45%. Only about 35% of those polled favour their country pulling out of the union. By the looks of it, Prime-Minister Cameron should not experience much difficulty in surviving the referendum unscathed.

Notoriously fickle by its very definition, public opinion may of course change at a moment’s notice. As last week’s election proved, until the last vote has been tabulated, the outcome remains up in the air. That given does not bode well for the UK’s immediate future. The prospect of a Brexit – however remote – has big business already concerned. Five big US banks with a large footprint in London’s City have signalled quite unambiguously that they will pull up stakes and jump across the Channel should the UK seriously mull turning its back to Europe.

Roland Rudd, chairman of corporate communication firm Finsbury, is also worried: “There are around five hundred banks that have their headquarters in the UK, and without a passport to operate throughout Europe in the form of the single market, they simply can’t be here. Financial services represents about 10% of GDP; if that was threatened, it would be deeply, deeply damaging.”

The idea, entertained in some quarters, that Britain could arrange for a post-exit deal that allows it unfettered access to the European market is nothing short of ludicrous: not even Norway and Switzerland managed to accomplish that. Both countries pay a significant share of their wealth into EU coffers annually for the privilege of enjoying access to the single market.

Not only that: the articles of association clearly state that Norway and Switzerland must implement most rules and regulations emanating from Brussels promptly and without fail or question. Switzerland was granted some leeway to set its own policy for the financial services industry, while Norway may, to a point, determine its own policies for agriculture and fisheries.

However, both countries need to abide by all rules pertaining to the free and unimpeded movement of labour. Essentially, the Norway and Switzerland option, much touted by the UK Eurosceptics, does not allow for any checks on labour migration from within the EU. Last year, Switzerland tried to impose some restrictions and was immediately told by Brussels to “cut it out” or face the consequences of breaking its treaty obligations.

Though the Swiss and Norwegians pay to adopt whatever regulations are made up in Brussels, they have absolutely no say in any of the EU’s proceedings and must, per force, rely on proxies – the UK for Norway and France for Switzerland – to shape legislative initiatives and executive directives as best they can. The Economist likened the Norwegians’ predicament to operating, at a cost of many billions annually, a “golden fax machine” that ceaselessly spits out rules, regulations, and diktats. The moral of the story: be careful what you wish for.

With referenda setting the agenda – and quite possibly heralding the arrival of Little England – Prime-Minister Cameron is playing with fire. Though an exceptionally capable and gifted political operator, the sort of opponent who people tend to underestimate to their own detriment, Mr Cameron’s main task is to have cooler heads prevail, both in London and in Brussels.

Back home, the prime-minister must maintain discipline within Tory ranks and impose his authority on the party, while across the Channel he should refrain from fighting quixotic battles against the EU’s four foundational freedoms – fights he cannot possibly win – to concentrate instead on obtaining a deal – or a few fig leafs at the very least – that enable him to show that Europe cares about keeping Britain aboard.

The problem is of course that most continentals are by now quite weary of Britain’s incessant moaning: first it was Mrs Thatcher and her fearsome handbag, then the war-mongering Mr Blair, and now the mainland must contend with the rather enigmatic Mr Cameron who wishes to reform the EU but doesn’t quite seem to know which parts of it he wants reformed. To quote Geoffrey Chaucer, the father of English literature: patience is a conquering virtue. That holds true in both directions.


Graf Henckel von Donnersmarck: Life outside the Comfort Zone

You have geniuses and then you have Florian Maria Georg Christian Graf Henckel von Donnersmarck; filmmaker extraordinaire, fluent in five languages, pupil of Richard Attenborough (the elder brother of David), and a direct descendant of General Gebhard Leberecht von Blücher, Prince of Wahlstatt and ally to the Duke of Wellington of Waterloo immortality. The sheer scale of the name-dropping is jaw-dropping.

The earl has an Oscar too, besides a vast collection of lesser awards. A citizen of the world, travelling about on a German passport, Henckel von Donnersmarck (for brevity’s sake) grew up in New York City, Brussels, Frankfurt, and Berlin before moving to Leningrad – now rechristened St Petersburg – where he read Russian Literature at the State University. He followed his Soviet sojourn with a stint at Oxford to obtain a graduate degree in philosophy, politics, and economics.

Comfortably riding the wave of Hollywood’s ongoing love affair with German directors, Mr Von Donnersmarck in 2010 delivered The Tourist – starring Angelina Jolie and Johnny Depp – a romantic comedy with an added thriller dimension that went on to score almost $280m in box office receipts. However, the film was far less well received than Mr Von Donnersmarck’s 2006 debut The Lives of Others (Das Leben der Anderen), a remarkable true-to-life drama about the East German Stasi which went on to claim the Oscar for Best Foreign Language Film in 2007.

Careful to accept only projects that merit his touch of class, Mr Von Donnersmarck avoids serial releases. The “blissfully unpretentious” staples of Hollywood hold no appeal to the German filmmaker: “I don’t think that I shall ever make a film [The Tourist] like this again, because it helped me see how much better it feels for me to work in my default position. But at the same time I know that if I had never done what I perceive to be a real Hollywood film, I would always have regretted it,” he confided to The New York Times in December 2010, adding that his life has always tended to stray outside the comfort zone.

That is not to say that Mr Von Donnersmarck fails to appreciate the entertainment value of feel-good movies. In his book Kino! – published earlier this year and as of yet only available in German – Mr Von Donnersmarck argues that many of today’s movies fail on aesthetic grounds: “Impact on the audience is mostly sought through effects with a high wow-factor, as opposed to more thoughtful stratagems.”

An admirer of time travel films such as Run Lola Run, Back to the Future, and Groundhog Day, Mr Von Donnersmarck insists that movies can deviate from tried-and-tested scripts and still deliver solid financial returns to the studios. A perfectionist bordering on the neurotic, not unlike Stanley Kubrick, Mr Von Donnersmarck is currently dedicated to helping the German film industry expand both at home and abroad. He advocates for a stronger marketing effort and has even proposed the introduction quota system that would mandate a set percentage of movies shown in cineplexes and other venues to be German productions.

Meanwhile, academics are keeping busy studying the limited, but highly acclaimed, work of the German filmmaker, debating his “self-conscious rejection of Hollywood freneticism” and the ways in which Hollywood could benefit from a European cultural perspective that enhances, rather than critiques, its core values. A book on Mr Von Donnersmarck’s contributions to the US film industry was released by Cambridge University Press.

The man himself – all 6’ 8” of him – now spends most of his time with his wife and their three children in Los Angeles: close to the source where his next, undoubtedly carefully crafted, masterpiece will eventually spring from.