OECD: 21st Century Trade Agreements & Regulatory Coherence

By Hildegunn Kyvik Nordås

In the past, services markets were largely local and countries mostly worked out their regulation without consideration for how other countries regulate. As a result, an abundance of different regulatory measures and systems exist across countries and sectors.

Technology and the cost and convenience of travel have brought most services onto international markets. With this development, the plethora of regulatory approaches and systems that is in place to solve the same problems has become an important constraint the effective and efficient international operations on firms.

To reduce the cost of international operations, regulatory cooperation in various shapes and forms has taken centre stage in trade and investment negotiations. Such agreements can substantially reduce trade costs and stimulate trade in services. However, regulatory harmonisation brings by far the largest gains when the harmonizing countries are relatively open to foreign trade and investment. Where significant barriers to services trade still exist, bringing them down is a prerequisite for regulatory cooperation to make a substantial difference for businesses.

Regulatory Cooperation

Mutual recognition, compliance assessments, and regulatory cooperation in specific areas feature prominently in recent trade and investment agreements. The objective of such regulatory cooperation is to simplify the life of companies, particularly SMEs, without compromising consumer protection or the independence of regulators. Systematic monitoring of implementation is however scant and assessments of the benefits of more coherent regulation far between, largely due to lack of adequate analytical tools.

Recent OECD work provides a new tool and demonstrates how it can be used for monitoring regulatory convergence and assessing its economic benefits. Based on the rich and detailed information in the Services Trade Restrictiveness Index (STRI) database, regulatory heterogeneity indices are created for each country pair and each sector. The heterogeneity indices exhibit the weighted share of policy measures for which countries have different regulation by country pair and sector. They take values between zero and one, where zero signifies country pairs that have exactly the same regulations in a sector, while one portrays country pairs that have completely different regulations.

[caption id="attachment_11408" align="aligncenter" width="568"] Figure 1: Changes in regulatory heterogeneity 2014-2015. Note: There are 861 unique country pairs in the STRI database. In total for the seven sectors, 31% of the country pairs converge, 34% diverge and 35% stay the same.[/caption]

On average the country pair that has the most similar regulations is Norway and Sweden, where only 13% of the policy measures are different, while the least similar country pair is the US and India where almost half the policy measures are different. The average across all country pairs and sectors is about a quarter. There are also large differences across sectors as far as regulatory heterogeneity is concerned.

Legal services, broadcasting, and maritime transport have the most heterogeneous regulation. These are sectors that are subject to sector-specific national regulation and legal services and broadcasting are also among the sectors the least open to trade and investment. The lowest average heterogeneity indices are found in road transport and distribution services, two sectors that also have low average STRI indices. Note, however, that a high level of restrictions does not necessarily go together with heterogeneous regulation. Air transport, for instance, is a highly restricted sector, but where countries tend to restrict trade and investment in the same way.

Regulatory Convergence for Telecommunications

Figure 1 summarises the changes in regulatory heterogeneity from 2014 to 2015 for the seven sectors where information for both years is currently available. Two years is too short to establish trends, but the chart shows that with the exception of telecommunications a larger number of country pairs have become less rather than more similar.

Interestingly, telecommunications is one of the few sectors for which international trade agreements tend to have binding commitments related to behind the border pro-competitive regulation. Furthermore, international regulatory cooperation has been institutionalised for more than a century through the International Telecommunication Union (ITU).

[caption id="attachment_11409" align="aligncenter" width="601"] Figure 2: Predicted impact on services exports of reducing the bilateral heterogeneity index by 0.05 points. (When the country pair has the same level of restrictiveness)[/caption]

Regulatory heterogeneity inhibits bilateral services trade flows, particularly in relatively open economies. As depicted in Figure 2, the trade stimulating effect of regulatory convergence is higher the lower the level of the STRI. For example, if two countries have the same low STRI score (0.1), harmonising regulation on a few measures is associated with about 12% more bilateral services trade.

In contrast, harmonising a few measures at an STRI level of 0.4 is associated with only 3.5% more bilateral trade. Intuitively, this means that harmonising regulations that constitute a significant barrier to trade and investment does not stimulate trade much. In fact, when the level of restrictiveness as measured by the STRI reaches a critical point around 0.5, harmonisation discourages trade.

Similar Levels of Restrictiveness

Regulatory convergence can reduce bilateral trade costs substantially. The trade enhancing effect of regulatory convergence depicted in Figure 2 is explained by lower trade costs due to the elimination of the duplication of compliance cost with regulation. Figure 3 exhibits the bilateral ad valorem trade cost equivalent of the average regulatory heterogeneity index (0.26) at different levels of restrictiveness. It shows that the trade costs implied by regulatory heterogeneity depend on the level of trade restricting regulation as well as how good substitutes local and foreign services are. The more similar the services, the better substitutes they are, and the less concerned are customers about where the service comes from.

[caption id="attachment_11411" align="aligncenter" width="582"]<img class="size-full wp-image-11411" src="https://cfi.co/wp-content/uploads/2016/11/fig3.png" alt="Figure 3: The ad valorem trade costs of regulatory heterogeneity. (When country pairs have the same STRI score and the same regulation on a quarter of the measures) Note: The graphs in Figures 2 and 3 are calculated for cases when exporter and importer STRI levels are the same, depicted on the horizontal axis. The estimates take into account the interaction between the STRI level and regulatory heterogeneity." width="582" height="364" /> Figure 3: The ad valorem trade costs of regulatory heterogeneity. (When country pairs have the same STRI score and the same regulation on a quarter of the measures) Note: The graphs in Figures 2 and 3 are calculated for cases when exporter and importer STRI levels are the same, depicted on the horizontal axis. The estimates take into account the interaction between the STRI level and regulatory heterogeneity.[/caption]

Conversely, when services firms are highly specialized, for instance in engineering, architecture or legal services, customers care a lot about buying from the suppliers that best meet their needs. It is the latter type of services that will gain the most from regulatory cooperation. When markets are relatively open, trade costs imposed by regulatory differences range between 20% when local alternatives can be easily found and 75% when they cannot.

The results do not imply that overall trade costs are higher when the STRI scores are low, which a casual reading may suggest. Rather, when the STRI score is high, the level of restrictiveness dominates regulatory differences. For example, differences in qualification requirements and licensing procedures only matter if foreign suppliers can obtain a license to operate at non-prohibitive costs in the first place. Only then will they consider entering the market and face the cost of complying with a different set of regulations.

Policy Implications

As noted, regulatory cooperation has become prominent in trade and investment agreement, including the so-called mega-regional trade deals. It has been shown that such cooperation can potentially bring down the costs of servicing multiple foreign markets substantially. The trade stimulating effect is however larger the more open the cooperating partners are to trade and investment and the more specialized are the services. The policy implications that can be drawn from these findings are summarised in the bullet points:

First, bringing down high levels of services trade restrictions or implement reforms to that effect unilaterally should be a first step. An STRI score above 0.4 in a sector is an indication that reforms should be a priority.

At the same time, introducing forward-looking regulatory cooperation would avoid creating new sources of regulatory heterogeneity.

As the level of trade restricting regulations comes down, more priority to regulatory cooperation should be given, both on future regulation and exploring ways to make existing regulation more coherent.

Priority could be given to sectors with a high degree of specialisation, which also tend to be subject to sector-specific regulation.

Make sure that regulatory cooperation successfully eliminates duplication of regulatory compliance costs for exporters in the areas covered by the agreement.

Finally, it appears that regulatory coherence is most successful when there are clearly defined regulatory objectives and well-proven regulatory tools are available, such as in telecommunications. A coordinating body also helps.

About the Author

Hildegunn Kyvik Nordås is a senior trade policy analyst at the Trade and Agriculture Directorate at the OECD, where she leads work on trade in services. This work has resulted in a number of OECD publications, workshops and presentations. Before joining the OECD in 2005 Nordås worked as a senior research fellow and research director at Chr. Michelsen Institute (CMI) in Norway where she did research on trade and development, policy analysis, and policy advice to governments and aid agencies. In addition she held a part time position as associate professor at the Department of Economics, University of Bergen where she taught international trade, macroeconomics and development economics at the master level. Work experience also includes two years as a counsellor at the research department in the World Trade Organization. She has been a visiting scholar to Stanford University, USA, University of Durban Westville, South Africa, and University of Western Cape, South Africa. She has published extensively in journals and books.

By Hildegunn Kyvik Nordås

In the past, services markets were largely local and countries mostly worked out their regulation without consideration for how other countries regulate. As a result, an abundance of different regulatory measures and systems exist across countries and sectors.

Technology and the cost and convenience of travel have brought most services onto international markets. With this development, the plethora of regulatory approaches and systems that is in place to solve the same problems has become an important constraint the effective and efficient international operations on firms.

To reduce the cost of international operations, regulatory cooperation in various shapes and forms has taken centre stage in trade and investment negotiations. Such agreements can substantially reduce trade costs and stimulate trade in services. However, regulatory harmonisation brings by far the largest gains when the harmonizing countries are relatively open to foreign trade and investment. Where significant barriers to services trade still exist, bringing them down is a prerequisite for regulatory cooperation to make a substantial difference for businesses.

Regulatory Cooperation

Mutual recognition, compliance assessments, and regulatory cooperation in specific areas feature prominently in recent trade and investment agreements. The objective of such regulatory cooperation is to simplify the life of companies, particularly SMEs, without compromising consumer protection or the independence of regulators. Systematic monitoring of implementation is however scant and assessments of the benefits of more coherent regulation far between, largely due to lack of adequate analytical tools.

Recent OECD work provides a new tool and demonstrates how it can be used for monitoring regulatory convergence and assessing its economic benefits. Based on the rich and detailed information in the Services Trade Restrictiveness Index (STRI) database, regulatory heterogeneity indices are created for each country pair and each sector. The heterogeneity indices exhibit the weighted share of policy measures for which countries have different regulation by country pair and sector. They take values between zero and one, where zero signifies country pairs that have exactly the same regulations in a sector, while one portrays country pairs that have completely different regulations.

[caption id="attachment_11408" align="aligncenter" width="568"] Figure 1: Changes in regulatory heterogeneity 2014-2015. Note: There are 861 unique country pairs in the STRI database. In total for the seven sectors, 31% of the country pairs converge, 34% diverge and 35% stay the same.[/caption]
On average the country pair that has the most similar regulations is Norway and Sweden, where only 13% of the policy measures are different, while the least similar country pair is the US and India where almost half the policy measures are different. The average across all country pairs and sectors is about a quarter. There are also large differences across sectors as far as regulatory heterogeneity is concerned.

Legal services, broadcasting, and maritime transport have the most heterogeneous regulation. These are sectors that are subject to sector-specific national regulation and legal services and broadcasting are also among the sectors the least open to trade and investment. The lowest average heterogeneity indices are found in road transport and distribution services, two sectors that also have low average STRI indices. Note, however, that a high level of restrictions does not necessarily go together with heterogeneous regulation. Air transport, for instance, is a highly restricted sector, but where countries tend to restrict trade and investment in the same way.

Regulatory Convergence for Telecommunications

Figure 1 summarises the changes in regulatory heterogeneity from 2014 to 2015 for the seven sectors where information for both years is currently available. Two years is too short to establish trends, but the chart shows that with the exception of telecommunications a larger number of country pairs have become less rather than more similar.

Interestingly, telecommunications is one of the few sectors for which international trade agreements tend to have binding commitments related to behind the border pro-competitive regulation. Furthermore, international regulatory cooperation has been institutionalised for more than a century through the International Telecommunication Union (ITU).

[caption id="attachment_11409" align="aligncenter" width="601"] Figure 2: Predicted impact on services exports of reducing the bilateral heterogeneity index by 0.05 points. (When the country pair has the same level of restrictiveness)[/caption]

Regulatory heterogeneity inhibits bilateral services trade flows, particularly in relatively open economies. As depicted in Figure 2, the trade stimulating effect of regulatory convergence is higher the lower the level of the STRI. For example, if two countries have the same low STRI score (0.1), harmonising regulation on a few measures is associated with about 12% more bilateral services trade.
In contrast, harmonising a few measures at an STRI level of 0.4 is associated with only 3.5% more bilateral trade. Intuitively, this means that harmonising regulations that constitute a significant barrier to trade and investment does not stimulate trade much. In fact, when the level of restrictiveness as measured by the STRI reaches a critical point around 0.5, harmonisation discourages trade.

Similar Levels of Restrictiveness

Regulatory convergence can reduce bilateral trade costs substantially. The trade enhancing effect of regulatory convergence depicted in Figure 2 is explained by lower trade costs due to the elimination of the duplication of compliance cost with regulation. Figure 3 exhibits the bilateral ad valorem trade cost equivalent of the average regulatory heterogeneity index (0.26) at different levels of restrictiveness. It shows that the trade costs implied by regulatory heterogeneity depend on the level of trade restricting regulation as well as how good substitutes local and foreign services are. The more similar the services, the better substitutes they are, and the less concerned are customers about where the service comes from.

[caption id="attachment_11411" align="aligncenter" width="582"] Figure 3: The ad valorem trade costs of regulatory heterogeneity. (When country pairs have the same STRI score and the same regulation on a quarter of the measures) Note: The graphs in Figures 2 and 3 are calculated for cases when exporter and importer STRI levels are the same, depicted on the horizontal axis. The estimates take into account the interaction between the STRI level and regulatory heterogeneity.[/caption]
Conversely, when services firms are highly specialized, for instance in engineering, architecture or legal services, customers care a lot about buying from the suppliers that best meet their needs. It is the latter type of services that will gain the most from regulatory cooperation. When markets are relatively open, trade costs imposed by regulatory differences range between 20% when local alternatives can be easily found and 75% when they cannot.

The results do not imply that overall trade costs are higher when the STRI scores are low, which a casual reading may suggest. Rather, when the STRI score is high, the level of restrictiveness dominates regulatory differences. For example, differences in qualification requirements and licensing procedures only matter if foreign suppliers can obtain a license to operate at non-prohibitive costs in the first place. Only then will they consider entering the market and face the cost of complying with a different set of regulations.

Policy Implications

As noted, regulatory cooperation has become prominent in trade and investment agreement, including the so-called mega-regional trade deals. It has been shown that such cooperation can potentially bring down the costs of servicing multiple foreign markets substantially. The trade stimulating effect is however larger the more open the cooperating partners are to trade and investment and the more specialized are the services. The policy implications that can be drawn from these findings are summarised in the bullet points:

First, bringing down high levels of services trade restrictions or implement reforms to that effect unilaterally should be a first step. An STRI score above 0.4 in a sector is an indication that reforms should be a priority.

At the same time, introducing forward-looking regulatory cooperation would avoid creating new sources of regulatory heterogeneity.

As the level of trade restricting regulations comes down, more priority to regulatory cooperation should be given, both on future regulation and exploring ways to make existing regulation more coherent.

Priority could be given to sectors with a high degree of specialisation, which also tend to be subject to sector-specific regulation.

Make sure that regulatory cooperation successfully eliminates duplication of regulatory compliance costs for exporters in the areas covered by the agreement.

Finally, it appears that regulatory coherence is most successful when there are clearly defined regulatory objectives and well-proven regulatory tools are available, such as in telecommunications. A coordinating body also helps.

About the Author

Hildegunn Kyvik Nordås is a senior trade policy analyst at the Trade and Agriculture Directorate at the OECD, where she leads work on trade in services. This work has resulted in a number of OECD publications, workshops and presentations. Before joining the OECD in 2005 Nordås worked as a senior research fellow and research director at Chr. Michelsen Institute (CMI) in Norway where she did research on trade and development, policy analysis, and policy advice to governments and aid agencies. In addition she held a part time position as associate professor at the Department of Economics, University of Bergen where she taught international trade, macroeconomics and development economics at the master level. Work experience also includes two years as a counsellor at the research department in the World Trade Organization. She has been a visiting scholar to Stanford University, USA, University of Durban Westville, South Africa, and University of Western Cape, South Africa. She has published extensively in journals and books.


Grant Thornton: Mobility - A Double Edged Sword?

It would be hard to imagine a chef working without a culinary knife. Different kinds of knives serve different purposes. If used appropriately, these knives can do wonders for their users. However, if used carelessly or even abused, they can hurt users or in some extreme cases may be turned into weapons to hurt others.

To a certain extent, the same can be said about the use of today’s increasingly sophisticated technology. There is no doubt that today’s technology has advanced and evolved to a point where it has become an essential ingredient of success to most businesses. It has enabled businesses to effectively reach more and more targeted customers around the world while improving efficiency of internal operations and automating interactions with their business partners both upstream and downstream.

“If left unmanaged, technology may subject companies large and small to all kinds of risks and malicious cyber-attacks, hence becoming a liability rather than an asset.”

However, if left unmanaged, technology may subject companies large and small to all kinds of risks and malicious cyber-attacks, hence becoming a liability rather than an asset. In this article, we will be focusing on one specific technology and that is enterprise mobility or simply mobility which has drawn an ample amount of attention in today’s technology driven business environment.

Definition of Mobility

When we talk about mobility in this article, we are referring to the trend towards a change in work habits, with more and more employees working remotely from the office enabled by the use of mobile devices to perform business tasks. Such devices include smart phones, tablets, and any other hand-held devices that employees carry around with them while not being in the office. These devices are usually configured to connect to the company’s internal networks thus enabling their owners or users to access computing resources of the company including critical ERP systems while on the go.

Upsides of Mobility

Since it can certainly help improve productivity and responsiveness to customer demands, organisations have come up with various ways to take advantage of mobility. For example, a deliverer that is not tech savvy can easily use his or her smart phone, either personally owned or company provided, to access the logistic module of the company’s ERP system from outside of the office to simply enter the date and time of a delivery right after the delivery to automatically trigger revenue recognition for the goods delivered.

Another use of such technology enables sales management to approve sales orders outside of the office as these workers are always out of the office in pursuit of new business opportunities with prospective customers. In addition, lower level sales personnel especially appreciate mobility as it can enable them to access their company’s warehouse or inventory management system to see if there are enough goods available in stock to meet the sales demands of their customers while also being able to check the most updated price book at real time.

Furthermore, it can also enable them to answer various inquiries from potential customers right on the spot based on information instantly accessible to them via mobility and therefore enhance the chance of obtaining new business.

Potential Pitfalls of Mobility

Now that some upsides of mobility have been discussed, let’s take a look at some of the potential pitfalls that companies need to be aware of with mobility. Physical security of these mobile devices is a legitimate concern. Mobility has enabled the expansion of the working environment outside of the traditional physical office making it possible for employees to work almost anywhere at any given time.

Physical control over computing equipment such as servers or laptops can easily be implemented in a traditional office environment. However, it would be hard for companies to safeguard these mobile devices while they are in the hands of employees being outside of the office constantly on the go.

If lost, devices may end up in the hands of individuals with malicious intents and the consequences can be disastrous as these devices may have important, sensitive, and confidential information stored on them. Worse yet, cybercriminals can gain unauthorised and sometimes privileged access through these lost devices to critical systems residing inside the company’s network potentially leading to data loss or leakage for the company.

Once inside the company’s network, these criminals will be like kids in a candy shop being able to get their hands on all the information and systems available within the network and pull off different malicious acts at their will to put the company in trouble.

Secondly, employees with hand-held mobile devices used 100% or partially for business purposes can easily fall into the trap of unintentionally installing malicious applications onto their devices potentially turning these devices into tools used by cybercriminals to gain access to the company’s internal IT environment for exploitation purposes. Uncontrolled action of such kind can put companies at great cyber security risk.

Lastly, another way employees using these mobile devices can unintentionally put their companies at risk is by connecting these devices to the Internet or even to their companies’ internal networks by using Wi-Fi provided by most coffee shops or restaurants as a complimentary service these days. As most of us are aware, Wi-Fi services at these locations are not designed to provide the most secure channels of communication. Rather, they are simply provided for the convenience of the shops’ customers for their personal casual use instead of business. Therefore, using Wi-Fi at those locations for work purposes without any secure measures in place can potentially open the door for attacks on the company’s networks.

Safeguards against Associated Risks

Now that we have considered some of the downsides of mobility, are we suggesting that mobility not be implemented at all? Absolutely not. Just as we do not stop using knives altogether simply because they can be misused, we are not suggesting that mobility be avoided at all. As a matter of fact, what we need to do is recognise the risks associated with mobility and put in place safeguards or measures to manage those risks. That way, we can reap and enjoy the benefits of mobility while minimising the associated risks.

Without getting too technical, there are indeed some safeguards that companies can implement against risks associated with mobility. We will be briefly mentioning two kinds of controls. They are administrative controls and technical controls.

Companies can mandate that the same IT security policies applicable to regular computing resources within the office be extended to cover mobile devices used by employees for business purposes. For example, companies may require employees to apply the same password policy to their mobile devices as they would their on-premise machines which may include requirements related to minimum password length, password complexity, and frequency of change.

Also, companies may require employees to refrain from installing certain applications or getting on certain websites. If necessary, companies may also make it a policy that any company-owned mobile devices assigned to employees and used for business purposes are subject to regular inspection by the IT department in order to make sure that the devices are well protected. Lastly, any requests to access company’s networks from any mobile devices need to be appropriately approved by all related parties.

Companies can implement an enterprise wide mobile device management system (MDM). In light of the increasing usage of mobile devices for work purposes, quite a few MDMs have come into existence. They can help companies manage mobile devices and provide centralised security to those devices. For smaller companies that cannot afford a MDM, there are still technical measures that can be used to help prevent data leakage from these devices. One such measure is called remote wipe. What it does is enable the device owner to remotely wipe out all the data stored on the lost device, return the device to original factory settings, or remove all programming on the device, hence rendering the device totally useless to anyone with possession of the lost device.

Assessing Pros and Cons before Implementation

Mobility is a technology that is here to stay. If implemented appropriately, it can definitely help companies become more productive, efficient, agile, and competitive. However, just as any other new technology, it does come with risks that need to be managed. One major risk has to do with data loss either due to theft or a lack of security measures applied. As such, companies need to put in place both administrative and technical measures to safeguard them against any risks associated with mobility. Lastly and most importantly, companies do well to assess the pros and cons mobility before implementation and based on that assessment, determine whether or not they are ready to embrace and adopt mobility.

By Eugene Ha and Chris Lou

[caption id="attachment_11437" align="aligncenter" width="300"] Author: Eugene Ha[/caption]

[caption id="attachment_11438" align="aligncenter" width="300"] Author: Chris Lou[/caption]


IFC: Addressing Climate Change Can Unlock $23 Trillion-Dollar Investment Opportunities in Emerging Markets

By Christian Grossmann and Thomas Kerr

The historic Paris climate change agreement entered into force in record speed last November, committing countries to a decarbonized future.  This means that new markets for climate-smart investments are set to grow, as governments put in place policies that operationalize their climate commitments.

To date, a total of 189 countries have submitted national plans that target aggressive growth in climate solutions—including renewable energy, low-carbon cities, energy efficiency, sustainable forest management, and climate-smart agriculture. These plans offer a clear roadmap for investments that will target climate-resilient infrastructure and offset higher upfront costs through efficiency gains and fuel savings.

"The message is clear:  if governments make good on the promise of Paris by implementing a set of clear, investment-friendly policies, business will help to unlock trillions of dollars of investment for sustainable infrastructure."

There has never been a better time to invest in climate solutions and not only because of the international agreement on climate but also the current energy landscape.  As a result of massive cost reductions, solar photovoltaic (PV) and wind power are now mainstream. Global investment in clean energy last year—nearly $350 billion—more than doubled the amount invested in coal- and gas-fired power generation. At the same time, farmers are investing in more productive, climate-resilient agricultural practices and the green buildings market has doubled every three years for the past decade.

The hundreds of companies in Marrakech at last year’s climate talks represent the sea change that is happening:  business is finding profit in climate-friendly investments. Investors and businesses need to ask:  Where are the best investment opportunities?

To understand just how big these opportunities are and help locate the most promising markets, the International Finance Corporation (IFC), a member of the World Bank Group and the world’s largest private sector development bank, analyzed the national climate commitments made in Paris by 21 rapidly growing emerging market economies, where we expect to see major investment in infrastructure and climate-smart solutions. If these countries make good on their ambitions to scale up solar and wind energy, increase green buildings and put in place clean transport and implement waste solutions—there is a $23 trillion investment potential to 2030.

As one example, Morocco, the host of this year’s climate talks, is already an attractive renewable energy hub, with several wind and solar projects in development.  If the government realizes its climate targets for renewable energy, energy efficiency, waste and urban transport operations, there is $83 billion in additional investment potential between now and 2030.  To realize this potential, Morocco will need to strengthen its domestic banking sector by building capacity among financial institutions to invest in these new climate-smart opportunities. It can also attract more investment by accelerating the implementation of its renewable energy law by streamlining permitting and approval procedures.  Another solution Morocco can use to attract more private investment is the greater use of public-private partnerships to design and finance new urban infrastructure.  The good news is Morocco is not starting from scratch:  last year, the country attracted $2 billion in investment for solar and wind power. Morocco’s flagship solar project – the Noor Concentrated Solar Thermal Plant – has been referenced as a model for the region’s ability to capture its enormous solar capacity, and has begun changing the country’s status as an energy importer.

[caption id="attachment_11443" align="aligncenter" width="959"] Noor, the largest concentrated solar power complex in the world.[/caption]

Morocco is just one example of a country that is seriously focused on getting the policies right so that it can grow in a greener manner, without increasing greenhouse-gas emissions.  We have seen similar success stories in a number of emerging markets, including Chile, Jordan, South Africa and Brazil.  The message is clear:  if governments make good on the promise of Paris by implementing a set of clear, investment-friendly policies, business will help to unlock trillions of dollars of investment for sustainable infrastructure.

This message came out loud and clear in Marrakech at COP22, where we saw major global businesses announcing targets to purchase 100 percent of their power from renewables, and China – the world’s clean energy leader – moving to further ramp up investment by greening their financial system and putting a price on carbon by implementing the world's largest carbon pricing system in 2017.

To continue this momentum and unlock the $23 trillion in investment potential, we will need hard work to put in place more of these sorts of policies, including removal of fossil fuel subsidies and carbon pricing to level the playing field for cleaner alternatives; targeted use of public finance to de-risk investments and leverage much larger sums of private finance; and a focus on investor-friendly policies and financial regulation.  It will also require more partnership, coordinated action and leadership among government, business and civil society. By working together, we can address climate, while creating profitable new markets for the private sector.

Christian Grossmann is the Director of Climate Change at IFC and Thomas Kerr is a Principal Industry Specialist.


Gavin Wilson, CEO IFC AMC: Mobilising Private Capital for Sustainable Development

[caption id="attachment_11461" align="alignright" width="300"] CEO, IFC AMC: Gavin Wilson[/caption]

Building and upgrading the infrastructure to underpin sustainable development in emerging markets and elsewhere requires additional investments estimated at around one trillion dollars annually. To support expected economic growth rates, and meet the UN’s Sustainable Development Goals (SDGs), the McKinsey Global Institute calculated in 2013 that at least 60% of infrastructure spending needs to be directed towards emerging markets. Since then, the gap between actual and required spending on ports, roads, power stations and other drivers of growth has only widened. The need to proactively address climate change adds urgency with another $100 billion at least needed annually to offset global warming.

The conundrum now faced is how to engage – and mobilise – private capital. It is estimated that of the approximately $80 trillion administered by pension funds and insurance companies worldwide, only about one percent is invested in infrastructure, and very little of that in developing countries. This is where the International Finance Corporation’s Asset Management Company (IFC AMC) may help. IFC AMC chief executive Gavin E.R. Wilson points to a mismatch between real and perceived risk as one of the main reasons for the reluctance of private investors to engage with emerging markets: “At IFC, we now have more than sixty years of experience in spotting opportunities and managing risk in developing countries and we benefit enormously from having investment professionals based all around the world. The combination of sector expertise in our global industry teams and our up-close understanding of local business conditions helps us assess, mitigate and manage risk. Sometimes it is simply a question of risk perception, other times we need to reduce risk meaningfully, often by blending public with private expertise and capital.”

“We bring our investors into opportunities they wouldn’t typically see, with the risk mitigation they seek as they look for yield in riskier locations.”

- Gavin Wilson

A wholly-owned subsidiary of the IFC and member of the World Bank Group, IFC AMC is a fund manager that offers investors an opportunity to invest in companies and projects that are off the beaten track but have passed IFC’s high diligence standards. “Infrastructure equity investors have tended to define their asset class, in comparison to private equity, as lower-risk lower-return and almost exclusively in developed countries. Yet the opportunities in emerging markets infrastructure cannot be categorised so easily. At IFC we see a diversified mix of excellent investment opportunities that range across the risk-return spectrum and, viewed as a portfolio, look particularly attractive in a zero interest rate environment.”

Describing IFC AMC as a conduit to help global investors gain more exposure to private investment opportunities in markets where capital markets are often undeveloped and private transactions provide the capital that is fuelling growth, Mr Wilson emphasises that the terms of trade favour the capital provider: “There is a shortage of intelligent capital ready to invest in private enterprises that meet all the usual requirements of portfolio managers but happen to be located outside their immediate field of vision or comfort zone.”

Capital committed via AMC invests alongside IFC and benefits from its global footprint and local presence, including its network of government and business connections, which offers institutional investors an added layer of security. The default rate on private sector infrastructure loans in emerging market is in fact broadly the same as that of comparable transactions in the developed world. “But the ever-present problem, which we are well placed to mitigate, is a trust deficit between the private and public sectors, especially in long-term infrastructure projects.”

The investment funds that AMC manages have the right, but not the obligation, to participate in IFC-funded projects. This allows investors to tap into IFC’s unique pipeline of investment projects, but with a selective approach to portfolio construction. AMC runs a separate investment decision-making process, owing its fiduciary duty to its investors and aiming to build fund portfolios with a diversified mix of investments and good risk-adjusted returns. “An important feature of our approach concerns IFC’s well-established reputation for investing only in projects that fully meet current ESG [environmental, social, and governance] standards. This is not only important in itself, but in our view is a key way to reduce risk. We consider ESG awareness an important indicator of a management team’s quality and capabilities, and therefore a predictor of its ability to deliver on its growth plans.”

Amidst the interplay of global goals, development needs and investment models, Mr Wilson sees three converging trends that are likely to shape how growth capital is mobilised in emerging markets: investors will venture farther afield in search of yield (1), resulting in private capital becoming increasingly critical for delivering growth and development impact in emerging markets (2), while efforts to achieve the development and climate change goals merge (3) into a single push towards sustainable development. With its track-record of mobilising private capital and its understanding of the challenges involved in trying to transform “billions into trillions”, the IFC is well-placed to lead this redefinition of what development and climate finance means.

“We provide growth capital for growing companies in economies that need that growth. We bring our investors into opportunities they wouldn’t typically see, with the risk mitigation they seek as they look for yield in riskier locations. Profitability and development are not in contradiction: they are in fact mutually reinforcing.”

About IFC Asset Management Company

IFC Asset Management Company (IFC AMC) was set up in 2009 as a wholly-owned subsidiary of the International Finance Corporation, the private sector investment arm of the World Bank Group. The company, headquartered in Washington DC, manages IFC and third-party capital - mostly from investors with long-term time horizons that are interested in participating in IFC’s approach to investing in developing countries. Whilst part of the IFC, the Asset Management Company makes independent investment decisions in the interests of the funds it manages.

AMC manages a portfolio of thirteen funds, divided according to geography, sector and/or asset class. To date, AMC funds have made investments of over $5 billion in about 90 companies and funds in emerging and frontier countries. The company has raised a total of $9.8 billion including about $7.5 billion of external capital, invested in its private equity, private credit and fund-of-fund products.

An example of the latter is its Catalyst Fund, launched in 2012 with a focus on the clean-tech and renewable energy sectors.

The Asset Management Company enjoys access to the full range of expertise and on-the-ground presence of the International Finance Corporation and is thus able to select the most promising projects for inclusion in its funds. Additionally, the AMC offers investors the full scope of risk mitigation facilities – including compliance with ESG (environmental, social, and governance) standards – that the IFC attaches to its undertakings.

As a result, institutional investors not normally committing funds to emerging markets may gain exposure to the strong returns offered in these markets whilst reducing the associated risks. The IFC Asset Management Company is an essential part of the World Bank Group’s efforts to turn “billions into trillions” by facilitating emerging market access to large pools of private capital.

About the CEO

Leading the IFC Asset Management Company since its founding in 2009, Gavin Wilson brought a wealth of experience to the start-up. Mr Wilson earned his spurs in London where he started his career at McKinsey and Company – the global management consultant firm. He joined the World Bank Group in 1988 under its Young Professionals Programme and worked on a number of assignments in Africa for the World Bank and in several regions for the International Finance Corporation’s investment and advisory businesses. He also served a term as the IFC’s resident representative in Poland and as a special advisor to the Bank of England.

In 1996, Mr Wilson started work at Goldman Sachs in London where he became a Managing Director in the Investment Banking Division. Here, he also co-headed the bank’s EMEA (Europe, Middle East, and Africa) Industrials Group after first leading Goldman’s New Markets investment banking execution team which focused on emerging markets across EMEA.

Mr Wilson is a British citizen and holds a BA degree from Oxford University. Mr Wilson obtained his MBA at Stanford University where he was a Arjay Miller Scholar. He serves on the Business and Sustainable Development Commission and on the WEF’s Global Future Council on International Governance & Public-Private Cooperation.


Davos: Globalists Hail President Xi Jinping

[caption id="attachment_11465" align="alignright" width="300"] Xi Jinping[/caption]

This week, China debuts on the world stage as the unlikely saviour of globalism. President Xi Jinping, an ardent nationalist at home, is expected to remind all who care to listen that free trade must be preserved in order to assure a prosperous future. As he attends the annual meeting of  the World Economic Forum (WEF) in Davos, Switzerland, to spell out platitudes and niceties, President Jinping must also manage a few credibility issues related to his well-documented scepticism of western-style globalism.

The first-ever Chinese president to attend the Davos gettogether of movers and shakers, and billed as the headline attraction of the annual event, Mr Jinping’s presence in the Alpine resort is a clear statement that China aims to push back against the anti-globalist forces that gained strength with Donald Trump’s election to the White House, Great Britain’s imminent departure from the EU, and the ominous rise of nationalism throughout Europe.

Oddly, President Jinping does not seem overly bothered by the attacks on the global village which he considers the preserve of liberal elites that relish denouncing China over human rights and political repression. Just before he assumed office in 2012, Mr Jinping derided “those well-fed foreigners who have nothing better to do than point fingers at our affairs.” This rare outburst from an otherwise guarded leader took place during a tour of Mexico where Mr Jinping also reminded “preachy liberals” that his country does not export revolution or cause trouble.

"Neatly tying in with the WEF’s own advocacy of inclusive growth, the Chinese leader is to present an appealing alternative to Mr Trump’s America First rhetoric and Mrs May’s Brexit utterances."

In fact, President Jinping has so far kept his cool as the ebullient incoming US president tweeted threats of a trade war and expressed a fondness of all things Taiwanese. In Davos, President Jinping is expected to pull a Plato, presenting himself as a philosopher king dwelling on humanity’s origins, its long march to the present, and its glorious future. According to a January 15 editorial published in the People’s Daily, President Jinping will seek to redirect the course of globalism towards the building of a “common community of human destiny.” Xinhua, the state news agency, reported excitedly that the president’s address in Davos will offer the world a “new concept of win-win, multi-win, and all-win.”

Neatly tying in with the WEF’s own advocacy of inclusive growth, the Chinese leader is to present an appealing alternative to Mr Trump’s America First rhetoric and Mrs May’s Brexit utterances. However, as usual in Davos, not everything is to be taken at face value. On the domestic front, the Jinping Administration does not at all seem enamoured with globalism. China may owe its remarkable ascendancy to a world without borders and easy access to global value chains, that openness increasingly works in one direction only as the government beefs up state-owned corporations to squeeze out multinationals.

President Jinping may wax lyrical about humanity’s shared past, present, and future but meanwhile insists on maintaining absolute state power. He also champions rather bizarre notions such as “Internet sovereignty” which represents nothing short of a censorship clampdown on news and commentary deemed subversive. Simply put: President Jinping does not appreciate free debate, the exchange of ideas, or unapproved thought. For all its economic might and social progress, China remains an authoritarian country that is interested in only one thing: making money.

As the defender of globalism, President Jinping wishes to collapse borders and penetrate new markets in order to keep flooding the world with cheap made-in-China goods while demanding that universal values be left at the gate to the Middle Kingdom. The Davos crowd will provide applause, approving nods, and plenty photo-ops. Whomever promises deliverance from the encroaching forces of protectionism, nationalism, and populism is sure to prove a great hit.

Meanwhile, down in the valley where the masses reside, life continues as before – anger simmering just below the surface of civility. Immigration, a perceived erosion of culture and identity, a lack of jobs that pay above subsistence level, and threats of terrorism all conspire to drive those who really matter – increasingly disgruntled voters – into the arms of demagogues. The global economy may be on the up, but few are buying into that and those who do use credit. When liberal globalists seek to obtain solace from the ruler of an authoritarian state, something has gone very wrong.


Davos: Growing Awareness of Growing Unease

[caption id="attachment_11487" align="alignright" width="252"] William F Browder[/caption]

William F Browder of Hermitage Capital Management has been a Davos regular for over twenty years, unfailingly embarking every January on a pilgrimage to the Swiss resort town to mingle with his peers, swap experiences, and ponder the challenges ahead. As the 3,000-odd participants of the World Economic Forum’s (WEF) annual meeting considered the restless world, Mr Browder noticed that, for the first time, consensus proved elusive: “Whilst everybody is staring into the abyss, nobody agrees on the answers.”

The challenge for this year’s Davos gathering was find ways to engage disgruntled voters – those who propel populism upwards – and show them the benefits of globalism, i.e. the world created by the Davos Man for his own enjoyment. In a tweet from the Davos Congress Centre, one of the participants, a political analyst, concluded that the “elites” won’t be able to halt the rising tide of populism until they start seeing it as a symptom instead of a threat.

In a sign that business-as-usual is being undermined, billionaire hedge fund manager Ray Dalio was driven to near-exasperation during one of the panel meetings on how to address the crises assailing the middle class, exclaiming: “Populism scares me.” Mr Dalio offered a tentative solution by way of lowering taxes and advancing deregulation. As such, the hapless billionaire put his ignorance on display for all to see – and shudder. The poor man seems clueless as angry peasants get ready to storm his castle.

“Whilst everybody is staring into the abyss, nobody agrees on the answers.”

- William F Browder

Jack Ma, founder of Alibaba – the world’s largest marketplace – and apparently more in touch with reality, put in his tuppence and concluded that Americans in particular are not well-versed in properly distributing national income. Meanwhile, George Soros, forever known as the man who broke the Bank of England, put his trust in the strong democratic institutions of the United States to prevent President Trump from becoming a dictator: “He would most certainly turn into one if it were not for our traditions and institutions,” Mr Soros added during a dinner meeting he hosted Thursday evening in Davos.

As of late, the celebrated billionaire investor and philanthropist has been caught out on the wrong side of events, reportedly losing up to a billion dollars on sterling long positions in anticipation of a Brexit rejection by British voters. Mr Soros compounded his loss by shorting the US dollar in the wake of Donald Trump’s election to the White House. In Davos, the Hungarian-American investor admitted that the US market is likely to remain bullish as the Trump Administration promises more deregulation and lower taxes. However, Mr Soros does not share in the optimism and revealed that he insists on shorting the market: “It will not do very well and I remain convinced that the Trump Administration will prove a monumental failure.”

If anything good came out of Davos this year, it was the realisation that business leaders at long last seem to have become aware of the growing unease. According to a survey amongst “elite respondents” in 28 countries conducted by American PR giant Edelman, trust levels are crashing. The poll found a “yawning trust gap emerging between elite and mass populations”. Accounting firm PwC confirmed the findings. Its survey of close to 1,400 corporate executives in 79 countries discovered that 44% of respondents did not believe that globalisation had helped reduce inequality. The view prevalent in the lower ranks of the corporate food chain was noticeably dimmer.

“The most shocking statistic of our whole study is that half the people who are high-income, college-educated, and well-informed also believe the system doesn’t work,” said Richard Edelman who was “stunned” by the lack of confidence amongst the elite. However, Mr Edelman thinks that popular anger is misdirected and said that over the next fifteen years, technological innovation will have a more adverse effect on middle class incomes than globalisation. As such, the current debate may already be out of date and any attempt to reverse globalisation pointless. According to economic strategist Gerard Minack, robotics and artificial intelligence will shortly eliminate the need for low-cost labour. “At that point – and it is not too far away – workers in both developed and developing markets will feel the pain, intensifying the call for action.”

Whilst the 2017 Davos confab shows that the powerful are not entirely alienated from reality. However, meaningful solutions remain in short supply. The noises produced bear the hallmark of political correctness – everybody is mightily concerned about “global imbalances” and such – but in truth, the participants of the forum trek up the mountain for one reason only: to seek advantages. Governments aim to attract investors who, in turn, come armed with wish lists, itemising the obstacles to increased profits. Representatives of civil society – bravely proclaiming the need to address inequality, global warming, and other collective ills – are caught in the middle: while the big boys talk business, they may provide the soothing narrative, ensuring all and sundry that attention is duly being paid to righting the wrongs of global capitalism.

Conceived as a private venue for decision makers to meet, talk, and plot a better future for the world, the WEF flagship event in Davos has become a media circus that trains microphones and cameras on assorted bigwigs who patiently explain that – no – they are not to blame, and – yes – they will promptly fix whatever issue causes concern.

As the 2017 talk-a-thon winds down and the participants disperse, the world has found out that China is the new champion of globalisation; robots are coming to steal jobs; inequality remains a concern; and Great Britain is turning inwards in order to become a beacon for free trade. Indeed, responsive and responsible leadership is required to make sense of it all. WEF Founder and Executive Chairman Klaus Schwab read the times correctly when setting this year’s theme. It is scarcely his fault that others seem to lack his well-justified sense of urgency.


The 45ᵗʰ US President In His Own Words

[caption id="attachment_11492" align="alignright" width="300"] Donald Trump. Picture: Chip Somodevilla/Getty[/caption]

In The Art of the Deal, first published in 1987, Donald Trump, the 45th president of the United States of America, sums up his modus operandi: “My style of deal-making is quite simple and straightforward. I aim very high, and then I just keep pushing and pushing and pushing to get what I’m after. Sometimes I settle for less than I sought, but in most cases I still end up with what I want.”

The self-proclaimed master negotiator now promises to bend the Chinese to his will and deport some eleven million illegal immigrants. He’ll probably settle for a few million – give or take. In the Trump Era that got underway with Friday’s inauguration, nothing is quite what it seems. Thankfully, perhaps, the new US president is a pragmatist who will ask for the moon, but take whatever deal he can realistically obtain. As such, his boisterous proclamations and bluster need to be seen for what they are: opening bids that do not represent real value. The price or cost is only determined once a deal is reached. It is good to remember who President Trump is first and foremost: a shrewd businessman and dealmaker.

“My style of deal-making is quite simple and straightforward. I aim very high, and then I just keep pushing and pushing and pushing to get what I’m after. Sometimes I settle for less than I sought, but in most cases I still end up with what I want.”

In his best-selling book – erroneously touted as the most-sold business book of all times – President Trump states that he never gets too attached to a single deal or approach. This explains how he started out as a Democrat in 1990, became a Republican nine years later, returned to the Democrat fold in 2004, and ended up back in the GOP in 2015. Last year, while on the campaign stump, Mr Trump settled the question: “Folks, I’m a conservative, but at this point, who cares?”

In a negotiation, everything is up for grabs: should pro-choice prove an inconvenience, try pro-life instead and see how that works out. Beliefs are mere bargaining chips, thrown in to exact concessions. Here’s a wisdom from The Art of the Deal that could be of interest to Prime Minister Theresa May: “The worst thing you can possibly do in a deal is seem desperate to make it. That makes the other guy smell blood, and then you’re dead.”

An experienced practitioner of what he calls “truthful hyperbole”, President Trump knows how to manipulate his opponents: “I play to people’s fantasies. A little hyperbole never hurts. People want to believe that something is the biggest and the greatest and the most spectacular.”

Make America Great Again! Build the Best Wall! Hispanics Love Me! No-one Respects Women More Than I Do! I’m Richer Than Anyone Can Believe! I’m the Greatest! I’m the Smartest!

In fact, Mr Trump is so smart that he has scant use for experts and their opinions: “I don’t hire a lot of number-crunchers, and I don't trust fancy marketing surveys. I do my own surveys and draw my own conclusions.” Still, the man is not a fool and recognises the perils of not delivering the goods: “You can’t con people, at least not for long. You can create excitement, you can do wonderful promotion, you can get all kinds of press, but if you don’t deliver the goods, people will eventually catch on.”

As Hillary Clinton found out to her detriment, Donald Trump knows how to play the media too: “Most reporters, I find, have very little interest in exploring the substance of a detailed proposal for a development. They look instead for the sensational angle.” Always ready to provide fireworks on demand, Mr Trump makes sure that the papers write about him and the cameras keep rolling to record his every move, adhering to the maxim that any press is always better than none. Taking this yet another step further, Mr Trump in 1991 confided to Esquire Magazine that it doesn’t really matter what the media write as long as you’ve got a “young and beautiful piece of [expletive] at your side.”

Connecting seamlessly to the man or woman on the street who has no time for subtleties, Mr Trump champions simple yet effective solutions to complex problems. In 2015, Mr Trump suggested on CNN that were he president, the might of the US Airforce would be unleashed on the oilfields that provide ISIS with ready cash: “You just knock the hell out of oil and take it back – all of it – and use the proceeds to care for veterans. We’re going to have so much money!” In the same interview, Mr Trump also said that his approach would do away with the need to provide a large number of ground troops: “By the time I am finished, you wouldn’t need ‘em.”

Still, President Trump is not all about high noon at OK Corral. In fact, he considers waging war the pursuit of losers and would much rather defeat antagonists at the negotiating table. The world may feel like it is moving perilously close to the edge, President Trump seems unfazed and will call anyone’s bluff. The larger question is: what will he do when someone calls his?


Bob Dylan: Things Have Not Changed

[caption id="attachment_11497" align="alignright" width="285"] Bob Dylan[/caption]

In 1963, The National Emergency Civil Liberties Committee handed its annual Tom Paine Award to Bob Dylan for his contribution to the fight for civil liberties. The 22-year old Dylan did in fact show up to its Bill of Rights dinner to receive the award in person. In a rambling acceptance speech he admonished the committee members and their patrons for being old, dismissed the million-man march for being too polite and too proper, and somehow managed to round off his address by expressing empathy for the man who shot dead President Kennedy not three weeks prior. At that point the progressively–minded dinner guests realised that polite silence to hear what the younger generation had to say would amount to tacit approval and took the nervous and slightly drunk singer out of his misery and booed him off the podium.

Mr Dylan’s subsequent relationship with ceremonies isn’t any less awkward. At best gracious but vaguely aloof (cocking an eyebrow behind aviator glasses as President Barack Obama placed the presidential Medal of Freedom around his neck), and at worst openly dismissive (describing an honorary degree from Princeton as a loss of credibility). So maybe the members of the Swedish Academy considered it somewhat of a relief as Ambassador Azita Raji approached the lectern during their banquet last December.

"For many, Bob Dylan being awarded the Nobel Prize for Literature was a long time coming; for others it was a pathetic or even cynical pandering to popular culture."

Controversy isn’t entirely novel to the world’s most prestigious literary prize. Following the delayed announcement last October, however, the accusations weren’t of the academy’s choice being too obscure, too politically disagreeable, or too European. Rather the supposed disqualifying factor was one more fundamental: the work just isn’t literature. For many, Bob Dylan being awarded the Nobel Prize for Literature was a long time coming; for others it was a pathetic or even cynical pandering to popular culture. Within hours, the world’s news outlets had had op-eds posted on their websites, often both those jubilant and those stupefied by the news, each backed up by their team’s high profile tweets. For team jubilant: Salman Rushdie, whose history with the Swedish Academy is an uneasy one to say the least, seemed to have preempted some of the criticism when he tweeted:

“From Orpheus to Faiz, song & poetry have been closely linked. Dylan is the brilliant inheritor of the bardic tradition. Great choice. #Nobel”

And for team stupefied Irvine Welsh offered an undeniably eloquent assessment with:

“I’m a Dylan fan, but this is an ill-conceived nostalgia award wrenched from the rancid prostates of senile, gibbering hippies.”

Seemingly the only one not weighing in was Dylan himself. Granted, his isn’t exactly the most lively of twitter feeds, consisting usually of just promotional material (though recently a baffling premature message of condolence for pop star Britney Spears), but the full two weeks it reportedly took for someone at the Academy to get Mr Dylan on the phone did leave some accusing the songwriter of arrogance, and some detractors of the academy’s decision cautiously optimistic that the man himself was in fact an ally and would ‘pull a Sartre’ and decline the award. The subsequent news that the artist would not be attending the ceremony in Stockholm exacerbated the accusations of arrogance.

In his place, singer songwriter Patti Smith accepted the award during the ceremony with a rendition of A Hard Rain’s A-Gonna Fall during which she charmingly fumbled the second verse, with the aforementioned Ambassador Azita Raji delivering a warm, considered, and genuinely gracious acceptance speech prepared by Dylan. Gracious, to a point. He did in no uncertain terms compare himself to Shakespeare. Then again, if that’s ever one’s prerogative, it’s while accepting the Nobel Prize for Literature.

The Nobel Prize for Literature is not awarded on the basis of any single work that is considered great literature, rather it is in recognition of a person who has, as per the wording of Alfred Nobel’s will, produced in the field of literature the most outstanding work in an ideal direction. This is rather vague language, the interpretation of which is left to the 18 members of the Swedish Academy. Those 18 members named Bob Dylan for having created new poetic expressions within the great American song tradition. He is the first singer songwriter to be awarded the prize.

Dylan is something more than all other popular singer songwriters. He is an indispensable node of the American canon without which one cannot understand western culture of the 20th century. His musical style and subject matter initially drawn from the progressive folk music revival, American traditional ballads, gospel, and blues; his language and form were also informed by romantic, modernist, and beat poetry, and a decent amount of eisegesis. He is defined by his time as much as he defined it, but you don’t get thrust upon you the moniker voice of a generation without finding new modes with which to express some universals. There is a Dylan line for almost every shade of melancholy, of righteous anger, of optimism, of tempered self-doubt, of amusement. Yes, and is as much impoverished when removed from its guitar melody and harmonica, as is Shakespeare when read quietly to oneself complete with stage directions. That does not make them any the less literature.

[caption id="attachment_11498" align="alignleft" width="279"] Author: John Marinus[/caption]

Dylan references the Tom Paine award incident in As I Went Out One Morning, on his eighth studio album John Wesley Harding which was released in 1967. In it the character Tom Paine apologises to the protagonist as a chained woman (who in an admittedly ad hoc interpretation could be read to represent recognition) insistent on him taking her with him. While in his first four albums he defined and repeatedly reinvented the protest song and the story ballad for his time, and his subsequent three albums Bringing It All Back Home, Highway 61 Revisited, and Blonde on Blonde consisted mostly of mad vivid evocative ballads seemingly written by a man not so much inspired as possessed, resisting interpretation through sheer sensory overload, John Wesley Harding, and most notably its eliotian masterpiece, All Around The Watchtower, are far more restrained pieces with greater reliance on poetic device. This is Bob Dylan developing in a way that can categorically be described as literary.

Recognition is not chiefly meant to serve the recipient but rather society as a whole (which seems pretty obvious when stated like that). Making it all the more bizarre how many serious articles argue that Bob Dylan doesn’t need the recognition or the prize, and that the academy squandered an opportunity to shine a spotlight on a lesser known author. Bringing to the global foreground the many deserving literary figures is certainly worthwhile, but that simply isn’t the purpose of the Nobel Prize.

Fearing not that I’d become my enemy in the instant that I preach (My Back Pages), I’ll resist ending on a Dylan line.


Behind the Scenes, Berlin and Beijing Are Forging a New World Order

[caption id="attachment_11511" align="alignright" width="300"] Angela Merkel and Xi Jinping[/caption]

Geopolitics are on the move with a possibly violent upheaval in the offing. Earlier this month, at the World Economic Forum in Davos, President Xi Jinping of China donned the mantle of globalism – promising to carry the torch about to be dropped by the United States. Whilst President Jinping seems an unlikely advocate of global free trade, his words caused an impact that is only now becoming clear.

Concerned about the effects on German industry of the protectionist mood taking hold in the White House, German Chancellor Angela Merkel last Wednesday called Chinese Prime Minister Li Keqiang on the phone to suggest joint action to confront the “elements of uncertainty” rocking the global economy. Chancellor Merkel was unusually frank: “China and Germany should send signals of stability to the global markets and safeguard the international system together via the liberalisation of trade and investment.” The Chinese are listening: a Berlin-Beijing pact (axis?) is in the making.

German Foreign Minister Sigmar Gabriel confirmed that his country, and the wider European Union, is looking to hedge its exposure to nascent US mercantilism by turning to Asia in general and China in particular: “Europe should quickly begin working on a new Asian strategy and take advantage of the space that America is freeing up.” Referring to the restrictions faced by German investors in China, Mr Gabriel admitted that China “isn’t yet ready to be an equal partner.” However, the minister also signalled that if the Chinese improve access to their markets, Germany is ready to strike a deal. An aide to Mr Gabriel put it more succinctly: “President Jinping’s speech in Davos made it perfectly clear that the Chinese are ready to do business. We will take him at his word.”

“China and Germany should send signals of stability to the global markets and safeguard the international system together via the liberalisation of trade and investment.”

That, in any case, seems a safer bet than to try and sway the Trump Administration. Whilst the US president has thus far not targeted Germany, directing his angry tweets to Mexico and China instead, economist Carl Christian von Weizsäcker of the Max Planck Institute in Berlin thinks it is only a matter of time before President Trump unleashes his ire on the Germans. Mr Weizsäcker has urged the government to take pre-emptive action by reducing the country’s massive current account surplus and thus lower Germany’s profile. To accomplish this, Mr Weizsäcker proposes measures to increase domestic consumption such as lowering – aggressively – value added taxes: “This current account balance brake would be a strong weapon to use against newly growing protectionism that represents a threat to Germany’s prosperity.”

With an end to globalisation already in sight, the surplus is expected to shrink significantly in any case. In a recently published report, economists at Credit Suisse conclude that “globalisation has now come to an end and is slowly being replaced by a world where very distinct poles are forming – economically, socially, ethically, and politically.” Professor Thomas Straubhaar of the Economic Department of the University of Hamburg – home to the Wirtschaftswunder – agrees: “At the moment, globalisation is crumbling with a reordering of the global division of labour. Germany and Europe need to find their place in this new order.”

In Berlin, developments are met with disbelief and, increasingly, with a determination to find new markets and partners. Considered the litmus test of the Trump Administration’s trade policy, events surrounding the North American Free Trade Agreement (NAFTA) are closely watched. The 1994 deal, known to represent one of President Trump’s many bugbears, has lowered or eliminated both tariff and regulatory barriers between the United States, Canada, and Mexico. For now, conventional wisdom has it that the new US administration will shy away from tearing up the agreement as it would severely disrupt US business and cause crucial supply chains to break.

However, conventional wisdom is not what it used to be and, in the case of Mr Trump, has thus far proven wrong time and again. Car manufacturer BMW already had a brush with the new administration when it pressed ahead with plans to build a $1bn facility in San Luis Potosí to produce its Series 3 sedans. President Trump cautioned BMW not to waste its time and money building a plant in Mexico to sell cars in the US without facing a 35% import tax: “It’s not gonna happen.”

The Munich automaker remains unfazed and said – twice in a week – that it will build the plant regardless of what President Trump says and plans to export its Mexican-made cars the world over. BMW management also reminded the administration that the company’s largest facility is located in Spartanburg, South Carolina, where over 8,800 workers last year assembled more than 400,000 X Series crossover vehicles of which 70% were exported. In fact, BMW is the largest exporter of cars in the United States.

Contrary to American car manufacturers such as Ford and General Motors, German carmakers experience little trouble finding eager buyers and are not likely to be easily intimidated by angry tweets emanating from the White House. Not so Ford, which two weeks ago pulled the plug on a $1.6bn plant in Mexico, deciding to expand its production capacity in Michigan instead.

Germany, flush with cash and not lacking self-confidence as its resilient economy rides high, considers moving closer to Asia and, perhaps, guide Europe towards replacing the Americans after they abruptly cancelled the Trans-Pacific Partnership (TPP), leaving their allies in the lurch – and, crucially, leaving a vacuum that will be filled either by China or Europe, or possibly both. The government in Berlin is anxious to explore the possibilities and to speed up the European Union’s own free trade agreements currently in the making – some sixty as of last count.

European Trade Commissioner Cecilia Malmström, unusually combative, on Tuesday said: “Trump or no Trump, we have a long list of countries willing to deal with the EU.” First in line is Japan, the world’s third largest economy, with Prime Minister Shinzo Abe arriving next March in Brussels for talks on a deal that has been in the pipeline since 2013. A treaty with Vietnam has already been completed and is in line for fast-track ratification whilst Mexico has been offered a new and comprehensive FTA. A delegation from the European Parliament, enhanced with heavy-weight commissioners, is set to go on a tour (roadshow?) of Latin America in order to present the EU – the world’s largest market even after the UK has exited – as a valid alternative to the United States.

“An entirely new dynamic in the negotiations can suddenly be felt,” says Bernd Lange, head of the International Trade Committee in Brussels. In fact, Washington’s turn inwards – and President Trump’s well-advertised dislike of the EU – can provide the catalyst that the now moribund European project needs to rediscover its self-worth. Professor Straubhaar: “Moreover, we do not necessarily need to revamp our entire business model since 56% of German exports still go to our oldest and closest partners: France, The Netherlands, Austria, and Italy.” The economist thinks Germany – and Europe – need to get their priorities straight: “Even more than before, we are dependent on a prosperous Europe. The internal market is more important than ever before and this is why, in the face of Brexit and the Trump White House, we need to safeguard that market – protect it from assailants and broaden it to fill the space left by a US administration retreating from the world stage.”