Nepal Minister of Industry, Commerce, and Supplies: Matrika Prasad Yadav on the Agenda for Prosperity and Catching Global Attention

[caption id="attachment_14601" align="alignright" width="300"] Minister: Matrika Prasad Yadav[/caption]

Nepal should aim for annual GDP growth of at least 7% – and sustain that pace for 12 years – if it wishes to join the growing group of middle-income countries.

The World Bank’s most recent Nepal Development Update, released late October, concludes that Nepal needs to shift from a growth model, based on remittances and domestic consumption, to one that is driven by investment and productivity. That move is already under way, and has helped boost the country’s growth rate by two percentage points to 6.3% in the fiscal year 2017-18 (ended in July).

Nepal Finance minister Yubataj Khatiwada said the government is putting the finishing touches on a new batch of reforms that aim to further improve the business climate, with ample room for foreign direct investment and local entrepreneurs to tap into the country’s productive potential.

The country seeks to ensure energy self-sufficiency by exploiting its vast reserves of hydropower, one of its development vectors. Cheap and abundant clean energy will not only help Nepal power local industry but also may enable the country to meet its climate goals. To that end, a large-scale e-mobility programme is being set up to promote the use of electric vehicles.

At the World Investment Forum in Geneva, CFI.co met Matrika Prasad Yadav, the Nepal Minister of Industry, Commerce and Supplies, who describes the opportunities awaiting investors as eye-opening. “Nepal has created an exceptionally favourable and enabling environment for foreign investment,” he said. “With a new democratic constitution in place, the country now possesses a solid legal framework that will help define its development trajectory. It is, in fact, one of the most progressive constitutions in the world and provides for a number of essential rights and protections, from intellectual property to equality before the law – and pretty much everything in between and beyond.”

A Cornucopia of Resources

Yadav draws attention to his country’s natural resources which still await exploitation. The Nepali government is well aware that change and progress will not happen overnight. Yadav points out that his country has already celebrated six bilateral investment agreements and is ready to negotiate others. “A lack of investment is holding back our national development,” he said. “We have plenty of readily exploitable natural resources, starting with fresh water, and the attendant hydroelectric potential, all the way to forestry, agriculture, and tourism.”

Nepal also boasts significant reserves of ores such as iron and copper. Oil, silica and natural gas have been found, but so far the government has struggled to attract the attention of large investors. An investment board reporting directly to the office of Prime Minister Khadga Prasad Oli has been set up, and Oli himself heads the board. The Investment Board Nepal has the administrative wherewithal to move at a brisk pace and help interested parties get their projects off the ground, says Yadav.

Nepal recognises the need to spur economic development by leveraging and deploying the power of outside capital, and has revamped its legal framework to create a more investor-friendly environment. It is, in effect, putting out an “Open for Business” sign to reflect the country’s newfound confidence and ambition. The Investment Board deals primarily with bigger investors and functions as a convenient one-stop shop. Local expertise is available to help identify opportunities, set up projects, process formalities, and provide all necessary permits by liaising with the ministries and departments involved. Smaller investors are also welcome to join Nepal as the country embarks on its development trajectory.

Yadav explains that the government has already prepared nine priority projects that dovetail with its national development policy platform, and exploit the country’s comparative advantages such as the presence of large limestone deposits or its vast hydropower potential. Looking to energy-hungry neighbour India, the exploitation of this particular resource has a high priority: “Constructing two or three hydro facilities will not only enable Nepal to meet future domestic demand, but may transform the country into a net exporter of electricity.”

Removing the Hurdles

According to Yadav, the number of economic sectors where foreign investors are required to set up a joint venture with a local partner has now been greatly reduced. “With the sole exception of the financial sector, foreign investors are free to run their projects and provide up to 100% of share capital. Laws regulating land ownership have been reformed and simplified as well but, perhaps more importantly, we are developing a number of large infrastructure projects complete with industrial estates.”

Each of the country’s seven provinces will host such a project to eliminate land issues and allow investors “an option that is almost as simple as plug-and-play”.

Yadav aims to please. “Though we have a wide array of fiscal incentives in place, we also found that tax breaks only go so far in addressing investor concerns,” he said. “This is why the land issue has been tackled and why we are determined to provide a world-class infrastructure to businesses. We are also changing the regulation that pertains to special economic zones, reducing the share of production that is destined for export. Thus, businesses installed in these zones may soon dedicate a much larger part of their output to the domestic market.”

Sandwiched in between two geopolitical and economic behemoths – China to the north and India to the south – Nepal no longer wishes to fulfil a role as anyone’s buffer. The country is repositioning itself as a bridge between the dynamic markets. In addition to its long-standing open-border policy with India, the Kathmandu government has signed a deal with China – a sort of precursor to a possible future free trade agreement – which has removed all tariffs from a list of over 8,000 products.

Yadav explains that India remains the largest investor in Nepal – but notes that China is quickly catching up. “By the number of projects, China has already surpassed India. What we aim for is tariff-free access for manufacturers in our country to both India and China. That way, businesses that produce in Nepal will enjoy all the benefits of twin markets with well over 2.5 billion consumers.”

Nepal, underreported and often overlooked, has progressed on the World Bank’s Ease of Doing Business Index. It has moved up 13 places to claim number 110 (of 190 countries tabulated). “We are far from satisfied and will continue to dedicate considerable efforts to move the country up that ranking,” says Yadav. “As the political and economic reforms now enacted take hold, and the regulatory framework is fine-tuned, Nepal will surely further improve its attractiveness to investors.

“We are committed to accomplish this. It is important to realise that the Nepal government has, in fact, only one agenda – which is to deliver prosperity to the people of our country.”

Most promising investment sectors: Light Manufacturing // Hydropower // Mining // Tourism


Book Review by Kenneth Rogoff: Crash Time

Crashed: How a Decade of Financial Crises Changed the World by Adam Tooze

Ten years after the collapse of Lehman Brothers, Crashed, by the noted Columbia University historian Adam Tooze, offers a sweeping history of the global financial crisis up to the era of Donald Trump. Above all, it is a scathing critique of the global fiscal-policy response to the crash. To guess the punchline, all one really needs to know is that the word “austerity” appears 102 times without ever being clearly defined. Does austerity mean actually reducing government spending and debt, or simply slowing the rate at which spending and/or borrowing rise? Tooze uses the same term to describe a confusingly wide range of policies and episodes.

Such freewheeling use of a freighted term muddles the discussion at key junctures. More broadly, it is emblematic of an economic analysis that seems to be rooted in a selective reading of left-leaning commentaries rather than primary economic or historical sources, much less a balanced survey of the scholarly literature.

For example, we are told that during the eurozone crisis, Greece was subjected to “the most draconian austerity program ever proposed to a modern democracy.” This would seem to suggest that the “Troika” – the International Monetary Fund, the European Central Bank, and the European Commission – was demanding that Greece immediately pare the overall size of its debts. In fact, the opposite was true. In the years following the crisis, when Greece lost access to fresh money from private markets, the Troika gave the country enough to meet all its payment obligations, plus a significant amount of additional fresh money, thereby reducing the magnitude of austerity it inevitably faced when its borrowing binge ended.

The Truth About “Austerity”

I wholeheartedly support Tooze’s assertion that during the crisis, Europe should have figured out a way to write down Greece’s debts, not to mention those of Portugal, Ireland, and Spain, which would have demanded equal treatment. Germany should have accepted this course of action, even if it meant increasing its own debt to recapitalize German banks that had lent to southern Europe. I argued this point widely at the time, both in public and with policymakers. Highly indebted countries cannot easily grow their way out of their burden without some form of heterodox policy intervention, be it default, inflation, or financial repression. Of course, in the case of the eurozone, the ECB had already taken inflation off the table.

"The IMF bailout program that Greece received was much softer than the one that was extended to East Asian countries in the 1990s."

Nevertheless, the suggestion that poor Greece had to hand over hard cash to rich Germany is just false. Looking beyond Tooze’s weaponization of the word “austerity,” a straightforward accounting based on easily available public data shows that in the years after the crisis, Greece received more new loans and aid from its creditors than it was asked to repay.

Moreover, Greece’s experience was overwhelmingly the result of private markets turning off the borrowing spigot. When that happened, the Troika-furnished funds were no longer sufficient to prop up Greece’s unsustainable spending. According to the IMF, the Greek government in 2009 was running a “primary deficit” of 10% of GDP, meaning that its new borrowing was equal to all of its owed principal and interest, plus an extra 10% of GDP. So, after foreign capital flows came to a standstill in 2010 – partly owing to the revelation of accounting fraud on the part of the Greek government – Greece was going to have to make a massive fiscal adjustment of 10% of GDP, even if 100% of its debts had been written off!

If anything, Greece’s painful consolidation could have been far worse. The IMF bailout program that it received was much softer than the one that was extended to East Asian countries in the 1990s. Those countries had to flip their current accounts from steep deficits to surpluses on the spot. No wonder Asian financial leaders have complained about Greece receiving favorable treatment at the hands of the IMF and its predominantly European board of directors. Ultimately, the main reason for austerity in Greece was the country’s own pre-crisis profligacy, not the Troika’s post-crisis cruelty, whatever mistakes it might have made.

Tooze praises the Nobel laureate economists Joseph E. Stiglitz and Paul Krugman for the advice they offered to Greece’s newly elected socialist prime minister, Alexis Tsipras, and his colorful (and smart) finance minister, Yanis Varoufakis, after they took office in 2015. The Tsipras government came in breathing fire, promising both to stare down the Germans and the Troika, and to put an end to austerity, abandoning the euro if necessary. Looking back, one wonders if Tsipras was fully informed about his fragile bargaining position, and about who was giving money to whom. Greece had not yet begun to make debt repayments, and Tsipras was risking even tighter austerity in the near term by biting the hand that feeds. As for abandoning the euro, this might ultimately have proved to be the logical endgame, but the transition would take years and require cooperation, not confrontation, with Europe.

In the event, Tsipras and his economic advisers’ strategy turned out to be a disaster. Germany immediately called their bluff, and as Tsipras escalated his rhetoric, Greek citizens took €100 billion ($108 billion) out of the country, vastly worsening its plight. True, the Troika ultimately kicked in the €100 billion needed to prop up Greece’s banks; but that money might have been forthcoming anyway, and could have been put to much better use.

Too Soon to Say

Tooze makes much of the fact that the debt crises in Ireland and Spain were caused by banking-sector bailouts rather than fiscal profligacy (Portugal is in between). He is right. And yet, it is not as if the mortgage crises in these countries were the fault of the private sector alone. Official guarantees are another form of government expenditure, even if they are not accounted for in official government debt. As Carmen Reinhart and I document in our 2009 book, This Time Is Different: Eight Centuries of Financial Folly, massive “hidden debts” have a way of emerging from the woodwork in a crisis.

Over the course of history, it has not been uncommon for banking crises to morph into government-debt crises, as Reinhart and I showed in a 2011 paper. Several subsequent papers have underscored the fact that countries with high government debt suffer significantly deeper recessions after financial crises, partly owing to reduced fiscal space. And, given that systemic financial crises can lead to a decade of low to no growth, one can infer that highly indebted countries will have somewhat lower average growth rates over the long term, as virtually everyone who has published studies on the topic has found.

Tooze’s 2014 book, The Deluge: The Great War, America and the Remaking of the Global Order, has rightly been praised for its deep insights into how inadequate American leadership after World War I set the stage for the global political and economic crises of the interwar era. But his new book shows how historians can lose some of their comparative advantage over other scholars when it comes to researching contemporary events.

In The Deluge, Tooze was able to pore over memoirs and archival records that governments often take many decades to discover or make public. Indeed, a graduate student of mine has been researching late-1930s Bank of England policies, only to find that some archives can remain closed for up to 100 years if they are deemed sensitive. Though one can sometimes acquire redacted files through Freedom of Information requests, the restrictions are limiting.

Similar constraints apply to a study of contemporary events. Thus, in Crashed, Tooze is forced to rely much more on newspaper clippings and editorials (as opposed to primary sources) than a historian might otherwise prefer to do. To be fair, his judgments are often on the money. For example, he is right to conclude that ECB President Mario Draghi could never have made his famous July 2012 promise to do “whatever it takes” – allowing the ECB to use its balance sheet to issue de facto eurobonds – without Germany’s consent.

The €lephant in the Room
Curiously, Crashed places very little emphasis on the problem at the heart of the euro crisis: that the eurozone is a half-built house. Even though another Nobel laureate economist, Robert Mundell, famously championed the idea, it was a catastrophic mistake to put monetary union ahead of fiscal and political union. Europe is dealing with the consequences of that decision to this day. And, for the record, it was France, not Germany, that made the mother of all mistakes by insisting that Greece be included in the euro, despite a history of serial default and inflation.

What Mundell had wrong is that central bankers do not live in a world of their own. They may have a measure of independence when it comes to setting interest rates and targeting inflation; but at the end of the day, they are basically wielding a very liquid form of government debt. Monetary policy is simply one side of fiscal policy. Monetary union without fiscal union is an accident waiting to happen.

Of course, the eurozone’s founders sincerely believed that fiscal union would eventually follow monetary union. But the eurozone crisis – not to mention the ongoing migration debate and the United Kingdom’s withdrawal from the EU – shows that that day is a long way off. European policymakers simply did not have the tools to solve the crisis readily at their disposal, and it would be naive to think otherwise.

In his interesting book Europe’s Orphan: The Future of the Euro and the Politics of Debt, the Financial Times economics columnist Martin Sandbu suggests that Europe’s half-built house remains habitable. Yet, to my mind, it is not obvious that the eurozone can survive another deep systemic crisis, barring reforms in which weaker members establish capital controls, which would amount to a de facto multi-currency system.

Likewise, most economists in the US agree that the eurozone is not going to survive in the long run without a system of EU-wide shared fiscal responsibility and, yes, transfers on a much larger scale than what currently exists. That, in turn, will require tremendous political leadership. Anyone raising the issue of transfers with the Germans will run up against the fact that Germany’s elites sold the eurozone to their voters by promising that it would never become a “transfer union.”

Surely a historian ought to recognize just how difficult it would have been to advocate transfers and write-downs during the eurozone crisis. At the time, it had been only two decades since West German citizens began making massive transfers to East Germany, and those costs were still showing up as a special category in their tax bills.

The Benefits of Hindsight

Like many of those who have castigated certain EU member-state governments for inaction, Tooze seems to take the eurozone’s survival during the last crisis for granted, which is odd given how many of the economists he cites seem to believe that some form of dissolution is inevitable. Accordingly, he does not give German Chancellor Angela Merkel nearly enough credit for preventing a total breakup of the bloc, which would have had disastrous and far-reaching consequences.

In America, this is what we call “Monday morning quarterbacking” (football games are generally played on Sundays). With the benefit of hindsight, it is easy to think that one would have acted differently in the moment. Yet at the height of the euro crisis, the way out was far from obvious, and no one could have known what economic and political risks lay around the next corner. In fact, if real (inflation-adjusted) interest rates around the world had risen instead of fallen, things might have gotten a lot worse.

Interestingly, the one country that did bounce back relatively quickly was Germany, despite its needlessly procyclical budget policies. From a strictly German perspective, it is hard to see how Merkel and her finance minister, Wolfgang Schäuble, could have managed things any better. As Tooze himself acknowledges, writing down Greece’s debt would have been fraught with danger, not just politically but also legally. It is not even clear that the German Constitutional Court would have approved such actions.

Writing down the Greek debt would have involved a recapitalization of German (and French) banks, and that cost would have been multiplied many times over if other southern European debtors were extended equal treatment. German government debt easily could have risen by 20-40% of GDP – economically viable but hardly an easy sell. Although I personally recommended this strategy, I am reluctant to demonize the Germans for not adopting it.

Rose-Tinted Blinders

A related weakness in Tooze’s economic analysis is his failure to consider the difficulties of policymaking based on real-time forecasts. As any academic macroeconomist will tell you, the global economy never ceases to be uncertain and unpredictable.

To take just one example, neither central banks nor the overwhelming majority of the world’s investors had any clue how much real long-term interest rates would drop between 2007 and 2013. And yet that is the single most important variable in thinking about the sustainability of debt. Between mid-2010 and 2013, if real interest rates had risen by even half the amount that they ultimately fell, there would have been a fiscal bloodbath in some countries. Even today, there is still considerable uncertainty about long-term trends for real interest rates.

During the crisis, most policymakers were working with extremely overoptimistic forecasts, furnished not just by their advisers but by pretty much every expert out there. Ten years hence, it is now widely agreed that recessions associated with financial crises tend to be extremely deep, with very slow recoveries.

In 2009, when Reinhart and I published This Time Is Different, we offered quantitative benchmarks for post-financial-crisis recoveries, based on a massive historical data set (constructed over the course of seven years of research) that we made publicly available. For a long time thereafter, we were widely ridiculed for suggesting that the 2008 crisis was not so different from other systemic financial crises during the post-war era – and even dating back to the 1800s. We surmised that if the economy evolved as it had after past financial crises, recovery might easily take eight years, rather than nine months to a year, as in a normal cyclical recession.

From 2009-2010 and thereafter, the world’s major central banks, the IMF, the World Bank, and most private forecasters maintained that a normal rapid recovery was around the corner. Yet over the next eight years, the IMF was compelled to downgrade one annual growth forecast after another, and most central banks, including the Fed, were generally in the same boat.

In the Policymakers’ Shoes

If you are a politician who is being told that self-correcting mechanisms will soon assert themselves, then you are going to be very suspicious of anyone advocating radical measures, for fear that the side effects of the medicine might be worse than the disease. For his part, Tooze scarcely acknowledges that policymaking involves difficult calculations under great uncertainty, whether it be risks of a euro blowup or the second leg down in the global collapse of housing prices. But if he wants a culprit for the inadequate response to the crisis, he should blame the bad forecasts.

I saw this firsthand back in December 2009, when I wrote the first of several commentaries on why “Inflation Is Now the Lesser Evil.” My argument was that central banks should temporarily raise their inflation targets to a range of 4-6%, instead of the normal 2%. This would have brought about some modest deleveraging; but, more important, it would have raised employment demand in an environment of downward wage rigidity. Reinhart and I both argued in favor of massive infrastructure spending. But skeptical policymakers regarded my forecasts as far too pessimistic and considered my medicine overkill.

Meanwhile, proposals to write down the debts of low-income subprime mortgage holders enjoyed a slightly warmer reception, including by former President Bill Clinton in his 2011 book Back to Work, where he cited my call for such debt relief. But, again, policymakers were reluctant to pursue radical methods that would cost political capital and possibly create moral hazard, especially given that they thought economic conditions were already improving.

The situation in Europe was much the same. From 2010 onward, I and others suggested that the eurozone needed to write down sharply the debts of Portugal, Ireland, Greece, and probably Spain. Yet, at the same time, the IMF and the European Commission were offering rosy forecasts for Greece, which, as we all know, went on to suffer a massive and sustained output collapse. Policymakers failed to take radical steps when they had the chance because they were being told to stay the course by economic forecasters who simply could not accept that financial crises can significantly amplify the depth and length of recessions.

Correcting the Record

Crashed is an ambitious but ultimately flawed work. Much more could be said about it, space permitting. Still, I cannot help but push back against some of Tooze’s exceedingly sloppy citations of my own work. For example, he cites a Reuters story about an interview that I gave to the German paper Welt Am Sonntag in 2010. All of my statements were originally made in English, then translated into German, and then translated back into English by Reuters. Anyone who has ever dealt with the German press knows that they take great license with quotes in general, and with translations from English, in particular. No one sent me the article to be reviewed, and even if they had, I do not read German.

At any rate, Tooze quotes me as saying that, “Germany’s debt is unsustainable, and someday it would be like Greece.” As an expert on Germany, Tooze should know that taking this quote at face value is like citing a tabloid as though it were congressional testimony. The quote is idiotic, and I never said – or would have said – anything of the kind. After all, I wrote occasional commentaries and gave a number of interviews on the European debt crisis, and I knew – from my days at the IMF – always to say exactly the same thing. Had I wanted to make this ridiculous prediction about Germany, I would have made it many times and in many places. But I didn’t. (In fact, I had never even seen the quote Tooze attributes to me before his book was published.) I knew only that I was being criticized in some quarters for advocating debt write-downs and higher inflation.

I suppose I should be flattered to be included alongside such high-profile figures as then-Fox News personality Glenn Beck. But I am not, and I cannot look past the fact that a skilled historian would find such an absurd quote to be a credible representation of my analysis. Tooze also chooses to cite a casual television appearance by another noted economic historian, Niall Ferguson. It is puzzling that Tooze did not, instead, cite Ferguson’s 2008 book The Ascent of Money, which anticipated some of the trouble to come a decade before Tooze ventured into contemporary economic history.

Finally, Tooze grotesquely misstates the results of my work with Reinhart on growth and debt (written after our book) and claims it was riddled with errors. This is polemic nonsense, as any serious scholar who has looked at the matter would realize.

Tooze seems to have read deliberate misstatements of our results rather than the original texts and related writings. For example, we have found that countries with debt over 90% of GDP (taken as a group) grow much more slowly than countries with debt under 90% of GDP (taken as a group). This does not imply a sharp growth slowdown at the 91% mark, any more than an increase in one’s cholesterol reading from 199 to 200 suddenly implies a heart attack, or that 200 is just as bad as 300. Nor do we claim one-way causality. But Tooze would have had to read the work to know these things. Curiously, Reinhart and I viewed our work on debt and growth as supporting the case that peripheral Europe could not be expected to outgrow its massive debts without huge write-downs. Tooze seems to agree. The ten years of data now available since our paper was published hardly seem to contradict this forecast.

By and large, historians are better than economists at telling a story, and the writing in Crashed is no exception. Tooze offers a passionate account of the past decade that many readers – much like viewers who watch only a single one-sided news channel – will find reaffirming. But for such a thick book, the research and economic analysis are often remarkably thin. It took economic historians seven decades to unpack the Great Depression. It is safe to assume that historians will have much more to say about the 2008 financial crisis in the years and decades to come.

About the Author

Kenneth Rogoff, a former chief economist of the IMF, is Professor of Economics and Public Policy at Harvard University.


Oleksiy Vadaturskyy: A Business Legend of Modern Ukraine

[caption id="attachment_19307" align="alignright" width="293"] Manager, Founder & Majority Owner of NIBULON: Oleksiy Vadaturskyy[/caption]

NIBULON’s achievements in the global market and in complex investment projects are results of well-organised work, professionalism and long-term and consistent team efforts.

Also vital are the support of reliable partners – and the strategic vision of manager, founder and majority owner of NIBULON, Hero of Ukraine Oleksiy Vadaturskyy.

His life story is a whirlwind of success, achievements and challenges overcome. Here is his recipe for a successful business. Firstly, you need to come up with an idea and determine how to implement it and then you do so in such a way – for example – as to receive the Ukrainian State Prize for Architecture of the transshipment terminal in Mykolaiv. It is a story of responsible leadership and fortitude that can be a driving force behind positive changes in the country.

Oleksiy Vadaturskyy grew up in a village, in an ordinary family environment. He realised at a tender age that one has to work hard in order to achieve anything.

“My parents worked hard,” he says. “They have taught me to work since my childhood. This hard lesson helped me a lot.”
After graduation from the Odesa Technological Institute of Food Industry, Vadaturskyy was appointed chief power engineer for the construction of a Mykolaiv regional bread-producing plant. A few years later, he became the first deputy-general director of the Mykolaiv bread products department.

Soon he realised that there was no sense in working for the state enterprise. He had the knowledge, will, desire and creative approach, but little opportunity to take the initiative. He found partners and established NIBULON, joint Ukrainian-Hungarian-English agricultural enterprise (the name stands for the initial letters of NIkolaev – BUdapest – LONdon). The new enterprise was engaged in producing and selling hybrid corn and sunflower seeds of foreign origin.

But NIBULON faced new challenges, namely the dissolution of the Soviet Union – and consequently of the country’s agricultural production. It was a risky business for the western investors to get involved in Ukraine because of corruption, hyperinflation, collapse of kolkhozes (collective farms), land privatisation, economic stagnation, and unemployment. In post-Communist Hungary there was a difficult reformation and integration processes. It was proving impossible to attract foreign investors.

Oleksiy Vadaturskyy started developing NIBULON – at his own risk.

Experience had taught him that a business should be developed honestly, and exclusively within the law. Guided by such principles, NIBULON has established a good business-standing in Europe, and throughout the world. The company is an example of honesty, transparency and social responsibility. As a peer of the independent Ukraine, at different stages of the country’s development, the company and the country have overcome all obstacles to domestic and global markets.

“I always say that our company has had no defeats, but we have had a lot of obstacles that we have proudly overcome,” Vadaturskyy says.

The company continued to develop itself, annually increasing export volumes, constructing new complexes and terminals. At that time, Ukraine had a problem with the organisation of transport for agricultural commodities. Ukrzaliznytsia (the Ukraine national railway) failed to cope, and roads were in poor condition. “At the same time, the whole world used water transport because transportation by river is considered to be the cheapest in the world,” says Vadaturskyy, “but not in Ukraine.” He came up with an idea to change the country’s logistics system and to build a fleet. Due to the long decline in Ukraine’s shipbuilding, expansion of the fleet required the establishment of its own production facilities.

Here was a new stage of the development of NIBULON, the creation of its own shipbuilding enterprise.

“I work in the agrarian sector and it would seem I should be engaged exclusively in agriculture,” Vadaturskyy admits. “I thought so 15 years ago. I could not imagine that I would own the most modern private cargo fleet in Ukraine and the shipbuilding yard, which is being reconstructed. Upon the reconstruction, it will be the best shipyard in Europe. The problem with the transport of agricultural commodities changed my life.”

Ukraine’s vessels were re-registered under foreign flags, sold for a pittance – sometimes for scrap. The successful experience of Western countries, in particular cargo delivery along the Mississippi River in the USA, inspired Vadaturskyy to create the river infrastructure.

“Then there were ideas to acquire our own shipbuilding yard. As a result, we have built 71 vessels. In 2017/18MY, NIBULON’s shipping company transported 2.5m tons of cargo by inland waterways. In the near future, we plan to transport four million tons,” says Vadaturskyy.

The company’s successes in reviving Ukrainian rivers as transport waterways and redirecting grain and other cargoes from the roads have been recognised by Ukrainian and international experts. They agree that it is a unique case for an agrarian company – acting almost independently – to revive navigation and shipbuilding in a country.

In 2018, NIBULON celebrated another important victory. The National Maritime Rating Of Ukraine 2017 named Oleksiy Vadaturskyy the Person Of The Year 2017 for water transport. The organizers said it was the first time that the national transport community had recognised the absolute leadership in water transport of a person whose main business interests lie with another industry.

“Life dictates its rules,” he says. “To be a leader in the grain market, it is necessary to execute international contracts and raise the reliability of the company. To this end, it is necessary to build a fleet and possess a shipbuilding yard. I am deeply convinced that if you want to be successful, you must be successful in all your activities.”

Oleksiy Vadaturskyy admits that being the leader of a big team is a hard job. “You are responsible for the lives of other people who trust you. It is necessary to motivate them, to group them around your ideas. It is impossible to be irresponsible in the business to which you have devoted your whole life.

This is the simple secret of success.


Infinity Solar: Vision of Transition that Began with a Revolution

Necessity is the mother of invention, they say, and Infinity Solar started life in 2014 – prompted by the recurrent and numerous electric cuts because of energy shortages following the Egyptian revolution in 2011.

The company founders recognised the need for back-up solutions and began providing on-grid and off-grid PV solar solutions for residential and smaller commercial entities. Their vision was to provide Egypt with clean renewable energy for a brighter and more sustainable future.

Its primary goal is to generate renewable energy and reduce carbon emissions in support of the UN’s target to limit global temperature rises to below 2°C above pre-industrial levels. The Egyptian environment provided Infinity Solar with viable, non-polluting, and unexploited renewable resources: solar and wind.

In 2014, Infinity Solar qualified for the Feed-in Tariff program (FIT) run by the Egyptian Ministry of Electricity and Renewable Energy. In 2017, Infinity Solar completed construction of its pilot 1MW solar plant in Cairo – the first solar plant to be built in Egypt and connected to the national grid under Round 1 of the FIT program.

"The Egyptian environment provided Infinity Solar with viable, non-polluting, and unexploited renewable resources: solar and wind."

Just one year later, in February 2018, Infinity Solar inaugurated its flagship project “Infinity 50”, also under Round 1 of Egypt’s FIT program, which is the first plant of the biggest solar park in the world to date, located in Benban, Aswan.

Infinity Solar is the market leader in the utility-scale solar market in Egypt, with more than half the market share of current connected solar capacities. Its current solar utility-scale pipeline projects include four more plants with a combined capacity of 133MW AC and total investments of about $200m. These plants are due to be commercially operational by Q1 2019.

Infinity Solar works with international industrial partners to build its solar plants, using the latest technology to maximise efficiency and reduce costs. The company was one of the first to recognise the exceptional opportunity offered by the Benban Solar Park, which meets the required economies of scale to aggressively drive-down the price per megawatt produced. Egypt’s attractive FIT program has transformed the scope of the Benban Solar Park, which rivals the nearby Aswan Dam in power generation.

Infinity Solar has secured the support of multilateral banks, such as Bayerische Landesbank (BLB) and Arab African Bank, with an ECA cover from Heuler Hermes, as well as EBRD (European Bank for Reconstruction and Development), IFC (International Finance Corporation) and The National Bank of Egypt for a slew of new solar power projects.

Infinity Solar is currently developing an EV charging-network to enable and promote the electrification of transportation in Egypt and further drive-down the country’s CO2 emissions.

Infinity Solar has put Egypt on the global map actively reducing carbon emissions and addressing climate change. With a healthy development pipeline of more than 2GW – split between solar and wind energy across georgraphies including MENA and Sub-Saharan Africa within five years – Infinity Solar is set to establish itself as front-running global developer of renewable energy.

Infinity Solar at a Glance

Established in the year 2014, Infinity Solar is at the forefront of the booming Egyptian renewable sector. Infinity Solar is a renewable energy project developer with focus on solar and wind power development.

Infinity Solar develops, finances, owns and operates renewable power assets to provide long-term clean electricity in Egypt and worldwide.

Developed in-house expertise to provide integrated solutions for the entire project life cycle of a solar power plant, including EPC, O&M and asset management services for utility-scale projects, as well as commercial projects.

Currently operating 65.5 MWp of solar energy under Round 1, including the landmark ‘Infinity 50’, the first solar project to be operational under Egypt’s Feed-in Tariff program in Benban Aswan, as well as 170 MWp under Round 2 of the program to be operational by Q1, 2019.

Planning to add a capacity of 2 GW split between wind and solar to the region within the coming 5 years.


Ian Fletcher, IBM: New Retail – Reimagining the Shopping Experience

We live at a critical inflection point in history, where the convergence between our physical, digital and biological worlds are accelerating at an unprecedented rate.

This is particularly evident in the case of the retail industry, which has been forced to rethink its engagement approach, resulting in the creation of new platform-based business models that monetise a company’s data assets, leverage the surrounding ecosystem and improve the customer experience. This is referred to as New Retail, and it is transformative in nature, enabling increased customer personalisation – if not individualisation – by allowing consumers to tailor their shopping experiences.

New Retail represents more than just the digital transformation of the High Street; it is a prerequisite for an immersive culture of engagement in a new data-led, on-demand economy.

The Business Challenge

The traditional high street economy has been in decline, relative to retail e-commerce growth by players such as Amazon and Alibaba.

We’ve all witnessed the shift in shopping behaviour from the physical to online, forcing some shops to close and malls to rethink the way they attract customers. This economic change has come about through a combination of factors:

weakness in consumer spending due to income pressures

the rise of e-commerce and digital disruption from the online giants

a change in demographic behaviour

changes in buying culture from “things” (products) to experiences.

If the retail industry is to fight back, a new approach is required: one that integrates a complete customer experience. If we erase the lines between mouse-click and bricks and mortar, and reimagine the experience that consumers actually seem to want, we can create something that is immersive and engaging, driving brand advocacy.

Smiling assassins or saviours?

It is with some irony that the organisations that previously disrupted the physical world with their online offerings are now seeking to enter, and even dominate, the physical markets – with some radical new value propositions.

Estimates show that around two-thirds of leading e-commerce brands have opened physical spaces in the past three years. These businesses are turning the physical and digital models upside-down, looking at the problem through customers’ eyes, while capitalising on technological advances in areas such as data, artificial intelligence and virtual reality. It’s possible that those disruptors could actually become tomorrow’s high street saviours.

Amazon recently strengthened its hold in the $750bn grocery market by purchasing Whole Foods Market for $13.7bn. Amazon has not stopped there, and has been experimenting with new formats like Amazon Go – the checkout-free store concept, where shoppers use their Amazon Go app to be automatically charged for whatever products they carry out.

Online car dealership Carvana recently launched a first-of-a-kind, fully-automated, coin-operated car vending machine, creating a better consumer experience using technology, robotics automation and forward-thinking design. Traditionally, brick-and-mortar dealerships often leave a lot to be desired from a customer-engagement standpoint, focusing on the features and benefits, selling inflated finance and the hard close. Today’s consumer demands a far more interactive experience, with greater choice, brand variety and options for personalisation – all now available online. Carvana's Car Vending Machine dispenses cars originally purchased online to customers through a fully-automated process, cutting out the dealership sales process and improving the overall experience.

Another organisation not only embracing New Retail, but rewriting the rules, is Alibaba, which recently launched its first Fashion Artificial Intelligence (AI) concept store in Hong Kong. The initial experience relies on creating a feeling of familiarity – the physical elements – to enable a smooth transition and draw consumers into the new concept. The store looks like any other fashion store, with neat racks of clothes and shop assistants on hand. The second experience element is concerned with engagement, with consumers being treated to a more immersive experience by integrating the physical and the digital, merging the offline with the online.

In Alibaba’s case, the digital experience starts when shoppers are provided with the opportunity to check into the store via their mobile device or, if they prefer, facial recognition. All items in the store are tagged with radio-frequency identification (RFID). As the shopper selects items, they are virtually displayed in a Smart Mirror. This provides a new visual experience to help the consumer look at different sizes, colours and accessories, facilitating personalised mix-and-match options to complete an ensemble. Customers then add their chosen items to their virtual shopping cart and the items are delivered to the fitting room.

A special feature is virtual assistance on your style preferences. AI becomes your new best friend, and enables staff to become more like personal shoppers, working with the aid of technology. When the visit is complete, the shopper can choose to take the items home or place them in an online shopping cart for delivery. The subtle integration of underlying technology provides the consumer with the ability to leverage voice and facial-recognition, augmented reality and deep learning. What makes this whole New Retail approach unique is the ability to personalise the experience.

Realising the benefits

From a business-efficiency perspective, virtual selections help the store maintain and track inventory through real-time analytics, which in turn is fed back to the thousands of business partners throughout the supply chain. The collaborative elements and sensory devices are helping businesses understand lifestyle behaviours, preferences, buying patterns and the propensity to buy.

The real business opportunity, however, is the ability to leverage the phenomenal investment in a platform. These platform business models build trust and “stickiness,” to keep customers coming back, encouraging brand engagement, widening the appeal and providing the gateway into new collaboration. Commercial benefits can be realised by monetising the platform asset, providing access in exchange for shared data. This provides a ready-made vehicle to attract a completely new set of retailers and sellers who want to open the market to wider audiences.

The next logical step is for retailers to migrate towards a new biological, sensory experience. The Internet of Everything will be the catalyst for this transformation, connecting bodies with supply chain through wearables, augmentation, virtual reality and “smart mirrors” acting as an interface from our homes. A Japanese retailer, Zozo, recently created a concept using a polka-dot suit to bring custom-fit clothes to the world.

Zozo sends out its Zozosuit to the consumer. The suit is covered in more than 300 stretchable markers that the Zozo app reads to determine detailed body measurements. Algorithms process all the data to determine a perfect fit. The possibilities for the sensory market are endless, and by using more advanced forms of personal data elements – such as biometrics and body scanning – retailers can take the interaction to another level altogether. This next evolutionary step will facilitate new business-model opportunities, moving the industry towards “real-time” or “just-in-time” manufacturing for a data-led, on-demand economy.

Conclusion

As we head into the Fourth Industrial Revolution, physical, digital and biological worlds are starting to converge. If retailers are to survive and thrive, they must embrace the change and come up with new methods of engagement. The industry must design integrated experiences that incorporate multiple channels, reduce complexity, focusing on individualisation. If experience is king, then curation is queen.

New Retail consumers are likely to demand a more variable set of offerings and will be more open to new ideas. Technology is – and will continue to be – an integral part of the experience, and should be harnessed to gain deeper insights into consumer choices. The future is Human plus Machine – with data, AI and perpetual innovation being the lifeblood of every organisation.

This game changing approach represents the opportunity to reinvent business models, open new channels, and reimagine practically everything.

About the Author

[caption id="attachment_12846" align="alignleft" width="252"] Author: Ian Fletcher, IBM Institute for Business Value Director MEA[/caption]

Ian Fletcher was educated in the UK, building a successful career in IBM Global Services. With over 30 years’ experience in technology and business consulting services, Ian leads the IBM IBV C-suite Study for MEA. Ian also runs IBM’s thought leadership programme, advising clients on business transformation and strategy. Ian specializes on the impact of the Fourth Industrial Revolution and, in turn, its impact on the C-suite and society.

About IBM

IBM is a leading cloud platform and AI solutions company. It is the largest technology and consulting employer in the world, with more than 380,000 employees, serving clients in 170 countries.

About IBM Institute for Business Value

IBM Institute for Business Value, part of IBM Services, develops fact-based strategic insights for senior business executives.


Financial Centres Promote Economic Development: AIFC Goes for Growth by Backing SMEs Globally

International Financial Centres (IFCs) are a necessary component of national and global economic growth. And increasingly, it is co-operation between IFCs, rather than competition, that drives the development agenda of the world’s established and emerging financial centres.

[caption id="attachment_13310" align="aligncenter" width="1000"] Kazakhstan's President Nazerbayev greets Lord Woolfe, Chief Justice at AIFC Court[/caption]

As the Astana International Financial Centre secures its place alongside the top level of global IFCs – and as a vital hub for finance in Central Asia – it has chosen support for SMEs as one of its major contributions to global IFC co-operation. SME support is also a core programme for the World Association of International Financial Centres, with the SME initiative to be led by Astana IFC.

Globalisation and the increasingly transnational nature of financial events have accelerated, and brought more attention to, the role of International Financial Centres.

IFCs provide clusters of excellence and expertise in financial and related professional services, which can benefit the development of a national economy and – as part of an integrated network – deliver a stronger, safer and more prosperous world.

The major global IFCs of London, New York, Hong Kong and Singapore reinforce the structural moves towards global IFCs acting as a template for the development of others. A series of IFCs have developed into regional hubs. Astana, Tokyo, Shanghai and Toronto are being joined by the likes of Moscow, Istanbul and Dubai as they develop. Specialist hubs and local centres which have a strong, but more limited, international footprint are – for example – Geneva/Zurich, Sao Paulo, Johannesburg, and Mumbai.

[caption id="attachment_13311" align="alignright" width="337"] HE Dr Kairat Kelimbetov, Governor of Astana International Financial Centre[/caption]

Whilst not all IFCs aspire to be global, a well-targeted local or regional offer can bring success for emerging centres as they seek to develop niches or provide a set of products. Dublin and Luxembourg are successfully pursuing a focused strategy. Rather than seeing the growth of other IFCs as a threat to older, more established IFCs, they see the development as an opportunity for partnerships to stimulate growth. Newer IFCs have challenged larger ones to be more innovative, and to respond to competitive dynamics. TheCityUK – a membership organisation that supports the UK-based financial and related professional services industry and promotes London’s leading position as an international financial centre is seen as playing a major role in this regard.

This puts regional IFCs at the heart of a trend with mutual benefits of co-operation in a changing pattern of world trade, and the focus will remain on those regional developments. The concentration, or cluster effect, of financial and related professional services will facilitate innovation, diversification and flexibility.

Financial centres, therefore, are key to sustaining economic growth, and the importance of SME support must be recognised as crucial. The IFC concept can provide the infrastructure for investment and savings that drives entrepreneurial endeavours and economic growth. They embrace innovation in finance and actively contribute to its development. And innovation, especially in the area of financial technology, or fintech, is increasingly a cross-border activity, with its developers setting-up wherever their work can flourish.

Leading IFCs, Astana among them, have identified this phenomenon and, through international co-operation and the adoption of best international practice, look to build an environment that will encourage and support the innovators and disruptors of the next generation.

So what are the needs and constraints acting as a barrier for SMEs to expand and export, given that they provide more than 60% of employment worldwide, and 80% of jobs in the developed world – while contributing 50% of gross value added?

The majority of SMEs are still primarily reliant on bank financing, but innovations in technology and market-based financing solutions offer viable and sought-after alternatives. This reinforces the focus on the contribution of IFCs to introduce a product range with innovation, backed by experience and the necessary delivery systems.

Step forward the World Alliance of International Financial Centres (WAIFC) , with its 11 financial centres. The formation launched a strategic alliance in July 2018 which intends serve the greatest needs by sharing best practice and cross-fertilization between IFCs in a developing dialogue. Importantly, it is project-driven.

Focus will initially be on concrete projects in

Data on financial centres

Contribution of financial centres to Green investment and infrastructure

New fintech developments

The role of financial centres in the economy

The founding members of this new international non-profit association are:

Abu Dhabi Global Market

Astana International Financial Centre Authority

Belgian Finance Club

Busan International Financial City Promotion Centre, BEPA

Casablanca Finance City Authority

Frankfurt Main Finance

Luxembourg for Finance

Moscow: Analytical Centre Forum

Oman: The Capital Market Authority

Paris EUROPLACE

Toronto Finance International

London currently holds Observer Status at WAIFC.

So, where does the Astana International Finance Centre (AIFC) see its position as an emerging IFC?

AIFC is a new brand of financial centre that, together with its members, will develop a financial ecosystem to enable the creation of a capital market, and an SME financial platform. The centre will play a pivotal role for SMEs by focusing attention on the role that the financial industry provides in assisting to build capacity and support for SMEs.

The perception of the financial industry will change accordingly, as people begin to recognise the importance for financial institutions and centres in which they operate. How financial centres can be enhanced with more SME support projects, including to trade finance, will be at the core of AIFC’s contribution to the emerging association by ensuring access to essential data and delivery as part of the financial ecosystem.

The development of new financial technologies is one of the priorities of the AIFC. The main task is to create the most favourable conditions for the creation and development of fintech projects, with modern infrastructure, flexible regulation and the ability to attract strategic investors.

Astana has now positioned itself as the business and financial hub for Central Asia. The innovative concept has the objectives of attracting investments by creating an attractive environment, and developing the securities market – thus ensuring its integration with international capital markets. As the major financial centre in Central Asia, the AIFC is also positioned to lead for the region on the critical initiatives developing under the China Belt and Road Initiative, the new Silk Roads.

The Astana IFC was conceived in December 2015 by decree from Kazakh President Nursultan Nazarbayev as part of a major package of structural reform, with the purpose of creating a leading centre of financial services at an international level. The Astana Financial Centre has achieved much with the assistance of UK-based firms and their expertise, and through TheCityUK’s network of international relationships. Key goals include a target of getting 500 companies resident at the centre by the end of 2020.

Many of the key points for the successful development of an IFC, recently highlighted by TheCityUK, are relevant as a basis for what AIFC is achieving:

an independent regulatory environment that is fair and transparent

a business climate that facilitates new products and ideas

a fiscal policy that is clear and competitive

the ability to access markets internationally for both trade and investment

openness to foreign investors

a highly regarded and impartial legal system based on common law

focus on soft infrastructure, including market infrastructure, the exchanges, data management, telecommunications, and security, and hard infrastructure relating to connectivity, transport and accommodation

a skilled and diversified labour force.

English common law is viewed as being more flexible in responding to the development of financial services, and is the prime reason why more than half of the world’s commercial contracts are governed by English law in judicial and non-judicial dispute resolution. Astana recognises this, and has developed, with the support of TheCityUK and its membership from the Uk-based financial and related professional services industry, the AIFC Court and International Arbitration Centre, independent of the AIFC in its activities. It operates in accordance with the best international standards for resolving civil and commercial disputes under the Common law court system.

The AIFC court has exclusive jurisdiction in relation to the consideration and resolution of disputes arising between AIFC participants, AIFC bodies and / or their foreign employees. Disputes submitted by mutual consent to the AIFC Court are also considered in the jurisdiction of the AIFC Court.

The International Arbitration Centre (IAC) provides an independent, cost-effective and operational alternative to litigation, and acts in accordance with the best international standards for resolving civil and commercial disputes in the AIFC. This offers the parties the most flexible choice of rules and procedures to resolve disputes.

In addition, the Astana International Exchange (AIX) contains four key factors by providing:

financial services, including issuing bonds and shares, hedging instruments including currency risk, and an offshore centre for the yuan (RMB).

the main platform for the privatisation of national companies in the framework of the implementation of the Comprehensive Privatisation Plan for 2016-2020.

trading in securities, commodity and derivative instruments denominated in tenge, rubles, US dollars and yuan; and

subsoil users, with a new platform for attracting investments.

I have been privileged to have seen the extraordinary regional transformation and growth since the early days of the creation of the newly independent states, and I have attempted to assist in a minor way.

I am delighted for the region, knowing that it will make a significant contribution to strengthening co-operation – including global co-operation – through common endeavours working to internationally agreed standards. This has been confirmed to me by friends around the region who see an ever-closer-knit, and highly professional, community.

The governor of the Astana Financial Centre, His Excellency Dr. Kairat Kelimbetov, reaffirmed this to me. He wishes it to be known that the AIFC will become a centre of excellence, providing high quality services to facilitate regional economic growth and diversification. He intends to increase transparency and business standards, fully aligned to international standards and operating under English common law, creating a single pool of liquidity for local and international investors.

It is my hope that those attending Davos will take note.

About the Author

Lord (JD) Waverley
Member
House of Lords, London

Advisor to the Chairman
CCC group of companies

Founder
SupplyFinder.com


Stacey Ferreira: The Billion Dollar Pitch

Few people make their first million before they turn twenty, and fewer still can say they have penned an international best-seller to boot. Stacey Ferreira, however, has done both. And, as if that wasn’t enough, she is also the CEO and founder of one of the world’s fastest-growing recruitment companies.

To say the 23-year-old entrepreneur is an enigma would be a monumental understatement. The inspirational digital media trailblazer has been hailed as possessing the technical thought processes and business acumen of the young Mark Zuckerberg. Essentially, Stacey Ferreira doesn’t just know how to find an obscure gap in the market, she also knows exactly how to use it.

A future in the digital world was always on the cards for Ferreira. Born in Scottsdale, Arizona, her father Victor was VP of Sales at IBM, where her mother Patricia was an accountant. Unsurprisingly, as a student, she displayed a rare talent for understanding computer science and coding.

It was while studying at high school in Phoenix that a teenage Ferreira had her first business inspiration. Her younger brother Scott’s computer crashed leaving him with no access to personal data, passwords, and files he was using for homework. What was required, she thought, was a way to create a mass personal storage area that could be made secure enough for users to keep their login details for various accounts and which they could access instantly. As a result of this epiphany, mysocialcloud.com was born.

The siblings were so confident in the product that they chose to suspend their education to pursue it. Stacey left New York University, and her brother dropped out of the University of Southern California.

It could be said that her genius as an entrepreneur had little to do with creating a secure, cloud-based bookmark vault. In fact, it was her muscling in on investment that paved the way to Internet stardom. Realising a substantial outlay of cash was required to take mysocialcloud to the next level, Stacey Ferreira set about plotting a way of levering funds from the top – Sir Richard Branson.

The college girl tweeted her idea to the British millionaire and then found a way of attending an event where she could pitch her concept in person. It was an audacious strategy, but it worked a charm. Sir Richard and a business partner threw almost a million dollars of start-up cash at Stacey and her brother, and – thanks to their clout, the cloud went on to create a media storm. In 2013, mysocialcloud was sold to digital footprint tracker reputation.com for an undisclosed sum that was, however, substantial enough to make millionaires out of Stacey and Scott.

The experience of dropping out of education to chase her business goals inspired Stacey Ferreira to write the book 2 Billion Under 20: How Millennials Are Breaking Down Age Barriers and Changing the World. Influenced by the Thiel fellowship – an alternative to college that encourages people to find their own educational path to self-sufficiency – the tome soon became a bestseller.

Ms Ferreira went on to join the Thiel fellowship in 2015, and it was here where she developed her next digital blockbuster – Forrge. The website was designed for potential employers to be able to use a flexible talent pool of temporary and part time workers. Again, it’s an idea that few would have been able to envisage, let alone pull off.

Forrge hasn’t even spent a year out in the open but already has enchanted an impressive line-up of venture capitalists eager to invest money. As CEO, she’s also brought her brother Scott into the development team. By the end of this year, analysts estimate Forrge will be valued in excess of a billion dollars.

It’s no surprise, therefore, that Stacey Ferreira is hot. An accomplished speaker and writer, she finds herself a globetrotting sage dispensing thoughts and advice to young entrepreneurs, amongst whom she’s regarded as one of the best role models of a generation.

Wherever Ms Ferreira goes, the main thrust of her counsel is to encourage young people to be confident while pitching the moneyed – particularly in this age of social media. “A tweet led to me meeting Richard Branson, and then having him invest in our first company,” she says. “It’s interesting that today those barriers of meeting high profile people have been lowered – through social media, anyone can get access to pretty much anyone in the world. And from there it’s interesting because you grow up as a young person idolising these people saying ‘oh, that’s someone I could never be like or ever be able to meet.’ But you soon realise that you actually can, and not only that, they are people too.”


President of Montenegro Milo Đukanović: Visions of Europe by Its Best Pupil

Last September, the European Union launched its own Belt and Road Initiative, connecting Europe with Asia.

[caption id="attachment_13335" align="aligncenter" width="1000"] President Milo Đukanović (right)[/caption]

The announcement of Brussels’ tentative response to Beijing’s grand strategy was barely noticed as Brexit negotiations neared their climax and Italy decided to throw budgetary caution to the wind. Yet the plan could benefit countries struggling to find merit in a juggernaut promising a shortcut to riches – but delivering a debt mountain instead.

The Chinese-built “motorway to nowhere” in Montenegro is a case in point. Traversing some of Europe’s roughest topographical features with a string of tunnels and sleek bridges, the first 41 kilometres of the road to connect the Adriatic port of Bar to landlocked Serbia, 165km distant, has added some €800m to Montenegro’s debt – which has ballooned to almost 80% of GDP.

In its 2018-19 Transition Report, the European Bank for Reconstruction and Development (EBRD) suggests the government in Podgorica reduce public debt and maintain its fiscal targets.

Montenegro’s plight is a direct result from the European Union’s continued reluctance to actively engage with the Western Balkan, as opposed to China’s eagerness to do so. The Chinese Export-Import Bank provided 85% of the funds needed to complete the first stretch of the Bar-to-Serbia motorway at an attractive 2% interest rate on a loan repayable over 20 years, with a six-year grace period. How could anyone say no? The project is being carried out by Chinese contractor CRBC, which also supplied about two-thirds of the 3,600 workers and nearly all the materials and machines needed for the job.

"Montenegro does not ask for the accession process to be sped-up. We only ask for consistency."

The Montenegrin motorway makes more political than economic sense. Feasibility studies in 2006 and 2012 concluded that the project lacked viability, requiring a return rate four times higher than the expected 2%. But a study paid for by the Export-Import Bank of China concluded otherwise, convincing the government and parliament to go ahead.

That may have been a wrong decision, although inspired by the country’s ambition to upgrade infrastructure, open up to the wider world, and boost the economy. With the EU conspicuous by its absence, China recognised, and filled, a void.

Brussels Takes Note, At Last

The European Union has swung into action with its own infrastructure development plan for the Balkans and the Caucasus region. The EU strategy calls for comprehensive connectivity, based on premises that projects need to be sustainable and viable. The Connecting Europe With Asia plan is clearly targeted at China’s “build now, worry later” approach.

Montenegro President Milo Đukanović would like to see the EU take a more proactive approach to the region. Though he understands that the EU is suffering the aftereffects of a financial crisis and must consolidate its position, he does not think that the union needs to stop, or even slow, the integration process. “The full unification of Europe will have a good effect on the long-term competitiveness of the continent,” he said. “The next natural step in the enlargement process is the Western Balkans. As the country that has advanced most in the accession procedure, Montenegro aims to be a strong promoter, and a showcase, of European values.”

Đukanović explained to CFI.co that his country had already closed all but two of the 33 chapters of the acquis communautaire, or EU acquis. It expects to open chapter 27, which deals with environmental standards and legislation, within weeks, and chapter eight, on competition, in coming months. The Montenegrin president does not expect any problems.

“This is how things stand from an administrative point of view,” he said. “Essentially, this means that Montenegro has a significant momentum going – not just in the accession process, but also in the comprehensive structural reforms that allow our society to reach EU standards, and become part of the European value system.”

Few prospective member-states have been as eager to join the EU as Montenegro. Đukanović again: “Montenegro is actually trying to reform from the inside and go back to the European civilization circle … It is clear that the dynamics, or pace, of this process do not depend solely on us, but also on the European Union.”

Running Out of Excuses

That is a problem, as Brussels is running out of excuses to keep Montenegro at bay. The country has done everything asked of it, and is on the verge of adopting and implementing the entire EU acquis – the rulebook. There are no reasons to delay, or refuse, Montenegro’s accession.

Đukanović is growing impatient with the EU’s foot-dragging. “The frustration is there because we don’t see the kind of incentive and encouragement coming from the European Union towards us, and the other countries in the region. We are trying to say to the European Union that it is in their interest, as much as it is in ours, to recognise that we are working as fast as possible to meet the goals and join the EU.

“The EU is the engine of Europe, and every engine … takes the responsibility for the entire train, including the caboose. If that caboose is lost or diverted somewhere, it cannot be good for the engine and train…

“Just look back to the 1990s to see a part of our history that was not European. That was the part of history surrendered to xenophobia, national exclusion, war, and ethnic cleansing. All of that happened towards the end of the 20th century in Europe’s diverted caboose.”

Europe had to invest huge amounts of money in the rehabilitation of the region, he says, and EU states had send soldiers on peacekeeping missions. “Why not deal with the causes, instead, and make the Balkan countries part of Europe – not just geographically but also in values?”

Đukanović fears that the EU is slowing the accession of Western Balkan states for all the wrong reason. “Again, we understand and accept that the EU was badly stung before and learned a number of lessons as a result. So, Montenegro does not ask for the accession process to be sped-up. We only ask for consistency.

“Keep the door open and let us reform ourselves and join on the basis of our accomplishments. But whatever you do, please do not give up on the vision of a united Europe. Its architecture may not always be perfect – as was demonstrated by Greece – but that can always be fixed. Such design flaws are no reason to discard the entire project, or freeze it in time.”


Magnus Carlsen: In Pursuit of Perfection and Committed to the Art of Chess

The best chess player ever? It’s probably Magnus Carlsen, according to … Magnus Carlsen.

The Norwegian grandmaster, now 28, is one of those rare individuals able to mix arrogance with charm and still make friends. His unassuming demeanour hides his genius, and as he has matured, that genius has lost all trace of wickedness. Other than that which comes only into play on the chess board, of course.

Carlsen is a universal player who adheres to no signature style; he easily adapts to, and ruthlessly exploits, any situation. Carlsen is celebrated for detecting even the most minute advantage – and transforming it into a crushing victory.

The Norwegian maintains his composure under the most trying of circumstances. He does not engage in soul-searching, and seems to suffer none of the psychological lapses that plague some grandmasters. This sangfroid often gives Carlsen the upper hand and allows him to unsettle his opponents, enticing them to make tiny mistakes and then exploiting them. The Norwegian’s endgame is anaconda-like, never giving an inch and working towards the “crack” (and ultimately victory).

Though Carlsen holds the highest recorded chess rating – 2882 on the Elo scale – he has not reinvented the game. That accolade goes to players such as the Soviet-Latvian grandmaster Mikhail Tal, “The Magician from Riga” (1936-1992). In the 1960s, Tal stunned game watchers with his attacks, creativity, and fearless improvisation. According to chess great Garry Kasparov, who coached Carlsen for two years, the era of chess innovation is largely over.
This is fine by the Norwegian, who finds enough room within the boundaries of convention to develop his game.

If Carlsen must be likened to any grandmaster, the best fit would probably be Boris Spassky, the Soviet half of the most famous chess clash of all times: the 1972 match in Reykjavík against American Bobby Fischer. The match paralleled the Cold War US-Soviet standoff, pitting the superpowers against each other on the chess board. Though Fischer won that momentous competition, he subsequently descended into a disturbed psychological state, becoming a Holocaust-denier, recluse, and a fugitive from the law.

Carlsen shows no inclination towards eccentricity and keeps his eye on chess without becoming obsessed by it. The Norwegian refuses to become an automaton, and keeps a human perspective on the game. He refuses to play against computers, admitting that the experience of losing against an inanimate object is not something to relish.

No need then for him to challenge the AlphaZero AI chess programme developed by Google offshoot DeepMind. AlphaZero uses machine learning to master any game; in just four hours, and starting with random moves, AlphaZero has “learned” to play chess to lethal perfection. Within 24 hours, it was able to beat another “robot” player, Stockfish 8, in a 100-game tournament. AlphaZero didn’t lose a single match.

Though still very much a machine, AlphaZero AI takes a more empirical and human approach to chess, learning by trial and error, and analysing the outcome of experimentation as opposed to merely crunching numbers. Stockfish 8 evaluates around 70 million moves per second, but AlphaZero AI need only work out 80,000 positions to make up its digital mind – creating added knowledge in the process.

The DeepMind experiment unveiled a vast range of successful moves and tactics not previously employed, providing grandmasters with new vectors to explore and exploit. Carlsen is known to analyse and study the AI approach, and take some cues to which he can add his own intuitive twists.

That is, perhaps, the reason for Carlsen’s enduring success and popularity – the ability to remain human and accept the frailties that implies. Still a whisker ahead of the competition, Carlsen admits that he may already have passed his prime. Then again, there is nothing left for him to win.

The acceptance of fallibility is what makes Carlsen unique among grandmasters.


Satoshi Nakamoto: To Be or Not to Be

The dormant P2P Foundation account of Satoshi Nakamoto – the man, or group of people, who invented Bitcoin – sprang back to life early December, with a single mysterious, and so-far undefined, word: “nour”.

Nakamoto, or the person using his account, also responded to a Brazilian user of Japanese descent who had sent a friend-request more than a year ago. That’s about it.

Nakamoto watchers believe the P2P Foundation account may have been hacked, and the mystery remains intact. Editors at news aggregator Reddit (known as “Redditors”) are convinced they have identified the elusive inventor in a YouTube user with the nickname davincij15, who uploaded videos on precious-metal trading in 2009. davincij15 went on to make a series of accurate predictions on cryptocurrencies in general, and Bitcoin in particular. In 2013, the YouTuber advised his followers to withdraw their virtual cash from Mt Gox, at the time the world’s largest Bitcoin exchange. Mt Gox suffered a virtual heist (or malfunction) in February 2014 – during which 850,000 Bitcoins (BTC), valued at $450m, disappeared. Only BTC 200,000 have since resurfaced, and Mt Gox is currently in liquidation.
Nakamoto is said to own BTC1m, which he mined in 2009 from the Genesis Bloc. This represents a paper value of over $3bn, though cashing-in such a sum could wreak havoc in a jittery and sensitive market. However, the Bitcoin ledger shows that none of Nakamoto’s bitcoins have been traded. Satoshi Nakamoto has been listed as missing since at least 2010, two years after he launched the software that drives Bitcoin. The name sounds Japanese, but the Bitcoin white paper that was distributed among cryptographers in 2008 is written in flawless English. Nakamoto could be British. Or Finnish. Even Elon Musk has been suggested as the genius behind Bitcoin.

Conspiracy theorists believe Nakamoto to be a consortium of four large corporates, and find a clue in the names Samsung and Toshiba for the first name, and Nakamichi and Motorola for the surname. Other identities suggested include Dorian Nakamoto (an unemployed physicist), Hal Finney (a cryptographer and early Bitcoin miner), Craig Wright (an Australian businessman and self-styled inventor of Bitcoin), and Nick Szabo (the creator of Bit Gold, a precursor of cryptocurrencies). Then there is that worker at a media company who analysed the original Bitcoin white paper for unique phrases and chanced upon “computationally impractical to reverse” – a technological term employed, and reportedly patented by, a group of three senior programmers – who also registered the domain bitcoin.org, three days after the release of the original white paper.

Whatever Nakamoto’s identity, there is no doubt that he is/was a visionary and a gifted programmer. However, he was not well versed in economics or the world of finance. Though an interesting proposition from an ideological standpoint, Bitcoin’s entire setup spells economic doom and gloom should BTC ever become a common currency. Bitcoin is squarely aimed at exposing the evils of fiat money, and seeks to reintroduce a gold standard of sorts by limiting BTC to a hardwired ceiling of 21 million. Bitcoin is by definition a deflationary currency.

Despite hints of a Ponzi scheme, Bitcoin’s built-in scarcity should, in theory, ensure steady appreciation. As such, why spend a Bitcoin now, if it is likely to be worth more in future? Deflation is one of the most haunting and disconcerting spectres in all of economics. The European Central Bank has created and floated a few trillion extra euros to keep deflation at bay.

There is a reason for that – one that Nakamoto and his followers have failed to understand.


Andrés Manuel López Obrador: The Remaking of Mexico

Mexico’s new president, Andrés Manuel López Obrador, seems to have given up on his promise to bring corrupt officials to justice, saying his administration doesn’t have enough prison space for all of them.

Andrés Manuel López Obrador – AMLO for short – wants to concentrate on the future, and promises to “re-found” the republic and remove corruption from its public service – albeit without locking up the perpetrators.

To set the tone for his administration, the president-elect arrived at the inauguration, on December 7, in his own Volkswagen Jetta, declining an official limousine. The next day, he put the presidential plane up for sale, vowing to never set foot aboard the Boeing 787-8 acquired for almost $220m in 2012. True to his word, Obrador travelled economy class on a commercial flight to Veracruz for his first official engagement outside the nation’s capital, taking a four-hour delay in his stride. He also ordered the disposal of 60 smaller aircraft and 70 helicopters belonging to the federal government.

Obrador refuses to step inside Los Pinos, the 19th-Century complex that, since 1934, has served as the official presidential residence. Within hours of taking over the presidency, AMLO ordered the palace to be opened to the public, and invited all Mexicans to have a look at the lifestyle their former leaders had enjoyed. Tens of thousands have since visited the palace, gaping at the gold-clad and cavernous halls, the rather banal paintings of heroic acts, and the opulent private quarters.

Obrador broke with convention by inviting Venezuelan strongman Nicolás Maduro to the luncheon that followed the inauguration ceremony. Other leftists present included presidents Miguel Díaz-Canel of Cuba and Evo Morales of Bolivia. It is not so much that Obrador has sympathies for near-totalitarian or absolutist leaders, but that Mexico needs to reaffirm the independence of its foreign policy which – under previous administrations – had morphed into an appendix of the US State Department. Traditionally a champion of the non-aligned movement, Obrador’s Mexico wants to rescue its reputation as a neutral power broker.

Obrador has made it a point of honour not to immediately offend the Trump Administration and award the US president the chance of a cordial relationship. Though there is no shortage of contentious issues between the two countries, Obrador seems to have hit it off splendidly with his US counterpart. Whatever barbs were traded travelled along parallels vectors, causing neither hurt nor offense.

It is likely that Trump and his administration do not yet know what to make of Obrador. The self-proclaimed “scourge of neoliberalism” is the same man who courts foreign investors and knows how to lay on the charm. But Obrador is also a politician who used every trick in the book to cow the establishment and exploit every sign of weakness to finish off opponents.

A populist and a pragmatist rolled into one, President Obrador now commands an awesome powerbase that includes absolute majorities in both houses of congress, and in the local assemblies of 18 of the country’s 32 states. Not since single-party rule has a Mexican president wielded such enormous powers. Few dispute that Obrador has the strongest mandate to change the make-up of his country.

Mexico’s experience shows that a president lacking power is often forced to secure backroom deals – invariably involving cash handouts. The position Obrador has carved out for his administration, especially at state level, does away with the need to buy local support and co-operation.

To preserve the support of his voters, Obrador plans to call impromptu referenda on some of the issues facing his government. The first asked Mexico City residents for their opinion on the $13bn airport being built, in the middle of corruption scandals and allegations. Voters indicated that they wanted to see the half-finished project cancelled. Obrador says he will do just that.

Obrador has promised to subject his own administration to a referendum at midterm, promising to resign should he have failed to have kept the trust of the people. Though his style is novel, and borders on the revolutionary, the foreign investors on whom Mexico depends for its prosperity are not heading for the exit. Yet.


Vincent Cerf: Father of the Internet Looking for Ways to Preserve His Work

Vince Cerf had absolutely no idea that his creation would be hijacked by big business, encourage tunnel vision, and spread misinformation. He just wanted to build a medium that allowed for the sharing of useful information.

Cerf and his colleague Bob Kahn, at the US Defense Advanced Research Projects Agency, came up with the Internet Protocol (IP) and the Transmission Control Protocol (TCP) in the early 1970s, technologies that underpin – and made possible – the internet. Later, in the late 1980s, Cerf helped develop the first commercial email system. In the mid-1990s, he was instrumental in setting up the Internet Corporation for Assigned Names and Numbers (ICANN), the non-profit that maintains the internet address book and provides essential co-ordination between regional and national internet registries.

Of late, Cerf has been looking at ways to deal with the risk of digital obsolescence, the potential loss of data saved on physical media or in digital formats, that can no longer be accessed. As hardware and software are subject to constant change, backward compatibility is often lost. The issue has been around since the early 1970s, but so far no solution has been found. Archivists do not usually think in years or decades, but in centuries and millennia. A PDF file that is universally readable on almost any device today, may, 100 or so years from now, be completely unusable.

That has already happened with files saved by WordStar, the text editor of choice in the 1980s which used a closed-data format that is now all but inaccessible. Physical media, such as the first eight-inch floppy disks carrying 80 kilobytes of data launched by IBM in 1971, can only be read by legacy equipment at specialised facilities. The storage solutions offered by iOmega in the 1980s and 1990s – Bernoulli Box drives and Zip, Jaz, and Clik! cartridges – have gone the same way.

Cerf has warned that future historians may be faced with a black hole – a dark age from which almost no records survive. The documents, pictures, and sounds that mark our era can be lost as digital media are abandoned and only fragments are transposed onto new carriers – a process that must be constantly repeated.

Now chief internet evangelist at Google – possibly the world’s coolest job title – Vincent Cerf has called for the creation of a “digital vellum” – a medium impervious to the onslaught of time and able to preserve abandonware and safeguard the accessibility of any file. “We are nonchalantly throwing all of our data into what could become an information black hole without realising it. We digitise things because we think we will preserve them, but what we don’t understand is that, unless we take other steps, those digital versions may not be any better, and may even be worse, than the artefacts that we digitised.”

Cerf proposes going back to basics, pointing out that the human eye and other senses are unlikely to change noticeably. Eyes can still read the stories written on clay tablets and papyrus rolls. Cerf notes that email records of the correspondence between the protagonists of important events will some day have vanished without a trace.

“Today, historians can reconstruct events by finding letters and other key documents that are kept at libraries,” he says. “Important documents will probably survive, but context is often sourced from the writings left by less important actors, commentators, or witnesses. These will undoubtedly have been lost.”

At Google, Cerf may be in the right place to help shape the digital vellum needed to preserve the present. The company has been rather secretive about its efforts, but it is reaching out to partners such as digital art collective Rhizome to develop open-source digital preservation tools.

Vincent Cerf may well father another internet breakthrough.


Bill Mitchell: Saving Capitalism from Itself

Proponents of Modern Monetary Theory (MMT) often manage to elicit a nod from more orthodox peers that acknowledges their existence – but does not necessarily imply recognition.

Frequently derided as apologists for free spending, MMT fans insist that austerity is an elitist ploy to keep the masses in their place and to stop them from upsetting the economic apple cart; a cart that, incidentally, carries away the riches.

MMT is akin to the heterodox economic thought that enjoyed its 15 minutes of fame somewhere in the mid-1970s, and has since retreated to fringes mostly found in Latin America. There are, however, a few voices still calling from the wilderness. Bill Mitchell, professor of Economics at the University of Newcastle in Australia, is one of those voices.

Mitchell insists that the emperor has no clothes and flatly refuses to buy into neoliberalist thought. He has been outspoken in his condemnation of austerity policies that prioritise debt repayment and fiscal frugality. He also rallies against progressives for selling out to the right-wing – starting with Tony Blair’s New Labour and including François Mitterrand and other less prominent social democrats who dumped their convictions to embrace the free market.

Mitchell argues that the neoliberal policies now prevalent across most of the Western World have effectively depoliticised the economy, undermining the primacy of politics and depriving voters of a say in the management of their countries. According to Mitchell, this sense of disenfranchisement has sparked a renewed interest in the political extremes of left and right which cater to, and feed on, popular frustration.

The notion that neoliberals want to limit the reach and role of the state is only skin deep, says Mitchell, pointing to bank bailouts as a prime example of the agenda which seeks to privatise profits but insists on socialising losses. This threatens governments with dire consequences for allowing “too big to fail” entities to tumble. Those same forces are also engaged in dismantling antitrust legislation and mechanisms, arguing that bigger is better, and cheaper, and necessary to acquire the critical corporate mass to compete on a global scale.

Mitchell offers MMT as an antidote. MMT departs from the premise that money is essentially created out of nothing. The magic money tree exists, and it is cultivated by banks. Mitchell will hear few economists disputing his assertion that fiat money is an abstract concept of digits entered into a computer.

Few people understand the concept of a medium of exchange created and regulated by governments – as opposed to a currency with intrinsic value, such as gold.
What MMT argues is that any government overly worried about deficit spending or debt load does itself a disfavour by barking up the wrong money tree. As long as a country is in full sovereign control of its own money – which Greece was not – it should have no trouble navigating economic boom and bust cycles, insulating wider society against the fallout.

The University of Chicago, grand central of monetarist thought, argues that money supply must be controlled to keep inflation low. MMT calls for central banks to return to their original duty – to keep unemployment low – instead of fighting inflation.

Though most politicians support the monetarist approach to finance, as espoused by Milton Friedman et al, few dare to practise true orthodoxy. Most actual economic policy is hybrid – and, says Mitchell – ineffective. MMT is, of late, enjoying something of a renaissance as voters grow tired of austerity and begin to question its premises. Mitchell’s core message is getting through: big business has become too big for its own good, and austerity is a bid to balance books for all the wrong reasons.

Voodoo economics to some and an open invitation to emulate Venezuela to others, MMT may be easily dismissed as a set of crackpot ideas. However, that would do Mitchell an injustice. The foundation on which MMT rests is solid, and any idea that challenges orthodoxy without departing from reality surely merits a closer look.


TINA and the ARTICO Team: Delivering Overperformance

[caption id="attachment_21399" align="aligncenter" width="900"] The Artico team: Michael Brenneis, Tero Toivanen, Gabriel Herrera, Ulrich Niederer, Andreas Konrad, Stephan Meier[/caption]

What makes ARTICO special?
Gabriel Herrera, Chief Executive Officer: Artico is different in two important aspects: First, we have “skin in the game”! This means we are significant co-investors in all our funds. When our funds outperform, we benefit, when they underperform our private wealth is directly affected. This ensures our interests are fully aligned with the interests of our investors. We therefore always act as true partners. Secondly, our investment approach is different: the companies we invest in have very positive fundamental attributes. These characteristics are the reason for our past outperformance over the last seven years. More important - these unique portfolio characteristics provide for a higher probability of future outperformance.

Companies with unique characteristics? Surely all managers seek that?
Stephan Meier, Head Investor Relations: Sure. But Artico’s portfolios have significantly different characteristics than those of our competitors. The companies in our portfolio grow their business much faster than others, have a twice as high profitability, a healthier balance sheet and are significantly lower valued by the stock market. In a nutshell, at ARTICO you get a diversified portfolio with very high growth and profitability exposure at a massive valuation discount. Investing in good companies has paid off in the past and should also do so in the future.

How do you identify those good companies?
Tero Toivanen, Chief Investment Officer: It is all based on thousands of hours of research. We have tested multiple criteria and methods to select the most promising companies. And we are constantly focusing our research to improve what we do. The best set of criteria is applied on the financial statements of over 30,000 companies, which are part of our database. This results in a fundamental score for each company. And then we simply buy the companies with the best score.

30,000 companies? That sounds like a lot of work...
Michel Brenneis, Head Portfolio Management: Yes, it is. And it would not be possible to do that research and scoring with even an army of analysts. Instead we are helped by TINA – our powerful proprietary system. TINA does all the work we would have to do manually on these 30,000 companies. She has a dedicated room and needs permanent air conditioning. She works 24 hours/7 days on scanning the global equity markets for good investment opportunities based on the criteria we have researched and defined. She’s the hardest working team member at Artico, so to speak!

How can you cope with such a complex business with just 6 partners?
Andreas Konrad, Chief Operating Officer: In fact it is much less complex than one would think: We have outsourced or automated most of the steps in our processes, so we can fully focus on our ongoing research activities, the regular trading processes and our control procedures. With only six partners, we have no administrative burden or internal bureaucracy and so 100% of our focus is on the performance of our funds.

Thank you very much! One last question: What does it mean to you to have been selected best quantitative equity asset manager in Switzerland?
Ulrich Niederer, Chairman: Our primary goal is to deliver outperformance to our investors. Winning this award is nevertheless the type of recognition one aspires to. When we founded ARTICO over seven years ago, we wanted to create something special. Most importantly, our objective has never been to become the biggest. Being regarded by our investors and the outside community as an excellent asset manager and delivering on outperformance is what really motivates us.