Focus on World Bank and Bahrain for EMEA Finance

Phil Thornton contributed two articles to the latest edition of the EMEA Finance magazine out in February 2018. The first was based on a talk with Kristina Georgieva, the new chief exucirve of the World Bank. At the heart of her agenda is achieving the multilateral’s goals of eliminating extreme poverty by 2030 and boosting shared prosperity. Georgieva, who was EU Commissioner for Humanitarian Aid, sees her mission as turning this instrument into an “incentive for people to do the right thing”. “If a country has a lend-management policy for forestry to be protected, not to be chopped down, then the insurance premium ought to have a discount. As a donor, as a finance community, we are funding this discount.” The other angle is to focus on middle income countries — where 50 per cent of poor people still live — and especially in higher-risk economies where the task is to make sure that jobs are created. The article is here.

The second article was an analysis of the success that Bahrain has had in attracting foreign investment to the small island kingdom. We looked at how Bahrain’s economic development board has set out a strategy to attract foreign direct investment and SMEs that will both create jobs and help the Kingdom exploit modern technologies.EDB managing director Simon Galpin set out why Bahrain was investing in a whole raft of projects valued at over £32bn, is equivalent to oits annual GDP. These include the expansion of the airport, the US$5bn upgrading of all the major oil refineries in Bahrain, the enlargement of the Alba aluminium smelter to make it the largest in the world, and a second direct connection to the Eastern Province of Saudi Arabia for both road and rail to connect to Saudi Arabia and complement the existing King Fahd Causeway. The second factor is what Galpin calls “soft infrastructure” — reforms of business regulations that allows 100% foreign ownership and a revision of insolvency laws aimed at fostering innovation and entrepreneurship by modernising and streamlining the bankruptcy procedures.“ The third trend, which is connected to the regulatory overhaul, is the decision by the Central Bank of Bahrain to introduce the first “regulatory sandbox”. The article is here.

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Bahrain defends economic reputation

In a series of interviews carried out by us for EMEAfinance magazine, leading Bahraini policymakers issued a defiant response to the downgrades of its sovereign debt by a leading credit ratings agency and the decision by the International Monetary Fund to forecast a slowdown in economic growth. A senior director at the central bank accused the rating agencies of “exaggerations” and of basing their assessment on news reports, while the country’s Economic Development Board said the government had struck the correct balance between reducing the deficit and supporting growth. The article can be found here.

The interviews were held as part of a fact finding trip for EMEAfinance during the 2017 World Islamic Banking Conference in December 2017. A fuller report will follow shortly.

Where have the LIBOR billions gone?

What happened the billions of pounds in fines on banks levied by UK regulators was the subject of our analysis for The Review, the magazine of the Chartered Institute of Securities and Investment. Since the onset of the global financial crisis in late 2007, the FCA and its predecessor, the FSA, have handed down a total of £3.6bn in fines.

Up until 2013, the FCA had kept all income from fines and used it to subsidise the cost of
fees to the banks; until then-chancellor George Osborne announced that fines paid by
banks and others who broke the rules would go to the “benefit of the public and not to
other banks”. Since then, the FCA has transferred approximately £2.9bn to the Government.

It is hard to identify what has happened to the money but analysis of government announcements shows that £424m went to support the armed services covenant while £101 went to museums and galleries. Campaigners for greater transparency in fifnnace told us that fines would be best used to improve standards in that sector and put measures in place to prevent malpractice happening again. The article can be found here (£).

Contribution to Financial Times 2018 survey

We were asked by the Financial Times to contribute our views on a range of issues which have the potential to affect the UK economy during 2018. On overall growth, we said the economy will slow in 2018 as the uncertainty created by the stop-start Brexit negotiations nags at consumer and business confidence and at investment intentions. A drop to 1.5% from 1.8% in 2017 seems likely. The interesting comparison is with the eurozone, which could post growth as high as 2.4 per cent. Those data will be confirmed in spring just as the UK will leave the EU — a timely reminder of the damage that the UK is doing to itself by leaving.

On Brexit we said that it will either be possible to stay within a/the single market and a/the customs union or even that opposition to Brexit itself is starting to grow. Either there are now hopes that the UK will get as bad a deal as feared a year earlier.

On the consumer economy, we said the downward pressure on consumer spending that has so far come from a fall in real wages is likely to continue. Our other concern is the mountain of debt that consumers are building up and whether any of the bubbles in personal loans, credit card debt, and car loans will burst.

A year ago we contributed to the 2017 survey in which we said we predicted that growth would slow sharply, that inflation would rise and the negative impact from Brexit had been postponed rather than cancelled.

Covering the 2017 annual meetings of IMF & World Bank

We assisted with the coverage by the magazine GlobalMarkets of the annual meetings of the IMF and World bank that were held in October 2017 in Washington DC. GlobalMarkets is the new name for the magazine Emerging Markets that has covered the meetings of all the multilateral banks for a quarter of a century.

We wrote a number of features analysing key issues that came up at the meetings of the finance ministers and central bankers of the 187 member countries. Two of the features looking at the outlook for the two institutions: the first examined the new strategy of World Bank President Jim Yong Kim to become a catalyst for private finance here; and the second looked at the role that the IMF should play after the recent crises here.

We supported these with on the capiral increase based on a question to Mr Kim (here), an interview with WB vice president Axel van Trotsenburg on funding for the poorest countries (here), and a warning byb a senior WB economist on corporate debt in emerging economies (here).We also contributed a review of the racy account of a life in banking and Buddhism by Michael Dobbs-Higginson here.

Profile of Professor Jeffrey Sachs; and a radical shift in World Bank policy

As part of our contributions to EMEA Finance magazine, we produced two articles for their Summer 2017 edition. The first was a profile of Jeffrey Sachs, the Columbia University economics professors and lifelong campaigner on poverty and climate change. The profile was based on his new book, Building the New American Economy, and a talk he gave in London. Sachs made clear his anger at and concern over the agenda put forward by US President Donald Trump. He is worried that Trump’s  attitude towards climate change and protectionism is emblematic of a retreat away from the US’s role as a major international power in terms of trade and security. “We have moved to a multi-polar world but America has an incoherent response to this.” He does strike a positive note, however, saying: “We are in the middle of really profound change. If we are smart and we are lucky we will get to something very good. The crises are real and serious but are manageable.” The article is here.

Jim Yong Kim, the President of the World Bank, made a rare visit to London – public visits tend to be in emerging and developing countries. He set out a radical agenda for his second term that will move it away from direct funding towards de-risking projects in Africa to make them more attractive to private capital. Rather than provide direct funding as a first response, the Bank will use its resources to “crowd in” the private sector. Kim said that with trillions of dollars “sitting on the sidelines, earning little interest”, the Bank was determined to mobilise investors looking for better opportunities to help it meet the rising aspirations across the developing world. As he says: “We need to have a different and difficult conversation about how we approach development finance.”

Reporting on ADB and EBRD annual meetings

We contributed to the editing of the daily coverage of the annual meetings of the Asian Development Bank and European Bank for Reconstruction and Development for GlobalMarkets. Both meetings took place in May 2017 and included news, interviews, features analysis. Phil Thornton wrote an article based on an interview with EBRD President Suma Chakrabarti, and contributed to articles on the impact of withdrawal of ECB monetary stimulus, and views by eastern European and central Asian leaders on the election of Emmanuel Macros as France’s president.