Corporate DispatchPro
Issue No.7 | July 2020
Corporate DispatchPro The Journal of CI Group
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Issue No.7 | July 2020
Corporate DispatchPro The Journal of CI Group EDITORIAL TEAM Andrew Azzopardi Isabelle Micallef Bonello Jesmond Saliba
Contributors Aimee Donnellan George Hay Gina Chon Isabelle Micallef Bonello Keith Zahra Laura Emma Grima Silvan Mifsud Tonio Galea Production Assistant Laura Grima Shirley Zammit Design TEAM Matthew Borg Nicholas Azzopardi
Contents Editorial 5 Digital Transformation The future is now!
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Technology – a silver lining of the Covid era
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The impact of digitalisation on activism
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Hacking at the global order
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Malta Insights
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CommuniqEU 37 China can turn the other cheek, for now
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UK tests financial limits of green transition
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OPEC maintains illusion of control over oil price
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Apple tax win flags EU problem of enemies within
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Twitter hack is a nightmare not just for Twitter
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Local Perspective | Global Outlook
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Sources
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Additional Sources
Design Produced
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Corporate DispatchPro Editorial
Digital answers to non-digital questions Companies today are born digital. The digitisation of processes not only opens up exciting new business opportunities but makes entrepreneurship itself more widely accessible and more democratic. But the potential of turning digital is neither lost on more mature companies; indeed, many legacy organisations from cosmetics empire L’Oreal to top brewer AB InBev are themselves digital pioneers, successfully integrating AI and IoT into their core operations. The digital revolution, however, does not stop at the adoption of internet technologies. Cloud systems and robotics, big data and nanotechnology, count for little if they are not accompanied by innovation in the business model. In fact, Digital Transformation is increasingly dropping out of pace with the relentless waves of technological novelties. Businesses oftentimes find themselves at a loss as to which fancy new product to implement next with so many powerful, easy-touse machines promising to “allow companies to focus on their product.� Alas, that flies directly in the face of digital transformation because if there is one thing that digitalisation should achieve, it is pushing businesses to take their focus off what they do and re-valuate why they do it.
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Technological breakthroughs are meaningless without their broader social backdrop, Advances in this area are the confluence of a multiplicity of variables and, as much as scientific genius and idealistic vision are important to technical development, tech evolution ultimately grows out of the environment it is situated in. So, the shift towards a digital reality is itself a reflection of a deeper, more expansive transformation in human systems. Digitalisation is not merely a layer of slick automation apps added on top of existing company processes: a true digital transformation challenges the entire architecture of value creation, value proposition, and value capture. Essentially, digital transformation is the profound rethink of who the customer is in the emerging context. Companies that upgrade their mechanics with the latest tools but stick to their usual business models are not unlike a towncrier investing in a hoverboard. They fail to understand that the real changes are taking place in consumption patterns, not the methods of production. If a digital transformation strategy is to be successful, its purpose is to propose a worthy response to perfectly non-digital transformations. Jesmond Saliba 7
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Corporate DispatchPro Silvan Mifsud
Digital Transformation The future is now! Digital transformation. The mother of all buzzwords. However, as Simeon Preston once said, “The biggest part of digital transformation is changing the way to think.� You mention digital transformation and today our mind starts thinking on 5G, Internet of Things (IoT), Blockchain, Artificial Intelligence and Robotics. It is very true that digital technologies are enabling radically new ways to deliver value to customers, altering competitive landscapes and changing the underlying economics of markets. However, technological change is nothing new, except for one thing. This time round the pace at which change is happening is at a rate faster than ever before. The risk of disruption could be the impetus for such a faced pace transformation, as new technologies threaten established businesses whilst creating unprecedented opportunities. Which leads us to a very important point with regards Digital transformation. Any digital transformation strategy and process, while obviously looking at how to change business processes, business models and the delivery of more new products and services, must also look at how such a digital transformation rests on the change in people’s mindsets, talents and capabilities to operate effectively in a digital world. When all is said and done any digital transformation can truly happen if it rests on a highly skilled workforce, agile workflows and a culture based on testing and learning and a decentralised decision-making system. Digital transformation impacts society at several levels. On the production side of the economy, digital transformation enables the automation of business operations, yielding operational efficiencies, such as reduction of transaction costs, with an 9
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impact on productivity. Similarly, digital transformation provides new business opportunities, impacting employment and entrepreneurship. Regarding the delivery of public services, digital transformation enhances the provision of health and education, while improving the way citizens interact with their governments. Finally, digital transformation has an impact on human relationships and individual behaviour, facilitating social inclusion and communication. However, digital transformation could also result in potential negative effects, such as workforce disruption, the disappearance of companies, cybercrime and social anomie. To give a context to all this, our experience has shown that digital transformation comes in waves. What can be considered as the 1st wave of digitization, this was associated with the introduction and adoption of what today are considered “mature� technologies, such as management information systems aimed at automating data processing and applied to monitoring and reporting of business performance, telecommunications technologies such as broadband (fixed and mobile) and voice telecommunications (fixed
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Corporate DispatchPro and mobile) which allow the remote access of information. The second wave of digitisation covered the diffusion of the Internet and its corresponding platforms (search engines, marketplaces), which enable the networking of enterprises to consumers and enterprises among themselves for purchasing of supplies and distribution of output. In addition to adoption of the Internet, this wave led to the diffusion of cloud computing. Finally, the third wave of digitisation, entails the adoption of a range of technologies aimed at enhancing information processing and the quality of decision making, while further automating routine tasks within business enterprises and governments. These include Big Data, IoT, Robotics and AI. All waves of digital transformation have outlined similar benefits – economic growth through business innovation and increase in job opportunities, though some pockets of jobs where eliminated through automation and the positive impact on jobs through the second wave of digital transformation was much less than the first wave. Moreover, the increased use of digital technologies associated with the second digitisation wave has raised the potential negative economic effect of an internet disruption, cybercrime, data fraud or manipulation and technological failure. There are also some negative social effects which include the degradation of human relationships resulting from intense digital consumption and the decline in conducting other knowledge gathering activities such as reading. The third wave of digitisation has significant implications for productivity improvements. It also promises to have significant benefits on social welfare, more particularly on several Sustainable Development Goals, associated with the delivery of public services. The evidence so far with regards to the disruptive labour effects of the third wave are quite speculative, however there is almost universal agreement that, similarly to the prior waves of innovation, automation will tend to favour those workers with more education and training. In this context, it is relevant to consider the policy remedies that could propel the benefits of further digitalisation and limit the negative outcomes – as always a positive disposition to embrace change and upskill oneself remain the best ways to ride the wave rather than remain crushed under it. 11
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Corporate DispatchPro Isabelle Micallef Bonello
Technology – a silver lining of the Covid era The Covid-19 shock accelerated the adoption of technology across business sectors. The need to reach customers online necessitated company-wide adoption of new automated technology-enabled solutions. The need for social distancing, for example, changed corporate working methods accelerating the adoption of teleworking and, now, the rotation of workers at company’s offices. Applications in telemedicine started to take shape, and various other technology-enabled applications that have long been in the planning finally came to fruition.
As we emerge into the ‘new normal’, there is a consistent effort to adopt such practices for the long-term. GPs have set-up online platforms for medical advice, private hospitals have introduced new helplines, periodic medical assessment of patients moved online, as the medical sector tipped towards the adoption of ICT in a sector which so far had been shying away from the use of technology for the delivery of its service. Teleworking is, indeed, encouraged and unions representing employees are pushing for the adoption of a legal framework while the first case-studies of local companies who have permanently moved the majority of their operations remotely are emerging. The benefits of less commuting constantly feature in the media. In its continuous effort to boost Gozo’s economy the Government is offering salary reimbursement for employees who work remotely from Gozo while part of their equipment is also subsidized. As workers experience the added benefits of less commuting and a better work-life balance, the corporate world is being convinced that productivity levels are not affected by remoteness, and in some cases, it has been documented to actually increase. 13
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The pandemic has also illustrated the benefits of digital technologies based on big data such as artificial intelligence (AI) and cloud computing. The abrupt transition of delivery of business and non-commercial services was greatly facilitated through big data technologies, and organisations who were already using such technology in pre-pandemic past were in a position to shift the delivery of their operations with much greater ease than others, who were not part of the virtual data cloud. AI was crucial to analyse and monitor the pandemic, monitor the trajectory of the virus, treat patients, and allocate resources. The hard decisions taken by the health authorities where based on the continuous collection of data and its analysis on a local and international level. The analysis of data was two of the very few ‘comforts’ that health authorities relied upon daily when taking hard decisions to limit the country’s social, education and economic activities. Although the adoption of technology, including AI solutions, has lately been driven by an urgent need to limit the loss of revenue and ensure the continuity of business operations, the payback of using intelligent machine learning solutions have long been documented and championed by public authorities. Malta was one of the first EU countries to launch its AI strategy and, in the last two years, there has been a consistent effort to facilitate the adoption of such technology. Yet, like other disruptions, surveys among companies that have successfully integrated AI into their operations confirm that more than half the budgets where allocated to drive adoption, staff training, ensure clear communication flows and re-design workflows.
The abrupt transition of delivery of business and noncommercial services was greatly facilitated through big data technologies, and organisations who were already using such technology in pre-pandemic past were in a position to shift the delivery of their operations with much greater ease than others, who were not part of the virtual data cloud. 14
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AI must be adopted to the needs of the business, and executives heading the individual business units must feed the AI implementors on the type of data analysis needed that is of benefit to them. The underlying rule is of first understanding the need and then resorting to the mechanism which can help the organisation towards the solution. Like any other business decision, an AI investment should directly contribute to the strategic business goals integral to the company’s business plan. An important factor is to identify methods how the introduction of new intelligence in the company is not considered as detrimental to staff positions and career progression. As an AI implementation matures, it facilitates decision making, enabling employees to take decisions which previously where taken by levels above them. This leads to flatter organisations, increased empowerment, and an improved ability to analyse wider horizons and explore new opportunities. Similar to the exposure of the Internet since a young age resulting in a revolution of teaching and learning methodologies due to ‘sharper’ young generations; changes in workplace practices will host an AI generation that is better equipped to identify new opportunities and innovation, leading to higher valueadded activities. 15
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Corporate DispatchPro Laura Emma Grima
The impact of digitalisation on activism Digitalisation has altered our world in a multitude of ways, impacting various issues such as employment, communication, health, resources, and security. It is continuously changing the way we go about our day to day lives, which results in us gradually losing touch with our physical world.
The Internet has become a primary organising and mobilising tool for environmentalists all around the world, raising people’s consciousness about alternative ways of living, as well as building the political force to make it happen (Castells, 2001, p.280). It is providing a wide variety of tools and new opportunities for different movements and campaigns, which were not previously available. The digital world has become a platform where activists are able to forward their message to the general public and also become a place where activists can communicate with each other in real time. According to Eurostat, Malta has the second highest use of social media in the European Union, where more than 80 percent of the population aged between 16 and 74 are active on social media. Activists have taken advantage of the power of social media to gain more reach, by attracting more members, in the hopes to make significant changes. Activists are also found to be using social media platforms as technological tools of liberation, by devising creative hacks, to connect with like-minded people, mobilise masses, influence public opinion, push for social change, and ignite revolutions (Manal al Sharif, 2018). Awareness for the environment is becoming more of a trending topic, raising more concerns within people. Digitalisation has 17
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Corporate DispatchPro increased awareness, namely about the environment and in turn, influenced several organizations and the online society to be more active towards environmental causes. Rather than sticking to the traditional forms of activism, digitalisation has given anyone the opportunity to be active in all forms, through online platforms. Everyone, in one way or another is connected to the digital world. It has become almost unavoidable. The internet has been able to help us create an infinite opportunity for any individuals to share and express whatever they truly wish. It has allowed the voiceless to voice opinion, create, share, and demonstrate. This is supported throughout the rise of a number of social media platforms which brought about an increase is social movements. Activism of this sort has allowed any individual or organisation to propose change. There is no doubt that the Internet has changed the ways and conditions of activism. Over the past 30 years it has been recognised that activism online has become quite common for political participation, as it is able to bring people together, share information amongst a wide audience and mobilise crowds to express their feelings. This type of activism is important not only for one’s sense of identity and belonging but also for the ability to have one’s voice heard. This empowers participants by signifying that their statements are considered important enough to be broadcasted (Bailey, Cammaerts, & Carpentier, 2008). Digitalisation has impacted the way awareness and knowledge, regarding the upkeep of our environment, is being spread on social media; however, when it comes to physical activity, there is a significant lack of participation. This brings about the term ‘slacktivism’. Slacktivism deals with activist measures that have little or no purpose through sharing of social media posts and internet petitions as such. In turn the average person does not contribute to any tangible external change. This becomes a method for those who would not actively participate in meaningful change to at least feel like they are contributing to something. It may have a small or so tiny a contribution that it is almost insignificant, but for many people, talking about something is the first step forward toward taking meaningful action. 19
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Corporate DispatchPro Quoting the U.S. National Intelligence Council’s Global Trends Report, “the most powerful actors of the future will be states, groups and individuals who can leverage material capabilities, relationships and information in a more rapid, integrated and adaptive mode than in generations past. They will use material capabilities to create, influence and in some instances, to secure and deny outcomes. They will demonstrate “power in outcome” however, by mobilizing large-scale constituencies of support, using information to persuade or manipulate societies and states to their causes”. What we see here is an increased opportunity of action being taken in favour of the environment, but it is not enough. The idea that sharing such information or creating communities across social media should not be seen as futile, but that it takes more than likes and shares to create change in the world.
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Corporate DispatchPro Tonio Galea
Hacking at the global order A fire that broke out recently at an important Iran nuclear plant is risking spreading into a major hacking conflict. Some Iranian foreign officials were quick to say that the incident, which caused significant damage and dealt a blow to the nation’s development of advanced centrifuge, was caused by a cyberattack.
Attacks of this type are not unusual, and Iran had again been the victim of the most well-known cyberattack: Stuxnet. In 2010, the malicious computer worm, destroyed numerous centrifuges in Iran’s Natanz uranium enrichment facility causing them to burn themselves out. The latest blaze also occurred in Nantz and the news from Iran has drawn comparisons with the original Stuxnet attack a decade ago. Indications now are that Iran may respond to the attack in cyberspace, where it faces a comparatively level playing field compared with conventional military conflict. Recent unconfirmed reports, in fact, suggest that Iran hacked Israel’s water infrastructure. On the other hand, quoted Western security officials have played down the incident as a result of a cyberattack and expressed doubts on the Iranian capabilities to mount and sustain an effective cyber retaliation. Cyberattacks are relatively common, but they only get the media’s attention when the victim divulges the information. In mid-June, for example, the Australian government announced that it was under sustained cyberattack and that Australian businesses and governments were also being widely targeted. 23
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Corporate DispatchPro A government statement described the attack as “state-sponsored”, which means a foreign government is believed to be behind it, but refrained from going into the specifics. This was interpreted as a coded reference to China, which the Australian government reportedly suspects of orchestrating this and other attacks. In Australia’s case the attack was described as a ‘remote code execution’ – a common type of cyberattack in which an attacker attempts to insert their own software codes into a vulnerable system such as a server or database. The attackers would not only try to steal information but also attempt to run malicious codes that could damage or disable the hit systems. In all cases, experts agree that the latest round of cyberattacks are likely the result of previous “reconnaissance attacks”, which reveal existing vulnerabilities in targeted networks. The coronavirus pandemic was no respite for such attacks; indeed, it was very much business as usual. In the midst of escalating tensions between China and India over a border dispute in the Galwan Valley in June, Indian government agencies and banks reported being targeted by DDoS attacks reportedly originating in China. But cyberwars are not only waged between governments. International bodies, national institutions and businesses are now a common target, too. In fact, since the start of the COVID-19 pandemic, WHO has seen a dramatic increase in the number of cyberattacks directed at its staff in addition to email scams targeting the public at large. Various other international agencies were also targeted.
A government statement described the attack as “state-sponsored”, which means a foreign government is believed to be behind it, but refrained from going into the specifics. 25
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Only in June, car manufacturer Honda has said it was dealing with a cyberattack that was impacting its operations around the world. Cyber-security experts have said it looked like a ransomware attack, which means that hackers might have encrypted data or locked Honda out of some of its own IT systems. In this case, the most likely perpetrators were criminal. It is not known how the criminals infiltrated Honda’s computer systems, but research suggests that ransomware attacks are on the rise with hackers using Covid-19 related lures to trick victims into downloading booby-trapped documents and files. Still in June, Suspected North Korean hackers compromised at least two defence firms in Central Europe by sending false job offers to their employees while posing as representatives from major U.S. defence contractors. 26
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In the U.S., President Trump signed an executive order to protect the power grid from hackers, but experts warn that the 2020 campaign has already suffered cyberattacks. Elections large and small are looming in the United States in an increasingly work-from-home and social-distancing environment which has forced many campaigns to conduct their day-to-day operations remotely. That has created a perfect opportunity for bad actors online, experts warn, and it could pose an unprecedented threat to the integrity of the U.S. elections. The predictions are that the more the U.S. move towards the November election, cyber incidents are likely to increase, because the closer a country is to an election the more disruptive an incident can be and the less opportunity there is to respond and recover. Another major vulnerability is ransomware targeting the Internet of Things (IoT). Researchers have been detailing security flaws in IoT devices for years and multiple consumer products have been recalled due to critical security issues. Last year, ransomware attacks targeted individual machines in hospitals and local governments especially in the United States, which led to whole cities being taken offline. Predictions are that these tactics will expand beyond targeting specific machines to hold data for ransom, with attackers expanding the ransomware model to target larger groups of IoT devices, such as medical devices or focus on other systems like traffic control. Many countries, and China in particular, are fast developing into cyber threats trained directly towards the West. Although growing military capabilities are sometimes a factor, tensions continue to rise because, in economic and technical terms, powers have become peer competitors of the United States in today’s globalised world. 27
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Corporate DispatchPro CI Consulta
Fitch Ratings expects unemployment in Malta to double in 2020 Fitch Ratings is forecasting unemployment in Malta to double throughout 2020 as a result of the coronavirus pandemic. In its July report on Malta, in which it re-affirmed Malta’s rating at A+ with a stable outlook, Fitch said that despite the government’s fiscal measures to support the economy, it expects registered unemployment rate to increase to 7.1% in 2020, from 3.4% in 2019. The report notes that the large share of foreign labour in the workforce supports the flexibility of the labour market and the expected outflow of foreign labour could help lower the unemployment rate through the crisis, but would have a further negative effect on private consumption. Key rating indicators Fitch said that Malta’s A+ rating was a result of high income per capita, euro area membership and large net external creditor position, countered by its large banking sector, relatively high government contingent liabilities and vulnerability to shocks due to its small, open economy, and reliance on tourism. Malta outperforms the ‘A’ median on the World Bank governance indicators, although its scores on the ‘Voice and Accountability’ and ‘Control of Corruption’ subcomponents have been slipping in recent years. 29
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Malta’s medium-term potential growth remains strong and well above the eurozone average, at 3.0%-3.5%. Fitch forecasts growth to rebound to 4.1% in 2021, before easing to 3.6% in 2022. Fitch estimates the general government balance will deteriorate to a deficit of 9.2% of GDP in 2020 (8.2% in April’s review), from a surplus of 0.5% in 2019, based on the operation of automatic stabilisers and the direct budget impact of government measures. In the same report, Fitch affirmed Bank of Valletta’s Long-Term at ‘BBB’ with a Negative Outlook on 27 April 2020. We believe financial soundness indicators are strong, with a high common equity Tier 1 ratio of 17.5% at end-2019 for core domestic banks, and provide a buffer to the financial system in the event of a sharper GDP contraction than forecast.
Property prices increase at a slower rate in Q1 The Property Price Index rose by 5.6 percent in the first quarter of 2020 compared with the same period last year, but the increase was the lowest recorded since the third quarter of 2018. Data by the National Statistics Office indicates a gradual narrowing in the increase every quarter since Q1 2019, when prices jumped by 6.5 percent over the previous quarter.
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Corporate DispatchPro Prices for maisonettes grew by 6.2 percent compared with the first quarter last year, when the category registered an increase of 3.6 percent. The Index for apartments, on the other hand, witnessed a smaller rise of 5.7 percent year-on-year after they soared by 7.3 percent in Q1 2019. Terraced houses are reflected in the Property Price Index aggregate, but specific indices are not published because of the lower number of transactions per quarter. Across the EU, house prices saw a rise of 5.5 percent between Q1 2019 and Q1 2020. The highest annual increases occurred in Luxembourg (14%), Slovakia (13%), and Estonia (11.5%) while only Hungary witnessed a decrease (1.2%). Compared with the previous quarter, however, Malta was one of four EU members to register a decline in property prices and, at -4.3 percent, it was the biggest drop among them.
Population grows despite fewer births in 2019 The population in Malta increased by four percent in 2019 to reach 514,564 by the end of the year. Figures by the National Statistics Office show that this is the first time that the population surpassed the half a million mark. People under the age of 18 account to 16 percent of the total, but resident live births decreased by two percent from the previous year. There were approximately nine birth for every 1,000 residents in 2019, reducing the average fertility rate to 1.14 from 1.42 ten years ago. Meanwhile, the average life expectancy for those born in 2019 stood was 83 years, up from 81 a decade ago. Migration was a main contributor to population increase, with 20,343 new persons taking up residence in Malta during 2019. Six in every ten migrants were Third Country Nationals, with EU nationals making almost 7,500 of new arrivals.
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Corporate DispatchPro Fall in domestic tourism in 2019 There were 237,237 domestic tourists in 2019, a drop pf 3.4 percent compared with the previous year according to figures by the National Statistics Office. More than nine in ten domestic tourists travelled from Malta to Gozo and Maltese residents accounted to 54 percent of all tourism to the Gozo region during 2019. At the same time, however, domestic tourism by Malta residents to Gozo registered a decrease of 5.2 percent from 2018. In contrast, domestic tourists travelling the other way increased by nearly 20 percent in the same period, totalling just under 22,000 visitors. More than two-fifths of domestic tourists were in the 25-44 age bracket while those aged 45-64 formed the second-biggest group: over a quarter of the total. Nevertheless, the number of visitors in both age groups registered a decline from the year before, with a decrease of 7.3 percent among those aged 25-44 and 7.6 percent among those aged 45-64. On the other hand, domestic tourism among those aged 15-24 grew by 7.6 percent and by 7.1 percent among those aged 65 and over.
Industrial production up from lowest index in a year The Index of Industrial Production in May registered rose by of 2.9 percent, the first increase in four months. Data by the National Statistics Office shows that the total production index stood at 99.2, up from 96.4 in April – the lowest month for a year. The gain in May was driven by a 7.5 percent growth in the consumer goods index. Production of capital goods also registered an increase of 2.3 percent, but intermediate goods and energy fell by 2.4 percent and 0.1 percent, respectively. Compared with May 2019, the Industrial Production Index decreased by 4.5 percent, with the biggest decline observed in capital goods (-15.0%) and intermediate goods (-8.7%). Energy fell by 0.5 percent while production of consumer goods was the only index to see an increase (+1.6%). 33
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Corporate DispatchPro Q1 registers largest deficit for five years Total government revenue decreased by €193.6 million in the first quarter this year while expenditure increased by €99.5 million compared with the same period in 2019. Figures by the National Statistics Office show that General Government expenditure between January and March amounted to €1,286.6 million while income totalled €949.9 million, resulting in a €336, 668 million deficit. In comparison, the first quarter in 2019 closed at a deficit of slightly over €43,500 million. The biggest quarterly deficit in the five years until now was experienced in Q1 2015, registering a negative balance of nearly €152,500. In relation to the previous quarter, General Government saw a decrease in revenue from all sectors except Property Income receivables, which rose from €9,853 million in Q4 2019 to €25,138 in the first three months this year. The sharpest drop was witnessed in Market Output which shrank by 55 percent from the last quarter of last year to reach €74,566 million in Q1 2020. The biggest decrease of revenue in absolute terms was registered in Current Taxes on Income and Wealth, which dipped by more than €228 million in the last quarter from €500 million in Q4 2019. Meanwhile, government expenditure also decreased from the last three months of 2019, when it stood at €1,366, 898. The main increases in expenditure were registered in Social Benefits, Subsidies, Compensation of Employees, and Current Taxes which contributed to a total of €1,286,569 in the first quarter this year.
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Corporate DispatchPro keith zahra
CommuniqEU
Health As part of the EU’s efforts to hasten the availability of a vaccine against the novel coronavirus, the European Parliament has adopted a regulation allowing such vaccines and treatments be developed more quickly. Developing and deploying an effective and safe vaccine against the virus is the most likely permanent solution to stop the pandemic. To this end, the Commission has proposed an EU vaccines strategy for the pandemic including a temporary and strictly Covid-related derogation from certain rules for clinical trials. Clinical trials for Covid-19 vaccines are a time-consuming step before authorisation, as they need to be carried out in several member states to ensure that the populations for which the vaccines are intended are represented and in order to generate robust and conclusive data. The derogation will facilitate the development, authorisation and consequently availability of Covid-19 vaccines and treatments. In their debate last week, members of the Committee on the Environment, Public Health and Food Safety agreed to adapt the current rules but stressed that standards for vaccine quality, safety and efficacy must be maintained.
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Corporate DispatchPro keith zahra
CommuniqEU
Financial Services The EU continued with its efforts to reform the Capital Markets Union with a new report presented by its Chair, Thomas Wieser. This report sets out 17 recommendations aimed at removing the biggest barriers in the EU’s capital markets and increase European capital markets’ competitiveness.
During the latest video conference of economics and finance ministers, EU Member States exchanged views on the priorities to bring the CMU forward, in particular with a view to overcoming the economic consequences of the Covid-19 crisis and to creating solid EU-based alternatives for capital markets after Brexit. This discussion will feed into the preparations of a new Commission CMU action plan, which is expected to be published by the end of the year. Strengthening the Capital Markets Union will be among the top priorities of the German Presidency in the economic field. Wieser explained that capital markets have a crucial role to play in the post-Covid recovery, to provide additional funding sources for EU companies and to facilitate the green and digital transformations. The Commission set a goal to agree on a common approach to priorities for the EU Council, looking to further strengthen the initiative by the end of the year.
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Corporate DispatchPro keith zahra
CommuniqEU
Anti-Money Laundering Interconnected registers of beneficial owners, a preventive blacklisting policy and effective sanctions are among tools proposed by MEPs to stop money laundering.
MEPs want the Commission to address the persisting lack of quality data to identify ultimate beneficial owners by setting up interconnected and high-quality registers in the EU with high standards of data protection. They also want to widen the scope of supervised entities to include new and disruptive market sectors such as crypto-assets. Finally, MEPs reiterate that non-cooperative jurisdictions and highrisk third countries must be immediately blacklisted, while creating clear benchmarks and cooperating with those undertaking reforms. MEPs also called for the mutual recognition of freezing and confiscation orders to be enforced. This would make criminal assets easier to recover across borders and enable swift cross-border cooperation. In addition, they want the European Central Bank to be able to withdraw the licences of any banks operating in the euro area that breach AML/CTF obligations, independently of the assessment of national AML authorities.
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Corporate DispatchPro keith zahra
CommuniqEU
German Presidency German Chancellor Angela Merkel highlighted Germany’s priorities as it assumed the Presidency of the Council of the European Union, putting on top of the agenda a swift agreement on the European Union’s mass economic stimulus to advance unity that would strengthen the bloc as it recovers from the coronavirus crisis.
Merkel presented the priorities to MEPs in Brussels during a plenary session, during which she called the pandemic the biggest challenge ever for the EU, as the euro zone economy is set to shed a record 8.7 percent this year. “Europe will emerge from the crisis stronger than ever if we strengthen cohesion and solidarity,” she added. Merkel underlined the need for solidarity across the 27-nation EU, which has been tested in recent months as governments acted alone to secure medical kits or tighten their borders. Merkel indicated five areas that Europe needs to work on if it wants to emerge unified and strong from the current crisis: fundamental rights, solidarity and cohesion, climate change, digitisation, and Europe’s role in the world. She pointed out that “Germany is prepared to show extraordinary solidarity” to build a Europe that is green, innovative, sustainable, more digital, and competitive. “Europe is capable of achieving great things if we work together and stand together in solidarity”, concluded the German Chancellor.
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Corporate DispatchPro Gina Chon via Reuters Breakingviews
China can turn the other cheek, for now Turning the other cheek takes fortitude, but that’s what China could do in response to the U.S. government’s latest actions. It slapped sanctions on Chinese officials for abuses of Muslim Uighurs, escalating tensions between the two global giants. Beijing may want to drop a trade deal as punishment, but Chinese President Xi Jinping will want threats in his back pocket following the November election.
The White House move to go after a high-ranking official brings relations to a new low. The Treasury Department said on Thursday that the head of the communist party in Xinjiang province, where Uighurs are being detained, is among those subject to U.S. asset freezes. Americans are also barred from doing business with sanctioned individuals and entities. Tensions were already high with China, which Trump has blamed for its handling of the Covid-19 outbreak. The State Department announced visa restrictions in relation to a new Hong Kong security law and Beijing retaliated. Other U.S. sanctions may be in the works. Yet the so-called Phase One trade deal with the People’s Republic has remained intact. In January, China pledged to buy an additional $200 billion worth of American goods and services over two years. Investors have been watching for any signs it may fall apart. Xi could threaten to pull this deal, but it’s more useful to wait until after the U.S. presidential race. Xi said in 2018 that China would punch back instead of turn the other cheek in response to trade tensions. Yet he doesn’t know if he will be squaring off against Trump or former Vice President Joe Biden, the presumptive Democratic nominee, in 2021. 45
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Corporate DispatchPro The two candidates are trying to outdo each other in their toughness on China. Biden is more aggressive when it comes to human rights abuses and has said Beijing should be punished for the Hong Kong crackdown. He’s not transactional, per se, but that makes it harder to find compromises. Trump could keep on China critics like economic adviser Peter Navarro if he wins another term, plus bashing the country caters to his base. He also won’t have to worry about re-election, which could lead to stricter moves on the mainland that would hurt markets. Xi’s punches will land better if they are delayed.
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Corporate DispatchPro George Hay via Reuters Breakingviews
UK tests financial limits of green transition Britain’s transition to a zero-carbon future is experiencing growing pains. National energy regulator Ofgem said on Thursday it was halving the returns it would allow energy companies to make from operating gas and electricity infrastructure up to 2026. Its stance is understandable, but problematic.
UK energy transmission and gas distribution companies, which include publicly listed heavyweights like $40 billion National Grid and overseas entities owned by Canadian pension funds and Hong Kong tycoon Li Ka-shing, were expecting a slap. Charges for using gas and electricity networks make up a quarter of UK consumers’ utility bills. Moreover, the National Audit Office said in January that the 9% annual return on equity that Ofgem had previously allowed operators of regulated electricity assets to earn was too high. The decline in long-term interest rates as a result of Covid-19 makes it even harder to defend. Even so, Ofgem’s proposal is tough. The regulator wants to limit the return on equity for a notional company with debt equivalent to 60% of its assets to 3.95% a year – significantly lower than the 4.8% the industry had expected. At the same time, Ofgem issued fuzzy guidance on how much operators can invest. It wants to cut the 24 billion pounds companies have requested for capital and operating expenditure but said they may get permission to raise a separate 10 billion pounds. It’s not totally clear how much of either pot is for maintaining the existing networks, and how much is for upgrading infrastructure to cope with increased electricity demand in a world where cars are no longer powered by fossil fuels. 49
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Corporate DispatchPro At the same time, Ofgem issued fuzzy guidance on how much operators can invest. It wants to cut the 24 billion pounds companies have requested for capital and operating expenditure but said they may get permission to raise a separate 10 billion pounds.
The United Kingdom has other ways to meet its legal requirement to cut net carbon emissions to zero by 2050. The government could finance the overhaul of power networks itself or allow private sector companies to recoup the cost through higher customer bills. But Britain’s sovereign debt is already spiking and politicians are wary of lumbering customers with too much of the cost of the energy transition. Transferring the risk to the private sector fits with the British government’s preferred self-image as a magnet for sovereign wealth and private equity funds. Even so, at some point politicians and regulators may have to consider the risk that those capital providers can find more attractive investments elsewhere.
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Corporate DispatchPro George Hay via Reuters Breakingviews
OPEC maintains illusion of control over oil price OPEC is sticking to its word, even if that word is worth less than it was. The oil producer group and allies like Russia, collectively known as OPEC+, on Wednesday vowed to raise crude output in August, partly reversing earlier cuts that reduced global supply by 10%. The cartel’s ideal scenario of more oil and higher prices might be within sight.
Covid-19 knocked daily demand in what is usually a 100 millionbarrel-a-day market to only 82 million barrels during the second quarter, Morgan Stanley reckons. In that light, the Organization of the Petroleum Exporting Countries’ de facto head Saudi Arabia has done a creditable job. OPEC+ said in April that it would cut daily supply by 9.7 million barrels, then add back around 40% of that by the year end, in stages. Wednesday’s pledge is one of those stages, albeit delayed by a month. In the current haywire environment, doing something like what was promised counts as a win. Further burnishing its leadership credentials, Saudi has convinced refuseniks like Angola, Nigeria and Iraq to belatedly undertake cuts they welshed on over the past couple of months. Over the next few months, oil supply will end up around 8.5 million barrels a day less than it was in May. If the global economy can steadily recover for the rest of the year, Saudi should come out as a winner. With demand once again outstripping supply, a global glut of spare oil that neared 5 billion barrels in May would continue falling back to a five-year average of around 4.2 billion barrels. That in turn would encourage oil prices hovering around $40 a barrel to move higher.
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OPEC+ said in April that it would cut daily supply by 9.7 million barrels, then add back around 40% of that by the year end, in stages. Wednesday’s pledge is one of those stages, albeit delayed by a month. OPEC has two problems. A second wave of coronavirus would reverse the recovery in oil consumption, and require fresh cuts. And even if not, price rises are likely to remain pretty modest. Shale production in the United States is effectively economic again, and with petrostate budgets in a mess, OPEC+ members will be straining to pump what they like. Higher prices encourage more supply, a law even Saudi can’t bend to its will.
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Corporate DispatchPro Aimee Donnellan via Reuters Breakingviews
Apple tax win flags EU problem of enemies within The victor of a battle can still end up losing the war. But Apple’s win in a legal case over $15 billion of back taxes that the European Commission ordered the tech giant to pay to Ireland flags the problems that Europe’s antitrust chief, Margrethe Vestager, faces in a bigger fight over corporate tax reform. The European Union’s second-highest court on Wednesday rejected the commission’s order. It said that the EU executive did not clear the legal bar required to show that Apple had benefited from illegal state aid via two Irish tax rulings that artificially reduced its tax burden for over two decades – to as low as 0.005% in 2014. Vestager has yet to decide whether to appeal the ruling, but there was a lot riding on this case, especially because Ireland was fighting at Apple’s side and against her. The alliance between the company and the country may seem odd given the coronavirus pandemic has blown a gaping hole in Ireland’s finances. The budget deficit is expected to soar to as much as 30 billion euros, or 10% of GDP, this year. But Ireland’s 12.5% corporate tax rate is a draw for foreign companies like Apple, Facebook and Twitter. They employ one in 10 people in the country, often in high-paid jobs that have so far proved more resilient to the crisis. The side that Dublin picked shows that low-tax EU countries will be loath to jeopardise employment and their long-term appeal to foreign companies. This means that Vestager will face stiff internal resistance from within the EU to any attempt to impose a region-wide digital tax, as well as fierce pushback from U.S. President Donald Trump’s administration. Washington last month suggested a pause in the Organisation for Economic Cooperation and Development talks to reach a global accord on taxing digital services. While an EU-level proposal would allow European countries to push ahead regardless, Ireland may make even a regional accord difficult to achieve. With allies likes these, Apple and other tech giants have a hope of winning the war as well as the battle.
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Corporate DispatchPro Gina Chon via Reuters Breakingviews
Twitter hack is a nightmare not just for Twitter SAN FRANCISCO, July 15 (Reuters Breakingviews) - A hack of prominent Twitter accounts is a nightmare for more than just the social network itself. Fake tweets soliciting digital currency on Wednesday from figures like Tesla Chief Executive Elon Musk and U.S. presidential candidate Joe Biden mean Twitter’s cybersecurity costs will rise. But if that’s all that happens, founder Jack Dorsey can count himself lucky. Posts on the social network have the potential to move markets, or worse. The intrusion was severe enough that Twitter locked down so-called verified accounts – its label for those owned by high-profile people. Microsoft co-founder Bill Gates, former President Barack Obama and Amazon’s Jeff Bezos were among those that had appeared to solicit bitcoins from other users – saying that whatever was given would be doubled by them and returned. It sent Twitter’s stock down by almost 4% in after-market trading. For investors in tech companies, a major hacking incident usually means one thing: higher costs. Twitter’s expenses already rose nearly 20% in the first quarter of the year, resulting in an operating loss of $7 million compared to a profit of $94 million a year earlier. Ideally, that’s offset by a reduced risk of future embarrassing events. The scam, though, could have been worse. Tweets from business leaders can move markets. Then there’s President Donald Trump, who uses the platform to announce new policies – and communicate with, or about, other world leaders. It’s not hard to see how a fake tweet could send markets reeling, or even pose a national security risk. So what can be done? Users with public profiles could start behaving differently online, even if Trump doesn’t. The company, like other social media networks, benefits from having highly active 59
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celebrity users, and Covid-19 has actually proved good for business. Twitter’s average monetizable daily active users hit 166 million in the first quarter, an almost 25% increase. Fewer prominent tweeters could impact that trend, and hurt ad revenue. And if users don’t proceed with caution, regulators could also step in. Expect law enforcement agencies, and Congress, to want to know more about Twitter’s security processes. The social network could even emerge stronger for the scrutiny. The world, as well as the company’s investors, should hope it does.
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