Financial Mirror 2016 01 20

FinancialMirror OREN LAURENT

JEFFREY FRANKEL

Are equity markets about to bottom out? PAGE 14

China’s stock market red-herring PAGE 16

Issue No. 1169 €1.00 January 20 - 26, 2016

ENI-Kogas wins extension as BG joins Noble in ‘12’ GAS EXPORT PROSPECTS IMPROVE WITH 2020 AS TARGET

Iran ‘opens a new chapter’ as EU-western sanctions are lifted SEE PAGES 6 - 7

PAGE 3

January 20 - 26, 2016

2 | OPINION | financialmirror.com

FinancialMirror A golden opportunity to re-establish ties with Iran Published every Wednesday by Financial Mirror Ltd. www.financialmirror.com

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The landmark deal reached between Iran and the E3+3 group, and the subsequent lifting of economic sanctions on Iran, may be very good news for Cyprus as all along, the Americans had been pressuring the government not to be generous with residency permits to Iranian property investors and holidaymakers on the island.

Sanctions had also prevented construction giants from bidding for projects in Iran, either for social housing or larger scale ventures such as infrastructure in the energy sector, where Cypriot companies have an enviable track record in northern Africa and in the Gulf. Shipping, too, was not “encouraged” by our western friends, for fear that the Cyprus flag could be used to harbour sanction busters, transport arms and ultimately help finance terror groups such as Hezbollah.

Even Israel, that has been hesitantly warming to Cyprus by supporting investments in the energy sector (oil and gas, electricity cable, etc.), prefers to rekindle its somewhat tense relations with Turkey, as its sees Ankara as a more reliable partner in keeping a military balance on its doorstep in Syria and the region.

This cautionary stance by what should have been

a very close friend, with brotherly even relations, and embracing its former adversary (who has always remained a military ally), could allow Cyprus to explore its relations with Iran once more. This is not to say that we should antagonise Israel, but there is no doubt that Tehran is currently deploying a diplomatic effort of its own in an attempt to challenge the likes of Saudi Arabia and Qatar as dominant forces in the Islamic world.

If peace is reached in Syria, highly unlikely any time soon, Iran will probably be a key player both before and after any deal, ultimately extending its influence even within Lebanon, where it has a proxy representation. Iran also has a say in Lebanon’s oil and gas exploration and licensing deals, where Cyprus has a vested interest due to the proximity of potential deposits, as has been evident from the case with Egypt.

Now is the time for Cyprus to play its role – no matter how insignificant on a global scale – and maintain good relations with Tehran, for the simple reason that we do not want to have Iran in opposing camps, simply because we felt an obligation to our western and EU partners. After all, it is those nations that were first to rush in by encouraging trade deals and sale of goods and technology.

Picking up some of the crumbs, to boost our tourism, property, shipping and services sector will not harm anyone.

THE FINANCIAL MIRROR THIS WEEK 10 YEARS AGO

No avian flu, bond market decision in early 2006 President Papadopoulos said that there was no need to panic from a bird flu epidemic in Turkey which is also affecting tourism in that country, while a decision will be taken for a secondary bond market, according to the Financial Mirror issue 654, on January 18, 2006.

Bird flu: President Tassos Papadopoulos said that all preventive measures were taken to contain any spread of the avian influenza (bird flu) from Turkey and the occupied areas in the north, as the UN have been communicating with the Turkish Cypriot

vet services. Meanwhile, Trade and Tourism Minister Yiorgos Lillykas said that there was a growing interest from foreign football teams to train in Cyprus during winter as they cancelled their stay in Turkey for fear of the bird flu.

Bond market: Finance Minister Michalis Sarris said that a decision about a secondary bond market was expected in early 2006, which will raise liquidity both for the government as issuer and for traders. But the Stock

Exchange, the Securities Commission and the Central Bank are locked in a quarrel over who will regulate the market.

Dual pricing: The government is gearing up for the introduction of the euro in January 2008 with stakeholders, business and consumer groups preparing the public by encouraging dual pricing and keeping a check on unwarranted price hikes.

Supermarkets close: The 200 members of the supermarkets association will remain closed on Thursday to protest the government’s inability to introduce legislation that would allow longer shopping hours on Wednesday and Saturday afternoons.

Gambling rise: Cypriots spent CYP 11.6 mln in casinos and gambling house around the world using their credit cards, but only CYP 1.35 mln in the north.

The UK attracted most gamblers who bet CYP 6.7 mln.

new import tariffs on consumer goods, particularly dairy and meat products which new EU member Austria wants to increase.

Barclays denial: Barclays Bank denied rumours it was shutting its offshore OBU unit and moving it to Lebanon or Malta, saying that as it based most of its business from the offshore community on the island it would make

sense to move to another jurisdiction.

Nissan lead: New car sales stabilized in the nine month period to September with Nissan ahead of Mitsubishi in the saloon division, followed by Toyota, Opel/Vauxhall and VW. KEVE bombshell: The Chamber of Commerce (KEVE) that hosts the over-the-counter stock market dropped a bombshell by demanding brokers pay a 1% fee on their daily turnover as trades reached record daily volume of CYP 2.36 mln. Brokers normally pay CYP 1,000 a year and public companies 50,000.

And candidates for the PASOK leadership after Andreas Papandreou quit include Yerasimos Arsenis and Akis Tsohatzopoulos (remember him?).

20 YEARS AGO

Austria sues over GATT, Barclays denies rumours Austria plans to sue Cyprus over violations of free trade rules and slapping import duties on consumer goods and foodstuff just after the GATT accord was signed, while in the banking sector Barclays denied rumours the OBU was abandoning the island, according to the Financial Mirror issue 145, on January 17, 1996.

GATT wars: Soon after Cyprus reluctantly signed the GATT accord for free trade, Austria is expected to take legal action after the island slapped

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January 20 - 26, 2016

financialmirror.com | CYPRUS | 3

ENI-Kogas gets 2-year extension Green light for BG opens export prospects from Aphrodite The ENI-Kogas consortium has been granted a two-year extension to its exploration license in Blocks 2, 3 and 9 of the Cyprus Exclusive Economic Zone (EEZ), as its current permit expired on January 23.

The joint venture was close to abandoning its plans after two unsuccessful exploration drills but had a change of heart after the recent discovery of the vast deposits estimated at 30 trillion cubic feet at the Zohr gasfield within the Shorouk concession of the northern Egyptian EEZ which is expected to come on stream in 2020. The discovery by ENI is almost ten times the estimated deposits in the Aphrodite gasfield in Block 12, the only concession with proven deposits in the Cyprus EEZ. According to the Ministry of Energy, the ENI-Kogas consortium will conclude studies within the next two years aiming at better evaluating and recalibrating the geological model of the region, in order to identify prospects necessary to complete its drilling obligations.”

“This development is especially important, as it reaffirms and advances Cyprus’ energy prospects during a period in which the international oil and gas industry is experiencing challenging conditions,” the MoE announcement said.

Energy Minister Yiorgos Lakkotrypis was quoted as saying last month that the Italian-South Korean joint venture had asked for more time in order to “re-assess the energy potential”.

According to a preliminary plan shown to the government a few months ago, the consortium would place their next drill around mid-2017 depending on its re-evaluation of its geologic model.

Meanwhile, a proposal tabled to the Cabinet by Lakkotrypis for the participation of British Gas Group in the Block 12 concession has been approved.

According to the proposal, US-based Noble Energy will continue to be the main operator in the block with a share of 35%, while BG will acquire 35% from the American company and the Israeli group Delek will retain the remaining 30% through its Delek Drilling (15%) and Avner Oil (15%) subsidiaries. The total cash consideration for the deal was $165 mln.

In a statements after the Cabinet meeting on Monday, Lakkotrypis said that in the coming days certain conditions put before the ministerial body will have to be implemented in order to go ahead with the final signature of the deal.

He said there are procedural matters, such as the government receiving letters of acceptance on the part of the companies and letters of guarantee for activities to be undertaken.

According to Lakkotrypis this is a very important development because it strengthens the joint venture of Block 12 in view of the commercial exploitation of the Aphrodite reserves.

Once the deal is sealed, British Gas will be expected to offer its own comments on how to speed up planning and even on how to save resources, he noted He said that the British company has also expressed interest in the Cyprus EEZ but has not specified yet for which particular block.

Lakkotrypis added that since BG is also a possible buyer of natural gas it will be able to speed up processes since it will be able to use the liquefaction terminal at Idku in Egypt which it manages and co-owns.

He told reporters that as planning stands today 2020 will be the year for development and production of natural gas from Cyprus offshore fields.

Block 12 contains the Aphrodite gas field estimated to hold a gross mean resource of 4.5 trillion cubic feet of natural gas. Announcing the transaction on November 23, Minister of Energy Yiorgos Lakkotrypis said this a “was very significant development which shows the increased confidence in Cyprus’ EEZ and its prospects, from a company with huge technical and commercial-economic potential.”

“This upstream position provides a potential source of gas to Egypt where BG Group holds equity in the two-train LNG export facility at Idku as well as LNG offtake rights to lift 3.6 mtpa,” BG said in a statement announcing the transaction.

Cyprus is in talks with the stakeholders in the two LNG terminals in Egypt – Idku and Damietta. Cypriot gas piped to the terminals would be primarily destined for re-export to Europe.

As global oil prices continue to slide, Lakkotrypis said, and as companies cut back on costs and disengage from projects, “certainly it is a very positive development for Aphrodite that such a large company is joining the consortium, aligning interests across the chain, while their interest in the EEZ is highly encouraging.”

Asked whether falling oil prices affect Cyprus’ plans, the minister said they did.

“It is one thing to make plans based on price X, and quite another to subsequently plan based on a price that is onethird of that.”

Previously, the Cyprus Mail quoted energy expert Charles Ellinas as saying that Noble, though farming out a part of Aphrodite on the cheap, had improved its cash-flow position, following disappointing results in 2015 in its North America shale oil and gas operations.

January 20 - 26, 2016

4 | COMMENT | financialmirror.com

Cyprus-Lebanon forum to explore trade and investment opportunities A Cyprus-Lebanon forum will be held in Limassol next month where industrialists, entrepreneurs and businessmen from both countries will demonstrate their products and services.

The Cyprus-Lebanese Trade Association, under the umbrella of the Cyprus Chamber of Commerce and Industry, said that a total of 100-150 companies from Lebanon and Arab countries have shown a great interest in investing in Cyprus, mainly due to the political developments in the region.

Some of these companies taking part in the forum on 1921 February have already been cooperating with Cyprus industrialists and businessmen but the political turmoil has made it even more urgent for them to seek a safe place for business and for a second residence.

Association President Antonis Hadjiroussos said that the forum seeks to attract a large number of Lebanese and Arab

Building permits up in October Building permits were up in October, in number, total area and value, according to data from the Statistical Service Cystat.

The number of building permits authorised by the municipal authorities and the district administration offices in October were 467.

The total value of these permits reached EUR 81.9 mln, up 10.5%, and the total area 76,800 square metres, up 9.6% compared to October 2014.

These building permits allow for the construction of 290 dwellings. Building permits granted in October 2014 allowed for the construction of 271 dwellings.

During the January–October period, a total of 4,160 building permits were issued compared to 4,180 in the corresponding period of the previous year.

The total value of these permits was up by 18.3% and the total area by 14.2%. ∆he number of dwelling units also recorded an increase of 14.2%.

Building permits constitute a leading indicator of future activity in the construction sector.

The number of building permits issued in the January – October period in Nicosia and Famagusta Districts was up while it fell in the Limassol, Paphos and Larnaca District, Cystat said..

CSE to seek other resources The Cyprus Stock Exchange (CSE) aims to reach agreements with other bourses to compensate for the loss of revenue due to the lack of liquidity in Cyprus and the economic crisis in Greece.

Briefing members of the House Committee on Finances about the CSE’s budget, Director General Nontas Metaxas said that the economic crisis in Greece had a negative impact on the Exchange’s revenue in the second half of 2015 and as a result the CSE recorded a deficit of EUR 600,000 in the year.

Metaxas said that the CSE is in advanced consultations with two foreign stock exchanges for agreements that would allow to institutionalise the introduction of Cypriot companies on foreign exchanges.

The CSE, he added, will be earning a share from the transactions in the titles of these Cypriot companies, a move expected to increase the liquidity in the Cyprus stock market.

Total revenue of the CSE for 2016 are estimated to reach EUR 5.8 mln, down 0.2% compared to 2015, while total expenditure is estimated at EUR 6.68 mln. The CSE budget is funded by own resources, which could reach EUR 8.9 mln at the end of the year.

Director of the Budget Directorate of the Finance Ministry, Stavros Michael, told MPs that the plans on the privatisation of the CSE is one of the government’s intentions, adding that some steps need to be taken before that.

businessmen operating in Lebanon with the aim to invest in areas such as tourism, properties, services, industry etc and to explore the possibilities in other areas as well.

He said that there is a continuous and growing interest on behalf of Lebanese companies and the Forum will give the opportunity to further expand and enhance the cooperation.

According to Hadjiroussos, the Cyprus economy was faced with great challenges but has now turned a page. He pointed out that Cyprus offers a good quality of life with many advantages, a remarkable environment, award winning beaches and security.

He pointed out that Cyprus is one of the most popular countries for one to get citizenship, has excellent infrastructure, adding that the citizens of the Republic of Cyprus enjoy unlimited trips to European countries and 140 countries without visas and that citizens of non EU countries can obtain Cypriot citizenship by investing here, if they meet

the criteria set by the Government.

Mazen Farah, Director of consulting company COMED Int’l which is co-organising the forum, said that the event will be a meeting platform specialised for businessmen and traders who have the objective to create and establish new markets.

All businessmen, he said, associated with industry, trade, agriculture, service, real estate and tourism sector should have the interest to participate and introduce their commodities and services.

He added that a full advertising campaign will take place in Lebanon and Cyprus and invitations will be sent out to Cypriot industrialists, wholesalers and companies to attend.

The aim is to create partnerships between the businesses in both countries in the fields of tourism, banking, real estate, information technology, industry, oil and gas and joint cooperation.

Ryanair launches new LarnacaBrussels route with €19.99 offer Ryanair launched a new flight on Monday connecting Larnaca with Brussels-Zaventem on a twice weekly service, with a special EUR 19.99 offer for travel on this route throughout February.

Travellers must book their flight on the www.ryanair.com website before midnight, Thursday, January 21.

“Ryanair is pleased to be back to Larnaca airport with a new route to Brussels and to offer even more possibilities for Cypriot customers to discover the wonders of Belgium,” said Chiara Ravara, speaking on behalf of the low-cost airline.

“Cypriot customers can look forward to further improvements in the coming months, including new aircraft interiors, new uniforms and more new routes, under our ‘Always Getting Better’ programme, as we continue to offer so much more than just the lowest fares.”

“To celebrate the first flight from Larnaka to Brussels Zaventem, we are releasing seats on sale from EUR 19.99 for travel in February, which are available for booking until midnight Thursday.”

“We are delighted to see Ryanair returning to Larnaca airport and strengthening its presence in Cyprus. We believe there is excellent potential for the new route,” said airports operator Hermes Airports’ CEO Wes Porter.

“Through strategic planning and branding the Larnaca-

Brussels route could become one of the favourite routes for business and leisure purposes for thousands of travellers, both Cypriots and Central-Europeans.”

The route is operated on Monday and Friday and supplements the Paphos-Brussels Charleroi flight, also operate twice weekly.

Short list of casino investors TBA in February The short list of investors for the establishment of an integrated casino resort in Cyprus will be announced in February, Energy and Tourism Ministry Permanent Secretary Stelios Himonas said.

Briefing a joint session of the House Committees on Finances and Commerce on the regulations for the operation of a casino, he said that in one month the Ministry will have the short list of the investors ready.

He also urged the MPs to approve the regulations providing for the operation of a casino.

During the first phase of the procedure eight investors submitted their offers Himonas said the regulations for the operation of the casino resort had been submitted to the European Commission, which had come back

with two questions concerning the protection of personal data and on restrictions on free movement of gaming equipment. These questions would be answered in cooperation with consultants from the ministry, he said.

Himonas explained that the regulations govern various matters, including the individual functions of a supervisory authority and control of the authority by the auditor-general.

Finance Committee Chairman and DIKO President Nicolas Papadopoulos questioned if there were adequate guarantees that the investor to be chosen would have the funding to implement the massive project.

“Based on the information we have, the three to be selected will be invited to present evidence on the elements of funding,” Himonas explained.

Trade Committee Chairman

Zacharias Zacharias said deputies would take two weeks to study the regulations and seek clarifications or submit observations during the next meeting on the subject. The aim he said, would be for the House to adopt the regulations in February.

While the names of the bidders have not been officially announced, it has been widely reported in the local press that three companies were the frontrunners in the race.

As previously reported in the media, the three most likely bidders are: Hard Rock, an international hotel operator with casinos in Hollywood, Tampa Florida, Biloxi, Las Vegas, Northfield’ Sun International, a resort hotel and casino chain with extensive interests in South Africa; and Bouygues, a French company specialising in online gaming.

January 20 - 26, 2016

financialmirror.com | CYPRUS | 5

Georgiades urges MPs to approve reforms before elections Finance Minister Harris Georgiades has called on parliament to vote on government bills concerning the public service before its dissolution ahead of the elections in May. The Minister explained that “the 2017 state budget must be prepared with this new framework having been granted”.

He said that Parliament must approve a bill which provides for the establishment of Cyta Ltd, a governmentowned company which will take over state-owned Cyta’s operations before a private investor agrees to buy it.

The approval of the bill by the Parliament is a prior action required by international creditors in order to approve the final tranche of about 450 mln euros, but opposition parties and their affiliated trade unions are fighting to block the deal, at least before the elections and the loss of potential voters.

“There are a number of bills that we need for the better functioning of the public service,” Georgiades told a press conference.

The bills concern a new system for assessments, promotions and mobility in the public service, as well as a new framework to link the state payroll with the course of the economy.

“We need this regulation as soon as possible and I think that the House should complete these procedures before it closes for the parliamentary elections to ensure that the 2017 state budget will be drawn up with this new framework in place,” the Finance Minister said.

Georgiades said that one last ‘prior action’ remains to be completed under the bailout agreement between Cyprus and its international lenders (IMF, ECB and EU Commission) for the last review of the programme and that is “the bill which was submitted to Parliament last August and regulates the establishment of Cyta company that will belong exclusively to the state, in the first stage”.

“That’s the last prior action, it is not even the denationalisation of Cyta,” he said, adding that Cyta will pass

to private hands “maybe within a year”.

“It is a perfectly manageable reform, useful and necessary, needed first and foremost by Cyta itself to operate with flexibility even if it is owned 100% by the state, rather than as an extension of the public sector,” he noted.

At the same time, he said, Cyprus will conclude in the best possible way a successful programme.

“We want to send a message to investors and the international investment community seeking opportunities and prospects in Cyprus. We want to send a message to rating agencies still monitoring us that in Cyprus not only have we dealt with the worst of the economic crisis but we remain engaged in an effort to promote reforms, structural changes, prudent management of public finances, that we continue our efforts with seriousness and without complacency,” he said.

“Among other things it will allow the disbursement of the last tranche,” he concluded.

Halloumi registrations pending, says Kouyialis The Cyprus government has not yet been officially informed whether there are any objections to the registration of halloumi/hellim cheese as a PDO product (Protected Designation of Origin), said Agriculture Minister Nicos Kouyialis.

However, the Minister said he has been unofficially informed that the countries which had expressed the intention to object Cyprus’ application have proceeded with their filing. Any possible objections filed would be examined by the EU Directorate General of Agriculture.

If and when objections are accepted by the Department of Agriculture in Brussels, Cypriot authorities, the Ministry of Agriculture and the Legal Service, will have to answer arguing against these objections, Kouyialis told the Cyprus News Agency.

Asked if there is a request of the Turkish Cypriot side to cooperate with the Republic of Cyprus on the amendment of the Green Line Regulation for halloumi and the elimination of animal diseases, Kouyialis said that he has no such a document.

“However, if the Turkish Cypriots are to produce and trade halloumi an amendment of the Green Line Regulation is required,” he said.

He also noted that an agreement was reached during Commission President Jean Claude Junker’s visit last year between Cyprus’ President Nicos Anastasiades and Turkish Cypriot leader Moustafa Akinci providing that inspection and certification will be made by the International Bureau of Testing, Inspection and Certification “Veritas”, and this amendment at some point

should be made.

As regards the elimination of animal diseases, Kouyialis said that the Turkish Cypriots have to work hard towards that direction and certainly the EU’s assistance will be required, while it is possible that the Cypriot government’s help might be needed.

He explained that a technical committee of veterinarians has already been set up under UN supervision, which has been holding regular meetings for many years to deal with any animal diseases.

Kouyialis overruled a possible joint decision by the Cypriot government, the EU and the illegal regime in Turkish occupied areas of Cyprus on the matter.

“Such an issue does not exist. The Republic of Cyprus and the so called state will not co-decide under any circumstances,” he said, stressing that the only competent authority is the Republic of Cyprus.

In relation to the amendments submitted by the Republic of Cyprus on the Brussels

proposals for registering halloumi/hellim as PDO product, Kouyialis said that Nicosia has submitted four amendments and some of them are under discussion. There are some objections, but the discussions will continue until a final solution between the EU and Cyprus, is achieved.

On July 17, 2014, the Commission received the official application for the registration of the names Halloumi/Hellim as a PDO for a cheese made predominantly from ewes’ and/or goat milk under the Quality Regulation (EU) No 1151/2012. The application covers producers from the whole island and foresees the protection of the name in the two languages, Greek and Turkish.

On July 28 2014, the Cyprus application to register halloumi as a PDO was published in the EU official journal. This followed a visit to Cyprus by Commission President Juncker, who announced a common understanding between Anastasiades and Akinci on the issue.

The Green Line Regulation concerns the movement of goods and persons across the Green Line in Cyprus, and has been in force since the accession of the Republic of Cyprus to the EU in 2004.

January 20 - 26, 2016

6 | COMMENT | financialmirror.com

Iran “opens a new chapter”, as sanctions lifted EU foreign policy chief Federica Mogherini, representing the six world powers, announced the lifting of “multilateral and national” sanctions in Vienna on Saturday, saying the nuclear deal showed that intense diplomacy could resolve even “the most difficult issues”, the EU news portal EurActiv reported.

Iran has “opened a new chapter” in its ties with the world, President Hassan Rouhani said on Sunday, hours after sanctions were lifted.

The UN’s atomic watchdog late on Saturday confirmed that Iran had complied with its obligations under last summer’s accord and the United States and European Union announced they were lifting the sanctions that have for years crippled the country’s economy.

Western governments hailed the announcement as a milestone though some critics, including Israel, alleged that Tehran was still seeking to develop a nuclear weapon.

The announcement followed news of a prisoner swap between Iran and the United States that will include the release of Washington Post correspondent Jason Rezaian, in another sign of thawing relations between the longtime foes.

Rouhani, a moderate whose 2013 election victory helped launch a huge diplomatic effort toward the deal struck on July 14 in Vienna, said implementation of the agreement did not harm any country.

“We Iranians have reached out to the world... have opened a new chapter in the relations of Iran with the world,” the official IRNA news agency quoted Rouhani as saying.

Iran is “not a threat to any government or nation”. The agreement, he said, “is not a loss for any country”.

Rouhani, who has promised that 2016 will be a “year of prosperity” for Iranians, was to give a press conference later Sunday after presenting this year’s budget.

The United States lifted a raft of sanctions, with Secretary of State John Kerry saying in Vienna: “The United States, our friends and allies in the Middle East, and the entire world are safer because the threat of the nuclear weapon has been reduced.”

The lifting of the sanctions will allow Iran to resume widespread oil exports, long the lifeblood of its economy though Rouhani has steadily moved away from relying on crude to fund budgets.

The deal will also open up business in the country of 79 mln.

The Vienna agreement was nailed down after two years of rollercoaster negotiations following Rouhani’s election.

The highly complex deal drew a line under

a standoff dating back to 2002 marked by failed diplomatic initiatives, ever-tighter sanctions, defiant nuclear expansion by Iran and threats of military action.

In addition the nuclear talks put Iran and the United States on the road to better relations, more than three decades after the Islamic revolution that toppled the USbacked Shah.

Four of the five detainees to be freed by Tehran under the prisoner swap, including Rezaian, were still in the country as of early Sunday, with a US official saying “logistical steps” were ongoing.

Under the exchange, Washington said it had granted clemency to seven Iranians, six of whom were dual US-Iranian citizens, and dropped charges against 14 more.

International Atomic Energy Agency chief Yukiya Amano was also due in Tehran on Sunday for talks on the UN watchdog’s enhanced inspections to ensure Iran’s continued compliance with the deal.

The steps taken so far by Tehran extend to

at least a year - from a few months previously - how long Iran would need to make one nuclear bomb’s worth of fissile material.

They include slashing by two-thirds its uranium centrifuges, reducing its stockpile of uranium - enough before the deal for several bombs – and removing the core of the Arak reactor which could have given Iran weapons-grade plutonium.

Iran has always denied wanting nuclear weapons, saying its activities are exclusively for peaceful purposes including power generation and medical research.

Critics, including US President Barack Obama’s Republican opponents, have poured scorn on the deal, saying it fails to do enough to ensure Iran will never acquire the bomb.

Israel, widely assumed to be the Middle East’s only nuclear-armed state and Iran’s arch-foe, has repeatedly slammed the agreement.

Israeli Prime Minister Benjamin Netanyahu said on Saturday that Iran “has not relinquished its ambition to obtain nuclear weapons, and continues to act to destabilise the Middle East and spread terror throughout the world”.

Sunni Saudi Arabia, Iran’s main regional rival, is also alarmed at the prospect of warmer US-Iran ties and of predominantly Shiite Iran, newly flush with oil revenues, increasing its influence.

Tensions between Saudi Arabia and Iran, already fighting a proxy war in Yemen and backing opposing sides in the Syrian conflict, have reached new heights in the past two weeks.

Saudi Arabia and a number of its Sunni Arab allies cut diplomatic ties with Tehran earlier this month after protesters angry at Riyadh’s execution of a prominent Shiite cleric on January 2 sacked its embassy in Tehran.

Iran’s imminent return to the oil market has also contributed to the sharp slide in the price of crude to 12-year lows of under $30 per barrel this week, putting public finances in Gulf nations under strain.

Gulf stocks tumbled on their first trading day of the week on Sunday, with the Saudi Tadawul All-Shares Index opening down 6.5% and the Dubai and Qatar exchanges both diving 6.0% at the opening.

The nuclear deal has more than a decade to run, which is likely to be a bumpy road, experts say, not least if more hardline governments take power in Tehran or Washington.

A “snapback” mechanism ensures that many of the sanctions can be swiftly reimposed, and a special joint commission is meant to handle any misunderstandings.

With Iran sanctions gone, Airbus expects huge order Now that the International Atomic Energy Agency (IAEA) has confirmed that Iran has completed the “preparatory steps” that lead to the lifting of economic sanctions against the country, there are likely to be some major economic impacts on other countries and businesses. One business that could be a big loser is the oil industry, while a big winner now appears to be Airbus Group SE and, potentially, The Boeing Co. (NYSE: BA).

The Middle East oil industry took a few hits Sunday morning on an Iranian announcement that it plans to raise production by about 1.5 mln barrels a day to 4.2 mln barrels by the end of this year, according to a report at CNN. This is not exactly new news, and we would have expected that the increase was already priced in.

Iran has been barred from buying new aircraft from Western makers since the 1970s, and demand for new planes could be as high as 500 planes at a rate of 50

planes a year for a decade.

The expected deal with Airbus has been in the making

for some time, and Iran’s transportation minister said on Saturday that the country’s flag carrier, Iran Air, will buy 114 Airbus passenger jets as it sets out to upgrade a fleet of 45 planes with an average age of 26.8 years. According to a report from Bloomberg, the airline will acquire new and used A320s and out-of-production A340s with first deliveries as early as July.

Iran Air currently flies 13 Airbus A300s, two A310s, and six A320-200s. None is less than 20 years old, way past retirement age for a modern passenger fleet, according to Planespotters.

The airline also includes six Boeing 747s in its fleet and the average age of the four 747-200s is 35 years and the average age of the two 747SPs is 37.7 years. An Iranian official noted that the airline is considering adding Boeing 737s and 777s to its fleet. (Source: 24/7 Wall St.com)

January 20 - 26, 2016

COMMENT | 7

It’s time for Iran to become a constructive partner in the Middle East The fact that Iran managed to come to an agreement not just with the United States, but also with Russia, the EU and China shows that it is able to build confidence with a diverse array of players, writes Dr Willem Oosterveldt.

Implementation Day has rightly been hailed as a landmark event that heralds the return of Iran into the fold of the international community. Coming at the end of months of tense diplomatic activity between Tehran and the EU3+3, it is another piece of evidence that shows that Iran is able to engage in constructive engagement with outside powers. At the same time, there remains widespread scepticism in the region about how Iran will come to behave once economic sanctions are removed, and events such as the launch of ballistic missiles late last year do not help to instill confidence among neighbours that Iran is a country that can be trusted.

It is up to Iran to now prove them wrong.

The opposition to the nuclear deal that was concluded on July 14 last year already demonstrated that in many quarters, there were serious reservations about Iran’s good faith and ulterior motives: Would it live by the terms of the agreement?

And would it lead to Iran adopting a different stance towards the conflicts raging in the Middle East?

The fact that Iran managed to come to an agreement not just with the United States, but also with Russia, the EU and China showed that it is able to build confidence with a diverse array of players. It also gave Tehran a lot of precious international currency - in the shape of international legitimacy - which it can spend to consolidate its position in the region.

However, in the months following the July agreement,

Federica Mogherini and Mohammad Javad Zarif (Photo: European Commission)

instead of seeking to become an honest broker in the various conflicts in the Middle East – in particular in Syria – Tehran gave in to old reflexes by sending ground forces into Syria, by propping up Hezbollah in Lebanon, and possibly by supporting the Houthi rebels in Yemen. Understandably, these actions only confirmed the worst fears among Arab nations that Iran would use its newfound leverage to spread its influence around the region through meddling in foreign conflicts. What’s worse, Israel is concerned that Iran may use the Golan Heights for purposes of provocation.

While it is understandable and legitimate that Iran would seek to cement its role in the region, it is hard to explain why it would do so in old-fashioned ways, rather than to seek to become the region’s diplomatic power broker. At the end of the day, the more Iran is perceived as a reliable partner by the world’s great powers in the West and the East, the more likely it is that countries such as Saudi Arabia and Turkey will need to change their ways instead of giving them excuses to fan the flames against Iran, and trying to push it back into a

corner. What is more, a more reliable government in Tehran will also help to reassure Western governments and investors that Iran is a country that ‘one can do business with.’

Finally, the fact that Iran is not suspected to be involved in supporting or financing networks that commit terrorist acts in countries outside the Middle East would relieve Western countries from some moral dilemmas that they face when interacting with some Gulf countries.

Of course, certain conservative forces inside the country, in particular those associated with the Iranian Revolutionary Guard (IRGC), may have little interest in seeing Iran become a force for good in the region, and think they have a bigger interest in Iran being a spoiler abroad and maintaining a closed economy at home. In the long run, however, such approaches are neither sustainable nor necessary. Not sustainable, because the opening up of Iran to the world will put more pressure on the leadership to start reforming and to give its young and educated population more opportunities and this is something where European countries can provide support. Not necessary, because several factors give Iran enough leverage to secure its position in the region and beyond: as supplier of oil and gas to Europe, China among others; as a key element in China’s ‘One Belt, One Road’ strategy; and as an indispensable security partner in the region.

Game changers, such as the nuclear agreement concluded last July, only come once in a generation. Iran can simply not afford to squander this unique opportunity to restore its place among the powerbrokers of the greater Middle East, and to become a responsible member of the world community. Hence, now is the time for Iran to definitively change its ways, and to show the way in being part of the solution to the region’s ills, rather than its perpetuator.

Dr Willem Oosterveld is a strategic analyst with The Hague Centre for Strategic Studies in The Netherlands, focusing on issues in the Middle East.

January 20 - 26, 2016

8 | COMMENT | financialmirror.com

MEMORABLE!

FOOD, DRINK and OTHER MATTERS with Patrick Skinner

A long time ago, like 67 years, I got off a bus on a damp, cold January night and walked a hundred metres or so into the entrance to an R.A.F. station in the north of England; a path trodden by thousands of other young men doing their “National Service” of 18-24 months. I was directed to a “Reception” hut and thence onwards to a “billet”, where I found about 18 other rather apprehensive fellows. A sergeant came in and told us the first task was to get the essentials of life: a mug, a knife, a fork and a spoon (called your “Irons”) from the Stores.

Then he said: “After that, go to the cookhouse and get your tea”.

That building was not far away and smelt warm, greasy and grubby and only slightly welcoming. We all lined up, a motley young crew dressed in “civvies”, a good cross section of social classes, but mostly from the West of England, holding our precious implements. We took a plate and queued at the servery for our “tea”. This consisted of a fairly large slice of a cooked dish, two pieces of bread and a pat of margarine. The cooked item consisted of mashed, cooked beetroot, topped with a layer of mashed potato and grated cheese, baked. It was the first time I had ever eaten hot beetroot and I enjoyed it. I make it every now and then, and it always reminds me of the night I left home, never to return.

The best known “hot beetroot” recipe, of course is the delicious Russian soup, with which, if you are not careful, you can become somewhat the worse for wear. In contrast to where I ate the hot beetroot dish above, my first dish of Borscht was at a dinner at London’s Dorchester Hotel in Park Lane, given by the movie mogul J. Arthur Rank, when I was working as a film publicist. It’s a good sup up, this soup.

BORSCHT

Ingredients 1 litre of chicken, or light meat stock 1 large onion 1 carrot 1 stick celery Salt and black pepper One good knob of butter 500g of uncooked beetroot 1 large potato 1 level tbsp tomato pure 1 small carton of “Smetana” or sour cream

Method

ago, with their then new catering service. I encountered them when they did a lunch for around 20 in the garden of friends in Episkopi. At that time, Bassem was in full-time employment and the children were either very young or not yet thought of. So, Elena did it all. Since then, Bassem has become an integral part of the catering operation and the three children (nicknamed “The Orexettes”) are all regularly involved, too. Bassem and Elena have developed quite a repertoire of Levantine dishes, so a taste of their Lebanon at the Droushia Heights Hotel on Friday next week, January 29, will be worth a detour for many. Elena writes: “Our luxurious Lebanese mezze will be served buffet style this time as the Orexettes are at school and can’t take time off for waiting at table. It will be a whole evening of Middle Eastern delight, as the ambassador of Lebanon will be giving a talk about his beautiful country. Some of those who came on our gastronomic trip in 2010 could quiz him on all those foodie places we visited (see picture below). The talk will begin at 6.30pm, followed by the meal at 7.30pm and we also have an amazingly talented belly-dancer to entertain us”.

1. Wash, peel and dice the beetroot, potato and carrot.

2. Peel and chop the onion very finely and slice the celery stalk very thinly.

3. In a large pot melt the butter and put in all the vegetables. Cover and cook on a medium heat for around five minutes stirring from time to time.

4. Add the stock, tomato purée, salt and pepper, stir and bring to the boil.

5. Cover and simmer for about 50 minutes.

6. Put the soup into a blender and whiz for just a couple of seconds (not longer — it’s not a cream soup!)

7. Serve hot in bowls, into which a nice dollop of sour cream is swirled.

8. Sprinkle some chopped chives or a little chopped parsley on the top.

If you like, you may impart an additional sweet-sour flavour by adding a little sugar during cooking and at the end the juice of half a lemon. A ham stock can be used instead of chicken ... and so on... The variations of Borscht are many.

What to drink with Borscht? Russians and Poles like alternate spoonfuls of soup and swigs of vodka and I must admit I find this very enjoyable. Nevertheless, a couple of plates of Borscht with vodka accompaniment are, for me at any rate, a recipe for falling over!

A TASTE OF LEBANON AT DROUSHIA One day, perhaps, I will write a book about Lebanese food. In my opinion its range, style and variety put it among the finest cuisines of the world.

Bassem and Elena, chefs extraordinaires of Droushia’s Orexi Catering Services started feeling their way into it (it is much more complex than Cypriot cooking) a dozen or so years

For reservations call Droushia Heights Hotel 26 332200, Orexi Catering Services.

Go to www.eastward-ho for recipes, food and wine news and notes.

January 20 - 26, 2016

financialmirror.com | COMMENT | 9

Davos: Where the super-rich rub shoulders with the political elite Politicians and business leaders gathering in the Swiss Alps this week face an increasingly divided world, with the poor falling further behind the super-rich, and political fissures in the United States, Europe and the Middle East running deeper than at any time in decades, according to EU news portal EurActiv.com.

Just 62 people, 53 of them men, own as much wealth as the poorest half of the entire world population and the richest 1% own more than the other 99% put together, antipoverty charity Oxfam said on Monday.

Significantly, the wealth gap is widening faster than anyone anticipated, with the 1% overtaking the rest one year earlier than Oxfam had predicted only a year ago.

Rising inequality and a widening trust gap between people and their political leaders are big challenges for the global elite as they converge on Davos for the annual World Economic Forum, which starts Wednesday and ends on Saturday.

But the divisions go far beyond those that exist between the haves and have-nots. In the Middle East, the divide between Shi’ites and Sunnis has reached crisis point, with Iran and Saudi Arabia jostling openly for influence in a region reeling from war and the barbarism of Islamic extremists.

The conflicts there have spilled over into Europe, causing deep ideological rifts over how to handle the worst refugee crisis since World War Two and - with Britain threatening to leave the European Union - raising doubts about the future of Europe’s six-decade push towards ever closer integration.

The shock emergence of Donald Trump as the front-runner for the Republican presidential nomination has exposed a gaping political divide in the United States, stirring anxiety among Washington’s allies at a time of global turmoil.

Among the key figures in Davos, will be US Vice President Joe Biden, Secretary of State John Kerry, Israeli Prime Minister Benjamin Netanyahu and the foreign ministers of both Iran and Saudi Arabia.

Canada’s new Prime Minister Justin Trudeau will be on hand, as will Britain’s David Cameron and Mario Draghi at a time when a new transatlantic monetary policy divide is opening up between his loosening European Central Bank and a tightening US Federal Reserve.

Celebrities will also be out in force, including film stars Leonardo Di Caprio and Kevin Spacey.

Edelman’s annual Trust

Barometer survey shows a record gap this year in trust between the informed publics and mass populations in many countries, driven by income inequality and divergent expectations of the future.

The gap is the largest in the United States, followed by the UK, France and India.

“The consequence of this is populism - exemplified by Trump and Le Pen,” Richard Edelman, president and CEO of Edelman, told Reuters, referring to French far-right leader Marine Le Pen, whose National Front has surged ahead of traditional parties in opinion polls.

The next wave of technological innovation, dubbed the fourth industrial revolution and a focus of the Davos meeting, threatens further social upheaval as many traditional jobs are lost to robots.

The Oxfam report suggests that global inequality has reached levels not seen in over a century.

Last year, the organisation has calculated, 62 individuals had the same wealth as 3.5 bln people, or the bottom half of humanity. The wealth of those 62 people has risen 44%, or more than half a trillion dollars, over the past five years, while the wealth of the bottom half has fallen by over a trillion.

“Far from trickling down, income and wealth are instead being sucked upwards at an alarming rate,” the report says.

It points to a “global spider’s web” of tax havens that ensures wealth stays out of reach of ordinary citizens and governments, citing a recent estimate that $7.6 trillion of individual wealth - more than the combined economies of Germany and the UK - is currently held offshore.

“It’s a major wake-up call,” said Jyrki Raina, general secretary of IndustriALL Global Union, which represents 50 mln workers in 140 countries in the mining, energy and manufacturing sectors.

“Inequality is one of the biggest threats to economic well-being and it needs to be addressed.”

US President Barack Obama touched on the issue in his recent State of the Union address, noting that technological change was reshaping the planet.

“It’s change that can broaden opportunity, or widen inequality.

And whether we like it or not, the pace of this change will only accelerate,” he said.

“Companies in a global economy can locate anywhere, and face tougher competition... As a result, workers have less leverage for a raise. Companies have less loyalty to their communities. And more and more wealth and income is concentrated at the very top.”

January 20 - 26, 2016

10 | COMMENT | financialmirror.com

More women billionaires than men; only 44% from 1995 still rich today The number of female billionaires is growing faster than the number of their male counterparts, according to a UBS/PwC report that showed that women have been controlling greater average wealth than men and becoming more influential in family businesses, philanthropic enterprises and governance.

The report also highlights the fleeting nature of great wealth, finding that only 126 billionaires or 44% of the class of 1995 are billionaires today and underscores the strategies these prevailing billionaires have employed to build and preserve lasting legacies.

The survey of over 1,300 billionaires at www.ubs.com/billionaires analyses data from the last 19 years across the 14 largest billionaire markets, accounting for 75% of global billionaire wealth.

Dubbed, the ‘Athena’ factor, the report found that the number of female billionaires is growing faster than male billionaires – multiplying by 6.6x over the last two decades compared to 5.2x for men, with Asian female entrepreneurs standing out as the main driver of this development. Asia has seen the strongest growth of female billionaires in the past ten years, their numbers growing by a factor of 8.8 from only 3 to 25 today. This compares to a growth factor of 2.7 (from 21 to 57) in Europe and 1.7 or 37 to 63 in the US. Female billionaires in Asia make up almost a fifth of the worldwide female billionaire population and generally are younger than their global counterparts. By contrast, in Europe and America, females are mostly multi-generational billionaires (93% Europe, 81% US); however, they are also playing much stronger roles than previous generations

within their families.

The report shows that ‘great wealth’ is very volatile, with more than half of the billionaires of 1995 dropping out of the list over the last 20 years. But those who prevailed greatly increased their wealth. Consumer and Retail, Technology, and Financial Services are the dominant industries, making up for two-thirds of the total wealth of the lasting billionaires today. The Technology sector in particular is home to the most enduring billionaires while Industrials, Real Estate and Health Industries are sectors where billionaire wealth is more fleeting.

In 1995, the report counted 289 billionaires. From this group of billionaires, only 126 remain today, while the others have dropped off the billionaire list due to death, family dilution or business failures. Over the same period, 1,221 new billionaires were created bringing the total number to 1347 billionaires in 2014.

The 126 prevailing billionaires have created US$1 trln of wealth, approximately 21% of that produced by the entire global billionaire population over the period. By 2014, the average wealth of the remaining billionaires had grown their average wealth to $11 bln from $2.9 bln in 1995, multiplying their assets by a factor of 3.8 and outperforming global GDP growth of just 2.5.

The UBS/PwC research and analysis consistently identified three personality traits as essential to entrepreneurial success for both genders – smart risk taking, ‘obsessive’ business focus and dogged determination.

The report found that the majority of multi-generational billionaires created lasting legacies by keeping the initial

A new report from charity Oxfam has drawn attention to the extent of financial inequality across the globe, highlighting the massive gulf between rich and poor. It found that in 2015, 62 individuals owned as much wealth as the poorest half of the world’s population. The report criticised the amount of money kept in elaborate tax havens and the industry of wealth

business entirely or parts of it. The industry sector often dictates the degree to which one keeps the original business.

For instance, the best wealth preservation strategy for billionaires that made their fortune in the Consumer and Retail sector is to maintain control of the original business as a value driver. Finance billionaires, on the other hand, are best served by a combination of retaining the original business and adopting a hybrid strategy.

Two-thirds of billionaires are over 60 years of age and face critical wealth transfer decisions. Over three quarters of current billionaires have two or more children. To avoid wealth dilution as the next generation and subsequent generations grow larger, a clear wealth preservation strategy is required to ensure the creation of long term lasting legacies.

Protecting billionaires’ legacies also requires coping with outside forces. Anti-wealth sentiment in politics, growing taxes and increasingly stringent global regulations pose the biggest threats to billionaires’ wealth, topping their list of concerns over potential economic crises, and demonstrating the importance of robust tax and legal capabilities to manage these challenges.

As part of this, the report shows that clear governance structures are necessary to preserve and grow wealth through future generations. To ensure long-term success, managerial competence must override family ties; however, maintaining a strong identity has proven material to longlasting billionaire family dynasties. This, together with establishing strong governance and a well-resourced family office, is a key factor in building lasting legacies.

managers that keeps it there. There is an estimated $7.6 trln held offshore – more than the combined GDP of the UK and Germany. Cash and assets of $68,000 would get you into the richest 10% of the world’s population while $760,000 would count you among the top 1%.

(Source: Statista)

January 20 - 26, 2016

financialmirror.com | MARKETS | 11

Looking for the bright side Marcuard’s Market update

by GaveKal Dragonomics By most measures, the first two weeks of 2016 have been the worst-ever start of the year for risk assets. With the MSCI All-Countries index down nearly -20% from last May’s high, we are now in a global bear market.

All routs come to an end, eventually; the question of the moment is what catalyst might emerge to stop the current sell-off, and how soon might this occur. There are plenty of possibilities, but unfortunately none of them looks compelling any time soon.

The first would be a big increase in liquidity via massive easing by the main central banks, or though fiscal stimulus.

Neither is at all likely. The European Central Bank and the Bank of Japan are already engaged in quantitative easing and have no grounds, based on their economies’ performance, to ease further. The US Federal Reserve is hiking rates, but markets have already priced in the expectation that it will deliver only two of the four rate hikes it has signalled for this year. Given the Fed’s obvious desire to normalise policy and the robust state of the US labour market, it’s hard to see any additional easing there.

China will not be much help either. The People’s Bank of China is cutting rates, but merely in order to stabilise credit growth, not to boost it. The total credit stock grew by 11.5% YoY in December; high by most countries’ standards, but low

by China’s.

Even so, credit continues to grow faster than nominal gross domestic product, which is running at about 7%.

Hence national leverage continues to rise, and the PBOC cannot push credit growth higher without sparking fears that it is pushing China into a debt crisis. Similarly, the government is targeting a modest increase in the fiscal deficit, but it has little ability to boost infrastructure spending growth beyond the 20% rate it has run at over the past two years.

A second catalyst could be good news from the commodity sector. One possibility is a solid rebound in the oil price. Anatole Kaletsky is reasonably convinced this will occur at some point this year, and that the natural trading range for oil over the next few years is US$30-50. But the short-term momentum is downward, especially now that sanctions on Iran have been lifted and Tehran is scrambling to bring as much new oil to market as it can.

Alternatively, we might see massive consolidation in the energy and mining industries, leading to an improvement in

Worldwide PC shipments hit an eight-year low in 2015 after declining for the fourth consecutive year. Global shipments dropped by 8% to 289 million in 2015, the lowest it’s been since 2007.

The decline of the PC industry started in 2012, around the time when tablet sales really took off.

After a brief respite in 2014, when PC sales were virtually flat thanks to the end of official support for the popular Windows XP and the subsequent upgrade cycle, the market’s decline re-accelerated in 2015 despite the release of Windows 10 in July.

Gartner attributes the weak market performance at least partially to currency effects, which negatively affected sales in EMEA, Japan and Latin America.

However, the analysts also see a structural change happening that will lead to fewer people using PCs over the next few years.

(Source: Statista)

returns on capital. Again, this is doubtless on its way, but it has not really begun yet. And the initial news flow about defaults and bankruptcies will probably be negative, not positive, for market sentiment.

Third, valuations could become so attractive that cash can no longer stay on the sidelines.

Small pockets of value are beginning to emerge, but we are still far from valuation levels that would lead to a risk-on stampede.

Finally, a big new growth theme might emerge to capture investors’ imaginations, as with the internet in the mid1990s, and China in the last decade. If you spot one, let us know, because right now we don’t see any on the horizon.

So in short, lousy market conditions are likely to persist for a while longer. Is there a bright side? If you can stay solvent, there is. Arguably, this year’s crash is a reaction to the end of two major distorting influences. One was the Fed’s zero interest-rate policy, which artificially boosted global asset prices for seven years following the 2008 crisis. The other was China’s long-running stimulus program, which artificially boosted commodities and related sectors until the end of 2014.

Painful as things might be right now, global markets and

economies are better off in the long run with the removal of these economic hallucinogens. Markets got addicted to the twin opiates of the Fed’s unusually low price of money, and China’s unreasonably strong support for commodity prices.

Now they are being forced into withdrawal from both drugs simultaneously, and they are shrieking. But after a period of rehab, markets should do a better job of gauging what assets are really worth.

And the world’s economies, with the exception of the worst-managed resource economies (that’s you, Brazil), generally seem more stable than their financial markets.

Growth in Europe and Japan, while hardly spectacular, is grinding higher.

China’s growth, while grinding lower, probably did so at a slower rate towards the end of last year. And for all the woes of US manufacturing, the health of construction and the labour market continue to belie recession in the world’s biggest economy.

True, the markets could be signalling that worse is to come. But it is at least as likely that economies are signalling that the markets are over-reacting. www.marcuardheritage.com

January 20 - 26, 2016

12 | COMMENT | financialmirror.com

Don’t just take the first job offer, new graduates are warned

By Henriette Jacobsen, EurActiv.com For new graduates, accepting a first job offer and entering the labour market might appear to be the best option. But research indicates that waiting for a job that matches an individual’s skill level will be a more successful move over time.

This will lead to a more successful outcome, according to new research published by the EU research project STYLE, Strategic Transitions for Youth Labour Europe.

The researchers from STYLE, from universities all across Europe, say that young workers under the age of 25 who wait for the right opportunity are less likely to experience failure, such as unemployment, or ending up with a low-skilled occupation.

STYLE’s research was conducted in five EU countries: Finland, France, Italy, Poland and the UK, both before and during the recent financial crisis in Europe.

“There might be some rationale for recent graduates not to accept the first job offer they get. They shouldn’t become part of the labour market at any cost,” said Gabriella Berloffa, a researcher from the University of Trento, in Italy. She was speaking at a youth unemployment conference in Copenhagen last week.

Between 2007 and 2013, youth unemployment reached record highs across Europe, dramatically increasing from 15.7% to 23.4%, according to Eurostat. In Southern Europe,

The best employers in the UK 2016 Statista and Bloomberg have conducted an extensive survey to find the best employers in the United Kingdom in 2016. In order to identify them, Statista surveyed 15,000 workers in 1,600 UK-based firms. The results revealed that British companies are the nation’s best employers with Jaguar Land Rover, AstraZeneca and Harrods grabbing the top three spots. In fact, 70% of Britain’s top-50 employers are British with Microsoft, Nike and Google the leading US companies within those 50.

in countries such as Spain and Greece, youth unemployment rates are well above 50%.

While it might be difficult for young people in times like these to reject low-paid and low-skilled jobs, Berloffa said, young people should keep in mind that unemployment only affects them negatively if it is for a very long time.

Family background, of course, plays a significant role in young people’s opportunities. STYLE’s research data reveals that across all European countries, the likelihood of young people being unemployed was much higher if they came from a low-employment home than from any other household.

Berloffa said that parents with jobs are better able to guide their children, but they are also able to protect their children against failure, fostering an protected and resourceful environment, whereas less well-off parents are more likely to

advise their children to do a trade-off and take on low-paid jobs that they are overqualified for.

In February 2013, EU heads of state and government agreed to launch a EUR 6 bln Youth Employment Initiative (YEI) to get more young people into work. Member states, which have regions with youth unemployment rates above 20%, are able to apply for funding to create opportunities for young people who are not in education, employment or training. Some EUR 3.4 bln has been earmarked for Greece, Spain and Italy. Recently, the European Commission announced another initiative with businesses in order to create apprenticeships, traineeships and other types of work-based learning for young people.

In November 2015, the European Commission launched the European Pact for Youth (EPY), an initiative with European companies which aims at creating apprenticeships, traineeships and other types of work-based learning, in order to help young people transition into their first jobs. The EPY is following up on the Youth Employment Initiative, launched by the Commission in 2012, which is also meant to tackle high rates of youth unemployment in the EU, particularly in Greece and Spain.

The European Commission will this year present an EU Skills Initiative, focussing on helping more people develop and upgrade their skills.

January 20 - 26, 2016

financialmirror.com | PROPERTY | 13

Thank you Mr. Alan Kelly µy Antonis Loizou Antonis Loizou F.R.I.C.S. is the Director of Antonis Loizou & Associates Ltd., Real Estate & Projects Development Managers

In an announcement last month, Ireland’s Environment Minister Alan Kelly said new housing units should be built of a size and cost that people can afford to buy. He said the new measures were aimed at encouraging affordable housing and in response to those who persist on older regulations for larger apartments, he simply quipped “get real”.

Now, this is a minister of a country that is enduring (with a better economy than our own) the Troika and an austerity plan, wage cuts and unemployment, but after many sacrifices is now on a growth path with unemployment reduced from 15% in 2012 to 9% in 2015 and a growth rate rising from zero to 4% in 2016.

I want to return to the debate about urban development measures and seeing the economic situation of Cyprus we seem to be living with our heads in the clouds. The highly paid semi- and government employees are once again making noise about reinstating their wages, the dreaded cost of living allowance (COLA), etc., while private sector workers who have carried the burden of restructuring the economy, remain ignored, with 50,000 still unemployed. At the same time the unions demand that they shape the economic policy of the state, with the political supporting their every move. So what if the Troika does not give us the final 500 mln euros in aid, if we simply do not go ahead with privatisations, a party leader retorted. Even if the Troika is lending to us with an interest of 1.5%, would we be better off going to the markets and borrowing at 4.5% and let the Cypriot tax payer carry the burden?

The Irish seem to be more

patriotic than us Cypriots and they set one goal, to rid themselves of the Troika programme. Among these non-patriots are some highly paid public officials with expensive limos and drivers, but do not seem to have any qualms to be the reason for unnecessary fines imposed on the Republic that we citizens have to pay through our taxes. Now we have the Akamas quandary that will not be solved because we have a small group of self-proclaimed environmentalists who object to reduce the area of the Natura scheme within the national park, even if it costs us an additional 700 mln euros that the state currently does not have, in addition to the 5 mln annual upkeep cost.

As regards the mentality that prevails on these issues, I refer to the mentality that prevails in some government departments, mainly in the Town Planning Dept. (and the ETEK technical chamber that likes to remind itself that it is the adviser to the State) that remains silent over the proposals for “affordable” urbanisation.

In addition to the Akamas plan and the non-viable ideas I have been criticising for the past 20 years, we now have to deal with new requirements of minimum areas for apartments. Irrespective if a family can afford to buy a two-bedroom apartment or not, the area is set at a minimum of 80 sq.m. So, our technocrats have regulated by law how many square meters Cypriot citizens should live in, irrespective if it is affordable or not. We also have requirement for parking spaces regardless if the project lies within the central confines of towns and if there is no land in order to build parking spaces on, simply to allow the local municipalities to charge 3,000 to 5,000 euros per “virtual” space that will never be granted. Therefore, with the small plot sizes that exist in city centre residential areas, and despite government social policies for “cheap” housing, any effort to revive the economy through this additional measure has failed.

So for the sake of comparison, concerning the minimum sq.m. in Ireland, I present the

Is this a “big” studio or a “small” apartment?

following table: The issue of our minimum areas is particularly evident in the tourist / residential apartments where a high proportion are foreign buyers (in 2008 45% of demand by foreigners, while in 2015 it was 27%), a rate which is very high suggesting the basis of our construction industry.

If we compare two projects which are under our own management, the Ayios Elias in Protaras with 2-bedroom apartments of 60 sq.m. and another in Larnaca with an area of ??80 sq.m., we find that there is a difference in the selling price of around 40,000 euros, including VAT, transfer fees and construction costs. While the first project due its low selling price has a long waiting list of buyers with demand for resales at higher prices, while in the second we see new units for sale offered at 30% less than the demand.

It is the latest fashion for someone to report the matter to the Auditor General, but should be the basis for the complaint: narrow-

mindedness, indifference, stupidity, what?

“Get real,” said Environment Minister of Ireland and perhaps we should borrow the phrase to study the tragic state of our urban planning.

Since I have been writing about this subject for 15 years with the suggestion that flawed decisions by government officials should be rewarded in the form of compensation, perhaps whoever heads the Town Planning Dept. and others with similar ideas (including and the state advisor) should adopt the recommendation for compensation. This may be a theory, but we should start from somwhere.

In my last argument with public officials it stated that “Cypriot should live in decency, not in holes”. So, I ask, why not place a limit on what is the minimum requirement for a Cypriot to buy a mini-car, and opt for a larger Mercedes, because Cypriot should not only live but also drive “decently”. www.aloizou.com.cy ala-HQ@aloizou.com.cy

Real estate expectations – failing to strike a balance

By George Mouskides

distance to cover to arrive at a normalised market, but the prospects are positive.

Paradox Since the middle of 2008 real estate prices took a plunge, till about six months ago, when the process stabilised and it is expected that prices will remain unchanged during 2016.

No projections beyond that can be made as a lot of unknowns, affecting prices, come into the equation.

The volume of transactions hit rock bottom in 2013, reaching a low of 3,767, following a record year in 2007 with 21,245 sales. Based on that, 2014 and 2015 recorded increases of 20% and 9% respectively, reaching 4,952 in 2015.

Expectations

The upward trend is expected to continue in 2016 and is estimated at a 10-15% increase.

A sales volume in the real estate sector during a ‘normal’ year should amount to about 10,000-12,000 transactions, based on which it is easily understood that we have some

Despite these facts and figures, we now have the sellers arguing that market conditions have suddenly improved immensely and higher asking prices are justified.

Buyers at the same time opt to walk down the pessimistic path, suggesting that the economic crisis is still to hit bottom and prices will further decline.

It is clear that the two groups live and operate in two different and distant worlds and will never achieve what both should be aiming for, that is to set up and finalise a property transaction.

Being Cypriots, we are known to have difficulty striking a balance between two extremes, on many issues. Instead of walking a straight line, many a time we’ll either jump off the cliff or take off to the skies.

Improvement

There are a lot of indications that the real estate market will grow at a slow but steady pace. It will also probably be

below the normal volume of transactions and prices.

There are of course factors which may affect these projections. Namely, the progress of settling non-performing loans and foreclosures, the rate of new bank loans, economic growth, unemployment rates, buyers’ psychology and much more.

These are unknowns which could shift the market either way.

The possibility of a solution to the Cyprus problem was not mentioned on purpose, as such a development would generate a whole new dynamic for the real estate sector.

Summing up, I would expect that prices will remain stable for a period of time while sales are expected to gradually rise but remain below normal levels for quite some time. Both sellers and buyers should exercise common sense and evaluate all factors in their true dimensions rather than being led into making wrong decisions either by over-optimism or over-pessimism.

George Mouskides is General Manager, FOX Smart Estate Agency and Chairman of the Cyprus Association of Property Owners (KSIA)

January 20 - 26, 2016

14 | MARKETS | financialmirror.com

Are equity markets about to bottom out?

By Oren Laurent President, Banc De Binary

Investors looking to cash in on the current equities rout will no doubt be scratching their heads in utter confusion.

2016 was supposed to herald a time of equities stabilization, with the all the anxiety of the December 16, 2015 rate hikes a thing of the past. There was tremendous volatility in currency markets and equities markets ahead of the rate hike with no clear indication which way markets would go. By the time liftoff took place, all the variables had already been factored into the markets and a period of stabilization was expected heading into the New Year.

But then all hell broke loose and Chinese bourses crumbled within the first week of trading. Two days of 7% declines rocked the Shanghai and the Shenzhen Composite Index and this had a devastating effect on global equities markets. From Hong Kong to Paris, London to New York, markets have been reeling. The latest such catastrophe took place on Wall Street on Friday the 15 January, 2016. It was then that all of Wall Street’s major averages plummeted on the news of crude oil weakness and widening cracks in the Chinese economy.

Wall Street Stocks Crumble Wall Street stocks have fluctuated wildly as investors try to gauge market sentiment on a day-to-day basis. As oil prices breach new lows, confidence in the global economy plunges.

This has resulted in steep selloffs across all major averages including the following: - The S&P 500 lost 2.16% to close at 1,880.33 - The NASDAQ shed 2.74% to close at 4,488.42 - The Dow traded 2.39% lower to close at 15,988.08 The declines on Wall Street were matched by declines elsewhere. In France, the CAC 40 closed 2.38% lower at 4,210.16 and in Germany the DAX closed 2.54% lower at 9,545.27. In London, the FTSE 100 index shed 1.93% to close at 5,804.10. All of these declines are the net effect of China weakness and oil price declines coupled with a bearish tidal wave that has swept the world. As it stands, economic analysts, investors and traders alike are uncertain where the current bottom in the market is. Every time it appears as if the price of oil has hit a support level, it gives way and new lows are recorded. The big shock on Friday was when the $30 support level gave way under massive oversupply and slack demand.

Weakness in Equities Causes Gold Rush But it isn’t only ongoing supply concerns that are dogging markets; it’s the latest report from the EIA. According to the Energy Information Administration while crude oil inventories are declining, gasoline and diesel inventories are rising in the US. This does not bode well for what is supposed

to be growing domestic demand. Gold has been rallying on the back of weak equities demand, but even the gold price has retraced from its 9-week high of $1,112 per ounce. The precious metal is now trading at $1,090 per ounce.

The pull/push factors driving gold are strangely correlated.

For example, the price of gold is inversely correlated with the strength of the USD. As the dollar gains ground, the gold price plunges. But at the same time gold tends to rally when equities markets are weak. We have a situation now where equities markets are weak as a result of interest rate hikes in the US, weakness in China and historic lows for crude oil.

The Shanghai Composite Index closed the trading session on Friday 3.55% lower at 2,900.97. These sharp declines have become commonplace in China despite government intervention. One of the problems in China equities markets is over-valuation. While western countries’ stock markets like the US, UK, Germany, Switzerland and Canada typically trade at under 20 times earnings, Chinese equities trade at 57 times earnings. We are now in the midst of the equities bubble meltdown in China and it doesn’t matter what the authorities in Beijing are trying to do to arrest the declines; there is simply no appetite for maintaining over-valued stocks on the Shanghai Composite and the Shenzhen Composite indices.

of late. There is substantial weakness in equities with sentiment heavily bearish. But when will markets bottom out? For analysts this question is as perplexing today as it was when the commodity price rout began.

The problem is that nobody knew the extent of the weakness in the Chinese economy. We are seeing widening cracks all the time.

Not only is the Peoples Bank of China enacting quantitative easing measures to further stimulate the economy, but there are moves afoot to weaken the CNY to kickstart Chinese export growth.

These policy measures do not go unnoticed by other emerging market economies: now we are seeing reciprocal measures being adopted to make China’s competitors more competitive with the world’s second largest economy.

That major banks and financial institutions have called $20 oil a real possibility has not helped matters. At current prices, there is still substantial room for oil prices to drop and for every downward revision in prices, we can expect equities to follow suit. How low can equities markets go? This is a question that even the sharpest minds refuse to put a number on. Suffice it to say, January is considered the month that investors must get through before any clarity is gained on equity prices. The good news about falling share prices is that value stocks become available.

Tech stocks on the NASDAQ and mining stocks on the Dow become far more affordable and the inevitable turnaround is bound to occur sooner or later. For the time being, advisors have the perfect window-period to rebalance financial portfolios before the rush to buy equities kicks in.

For example, if you’re the type of investor whose portfolio is heavier in Treasuries, CDs and savings you may wish to consider diversifying into equities now that prices are cheap.

We are not at the bottom yet, but we are getting close. The end of January appears to be a good starting point.

Please note that this column does not constitute financial advice.

Catching a Falling Knife in a Bear Market Speculators and short-sellers have gained the ascendancy

The Financial Markets Interest Rates Base Rates

LIBOR rates

CCY USD GBP EUR JPY CHF

0-0.25% 0.50% 0.05% 0-0.10% -0.75%

Swap Rates

CCY/Period

1mth

2mth

3mth

6mth

1yr

USD GBP EUR JPY CHF

0.43 0.51 -0.22 0.05 -0.79

0.51 0.55 -0.18 0.07 -0.77

0.62 0.59 -0.15 0.08 -0.75

0.85 0.75 -0.06 0.11 -0.68

1.15 1.02 0.05 0.22 -0.61

CCY/Period USD GBP EUR JPY CHF

2yr

3yr

4yr

5yr

7yr

10yr

0.94 0.89 -0.08 0.09 -0.73

1.12 1.03 -0.02 0.09 -0.68

1.27 1.17 0.09 0.11 -0.57

1.41 1.30 0.23 0.14 -0.45

1.65 1.52 0.50 0.23 -0.21

1.92 1.75 0.87 0.39 0.07

Exchange Rates Major Cross Rates

CCY1\CCY2 USD EUR GBP CHF JPY

Opening Rates

1 USD 1 EUR 1 GBP 1 CHF 1.0868 0.9201

100 JPY

1.4310

0.9940

0.8471

1.3167

0.9146

0.7794

0.6946

0.5920

0.6988

0.7595

1.0060

1.0933

1.4396

118.05

128.30

168.93

0.8522 117.35

Weekly movement of USD

CCY\Date

22.12

28.12

05.01

12.01

19.01

CCY

Today

USD GBP JPY CHF

1.0860

1.0918

1.0778

1.0824

1.0826

0.7296

0.7316

0.7322

0.7451

0.7587

131.56

131.40

128.55

127.07

127.40

GBP EUR JPY

1.0773

1.0756

1.0776

1.0811

1.0897

CHF

1.4310 1.0868 118.05 1.0060

Last Week %Change 1.4527 1.0824 117.40 0.9988

+1.49 -0.41 +0.56 +0.72

January 20 - 26, 2016

financialmirror.com | MARKETS | 15

Keep calm and rebalance into equities Marcuard’s Market update

by GaveKal Dragonomics The investment environment has not fundamentally changed since December. Then as now, the situation neither justifies being “all in” nor “all out”. Since the economic situation is worsening, a balanced portfolio of some type makes sense—this view rests on there being no clear evidence of a looming US recession and inevitable associated bear market for equities (at which point tin hats should be donned). In my view, that time has not yet come. So, with stocks down about -9% YTD (in the US and globally), investors should look to rebalance out of bonds or cash and into equities to maintain whatever “balance” they had before this sell-off.

This suggestion is based on our framework that connects the economic cycle and return on invested capital. The idea is that when the return on capital is above its cost, and the spread is either widening or stable at a wide margin, investors should be “all in” risk assets. That was generally the case from mid-2009 to mid-2013. Things began to change in mid-2013 when the return on capital started to slide, and at the same time the Federal Reserve began to retreat from its highly accommodative policy. Thus, based on our framework, the second half of this investment cycle began in mid-2013, and since then a balanced portfolio of some sort has been justified. It still is.

Recent data confirms the trend of a gradual deterioration, but does not yet indicate a recession is nigh. The US mining and energy sector continues to suffer severe pain. But the story elsewhere is less exciting. The shale bust has neither caused a financial crisis nor ushered in a consumption driven boom. Bank credit growth has been strong and stable, growing at 7-8% YoY since late 2014 (suggesting that the private sector was indeed ready to expand credit on its own, without more asset purchases by the Fed). Retail sales are growing at a real rate of about 2%, which is on the low end of their range since 2012 but still indicative of stable consumption.

Meanwhile, US manufacturing growth has slowed to a snails’ crawl—up just 0.8% YoY in December. This is mostly due to the emerging market slowdown and the uncompetitive US dollar. Add to those woes an elevated stock of inventories to work off and US manufacturing output may well decline YoY in the coming months. Worryingly, such an event most often occurs during recessions; but it can occur without recession.

It is a fools errand to rely on a single sector as a pointer to US recessions, but if pushed we’d opt for home construction as it provides an earlier signal of impending trouble. This is probably because the housing sector is unusually sensitive to interest rates (along with job and wage growth). It is thus quick to rebound after the Fed slashes rates, prone to overbuilding during booms, and then quick to correct as the cycle matures, interest rates rise and affordability falls. While the housing boom took pause after interest rates rose in 2013, it now looks to be back on track.

This makes sense as interest rates remain low, housing is decently affordable and the market is still undersupplied relative to household formation.

Better than relying on any single sector, we suggest looking at the return on capital for the entire US business sector. Such returns are deteriorating (as will likely be highlighted once again by this earnings season and 4Q15 national accounts data). However, return on capital remains well above the cost of capital (despite the recent Fed hike and

the widening of spreads). As such, the situation remains consistent with a balanced portfolio. Keep calm, and rebalance into equities.

WORLD CURRENCIES PER US DOLLAR CURRENCY

CODE

RATE

EUROPEAN

Belarussian Ruble British Pound * Bulgarian Lev Czech Koruna Danish Krone Estonian Kroon Euro * Georgian Lari Hungarian Forint Latvian Lats Lithuanian Litas Maltese Pound * Moldavan Leu Norwegian Krone Polish Zloty Romanian Leu Russian Rouble Swedish Krona Swiss Franc Ukrainian Hryvnia

BYR GBP BGN CZK DKK EEK EUR GEL HUF LVL LTL MTL MDL NOK PLN RON RUB SEK CHF UAH

20132 1.4309 1.7995 24.86 6.8671 14.3972 1.0867 2.405 289.52 0.64668 3.1771 0.395 20.4 8.8156 4.0882 4.171 78.2537 8.5719 1.0064 24.6

AUD CAD HKD INR JPY KRW NZD SGD

0.6938 1.4445 7.807 67.6425 118.03 1205.8 1.5404 1.434

BHD EGP IRR ILS JOD KWD LBP OMR QAR SAR ZAR AED

0.3770 7.8053 30117.00 3.9575 0.7068 0.3047 1513.00 0.3850 3.6412 3.7485 16.6412 3.6729

AZN KZT TRY

1.62 377.48 3.0274

AMERICAS & PACIFIC

Australian Dollar * Canadian Dollar Hong Kong Dollar Indian Rupee Japanese Yen Korean Won New Zeland Dollar * Singapore Dollar MIDDLE EAST & AFRICA

Bahrain Dinar Egyptian Pound Iranian Rial Israeli Shekel Jordanian Dinar Kuwait Dinar Lebanese Pound Omani Rial Qatar Rial Saudi Arabian Riyal South African Rand U.A.E. Dirham ASIA

www.marcuardheritage.com

Disclaimer: This information may not be construed as advice and in particular not as investment, legal or tax advice. Depending on your particular circumstances you must obtain advice from your respective professional advisors. Investment involves risk. The value of investments may go down as well as up. Past performance is no guarantee for future performance.

Investments in foreign currencies are subject to exchange rate fluctuations.

Marcuard Cyprus Ltd is regulated by the Cyprus Securities and Exchange Commission (CySec) under License no. 131/11.

Azerbaijanian Manat Kazakhstan Tenge Turkish Lira

Note:

* USD per National Currency

January 20 - 26, 2016

16 | WORLD | financialmirror.com

China’s stock-market red herring

By Jeffrey Frankel Professor of Capital Formation and Growth at Harvard University With the Shanghai Stock Exchange Composite Index down more than 40% since last June, investors worldwide are watching the decline with growing concern – but not because they are invested in the plummeting market (China’s stocks are overwhelmingly held by Chinese). Rather, the fear is that plunging equity prices mean that China’s economy is going down the tubes. But those seeking compelling clues about China’s economic future should look elsewhere.

Of course, it is true that China’s growth rate has slowed substantially, and there are plenty of reasons to believe that the deceleration is not temporary. But none of those reasons has much to do with the stock market.

This disconnect is apparent in the fact that market prices are higher today than they were in 2014, the year when China surpassed the United States to become the world’s largest economy (in terms of purchasing power parity), a development that spurred bullish expectations. What observers at the time did not seem to recognise was that China’s economy was already slowing. According to official statistics, the growth rate averaged 10% in 1980-2010, but fell to 7-8% in 2012-2014.

At first, the slowdown actually contributed indirectly to a rise in stock prices, by spurring the People’s Bank of China to begin cutting interest rates in November 2014. But by the spring of 2015, the market’s boom was looking a lot like a credit-fueled bubble. The Shanghai index peaked on June 12, when the China Securities Regulatory Commission tightened margin requirements.

The truth is that China’s economic slowdown should not have surprised anyone. The country’s three-decade run of 10% annual GDP growth was already unprecedented. The question is why no country, not even China, managed to

prolong its economic miracle? Some offer broad explanations: countries fall into the middle-income trap or experience a regression to the mean in growth rates. But, in China’s case, a number of specific factors may be at play.

The first factor is diminishing returns to capital, which weakened the growth-enhancing effects of, say, investment in transport infrastructure and residential construction.

Another is that urban land prices have been bid up, while the environment’s “carrying capacity” has been exhausted.

Then there are demographic challenges. The working-age population has peaked, and the share of retirement-age population is rising fast – not least because of the country’s 35-year-long one-child policy, which was only recently rescinded.

Moreover, China’s once seemingly inexhaustible surplus of rural labour willing to migrate to urban areas has largely disappeared, causing wages to rise and the country’s competitive advantage in labor-intensive manufacturing to weaken. The economy has shifted from manufacturing toward services, where there is less scope for productivity growth.

Moreover, room for catch-up gains with the developed economies in terms of technology, production processes, and management practices is shrinking, undermining productivity growth further – and leaving it up to China to do some innovating of its own.

Against this background, a shift to a trend annual growth rate of 5-7% is natural. But that shift can happen in two ways: a soft landing, in which China continues to grow at the slower-but-sustainable trend rate, or a hard landing, involving a financial crisis and more severe economic recession.

Like Japan after the 1980s or South Korea in 1997-1998, China has depended significantly on investment and debt financing during its high-growth phase, raising the risk that excess capacity could lead to financial crisis as the economy slows. And, indeed, excess capacity is already a serious problem in many sectors.

Still, it is unclear what kind of landing China faces – not least because official statistics may be overstating current

GDP growth considerably. With official growth data usually aligning a little too closely with government targets to be credible, skeptics are turning to other, more tangible measures of economic conditions, pointing out that energy consumption, freight railway traffic, and output of industrial products like coal, steel, and cement has slowed sharply.

These statistics could, as many infer, indicate that China’s economy is growing at a rate much lower than the 7% the government claims. But, as Nicholas Lardy persuasively argues, they could also reflect the economy’s shift from heavy manufacturing toward services – a shift that is highly desirable in helping China’s natural transition to the more sustainable trend.

It is still possible, then, that China is on track for a soft landing. But success presupposes less reliance on investment spending and export demand, and more on domestic household consumption, to support growth.

Moreover, China must increase the flexibility of land and labor markets. For example, insecure land rights in the countryside and the hukou (household registration) system in the cities continue to impede labor mobility. More generally, markets’ role in shaping the economy must continue to grow. State-owned enterprises must be reined in.

The health-care, social-security, and tax systems must be reformed and strengthened. And better environmental regulation is crucial.

Chinese leaders and economists already know all of this.

They adopted a list of reform objectives covering these areas in 2013. And in the last two years, they have made progress in implementing some of them. But there is still a long way to go, and success is by no means guaranteed. As Shang-Jin Wei, the chief economist of the Asian Development Bank points out, progress on these reforms – not what happens in the stock market – is what will determine the fate of China’s economy.

Jeffrey Frankel is Professor of Capital Formation and Growth at Harvard University. © Project Syndicate, 2016 - www.project-syndicate.org

China risks trigger IMF downgrade of global GDP

By Douglas McIntyre 24/7 WallSt.com The International Monetary Fund (IMF) has cut its forecasts for global gross domestic product improvement to 3.4% this year and 3.6% in 2017. The downgrade is largely due to a slowing Chinese economy. Its GDP report confirmed the IMF worry, as the number for 2015 was 6.9%, the lowest since 1990.

To make matters worse, many

economists believe that China overreports its GDP figure, and the improvement may have been as low as 5% last year.

The IMF uses China’s official number.

Based on that figure, China’s 6.9% growth will drop to 6.3% this year and 6.0% in 2017. Its period as the engine of the global economy has ended.

Two major economies that have lagged over the course of the recession recovery will continue to do so. The European Union GDP improvement was 1.5% last year and will be flat at 1.7% in 2016 and 2017. Japan will barely grow. After an

improvement of 0.6% in 2015, it will be 1.0% this year and up 0.2% in 2017, according to the IMF forecast With the exception of India, the world’s other large emerging economies will struggle. The IMF forecasts India’s GDP will rise by 7.5% this year and next.

However, its GDP is not large enough to come close to offsetting problems in those other large emerging nations.

Ironically, the U.S. economy will be a foundation of global growth in the next two years. America’s economy was supposed to drag on global GDP. After a 2.5% improvement in 2015, the IMF

forecasts 2.6% in 2016 and 2017.

The IMF’s conclusion: “Looking beyond the short-run forecasts, there are important risks to the outlook, which are particularly prominent for emerging market and developing economies and could stall global recovery.”

“These risks relate mostly to the ongoing adjustments of the global economy, namely China’s rebalancing, lower commodity prices, and the prospects for the progressive increase in interest rates in the United States.”

In other words, the IMF hints that its GDP numbers may be too high.

‘Grim economic news’ pressures oil — IEA The International Energy Agency (IEA) commented in its January Oil Market report that the downward pressure on oil was due to a small number of large factors. The one that should worry economists and national leaders is that “grim economic news” was at the top of the list.

The other two primary causes were a warm winter across much of the Northern Hemisphere and oversupply.

In the report, the IEA experts wrote: Persistent oversupply, bloated inventories and a slew of negative economic news pressured prices so that by midJanuary crude oil touched 12-year lows. The OMR outlook for 2016 has demand growth moderating to 1.2 million b/d.

Global oil supplies expanded by 2.6 mb/d last year, following hefty gains of 2.4 mb/d in 2014. By last December, however, growth had eased to 0.6 mb/d, with lower nonOPEC production that pegged below year-earlier levels for the first time since September 2012.

OPEC crude output eased by 90,000 barrels per day in December to a still-lofty 32.28 mb/d, including newly

rejoined Indonesia. Iran, now relieved of sanctions, insists it will boost output by an immediate 500,000 b/d. Our assessment is that around 300,000 b/d of additional crude could be flowing to world markets by the end of the current quarter.

Global inventories rose by a notional 1 bln barrels in 201415, with the fundamentals suggesting a further build of 285 mln barrels over the course of this year. Despite significant capacity expansions in 2016, this stock build will put storage infrastructure under pressure and could see floating storage become profitable.

Global refinery runs averaged 79.5 m b/d in the fourth quarter of 2015, down 0.3 mb/d from the estimate in last month’s OMR due to lower-than-expected throughputs in non-OECD Asia except China and a very high maintenance schedule in October.

Global refinery margins weakened in December as middle distillate cracks fell and overwhelmed the resilience of gasoline and naphtha.

January 20 - 26, 2016

financialmirror.com | WORLD | 17

China’s slowing growth adds to global woes Markets Report b

By Lukman Otununga, Research Analyst at FXTM

The global markets were awoken by fresh China woes on Tuesday following the announcement of the 2015 annual GDP figure of 6.9% which has been the weakest full-ear growth for a quarter of a century. This soft GDP announcement compounds to the recent data from China which has followed a negative trajectory and has consequently intensified the mounting anxieties around the slowing pace of growth in the world’s second largest economy. With China GDP growth below the golden 7% yearly target, the visible economic slowdown may have further elevated investors’ fears towards the failure of a series of aggressive measures by Beijing to revive growth and as such may reinforce the bearish sentiment towards the Chinese economy.

Asian stock markets were mixed following the disappointing China GDP announcement with the Shanghai Composite trading 3.22% higher as investors pondered the likelihood of further stimulus measures from Beijing. Despite the mixed reaction in the Asia markets, the renewed wave of risk aversion from the incessant decline in oil prices and ongoing fears around the slowing global growth still weigh heavily on investor sentiment and this may drag Asian stocks lower in the near term.

The anxieties around China being unable to fulfill its 7% yearly GDP target may ripple back down to the European stocks which are already heavily depressed and this contagion is seen dragging down American equities towards the same downwards direction. Overall confidence in the global economy is frighteningly low, and the latest soft China GDP release may have invited further declines throughout global stocks as risk averse investors scatter away from riskier assets.

Sterling pressured ahead of CPI Investor attraction towards the Sterling periodically diminishes as the recurrent concerns around the visible slowing pace of growth in the United Kingdom has provided little incentive for the Bank of England (BoE) to raise interest rates. The lingering impact of the BoE’s decision last week to leave rates unchanged due to the anxieties around stagnant wage growth and static inflation has left the pound vulnerable, while external factors such as the slowing global growth and aggressive depreciation in oil prices continue to elevate fears around the UK economy being open to threats abroad. Inflation in Britain has been notoriously low for an extended period and if Tuesday’s CPI report follows the same disappointing pattern, then the BoE may be provided with yet another compelling reason to push back UK interest rate rise expectations deep into early 2017.

The GBPUSD remains heavily bearish on the daily timeframe and the short term interest rate differential between the BoE and the Federal Reserve should offer an

opportunity for bearish investors to send the GBPUSD lower.

From a technical perspective, previous support around 1.4300 should act as a dynamic resistance and this should encourage sellers to send prices towards 1.4000.

The Eurozone’s bout with inflation The Eurozone continues to battle with stubbornly low inflation levels while the stalling economic growth in Europe has left the European Central Bank’s credibility on the line.

Falling commodity prices and decelerating global growth have obstructed the ECB’s 2% inflation target and it seems likely that the central bank may be forced to slash inflation forecasts as investors have lost faith in the ability of policymakers. It is widely speculated that the ECB will keep rates unchanged on Thursday during the press conference, while Mario Draghi may be expected to reiterate his dovish view on the health of the Eurozone in an attempt to talk down the value of the Euro.

Commodity spotlight – WTI Oil The mounting anxieties around Iran’s return into the heavily saturated international oil markets following the sanctions lift has resulted in WTI oil plunging to fresh 12-

year lows of $28.60 during trading on Monday. Investor attraction towards oil remains haunted as speculations swell around the possibility of Iran pumping as much as 500,000 bpd of crude oil while ongoing fear that demand for the commodity may be waning has prevented any opportunity for a recovery in value. The damage of OPEC’s decision to leave production unchanged in December is quite visible in the markets and most investors have already started to bet that the cartel may follow the same decision in future meetings in an attempt to prevent Iran from re-attaining its lost market share. WTI remains bearish from almost every direction and with no clear signs of an emergency meeting coming forth despite oil prices consistently trading to fresh 12 year lows; bearish investors may continue to attack prices towards the lows of August 2003 at $25.

From a technical standpoint, WTI is heavily bearish on the daily timeframe. Prices are trading below the daily 20 SMA and the MACD has crossed to the downside. If prices breakdown and close below $29 on the daily timeframe, sellers may be encouraged to send prices towards $25.

For information, disclaimer and risk warning note visit: www.ForexTime.com FXTM is an international forex broker regulated by the Cyprus Securities and Exchange Commission (CySEC), nd FT Global Limited is regulated by the International Financial Services Commission (IFSC)

OPEC raises 2016 oil demand estimate, forecasts more balanced market In its Monthly Oil Market Report for December, released Monday morning, the Organisation of the Petroleum Exporting Countries (OPEC) noted that the cartel’s price for its reference basket fell 17% in December and that for 2015 the value of a reference barrel fell nearly 50%. The main contributor to the decline was “persistent oversupply,” but the slowing of China’s economic growth and the increasing strength of the U.S. dollar also played a role.

On a yearly average basis, the price of both Brent and WTI crude fell double digits for a second straight year, with ICE

Brent closing 2015 at an average of $53.64 a barre compared with $99.51 at the end of 2014. Nymex WTI plunged by $44.20 a barrel to settle at $48.80, down from $93 in 2014. The Brent-WTI spread narrowed significantly again in December to average $1.58 a barrel, as WTI gained some support from a momentary decline in inventories, reduced drilling, and the end of a ban on most U.S. crude exports.

Prices have fallen even further in the first half of January. WTI closed at $38.17 on December 31 and fell to $29.35 a barrel on Friday, a drop of 23%. Brent closed at $37.67 on the last day of 2015

and settled at $28.94 last Friday, also a drop of 23%. But notice that Brent now trades below WTI. OPEC pumped 32.18 mln barrels of oil a day in December according to what the cartel refers to as secondary sources, down 211,000 barrels a day month-overmonth. Non-OPEC member Oman has offered to reduce production by 5% to 10% if it can persuade other producers to do the same thing. OPEC members that have been hit hardest by collapsing oil prices may want to follow along, but are unlikely to do so. Not with Iran about to begin exporting crude again after sanctions have

been lifted. The cartel notes in its report that world demand for oil in 2015 averaged 92.92 mln barrels a day while supply exceeded demand by 1.94 mln barrels a day. OPEC forecasts 2016 demand of 94.17 mln barrels a day, an increase of about 1.3%. Non-OPEC supply is forecast at 62.53 mln barrels a day, leaving the so-called ‘demand on OPEC’ at 31.65 mln barrels a day.

Combined OPEC and non-OPEC supply exceeds demand by about half a million barrels a day. That’s closer to balance, but the impact on pricing could be negligible. (Source: 24/7 Wall St.com)

January 20 - 26, 2016

18 | WORLD | financialmirror.com

Getting anxiety right

By Joseph LeDoux When researchers want to evaluate the efficacy of new anxiety treatments, the traditional approach is to study how rats or mice behave in uncomfortable or stressful situations.

Rodents shun brightly lit, open spaces, where, in the wild, they would become easy prey. So their natural tendency in a test apparatus is to find areas that are poorly illuminated or close to walls. The longer a medicated animal spends in areas in which it is unprotected, the more effective the drug is judged to be in treating anxiety.

But the drugs that have resulted from this approach are not actually very good at making people feel less anxious.

Neither patients nor their therapists consider the available options – including benzodiazepines like Valium and selective serotonin reuptake inhibitors like Prozac or Zoloft – as adequate treatments for anxiety. After decades of research, some of the big pharmaceutical companies are raising the white flag and cutting back on efforts to develop new antianxiety drugs.

But we cannot afford to give up on treatment for the socalled anxiety disorders, which encompass problems related to both fear and anxiety. Feelings of fear occur when a possible source of harm is nearby or likely to present itself, while feelings of anxiety usually involve the possibility of harm in the future. Worldwide, the lifetime prevalence of anxiety disorders is about 15%, and the cost to society is enormous. In the late 1990s, it was estimated that the economic burden of anxiety totaled more than $40 bln. The total cost is most likely significantly higher, because many anxiety disorders are never diagnosed.

Counter-intuitively, the reason that the most frequently prescribed anxiety medications don’t address the underlying problem is that they are working exactly as they should – according to the criteria used to design them. Most treatments based on studies using mice or rats do make anxiety disorders easier to live with. What they fail to do is actually make people less fearful or anxious.

The reason for this is simple. The brain systems that control behavioral responses in threatening situations are similar in rodents and humans, and involve older areas deep in the brain that work nonconsciously (for example, the amygdala). On the other hand, the systems that produce conscious experiences, including feelings of fear and anxiety,

involve evolutionarily new regions of the neocortex that are especially well developed in the human brain and poorly developed in rodents. Conscious feelings are also dependent on our unique linguistic capacities – our ability to conceptualize and name our inner experiences. It is telling that the English language has more than three dozen words for gradations of fear and anxiety: worry, concern, apprehension, unease, disquietude, inquietude, angst, misgiving, nervousness, tension, and so forth.

Consequently, though animal studies are useful in predicting how a drug will affect nonconsciously controlled symptoms triggered by threatening stimuli, they are less effective when it comes to conscious feelings of fear or anxiety. The drugs we have can help patients who, in order to avoid situations that inspire fear or anxiety, such as crowded subways or being judged by their peers or superiors, have stopped going to work. Just as medicated rats are less behaviorally inhibited (more able to tolerate bright, open spaces), medicated anxiety sufferers are more likely to be able to return to their jobs. But, because the treatments do not directly address conscious brain processes, the anxiety itself does not always go away.

If treatments are to become more effective, our approaches will need to become more nuanced. We will need to treat the systems that operate nonconsciously differently from those that result in conscious experiences. This doesn’t necessarily mean better drugs. Nonconscious responses can also be treated with exposure therapy, in which repeated interaction with a threatening stimulus is orchestrated in order to dampen its psychological effects.

Findings about how conscious and nonconscious brain systems work may enable us to make exposure therapy more effective. The basic idea is that the symptoms involving nonconscious processes should be targeted separately from those involving conscious processes.

I suggest the following sequence. Start with nonconscious exposures (using subliminal stimulation to bypass conscious thoughts and feelings that can be aroused and interfere with the exposure process) to dampen the response of areas like the amygdala. Once the nonconscious systems are under control, use conscious exposures to treat conscious symptoms. Finally, employ more traditional psychotherapies: Verbal interactions with the therapist aimed at helping patients work on changing beliefs, reevaluate memories, encourage acceptance of one’s circumstances, acquire coping strategies, and so on.

There is also a place for drugs in this approach, but not as a long-term solution. Rather, drugs can be used to make the exposure treatment more effective (the pharmaceutical d-

cycloserine has shown some promise in this regard).

The effectiveness of an approach that recognises that different brain systems control different symptoms has yet to be properly evaluated, but research suggests that it should work. It would also be noninvasive and would require only a repurposing of frequently used procedures. Given the magnitude of the problem, a stone so easily reached should not be left unturned.

Joseph LeDoux, Professor of Science, Neural Science and Psychology, and Child and Adolescent Psychiatry at NYU, is Director of the Emotional Brain Institute at the Nathan Kline Institute and NYU. His latest book is Anxious: Using the Brain to Understand and Treat Fear and Anxiety. © Project Syndicate, 2016 - www.project-syndicate.org

The tech literacy imperative

By Gavin Patterson

In many parts of the world, young children grow up surrounded by technology.

At their fingertips – literally – lies a limitless amount of entertainment, gaming, learning, and social networking.

Their world has always been connected.

They learn to scroll before they can walk. And yet, as confident as they may be using technology, too many children have no idea how it all works. Nor do they fully appreciate how it underpins their lives – or how it will shape their futures.

I think of this as the tech literacy paradox.

Today’s children may be great consumers of technology, but rarely are they truly tech literate. They may look like savvy digital natives, but their knowledge is only screendeep. They are passive users, not active creators. And most of them have little real interest in finding out how the technology on which they depend actually functions.

This has important implications.

Economies are undergoing radical shifts in terms of how they produce, distribute, and consume goods and services. Every aspect of life and work is changing. Greater tech literacy will be essential to ensure that the human implications of the ongoing Fourth Industrial Revolution are positive.

If young people are to participate fully in our increasingly tech-enabled world, greater numbers of them will have to be tech literate.

If they are to be empowered citizens, not just beguiled consumers, they will need to understand how technology affects their lives and prospects.

Not only will there be more tech jobs in the future; increasingly, more jobs will have a tech dimension to them, especially as scientific advances play a major role in solving some of society’s biggest challenges – climate change, health care, poverty, and inequality.

That is why BT has made a long-term commitment to use our skills and capabilities to help build a culture of tech literacy. We want young people to know that they will be the creators and builders of our future – in every sense. We want them to get excited about looking beyond the screen, to make and do stuff.

That means learning to code, of course.

But it also means becoming fluent in computational thinking and problem solving. And, perhaps most important, it means becoming an engaged tech citizen.

For example, all young people should understand who has access to their personal data, how it is being used, and why that matters. Accomplishing this will not be easy.

It will take more than simply making sure that children have access to iPads.

Any initiative to boost tech literacy must focus on three areas. First, kids must be inspired to learn about the technology they use every day; they must “connect” with tech concepts and find them exciting. At BT, we are collaborating with tech entrepreneurs and education thinkers to develop fresh and creative ways to engage young people’s innate curiosity.

Second, teachers must be supported, as many do not feel confident to teach tech literacy. We can help with that. Already, we have engaged with thousands of teachers in the United Kingdom; in the last school year, we reached nearly 350,000 primary-school children, and we aim to reach five million by 2020. We have also collaborated with education innovators at MIT to bring new coding tools into classrooms.

Third, schools must be properly equipped.

Making sure students have access to the latest technology is a challenge even for advanced countries. In the UK, we are working to ensure that our high-speed fiber broadband connects the hardest-to-reach schools. And we are using our expertise to help teaching professionals who are eager to make tech an integral part of schools’ everyday life.

A successful tech literacy programme requires a long-term, sustained commitment to all three pillars of this approach. We expect it will take a school generation to realize the cultural shift we believe is necessary.

Previous industrial revolutions unlocked social progress only when they were accompanied by changes in education – in particular, concerted efforts to boost literacy and numeracy.

If we want everybody to benefit from the radical upheavals transforming the world’s economies, further changes in education will be needed. Among the most important of these will be those that build a strong culture of tech literacy.

Gavin Patterson is CEO at BT Group. © Project Syndicate, 2016. www.project-syndicate.org

January 20 - 26, 2016

financialmirror.com | WORLD | 19

Islam’s path to modernity

By Mohammad Fazlhashemi

Many in the Muslim community have long taken issue with the United Nations Universal Declaration of Human Rights (UDHR). The declaration, these critics attest, was created by colonial powers with a long history of gross human-rights violations, and amounts to yet another attempt by a few Western players to impose their will upon Muslim countries. Islamic conservatives and fundamentalists go a step further, as they declare that no human invention can equal – much less supersede – sharia law, which amounts to the word of God. This clash between the UN’s secular human-rights standards and Muslim religious doctrine mirrors the broader conflict between Islam and modernity – a conflict that has left some citizens of Muslim countries, including women and non-Muslims, highly vulnerable. Fortunately, an emerging school of Muslim thought addresses the question in a new way, emphasizing that the Quran, like any religious text, must be interpreted – and that those interpretations can change over time.

In fact, the Quran does defend principles like liberty, impartiality, and righteousness, which indicates a fundamental respect for justice and human dignity. The problem, as emphasised by the Iranian theologian Mohsen Kadivar, is that many parts of sharia law are linked to premodern social structures, which deny women or nonMuslims the same protections as Muslim men receive.

It does not help that, as George Mason University’s Abulaziz Sachedina points out, men have been the ones to interpret Islam’s holy texts. This, rather than those texts’ true content, is the root cause of legal discrimination against women in Muslim countries.

The theologian Ayatollah Mohammad Taqi Fazel Meybodi points out that Islamic law regarding punishment – which includes brutal practices like stoning and amputation – originates from the Old Testament. Islam did not invent these punishments; they were simply the prevailing practices of the time.

As societies progress and evolve, so must the rules and standards that govern them. As the Iranian theologian Mohammad Mojtahed Shabestari of the University of Tehran emphasises, many of the ideas associated with justice and human rights, as we understand them today, were completely “un-thought” in the pre-modern era. But Muslims cannot simply disregard such ideas on the grounds that humans had not developed them at the time the Quran was written.

With the abandonment of outdated notions of tiered justice and the recognition of the liberty and dignity of all individuals, Shabestari believes that it will become possible to realise the Quran’s message that there should be no compulsion in religion. People’s religious decisions should be driven by their sense of faith, rather than their desire to retain their civil rights.

According to the philosopher Abdolkarim Soroush, this distinction between religious beliefs and civil rights should be obvious. But interpretations of Islamic law have traditionally been so focused on questions about mankind’s various duties that they have failed to recognise it. For Soroush, however, the denial of human rights based on “a person’s beliefs or absence of belief” is undeniably a “crime.”

The school of Muslim thought promoted by these scholars, who come from both Sunni and Shia backgrounds, offers a way forward for Islam. Its adherents know that key Islamic concepts, beliefs, norms, and values can be

harmonised with modern social structures and understandings of justice and human rights. By recommending ways to do so, they are reaffirming the durability of the core Islamic tradition. To use the language of the German philosopher Jurgen Habermas, they are creating “saving translations,” whereby a language, conceptual apparatus, and social system is updated to reflect progress in human reason.

Such saving translations in Islam have been emerging for a considerable period of time. Indeed, the late Iranian writer and philosopher Ayatollah Hussein-Ali Montazeri fell out with Supreme Leader Ayatollah Ruhollah Khomeini, after being designated his successor, over policies that he believed infringed on people’s fundamental rights and freedoms. In defending freedom of speech, Montazeri referred to a Quranic verse stating that God taught humans how to express themselves. “How can God, on the one hand, teach humans the ability of expression and, on the other hand, limit it?”, he asked. The obvious conclusion, he declared, was that “no one should be condemned for heresy, libel, or insult just for expressing his or her opinion.”

Montazeri, like today’s innovative Muslim thinkers, chose to remain open to alternate interpretations of the Quran, rather than becoming trapped by accepted tradition. The saving translations that these figures have offered demonstrate that modern global norms like the UDHR are not only compatible with Islam; they are deeply embedded within it. Reinterpreting – or even abandoning – antiquated rules rooted in outdated social structures does not amount to subverting the word of God. On the contrary, it proves the true depth of Islam’s sacred texts.

Mohammad Fazlhashemi is a professor of Islamic theology and philosophy at Uppsala University, Sweden. © Project Syndicate/Mohammed Bin Rashid Global Initiatives, 2016 - www.project-syndicate.org

Toward a new Islamic Golden Age

By Nidhal Guessoum The Muslim world’s past contributions to science and education were extraordinary.

The Islamic “golden age” – during which scholarship and learning flourished across the Muslim world – lasted many centuries, and included the establishment of the world’s first universities. Today, however, Muslim-majority countries lag well behind the rest of the world in terms of education and research. This must change if the region is to provide modern jobs and better lives to its booming population and keep up with global development.

As it stands, only one university from the Muslim world – Turkey’s Middle East Technical University – makes the top 100 in an international ranking, and only a dozen or so can be found in the top 400 in various other lists. While there are no international standardised tests in science and math at the university level, fourth-, eighth-, and tenthgrade students in the Muslim world test below the global average in these subjects, according to the Trends in International Mathematics and Science Study and the Programme for International Student Assessment. And the gap with students elsewhere is widening.

Moreover, research output – as measured by publications and citations in international journals, as well as patents – is disproportionately low relative to population

and financial capabilities. Muslim countries spend, on average, only about 0.5% of their GDP on research and development, compared to the global average of 1.78% of GDP and the OECD average of above 2%. The number of people working in science fields in the Muslim world is also well below the global average.

Eighteen months ago, a nongovernmental, nonpartisan task force of international experts – convened by the Muslim World Science Initiative and the Malaysian Industry-Government Group for High Technology, and coordinated by me – set out to explore the sorry state of science in the Muslim world and determine how universities could help to improve the situation. A better understanding of the various issues and possible remedies could enable science to flourish again in the Muslim world, with far-reaching benefits for its economies and societies.

Our review of the state of science at universities in the Muslim world took into account not just budgets and research, but also issues like the status of women in science studies and careers. Moreover, we conducted a thorough review – the first of its kind – of how science is taught at universities in the Muslim world, including pedagogical methods, textbooks, language of instruction, censorship of “controversial” topics (such as the theory of evolution), and the role of religion in science classes.

In a just-released report, the task force concludes that, though the overall state of science in the Muslim world remains poor, much can be done to improve it effectively and efficiently. The task force offers specific recommendations for academic institutions,

national policymaking bodies, and other stakeholders, such as science academies, industry associations, and civil-society organisations.

For academic institutions, one major goal should be to build students’ capacity for creative thinking and critical inquiry. To this end, the task force recommends broadening the education of science-focused students to include humanities, social sciences, languages, and communication. At the same time, it calls for the adoption of internationally tried and true teaching methods, particularly “inquiry-based” and “active-learning” approaches. Of course, such a shift would require professors to receive training in these methods.

Professors should also be encouraged to dedicate themselves to writing textbooks and conducting science outreach, not just publishing more papers.

This recommendation may be surprising, given the Muslim world’s low research productivity. But the reality is that such efforts will produce more real-world benefits than a single-minded focus on publication, which can inadvertently encourage plagiarism and junk science.

The task force has recommended that national policymaking bodies grant universities more space to innovate (especially in curricula) and evolve (in research programs and collaborations), each in its own way, according to its strengths and weaknesses. And it has called on all institutions to embrace meritocracy and shun gimmicks likes paying for “collaborations” to boost publications. A quick rankings boost is never worth the risk of reputational damage in the longer term.

These steps require a bottom-up program of change. That is why the task force has now put out an open call for universities across the Muslim world to join a voluntary Network of Excellence of Universities for Science (NEXUS). Overseen by the task force, this self-selected peer group – comprising university administrators and faculty who recognize that change must start from within – will implement the steps that the task force has devised.

The hope is that once the first group of universities’ efforts begin to bear fruit, more institutions will join. The resulting momentum will create pressure for ministries, regulators, and other policymaking bodies – which may be the most resistant to change – to take complementary steps.

Universities are hubs of research, critical thinking, and lively debate, where the next generation is not only exposed to established facts and theories, but also learns to dissect ideas, pinpoint flaws, and help enrich and expand our knowledge base. At a time when the Muslim world is facing unprecedented challenges, the importance of creating a healthy academic environment cannot be overstated.

Nidhal Guessoum is Professor of Physics and Astronomy at the American University of Sharjah, United Arab Emirates. He coordinated a task force on science at universities in the Muslim world. © Project Syndicate/Mohammed Bin Rashid Global Initiatives, 2016. www.project-syndicate.org

January 20 - 26, 2016

20 | BACK PAGE | financialmirror.com

The right incentives for a low-carbon future

By Thomas Fricke The climate agreement that world leaders reached in Paris last month has been widely celebrated for establishing the ambitious target of limiting the increase in global temperature to well below 2 degrees Celsius above preindustrial levels. But the agreement is just one step, albeit an important one. Policymakers now must figure out how to achieve this goal – no easy feat, especially given that, contrary to the conventional wisdom, steadily rising costs for conventional energy cannot be counted on to propel the necessary shift toward a low-carbon future.

At first glance, the logic of negative economic incentives seems sound. If, say, driving a gas-guzzling car becomes more expensive, people will presumably be less likely to do it.

But the impact of changing fuel prices is partial and delayed.

While drivers may purchase a more fuel-efficient car in the long run, they are more likely, in the shorter run, to reduce other kinds of consumption to offset the rise in cost. When it comes to resolving a problem as urgent as climate change, Keynes’s famous dictum – “In the long run, we are all dead” – clearly applies.

Moreover, even if consumers did respond efficiently, fossil-fuel prices are dictated largely by heavily financialised markets, which tend to be extremely volatile. The sharp decline in oil prices over the last 18 months is a case in point.

Not only have oil prices themselves failed to spur a reduction in consumption; they have undermined incentives to develop alternative energy sources. Investing in, say, solar power may have seemed worthwhile when oil cost $100 per barrel, but it looked a lot less appealing when the price dropped below $50.

Conceivably, policymakers could raise taxes to offset such declines. But such hikes sometimes (like now) would have to be huge, and adopting erratic policies that mirror the volatility of the market is never a good idea.

Carbon pricing could experience a similar fate. In the European Union, carbon prices have been low for several years, and for now market participants seem to be following the herd in believing that they will remain so. But there is no

guarantee that free emissions trading will not function like other financial markets, producing sharp fluctuations in CO2 prices. Should expectations suddenly change, the herd might turn and run in the opposite direction, causing CO2 prices to soar.

Yet another problem with the price-based approach to mitigating climate change is that it fails to account for markets’ potential to create perverse incentives. When the cost of conventional energy rises, new suppliers see an opportunity; thus, before June 2014, when oil prices were high, investors poured resources into developing shale oil and gas in the United States. The additional supply, however, ultimately causes prices to fall, reducing the incentive to invest in alternative energy sources or energy efficiency. This is a normal market reaction, but it does not advance the fight against climate change, which would require steadily rising costs.

The final reason why negative incentives alone are inadequate to mitigate climate change may be the most irrational: after some years of rising taxes, the public is staunchly opposed to any policy that may increase energy prices, regardless of whether current prices are high or low.

People are so convinced that energy costs are “exploding,” despite the recent oil-price collapse, that any new project implying even slightly higher prices – even if overall energy prices are still lower than they were five years ago – is now exceedingly difficult to initiate.

The implication is clear: When policymakers get to work designing strategies for executing the Paris agreement, they should not rely heavily on rising energy costs to advance their objectives. A strategy that assumes that the market will punish those who do not invest in a low-carbon future is not realistic.

A better approach is possible: Directly reward those who do invest in a low-carbon future, whether by enhancing energy efficiency or developing clean energy sources. For example, governments could implement accelerated depreciation schemes for investment in low-carbon businesses; offer subsidies for investment in energy-efficient buildings; and create policies that favor industrial innovation aimed at reducing emissions and boosting competitiveness.

All of this would make fossil fuels less attractive to both investors and consumers.

While an approach based on such positive incentives would be costlier than tax hikes in the short run, the longterm benefits can hardly be overstated. At a time of strong resistance to higher energy costs, this may well be among the most effective – not to mention politically savvy – mechanisms for advancing the goals set out in Paris.

Thomas Fricke is Chief Economist of the European Climate Foundation. © Project Syndicate, 2016 - www.project-syndicate.org

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