May-June 2022
Issue 28 Volume 21
UK £4 Europe ¤5.35
www.internationalfinance.com
US $6
The recent collapse of the crypto market has investors wondering if this is the end of the road for cryptocurrencies
Sri Lanka: An island in peril
How rattled is the US Fed?
Less pay for remote workers? International Finance | May - June 2022 |
1
MAY - JUNE 2022 VOLUME 21 ISSUE 28
EDITOR’S NOTE SANJAY KUMAR EDITOR-IN-CHIEF INTERNATIONAL FINANCE
Stagflation looms large
A
ccelerating the pace of damage from the COVID-19 pandemic, the Russian-Ukraine war has further given a fillip to the slowdown in the global economy, which is entering a phase of feeble growth and high inflation. According to the latest report of the World Bank titled Global Economic Prospects, the economic situation we are in raises the risk of stagflation, with potentially negative impacts for middle- and low-income economies alike. Global growth is expected to drop from 5.7% in 2021 to 3% in 2022. The latest forecast is significantly lower than the 4.1% made in January. This growth rate might continue in 2023-24, as the war in Ukraine will disrupt investment and trade in the near term. It will also lead to fading of pent-up demand and the withdrawal of fiscal and monetary policy accommodation. The ill effect of the pandemic and the war will reflect in the per capita income of the developing economies, which will be nearly 5% below its pre-pandemic level. This report of the World Bank offers the first systematic assessment of how current global economic conditions are comparable to the stagflation of the 1970s, which could affect emerging markets and developing economies. The recovery from the stagflation of the 70s required steep increases in interest rates in major advanced economies, triggering a chain of financial crises in emerging markets. Apart from covering the various aspects of the global economy, including inflation and raising the interest rate to control that, we have also tried to analyze the downtrend in the global stock market. Our cover story on cryptocurrency in this issue is part of an overall global economic scenario.
skumar@ifinancemag.com www.internationalfinance.com
International Finance | May - June 2022 | 3
INSIDE
IF MAY - JUNE 2022
24 IS CRYPTOCURRENCY DEAD? The recent collapse of the crypto market has investors wondering if this is the end of the road for cryptocurrencies estimated to be $40 billion
BANKING AND FINANCE
TECHNOLOGY
ECONOMY
BAC
KUP
36
16
44
METAVERSE: A VIRTUAL ASSET
BACK UP YOUR PHONE DATA
CHINA'S ECONOMY SUFFOCATES
How to make profits in the age of crypto, NFT, and VR
Both Apple and Android phones have readily usable cloud storage options
Can an autocratic nation continue to be innovative and prosperous
ECONOMY
ECONOMY
INDUSTRY
48
58
70
LESS PAY FOR REMOTE WORKERS?
WALL STREET BRACES FOR STORMS
SELLING HOUSE? THINGS TO KNOW
Is location based-pay really justified or are corporations trying to squeeze their employees
Even during politically turbulent times, the markets outperformed, but their winning streak is finally over
According to the National Association of Realtors, around 23% of sellers market their houses
4 | May - June 2022 | International Finance
www.internationalfinance.com
Director & Publisher Sunil Bhat Editor-in-Chief Sanjay Kumar Editorial Malvika Chawla, CL Ramakrishnan, Agnivesh Harshan, Prajwal Wele Production Merlin Cruz
ANALYSIS
12 32
How rattled is the US Federal Reserve?
40
Middle East leading the way in COVID-19 recovery
62
How British schools are branching out in Asia
66
Restructuring global supply chains: Good, bad & ugly
Zindi taps African talent to find AI solutions
Design & Layout Vikas Kapoor Technical Team Prashanth V Acharya, Bharath Kumar Business Analysts Alice Parker, Indra Kala, Ayesha Misba, Stallone Edward, Jessica Smith, Rohit Samuel, Brian Johnson, Harry Wilson, Mark Pinto Business Development Manager Sarah Jones, Sid Nathan, Christy John, Alex Carter, Gwen Morgan, Janet George Business Development Directors Sid Jain, Ryan Cooper Accounts Angela Mathews Registered Office INTERNATIONAL FINANCE is the trading name of INTERNATIONAL FINANCE Publications Ltd 843 Finchley Road, London, NW11 8NA Phone +44 (0) 208 123 9436
REGULAR EDITOR'S NOTE
03 06 08
Stagflation looms large
TRENDING Amazon to deliver via drones
NEWS Russia to become major oil export player
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International Finance | May - June 2022 | 5
# TRENDING Africa’s cultured meat on menu
LOGISTIC S
Amazon to deliver via drones Amazon shoppers from Lockeford in California will be able to sign up to have their deliveries made using drones later this year. The tech giant had promised drone deliveries for years, but could not do it due to unexpected setbacks. Lockeford citizens will be one of the first citizens in the world to receive Prime Air deliveries. Amazon also said their feedback about Prime Air in Lockeford would help the company scale the drone delivery model globally. "Lockeford residents will soon have access to one of the world's leading delivery innovations,” said California State Assemblyman Heath Flora, whose district includes Lockeford.
The agricultural sector is the largest emitter of climate-damaging gases. These gases include carbon dioxide, ozone, ammonia, nitrogen dioxide, hydrogen sulfide, sulfur, sulfur dioxide, and hydrogen chloride. In the first twenty years following its emission, practices like bovine belching and flatulence produced the potent greenhouse gas methane. This gas is roughly 80 times more powerful than CO2 at trapping heat in the Earth’s atmosphere. The main issue is with the manufacturing process of red meat.
At a Glance World’s highest rice producers
China
209.6 Musk meets Twitter employees
Airline drops ban on arm tattoos
Elon Musk spoke with Twitter staff for the first time on June 16 after reaching an agreement to buy the firm, concentrating on “freedom of speech” in an online address. In April, the billionaire had announced his intention to buy Twitter for $44 billion but has since been critical of the firm, threatening to put the sale on hold due to concerns over bots, or phony accounts, that exist on the platform. Musk has set high objectives for Twitter during the call, stating that the count will increase from 229 million users to one billion users around the world.
British airline Virgin Atlantic will now let its cabin crew display tattoos. They are the first among the world’s leading airlines and the first in the UK to do so. However, there is still a ban on facial and neck tattoos for flight attendants, along with tattoos referring to nudity, violence, drugs, and alcohol. The decision to enable cabin crew to use tattoos comes a month after Virgin Atlantic launched a branding campaign named, ‘champion individuality.’ The restrictions were being relaxed in line with a focus on inclusivity and championing diversity
EC ONOMY
6 | May - June 2022 | International Finance
LO G IS T I C S
India
Indonesia
54.6
177.7 Bangladesh
54.6 Vietnam
43.5
2019 Production million tonnes Source- Statista
NEWS | INSIGHTS | UPDATES | DATA
Ones to Watch
EC ONOMY
Mass exodus of Russian millionaires in 2022 According to data collected by Henley & Partners, about 15% of Russians with over $1 million in ready assets will emigrate following the invasion of Ukraine. Henley & Partners is a Londonbased firm that connects the super-rich with countries selling their citizenships. There has been a steady flow of wealthy elites exiting the country for the last decade. The large-scale exodus of wealthy citizens has historically led to the downfall of empires and nations. Ukraine will have a higher loss than Russia, with 2,800 millionaires (42% of all millionaires in the country) emigrating by the end of the year. In a twist, the world’s wealthy have begun to prefer the UAE over the UK and US. Over 4,000 High Net worth Individuals (HNWI) will emigrate to the UAE, 3,500 to Australia, 2,800 to
Singapore, and 2,500 to Israel. Malta, Mauritius, and Monaco are also preferred locations. Malta has been one of the greatest economic miracles of the last decade, with a US dollar wealth growth of 87% between 2011-2021. Over 300 millionaires are expected to move to Malta in 2022. Mauritius is also a preferred emigration center for HNWI because of the serene landscape and significant tax breaks. In Mauritius, there is no capital gains tax, or inheritance tax, and a minimal tax rate of 3% for global companies.
By the Numbers Largest oil-consuming countries
Largest oil-producing countries
United States China India Japan Russia
United States Saudi Arabia Russia
20.54 14.01 4.92 3.74 3.70
18.88 10.84 10.78
(2019 figure in million barrels per day)
ELISABETH BORNE NEW PM OF FRANCE Elisabeth Borne has been appointed as France’s new prime minister on May 16, 2022. She becomes the second woman in the history of France to hold this post.
BORIS JOHNSON FORMER PM OF UK Boris Johnson has resigned as leader of the Conservative party and plans to stay on as prime minister of England until a new party leader is elected.
MOHAMMAD BARKINDO NIGERIAN POLITICIAN Nigeria's Mohammad Barkindo, who led OPEC in turbulent times, died at the age of 63. He was the secretary general of oil producers group OPEC.
Source: Tradingeconomics
International Finance | May - June 2022 | 7
IN THE NEWS
FINANCE
BANKING
INDUSTRY
TECHNOLOGY
Sinopec and state-run Zhenhua Oil, have ramped up purchases of Russian oil
People are beginning to hold off on vacation plans, Treasury Secretary Janet Yellen said
Russia become major oil export player China's crude oil imports from Russia soared 55% from a year before to a record level in May 2022, displacing Saudi Arabia as the top supplier, with May volumes up 9% on year at 7.82 million tonnes, or 1.84 million barrels per day (bpd) This happened because refiners cashed in on discounted supplies amid sanctions on Moscow over its invasion of Ukraine. Imports of Russian oil, which include supplies pumped via the East Siberia Pacific Ocean pipeline and seaborne shipments from Russia's European and Far Eastern ports, totalled nearly 8.42 million tonnes. The data from the Chinese General Administration of Customs revealed. This is equivalent to roughly 1.98 million bpd and up from 1.59 million bpd in April. China is the world's biggest crude oil importer. Chinese firms, including state refining giant Sinopec and state-run Zhenhua Oil, have ramped up purchases of Russian oil, enticed by steep discounts after western oil majors and trading houses pulled back due to sanctions. Saudi Arabia trailed as the second-largest
8 | May - June 2022 | International Finance
supplier, with May volumes up 9% on year-on-year at 7.82 million tonnes, or 1.84 million bpd. This was down from April's 2.17 million bpd. Russia took back the top ranking after a gap of 19 months. Customs data released recently also showed that China imported 260,000 tonnes of Iranian crude oil last month, its third shipment of Iran oil since last December, confirming an earlier report. Imports from Malaysia, often used as a transfer point in the last two years for oil originating from Iran and Venezuela, amounted to 2.2 million tonnes, steady versus April but more than double the year-earlier level. Imports from Brazil fell 19% from a year earlier to 2.2 million tonnes, as supplies from the Latin American exporter faced cheaper competition from Iranian and Russian barrels. Separately, data also showed China's imports of Russian liquefied natural gas (LNG) amounted to nearly 400,000 tonnes last month, 56% more than May of 2021. Also, imports of Russian LNG rose to 22%.
“US recession not inevitable” A recession in the United States is not "inevitable" but the economy is likely to slow, Treasury Secretary Janet Yellen said, a few days after the US Federal Reserve hiked interest rates, raising fears of a contraction. "I expect the economy to slow" as it transitions to stable growth, she said on ABC's "This Week," but "I don't think a recession is at all inevitable." The US economy has recovered strongly from the damage wrought by COVID-19, but soaring inflation and supply-chain snarls made worse by the war in Ukraine have increased pessimism. Wall Street stocks tumbled after the US central bank, seeking to cool inflation, raised the benchmark-borrowing rate by 0.75 percentage points, the sharpest rise in 30 years. Economists see worrying signs that consumer confidence is weakening, with spending on services affected most sharply. People are beginning to hold off on vacation plans -- domestic flight bookings were down 2% last month, Adobe Analytics reported -- and are
cutting back on restaurant visits, haircuts, and home repairs. Yellen conceded that "clearly inflation is unacceptably high," attributing it partly to the war in Ukraine, which has pushed up energy and food prices. But she said she did not believe "a drop-off in consumer spending is the likely cause of a recession." The US labour market is "arguably the strongest of the postwar period," Yellen said, and she predicted a slowing of inflation in the coming months. For Fed chair Jerome Powell -- who succeeded Yellen in that position -- to control inflation without weakening the labour market will take "skill and luck," she said, before adding, "but I believe it's possible." The US economy contracted by 1.5% in the first quarter of this year, its first drop since 2020, and early indications point to a continued slowing in key sectors including manufacturing, real estate, and retail sales. A recent survey found that 76% companies believed a recession is looming or has already begun.
International Finance | May - June 2022 | 9
IN THE NEWS
FINANCE
BANKING
INDUSTRY
TECHNOLOGY
Pfizer will buy the stake in Valneva, which is also working on its COVID-19 vaccine
Geneva Package has served as a decisive victory for the multilateral trading
Pfizer to buy a stake in French co.
Central banks walk a tightrope
The US healthcare giant Pfizer has agreed to invest 90.5 million euros ($95.24 million) to buy an 8.1% per cent stake in the French vaccine company. Both the companies announced these developments in their partnership to tackle Lyme disease. Pfizer will buy the stake in Valneva, which is also working on its COVID-19 vaccine, at a price of 9.49 euros per share, via a reserved capital increase. Valneva will use the proceeds from Pfizer's equity investment to support its Phase 3 development contribution to the Lyme disease program.
Central banks have ramped up their battle against inflation, a necessary remedy that could have the adverse side effect of tipping countries into recession. The US Federal Reserve announced its biggest interest rate hike in almost 30 years, followed by the fifth straight increase by the Bank of England and the first in 15 years in Switzerland. The moves rattled stock markets as investors fear that while the rate increases are needed, they could put the brakes on economic growth if the tightening of monetary policy becomes too aggressive. Central banks were of the opinion last year that inflation was only "transitory" as increases in prices were driven by lockdowns.
Foreign direct investment, net inflows in FY 2021-2022 USA
$139.9bn
China
$74.47bn
Ukraine
India
Russia
Sri Lanka
$83.57bn
$14.5bn
10 | Source: May - June 2022 | International Finance Statista
$83.0bn $4.4bn
Amid hurdles, WTO delivers at MC12
European Union slams Russia
The WTO has delivered when the world doubted it most. Despite massive geopolitical turmoil and on-going geo-economic churns, members were able to arrive at a consensus on a range of issues at the 12th Ministerial Conference (MC12), now dubbed the “Geneva Package”. This is a good sign for the future of the WTO that it can be a multilateral bulwark. The Geneva Package has served as a decisive victory for the multilateral trading order ranging from decisions to enhance global food security to a holistic pandemic response and will help rejuvenate a ‘dying’ WTO. MC12 was nobody’s loss and a win. Not only did ministers not go back “empty-handed” nor showed “strategic".
Russia is putting the world at risk of famine through its blockade of Ukraine's shipments of grains and restrictions on its own exports, EU foreign policy chief Josep Borrell had said. The threat to food security and a "battle of narrative" with Russia on Western-imposed sanctions on Moscow over Ukraine dominated the European Union foreign ministers' talks in Luxembourg. "We are ready to work with the UN and our partners to prevent any unwanted impact on global food security," Borrell said in an article published on his official blog. "Russia's conscious political choice is to 'weaponize'" grain exports”, Borrell said.
Gold Price in US dollar per troy ounce in last six months Current price-
Six-month high
Six-month low
Six-month change
$1,477.06
$1,580.59
$1,316.18
$153.84 (+11.63%)
Source: USAgold.com
International Finance | May - June 2022 | 11
INDUSTRY
FEATURE AVIATION
PRIVATE JET COVID-19
12 | May - June 2022 | International Finance
BANKING AND FINANCE
FEATURE INFLATION
US FEDERAL RESERVE
Inflation rate sends stock markets into tailspin as S&P 500 falls over 2% and Nasdaq down over 3.5%
How rattled is the US Federal Reserve? IF CORRESPONDENT
T
he ghost of Paul Volcker, a former Chair of the Federal Reserve of the United States, is haunting Washington, as the US Federal Reserve announced an aggressive 0.75 percentage point increase in interest rates to combat inflation. Volcker became famous four decades ago, when the cost of living in the US was higher than the current 9%, as the central banker who was prepared to drive the world’s biggest economy into deep recession to squeeze inflation out of the system. Now, Jerome Powell, the current chairman of the Federal Reserve, has unearthed his inner Volcker. Powell was adamant last year that the rising US inflation was a temporary phenomenon. He said just last month that a 0.75 point increase in official borrowing costs was not on the table. Now it appears that a rattled Fed is attempting to catch up. The data indicated in a report on June 12 showed an unexpected 9% rise in annual inflation, which surprised Powell and his colleagues. According to the latest Fed thinking, inflation is at risk of becoming embedded because demand is too high for a supply-side that has been damaged by the COVID pandemic and the Russia-Ukraine war. According to the Fed, the move which raises the US rate to between 1.50% and 1.75%, is expected to be followed by more rises. Wall Street now expects a 0.75-point increase in
International Finance | May - June 2022 | 13
BANKING AND FINANCE
FEATURE INFLATION
borrowing costs next month, followed by a 0.5-point increase in September. The Fed's shift in strategy has ramifications for both the United States and the rest of the world. Higher inflation is already having an impact on spending in the United States, as evidenced by a decline in retail sales. The Fed's action also puts pressure on other central banks to follow suit, many of which have been taken off guard by the strength and durability of inflation. Higher interest rates will strengthen the dollar, making debt repayment more expensive for countries that have borrowed substantially in US currency. A developing country's debt crisis has moved a step closer. Powell is attempting to orchestrate a gentle landing for the US economy by lowering annual inflation rates without causing a recession. However, this may be more difficult than he believes. A recent report co-authored by former US Treasury Secretary Larry Summers suggested that Powell will need to take steps similar to that taken four decades ago. “In order to return to 2% core consumer price inflation today, we need nearly the same five percentage points of disinflation that Volcker achieved,” the paper concludes. The shock treatment administered by Volcker in the early 1980s resulted in official interest rates nudging 20% and the unemployment rate hitting a postwar high of 11%. The impact was particularly brutal on small towns in America’s industrial heartlands, which have never recovered.
Food, gas and shelter costs rise According to the latest consumer price index (CPI) numbers, the cost of living grew by one percentage point in April.
14 | May - June 2022 | International Finance
US FEDERAL RESERVE
The increase was broad-based, with the indexes for shelter, gasoline, and food contributing the most. Gas prices have been rising across the United States, with rates approaching USD 5 per gallon, up to USD 1.90 from a year earlier. The energy index increased 4%, while the gasoline index rose 5%, according to the CPI report. Other important component indexes increased as well. In May, the food index jumped by 2%, while the food at home index increased by 1%. The May month rise was driven by sharp increases in energy costs, which rose 35% from a year earlier, and groceries, which jumped 12% on the year. Food and energy prices are more volatile than other categories included in the CPI, and the labor department publishes a core prices index that excludes them. It rose 0.6% from April. The news sent stock markets into a tailspin. The S&P 500 and Dow indices fell over 2% and the tech-heavy Nasdaq was down over 4%. Inflation fears have hurt US President Joe Biden's poll scores, and his administration has tried to blame rising prices on Russia's invasion of Ukraine. Food and energy prices have risen as a result of the war in Ukraine and the ongoing disruption to global trade caused by the coronavirus outbreak. However, there were alarming signals that inflation was spreading. In comparison to a year ago, the cost of housing increased by 6%. Prices for used automobiles and trucks jumped 2% in May from April, bringing the year-to-date increase to 17%. The annual increase in inflation was more than what the economists had predicted, rising from 8% in April. Inflation is now running at a rate last seen in December 1981. The Federal Reserve raised interest rates
Image: www.usatoday.com/
by 0.5 percentage points last month, the highest increase since 2000, and economists believe the Fed will continue to raise rates at a faster pace. “What an ugly CPI print. Not only was it higher than expected on almost all fronts, pressures were clearly evident in the stickier parts of the market," Seema Shah, Chief Strategist at Principal Global Investors said.
US unemployment rate steady at 4% US employment increased more than expected in May, while the unemployment rate held steady at 4%, which is a sign of a tight labor market that could keep the Federal Reserve's foot on the brake pedal to cool demand. Nonfarm payrolls increased by 390,000 jobs in May, the Labor Department said in its closely watched employment report. Data for April was revised higher to show payrolls rising by 436,000 jobs instead of 428,000 as previously estimated.
FEATURE INFLATION
Economists polled by Reuters had forecast payrolls increasing by 325,000 jobs last month. Estimates ranged from as low as 250,000 jobs added to as high as 477,000. The report also showed solid wage gains last month, sketching a picture of an economy that continues to expand, although at a moderate pace. The Fed is trying to dampen labor demand to tame inflation, without driving the unemployment rate too high. The US central bank's hawkish monetary posture and the accompanying tightening of financial conditions have left investors fearful of a recession next year. Economists are split on whether the moderation in the pace of job growth is because of cooling labor demand or worker shortages. They urge investors to focus on the unemployment rate and wage growth to gauge the tightness of the jobs market. There were 11.4 million job openings at the end of April, with nearly two positions for every unemployed person.
Though the cries of a recession are growing louder, most economists believe the economic expansion will persist through next year. They acknowledged that high inflation was eroding consumers' purchasing power and business investment, but argued that the economy's fundamentals were strong and that any downturn would likely be mild.
US stock market rallies after increase in interest rate After the Fed increased the interest rate the US stocks soared on June 16. The S&P 500 rose 54.51 points, or 2%, to 3789.99, snapping a five-day losing streak. The Dow Jones Industrial Average added 303.70 points, or 1%, to 30668.53, and the Nasdaq Composite rose 270.81 points, or 3%, to 11099.15. The Fed’s move is its latest effort to quell inflation through tighter monetary policy. Investors had largely expected the Fed to raise its short-term benchmark rate by 0.75 percentage point.
Dorian Carrell, a fund manager at Schroders said that ultimately the guidance the Fed gives about the direction of interest rates is more important for markets than the size of the rate increase. Uncertainty about monetary policy has been a key driver of volatility this year, helping send the S&P 500 on Monday into bear-market territory, or a drop of at least 20% from a previous high. Art Hogan, chief market strategist at National Securities said markets are pricing in a Fed that’s trying to get in front of the curve rather than behind the curve on inflation. That helped lift stocks heading into Wednesday’s rate decision, he added. Stocks rose broadly, with 10 of the S&P 500’s 11 sectors ending higher. Charlie Ripley, Allianz Investment Management said that the Fed’s commitment to fighting the inflation battle more aggressively despite the potential aftermath of raising rates at such a rapid pace. “Overall, Fed policy rates have been out of sync with the inflation story for some time and the aggressive hikes from the Fed should appease markets for the time being," he added. Technology stocks, which have been among the hardest-hit areas of the market this year, were among the biggest gainers. Microsoft, Nvidia, Amazon.com and Netflix each added about 3% or more. Economically sensitive areas of the market also rose. Bank stocks, which had sold off on investor fears about a slowdown in growth, climbed with the KBW Nasdaq Bank Index up 2%. Energy stocks slid, marking a relatively rare retreat for the year’s bestperforming S&P 500 sector. The S&P 500 energy sector fell about 3%. editor@ifinancemag.com
International Finance | May - June 2022 | 15
BANKING AND FINANCE
FEATURE METAVERSE
16 | May - June 2022 | International Finance
VIRTUAL ASSETS
FEATURE VIRTUAL ASSETS
How to make profits in the age of crypto, NFT, and VR
IF CORRESPONDENT
E Metaverse: the 21stcentury gold rush
very decade has its golden goose. In the 90s, it was Cisco systems. The tech company's stocks boomed by an astounding 75,000% before the new millennium. It was wildly successful because it banked on the buildout of the internet- the market disruptor of its time. Soon after, the cryptocurrency market led by Bitcoin made some investors wealthier beyond their wildest dreams. Then came NFTs and the digital art scene pioneered by Cyberpunk collectibles. There is always a new hype, a new cash cow, and the Metaverse is likely to be the next big disruptor. The money people will make on the virtual reality platform will make all the other gains that preceded it look like chump change. The Metaverse has been receiving a lot of attention lately from the press. Everyone is hailing it for its innovativeness and glamor. There are stories of people buying virtual land, exhibiting their art, attending concerts, getting married, and even attending VR church. But what does this all mean, or is this empty hype? The Metaverse, they say, is the future of the internet. It will undoubtedly be a pivotal part of the next phase of the internet- Web 3.0. It isn't a new technology in itself, but how modern technology like VR, crypto, and NFTs are combined to create a new world and
International Finance | May - June 2022 | 17
BANKING AND FINANCE
FEATURE METAVERSE
user experience. The Metaverse is a programmed augmented reality where one can interact, trade, and build with users worldwide.
From FB to Meta You might be fascinated by all these developments but still wondering how this will translate to wealth and appreciation. While Elon Musk, Jeff Bezos, Richard Branson, and other billionaires were trying to explore space and the planets in the solar system, Mark Zuckerberg had a peculiar idea. He changed his company name to Meta and made his billion-dollar product, Facebook, into a subsidiary. Many thought it was a risky move to alter the name of the most extensive suite of social media platforms. But Zuckerberg realizes the potential of emerging technologies like virtual reality and artificial intelligence. He knows that the likelihood of humankind inhabiting Mars in the next 10-20 years is very low, but the chances of humanity occupying a simulated reality are much higher. The technology for the former is still not in sight and would be economically unfeasible in the short term. Zuckerberg said, "I am not sure if I would want to go into space; I am much more interested in virtual reality, which would let anyone teleport anywhere in the world." When virtual realities become a thing, it would likely see Meta leading the way, and Meta stocks are likely to skyrocket.
Companies to keep an eye on Another company trying to tap into the goldmine of virtual reality is Microsoft. It recently bought video game developers like Activision Blizzard (a company with more than 400 million monthly users). A powerful game developer could build
18 | May - June 2022 | International Finance
VIRTUAL ASSETS
a very user-friendly and addictive VR platform. Microsoft has positioned itself to profit from any advancements in virtual reality or the Metaverse. Investing in Microsoft stocks would therefore be a brilliant idea. Other platforms that are exploring the possibilities include Unity Software which has a platform that lets developers make, run and profit on real-time content, including PCs, mobiles, and virtual reality. Nvidia, known for its graphics cards used in PCs, mobiles, and gaming consoles, is developing the technology behind Metaverse called the Omniverse. As per Marketwatch.com, the company already has an actual product and strategy more quickly monetized than other competitor products. Cloudflare is among the top website security, speed, and content delivery platforms. The company creates routing, firewalls, load balancing, and traffic optimization software. They recently developed the Distributed Web Gateway project built to support new distributed web tech. It will make Web 3.0 and Metaverse applications easy to use. Roblox gained tremendously during the COVID-19 lockdowns when much of the world was in turmoil. It was nicknamed "Pandemic Darling." Most of the company's revenue came from in-game currency sales called 'Robux.' Even if Robux stocks are cooling down now, it is best to monitor its growth as it is likely to bounce back. And then there is Matterport Inc. Matterport offers a 3D data platform that lets you construct, market, and manage offices, hotels, shops, factories, and homes. Matterport digitizes physical assets and translates the real world into a virtual world. It creates "digital twins" of the real world. The whole idea of the Metaverse is to create a virtual copy of
Global spending on Blockchain 2019
$2.7 bn 2020
$4.1bn 2021
$5.7bn Source: Coindesk
the physical world that one can inhabit virtually. Matterport has 6.2 million spaces under management which is 100x the size of the rest of the market. Matterport has a $240 billion worth of addressable market focused on such applications. The company is noteworthy for its partnership with Meta Platforms to make 1000 digital twins available for noncommercial, academic uses. CEO RJ Pittman of Matterport said that the company's secret is turning buildings into data and creating digital copies of real-world locations. He said it is the datafication of the real world. Matterport was at $14 in July 2021 and rose to $37 in December 2021. However, on January 21, 2022, it was worth $10.33. The selloff during this year's market panic has been extreme. Matterport is a product worth a lot more than the current asking price. The Metaverse is coming sooner or later, and Matterport will play a huge role in its architecture. It is still very early to enter now, and it is likely to grow 10x or even 100x and more. In the next 20 years, virtual reality will come into existence. Humans are likely to
FEATURE VIRTUAL ASSETS
Global no. of users per select category
Meta’s (formerly Facebook) project investments
Crypto
2022
NFT
2014
Virtual worlds
2012
spend most of their time on simulations using advanced VR headsets, trade using cryptocurrencies, and own digital and physical properties as NFTs. The pioneers in the Metaverse will make wealth from bitcoin seem insignificant. Would you be among them?
near the celebrity rapper Snoop Dogg's house inside the Metaverse. The rapper is building his virtual world inside the Metaverse. The land could appreciate in the coming years, with speculators claiming it will be worth 100 times in the future. The land could be rented out later for a fixed income or even used as a venue for exhibitions and shows.
220,000,000 412,578 50,000
Other ways to capitalize on the Metaverse Buying stocks in companies that help build the Metaverse or other virtual reality platforms isn't the only way to make a killing. Blockchain and augmented reality technologies have opened up a whole new world with infinite possibilities. Here are a few long term investments that could make you a millionaire: Buy virtual real estate: There is a race for land happening in the world today. Perhaps, comparable to the first time colonists came to settle in the Americas. However, the land in question now is virtual. People buy land as NFTs on blockchain-based games like My Neighbor Alice, Decentraland, Sandbox, and Metaverse. In December 2021, an anonymous NFT collector spent $450,000 to buy virtual land
$10 billion in Metaverse $2 billion in Oculus VR $1 billion in Instagram
Digital art as NFTs NFTs, or non-fungible tokens, have been talked about frequently in the financial markets lately. The NFT digital art Cryptopunks were given away for free in 2017. The most sought-after NFT in the 10,000-piece collectible is worth $23 million today. An entire generation of artists has joined the NFT movement. There are many exchanges like The Opensea where art is sold for cryptocurrencies and held in hopes it will appreciate later. NFTs have become a storehouse of wealth just like paintings of Davinci, Modigliani, or Van Gogh are today.
is that the case, as many video games built on blockchain technology allow users to accrue some wealth. A new playto-earn phenomenon enables players to earn through in-game cryptocurrency rewards and ownership of items, characters, and other in-game assets. The story of Axie Infinity is one that was ever present during the Pandemic. Players in many countries like Vietnam, Bangladesh, and even Venezuela quit their jobs to play Axie Infinity, a playto-earn game that could help players raise $1200 a month. It's an amount that can afford a spectacular lifestyle in developing countries like these. During the Venezuelan economic crisis, such play-to-earn games were the primary source of income for some of the country's youth. Other games include Splinterlands and industry-leader Crypto Kitties. There are also other ways to make money, such as through prediction markets, fantasy sports, PVP multiplayer games, etc
In-game Cryptocurrencies and articles Playing video games was once considered a childish pastime. No longer
editor@ifinancemag.com
International Finance | May - June 2022 | 19
BANKING AND FINANCE
FEATURE CURRENCY
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BANK OF ENGLAND
FEATURE BANK OF ENGLAND
The paper £20 note will no longer be accepted as legal tender after 30 September 2022
100 days left of paper £20 and £50 banknotes IF CORRESPONDENT
T
he Bank of England has said that people have just 100 days left to use the paper £20 and £50 banknotes, which are still in circulation. The legal tender status of the notes will expire on September 30, 2022. The Bank of England has urged people to utilize or deposit them at their bank or a post office before the end of September. Even though the majority of the paper £20 and £50 banknotes in use have been replaced with new polymer versions, there are still more than £6 billion of paper £20 notes featuring economist Adam Smith, and more than £8 billion of paper £50 banknotes featuring entrepreneur Matthew Boulton and engineer James Watt, in circulation. The total value is over 300 million individual £20 banknotes, and 160 million paper £50 banknotes. The £50 banknote completed the bank's 'family' of polymer notes. Now all the notes below £50 are printed as polymer and not as paper. Like the £20 note, which entered into circulation in 2019, the new £50 note incorporates two windows and a two-colour foil that
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BANKING AND FINANCE
FEATURE CURRENCY
designers say will make it very difficult to counterfeit. There is also a hologram image that changes between the words 'Fifty' and 'Pounds' when the note is tilted from side to side. Alan Turing was selected as the new face of the £50 note in 2019, recognition for his pivotal role in breaking the Enigma code in World War II that historians say may have helped shorten the conflict by at least two years, saving millions of lives. Bank of England Governor Andrew Bailey said, “There is something of the character of a nation in its money, and we are right to consider and celebrate the people on our bank notes.” “Turing is best known for his code-breaking work at Bletchley Park, which helped end the Second World War. However, in addition, he was a leading mathematician, developmental biologist, and pioneer in the field of computer science. He was also gay, and was treated appallingly as a result.” During World War II Turing worked at the secret Bletchley Park codebreaking center, where he helped crack Nazi Germany’s secret codes by creating the “Turing bombe,” a forerunner of modern computers. He also developed the “Turing Test” to measure artificial intelligence. After the war, he was prosecuted for homosexuality, which was then illegal, and forcibly treated with female hormones. He died at the age 41 in 1954 after eating an apple laced with cyanide. Turing received a posthumous apology from the British government in 2009, and a royal pardon in 2013. Meanwhile, according to Sarah John, the head cashier at the Bank of England, switching from paper to polymer in recent years has been a significant breakthrough since it makes banknotes
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BANK OF ENGLAND
more durable and difficult to counterfeit. “The majority of paper banknotes have now been taken out of circulation, but a significant number remain in the economy, so we are asking you to check if you have any at home, he said. “For the next 100 days, these can still be used or deposited at your bank in the normal way", he added. John said there are various concerns regarding the old £20 note among people, like what happens if one passes the deadline for exchanging the note and how to exchange the old currency. On this, John said that many banks and some post offices will accept the old £20 notes as a deposit into a bank account even after the deadline. The Bank of England will always exchange the old paper notes, so people who missed the deadline won’t be left out of pocket. He also said to exchange old bank notes after the deadline; an individual can send them to the Bank of England by post. However, the Bank of England warns that people should be aware that banknotes are sent at their own risk, and encourages people to take appropriate measures to insurers against loss or theft. The Bank said in order to send them by post, people have to fill out a postal exchange form and have to provide photocopies of ID and proof of address.
Switching to polymer can prevent forgery? The UK’s new polymer bank notes are cost-effective to produce, incredibly durable, and contain advanced security features that could never have been implemented using traditional cottonbased currency. But the question being asked by law enforcement and document examination professionals is whether switching to polymer prevents criminal gangs and counterfeiters from producing
fake currency worth millions? According to figures collated by the Bank of England, approximately 347,000 individual counterfeit notes were taken out of circulation in 2016, with the vast majority of those being discovered by the banking system during the process of counting and sorting notes for re-circulation. Notably, of the huge quantity of notes seized, £5 and £10 notes (the first two denominations to switch to polymer) only accounted for 7%. The vast majority of fakes identified and seized were counterfeit £20 notes (297,000 notes with a face value of £5.9 million), a note that is not scheduled to be ‘upgraded’ to polymer until 2020.
The end of counterfeits? When the Bank of Canada launched polymer banknotes in 2012, a reduction in fake notes was recorded immediately. Around 28 notes per million in circulation where down from 34 notes per million the previous year. In Australia, where plastic notes
FEATURE BANK OF ENGLAND
were introduced more than 20 years ago, the switch to polymer was equally successful. However, more recently the number of counterfeits in circulation has begun to rise. In 2016 there were reports that Australia was being flooded with fake $50AUD banknotes ‘so good they fool the banks’.
Need for innovation Given enough time, criminal gangs will always find the resources necessary to produce fake currency. The once stateof-the-art security features used in the design of Australian polymer banknotes are now under threat. During the 20 years that the Reserve Bank of Australia has been producing polymer currency, there have been significant advances in digital imaging and printing technology that have allowed the counterfeiters to catch up. In Australia, the quality of counterfeit $50AUD notes is such that they pass all of the bank's checks. In this situation, the only option is to withdraw the aging
notes, introduce new security features, and once again upgrade the security of bank notes.
Cycle of innovation According to John, innovation is the key to keeping forgery under control. "What keeps counterfeiters at bay is not the substrate that currency is printed on but the cycle of innovation that keeps security printers one step ahead of the criminals that produce forgeries. In order to achieve this, there must be a constant development of new security features and an advancement of the technology used to detect and examine counterfeits," John said.
History of polymer note The world's first polymer banknote was the $10 commemorative note issued in January 1988 to commemorate the Australian Bicentenary. It was developed by the Reserve Bank of Australia (RBA), Commonwealth Scientific and Industrial Research Organisation (CSIRO), and
The University of Melbourne. Made from the polymer, biaxiallyoriented polypropylene (BOPP), these notes incorporate security features difficult to include in paper bank notes. They are also more durable, harder to tear, more resistant to folding, more resistant to soil, waterproof and washing machine proof, easier to process by machine, and are shreddable and recyclable at the end of their useful lives, which are 4-5 times longer than paper banknotes. "The traditional printed security features applied on paper can also be applied on polymers. These features include intaglio, offset and letterpress printing, latent images, micro-printing and intricate background patterns. Polymer notes can be different colours on the obverse and reverse sides. Like paper currency, polymer banknotes can incorporate a watermark (an optically variable 'shadow image') in the polymer substrate. Shadow images can be created by the application of Optically Variable Ink (OVI) enhancing its fidelity and colour shift characteristics. Security threads can also be embedded in the polymer note, they may be magnetic, fluorescent, phosphorescent, microprinted, clear text, as well as windowed. Like paper, the polymer can also be embossed. Polymer notes also enabled new security features unavailable at the time (1988) on paper, such as transparent windows, and diffraction grating. Since 2006 however the development of the paper transparent window technologies by De La Rue (Optiks) and G&D (Verify) have reduced that advantage.
editor@ifinancemag.com
International Finance | May - June 2022 | 23
COVER STORY CRYPTOCURRENCY
Is crypto currency dead? AGNIVESH
The recent collapse of the crypto market has investors wondering if this is the end of the road for cryptocurrencies
O
n June 14, 2022, Bitcoin, the most vital asset in the crypto world, started trading around the $17,700 mark for the first time in several years. It's important to note that in November 2021, it was trading at an all-time high of $69,000. And as of June 22, the currency is struggling to stay above the $20,000 mark. During the epic bull run of 2021, the market sang like a choir about how BTC will finally cross the $100,000 mark. Half a year later, the most trending phase on Twitter and Reddit is 'Bitcoin is Dead.' As American baseball player and manager Yogi Berra once said, "The future ain't what it used to be." In times of uncertainty, is it better to turn your back on blockchain technology and its assets, or is it another opportunity masquerading as a crisis?
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TECHNOLOGY
COVER STORY CRYPTOCURRENCY
CRYPTO CRASH
The root of the problem The recent crashes have experts drawing parallels to the last crypto winter in 2018. Cryptocurrency Entrepreneurs like Julian Hosps had warned of bitcoin hitting the $60,000 mark and slipping to the $5000 mark. Though that prophecy was only half true, 2018 was a difficult time for crypto enthusiasts. Hosps had compared the 2018 crash to the dotcom bubble, which eroded billions from the market two decades prior. He believed that many crypto coins that were hyped and did not deliver would be scrapped, and those that provided value and had new technology would come to the front. However, even after the crash, meme coins or crappy coins like Doge and Shiba Inu gained popularity through tweets from billionaires like Elon Musk and other influencers. People continued to invest in get-rich-quick schemes without understanding the technology and potential behind each product. The crash of June 20220 got so severe that Celsius, a decentralized finance and crypto bank, announced on a company blog post, “We are taking this necessary actions to stabilize liquidity and operations while we take steps to preserve and protect assets. Furthermore, customers will continue to accrue rewards during the pause in line with our commitment to our customers.”
The trouble at terraforma labs Two such coins of immense notoriety partially responsible for the 2022 crash are Terra Luna and Terra USD. They were founded by Do Kwon and Daniel Shin of Terraforma labs, specializing in creating stable coins pegged to the US dollar, Euro, and the South Korean Won. Stable coins are cryptocurrencies built to have a fixed value, in contrast to volatile coins like Ethereum and Bitcoin. Terra's
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By June 2022, the war-torn country had received approximately $100 million in cryptocurrencies for defense and humanitarian causes. One of the most expensive NFTs in the world, Cryptopunks was also given to Ukraine, by an anonymous donor stable coin TerraUSD (UST), unlike its peer Tether (USDT), isn't backed by fiat currencies. TerraUSD used its sister currency, Terra Luna, instead of fiat and ran on algorithms to maintain its $1 US peg. Do Kwon, a trash-talking Stanford graduate from South Korea started Terraforma labs in 2018. He even called those who invested in Luna "lunatics." Brad Nickel of the cryptocurrency podcast "Mission: Defi" described Kwon as bombastic, arrogant, and a cult personality that sucks people in. Do Kwon's persona and social media presence was so strong that investors, including Arrington Capital and Coinbase Ventures, pooled in more than $200 million between 2018-2021, according to fund tracker PitchBook. Luna's prices peaked at $116 in April 2021 from a mere $1 in early 2021, creating a generation of crypto millionaires. The crypto CEO even named his daughter Luna. Kwon's crypto empire fell when TerraUSD joined a pool of stable coins called 3pool, where an alleged attacker found vulnerabilities in the Terra ecosystem. The attacker created an imbalance in the supply of Luna, which deflated its value and dragged down the UST with it. The price of Luna fell close to zero. And the UST, which was to be pegged at $1, was valued at around 11 cents in late April. Many investors in Terraforma Labs lost money, including Changpeng Zhao, CEO of crypto exchange Binance. Changpeng had bought $3 million of Luna, which became
COVERSTORY CRYPTO CRASH
$1.6 billion at its peak. Binance held onto its Terra assets. Their entire Terra holdings are worth about $3,000 as of May. The collapse of Terraforma Labs created a destructive ripple through the crypto market. Luna, which had ballooned to $40 billion, saw most of those assets wiped out overnight. The cryptocurrency market lost $300 billion in the same week that Luna collapsed. Investors have begun to be wary of other stable coins such as Tether (USDT) and Dai, creating paranoia about cryptocurrencies in general. Tether was too big to fail, but after the collapse of UST, people are beginning to think anything is possible. Even the fall of stable coins. Also, the alleged attacker who dragged Luna and UST to the ground has many crypto enthusiasts reexamined the safety of cryptocurrencies and other blockchain technologies. They are now worried about hackers. There were rumors of Do Kwon cashing out before the crash. He responded in a tweet on June 12, “This should be obvious, but the claim that I cashed out $2.7B from anything is categorically false. I didn’t say much because I don’t want to seem like a victim, but I lost most of what I had in the crash too.”
COVID-19, Ukrainian war, and supply chain disruptions The economy suffered since late 2019, when a little-known illness from Wuhan, China, became a full-blown pandemic.
The pandemic was followed by worldwide lockdowns creating supply chain disruptions and contracting economies. However, during the lockdowns, bitcoin, which cost around $7,300, rose to more than $46,800, an astounding 640% rise. Cryptocurrencies proved to be a very robust technology that could find use in times of global crisis. These assets had no potential liquidity constraints and could bypass local governments when trading halted during lockdowns. Hadar Y Jabotinsky, a research fellow at Tel Aviv University Law School, and Roee Sarel, a post-doctoral research associate at the Institute of Law & Economics at the University of Hamburg, co-wrote a paper. In the study, "How crisis affects crypto: Coronavirus as a test case," the researchers discovered a correlation between the volume of the top 100 cryptocurrencies and the number of COVID-19 cases and deaths worldwide. Cryptocurrencies did exceptionally well during a time of an unprecedented crisis, but once the situation was stabilized, they began trailing traditional markets as before. Hadar
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TECHNOLOGY
COVERSTORY CRYPTOCURRENCY
CRYPTO CRASH
& Roee also suspect that the initial meteoric rise might also be due to many pump & dump schemes (scams) that the crypto markets were muddled with at that time. The currencies proved to be a storehouse of wealth during a crisis. They found other uses when coins were sent to governments and NGOs, fighting the COVID waves. One example is Ethereum cofounder Vitalik Buterin funneling $ 1.6 billion worth of Shiba Inu and other meme coins into the Indian crypto relief wallet during a devastating second wave that ravaged the country. Crypto found the same uses during the Russian invasion of Ukraine as well. Many sympathetic to the Ukrainian cause sent currencies and NFTs to the country's official digital wallet. Alex Bornyakov, Ukraine's deputy minister for digital transformation, wrote on the nation's donation website that cryptocurrency played a significant role in Ukraine's defenses. By June 2022, the war-torn country had received approximately $100 million in cryptocurrencies for defense and humanitarian causes. One of the most expensive NFTs in the world, Cryptopunks was also given to Ukraine, by an anonymous donor. The digital artwork was sold for $100k, to aid in the war effort. Vice prime minister and minister of digital transformations Mykhailo Fedorov tweeted, “A few months ago someone donated #CryptoPunk #5364 for @_AidForUkraine and now we sold it for 90 ETH/ over $100K. Just wanted to thank the crypto community for such generous donations. With your help we are able to support our defenders.” But that's not all, Ukraine has been using the underlying technology behind cryptocurrency (blockchain) to create permanent records of land registries, titles, births, and other official documents. It's hard to rebuild a country without permanent records. Haiti, for example,
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The 26 million residents in Shanghai were confined to their houses for two months due to China's zero COVID policy. Today more than 200 million Chinese live under some pandemic restrictions, and their economy is paying the price had an extraordinarily difficult time rebuilding after an earthquake destroyed 60 years of the country's archives. Ukraine is also using blockchain technology to document war crimes. Files on the blockchain cannot be tampered with or destroyed. Ukraine is using this tech to store immutable authenticated images of Russian crimes that could be later used in an international court or be passed down to the coming generations. So far, over 10 million conflict-related images have been stored as NFTs in the archives of a popular start-up called Arweave. At the same time in Moscow, Russians scrambled to buy cryptocurrencies when the Ruble came crashing after Western sanctions. Since the beginning of the war in February, spending on bitcoin using rubles has increased 260%. The situation was so bad that US senator Elizabeth Warren introduced a bill in Congress to stymie Russian crypto transactions. Most of the Ruble converted into bitcoin is from average Russians trying to hold onto their life savings. However, senator Warren believes Russian oligarchs are evading sanctions imposed on them by the West using cryptocurrencies. “Russia has had a lot of time to think about this specific consequence,” said a former federal prosecutor Michael Parker, who now heads the anti-money-laundering and
COVERSTORY CRYPTO CRASH
sanctions practice at the Washington law firm Ferrari & Associates. “It would be naïve to think that they haven’t gamed out exactly this scenario.” Illegal funds are flowing into Russia through a dark web marketplace called Hydra, which is powered by cryptocurrency and handled more than $1 billion in sales in 2020, according to Chainalysis. “We know that there’s no questions asked, and we know that Hydra operates not just throughout Eastern Europe but throughout Western Europe,” said Kim Grauer, director of research at Chainalysis. “There’s definitely cross-border business happening.” The Russian government has introduced a bill in its parliament which bans crypto for small traders and citizens while allowing government institutions and big banks to make international payments using cryptocurrencies. Anatoly Aksakov, the head of the financial markets committee of the Russian lower chamber (State Duma), issued a bill seeking a ban on digital assets as a legal payment method. It has been opposed by many in Russia seeking more widespread adoption of new technologies. Irrespective of the results of the ongoing conflict, both Russia and Ukraine have been forced to adopt blockchain technologies and integrate them into their everyday lives. Another event that contributed to the economic catastrophe has been China's zero COVID policy and its
start-stop economy. The 26 million residents in Shanghai were confined to their houses for two months due to China's zero COVID policy. Today more than 200 million Chinese live under some pandemic restrictions, and their economy is paying the price. Retail sales in April in the country were 11% lower than the previous year. Housing sales in China fell 47% compared to 2021. This economic slump in the "world's factory" has created a supply shortage everywhere. The global economy has slowed down, and so have stock markets and crypto. Printing money, distributing stimulus cheques, and hiking interest rates. The crypto market has seen $4 trillion wiped out from the market and shrink 87% in the recent collapse. It's difficult to explain how we got here without mentioning the Federal Reserve. When the global economy went south, the US government and the Federal Reserve did everything they could to save businesses and households. The monetary policy they adopted was called 'Quantitative easing.' In just three-and-a half-month in 2020, the Fed printed over $3 trillion to offset the economic effects of covid-19. The money printed was then used to buy bonds from financial institutions. During the Trump era, the US government also transferred $2.2 trillion directly to the accounts of Americans using the CARES Act. The size and scope of the stimulus cheque took a toll on government spending and expenditure. The act was the largest economic stimulus package in history. A sizable chunk of expendable money Americans received through the CARES act was spent on consumption and as investments in stocks and crypto. As a result, in 2021, crypto saw an amazing bull run with bitcoin hitting an all-time high of $69,000. Despite warnings from economists about the consequences of printing money, the Fed and the US government insisted
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TECHNOLOGY
COVERSTORY CRYPTOCURRENCY
CRYPTO CRASH
that the US could print the dollar without consequences. By February 2022, inflation hit a 40-year high with no respite. The Biden administration said that inflation is transitory, but almost six months later, it has become evident that inflation is here to stay. The Fed chair Jerome Powell hiked interest rates by 75 basis points in May and in June, with further hikes expected in the meeting in July. The higher interest rates have made borrowings more expensive and are likely to make investors risk-averse and stay away from highly volatile assets like crypto. Massacheusets senator Elizabeth Warren tweeted her interaction with the Fed Chair, “Will interest rate hikes lower gas prices? Nope. Lower grocery prices? Nope. Break up monopolies, stop COVID, or roll back Putin’s tanks? Nope. They won’t tackle the main drivers of inflation—but they could get a lot of people fired & make families poorer.” During a Senate banking committee meeting she told Powell, "You know what's worse than high inflation and low unemployment? It's high inflation with a recession and millions of people out of work. I hope you consider that before you drive this economy off a cliff." The billionaire CEO of crypto exchange FTX Sam Bankman-Fried blamed the Fed for the Bitcoin crash. He said, "People with money are scared. Markets are scared." The cryptocurrency market has never braved a global recession before. It is uncharted territory for the new technology.
Between prophets of doom and unhinged optimists Billionaire and founder of Microsoft is a critic of the crypto market and is not involved with any such coin or non-fungible token. Bill Gates has often predicted the collapse of bitcoin and has said that the whole market runs on "100% based on greater fool theory," which is the idea that prices of overvalued
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Bill Gates has often predicted the collapse of bitcoin and has said that the whole market runs on "100% based on greater fool theory," which is the idea that prices of overvalued assets will continue to rise as long as there are "greater fools" willing to buy them Total cryptocurrency market capitalization (Excluding Bitcoin)
Jan 2020
Jan 2021 Jan 2022
$61 bn
$226 bn $1.3 tn
June 2022: $527 bn assets will continue to rise as long as there are "greater fools" willing to buy them. There have been bitcoin skeptics calling on the doom of the currency since early 2010. The Underground Economist wrote an article explaining why Bitcoin can't be a currency. In August 2013, Timothy Laven from Bloomberg View wrote an article about how "Bitcoin is doomed." The coin price rose soon after the article was published from $94.78 to $572 in three months. Timothy wrote a subsequent article in November 2013 titled, "Bitcoin is still doomed." Bitcoin has had many cycles of booms and busts, and so have other currencies in the market. It has surprised critics every time. But the technology is young and merely a decade old, and it has not weathered a global financial crisis of this magnitude before. The Bank of International settlements, in a 42-page chapter of its annual economic report, said it envisioned Central Bank Digital Currencies (CBDCs) to find use in the global monetary
COVERSTORY CRYPTO CRASH
system. Hyun Song Shin, economic adviser and head of research at BIS, said that anything crypto could do, CBDS can do better. The BIS believes that crypto's structural flaws make it an unsuitable basis for a monetary system. BIS commented on the Terra crash and the risks of buying stablecoins in a tweet, “The implosion of #TerraUSD and others highlight inherent fragilities in #Stablecoins, which seek to import central banks’ stability, but lack proper institutional arrangements and credibility.” On the other side of the spectrum, there are crypto enthusiasts who aren't willing to yield to the traditional fiat currency system of banks and believe in decentralization. The most prominent of them, antivirus mogul John McAfee committed suicide in a Spanish prison, this time last year. Despite his fall into infamy through tax evasion, McAfee is still regarded as a prophet by bitcoin evangelists who still believe in his prediction of bitcoin crossing $100,000. He is famously quoted to have said, “You can't stop things like Bitcoin. It's like trying to stop gunpowder.” Edward Moya, a senior market analyst at OANDA, said, “The latest crypto market crash was due to a de-risking Wall Street moment that created a cloud of pessimism amidst inflation, shaky stock market, and rising interest rates. Bitcoin is still twice as valuable as it was a couple of years ago despite losing more than 70% of its value.” Despite extreme skeptics claiming that the leading cryptocurrency will tank below $10,000 in 2022, moderate voices believe that bitcoin can still hit $100,000. Kate Waltman, a New York-based certified public accountant and crypto specialist said that the most knowledgeable educators in the space are predicting $100,000 bitcoin in Q1 2022 or sooner. Crypto plunged after the prediction. Ian Balina, CEO of Token Metrics, still believes that crypto will reach $100,000-$150,000 in the future but did not specify the timeline.
What lies ahead? Blockchain technology isn't going anywhere as there is already a lot of institutional adoption. Countries like El Salvador are already using bitcoin as a legal tender. Big banks like JP Morgan rolled out the first US bank-backed cryptocurrency called "JPM coin" to transform the payment business. The bank offers six cryptocurrency investments despite CEO Jamie Morgan being a bitcoin skeptic.
Another serious player on the field is the CEO of Facebook's parent company Meta. Mark Zuckerburg's Metaverse plans to popularize cryptocurrencies, blockchain, and VR technologies. Meta is already on the verge of launching Libra- a currency meant to circumvent unnecessary transaction charges. The Ethereum blockchain has also found use through the sale and purchase of NFTs like the Bored Ape Club. There are dedicated marketplaces for NFTs like Opensea.io. Blockchain technology has already proved itself. It found use in charity and support in India during the second covid wave and in Ukraine during the invasion. There are already blockchain companies like Horizon State trying to develop technologies for direct democracy, eliminating the need for representative democracy and ensuring there is no voter fraud. In the future citizens will vote on issues and not on who will lead them. Blockchain also is a tool for permanent record keeping. It is used to unalterably store birth certificates, deeds, driving licenses, etc. Though filled with scams and get-rich-quick schemes, many projects are undervalued and might make massive gains in the coming decade. Bitcoin was 11 cents in 2010, it is all about finding the gem in the rubble. An anonymous investor when asked about the recent crash commented, “I have lost 80% of the value on my assets. But I will continue to hodl (hold on to dear life). I did not invest in these projects to make a quick buck. Markets have ups and downs. I believe in blockchain tech and its potential to change the world.” Despite the fall of currency values, the underlying technology will continue to grow and revolutionize human societies. The crypto winter might be here for a while, but as the technology progresses, expect another bull run. editor@ifinancemag.com
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TECHNOLOGY
ANALYSIS
ARTIFICIAL INTELLIGENCE ZINDI
Zindi has 12,000 registered users on its platform that uses AI and machine learning
Zindi taps African talent to find AI solutions IF CORRESPONDENT
Zindi, a Cape Town-based crowdfunding start-up has been building a database of data scientists across Africa. The start-up now has 12,000 registered users on its platform that uses Artificial intelligence (AI) and machine learning to solve real-world problems for companies and individuals. In 2021, a group of data From the scientists led by Zindi used beginning of machine learning to improve 2020, Zindi's air quality monitoring in user base Kampala. While another has tripled, group assisted Zimnat, a reaching Zimbabwean insurance 33,000 data company, in predicting scientists customer behaviour, from 45 particularly in terms of who countries was likely to leave and what across interventions could persuade Africa them to stay. Zimnat was able to keep its consumers by providing customized services to people who would have left otherwise. These are some of the data-driven solutions that Zindi offers to businesses, NGOs, and government agencies. Zindi announces these challenges and invites its data scientist community to compete in problem-solving competitions. Data scientists who participate, submit their solutions, and the winner receives a monetary award. The competition hosts get to use the best
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solution to meet the issue they were given--like in AirQo's air quality monitoring project, which sought solutions for forecasting air pollution across Uganda and helping Zimnat in reducing its losses. Celina Lee, co-founder, and CEO of Zindi stated that the AirQo now has a dashboard where the public can examine air quality and forecasts. One of the interesting aspects of this project was that AirQo hired two of the winners from the challenge to help with the implementation of the project. The other co-founder of Zindi is Megan Yates from South Africa and Ekow Duker from Ghana. Lee also said that AirQo raised funding from Google, based on the solution that they built. They now have replicated this solution in the other parts of African countries. The competition was organized in partnership with the Digital Air Quality East Africa (DAQ EA) project of the University of Birmingham and the AirQo project from Makerere University, Kampala. Among other notable private and public organizations that have tapped Zindi include Microsoft, IBM, Liquid Telecom and UNICEF, and the government of South Africa. Given how the crowd-funded start-up has evolved since its introduction, Lee is pleased with what Zindi has accomplished so far and optimistic about the community's future. The platform is now offering options and increasing competition against traditionally pricey consulting firms
Image: investcapetown.com
operating across Africa. From the beginning of 2020, Zindi's user base has tripled, reaching 33,000 data scientists from 45 countries across Africa. It also gave $300,000 in prize money to data scientists. This number is expected to rise as it prepares to hold the fourth inter-university UmojaHack Africa challenge in March 2023, in which college students will compete for various solutions. Zindi is using the inter-university competition to expose students to realistic data science experiences and to tackle real-world problems with AI. The platform attracted roughly 2,000 kids during last year's event, which was held virtually due to the COVID pandemic. Lee said students get to develop their first machine learning models, and it opens up all kinds of avenues for their careers and education. She also said that Zindi has created a career platform to shorten the road from learning to earning. By posting job openings on the talent placement platform, businesses can access their talent pool. After recognizing a knowledge gap and the need for training, the crowd-solving platform plans to incorporate a learning component that would provide training material to aspiring data
scientists. Furthermore, according to Lee, the majority of Zindi's users are university students in need of learning experience and better skills to tackle realworld challenges. The crowd-solving platform is also planning to introduce a learning component that will provide training material to budding data scientists. This will come after recognizing a knowledge gap and the need for training. In order to implement this plan, the platform would need a $1 million seed funding. Furthermore, Lee said that the majority of Zindi's users are university students in need of learning experience and better skills to tackle real-world challenges. Lee said that for them it is all about the community and creating more value for all of their data scientists. She also said that they will introduce more learning content as a lot of their data scientists are university students or very early in their careers. And they are just looking for a chance to learn and build their skills in this field. Shakti, a San Francisco-based venture capital firm, led the seed round, which also included Launch Africa, Founders Factory Africa, and FIVE35. According to Lee, all of these activities are aimed at developing a strong data science community in Africa and for the continent, with the goal of reaching one
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TECHNOLOGY
ANALYSIS
ARTIFICIAL INTELLIGENCE ZINDI
million users in the near future. She said this will be accomplished through providing early career data scientists with training opportunities and building a robust community that supports collaboration and mentorship. Lee said that they want to make data science a career that every young person should get interested in pursuing. In 2012, Zindi was created as a subsidiary of Ixio Analytics, which is a data science consulting company also based in Cape Town. Ixio was founded by Megan Yates, a South African who has been working in data science. The Ixio saw there was a growing pool of data scientists in Cape Town and across Africa looking for opportunities to grow and apply their abilities at the same time, which led to the creation of Zindi. Companies and other organizations in Africa were in a position where they were generating large volumes of data but were unsure how to proceed and capitalize on the true value of the asset they were creating.
How does Zindi work? They first identify and characterize a problem, after which they assist in the creation of a data collection that will be used to construct an AI or machine learning solution. Then they publish it on their platform and make it available to the public. Zindi currently has over 8000 data scientists enrolled on the platform, with over 100 new registrations added each week. Data scientists would create an account on Zindi and then register for the competition, agreeing to the terms
34 | May - June 2022 | International Finance
and conditions and gaining access to the data, which they could then use to create machine learning models.
Why is Cape Town the best base for Zindi? Cape Town is an excellent location for a tech or AI firm, the city has a thriving start-up ecosystem, and the skill pool in Cape Town has been invaluable to Zindi. Because of its proximity to the University of Cape Town (UCT) and Stellenbosch University, the city has a strong talent pipeline.
Is using AI and machine learning for the benefit of society important to Zindi? The applications of AI have been driven by corporations that are looking to use AI to make profits but what Zindi is excited to figure out is how to translate those same technologies, those same approaches, for social impact. While Zindi is a for-profit company, the company does have a social mission and is passionate about solving problems for companies and other organizations which will also have a positive impact on society.
What about Zindi's presence in the rest of Africa? While Zindi does not have offices in other countries, they do have a presence across the continent through its network of ambassadors. Users are now concentrated in South Africa, Nigeria, and Kenya, but Tanzania, Uganda, Tunisia, and Senegal are rapidly gaining ground. However, they have data scientists in their
The global AI market value is expected to reach
$267 bn by 2027
network from almost every African country.
AI become more relevant after COVID pandemic The pandemic has reshaped the way people work, play, and live. It has deepened their relationship with technology as they depend on digital mediums for almost everything, including work, education, leisure, social interactions, everyday transactions, and more. A key takeaway from this accelerated pace of digital adoption is that there has been a fundamental shift in consumer behaviour, leading to the instant gratification mindset. A study by Pricewaterhouse Coopers (PwC) indicated that 52% of organizations accelerated their AI adoption initiatives due to the pandemic. Business leaders are beginning to understand the power of artificial intelligence and machine learning technologies that can help optimize the business, improve decision-making, and better understand their customers. Here’s how AI is making an impact across industries1. Prevents fraudulent transactions Fraud management is complex and can vary across industries. A
Key AI statistics The global AI market value is expected to reach $267 billion by 2027 AI is expected to contribute $15.7 trillion to the global economy by 2030 Around 37% of businesses and organizations employ AI Nine out of ten leading businesses have investments in AI technologies, but less than 15% deploy AI capabilities in their work The rise of AI will eliminate 85 million jobs and create 97 million new ones by 2025 The AI industry will be earning $126 billion a year by 2025 Around 67% of Americans believe self-driving cars are safer than regular cars Over 25 countries are now working on designing autonomous vehicles
Source: Dataport
More than three billion voice assistants are now in use, and eight billion will be by 2023
The self-driving car industry could be worth more than $600 billion over the next five years PwC survey showed that several business leaders globally found an increasing threat from external perpetrators in 2022. Industries like banking, insurance, and healthcare face the most risk from fraud. Artificial intelligence models prove to be very effective for fraud detection. AI models can not only detect fraud but can predict it by analyzing fraud trends and preventing it immediately. For instance, financial services that are always at risk of fraud can apply advanced artificial intelligence algorithms to detect good and bad loan applications. 2. Improves customer journey With the help of AI tools, business leaders can create a seamless end-to-end customer experience. Machine learning and predictive analytics can provide detailed insights into customers’ behaviors, trends, and issues and enable businesses to personalize the customer experience. The ability to easily extract and analyze customer data can help companies create the right personas, match offerings to customers’ needs, and share
customized communication. 3. Enables intelligent decisionmaking across processes With the complexity and dynamics of modern-day businesses, organizations require the capability to make the best decisions in the shortest time in a risk-conscious, adaptable, and personalized manner. Artificial intelligence can analyze massive amounts of data in minutes and extract rich and meaningful information. As a result, an increasing number of organizations are introducing AI and data analytics into their workflows to help them make better data-driven decisions. 4. Automates content-heavy processes and harness content intelligence Apart from enabling intelligent decision-making, AI also brings content automation and content intelligence to the table. AI technologies like natural language processing (NLP) and machine learning can be used for document classification and text classification to make it easier to search, manage,
filter content, and semantically understand text. Image, audio, or video processing tasks with artificial intelligence capabilities can also help in detection and classification. For instance, businesses can use AIenabled image processing for face recognition in public places or even recognize patterns and objects in images and videos.
The way forward Low code-based AI platforms make AIaccessible to every enterprise and can process raw data into real-time insights in no time to solve various business use cases. Scalable artificial intelligence can enable enterprises to stay prepared for sudden shifts. This requires collaboration across different business users such as domain experts, business analysts, data engineers, and IT teams. While one set of users would be responsible for prepared data to create AI algorithms, other users can experiment with the models and deploy them in production to ensure that organizations have the latest insights for smart decision making. editor@ifinancemag.com
International Finance | May - June 2022 | 35
TECHNOLOGY
FEATURE STORAGE
CLOUD PHONE BACK UP
Both Apple and Android phones have readily usable cloud storage options
How to back up your phone data before it’s lost IF CORRESPONDENT
I
t is likely that you know someone who misplaced or lost their phones in the last few years. Or even worse, you are one of the unfortunate ones who had to survive the ordeal associated with losing your constant companion. There are also incidents where your beloved smartphone might suffer irreparable damage and you can’t access its feature or contents in any way. This can be as a result of a potentially fatal accident that a person survived like a car or a bike crash or an embarrassingly bad fall. Or comparatively better, your phone’s damage can be a result of a wear and tear issue which is fortunately without the involvement of your flesh and bones getting any scrapes. There can be odd incidents of you dropping your phone into the water too and that would mean saying the last goodbye to the now-ubiquitous gadget. But
36 | May - June 2022 | International Finance
once a phone is lost, it’s not only an innate communication device but a reservoir of a lot of contents that is close to your heart. Thanks to technological innovations that are readily available to everyday individuals anywhere around the world, losing your phone does not necessarily mean that all your favorite photos from childhood, or important work drafts that you might have stored in your now bygone phone are lost forever. Voila, that is cloud storage for the uninitiated. Depending on the phone one uses, there can be more than one way of ensuring that your choice of files is stored on the cloud. And thankfully, for the majority of the
FEATURE PHONE BACK UP
BAC
KUP
International Finance | May - June 2022 | 37
TECHNOLOGY
FEATURE STORAGE
CLOUD PHONE BACK UP
public, quite a lot of this cloud space is free. This means spaces enough to store thousands of photos and videos. Cloud storage is readily provided by the phone manufacturer through the operating system of the phone. Primarily here it means Apple or Android, and both of them give a limited quantity of cloud space for free for this purpose. Other than these, there are multiple other cloud storage providers too. There can be those provided by the phone manufacturers which use their own variants of Android operating systems like Xiaomi/Redmi has its own cloud service. Then there are other independent cloud storage providers too which can back up your phone. Those who do not want to use any of this easy-to-use, mostly automatic, zero-intervention solutions can choose to manually keep copies of your phone data on your desktop or laptop PC from time to time like on a weekly basis.
Android phones Since Android phones are more common, we will start with them over their more expensive counterparts manufactured by Apple. Google, now Alphabet, which owns and operates the Android operating system has made it super easy in recent years to store the data on phones on the cloud. If there can be a complaint about this part of Google’s offerings is that all of a single phone’s data cannot be stored in a single app. Instead, there is more than one app for this purpose. For photos and videos, Google insists on users make use of its Photos app (Google Photos). Most phones currently come with preinstalled Photos app as part of the Google bundled apps. If one uses a little dated phone, they can download the Photos app from the play
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store. For most phones of this age, the Photos app by default starts making a cloud backup of every photo clicked or saved in the phone’s internal storage, even those that are received through social media or emails. In case, one needs to ascertain if the auto backup is turned on then one can open the Photos app and click on the top-right corner to find ‘Photos Settings’. After tapping in, the backup and sync option needs to be selected which can be toggled on and off. In the same menu, there will be an option to choose the quality of the cloud backups. Based on the choice of the user, the file upload size can be altered. Like photos, for audio including your favorite songs, Google has enabled YouTube Music to back up songs from your phone. Unlike photos, every single song has to be individually backed up. For this, one has to visit the music. youtube.com website on any web browser and tap on the top-right corner to find the ‘Upload Music’ option. Other than just backing up, users can also access these songs across devices using the YouTube Music app or by visiting the website. For all other types of files on your phone, Google allows you to use Google Drive to take care of them. It is likely that your android phone has the Google Drive app by default. In case you don’t have the app, it can be downloaded from the Play store. Once the app is open, one can press the plus icon on the home screen to access the files on the phone and choose to upload them on the drive to save them to the cloud. Other than your files containing photos, videos, music, and documents, your phone also has other necessary information like call record details, contacts, SMS, and the list of all your
Age-group wise % of people getting their phones lost or stolen 18-24 25-34 35-44 45-54 55-64 65+ Source: Statista
45% 37% 30% 30% 26% 20%
apps. For all these, Google One is the solution. In order to ascertain that these details are automatically saved on the cloud on the go, open the Settings app on your phone and find Google. Then, tap on the Google app and toggle on the Backup by Google One option.
FEATURE PHONE BACK UP
In the same menu, there is an option to select Google Account data, through this one can choose to back up data from applications like Calendar, Docs, Google Fit, and Keep among others. Currently, Google allows 15 GB of free space for every android account for the combined storage on its cloud. Any additional space is chargeable as per the plan that you choose to buy from them.
Apple devices If you own an iPhone or an iPad, there is no need to worry about losing your data too. Just like Android’s backup features, Apple too has its fair share of counterparts for each of these applications. Just like the Android features, it’s likely that your Apple device will by default backup your precious data be it photos or documents. In order to eliminate any doubt about the same, tap on the Settings button on your iPhone and find the iCloud option on the menu and click on iCloud Backup and then choose the Backup Now option.
After that, the screen will show the last date of update, and you can be sure that your data is getting saved on the cloud. Unlike, Android phones, iPhones need to be connected to a WiFi network for backup. On the iCloud app, one can choose what are the types of files that they want to back up on the cloud. Like Google’s different apps, Apple too has individual apps for photos, software updates, and even user names and passwords used for different apps using the iCloud Keychain. Compared to Android, iCloud backup is payable beyond the initial 5 GB storage. Unlike Android phones, which can be accessed via your desktop or laptop just by connecting a USB cable, you need to have iTunes on your computer to access your phone’s storage and then make a copy of the data using the iTunes platform.
solution is quite a fit for an everyday user, there is no need to restrict oneself to the default solutions. There are options from the other tech behemoths like Amazon and Microsoft. Amazon Photos for one offers unlimited photo storage for Prime users, it’s bundled premium subscription for free deliveries to the video streaming platform. On the other hand, Microsoft offers free one TB of free cloud backup for those with Office 365 subscriptions. In addition to free unlimited photo storage, Amazon offers the most costeffective cloud storage. For Android users, there are options like Super Backup and Restore and numerous other third-party offerings which offer a greater degree of flexibility. Further phone manufacturers like Xiaomi, Oppo, Realme, and Oneplus have their own set of cloud storage offerings that are tailor-made for their users.
Third-party cloud While the native Android or Apple
editor@ifinancemag.com
International Finance | May - June 2022 | 39
ECONOMY
ANALYSIS
MIDDLE EAST COVID ECONOMIC RECOVERY
The Middle East’s economic recovery will continue to follow a mixed pattern given divergent growth strategies and policies across the region
Middle East leading the way in COVID-19 recovery IF CORRESPONDENT
According to Scott Livermore, Institute of Chartered Accountants in England and Wales (ICAEW) economic advisor and chief economist at Oxford Economics, the Middle East is leading the way in the economic recovery from COVID-19. Livermore said that secondquarter global growth was At a time stronger than anything the when labor Middle East has seen in the last expenses are 15 years, including the recovery rising, Russiafrom the global financial crisis. Ukraine But there are signs that the growth war and may slow down again, he added. the COVID A highly contagious Delta pandemic put and Omicron variants of significant COVID-19 had caused disruption pressure on to supply chains and to the overall operator economic recovery. Individuals margins were forced to quarantine and halt work including daily consumer activities. During the Omicron wave, some economies have reintroduced restrictions that further suffocate economic activity. Livermore said that the Middle East is doing better than the rest of the world. He also said that the chances of further lockdown is low for highly vaccinated nations, which means the threat of major economic disruption remains low if new variants that impact vaccine efficacy do not arise. Globally, industrial production has been stagnant
40 | May - June 2022 | International Finance
for the year 2022, despite rising demand and new orders. Firms are delving into current inventories rather than producing. Livermore said reserve stocks are significantly below what they would expect given the number of orders. This is causing bottlenecks across some sectors. Livermore also said that these supply limits are putting a lot of pressure on the economy's recovery.
Middle East economy to grow by 4% According to forecasts from the International Monetary Fund (IMF), the world economy would rise by 6% in 2022. Last month, emerging markets were downgraded, particularly in Asia. Livermore explained that this was due to the omicron variant, the downward revision is much more about delayed recovery rather than foregone recovery. Meanwhile, experts anticipate that economic development in the Middle East will be faster in 2023 than predicted by the IMF. The IMF predicted that the Middle East and North Africa (MENA) region will grow at a rate of 4% in both 2022 and 2023. Whereas, analysts at ICAEW and PricewaterhouseCoopers (PwC) believe it will develop at a quicker rate. The IFM also predicted that economic growth would shrink by roughly 6% in 2022. The analysts expect a 3% expansion in 2022, and they said that the region's economic growth will accelerate to 5% in 2023, only if any other COVID variant does not prove too disruptive.
As business optimism rises, the Gulf Cooperation Council (GCC) GDP is expected to rebound to prepandemic levels in Q1 of 2023, with GDP growth rising from 3% in 2022 to 5% in 2023. The appearance of the Omicron variant posed a threat to the world economy. However, the Middle East has had a very high vaccination coverage, particularly in the Gulf, which limited the control measures. Michael Armstrong, ICAEW regional director for the Middle East, Africa, and South Asia said that even though high vaccination rates have helped regional countries avoid an Omicron wave, the emergence of a new COVID variant poses an economic danger. While Middle Eastern economies have made significant investments in healthcare infrastructure, data must be collected quickly to understand the scope of any new COVID threat – and governments must implement a dynamic response as early as possible, he said.
Experts on GCC According to PwC economists, economic diversification has been a top priority for GCC governments in recent years. Richard Boxshall, Middle East chief economist at PwC Middle said, with evidence of recovery in both the non-oil and oil sectors, the region appears to be on the mend. However, travel and tourism, a vital industry, is still
struggling to recover. The reopening of travel appears set to boost this, and all eyes are on Dubai Expo 2022, which will be a key milestone in the travel sector's recovery. Livermore said given the region's disparate growth goals and policies, the Middle East's economic recovery will continue to follow a mixed pattern. The UAE, on the other hand, will outperform regional neighbours due to its proactive strategy of recruiting global investment and talent, as well as larger budget headroom. Countries like Kuwait and Oman, which have tight worker nationalisation laws, are in for a longer, more protracted recovery, he added. As producers boost capacity, the oil sector, which is already benefiting from greater production permits, will remain an important economic development driver through 2023. Brent oil prices have fallen below $80 per barrel as high COVID-19 numbers in Europe and new limits have sparked concerns about demand levels. Brent will average $72.5 per barrel in 2023, according to the research. The IMF predicts that the GCC will return to fiscal balance in 2023, for the first time since 2014. The rise in oil prices to their highest sustained level since 2014, as well as the tapering of the Organization of the Petroleum Exporting Countries (OPEC+) production cuts, is also helping to fuel a solid improvement in public finances. Even Oman, which had a substantial structural deficit
International Finance | May - June 2022 | 41
ECONOMY
ANALYSIS
MIDDLE EAST COVID ECONOMIC RECOVERY
UAE GDP growth between the years 2017-2020
prior to COVID-19, is forecast to return to surplus in 2023 as a result of major reforms and a higher oil price. While buoyant oil and non-oil sectors are critical for economic growth across the GCC, analysts point out that while there has been much speculation on a global scale that the easing of stimulus measures enacted to mitigate the impact of the pandemic, combined with increased oil prices, will lead to an increase in inflation, indicators suggest that this is less of a concern in the GCC than in other territories. Meanwhile, according to a statement from the General Authority for Statistics, Omar Hariri, the UAE's private sector recovery trailed in the second quarter of 2021, accounting for 48% of economic output, compared to roughly 52% in the previous three-month period. The UAE's air travel has also been impacted due to COVID. For the full year of 2021, the crisis is forecast to have removed 5.4 billion passengers, representing a loss of 55% of global passenger traffic. The longer the crisis lasts, the more economic damage it causes and the more difficult it will be for firms to recover. With rising climate change issues, the global economy, particularly those in the Middle East that are particularly vulnerable to climate change will see a change. The Middle East must be prepared to deal with potential new variations and rising temperatures, said Hariri. Rising temperatures are predicted to have the greatest impact on GDP growth in Latin America, Africa, Southeast Asia, and the Middle East, while the cost of dealing with climate change is highest in the Middle East and Asia. However, there are some bright spots. While some of these countries have been slower to adopt renewable
42 | May - June 2022 | International Finance
2017
2018
2019
2020
1.68% 1.19% 2.37% 3.06% UAE trade balance between 2017-2020 2017
2018
$100.97B
$111.33B
2019
2020
$93.26B
$90.18B
Source: Macrotrends
energy, they are now actively seeking ways to include more green energy into their energy mix. The UAE has said that by 2050, it will have doubled the share of renewable energy (from 25% to 50%) in the total energy mix. In the GCC, countries like Saudi Arabia and the UAE have made significant investments in green technology, and sustainable energy projects are on the rise. According to the International Renewable Energy Agency (IRENA), the GCC region can cut its annual water use by 16%, save 400 million barrels of oil, create close to 2,10,000 jobs, and reduce its per capita carbon footprint by 8% in 2030 if renewable energy targets set by national and sub-national governments are met. Livermore said the Middle East has historically performed poorly, but the UAE, Saudi Arabia, and Qatar
are all working hard to improve their institutions and R&D bases. He said there should be a strong pipeline in this area moving forward.
Middle East oilfield services market to grow by 6% The Middle East oilfield services market is expected to grow with a Compound annual growth rate (CAGR) by 6% during 2022-2027 period. The COVID-19 pandemic had a highly adverse impact on the oilfield services market. The unprecedented collapse in oil demand caused by the pandemic resulted in a halt in greenfield investments by the upstream companies and delays in the ongoing projects. Thus, the demand for oilfield services reduced during the pandemic, which got reflected in low revenues for the industry players. As an example, Halliburton, one of the leading players, recorded the
revenue for 2020 as USD 14.44 billion, a 35% reduction as compared to 2019, which was around USD 22.4 billion. The Middle-East oilfield services market is likely to grow in the future due to the steadily increasing natural gas demand from the developing economies in the region as well as outside the region, which may result in new production projects in the coming years, and the growth in private participation in the oil and gas industry. However, the rise in momentum towards cleaner energy sources in almost every country is expected to beat the oil and gas demand at the regional as well as global level.
Saudi Arabia to witness growth Saudi Arabia holds around 15% of the global proved oil reserves and is one of the major crude oil-producing countries
in the world. It is the largest crude oil exporter among all the OPEC countries and the second-largest oil producer in the world after the United States. The country's crude oil production was recorded as 11 million barrels per day in 2020, which was the highest among all the GCC countries. Saudi Arabia has recently witnessed an upsurge in the upstream projects planned for the next five years, which largely includes field development projects, resulting in high demand for oilfield services in the country. To strengthen the local value chain of the services in the country, the Saudi government gave approval for the construction of the "Oilfield Services (OFS) Regional Hub", which broke the ground in October 2021, at King Salman Energy Park, Saudi Arabia. The oilfield services industry player Baker Hughes took charge to
complete the project. The 300,000 sq meter regional hub is meant to support Baker Hughes' OFS operations and customers across the Middle East. The project is expected to be commissioned in the second half of 2022. Furthermore, in November 2021, the NOC of Saudi Arabia, Saudi Aramco, has awarded the Jafurah gas field development contracts to some domestic and international oil field services companies. It includes 16 subsurface and EPC contracts valued at USD10 billion for the unconventional gas field. Opening the output opportunity for an estimated 200 million standard cubic feet per day, the field is expected to start production in 2025. Owing to such developments, Saudi Arabia is expected to have the largest chunk in the oilfield services market in the near future. editor@ifinancemag.com
International Finance | May - June 2022 | 43
ECONOMY
FEATURE CHINESE ECONOMY
ZERO-COVID POLICY
Can an autocratic nation continue to be innovative and prosperous
Chinese economy suffocates under lockdowns IF CORRESPONDENT
44 | May - June 2022 | International Finance
FEATURE ZERO-COVID POLICY
C
hina has embraced authoritarian capitalist policies since Mao's death. Deng Xiaoping, the architect of modern China, applied farreaching economic reforms to set China on the track to modernization. The country has expanded for 79 out of 80 quarters in the last 20 years. The Chinese economic miracle not only uplifted 1.5 billion people from poverty but also was a reliable source of growth for the world economy, contributing to a quarter of the rise in global GDP. Perhaps China's streak is ending as their zerocovid campaign has the economy spiraling down. Just
a handful of cases can shut down an entire city in China. If these policies persist, they will grow slowly and haphazardly, with consequences for the dragon and the world. Shanghai's two-month lockdown is finally easing, but there are fresh outbreaks in Beijing and Tianjin. Over 200 mn have restricted mobility, and the economy is struggling. Retail sales have dipped by 11% from the previous year, and the fast-food and automobile businesses are weak. Many
International Finance | May - June 2022 | 45
ECONOMY
FEATURE CHINESE ECONOMY
ZERO-COVID POLICY
laborers sleep on factory floors, and export volumes with industrial output have slumped. For the first time in nearly three decades, China may struggle to grow faster than America. It is ominous for President Xi, who wants to keep the presidency for the third time when leaders usually bow out after two. Experts blame Xi for the economic blizzard that sweeps through China and the world. Firstly, his zero-COVID policy enforced for 28 months consecutively has created an environment of unpredictability. Such erratic shutdowns and openings made investors and businesses risk-averse leading to further economic slumping. The CCP fears opening the economy would start an exit wave that could kill millions. Though experts agree with the Chinese diagnosis and prediction, they do not think the Chinese policies will be effective in the long run. A 100 Mn people in China over 60 aren't triple-jabbed. The government also refused to import western mRNA vaccines citing national security. There are talks about pushing the lockdown and zero-covid policy well into next year. The Asian Cup, a football contest China was to host in 2023, has been canceled. Since Omicron is more contagious, experts predict constant lockdowns across the country. The zero-COVID policy has become closely associated with Xi's image as a capable decisionmaker. Criticism of these extreme measures is seen as a criticism of party leadership and is silenced immediately. The second policy issue in China arises from the Sino-American split and China's urge to outperform its rival. A series of fines, regulations, and purges have stagnated the tech industry contributing 8% of their GDP. Crackdowns on real estate, which
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makes up for a fifth of GDP, have caused property sales to fall 47% in April compared with the previous year. However, the CCP hopes a large stimulus package in planning will help their economy hit the targeted growth rate of 6% in 2022. It is also politically motivated as the next congress is nigh. Li Keqiang, the prime minister, has asked officials to act decisively and stimulate growth. He has also urged the Central bank to cut mortgage rates. Tech companies are being reassured, and a sizeable bond-financed government infrastructure program is in the pipeline. No stimulus package and expanding skylines will help negate the effects of these draconian lockdowns or make Xi's economic model any less risky. China's economic model depends on empowering the least productive part of an economy— the government sector. Economists praise China for its successful industrial policy. A great example would be the country's rise to the top of the advanced batteries industry globally. However, the same experts overlook the countless failures from rust-belt to microchips. While the government is expanding the most productive part of the economy, the private sector is hurt. The financial markets have seen incredible outflows and the cost of capital rise. Chinese shares are 45% cheaper than American ones, almost a new record gap. Many investors fear that the financial growth of any business might be capped by The Communist Party, which by its very nature is suspicious of private wealth and power. Many venture capitalists report that they bet on the biggest subsidies and not the best ideas. For the first time in four decades, there are no liberalization reforms in the Chinese economy, an ominous sign for economic growth.
A stimulus could spike demand, but the start-stop pandemic model might spiral the global economy into recession. MNCs will not stop business in China. It is the largest country by population and has a very sophisticated economy with immense potential. However, the supply chain disruptions will force big corporations to look for other options, at least temporarily. Companies like Apple have already begun operations in countries like Vietnam. Chinese companies might be industry leaders in some segments in the 2030s, but the West has become a cautious importer of Chinese goods. A constrained private sector might mean the Chinese presence globally will be more political and state-led.
Ideology vs prosperity China posed a unique problem to the West and conventional powers. Unlike its former adversary, the USSR, Communist China embraced market reform. It liberalized consistently and expanded so rapidly that it attracted
FEATURE ZERO-COVID POLICY
dangerous precedent and will be a blow to global democracy. China’s current moves all seem to spell peril. But it is unwise to count the dragon out, Deng Xiaoping once said, “Hide your strength and bide your time.” This has been the foundation of Chinese foreign policy, which always seems weaker. Chinese growth was possible and happened under the radar of NATO because of this approach. It is an intelligent stance to believe that China has many more tricks up its sleeve.
The dangers of autocracy
investors and companies from across the globe. China's State Capitalism is closer to Western Capitalism than Stalin's or Mao's Communism. This difference made China's rise more palatable to the West. Some economists and political scientists even forecasted that China would eventually adopt a westernized political system like Hong Kong, built on the foundation of human rights and democracy. However, China has been notorious for its human rights violations in Xinjiang and occupation of Tibet. It constantly clashes with pro-democracy supporters in Hong Kong, hoping to model the island after China rather than the other way around. It disrespects 'the one nation, two systems 'policy in Hong Kong and has western spectators anxious. Its microchip production and technology war with Taiwan is an example of market competition leading to innovation. But the Chinese insistence on Taiwan as its sovereign territory has
many people dreading imperialism and war replacing diplomacy and trade. Experts say that the Chinese neutrality to the Russian invasion of Ukraine is perhaps a prelude to a planned occupation of Taiwan. Some political analysts believed that the draconian laws and lockdowns would begin unrest in the streets of Shanghai and other major cities. They hoped such unrest would topple the Communist government. There were protests in Shanghai during the two-month lockdown. However, most of the anger was towards individuals and mismanagement rather than the system or the ideology. China is competing with the West by adopting capitalist principles while discarding the democratic values that usually accompany it. The success of China could signal to the autocrats, dictators, and theocrats that a nation can be prosperous without democratic rights or individualism. The US and its allies fear that this could set a
Contrary to Western beliefs, there is overwhelming support for Chinese Collectivism and State Capitalism within the country. Some people vented against lockdowns and lost jobs, but it never gained momentum because of state surveillance, propaganda, and people's overwhelming support for the CCP and its ideologies. President Xi, now 68, is unrivaled in party politics. He is likely to hold power till 2027, and no politician, technocrat, or billionaire dare challenge him. The one-man rule has helped the nation take strides, but power without checks corrupts and falters eventually. Putin is a fine example of unchecked power leading to individualistic decisions in State affairs and plunging the world into war, and the Russian people into poverty. Democracy and dialogue might be slow, but they offer different perspectives and solutions to choose from. The public support that the CCP and Xi garner is partly due to the endless growth China has witnessed for the last four decades. But how will the largest population in the world react when that growth plateaus or contracts during a recession?
editor@ifinancemag.com
International Finance | May - June 2022 | 47
ECONOMY
FEATURE REMOTE WORK
PAY CUT
48 | May - June 2022 | International Finance
FEATURE REMOTE WORK
Less pay for remote workers? IF CORRESPONDENT
T
he COVID-19 pandemic has permanently altered how humans work, with many employees refusing to return to offices. Workplaces were toxic and contagious long before the pandemic, but very few realize how much COVID-19 has changed our lives. So many cultural revolutions have followed in the aftermath of the coronavirus. There was the great resignation of 2021 when millions of Americans resigned together. The world's workers have made it evident that they will quit if not afforded flexibility.
Is location basedpay really justified or are corporations trying to squeeze their employees
The post-pandemic wage debate Debates on location-based pay have reached a fever pitch. Many organizations have already adopted a work-from-anywhere model. At establishments like Google and Facebook, salaries could be slashed by up to 25%, if employees decide to move away from big cities like New York and California. Senior management at these companies said location and market rates have always determined payment. Someone in Kansas City is historically paid less on average than someone in New York. However, workers are questioning if their quality of work or productivity has
International Finance | May - June 2022 | 49
ECONOMY
FEATURE REMOTE WORK
PAY CUT
not diminished, then why pay them less for the same job. There was a 10% reduction in corporate property prices last year, leading to significant shifts in the use of coworking and office spaces. Many workers moved away from the city to the suburbs to save on rent and the cost of living. The move spiked property demand in the suburbs at the expense of city centers. City planners might redesign downtown districts to make city life more alluring. The Mckinsey Global Institute estimates that almost one fourth of workers will follow a hybrid work model in advanced economies. Hybrid work is a compromise between remote work and office work, where employees work from home several days a week. The discourse on returning to work is increasingly polarising, with no consensus.
Sensible or sleazy? A study two years in the making, on 800,000 employees at fortune 500 companies revealed improved worker stability and productivity while working remotely. To deduct the salary of a workforce performing much better than before seems excessive. Companies call it a fair adjustment, but it seems unfair to the workforce, who make less money for the same job, merely because they aren't in the office. CEOs struggle with employees who negotiate the ability to work from wherever they choose, at whatever time they choose- all without a pay cut. Worker classification in the future will shift from 'white-collar' or 'bluecollar' to 'hybrid worker' or 'office worker.' Moreover, by 2030, half of the jobs in the US are projected to be freelance work. Twothirds of employers also see remote or hybrid work as the new norm. Some companies are luring high-quality professionals by offering fully remote work. It gives them an advantage over companies insisting on presenteeism.
50 | May - June 2022 | International Finance
Number of employees returning to office
2019
Prior to the pandemic, only 6% of the employed worked primarily from home and about three-quarters of workers had never worked from home
2020
About 73% of the employees in the company stated that they preferred working in the company
2021
By July 2021, 75% of executives anticipated that at least half of office employees will be working in the office. In comparison, 61% of employees expect to spend half their time in the office Is this regressive? They say only the rich can afford unpaid internships. The poor or middle-class who can't afford to live in cities are affected the most by such policies. Imagine a stay-at-home mom raising her children in the suburbs while working online. These policies will only hurt people in precarious situations and widen the income equality and wage gap. With remote work, many these days can choose their approach to work. People have begun working hours when they feel more productive and from locations where they are most comfortable. The traditional 9-5 is slowly phasing out, and a four-day work
week is one of the most debated topics. Yet, we are far off from John Maynard Keynes' 15-hour work week prediction in the 1930s. People are finally seeing their work and time as commodities and are finally getting a say in how, when, and where they sell it. Despite mounting social pressures, industry leaders cannot agree on the right course of action. CEOs are dividing themselves into two camps. Some CEOs label remote workers as 'work-shy' and wish to penalize those who opt to work hybrid. CEO of Morgan Stanley, James Gorman, sent a memo to his staff saying that if his employees wanted payment in New York
FEATURE REMOTE WORK
rates, they would have to work in the city. He said he doesn't want his employees saying that they are in Colorado with a New York salary. David Solomon of Goldman Sachs echoed the sentiment by saying that remote work was an 'aberration.' William Cohen, a veteran at Wall St., advised his colleagues and staff to return to the office. However, in the other camp are employers like Kevin Ellis, chair of consultancy firm PWC with over 285,000 workers in 155 countries. He said he wanted to create new working patterns that outlast the pandemic. Whichever camp CEOs and other
business leaders are in, it is evident that offices have immense social capital. Kevin Ellis also said he worries if companies are creating a glass ceiling for those who work from home, as their careers might have stunted careers. Most employees don't understand the advantage a physical presence can give them in terms of career growth. Perhaps, this is some resentment from big businesses which can't accept workers of the same quality as they used to before the pandemic. It seems mobility and freedom are the new goals of the post-pandemic world. Businesses must allow workers flexible work schedules from any location or struggle to
find quality workers for their force. Some leaders looking to cut costs wonder if they even need an office or one as big as before. They aren't following trends. Managers and owners want to increase their profits through improved productivity and fewer expenses like rent. CEO of Moneypenny, a PA and communication provider, said she questioned her perception when all work went remote instantly during the pandemic. She said she thought they had beautiful offices everybody loved but soon learned it was never about the physical environment. It was always about the community feeling fostered within an organization. Chris Thurling, chair of a design firm, Armadillo, stated that he is open-minded about the need for traditional offices. His business boomed during the lockdowns, and he doesn't see the incentive to revert to the old ways. Bruce Daisley, who presents the Eat Sleep Work Repeat podcast, and an authority on work, have been following shifting working patterns closely. He remarked about Dropbox, which in late 2020 figured out the futility of persuading people to return to offices. He added that people are wondering why they are going to offices just because it's a Wednesday. In the future people will come to offices when they need to and offices will be redesigned as a place to make experiences. Coercing employees into offices is futile. In the summer of 2021, employees announced their displeasure at Google paying them according to their proximity to the office. Sarah O'Connor wrote in the Financial Times questioning the fairness of different pay for two workers from the same office working from home. In her example, one receives more salary because she has inherited an expensive house in the city, while the other has lesser wages because she lives in a commuter town.
International Finance | May - June 2022 | 51
ECONOMY
FEATURE REMOTE WORK
PAY CUT
The trouble brewing in big tech Google, Facebook, and Twitter have all made their stance clear. Employees with long commutes who opt to work from home permanently will have reduced remuneration. Different companies have different stances on the subject, but the tech industry leaders are steadfast on location-based pay. Smaller companies like Reddit and Zillow have embraced a location-agnostic pay mode, which they claim has many advantages regarding hiring, diversity, and retention. Alphabet Inc., Google's parent company, introduced a calculator for employees to determine the degree of their pay cut depending on where they live. A Google spokesperson said the location was always a factor in determining compensation packages, and their salaries were at the top of the local market. An anonymous Google employee said commuting to a Seattle office from a nearby country would likely see a pay cut of 10%. Despite his two-hour commute, he returned to the office because the pay cut for remote work was too steep. Professor of Sociology Jake Rosenfeld from Washington University has extensively researched pay determination. He remarked that Google's pay structure change is alarming because they had been paying their staff 100% of their salaries and can continue to do so. The move is likely to impact employees' families adversely, he added. Google's internal salary calculator indicates that someone living in Stamford, Connecticut, an hour away from New York, would be paid 15% if they work from home. But if an employee residing in New York City chooses to work remotely, they won't be paid any less. An interview with Google employees revealed that employees face pay cuts up to 25% if they left the Bay Area for an equally expensive region like Lake Tahoe. The calculator uses the CSBA or the
52 | May - June 2022 | International Finance
US Census Bureau Metropolitan Statistical Areas to determine location-based pay. Stamford, Connecticut, is not in New York, though many who reside there work in the big city. Google announced that there would be no alterations to salaries if employees continue residing in their office-based city. Office employees and remote workers would be paid the same at Google. Mark Zuckerberg of Meta, in a video, told his employees that his company would adjust salary to location and threatened dishonest employees with severe ramifications. Many companies are struggling to understand the unprecedented cultural shift. Only time will tell if employers will adapt to the new value systems or coerce or persuade employees to be at the office even when they are unwilling. A Parisian broadcaster and columnist, Anne-Elisabeth Moutet, describes presenteeism as a feature of power politics. She believes there is a strict hierarchy in French commercial institutions where the boss wants to surveil and micromanage all his employees. The organizational structure in French systems, which she compares to the court of a minor Borgia, makes transitioning into remote or hybrid work slow and difficult. Even colleagues vying for the boss's attention can sabotage any attempt at remote work in Paris.
The future of work The pandemic has changed the very nature of work. The three noteworthy changes were remote work, eCommerce booms, and automation. In a study, Mckinsey and company found that the pandemic took a lot of work that didn't require physical proximity to work remotely. Someone who just had to attend calls, write copies, code, etc., realized they could do their work from anywhere. Teachers went online, therapists went online, and many such professions have seen a positive shift towards working remotely.
400%
The amount of people who work remotely at least once per week has grown by 400% since 2010.
99%
of people would choose to work remotely, at least part-time, for the rest of their careers Source: Datapoint
E-Commerce changed the way we buy and sell things. Many countries saw astronomical growth in their eCommerce sectors after the pandemic. The US, for example, saw 3.3 times the previous year's growth, while Spain saw 4.7 and the UK witnessed five times growth. It will be a continuing trend with digital marketplaces replacing brick-and-mortar shops. The traditional economy is at peril due to these developments, and there are worries about market monopolization by giants like Amazon. However, the future of eCommerce seems bright, with many competing websites offering people quality goods for competitive prices. These phenomena also opened up something called the 'gig' economy. The US Bureau of Labor Statistics reports that companies are no longer loyal, and neither are employees. The average American might have changed over ten jobs before turning 40.
FEATURE REMOTE WORK
Remote Workforce Size
4.7 million
In the US, 4.7 million employees (3.4% of the workforce) work from home at least half the week
62%
Roughly 62% of employees between 22 and 65 say they work remotely at least occasionally
44%
of employees say that part of their team is fulltime remote
30%
of people report working remotely full-time, 18% work remotely one to three times per week
In a Forbes article, the number of freelancers in America went up 8% within three years. Experts predict by 2027, about 50% of the workforce will be either independent consultants or freelancers. The change that led the world to remote work and valuing freedom and flexibility will also push them away from salaried full-time obligations. The third change in human work and behavior is perhaps the scariest. It has rung many alarms in the past but has turned out to be for nothing in the end. We are referring to 'automation anxiety.' The new McKinsey & Company report states that most work that didn't need physical proximity went remote. It also reported that jobs with the highest physical proximity are more likely to be automated first. Businesses saved up on costs in the past by either redesigning their workspaces or outsourcing or automating their work. In a
2020 survey of 800 senior executives, two third said they were increasing investments in AI and automation. In China, robotics production has outpaced the pre-pandemic levels. Some companies are already utilizing AI in grocery stores, manufacturing plants, warehouses, and call centers to mitigate demand and workspace density. Pre-pandemic, it was just middle-income occupations that saw net job losses; Now, lowwage jobs in transportation, warehousing, and delivery will see the most disruption. While high-wage, skilled work opportunities in fields like STEM might grow further. Low-income earners will need skill acquisition to join a higher-wage bracket or might be left behind. All this has rattled companies, economists, and governments. Introducing a new technology has always created a fear of losing human jobs.
The study estimates that a low-wage worker uses foundational cognitive function and physical labor 68% of the time, while middle-wage groups use them 48% and highwage earners use them 20% of the time. The average German use of basic cognitive skills at a workplace will shrink by 3.4%., while time spent on emotional and social skills will increase by 3.2% in the next year. It is undoubtedly clear that our societies reward cognitively challenging work more than it does physical labor or basic cognitive functions. And through machine learning computers and robots are reaching a point where they can perform these functions better than an average human being.
Conclusion No one knows why there is so much pushback from corporate offices. Is it because they do not understand the magnitude of the cultural shift? Is it because of the legal complexities? Is it the financial issues in regulating work from home? Or is it simply the need for the visibility and use of large corporate megastructures that hardly anyone will inhabit if remote work becomes the norm? The great Chicago poet Carl Sandburg once said the workers came to the cities from the streets, prairies, and valleys only to be "poured out again back to the streets, prairies, and valleys." However, the internet has changed everything. None need to venture out from his streets, prairies, and valleys. All the work you will ever do will be done where you stand. Humankind is changing in ways that would have once rivaled the realm of science fiction. Perhaps, corporations shouldn't resist this change and focus instead on making every individual more productive, irrespective of where they choose to work.
editor@ifinancemag.com
International Finance | May - June 2022 | 53
TECHNOLOGY
FEATURE CLOUD COMPUTING
DATA CENTRE CROSS-BORDER DATA FLOWS
Sri Lanka: An island in peril IF CORRESPONDENT
A
little over a decade ago, Sri Lanka crawled out of one of the worst civil wars in the world. Years of violence between the Sinhalese and the Tamils ravaged the island nation. And when the Liberation Tigers of Tamil Elam (LTTE) surrendered after the death of its leader Prabhakaran on May 18, 2009, though bloodied and battered, many hoped for peace and economic growth. However, the recent month will go down as one of the worst months in Sri Lankan history. The police opened fire on protestors
54 | May - June 2022 | International Finance
FEATURE CLOUD COMPUTING
The country defaults on foreign debt, struggles with food, fuel & medicine shortages, hyperinflation, and civil discord
before Mahinda Rajapaksa's residence, killing eight and injuring 200. The country has defaulted on its loans. A severe lack of foreign currency crippled the government's capacity to pay for essential imports like fuel. Powercuts last half a day, medicines are hard to find, businesses have went bust, and food shortages have riled up the population. Shortly after, Mahinda Rajapaksa resigned, and
Ranil Wickremesinghe became the new Prime Minister. Yet the protests raged on, demanding the resignation of Mahinda Rajapaksa's younger brother, President Gotabaya Rajapaksa. The president declared martial law in response to the violence before the Prime Minister's residence, and the situation has spiraled out of control.
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ECONOMY
FEATURE DEBT DEFAULT
SRI LANKA CRISIS
Where did it all begin? Sri Lanka has never had it easy. It was a European colony for over 400 years. British held the territory for most of this period since 1815 and used it as a forward base against the Japanese in World War 2. It was also an economic hub connecting Europe and East Asia. The British plantation owners realized the island was conducive to growing tea and turned large areas of rainforest land into plantations. Since tea growing was a very labor-intensive work, the colonists brought a huge population of cheap labor from the Madras Presidencymostly Tamils. The racial disharmony between the native Sinhalese and the migrant Tamils is the root of most Lankan strife. Sinhalese refused to accept the Tamil population as Lankan, denying them human rights and sparking a bloody civil war, which lasted till 2009. Mahinda Rajapaksa took credit for crushing the LTTE, one of the most feared terrorist organizations in history, known for their suicide operations, including the assassination of the late Indian Prime Minister Rajiv Gandhi. Though, there were widespread allegations of war crimes against the Rajapaksas and the Sri Lankan army; he was hailed as a national hero.
How did it get to this? The next 13-years were marked by economic mismanagement by successive governments, which weakened the country's public finances through excess government spending and reduced national productivity. The Rajapaksa's regained power following the 2019 Easter bombings. The nepotistic family had three members in the cabinet apart from Gotbaya and Mahinda and held a monopoly over
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decision-making. The Rajapaksa govt cut taxes steeply after assuming office in 2019, exacerbating their economic woes. Before the festering economic crisis could be fixed, COVID-19 struck, wiping out most of the national revenue. Tourism -a major source of revenue- was hit hard during the global lockdowns and travel restrictions. Remittance from the Sri Lankan diaspora also fell because of inflexible foreign exchange rates. Rating agencies, apprehensive of government finances and repayment capabilities, downgraded the nation's credit rating in 2020 and soon restricted them from the international financial markets. The country reached into its coffers and spent 70% of its foreign exchange reserves within two years- a move that debilitated the economy by creating a dollar shortage. The Rajapaksa government's steep tax cuts reduced government revenue during a great crisis. They had hoped to tempt foreign investments and stimulate the economy, but the racial tensions, terrorism, corruption, and a global pandemic scared away investors. One of the most horrible decisions made by the Sri Lankan govt is its plunge into organic farming. They began experimenting with natural fertilizers and pesticides. Also, when the government ran out of foreign currency for imports, it encouraged domestic fertilizer and pesticide manufacturers, who delivered substandard products to the nation's farmers. Consequentially, the yield of agricultural products plummeted. The tea industry was nearly wiped out reporting the lowest exports in 23 years. Food shortage ensued with poor local farm yields and food imports blocked because of an impoverished exchequer. Despite the many facets of the
crisis glaring at them, the Rajapaksas were reluctant to negotiate with the International Monetary Fund (IFM) in the belief that tourism would bounce back soon. They did seek help from India and China, the two regional superpowers who have constantly vyed to pull Sri Lanka into their sphere of influence. New Delhi claimed that it provided support worth $3.5 billion in 2022. In January 2022, President Rajapaksa beseeched China to restructure the $3.5bn debt owed to Beijing. Many have accused China of trapping the island in its debt trap as a plan to realize the trillion-dollar Belt and Road initiative. The Chinese cooperated with the Sri Lankans by providing a 1.5bn yuandenominated swap in late 2021. There are even reports of Chinese embassy
FEATURE SRI LANKA CRISIS
officials sending money and food to high-ranking officers in Sri Lanka. Eventually, Sri Lanka did open talks with the IMF in May. Even with all the assistance, Sri Lankans have no power, no fuel in their tanks, no food, and very few medicines. After the Prime Minister's resignation, the member of parliament, Harsh De Silva, said that they needed a stable government soon to restore the country to some sense of normalcy. He added that if not, then the mobs would go berserk, and law enforcement officers would be helpless; Harsh De Silva would prove himself to be right. Businesses were also looking for political leadership to restore law and order and economic stability. The Joint Apparel Association Forum, which represents the nation's vital apparel
industry, said the need for a new government was "critical."
Where is it heading? Amidst growing public resentment, President Rajapaksa installed former rival Ranil Wickremesinghe as the new Prime Minister. The leader began by accepting and disclosing the current scenario to the public through a string of tweets. The new Prime Minister tweeted, "The next couple of months will be the most difficult ones of our lives. I have no desire to hide the truth and lie to the public. Although these facts are unpleasant and terrifying, this is the true situation." He went on to explain the situation further. He said the foreign reserves were at $7.5 bn in November 2019, but the government couldn't find even one
million in 2022. The budget deficit was around SLR 2.4 trillion (13% of GDP). On May 16, Wickremesinghe tweeted that the island had only enough fuel for a day, though he hopes of acquiring diesel shipments through the Indian credit line. He forecasted great adversities for the future but hoped that Sri Lanka's foreign allies would come to its aid. Sri Lanka is now in a precarious situation. Being economically broke, they are not in a position to negotiate with foreign powers. The island is a geopolitical chokepoint for any nation which wants to control the Indian Ocean. China and India were already trying to get the country on their side through loans, infrastructure development, and financial aid. Its negotiations with the IMF would alarm its Chinese debtors, who already fear the United States would want to establish a military base in Sri Lanka. The pandemic has been harder on the poor than on the rich. Whether the poor in question be individuals or nations, has made no difference. Many developing economies didn't have the resources to withstand a strict lockdown. Lebanon slipped into a recession quickly. Others like Pakistan and Nepal aren't doing well either. India is experiencing high inflation, and some African and South American countries are seeing contracting economies. Another point to note is the huge income inequality in Sri Lanka. Many are starving, but the middle class still lives in neighborhoods with no power cuts and eats out at expensive restaurants. Schools for the rich are still open, and many private vehicles still ply the road. A curious case in a country that hardly has a day's stock of petrol. If not addressed, there will be law and order problems in the nation. editor@ifinancemag.com
International Finance | May - June 2022 | 57
ECONOMY
FEATURE STOCK MARKET
US ELECTIONS
Wall Street braces for stormy weather 58 | May - June 2022 | International Finance
FEATURE US ELECTIONS
Even during politically turbulent times, the markets outperformed, but their winning streak is finally over
IF CORRESPONDENT
T Population participation in stock market in US by year
2022 2020 2006 Source: Statista
58% 55% 62%
he double-digit returns on investments have astounded economists and speculators. The market was a golden goose for Americans, whose lives were in constant political turmoil. The social polarization and discord that has become synonymous with the Trump presidency had little to no effect on stocks and commodities. The market value slumped for a few weeks and then went on to mark one of the most historic rallies in history. As protests ravaged America after the brutal murder of George Floyd, stock prices soared. Amidst the chaos, the markets signaled that politics aside, everything was going great. Wall Street's a place for number-crunching dreamers who now must reconcile with reality. The Federal Reserve has decided to combat sky-high inflation by hiking interest rates. The decision has crushed stock prices as corporations use billions in value. On Friday, the 13th, stocks rose 3%, though hardly enough to recuperate the week's losses. For the first time since 2011, it was the sixth consecutive losing week for the market. The looming recession and persistent inflation will most likely push S&P 500 further down. In May, The index fell more than 16% from its peak in January. Though 72% of all holdings in the market belong to the super-rich, over half the US population has some money
International Finance | May - June 2022 | 59
ECONOMY
FEATURE STOCK MARKET
US ELECTIONS
invested in the stock market. Most Americans would now have substantially fewer returns and thus less wealth to support their retirement or their children's college education. These events unfold right before the midterm elections, aggravating the Democrats who struggle to convince the people that Joe Biden and his party are what's best for the economy. Many Trump supporters hailed the former President as the 'savior of the economy'. Donald Trump was not shy in iterating his contributions to the economy. And now, Biden and the Democrats will take the blame for this meteoric stock market crash. People often forget that the stock market is not a barometer of the economy. Its rise and fall are not proportional to economic successes and failures in the real world. For example, spending is still high, and unemployment hasn't been this low since the 1950s. But people do look at the stock market as an indicator of growth. And, week after week of losses can be psychologically punishing for the average American. Chief economist at Moody's Analytics remarked that people are simple, and they look at the stock market to see how well they are faring economically. He said they feel good when they see green on the screen and crummy when it's red. Stock prices thrived under years of low-interest rates and low-yielding alternatives like bonds. The market was one of the few places where they could make big money quick. Policymakers cut rates lower during the pandemic to successfully help businesses through the lockdowns. As a result, companies funneled money into stocks, kept hiring, paying rent, and ramping up production, shareholders got ample dividends and stock buybacks.
60 | May - June 2022 | International Finance
Now, the crippling inflation which the average family struggles with has caught up with the suits on Wall Street. The Fed has finally increased interest rates to check the inflation of food and fuel prices. Wall Street giants have foreseen this scenario, and despite their preparations, it is a painful experience for investors. Emily Bowersock Hill, the founder of Bowersock Capital Partners, said that she doesn't think people recognize how fragile a foundation the stock market was resting. Bowersock is the Chairperson of the investment committee of the Kansas Public Employees Retirement System, a $20 billion pension fund. Hill added that some decline was inevitable and healthy to clear out "meme stocks". She said speculators drove up prices of dubious business prospects like BlackBerry, AMC Theatres, and Bed Bath & Beyond. But it isn't just dubious companies that took the hit. Industry giants like Amazon
Percentage of stock-owning individuals in US by party affiliation
65% Republicans 61% Democrats 53% Independents Source: Gallop.com
lost more than 30% of their value since the onset of 2022. Alphabet went down by 20%, and many are rethinking the worth of these firms. Virtually, every stock devalued in one of the most depressing seasons in recent
FEATURE US ELECTIONS
history. The symbolic value of market success is something no one knows better than Trump. During his presidency, Trump used to pressure the Fed to reduce interest rates further and frenziedly tweeted about stock market booms. Even during the peak pandemic season, when morgues and hospitals were full and schools and malls empty, Trump tweeted about the greatest stock market success since 1974. Most Americans own stocks, but it is still a rich person's game as 5% of all people hold 72% of all market assets. However, symbolism is of significance to the general public. Richard Sylla, a professor of economics at NYU's Stern School of Business, remarked that markets are important because it makes the news every night. Often, winning markets is crucial to winning a presidency. On May 13, the University of Michigan's consumer sentiment index dropped by 13
points from when COVID first hit- much lower than expected, as noted by Ian Shepherdson, the chief US economist at Pantheon Macroeconomics. He went on to say that such deep pessimism suggests that people have short memories. All this spells trouble for the Biden administration. The long years of prosperity end under his watch, and a new bull run might be a while away. On May 9, Republican Congressman Jim Jordan tweeted, “Your 401(k) misses’ president Trump.” Biden critics even trended “My 401(k)” nationally on Twitter. A critic tweeted, "I don’t know about you, but after looking at my 401k statement I think we need Trump back." With the Supreme Court abortion laws Janet Yellen, Treasury Secretary admitted on Wednesday that Biden’s spending policies were worsening the inflation but added that the economy was still strong. The 401(k) is an employer-sponsored retirement plan in the United States. An employee that opts for a 401(k) agrees to transfer a part of his salary to an investment account. This money is invested in the stock market, which at the moment isn’t faring well. Sylla co-wrote a book after studying two centuries of interest rates which accurately forecasted in September 2011 the high returns the coming decade would produce. Returns in this decade will be more "muted," Sylla said. Even if the market recovers, it won't rebound as it did after the first months of the pandemic. The average stock market return in the last decade was around 17%, as per the S&P annual return generated in the decade leading up to 2022. Now, analysts predict single-digit returns of approximately 5% for the coming yearsan extremely dismal outlook for investors. Sylla wittily explained that the only good thing about the stock market now is
that those who weren't doing so well can find solace in the fact that others aren't either. He predicted that the years of the rich getting richer and the poor getting poorer were over. According to Sylla, no one's getting too rich too soon anymore. Hill pointed at the generation of investors who entered the market in the last five years and made huge gains. They are used to a time when things always rebound quickly, and the stock values keep growing faster and faster despite minor setbacks. The Bowersock Chairperson noted that investors are in the habit of 'buying the dip.' They aggressively buy stocks when prices plummet with the assurance that they will go up very soon. She said this aggressive strategy might not work in the future. Hill concluded that she sees no easy way for President Biden to control inflation without unnerving investors. Any move the government and the Fed makes might negatively impact the market at this point. Cracking down on wage growth - an inflationary force - is political suicide for a Democrat, and the war in Eastern Europe, which is driving up oil, gas, and food prices, seems to have no end in sight. Pension and other investment experts are well prepared for a phase of substantially low returns. But Zandi added that the casual investor who expected their retirement funds to grow at a remarkable pre-crash pace is in for a shock. When the average American learns of this adjustment, the stock market's threedecade-old symbolic value will diminish. Moody's chief economist concluded that something else would take the stock market's place, but he is unsure of what that will be.
editor@ifinancemag.com
International Finance | May - June 2022 | 61
INDUSTRY
ANALYSIS
EDUCATION UK SCHOOLS
International School Consultancy Research stated that around 1,003 English-medium international schools were set up in South East Asia in 2021
How British schools are branching out in Asia IF CORRESPONDENT
Wellington College, a leading UK boarding school and one of the world’s top International Baccalaureate (IB) schools, with a strong reputation for all-around excellence, will set up its schools in three Southeast Asian countries. The schools will be opened through a regional Brazil is partnership with Singaporeimportant based businessman Peter to the global Lim. In April, Lim announced oil industry that they inked a master and will be license agreement to open responsible for premium Wellington College the production International schools for of nearly 50 children aged three to 18 in percent of Singapore, Indonesia, and the world’s Malaysia. offshore oil by Wellington College plans 2040 to accommodate up to 2,000 students in each school, offering early years, preparatory, and senior school programs based on the English National Curriculum and culminating in the IB Diploma. The schools, staffed by an international faculty, will address increased demand from expatriates and local families who want their children to receive a good education without sending them thousands of miles away. Wellington College is one such example of a British school that opened in Asia. According to
62 | May - June 2022 | International Finance
the latest data (January 2021) from International School Consultancy (ISC), around 1,003 Englishmedium international schools for children aged three to 18 are set up in South East Asia, teaching over 3,71,500 students. Six countries, including Indonesia, Thailand, Malaysia, Cambodia, Vietnam, and Singapore, have over 100 international schools each. Sami Yosef, head of South East Asia Research at the ISC Research, said that the demand for international schools in Southeast Asia has been growing in recent years. He added that the trend is likely to continue as several countries like Myanmar and Vietnam are making significant progress. Several countries are open to development and investment. Even though Asia continues to bear the burden of the oil and gas market recession due to the Russia-Ukraine war, which resulted in the departure of many expatriate families. The vast majority of international schools in Asia saw increased student registrations in 2022. The number of international school students has increased by 15% from September 2020 to September 2021. According to Yosef, the increasing demand for international schools comes from local families who want their children to have an Englishmedium education.
Vietnam: Significant international school
growth forecast Vietnam expects to experience significant expansion in international schools over the next few years if a new draft policy replaces the government’s Decree 73. Decree 73 is a policy that applies to foreign investment and cooperation projects in education and vocational training in Vietnam. It also includes foreign-invested tertiary institutions. Until now, foreign-owned international schools in Vietnam have faced restrictions on enrolling Vietnamese students. There is a cap of 10% for primary students and 20% for secondary students. Some international schools providing bilingual learning have escaped the cap, but many others directly impacted by the current restrictions have long waiting lists of local Vietnamese families hoping for a place for their children.
How regulation changes will affect international schooling Malaysia: The Malaysian government lifted the 40% cap on Malaysian children who were able to attend international schools in 2018. International
schools in Malaysia now have the legal authority to enroll only Malaysian citizens if they so choose. Most top institutions aim for a 50-50 mix of local and international students. As a result of relaxed restrictions, the number of foreign schools in Malaysia has increased from 108 in 2019 to 170 in 2020. And the number of international school students has increased by about 30,000 to 71,500. According to figures outlined by ISC Research at their 2022 conference, around 12 new international schools opened in the 2021-2022 academic year. Malaysian students have had the most influence. In Malaysia, around half of all international school students are now Malaysians. As a result, numerous institutions are expanding their campuses to meet the demand, and new schools are being established. Marlborough College Malaysia, which opened in 2017, Epsom College in Malaysia (ECM), which opened in 2018, and Gems International School in Subang Jaya, which opened in 2019, are all well-known school brands. Also, the international schools with midrange fees, such as Taylor's International Schools, HELP International School, and Tenby International School,
International Finance | May - June 2022 | 63
INDUSTRY
ANALYSIS
EDUCATION UK SCHOOLS
have seen the most substantial development, with many students coming from Malaysian households. Marlborough College Malaysia is the first independent, British boarding and day school to open a campus in Malaysia. The preparatory school accepts students as young as three years old, while the secondary school accepts students aged six to 18. According to a Marlborough College spokesman, the institution is ambitious, open-minded, adaptable, and socially minded, with a strong perspective for its community and the wider world. Meanwhile, Kuala Lumpur is the most populous city in Malaysia, having 36 foreign schools, and several of them are experiencing high demand from local families. The foreign market has also seen the most substantial rise in Malaysia. The International School of Kula Lumpur (ISKL) offers a comprehensive international curriculum that integrates leading North American educational frameworks with international best practices. Rami Madani, head of school at ISKL, said that the study program at SKL includes a variety of crosscultural experiences designed to foster global consciousness and educate students who appreciate the intercultural understanding. He also said that students gain a deep awareness of the importance and impact of taking positive action to affect change at the school, local, and global levels through service learning, which is an important part of school life.
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Riddlesworth Hall Preparatory School in Norfolk
Cambodia and Myanmar: Over the last few years, Cambodia has steadily increased the number of international schools. In Phnom Penh, nearly 20 new foreign schools have opened since 2020. The midmarket sector, the segment of American businesses with annual revenues roughly in the range of $10 million to $1 billion, has the most demand. Myanmar, too, is seeing an increase in international school enrollment in preparation for economic growth. Infrastructure development in the country is already underway, notably in major towns such as Yangon and Mandalay, where new road networks are being built, telecommunications are being converted, energy supplies are being enhanced, and worldwide banking services are being developed. Although it is still early and
there is no education policy or regulations for international schools, the future is bright.
History of international schools in Asia The first international schools were set up in the 19th century in countries like Japan, Turkey, and Switzerland, for the families of diplomats and business travelers. In India, British private schools were established with a distinct goal-- to train the native elite to be British gentlemen. A recent rash of British schools abroad incorporates elements of both objectives. They are designed to appeal to a mixture of globetrotting parents and ambitious locals eyeing a university education in Europe or America for their children. Thailand also has a lengthy and illustrious international education history. International schooling in
Thailand is supposed to have begun after World War II, although it has a considerably longer history, with the first foreign school opening in the 17th century. In 1665, King Narai granted permission to a group of French missionaries led by Bishop Lambert de la Mottle to open a school in Ayutthaya. Later the Seminary of Saint Joseph (known as General College) became Thailand's first Catholic college. Another set of French missionaries established the first Catholic school in Bangkok in 1674 at the Church of the Immaculate Conception in Samsen. These colleges used French as the medium of instruction to teach their curriculum.
Chinese companies buying UK private schools On the other hand, Chinese companies have bought up 17
UK private schools in the United Kingdom in recent years, sparking fears of expanding Chinese Communist Party (CCP) influence in the country as the schools struggle financially in the wake of the coronavirus pandemic, British media reported. "Hundreds of independent schools left in dire financial straits by the coronavirus pandemic are being targeted by Chinese investors," the Mail newspaper reported. Some of the companies are run by high-ranking members of the ruling Chinese Communist Party, and seek to expand their influence over Britain's education system, the report said. According to an investigation by the paper, nine of the 17 schools under Chinese control are owned by companies controlled by Chinese entrepreneurs who are also members of Chinese People's Political Consultative Conference (CPPCC), a body which maintains close ties between private sector wealth and the ruling party. Private schools have been hard-hit by the pandemic, with plummeting enrollments and falling fees as students are sent home for distance-learning, the report said. Before the pandemic, Bright Scholar -- a company owned by the daughter of Chinese property magnate Yang Guoqiang -- had already invested in several schools, including Bournemouth Collegiate School and St Michael's School in Llanelli, Carmarthanshire, the paper said. Bedstone College in Shropshire
and Ipswich High School are owned by London-based asset manager London & Oxford Group, which in turn is backed by China's Wanda Group conglomerate. Riddlesworth Hall Preparatory School in Norfolk, attended by Princess Diana, was acquired by the Confucius International Education Group in 2015. Ray Global Education, which owns two U.K.-based private schools, says the acquisitions were a part of its "Global Campus" project that seeks to promote the CCP's Belt & Road infrastructure and global influence initiative in the global education sector. The company's president Hu Jing told Chinese state-run media in 2019 that he runs the business in accordance with "political laws, educational laws, and economic laws." "No matter how international the school is, it is still fundamentally a Chinese school, and it must pay close heed to the political environment," Hu told journalists. When his company set up a school in Shanghai, the first thing it did was to set up a CCP committee and choose a party secretary, he said. Wang Jianhong, spokesman for the US-based rights group Humanitarian China, said she was surprised at the sheer scale of Chinese acquisitions in the UK private education sector. "British private schools are a weak link, because there is a need for investment, and the CCP is taking advantage of that," Wang told RFA.
editor@ifinancemag.com
International Finance | May - June 2022 | 65
INDUSTRY
ANALYSIS
LOGISTICS GLOBAL SUPPLY CHAINS
The fact that many firms are shifting from efficiency to resilience is an indication that there is a vast build-up in precautionary inventories
Restructuring global supply chains: Good, bad & ugly IF CORRESPONDENT
The pace of economic integration was stalled in the 2010s due to the financial crisis that throttled companies across the globe. A rebellion was out in the open against then US President Donald Trump’s trade war, due to which the flow of goods and capital stagnated. Many big shots postponed As there is a important decisions, requirement especially with respect for a large to investments abroad as workforce, they did not know whether many firms globalization was facing a have shifted blip or extinction. from China to But now years later, even Vietnam as everyone are still battered over the damage caused by the COVID-19 pandemic and the Ukraine war, the people in governments and boardrooms are reinterpreting the impact it could have on global capitalism. Across the globe, supply chains are being transformed. From $9 trillion in inventories, stockpiled as insurance against inflation and shortages. As there is a requirement for a large workforce, many firms have shifted from China to Vietnam. The wave of globalization is not about work efficiency, but about security. The priority lies in people with whom you can rely and do business. This also indicates that your government needs to have friendly tie-ups with counties where you are doing business.
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It could result in worsening inflation, protectionism and big government. But at the same time if the companies and politicians show restraints, it might lead to a change in the world economy for the better. The fall of the Berlin Wall in 1989 is one such prime example, where efficiency was key to globalization during those difficult times. The companies initiated productions that were low in cost. The investors deployed capital which resulted in higher returns. The governments were keen on treating every firm equally regardless of which part of the world they were from. They also kept both democratic and autocratic counties on the same plate and struck deals with them. As an end result, two decades later this gave rise to sophisticated value chains that accounted for 50% of all trade. This kept the prices at a low cost for the consumers and also pushed one billion people out of extreme poverty, thanks to the industrialization taking shape across the world including China. But globalization also had its own set of issues. Flammable capital flows led to the destabilization of financial markets, which ultimately results in blue-collar workers in rich countries losing out. Now, two others worries have also become a huge concern. The first one is that some lean supply chains do not have a good value as they appear. They end up kept at a low cost, but when they break, the bill can be adverse. Today’s bottlenecks have ended up reducing
the global GDP by at least 1%. Both shareholders as well as the customers have taken a hit. Since the production of cars has been stalled due to the chip shortages, there has been an 80% year-on-year drop in the cash flow of the carmakers. Apple CEO Tim Cook stated that such disorder could reduce sales by up to USD 8 billion, or 10%, this quarter. The COVID-19 was unexpected but extreme weather, wars, or even another deadly virus could easily rattle the supply chains in the coming years. The second problem is that the single-minded pursuit of cost advantage has led to a dependency on autocracies that abuse human rights and use trade as a means of coercion. There have been hopes that economic integration would lead to reform but that has been dashed as autocracies account for a third of world GDP. Russian President Vladimir Putin’s invasion of Ukraine has exposed Europe’s reliance on Russian energy. McDonald’s in Moscow which has been there since 1990 was restarted this week under local control. Meanwhile, China has a trading footprint seven times as big as Russia and many counties rely on various products of theirs. The fact that many firms are shifting from
efficiency to resilience is an indication that there is a vast build-up in precautionary inventories. The biggest 3,000 companies in the globe have risen from 6% to 9% of world GDP since 2016. Many of them have been adopting longer-term contracts and sourcing. In the multinational investment sector, the pattern has also changed. Companies, instead of sending their capital abroad, 69% comes from their local subsidiaries. This situation is similar to what happened during the 1930s when international firms decided to make subsidiaries abroad more self-sufficient. The industries that are feeling the heat have already started reinventing their business models. Governments from Europe to India have put their weight behind these industries which are keen on 'strategic autonomy'. The car industry is also up for a new revolution as they have been heavily influenced by Elon Musk’s Tesla and are working towards vertical integration where one gets to have control over everything be it nickel mining or chip design. Meanwhile, Taiwan’s electronics assemblers ended up downsizing their share of assets in China. From 50%, it has gone down to 35% since 2017 as prominent clients like Apple demand diversification. In the energy sector, the West is seeking long-term supply deals from its allies instead of being dependent
International Finance | May - June 2022 | 67
INDUSTRY
ANALYSIS
LOGISTICS GLOBAL SUPPLY CHAINS
Gross output of total United States mining industry from 2000 to 2020 (Billion US dollars) on spot markets dominated by rivals, which is a major reason why it is having close ties with gas-rich Qatar. With renewable energy, the power markets will become more regional. The risk is that an objective quest for security will degenerate into widespread protectionism, jobcreating programmes, and massive industrial subsidies costing hundreds of billions of dollars. This would increase volatility and fragmentation in the short term, driving prices even higher. US President Joe Biden's consideration of additional solar panel tariffs, which he put on hold this month due to shortages. If supply chains were to be randomly duplicated, there would be significant long-term inefficiency. The additional annual operating and financial expenditures required could surpass 2% of global GDP if you replicated a fourth of all multinational activities. So, exercising restraint is essential. Governments and businesses must keep in mind that diversity promotes resilience rather than domestic concentration. Based on their exports of items for which they have a dominant market share of over 10% and for which substitutes are difficult to obtain, autocracies control just around a tenth of world trade. The solution is to mandate that businesses diversify their suppliers in these sectors, then let the market adjust. Will modern governments be able to handle the job? There is a lot of myopia and isolation. However, if you are a consumer of global goods and ideas or a citizen of the globe, you should desire that
68 | May - June 2022 | International Finance
2015
2016
496 Bn
493.1 Bn
2017
2018
384.3 Bn
680.3 Bn
2019
2020
515.2 Bn
412.4 Bn
Source: Statista
the next stage of globalization has the highest level of openness. A new equilibrium between security and efficiency is a reasonable goal.
Mineral shortage could disrupt global supply chains Vital mineral shortages received media attention last year after automakers revealed supply chain problems for semiconductors, which depend on critical minerals like lithium and cobalt. Fewer automobiles were available for purchase as a result, and many consumers were forced to wait for automakers to finish their backlogs. Over the ensuing decades, dependence on essential minerals is anticipated to rise, particularly as the globe moves toward renewable energy technology.
Companies rethinking their supply chain networks The global supply chains now need to be sourced from a variety of locations in order to reduce shipment and manufacturing disruptions during the COVID
pandemic. Over the past two years, port operations all over the world have been in disorder, with containers stacking up at terminals due to a lack of employees to reload them and truck drivers to transport them anyplace. Shipping costs reached historic highs in 2021 as exporters in Asia competed for the limited ship space available to ship their goods to clients in the US and Europe.
Supply chain crisis continues to reverberate through global economies University of Rochester economist George Alessandria during an interaction with Rochester Education pointed out how supply chain issues continue to reverberate through the American and global economies. Regarding the current situation of supply chain shortages, he said, "This is the worst that it’s been in 50 years—and it’s probably getting worse, considering that China has been shutting down cities and production facilities. The massive
Meanwhile, analysts have forecasted that there will be vehicle shortages in the US as supply chain woes deepen. With analysts at Cox and Carmaxowned Edmunds.com indicating that supply chain problems will continue for the foreseeable future, Cox Automotive cut its projection for US auto sales in 2022. Cox's full-year projection was lowered from 15.3 million vehicles to 14.4 million vehicles, but still predicted a modest month-overmonth increase in sales in June. According to Edmunds, secondquarter US vehicle sales will be better than in the first quarter, but they will still fall short of the weak number from the previous year. Edmunds' executive director of insights, Jessica Caldwell, said, "A recovery in vehicle production in 2022 seems highly unlikely at this point but profit margins are staying high and pent-up consumer demand will only continue to build as shortages continue." Cox Senior Economist Charlie Chesbrough said, "Even though economic conditions have worsened in the past months, the lack of supply is still the greatest headwind facing the auto industry today."
Oliver Chapman, CEO of supply chain specialist and UK’s number one fastest-growing company OCI, blamed the lack of supply chain resilience and redundancy for the rise in inflation. He said, "Supply chain shocks, possibly in combination with too loose monetary policy, are the underlying cause of the current inflation surge, but the worst effects of this crisis could have been avoided if organisations had put in place basic procedures in understanding and improving their supply chain." "Lack of resilience and redundancy embedded into supply chains, encouraged by too much complacency, helped make the supply-chain crisis much worse than it needed to be," he added. He stated that the supply chain operation was taken for granted and people assumed that things would turn out fine. "For too long, the supply chain operation has been taken for granted and ran on the assumption everything would go just right, with every interweaving part of the supply chain fitting just right, all the time. Now we are paying the price for such complacency. If supply chains had seen more redundancy and resilience built into them in the first place, there would still be a rise in inflation, but it wouldn’t have been so severe. To defeat inflation in the medium and longer-term, we must avoid second and third round inflationary effects," he concluded.
Lack of supply chain resilience the reason for inflation
editor@ifinancemag.com
the federal stimulus checks that we probably didn’t need to keep the economy recovering. We just didn’t understand how consumer demand was going to shift, once the pandemic began to ease," he added.
Vehicle shortages in US as supply chain woes deepen
lockdowns in Shanghai and Beijing will eventually ripple through the system again." He also blamed the COVID-19 pandemic for the crisis that the supply chain industry is facing now. Alessandria said, "It all started with COVID-19 and the shutting down of ports and factories, which slowed down the movement of goods around the world. And then it just became hard to partially reopen the economy, since public health issues remained in play. That’s why we saw periodic closures of facilities and ports around the world all through 2021." Alessandria noted that the bounce-back in consumer demand was much stronger than what was anticipated. "On top of that, the bounce-back in consumer demand has been stronger than what was anticipated. It’s like trying to push more and more stuff through a straw that shrank. It just doesn’t work well. While the supply chain shortages started with COVID, they’re also due to increased consumer demand, which was fueled by
International Finance | May - June 2022 | 69
INDUSTRY
FEATURE REAL ESTATE
PROPERTY SELLING
Things you need to know while selling a house
IF CORRESPONDENT
70 | May - June 2022 | International Finance
FEATURE PROPERTY SELLING
According to the National Association of Realtors, around 23% of sellers market their houses through friends, relatives, or neighbors
S
elling a house can be a huge task, mainly because it involves one of your most valuable possessions. You are bound to have a lot of feelings and memories attached to the structure that has sheltered and protected you for so long. Also, you have invested a lot into it financially. So, even if you have decided to move on or upgrade to a new home, selling your old one is not easy. Apart from the fact that you expect a decent price, there is a lot of paperwork to deal with. And all of the legalities or formalities must be completed correctly to avoid any problems during or after the sale. Here are some ideas to keep in mind when planning to sell the house:
Is your reason to sell property reasonable? There are several reasons for selling your home. One of the reasons could be that you need a lump sum money quickly. Another reason could be that you have outgrown your current residence and need to relocate. Another factor could be the desire to live in a better locality and lead a better lifestyle. The list goes on. Therefore, you must first understand whether your reason is big enough to make such a significant decision.
Can you afford a bigger property? Are you selling a house to upgrade to a larger one or
one in a more upscale locality? Then you should decide whether you can go ahead with it without creating a financial crunch. It is crucial that you learn about the costs involved in the procedure. Next, talk to a loan agency to figure out what mortgage you can get and how much you will have to pay in installments.
Property evaluation When it comes to selling a home, property evaluation is one of the most decisive factors. Many agents may attempt to close the deal in the buyer's favour to meet their sales goal. The seller stands to lose in that instance. This is why doing your research before looking for a buyer is critical. Get a property evaluation from a trusted source to determine the value of your home so that you do not sell it for less. It is best to get it evaluated from more than one place.
Can you manage the task on your own? This is something you should keep in mind if you are trying to figure out how to sell a property profitably. If you have enough
International Finance | May - June 2022 | 71
INDUSTRY
FEATURE REAL ESTATE
PROPERTY SELLING
knowledge about the field and enough time to find a buyer and finish all the necessary paperwork, you can manage the task yourself. However, it is wise to seek expert assistance in this area, as doing everything on your own can be extremely overwhelming. Furthermore, even a minor blunder on your part can work against you.
Things to do before selling a property As you try to learn how to sell property, you should know everything that needs to be done before selling to ensure a smooth experience and strike a profitable deal. Here is a rundown of everything you need to do: 1. Make your property presentable The house must make a good first impression. Your house may be worth crores of rupees, but if it is not well maintained, it will not appear as appealing to potential buyers, which can be a significant turnoff. We recommend you clean up your property and solve any issues before bringing a buyer home. First and foremost, repair any cracks or seepage issues on the walls. Next, paint the walls neatly, ideally with light colors, to look spacious. Remember to fix leakages, conduct pest control, and repair other issues. 2. Clear the dues Clearing dues is one of the safeguards to take when selling a home to attract buyers quickly. Clearing property taxes, maintenance fees, and electricity and power bills are part of this process. If you have a loan secured by the property, it is best to pay it off. On the other hand, the mortgage can be paid
72 | May - June 2022 | International Finance
Where buyers found the home they purchased Internet
51% Real estate agent
28% Yard sign/open house sign
4% Friend, relative, or neighbor
6% Homebuilder or their agent
6% Directly from sellers/Knew the sellers
3% Print newspaper advertisement
1%
Source: Datapoint
once you get a lump sum payment from the buyer. 3. Do a background check on the buyer If you want to ensure a fair deal, you should find a genuine buyer. Before signing a contract with a buyer, it is crucial to conduct a comprehensive background check on them. On your end, do not merely try to verify their credentials through various sources. Instead, seek the assistance of a professional to complete this task. 4. Collect all the essential documents When selling a house, a lot of paperwork is required. There are sale deeds, lease deeds, previous ownership records, property tax receipts, and a no-objection certificate for selling property. Gather all these documents and create a file that the buyer may easily access. 5. Identify the market It is crucial to know if you are in a seller's market or a buyer's market before placing your house on sale. A seller's market is one in which there is a limited
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INDUSTRY
FEATURE REAL ESTATE
PROPERTY SELLING
Where sellers market their houses Friends, relatives, or neighbors
23% Multiple Listing Service (MLS) website
18% Social networking websites (e.g., Facebook, Twitter, etc.)
14%
Open house
14% Online classified advertisements
5% For-sale-by-owner websites
2%
Source: Datapoint
supply and high demand for property. In this case, you can anticipate selling your home for a higher price and in a shorter time frame of two to four months. On the other hand, the buyer's market occurs when the supply of property is significantly larger than the demand. If you choose to sell your home in a buyer's market, you may not be able to get the price you want online or offline. Furthermore, the purchase could take longer than six months to complete. Therefore, if you are not in a hurry to sell your property, try and wait for the seller’s market.
What should you do while selling a house? 1. Bank on the high selling points Every property has some key selling points. It might be a modular kitchen, a beautiful garden, a large pool, a spacious terrace, a sea view, a park view, or anything else. When selling a home, you must identify and emphasize these features. They are crucial in closing the purchase since they make your location stand out. 2. Choose the right platform
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It is critical to select the right platform for marketing your home. These days, you can sell your home quickly and easily online. You may also reach out to buyers through social media and online platforms. You may find out where your target buyers spend their time online by doing some research. You can advertise your property on those platforms. 3. Do not ignore the word of mouth One of the most effective strategies to attract buyers is word of mouth. You can inform your friends, neighbors, and coworkers about the situation and ask them to spread the word. It is an excellent technique to connect with reliable purchasers when selling a home.
Precautions while selling property 1. Do not fall for false promises Several real estate organizations and brokers make false promises to buyers, to juggle money. When you try to sell a house online, you are more likely to encounter such scammers. Avoid such people at all costs, or you will waste time and money. Before finalizing an
agency or broker, you should conduct a complete background check. 2. Do not trust blindly A lot of money is involved in buying and selling a property. As a result, you must be vigilant during the procedure. Even if you are selling the house to a friend or colleague, you should not put your trust in them completely. Before signing any documents, make sure you read them well and understand all the provisions. Also, spell out the payment terms and stick to them. 3. Do not set an unrealistic price Another thing to remember is that choosing an unrealistic price for your property can get you into problems. You might not be able to find a legitimate buyer, and you will end up wasting your time. Similarly, do not sell your home for a low price, whether online or offline. To realize the exact value of your property, you must negotiate with the buyer.
editor@ifinancemag.com
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