Bloomberg Businessweek Middle East, August 16th, 2017

16-31 August, 2017

The Kingdom is busy creating a new future, one desert megacity at a time p22

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PHOTOGRAPH BY GUY MARTIN FOR BLOOMBERG BUSINESSWEEK

1

46

â–² The smartest redhead in Ireland

1_CONTENTS.indd 1

12/08/2017 21:33

CONTENTS

Bloomberg Businessweek Middle East

16 August, 2017

◼ IN BRIEF 6

● A US missile test to match North Korea’s ● Standoff in the Himalayas ● The bees bounce back

◼ REMARKS

◼ VIEW

hen Trump tweets, ‘No chaos,’ W that means total chaos

8

1

BUSINESS

14 The billionaire’s guide

2

18 Is Silicon Valley

to a pharma family business 15

2

Eli Lilly goes door to door testing for diabetes in India

16 Kim Jong Un’s missiles launch a market for bomb shelters in Japan

pick what is the most alarming number in the troubling trail of new lows for President Donald Trump”

1_CONTENTS.indd 2

3

19 The latest high-tech earthquake early-warning system: Talk to the animals

FINANCE

22 Build it, in the Saudi

finally cracking the bro code?

desert, and will they come?

23 Which way now for Indian central bank 25 Pensions in peril

21 Our clean, efficient, hydrogen-powered future has arrived—at Wal-Mart

4 8 “It’s hard to

TECHNOLOGY

10 The world must stop Maduro from wreaking more havoc in Venezuela

ECONOMICS

26 Mexico’s gas

thieves may deter oil investors 28 One Fed explanation for the labour shortage: Workers can’t kick opioids 29 India’s high flying stock market may have lost its grip on reality

5

POLITICS

30 Where are Rouhani’s

leading ladies?

31 To support its mission in Syria—protecting civilians from the Assad regime—the UN has to contract with … the Assad regime 32 Imran Khan has a busy year ahead with an election win and putting an end to corruption on his to-do list

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CONTENTS

Bloomberg Businessweek Middle East

FEATURES 40

Samsung ricochets from exploding phones to political scandals to record profits

40 “ If you

don’t like Samsung, just go to North Korea!”

PURSUITS

16 August, 2017

Editorial Mayank Singh, Group Editor editor@umsoman.com Sales & Marketing: Poonam Chawla, Asst GM Sales & Marketing poonam@businessweekme.com; +971 50 144 0703 Art & Design: Steven Castelluccia, Art Director steven@businessweekme.com; +971 4 432 9467 Subscribe: subscriptions@ businessweekme.com Address: PO Box 503048, Building 5, Office 206, Dubai Media City, Dubai UAE Web: www.businessweekme.com General enquiries : +971 4 4 329 467 BLOOMBERG BUSINESSWEEK MIDDLE EAST is published by UMS International FZ LLC and Bloomberg L.P. Articles reprinted in this issue from BLOOMBERG BUSINESSWEEK are copyrighted 2017 by Bloomberg L.P. All rights reserved. Reproduction in any manner, in whole or in part, without prior written permission of Bloomberg L.P. and UMS International FZ LLC. is expressly prohibited.

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4

55 The responsible

way to ride an elephant

60

Style: Get a lean, green time machine

62 Critic: A new look at John Kellogg, America’s first health guru

46

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1_CONTENTS.indd 4

At Stripe, the Collison brothers are reinventing e-commerce A fishy way to grow new skin

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16-31 August, 2017

The Kingdom is busy creating a new future, one desert megacity at a time p22

63

Motorcycles: The Tesla of bikes

64

Game Changer: Alexander Betts says refugees should work—and he’s got the data to prove it

Algeria…..…..…........DZD 215 Bahrain….......................BHD 1

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UAE...…....…..…........…AED 10 Yemen…..................YER 600

13/08/2017 18:40

Cover: Photo illustration

by SJC

HEES: PHOTOGRAPH BY CHRISTOPHER GREGORY FOR BLOOMBERG BUSINESSWEEK; MOTORCYCLE: COURTESY OF ZERO MOTORCYCLES

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◼ IN BRIEF

B

Americas

Asia ● India blocked China’s Shanghai Fosun Pharmaceutical from buying Gland Pharma for

●

$1.3b

as the countries continue to bicker over their border in the Himalayas.

● P R c K K “f ju A A

The US tested an intercontinental ballistic missile on 2 August. Although the launch came just days after North Korea’s trial of a missile that experts say could reach California, it was “not a response,” military officials said. ●

PHOTOGRAPHS: MISSILE: U.S. AIR FORCE; DUTERTE: XINHUA/ROUELLE UMALI VIA GETTY IMAGES; PORT: DAMIEN MEYER/AFP/GETTY IMAGES; MADURO: MANU QUINTERO/PICTURE-ALLIANCE/DPA/AP IMAGES; UNIQLO: COURTESY OF UNIQLO; PUTIN: KREMLIN POOL/ALAMY; BEE: GETTY; HEINEKEN: MAIKA ELAN/BLOOMBERG; DATA: BLOOMBERG INTELLIGENCE

6

● A faction of bitcoin users created a blockchain-based currency called Bitcoin Cash.

6_BRIEF.indd 6

US auto sales, percentage change from the previous year 4

● “I am not here to keep the seat warm. I will do the work of 45 months in 45 days if I remain here.”

● b 10 m c d

0

A company involved in setting up voting systems for Venezuela’s 30 July constituent assembly elections said President Nicolás Maduro’s government manipulated results, inflating turnout by at least 1 million.

Venezuelan authorities rejected the allegation.

● Apple beat Wall Street expectations with a surge in demand for iPads and Mac computers.

In the quarter ended 1 July, sales rose 7 per cent from the previous year and profit jumped 12 per cent.

● US auto sales slumped in July for the seventh consecutive month, as dealerships grappled with a glut of used cars and trucks.

-4 -8 8/2016 7/2017

● The number of honeybee colonies in the US increased 3 per cent in the year ended 1 April, while the number of hives lost to colony collapse disorder declined 27 per cent.

● Discover Communications agreed to buy Scripps Networks Interactive for

$11.9b

Newly elected Pakistan Prime Minister Shahid Khaqan Abbasi, as he took office days after his predecessor was ousted for concealing assets.

● Qatar Airways abandoned its bid to buy a stake in American Airlines. The decision was a victory for American CEO Doug Parker, who’d engaged in a verbal standoff with his Qatari counterpart, Akbar Al Baker.

Together, the companies control 20 per cent of the US pay-TV audience.

12/08/2017 19:17

● in T

By Kyle Stock

Bloomberg Businessweek Middle East

16 August, 2017

Europe ● Philippine President Rodrigo Duterte called North Korea’s leader, Kim Jong Un, a “maniac,” a “fool,” and a “son of a bitch” just before a meeting of the Association of Southeast Asian Nations in Manila.

● Boeing said it expects Indian airlines to order 2,100 planes over the next 20 years.

● BP announced it can turn a profit on oil priced as low as

$47

a barrel, the result of $7 billion in cost cuts and a spate of drilling discoveries in Africa, India, and the Caribbean.

India’s domestic passenger traffic has been increasing about 20 per cent a year. ● Taking a cue from Best Buy, Japanbased retailer Uniqlo will roll out 10 vending machines in airports and malls across the US where customers can buy a T-shirt or lightweight down jacket.

● Malaysia’s sovereign wealth fund missed a deadline to make

$629m

in payments to Abu Dhabi, part of a plan to reimburse the country for power-plant financing that went missing in a long-running scandal.

● Russian President Vladimir Putin ordered the US Embassy in Moscow to cut 755 staffers in the country by September. The move—a response to new US sanctions levied over Russia’s interference in the 2016 election—was the country’s harshest diplomatic demand since the mid-1980s.

● French Finance Minister Bruno Le Maire traveLled to Rome on 1 Aug in an unsuccessful bid to resolve a dispute over the STX shipyard on France’s Atlantic coast. His trip came less than a week after he threatened to nationaliSe the port rather than accept a bid from Italy’s Fincantieri and South Korea’s STX Offshore & Shipbuilding to buy 54 per cent of the facility.

● The Pentagon drew up a plan to arm Ukrainian troops as fighting escalated with Russian-backed separatists.

7

If approved by the White House, the shipments would include antitank missiles and anti-aircraft guns.

e or

● Heineken International posted a 5.7 per cent increase in global sales for the first half of the year, as demand for its Tiger brand surged in Vietnam.

Africa ● Chris Msando, the man tasked with digitiSing Kenya’s voting, was found dead days before the country’s 8 Aug elections. Msando, who’d been on the job only two months, was in charge of updating a system that failed spectacularly in 2013.

6_BRIEF.indd 7

● China opened its first military base in Africa.

Soldiers raised their flag in Djibouti, where they’ll support naval vessels off the coast of Somalia.

12/08/2017 19:18

◼ REMARKS

◼

● w t

●

D tr in fe

h tw m

8

h t S m R o S c w t “

What if The President Loses His Party?

w th r s v r

SCOTT OLSON/GETTY IMAGES

tr “ a In g a w P T r h

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12/08/2017 19:19

w w m fo

jo B 1 W c

◼ REMARKS

Bloomberg Businessweek Middle East

● Trump has to figure out a way to work with Republicans in Congress, or the global economy may be at stake

SCOTT OLSON/GETTY IMAGES

● By Joshua Green Donald Trump has a habit of projecting his anxieties while trying to mask them. You can sometimes tell what’s going on inside the White House by checking the president’s Twitter feed—and assuming the opposite of whatever he claims.

Take the recent White House shakeup that abruptly remade his senior staff. On the morning of 31 July, Trump fired off a tweet extolling the booming stock market and low unemployment rate and then added, a bit defensively, “No WH chaos!”

This was a sure sign that the chaos inside the White House had reached a fever pitch. Within an hour of Trump’s tweet, the president’s new communications director, Anthony Scaramucci, who’d been on the job for only 10 days, was sent marching. This followed the sudden firing of Chief of Staff Reince Priebus, which came only days after the resignation of Press Secretary Sean Spicer. Had Attorney General Jeff Sessions not been so determined to cling to his job—Trump called him “beleaguered” and publicly humiliated him for a week—he, too, might have joined the exodus. When Trump tweeted “No WH chaos!” what he was really signaling was “Total WH chaos!”

And yet Republican sentiment toward Trump’s shakeup was entirely positive, thanks to his appointment of John Kelly, the secretary of the Department of Homeland Security and retired Marine Corps general, to replace Priebus as chief of staff. “He will do a spectacular job, I have no doubt,” Trump vowed. “What he’s done in terms of Homeland Security is record-shattering.” For once, Republicans agreed.

Trump loves generals and turns to them whenever he’s in trouble. Last September, when the pressure to renounce his “birther” attack on President Barack Obama became untenable, Trump held a bizarre press conference at the Trump International Hotel in Washington, surrounding himself with generals. They offered glowing testimonials for 30 minutes, after which Trump renounced the birther charge in nine words (“President Obama was born in the United States.

Period.”) and departed. As one White House official explained, Trump admires that generals have valour and are universally respected. He also understands, with the failure of the Senate health-care bill, that his legislative agenda is in real danger.

So turning to Kelly not only replaces a weak chief of staff with a strong one, but also imbues Trump’s White House with a sheen of can-do military competence to carry out what most Republicans (and many Democrats) have been longing for throughout his tumultuous tenure: a reset.

“That Kelly’s been in the White House [through his DHS job] is a real plus for him,” says Thomas “Mack” McLarty, Bill Clinton’s first chief of staff, who was pushed out after 18 months for failing to impose discipline on a disordered White House. “That familiarity gives him a standing. Trump clearly has respect for the military, and Kelly is a serious,

8_OPENING.indd 9

16 August, 2017

experienced person of depth, which is what this White House badly needs. You’ve got to get stability, but you also need to get results—just look outward at what’s coming.”

Indeed, that’s the real reason for the relief surrounding Kelly’s ascension. Lawmakers will soon depart for their August recess, and the House of Representatives is only scheduled to be in legislative session for 12 days in September. Along with pursuing its goal to rewrite the tax code by this fall, the White House must oversee the passage of a $700 billion bill to fund the Pentagon, reauthorise the Federal Aviation and Food and Drug administrations (or risk the latter partially shutting down), keep the government from shutting down when funding expires at the end of September—and, most important, raise the debt ceiling. If the White House can’t manage the latter and the US defaults on its debt—Republicans are currently divided about how to proceed—the result won’t just further the collapse of the GOP’s legislative agenda, it could also shake the foundations of the global economy.

Aware of these stakes, Kelly quickly reached out to Democratic congressional leaders to smooth over what has been a rocky relationship with the administration, a move greeted as a sign that discipline and normalcy might soon replace chaos. But the critical relationship is the one with Senate Majority Leader Mitch McConnell, who fell a single vote shy of pushing through Trump’s unpopular health-care bill. Whatever plans Kelly had in mind to strengthen that relationship were overshadowed by the one man the new chief of staff can’t discipline or fire: his boss.

Stung by his loss on health care, Trump took to Twitter to lambaste McConnell and try to pressure Senate Republicans to eliminate the filibuster, which would allow for easier passage of legislation—though it wouldn’t have mattered for the Senate health-care bill, which mustered only 49 votes.

Trump tweeted: “Republican Senate must get rid of 60 vote NOW! It is killing the R Party, allows 8 Dems to control country.

200 Bills sit in Senate. A JOKE!” And then, he added: “The very outdated filibuster rule must go. Budget reconciliation is killing R’s in Senate. Mitch M, go to 51 Votes NOW and WIN. IT’S TIME!” Trump’s attacks on the Senate leader, whose performance will be vital over the next 60 days, were a problem Kelly couldn’t contain. They’re also a sign that even his swift firing of Scaramucci and his imposition of a more traditional White House management structure can only go so far in improving Republicans’ ability to govern effectively.

“The attacks Trump launches on Twitter are categorically not helpful,” former Republican Senator Rick Santorum of Pennsylvania says with exasperation. “The best you can say is that maybe the fact that he does it so often lessens the blow.

If this was out of character, it would be really damaging.”

One solace among anxious Republican legislators is that there appears to be an increasing willingness to challenge Trump and, when necessary, work around him. On 1 August, Republican Senator Jeff Flake of Arizona published Conscience of a Conservative, a brutally critical book that’s unsparing in its analysis of the president. (“If this was our Faustian bargain,” Flake writes of the GOP’s embrace of Trump, “then it was not worth it.”) In the Senate, a group of Republicans led by Tennessee’s Lamar Alexander is ignoring Trump’s threats to force the collapse of the Affordable Care Act by withholding

9

12/08/2017 19:19

◼ VIEW

Bloomberg Businessweek Middle East

payments to insurers. Instead, they want to work to prop up struggling insurance markets.

They’re further emboldened by Trump’s growing unpopularity. A 2 August poll from Quinnipiac University found that only 33 per cent of voters approve of the president’s p ­ erformance—a record low for him—while 61 per cent disapprove of it. “It’s hard to pick what is the most alarming number in the troubling trail of new lows for President Donald Trump,” said Tim Malloy, the assistant director of the Quinnipiac poll.

Ultimately, Trump’s decision to bring in Kelly can yield dividends only if the president is willing to reset his own approach to governing. So far, judging from his Twitter feed, he appears disinclined to do so.

“Every president gets frustrated with the legislative process,” says Josh Holmes, the president of Cavalry LLC, a Washington

public-affairs firm, and a former chief of staff for McConnell.

“The ­difference with this president is that the American people have access to his inner monologue, his frustrations, because he puts all that out on Twitter for the whole world to see.”

As voters and legislators in his own party sour on him, Trump isn’t likely to suffer the humiliation in silence. But ill-timed outbursts will only make the difficult path ahead harder for Republicans to navigate. While Trump is said to harbour deep admiration for his new chief, it’s not certain that Kelly will be able to keep him in line. A few hours after Kelly fired Scaramucci, Trump tweeted: “A great day at the White House!” It wasn’t, but it’s still possible that Kelly can turn things around. And if he can’t, and things go south, he’ll at least know how to call in the generals when it’s time for Trump to explain what went wrong. <BW>

◼ VIEW

10

16 August, 2017

To read Justin Fox on the US as the sick man of the developed world and Cass Sunstein on prosecuting the president, go to Bloombergview.com

Venezuela Abandons Any Claim to Democracy ● To get President Maduro to change course in the beleagured nation, his neighbours must work together

President Nicolás Maduro’s bogus vote to rewrite Venezuela’s constitution is an affront to its democratic government.

To persuade him to change course, the country’s neighbours will have to forge an unprecedented common front.

Notwithstanding the regime’s claims, the number of Venezuelans who voted for a new constitutional convention on 30 July was likely well below half the number who voted against it two weeks before. In the day preceding the vote, some 15 people were killed. But more unrest won’t deter the regime from dissolving the opposition-­controlled legislature, cracking down further on protesters, and booting internal dissenters such as the attorney general.

What’s needed is concerted and sustained action. The US has just added Maduro to its list of Venezuelan officials facing sanctions, which Mexico, Panama, and Colombia have said they will help enforce. Argentina, Brazil, Chile, and Peru are among those who say they won’t

8_OPENING.indd 10

recognize the results of the vote, which Canada, the UK, and the European Union have also condemned.

Venezuela’s neighbours should now expel it from the Mercosur trading bloc and renew their push for condemnation by the Organization of American States. They should also do more to publicise what they know about the regime’s nefarious activities—the hundreds of millions (if not billions) of dollars in assets its members have appropriated, its role in drug trafficking and human smuggling, and its support for terrorists and abusers of human rights.

More broadly, the United Nations Security Council needs to address Venezuela’s abuses against its people. For that to happen, Latin America’s democracies will have to persuade China, a permanent member of the security council and Venezuela’s biggest creditor, that “noninterference” is a nonoption.

Inevitably, more sanctions have to be put on the table. But to be effective, they

must be as collective as possible, target individuals rather than Venezuelans as a whole, and offer a clear off-ramp. A ban on Venezuela’s oil exports doesn’t pass that test: Not only would that likely cause a disastrous debt default and economic hardship for ordinary citizens, but it would also give Maduro the perfect alibi for running his country into a ditch.

That’s why the US, the EU, and Latin American nations must also offer ordinary Venezuelans a vision of a better future. Pledges of humanitarian aid and assistance from the International Monetary Fund and other financial institutions, for example, could help a democratic Venezuela recover from its spiraling economic crisis, including an inflation rate approaching 1,000 per cent.

Offering such help to a country with the world’s biggest proven oil reserves may seem absurd. But such are the depths to which Venezuela has sunk under Maduro’s inept and brutal leadership. <BW>

12/08/2017 19:19

ADS_Augist16n.indd 11

12/08/2017 21:30

GU LF ST R EAM UAE

AN EYE FOR DETAIL CEO Sebastian Carlton discusses Gulfstream’s Haven Residences at “The Sanctuary” located in Jumeirah Village.

Gulfstream own a significant and strategic land bank in prime residential areas of Dubai and intend to launch several new and exciting projects over the next few years. The real estate developer boasts a team of specialists, with an extraordinary wealth of experience in the design, delivery and management of prestigious building projects worldwide; making Gulfstream projects unique.

Sebastian Carlton explains that his design focused team come from design and architectural backgrounds, allowing them to be involved with the design and delivery of landmark Dubai projects such as the Grand Hyatt, the Twin Towers and Jebel Ali Racecourse. Gulfstream’s focus, leading up to Expo 2020 will be delivering residential housing for the local and expat market. To that end, the forward-thinking company has identified clear market dynamics leading up to Expo that will generate demand for more affordable housing and value driven products.

Discussing the reasoning behind their value-driven project, Carlton says: “if you look at the products in the market that are achieving high transactional volume, they are generally up to 2 million dirhams in value.”

Currently, Gulfstream is delivering a new project in Jumeirah Village that brings together eight plots in one gated community of ground and four storey apartment buildings, as well as ground and two storey villas. The project, Haven Residences, differentiated as Haven Villas and Haven Apartments, is part of The Sanctuary Project in Jumeirah Village with a selection of studios, one-and two-bedroom apartments and three-bedroom townhouses. Phase 1 is under construction, comprising 355 units and scheduled for delivery in March 2019 www.thesanctuaryuae.com.

Speaking about the competitive edge of Gulfstream’s portfolio, Sebastian Carlton highlighted the fact that Gulfstream can deliver exceptional design and finishes within a value driven product and that this is unique for Dubai.

Gulfstream UAE have an exclusive partnership with Louise Bradley

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12/08/2017 21:30

ADVERTORIAL

(www.louisebradley.co.uk) one of Europe’s most highly regarded Interior Designers. Ms. Bradley has worked on the interior design and architecture aspect of Haven Residences from her London based design studio. Impressively, Louise has delivered Interior Design and Architecture for many prominent families in the Middle East and Europe. Sebastian Carlton is convinced that the quality of the design and finishes of their Haven offerings, will provide them with a competitive advantage. The Villas for example have been designed with the entire top floor dedicated to the Master Suite along with a Jacuzzi and large terrace.

Comparing the UAE market to other geographic hubs such as Hong Kong and Singapore, Carlton contends that the UAE is incomparable in terms of value for investment. He also applauds the vision of Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and ruler of Dubai, praising the UAE’s level of infrastructure, safety, security, and neutrality, all in a tax- favorable environment.

Gulfstream UAE pride themselves on delivering complete communities, tied together with community gardens, swimming pools, spa and gym; where families come together holistically. The Sanctuary project for example, benefits from a land area of almost 7 acres punctuated with beautiful landscaped gardens and facilities. Projecting The Sanctuary community theme across all build phases, over the next 5 years Gulfstream UAE is looking to deliver approximately one thousand residential units.

Going beyond profits however and giving back to communities is also high on the agenda and the company has launched The Gulfstream Foundation, a non-denominational charitable foundation focusing on need that does not discriminate on religion, race, gender or political affiliation.

Gulfstream commits 10% of the company’s profits to the Foundation, used to provide aid and relief for causes worldwide. The Gulfstream Foundation is especially targeting the huge regional refugee crisis, and is proud to link to charities already on the ground such as Save the Children Médecins Sans Frontières, Red Crescent and UNICEF.

For more information, visit: www.gulfstreamuae.com

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Billionaire Father and Son Turn Drug Firm Into World Beater ● Indian family business striving to stay on the right side of the FDA to maintain lucrative generic drugs firm

If the stock market is any guide, Sharvil Patel has just inherited one of the top generic drug manufacturers in the world. Now, he just has to figure out how to keep it that way.

Even as the copycat drug business reeled from increased regulatory scrutiny, withering competition in the US, or some combination of the two, his family’s Cadila Healthcare Ltd. seemed to have things worked out.

Under Patel’s father, Pankaj, the Indian drugmaker had a major plant cleared of US Food and Drug Administration sanctions, a feat that many of its compatriots have struggled to pull off, clearing the way for its US product pipeline to finally start flowing.

In the first half of this year, Cadila’s stock delivered returns of almost 50 per cent, making it the best among generic drugmakers worldwide with a market value of more than $1 billion.

Cadila has given up a chunk of those gains in recent days as quarterly results from across the industry show US price pressures have only increased.

But the Patels say their new products can over time offset that deterioration because many of them will face less competition, either because of exclusivity agreements or the complexity of making them.

And besides, with three generations in the generic drug business, they’ve seen hard times before.

“That’s the beauty of being in a business family, since you’re born you are seeing it,” Sharvil Patel,

who recently took over as managing director, said sitting next to his father at the company’s 10-story headquarters. “You see it with his relationship with his father, my grandfather, you see it when you come to work.”

Analysts revised their estimates for its first quarter down amid weak results across the industry, Bloomberg data show. While the average estimate still projects revenue rising 11 per cent, net income is now forecast to shrink about 3 per cent.

Cadila’s stock extended declines for a second day as the Indian generics sector tumbled after a subsidiary of the country’s biggest drugmaker, Sun Pharmaceutical Industries Ltd., reported a decline in sales.

Pankaj Patel says price erosion on Cadila’s portfolio of older products in the US is now in the low double digits, compared to the high single-digit estimate he gave on a conference call only last quarter.

But the Patels also expect to benefit from sales of new products. Cadila got a particularly big boost in June when it announced that because it had been first to file, the FDA had awarded it six months of exclusivity to sell a generic version of Shire PLC’s $1.1 billion ulcer drug, Lialda, in the US. This fiscal year, they plan to launch three generic drugs delivered transdermally, often through adhesive patches, a tricky technology that commands higher margins because of its difficulty to copy.

That’s part of about 40 generic drug applications the company has before the FDA, any of which they say could be approved this year.

“It’s the largest pipeline in the landscape among the domestic players,” said Nitin Agarwal, a Mumbai-based pharma analyst with IDFC Securities

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Ltd. “They picked the right products and have done a good job of executing those products.”

Founded when Pankaj Patel’s father, Ramanbhai, left his academic job at a local school of pharmacy in 1952, the firm now has a market value of almost $8 billion and annual revenue of about $1.4 billion. Though Pankaj Patel is one of India’s richest people, they still keep to the Indian tradition for all generations to live together in the family house, the latest additions being Sharvil’s two young children.

That arrangement made another family tradition, no talking about work at home, all the more important more than a year ago as Cadila found itself saddled with a US sanction blocking new products from its main plant.

Like the company’s larger Indian rivals, Sun and Dr. Reddy’s Laboratories Ltd., a 2015 FDA inspection found manufacturing shortfalls at Cadila’s key Moraiya factory about 30 kilometres outside Ahmedabad.

Re-inspections at Sun’s Halol factory and at facilities belonging to Dr. Reddy’s produced new lists of issues that left their warning letters in place, though Sun did have some success with US regulators this year getting an import ban lifted on another Indian plant acquired in 2015.

While the Patels undertook many of the same steps of simplifying and automating their manufacturing processes as their Indian peers, they say cultural changes were just as important.

That meant big changes like erecting a firewall between the manufacturing and marketing teams so workers in the factories don’t feel pressured to sacrifice quality to meet commercial deadlines.

And there were the smaller things like producing videos on quality issues that play on a loop in factory canteens, or running daily quizzes on quality care complete with prizes. Ultimately, a re-inspection saw the Moraiya warning letter lifted.

The Patels are also taking steps to ensure their factories don’t run afoul of the FDA again by setting up a unit to collect forms the FDA publishes for all its global inspections so they can analyse whether potential problems noticed at other companies could appear at a Cadila factory.

Last month 64-year old Pankaj Patel announced his more than 20-years running the company were over, handing the reins to his son. He will now focus on broader strategic questions as he steps back into the role of chairman to let his son run the company’s day-to-day operations as managing director.

“I think it is right for management and senior people to hand over the baton to the next generation,” the elder Patel said, “You lead the organisation by example.” �Ari Altstedter

Opening the Door For Future Drug Sales

THE BOTTOM LINE The next generation has taken over at one of India’s most promising generic drugs firms which has been making overall gains on the stock market.

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● Big Pharma is funding house-to-house disease testing in rural India. That may boost medicine sales for years to come

Ajit Singh had never heard of diabetes until someone showed up at his door and told his wife she had a high risk of having it. The couple live about three hours outside New Delhi in the farming village of Thana Kalan, where water buffalo roam the narrow ­cobblestone streets and the scent of drying cow dung, which the villagers use for cooking fuel, hangs faintly in the air. After the health worker advised his wife to be tested, she found out she’s diabetic. Now the same community health aide is back, telling Singh he’s also at high risk for having the disease and going through the long list of changes to his lifestyle and diet he’ll have to make to ensure he stays healthy.

The exasperated 56-year-old’s first concern: “Can I consume tea?”

The free door-to-door screening is part of a pilot programme funded by Eli Lilly & Co., one of the world’s biggest makers of diabetes medicines. It’s just one of a slew of Big Pharma-backed initiatives across India that aim to increase health-care access in smaller cities and rural areas. The country’s two decades of economic growth have brought pockets of prosperity to these places but also the chronic health problems that often follow. That’s made rural

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◀ An exam at a moblie clinic outside Bengaluru

India and other corners of the developing world the final frontier for the global pharmaceutical industry, which is trying to reach the swelling mass of untapped patients.

While people like the Singhs may start off with cheap generic drugs, they could shift to pricier brands as their incomes rise. And if Big Pharma can figure out a way to serve these lower-­income patients while turning even a slim profit, the sheer number of them could mean a huge payout while increasing health care for millions. “Companies are interested in

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taking a longer-term stance and understanding the characteristics of these markets—and positioning themselves in a way that could help them down the line capture market share,” says Sebastien Mazzuri, a director at pharmaceutical consulting firm FSG. Over the last five years, virtually all the growth in the volume of medicines sold globally has occurred in the largest developing nations, according to a report last year by Quintiles IMS Holdings Inc. The ­fastest-growing markets are also the two most ­populous: China and India.

China, which spent $116.7 billion on medicine in 2016, is expected to spend as much as $170 billion in 2021, Quintiles says. Indian drug outlays are forecast to grow even faster, rising from $17.4 billion to as high as $30 billion over that period. But almost 70 per cent of India’s population, and 40 per cent of China’s, live in rural areas where health-care access ranges from spotty to nonexistent. Together, that’s almost 1.5 billion people, many of whom have never been tested for cholesterol, diabetes, or heart disease.

After India liberalised its economy in the 1990s, foreign food brands flooded the market, bringing in chips, cookies, and sugary drinks priced at pennies.

Rising incomes meanwhile led to increased motor vehicle ownership, even in rural areas, reducing time spent walking. Twenty years later, the dramatic lifestyle changes have left the country with 69 million diabetics, according to the International Diabetes Federation. China has 110 million.

The Lilly-funded programme that screened Singh, run by the nonprofit Public Health Foundation of India (PHFI), sends community health workers house to house in two midsize Indian cities and the surrounding countryside with tablet computers programmed to screen people for diabetes and hypertension. It’s also training local health workers to better diagnose diseases and treat residents.

David Ricks, Lilly’s chief executive officer, says

such programmes represent a long-term business opportunity and let the company gain a better understanding of the challenges of medicine in the developing world, such as refrigeration and ­supply-chain setup. “By running these pilots, we can learn and experiment,” he says. “Our projects are working on all of those angles to try and stand up, within difficult environments, [with] better ways to treat diabetes.”

GlaxoSmithKline, Merck, and India’s Sun Pharmaceutical Industries also fund programmes run

by PHFI to train general practitioners to diagnose and treat similar lifestyle diseases in small Indian urban centres, where there’s unlikely to be a specialist. The companies didn’t respond to requests for comment.

Since 2007, Swiss health giant Novartis AG has run a “for-profit social initiative” designed to bring health care to rural India by raising awareness, dispatching doctors to villages, and distributing affordable ­medicines through local pharmacies. The programme has since expanded to Indonesia, Kenya, and Vietnam. It’s a way of “building health ecosystems” that will eventually help Novartis grow in untapped market segments, Jawed Zia, country president of Novartis India, said in an emailed statement. “This is simply good business sense.”

Sailesh Mohan, the PHFI associate professor who’s running the Lilly-funded project that screened Singh, says he’s had complete independence in the ­execution of his study, and nothing in the pilot recommends any particular company’s products. He says Lilly’s funding had no strings attached and patient data are kept confidential. Says Mohan: “If they manage to get more people to be aware of their condition, to be evaluated, confirmed, and then put on treatment, those companies are going to benefit.”

THE BOTTOM LINE Changing diet and lifestyles have sparked an explosion of diabetes in India, where an estimated 69 million people have the disease. That’s a big opportunity for drugmakers.

Where a Bad World Means Good Business

● US makers of nuclear bomb shelters are thriving on fears of North Korea

Much has been written about the difficulties many high-cost American businesses face when trying to sell to customers outside the US. But export demand has never been better at Atlas Survival Shelters LLC, which ships bunkers to customers around the world from its US factories. Among its best sellers: the BombNado, an underground safe room that can be put under a garage, which starts at $18,999.

The popularity of the company’s doomsday ­fortifications is no surprise, considering the state of the world in general and, specifically, Kim JongUn’s pursuit of a missile that can hit the continental

US. The most intense interest is in Japan, which has long been within North Korea’s striking distance.

The intercontinental ballistic missile used in the 28 July launch is believed to be North Korea’s most advanced yet, capable of striking US targets such as Los Angeles, Chicago, and possibly even some East Coast cities. But Tokyo is only 800 miles from Pyongyang, across the Sea of Japan, so the technology doesn’t need to be nearly as advanced or accurate to cause mayhem. “Japan’s going hog wild right now,” says Ron Hubbard, owner of Atlas Survival.

Japan has its own small bunker-making sector,

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but the US, with its survivalist networks, is ground zero for get-ready-for-Armageddon businesses.

Atlas Survival, based in Montebello, Calif., makes about a dozen different underground refuge models—some outfitted with escape tunnels, decontamination rooms, bulletproof hatches, and even operating rooms—intended to be inhabitable for six months to a year.

Like Atlas Survival, underground shelter manufacturer Rising S Co., in Murchison, Texas, has been inundated. Inquiries about its steel-clad products have doubled in the past three weeks, with 80 per cent coming from Japan, says Gary Lynch, the general manager. The company’s website lays out the many available options—a fitness centre, swimming pool, gun range, game room with pool tables, garage for your Porsche, as well as decontamination areas. For the survival-obsessed buyer with deep pockets and lots of friends, there’s a model called the Aristocrat, big enough to sleep more than 50 and delivered with a bowling alley. It’s listed at $8.4 million.

North Korea’s launch of ICBMs on 4 July and 28 July —both of which fell into the sea near Japan—has raised the level of alarm worldwide among preppers, as people serious about emergency preparedness often call themselves, not just in the island nation, where the rogue regime has been seen as a menace for decades. “It’s really not a new threat,” Lynch says. “It’s just something the media and people are paying attention to.” The government of Prime Minister Shinzo Abe regularly updates its

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civil protection website with tips (stay inside, keep away from windows) and airs public interest TV ads on what to do if an ICBM is en route and the country’s early warning system successfully sounds the alert. Children also are given instructions at school: Basically, get under your desks. “People are genuinely afraid,” says Seiichiro Nishimoto, president of Shelter Co., an Osaka-based installer of air-conditioned nuclear shelters imported from Israel. “That’s why we’re getting so many calls.”

In Japan and around the world, “people are getting off the fence—we’ve got thousands and thousands of applications,” says Robert Vicino, founder and chief executive officer of Vivos Group, based in Del Mar, Calif. The company’s luxury bunkers can withstand what its website calls “a future ­life-extinction event.” Advertised features for the shelters made by Vivos (Spanish for “alive”) include ­filtration systems to keep air clean during nuclear, biological, or chemical attacks, space to store enough food and toilet paper for a year, a diesel generator, an emergency exit shaft, and, most important, the ability to take a 500,000-pound blast without crumpling.

Vivos sells models for individual and communal purposes, including some shelters originally built by the US Army Corps of Engineers in the mid-20th century which have been repurposed for commercial use. It’s also built subterranean survival communities in the US and Europe. The latest is xPoint, on 9,000 acres in South Dakota, with 575 off-grid dugouts and planned amenities including a community theatre, hydroponic gardens, shooting ranges, and a members-only restaurant and bar. A 99-year lease costs $25,000 for the bunker, plus $1,000 a year to lease the land it’s buried under. Vicino says about 50 have been leased or reserved so far.

The company has nothing planned yet for Japan, but it does have a so-called survival resort in the works for South Korea. Alluding to what he fears to be impending disaster, Vicino says: “We hope we’re done in time.” �Justin Mattingly, with Andy Sharp

▲ A Vivos Group community of subterranean survival bunkers in South Dakota will eventually include a restaurant and theatre

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◀ Atlas Survival Shelters’ line of bunkers, like this one in Montebello, Calif., can be tricked out with beds, kitchens, flush toilets, and even a fireplace

THE BOTTOM LINE North Korea’s recent spate of missile tests has stoked Japanese consumers’ interest in bomb shelters. That’s good news for American makers of survival bunkers.

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● Snapchat parent Snap reports earnings for the second time, just as employees and early investors are allowed to sell their stock

● Nokia and HMD unveil their first Android phone

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● Venture capital’s clubby culture has protected serial harassers.

As VCs run for cover, some are starting to ask tougher questions Silicon Valley has a communication problem, and the story of Justin Caldbeck shows why. He resigned as a managing partner at San Francisco venture firm Binary Capital LLC a month ago after a half-dozen women told the Information, a tech news site, that he pressured them for sex when they sought business advice or funding. The behaviour they describe dates to his days at Bain Capital Ventures, which he joined in 2005; continued into his time at Lightspeed Venture Partners, where he started in 2011; and on to Binary, which he co-founded in 2014.

One Binary backer remembers making more than three dozen calls about Caldbeck and co-founder Jonathan Teo to friends, college roommates, company founders, and co-investors in the companies they’d backed, and says the reference checks were the most enthusiastic ever. Since Caldbeck’s behaviour became public, Lightspeed has acknowledged it should have done more to prevent his leaving unpunished, given that at least one of the women complained to the firm about him. When the Binary investor asked Lightspeed why it didn’t mention this during reference calls, the firm said it had signed nondisclosure agreements (NDAs) and couldn’t discuss the situation, according to the investor. Lightspeed declined to comment. Caldbeck resigned from Binary and

apologised in a statement for using “a position of power in exchange for sexual gain.”

Obviously, there are plenty of fields in which references overly praise job candidates, because they don’t want to tick off someone they may work with again or get a bad recommendation themselves. VC firms aren’t the only ones hiring sexists or treating women poorly, and in any company there are legal limits on what employers can say about former employees. But the clubby nature of the VC industry, one in which NDAs are near-ubiquitous and similar nondisparagement clauses (NDCs) are becoming almost as prevalent, exacerbates these problems.

The VC business is run mostly by an unusually small network of closely connected men who vouch for one another so they won’t be shut out of the next hot startup. NDAs and NDCs can serve as an excuse to, at best, not give the full picture. In large part as a result, some accused of being serial harassers have been able to raise fund after fund or move from firm to firm, receiving recommendations along the way.

Many investors far from Silicon Valley rely on background checks that look for criminal activity and bankruptcies but don’t delve into personal conduct. When they do dig deeper, investors must listen carefully for euphemisms such as “make sure

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the VC is a cultural fit for your organisation,” a flat affect in the speaker’s voice, or glowing but vague platitudes uttered without enthusiasm.

When Ann Lai, a former principal at Binary Capital, left the firm, Caldbeck tried to stop her from telling anyone her concerns about working conditions, which included inappropriate behaviour toward women, according to a lawsuit she filed recently against the firm and its co-founder. Lai signed a nondisparagement clause when she was hired, and Caldbeck used it to keep her quiet after she resigned, the complaint said. Representatives for the firm didn’t respond to requests for comment for this story; Caldbeck’s attorney declined to comment.

The Binary investor plans to ask references if they’ve signed NDAs from now on.

Often, VC firms consist of just a handful of partners and a sprinkling of support staff, so there’s no human resources department to handle complaints.

The industry also lacks a code of conduct between investors and entrepreneurs, although some VCs and founders are calling for one. In medicine, patients complain to a medical board, and there should be an equivalent body in venture capital, says Niniane Wang, who complained about being harassed by Caldbeck. Then there’s the industry’s referral system, with VCs often serving as references for each other when investors are considering backing new funds.

The cross-checking has a chilling effect, says a venture capitalist asked last month to be a reference for Fred Destin, another VC whose past conduct is under the microscope. Destin is trying to launch a fund but has had to answer questions about how he treated a young female entrepreneur who alleges he harassed her at parties during a Nantucket tech conference in 2013. Destin contacted the venture capitalist about to give a reference, saying he’d been asked in turn to provide that man a reference, the other VC says. The unspoken message: If you say something bad about me, I’ll say something bad about you. Destin denies that characterisation. “Attempting to influence a reference is unethical, and I’ve never done it,” he said in a statement.

That Destin is raising money for a fund while under a cloud of accusation makes him something of a litmus test for the VC industry in the post-Caldbeck era: Will it continue to ignore questionable behaviour and protect its own, or chart a new course?

The female entrepreneur says she had to remove Destin’s hands from her body during one of the latenight parties at the 2013 conference. He later apologised and said he behaves differently after undergoing therapy, but has stressed that he has “never knowingly been disrespectful to a woman” and never used his position as a VC in “an inappropriate way.”

Destin is an accomplished VC who was a partner at Boston’s Atlas Venture LP at the time. He joined Accel’s London office in 2014 and announced he was leaving that prestigious venture firm in April to start an early-stage startup fund. Accel says it didn’t know

about any misconduct by Destin when it hired him.

Indeed, when Destin left this year, Sonali De Rycker, a London-based partner at Accel and a former colleague of Destin’s at Atlas, gave him a glowing sendoff. “We will miss him but totally support him in founding this new venture and look forward to continuing to work closely with him,” she said at the time.

Accel says it’s since started to investigate the 2013 incident, following questions from a reporter.

“Accel does not tolerate any kind of inappropriate behaviour towards women,” the firm said in a statement. A major investment firm says it’s reconsidering investing in Destin’s new vehicle, and a second firm says it will likely follow the other’s lead. One of the investors is further investigating Destin but is already frustrated by references telling inconsistent stories and dodging questions by suggesting other people to call. One person investors could contact is Jeff Fagnan, a general partner at VC firm Accomplice LLC who used to work with Destin at Atlas. After hearing about Destin’s behaviour from a peer in 2014, Fagnan says, he confronted Destin. Fagnan says he never told Accel about it because Accel never asked him before hiring Destin. “Based on what I knew back then, it was the right call,” he says. “Fred made it sound like he had cleared up the issue.” Atlas and Accomplice are investigating Destin’s behaviour, Fagnan says, and “we will wait until completion of the investigation to decide whether we will provide positive references for Fred.” �Sarah McBride and Lizette Chapman, with Spencer Soper

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THE BOTTOM LINE The VC world’s tightknit social scene and minimal oversight have made it especially tough to divine what a colleague’s or company’s glowing references really mean.

Using Animals to Predict the Future ● A German migration expert says sensors, a satellite, and cows can help mitigate natural disasters

Martin Wikelski is the kind of guy who drives toward an earthquake. Last October, when a 6.1 devastated the Italian town of Visso, Wikelski was eating dinner with his wife, Uschi Müller, in the South German town of Konstanz, some 560 miles away. When he got the news from an online alert, he put down his fork and wine glass, grabbed his keys, and hopped into the family Volkswagen. He and his wife drove 12 hours over the Alps toward Visso, at one point navigating a destroyed mountain road.

Wikelski, 51, isn’t a seismologist or a Superman

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type. He’s the migration expert from Germany’s Max Planck Institute for Ornithology—an animal tracker. He tests whether sharp changes in animal behaviour, such as herd migration, can predict seismic and other events. In Visso, that meant taping 1/6th-ounce, s­ olar-powered sensors on whatever creatures he could find and waiting for aftershocks to see if the animals anticipated them. A farmer whose farm had been badly hit let Wikelski rig up sensors on six cows; five sheep; pairs of dogs, chickens, and turkeys; and a rabbit.

Pay dirt. Days later, Wikelski’s sensors detected “dynamic body acceleration,” meaning the animals expended dramatically more energy than usual as many as 14 hours before the aftershocks hit, at times when they’d normally be asleep or docile. He’s putting the finishing touches on a study, due out later this year in the journal Science, that solidifies the concept of movement ecology—the causes and effects of organisms’ movements on the world around them.

The sensors turn animals into something like environmental buoys, using them to predict and monitor things beyond earthquakes, perhaps illustrating environmental patterns with broad economic significance for humans. The big data collected from the animals can “do absolutely crazy things,” he says.

Soon the best example will be Wikelski’s Icarus project, an open source online database designed to follow animals around the world via embedded tracking devices that relay their locations to a satellite scheduled for launch in October. He says the 16-year venture by the Max Planck Institute, the German Aerospace Center, and the Russian Federal Space Agency has tagged dozens of mammals, birds, fish, and even flying insects with the tiny tracking sensors, usually with super glue. With help from volunteers who sign up online, he says, he expects to hit a few thousand by the end of next year.

“It’s something like a new global SMS [Short Message Service] with animals as autonomous units,” Wikelski says of Icarus, short for International Cooperation for Animal Research Using Space.

“People have been calling it the internet of wings.”

Attempts to document animals learning things before people date to antiquity but typically with little scientific rigor. Wikelski documented Indonesian elephants moving to safe ground before a tsunami devastated the country in 2004, and from 2012 to 2014 he monitored goats and sheep on Italy’s Mount Etna to better foreshadow volcanic eruptions. By then he’d already begun using customised versions of the kinds of radio tags made by Lotek Wireless Inc. and Vectronic Aerospace GmbH. For Icarus, most of the animal tagging is done by local volunteers. “People come from all around the world, and we get requests from Niger, Mali,” he says. “They say, ‘We think these birds built a nest on a level above where they expect a flood to be. Give us some tags—we want to find out.’ ” Müller, also a professor at Max Planck, juggles logistics and finances.

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The German and Russian space agencies have granted Wikelski’s five-person staff—and small army of about 50 grad students from 37 countries—$13 million to build and launch his satellite, designed by a Princeton aerospace engineer. The late professor George Swenson Jr., who developed NASA radio beacons to compete with Sputnik in the ’50s, advised Wikelski on radio tagging, and in July the Russian space agency approved the Icarus hardware for a spacewalk this fall.

“The implications for navigation, for humans, it’s massive,” says Deakin University doctoral candidate Antoine Dujon, who studies how sea turtles use the Earth’s magnetic field as a road map to return to their birthplace. “Animals can carry diseases.

What we want to know is where. If we know where, we can design protected areas.” Navinder Singh, an ecologist at the Swedish University of Agricultural Sciences, says Icarus has the potential to help land managers make use of a growing wealth of movement data that so far has little clear purpose.

The dark side of Wikelski’s sensor network is that it could be used on humans. “That’s a real problem in the making,” he acknowledges, adding

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that he’s keeping his source code private and carefully tracking where and when the network is used.

That doesn’t make it hackproof.

For now, though, the Icarus team is focused on tagging more creatures to gradually widen the scope of what its satellite can monitor. With a net and some super glue, Wikelski says, he should be able to tag swarms of desert locusts to warn farmers or track outbreaks of certain diseases. Beyond natural disasters, he’s hoping Icarus will be able to monitor fishery populations to better regulate fish feeding and breeding, measure atmosphere and temperature more precisely from birds’ flights, and track the spread of Ebola based on which African fruit bats have developed antibodies. “We never would have expected having a phone in a moving car would influence how we look at traffic and our movements,” he says. “Look at us now.” �Adam Popescu

with a hydrogen fuel cell pack costs up to $58,000— about twice as much as one with a standard leadacid battery—hydrogen models are 10 per cent cheaper over the 10-year life span of an average forklift, according to a study by the National Renewable Energy Laboratory. (Plug says its cost advantage has improved further since the study.) That’s because they can be charged in minutes instead of hours, eliminating the labour cost of charging batteries, freeing up warehouse space, and keeping goods flowing around the clock.

Hydrogen fuel cells produce power, and a little bit of water, when liquid hydrogen is pushed through a membrane that strips off electrons through an electrochemical process. Fewer than 3 per cent of the more than 600,000 forklifts used in US warehouses run on hydrogen, but that number is growing.

Toyota Motor Corp., the world’s largest forklift maker, is developing hydrogen-powered models and began using prototypes at one of its plants in Japan this year. Hyster-Yale Materials Handling Inc., another large forklift maker, bought Nuvera Fuel Cells LLC in 2014 and has begun incorporating the technology into its products. “Lead-acid batteries have inefficiencies,” says Nuvera CEO Jon Taylor.

“Fuel cells solve most of those shortfalls.”

Other fuel cell companies, including Ballard Power Systems Inc. and Hydrogenics Corp., are pushing beyond forklifts, using hydrogen to power buses, delivery trucks, and drone aircraft. In each of those markets, the vehicles return to a central depot for refuelling, eliminating the need for a sprawling network of hydrogen stations.

Plug Power, founded in 1997, spent years casting about for the right market, including using fuel cells to generate electricity for homes and mobile phone towers. Marsh’s eureka moment came in 2008, when a plain-spoken warehouse manager in Canada explained why forklifts were a good fit.

Beyond saving time on recharges and space once used for spare batteries, hydrogen-powered forklifts don’t get sluggish inside arctic-cold freezer rooms or when their juice runs low.

None of that means it’ll be easy to unseat leadacid batteries, which are durable, fully recyclable, and have been powering forklifts since the days when most vehicles were drawn by horses. Another hurdle: A federal tax credit for fuel cells expired at the end of 2016 after Congress cut the technology from legislation designed to promote clean energy.

Still, Marsh says Plug Power is on track to increase its revenue this year and expects to turn a profit as early as next year. “People have talked for years about hydrogen fuel cells being the next disruptive technology,” says Jeffrey Osborne, an analyst at investment bank Cowen & Co. “Forklifts are finally validating them.” �Joe Ryan and Chris Martin

THE BOTTOM LINE The Icarus project has united scientists and space agencies around the world in the hope that sensor-tagged animals really do detect things before people do.

Score One, Finally, For Hydrogen ● Fast-charging fuel cells are powering forklifts in Amazon and Wal-Mart warehouses

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Andy Marsh sees his future—and it’s forklifts. His tiny company, Plug Power Inc., makes hydrogen fuel cells, and for years he struggled to find customers.

No longer. In April, Amazon.com Inc. agreed to try out the technology in forklift fleets at 10 of its warehouses. And in July, Wal-Mart Stores Inc. matched Amazon’s $600 million deal with a similar one, committing to double, to 58, the number of its warehouses that use forklifts running on Power Plug cells.

“Obviously, Wal-Mart sees it. Obviously, Amazon sees it,” says Marsh, Plug Power’s chief executive officer. “When you have the two largest retailers saying, ‘This makes our business run better,’ that’s validation that this is here for the long run.”

Ever since a Swiss inventor named François Isaac de Rivaz built the first hydrogen-powered automobile, in 1808, inventors and futurists have pinned their dreams and fortunes on the clean technology that converts water to energy. But hydrogen never caught on as a fuel, mainly because of its relatively high costs.

Now, thanks to the thriving warehouse networks of online and big-box retailers, hydrogen has found a place inside growing fleets of forklifts.

The numbers work out: Although a forklift outfitted

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16 August, 2017

As easy as 1-2-3

① A driver parks his forklift alongside Plug Power’s GenFuel hydrogen station, turns it off, and stands on a safety mat

② The driver connects the dewatering hose and data cable to the forklift’s hydrogen fuel cell

21

③ The hydrogen nozzle locks into place; the fuelling process takes two minutes, vs. the roughly 15 minutes required to swap out an electric battery

THE BOTTOM LINE About 3 per cent of the 600,000 forklifts in US warehouses run on hydrogen, but with a nine-figure commitment from Amazon, that’s starting to change.

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Saudi Arabia Builds Cities in the Sand to Move Beyond Oil

d e e C d 2 in

● The Kingdom is turning to the desert for new revenue streams by creating cities as big as some countries After relying on oil to fuel its economy for more than half a century, Saudi Arabia is turning to its other abundant natural resource to take it beyond the oil age – desert. The kingdom is converting thousands of square kilometres of sand into new cities as it seeks to diversify away from crude, create jobs and boost investment. In the past month alone, the world’s biggest oil exporter has announced two major developments, one covering an area bigger than Belgium and another almost the size of Moscow. That’s on top of plans to build a series of so-called economic cities, special zones in logistics, tourism, industry and finance, an entertainment city and a $10 billion financial district.

“The overall progress with the economic cities has been very slow, even before the collapse of the oil price,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank PJSC. “Since then, the pace of development has moderated even further with a number of projects being placed on hold.”

When “Saudi Vision 2030” was announced last April, the 84-page blueprint said the government would work to “salvage” and “revamp” economic city projects executed over the past decade that “did not realise their potential.”

THE BOTTOM LINE Rera volore volorib erferum ium fugitatium fugit officid qui adi iducim quid ut optaquodit eatis coritium illuptas

One of the biggest areas of focus is The Red Sea where the kingdom last week announced plans to turn 50 islands and 34,000 square kilometres (13,127 square miles), an area bigger than Belgium, along its Red Sea coastline into a global tourism destination. Located between the cities of Umluj and Al Wahj, the project aims to attract luxury travellers from around the world and will be developed by the Public Investment Fund, the country’s sovereign wealth fund. Construction is expected to start in 2019 and the first phase completed by 2022. The development cost of the project wasn’t given.

Visitors will have access to the ancient ruins at Mada’in Saleh, a relic of the same ancient civilisation that built the city of Petra in Jordan. A promotional video for the project with dramatic music showcases white sand beaches and flocks of birds soaring over turquoise waves.

Bringing sun-seekers to Saudi beaches could transform a tourism industry that relies almost solely on Muslim pilgrims visiting holy shrines in Mecca and Medina. The country’s restrictions on alcohol and dress, however, could make it a hard sell for foreign tourists. The government will need to “get through the cultural and legal hurdles,” said

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Crispin Hawes, London-based managing director at Teneo Intelligence. “If you can’t change restrictions on alcohol and dress, that market effectively disappears.”

Elsewhere, the kingdom announced detailed plans for the Al Faisaliyah project last month.

Located to the west of Mecca, the city will have residential units, entertainment facilities, an airport and sea port. The project will cover 2,450 square kilometres, almost the size of Moscow, and is expected to be completed by 2050. The Makkah Region Development Authority is supervising the project and the PIF is also involved. An investment figure hasn’t been given.

Plans for the aptly named Entertainment City were announced in April to develop the kingdom’s largest cultural, sports and entertainment city in Al Qidiya, southwest of Riyadh. The project will be developed on 334 square kilometres and will include a safari area and a Six Flags Entertainment Corp. theme park. The country’s sovereign fund is the main investor, along with local and international investors. Construction is due to start next year and the first phase should be completed by 2022.

To facilitate much of the tourism and leisure development, and part of plans to overhaul its economy, the government is relaxing the rules on entertainment in the ultra-conservative society.

Concerts, dance shows and film screenings have drawn thousands of people over the past year. By 2030, the kingdom aims to double household spending on recreation to 6 per cent.

“While the current authorities seem to be committed to open up the country to forms of entertainment previously banned, a big test will be the reaction of the more conservative parts of the Saudi society which have already shown great reservations toward the newly founded Entertainment Authority as reflected through social media widespread criticisms,” said Philippe Dauba-Pantanacce, a Londonbased senior economist and geopolitical strategist at Standard Chartered Bank.

Major business projects are also in the works.

King Abdullah Economic City, KAEC, named after the former head of state, is the kingdom’s first freehold city and is being developed by Emaar Economic City, a company controlled by the Saudi government and Dubai’s biggest property developer Emaar Properties PJSC. Covering about the same area as Brussels, the project has attracted $7.9 billion of investment and secured enough cash and credit to fund its planned spending for the next decade, according to KAEC. The project includes a deep-sea port, a 55 square-kilometre logistics hub, a sports and recreation centre and more than 6,500 residential properties.

King Abdullah Financial District, KAFD, as it’s known, was envisaged as Saudi Arabia’s answer to the Dubai International Financial Centre, bringing banks, financial-services firms, auditors and

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lawyers, as well as the kingdom’s stock exchange and capital-market authority into one area. The project, north of Riyadh, has been slowed by construction delays since work began in 2006 and is more than 70 per cent complete. As of last April, not a single financial institution had agreed to take space in the 73 buildings the state is constructing, said Waleed Aleisa, chief executive officer and project manager of the district at developer Al Ra’idah.

The 1.6 square-kilometre district is owned by the Saudi Public Pension Agency and the government is looking at ways to lure banks with incentives that could include tax breaks lasting a decade or more, as well as separate regulation that makes it easier to hire and issue work visas, Aleisa said. Five buildings at the district’s core will be surrounded by dozens of offices, apartments, hotels, conference centres and entertainment venues. On the ground, walkways below street level branch out to connect buildings and provide space that’s 8 degrees Celsius cooler than street level.

Knowledge Economic City is Saudi Arabia’s first so-called smart city development. The city in Medina will focus on intellectual property, knowledge-based industries, medical, hospitality, tourism and multi-media. It will also have serviced apartments, a hotel and conference facilities, according to the Economic Cities Authority website. Residents of the city, which will cover 4.8 square kilometers, will have access to Mecca and Jeddah via the Haramain High Speed Railway. KEC was listed on the Saudi stock exchange in 2010 after raising about $270 million.

Prince Abdulaziz bin Mousaed Economic City is a mixed-use development located on 156 square kilometres of land in Hail in the north of the kingdom.

As well as a residential area, the city will also have an international airport, hotels, shopping centres and entertainment venues. � Sarah Algethami

16 August, 2017

“ A big test will be the reaction of the more conservative parts of the Saudi society”

23

THE BOTTOM LINE As it looks to a future away from oil, Saudi Arabia is making the most of its vast stretches of desert and is planning to create megacities in the sands.

Split Within India Central Bank ● Flawed inflation model at the root of disagreement over future strategy

It took six meetings for cracks to become visible within India’s powerful interest rate-setting panel.

Following a series of consensus voting and bland statements, there was open dissent on the monetary policy committee in June, which only worsened

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earlier this month when a member of the Reserve Bank of India’s economic research wing broke ranks for the first time with his bosses, Governor Urjit Patel and deputy Viral Acharya. The 5-1 vote for a cut isolated career central banker Michael Patra against the relative newcomers on the year-old MPC. “To me that is quite significant,” said Sujan Hajra, Mumbai-based chief economist at Anand Rathi Financial Services Ltd., who has been a director at the RBI. While debate is good, what stood out is how the members read the inflation model differently, with one wanting to err on the side of caution while others were keen for an inflation-growth trade off, he said.

Details on the arguments will be available when minutes are published on 16 August and, to be sure, the RBI wouldn’t be the only global central bank flummoxed by a slump in inflation.

Nevertheless, the split raises questions on how much trust the MPC members place in the monetary authority’s forecasting model, which has consistently overestimated price pressures.

The RBI’s inflation assessments have come under intense scrutiny after a slew of readings fell short of projections. Prime Minister Narendra Modi’s Chief Economic Adviser Arvind Subramanian criticised forecast errors that he said are “large and systematically one-sided in overstating inflation,” and called on policy makers to take a long, hard look at June’s record-low 1.5 per cent reading.

Just three months earlier, Patra had argued for a “pre-emptive” increase in interest rates, though he ended up voting to leave borrowing costs unchanged. Last December, the RBI had forecast consumer price inflation of 5 per cent in March with an upside bias, though the actual print was 3.9 per cent, below the RBI’s 4 per cent medium-term inflation target.

Very few central banks would have made such glaring errors and officials should admit that they were wrong, economist Surjit S. Bhalla, a senior India analyst at Observatory Group in New Delhi, wrote in the Indian Express.

In its latest statement, the central bank acknowledged historically low inflation but reiterated its forecast that CPI will accelerate to between 3.5 and 4.5 per cent by March 2018 and said “a conclusive segregation of transitory and structural factors driving the disinflation is still elusive.” The median estimate in a Bloomberg survey of economists published last month pegs this figure at 3.7 per cent.

To be fair, most central banks would probably find it tough to factor in the implications of Modi’s unprecedented November decision to void 86 per cent of the nation’s currency as well as the July 1 roll out of a nationwide sales tax.

Yet, where the RBI’s model is probably flawed is that it is structured around the concept of a small, open economy, according to Rohan Chinchwadkar,

assistant professor of finance and accounting at the Indian Institute of Management at Tiruchirapalli in the southern state of Tamil Nadu. That would be akin to $300 billion Singapore, while India is a $2 trillion behemoth where almost half of gross domestic product is generated by an intricate web of unregistered networks that employ more than 90 per cent of workers.

“This might be one of the causes of disagreement within the RBI,” Chinchwadkar said. “There is no clear model understanding of the impact of monetary policy and shocks on India-specific features like the informal sector and shadow economy. So the position of MPC members depends on their own judgment and risk preference.”

An RBI spokeswoman didn’t reply to a text message last week seeking comment.

The central bank’s staff published a working paper in November in collaboration with the International Monetary Fund, aiming to “sketch out a model with India-specific features to capture the dynamics relevant to an emerging market economy.” It concluded that forecasting performance is improved by using the Bayesian statistical technique which assesses the probability of something happening based on observed data.

The current model is based on the principles of New-Keynesian economics, which evolved from classical Keynesian economics but differs in terms of how quickly prices and wages adjust. It consists of four variables: the output gap, the Phillips curve which assesses the impact of unemployment, the Taylor rule for short-term interest rates that also guides several global central banks, and interest rate parity through exchange rates.

Apart from statistical techniques, inputs of inflation are also crucial. For instance, the RBI’s measure of core CPI does not fully strip out fuel costs from its transport basket, which keeps the gauge artificially high, according to Bloomberg Intelligence’s Abhishek Gupta. There are also flaws in the consumption pattern the RBI tracks, other economists say.

All of which suggest the possibility that the RBI, Acharya and Patra’s department, to be precise, may have to return to the drawing board. The debate gains importance as economists increasingly say that lower inflation is becoming entrenched in India.

“RBI’s highly capable economists can develop parallel models based on different schools of economic thought, applied to the Indian context,” Chinchwadkar said.

“When the different models agree on the assessment of the economic situation and policy recommendations, the RBI can be confident about its policy actions.” � Anirban Nag

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16 August, 2017

“ There is no clear model understanding of the impact of monetary policy and shocks on India-specific features”

THE BOTTOM LINE The Reserve Bank of India has come under scrutiny for inaccurate inflation predictions amid internal disagreements over the best way forward.

12/08/2017 21:05

Origin Story

The Pension Hole

The vast majority of S&P 500 companies don’t have enough money set aside to meet all their obligations to current and future retirees. There’s a total gap of at least $375 billion for the 200 largest plans. This is how they got here.

——By Sonali Basak, Katherine Chiglinsky, and Brandon Kochkodin 1975 to 1999 Now

Assets in US pension plans go from $186 billion to more than $2 trillion. A booming stock market helps the funds grow, since many are largely invested in equities.

US pension assets (defined benefit plans) $2.0t

g

Companies are eager to get out of the pension business. Most prefer 401(k) plans, where the employee alone bears the risk of falling short at retirement.

More are also offloading their pension plans, paying insurance companies to take them on instead. Only about two dozen companies in the S&P 500 have overfunded pensions. Nine of them are banks.

1.5 1.0

Post-Crisis

0.5 0 1975 1999

2000 to 2005 The dot-com bubble bursts and markets tumble, pushing many big corporate pension plans into the red after having a surplus.

Bankruptcies of companies including United Airlines Inc. put a burden on the Pension Benefit Guaranty Corp., the government agency that backstops plans.

The market climbs back, though not enough to make pensions whole. That’s partly due to low interest rates: The accounting value of a pension liability rises when rates fall, because it becomes more difficult to earn the money needed to meet future costs. Companies are also spending money on stock buybacks and acquisitions to boost shareholder returns, sometimes at the expense of pension obligations. General Electric Co. has spent $45 billion on buybacks in recent years—and has a pension shortfall of $31 billion. The company says it will put $3 billion into its plan in 2017 and 2018.

Federal funds rate*

GE’s pension deficit $30b

9% 6

20

3

10 0

0 2Q 1990

2Q 2017

2008 2016

2006 President George W. Bush signs the Pension Protection Act, which promises to make pensions safer—and less likely to end up in the hands of the PBGC.

22_FINANCE.indd 25

2008 The new law puts stricter funding requirements on companies with plans but comes just in time for the financial crisis and a brutal recession. Pension plans lose about 15 per cent of their value in a single year.

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Violence Raises Oil Risk in Mexico ● Fuel thieves could prompt foreign companies to rethink investing in the industry Buying stolen gasoline in the central Mexican state of Puebla is easy. Pull off the main highway into a busy parking lot in San Salvador Huixcolotla, and the blamarketeers are waiting in pickup trucks loaded with jerrycans. They’ll siphon the fuel into your tank— while boasting that, unlike a lot of the country’s regular gas stations, they don’t cheat customers.

While this illegal curbside commerce has been going on for decades, it’s exploded in the past few years and now costs Pemex, Mexico’s state oil company, more than 20 billion pesos ($1.1 billion)

a year. The huachicoleros, as the fuel thieves are known, dig up pipelines and hijack tanker trucks.

These techniques have made Puebla, with its heavy vehicular traffic and extensive pipeline system, a target for organised crime groups looking to diversify their profit streams. The country’s drug cartels have muscled their way in, with ­predictable mayhem. Nine people died in a 2 July shootout between rival gangs of huachicoleros in Puebla.

And at least 15 people have died in military operations to break up fuel theft rings over the past several months in an area of the state known as the Red Triangle.

The government has started cracking down because it needs to draw foreign capital into the energy sector, where oil output has been sagging because of a combination of underinvestment in exploration and production, aging wells, and ­deficient infrastructure. The country has a

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THE BOTTOM LINE Rera volore volorib erferum ium fugitatium fugit officid qui adi iducim quid ut optaquodit eatis coritium illuptas dolorio restempore nusam.

AGENCIA EL UNIVERSAL/JMA/AP PHOTO

▶ A highway blockade in Puebla to protest a May roundup of suspected gasoline thieves

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FROM LEFT: CESAR RODRIGUEZ/BLOOMBERG (2); JOANNE DAVIDSON/SILVERHUB/REX/SHUTTERSTOCK

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◀ A clash between rival gangs of huachicoleros in Huehuetlán el Grande, in the state of Puebla, left nine people dead

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FROM LEFT: CESAR RODRIGUEZ/BLOOMBERG (2); JOANNE DAVIDSON/SILVERHUB/REX/SHUTTERSTOCK

AGENCIA EL UNIVERSAL/JMA/AP PHOTO

n o n ts, a

­ opulation about five times that of Texas, yet the p US state’s fuel pipeline grid is 35 times larger.

Investors who already look askance at the steady drip-drip of losses from theft and smuggling are even more likely to be deterred by drug gang violence. “For potential participants in the fuel business, whether they’re importing gasoline and diesel or they’re looking to construct terminals, it’s a reality check,” says John Padilla, managing director of energy consulting firm IPD Latin America LLC. Exxon Mobil, Glencore, and BP have all announced plans to set up gas stations in Mexico. Commodity trader Trafigura Group has applied for fuel import permits. And as much as $2.3 billion in investment has been pledged for pipelines as well as terminals for storage and transport, according to the industry regulator. “We take theft very seriously,” Exxon spokeswoman Charlotte Huffaker said in an email, adding that the company remains “committed to opening Mobil-branded service stations in Mexico” but will not directly own or operate the stations.

Foreign capital and know-how is exactly what Mexico’s reform-minded legislators wanted when they voted in 2013 to end the state’s 76-year m ­ onopoly in the oil and electricity sectors. The liberalisers have scored some wins: In July private companies announced oil finds in the Gulf of Mexico that may hold as much as 3 billion barrels (the country’s oil production averaged 2.5 million barrels per day last year). Households, however, haven’t seen their energy bills shrink, and political opposition to the creeping privatisation remains vigorous, with one of the leading contenders in next year’s presidential election promising to reverse the reforms.

Especially unpopular was the government’s move to scrap fuel subsidies at the start of this year. Prices at the pump immediately jumped about 20 per cent.

Theft grew even faster: Illegal pipeline taps in the first five months of 2017 were up almost 70 per cent

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◀ A pipeline in Puebla after it was illegally tapped

from a year earlier, according to Pemex.

Fernando Chavala, a truck driver, says he was out of work for six months last year after the company he was working for had one of its 62,000-litre trucks stolen and stopped sending out deliveries. “When you’re on the highway, you never know what could happen,” he says, as he waits to fill up at a Pemex terminal in Puebla’s state capital. “We don’t have any security.”

The aptly dubbed Red Triangle, which comprises a cluster of rural municipalities in the state, has been the scene of two shootouts triggered by government efforts to take down fuel thieves.

Ten people were killed in the town of Palmarito Tochapan on 3 May when the military was deployed to round up suspects, and five died on 21 July in the Vicente Guerrero township during an attempt to capture the alleged leader of the state’s main

“When you’re on the highway, you never know what could happen. We don’t have any security”

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smugglers’ gang, Roberto de los Santos de Jesús, alias “El Bukanas.”

Investors will likely stay clear of places like the Red Triangle. “They are going to start in areas less vulnerable to fuel theft,” says Alejandro Schtulmann, president of Empra, a risk consulting firm in Mexico City. “They will only invest more when they see that the situation is safer.”

Schtulmann says 30 per cent of the consumer fuel trade is controlled by “petty criminals” operating solo. But as much as 20 per cent of the commerce is run by the country’s biggest crime conglomerates, the drug cartels.

There are echoes of the drug war in the deployment of federal troops to Puebla and in the government’s more-than-decade-long “decapitation” strategy to break up the cartels by targeting their leaders. Also reminiscent are the gang-on-gang clashes that recently broke out in the Puebla ­municipality of Huehuetlán el Grande. Nine people were killed supposedly for their involvement in the fuel trade and failure to pay an extortion fee to a rival group; authorities said five of them were ­kidnapped and their bodies found burned.

José Aguilar, a local resident, watched the procession of caskets, stooping under a tree to shield himself from the afternoon sun. As the line of mourners, flanked by state police trucks, wound its way uphill to the cemetery, Aguilar said the best way to halt the violence was for townspeople to form a vigilante group. He approvingly cited similar efforts in states such as Michoacán, where self-defence militias that sprung up in farming communities have clashed with drug cartels and government forces. In Huehuetlán, “no one leaves their homes now after 6 or 7 in the evening,” Aguilar said. “They shut the curtains, and the town is lifeless.”

Officials say they’re pursuing buyers as well as sellers. Pemex has cancelled contracts with seven gas stations in Puebla that are under investigation for receiving stolen fuel. Pemex Chief Executive Officer José Antonio González Anaya has said the company is attacking the demand side of the market. In July the Attorney General’s office arrested a mayor in the Red Triangle for alleged involvement in the trade.

The squeeze is having some impact, judging by the price of black-market gasoline. Residents of the Red Triangle say they pay from 13 pesos to 14 pesos for a litre of illegal fuel, up from 9 pesos last year. But Mexican drivers can still save about 20 per cent by filling up at places like the parking lot in San Salvador Huixcolotla.

The attendants there don’t have pumps. They carry plastic hoses and use their mouths to create suction so they can siphon the gas into customers’ tanks. Some wear surgical masks to protect against the fumes. “How many litres?” one shouted to the driver of a red Honda. He dispensed the fuel, then shook the empty 20-litre can at the car window to

demonstrate there’d been no scrimping.

Padilla, the consultant, says the entire supply chain—from the complicit worker at a Pemex oil terminal all the way down to locals acting as lookouts while huachicoleros milk a pipeline— generates about $1.5 billion, and that figure is set to expand. “That’s a lot of money, and it ends up involving a lot of people,” he says.

And despite the government’s efforts, there remains public backing in Puebla for the black marketeers—and scorn for the federal troops sent in to catch them. “They’re only trying to survive,” says Dulce Rosario Martes, a taxi dispatcher in Palmarito. “There’s no other work.” �Amy Stillman

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THE BOTTOM LINE Gasoline theft costs Mexico’s state-owned oil company more than $1 billion a year. And the country stands to lose a lot more if investors are spooked by the growing violence.

Why the Fed Cares About America’s Opioid Crisis

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Bill Polacek’s industry is dealing with a labour market problem so big, even Federal Reserve Board Chair Janet Yellen is talking about it.

A few years ago, Polacek interviewed 350 people to fill openings for 50 welders and machinists at his company in Johnstown, Pa., JWF Industries Inc., which makes metal products, including armour plating for military vehicles. After winnowing down the pool to 100, he found that half of those candidates either had a criminal record or failed the A Shrinking Pool of Workers Percentage-point change in labour force participation rate of 25- to 54-year-olds since July 2000 1% 0

Female

-1 -2

Male

-3 -4

7/2000 6/2017

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*PROBABILITIES OF CHANGE TO BENCHMARK RATE DERIVED FROM OVERNIGHT INDEX SWAPS; DATA: INDIA CENTRAL STATISTICAL ORGANIZATION, CIEC, RESERVE BANK OF INDIA, GOVERNMENT OF INDIA, DEUTSCHE BANK, BLOOMBERG

● Abuse is both an economic symptom and a driver of labour problems

DATA: U.S. BUREAU OF LABOR STATISTICS

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DATA: U.S. BUREAU OF LABOR STATISTICS

◼ ECONOMICS

drug test. “We weren’t attracting the right people,” Polacek says of the episode, which prompted him to invest in extensive outreach to local high schools to build up a pipeline of workers.

The US opioid epidemic falls outside the Fed’s traditional purview, yet it matters to the central bank, particularly when unemployment is at a 16-year low. If addiction is r­ endering people u ­ nemployable, it could help explain why an h ­ istorically low portion of the prime-age ­population—those age 25-54—is working. Also, the Fed has been paying more attention to workforce development in recent years, and the opioid crisis is a drag on human capital across America.

An estimated 2.7 million adults older than 26 were misusing painkillers as of 2015, and an ­additional 236,000 described themselves as current heroin users, according to surveys by the Substance Abuse and Mental Health Services Administration.

Opioid abusers account for a sliver in a w ­ orkforce of 160 million, but they probably make up a greater share of the 7 million who are unemployed.

Academic research on the economic effects of the opioid crisis has revealed a corrosive feedback loop. Poor job opportunities for America’s working and middle class seem to have helped fuel opioid addiction. In turn, pill and heroin use can worsen employment chances for addicts and lead to ­criminal records that dim applicants’ prospects for years to come.

“I do think it is related to declining labour force participation among prime-age workers,” Yellen said during Senate testimony on 13 July, when asked about the crisis. “I don’t know if it’s causal or if it’s a symptom of long-running economic maladies that have affected these communities and particularly affected workers who have seen their job opportunities decline.”

Regional Fed banks, too, have been ­increasingly noting the fallout from the epidemic. The Federal Reserve Bank of Boston published research in September on the link between local economic distress and opioid use in New England. And the central bank’s 12 July Beige Book, a survey of regional economic conditions, noted that ­“manufacturing contacts in Louisville and Memphis reported difficulties finding experienced or ­qualified employees, with some citing candidates’ inability to pass drug tests.” Businesses have also raised the issue in conversations with Philadelphia Fed President Patrick Harker.

The Cleveland Fed hosted a policy conference in June that included a panel specifically dedicated to opioids. “Our district is the epicentre of this crisis,” says Kyle Fee, regional community development adviser at the Cleveland Fed. “It was a good way for us to dip our toe into this topic.” �Jeanna Smialek THE BOTTOM LINE In Senate testimony, Yellen suggested addiction may be one reason labour force participation is down among prime-age workers.

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Checkup

India

The Bombay Stock Exchange may be surging, but the latest readings on inflation, capital investment, and industrial production in India all point to an economy losing steam. That’s raised the odds that the central bank will cut rates in August to juice growth.

Change in index since Dec. 30, 2016 Hang Seng 21% 14

BSE Sensex

S&P 500 7

Nikkei 225

0

FTSE 100

-7 12/30/16 7/21/17

Counterindicators Inflation is at record lows

Investment and industrial production are flagging

Consumer price index, year-over-year

Change in gross fixed capital formation, year-over-year

6%

Growth in production, year-over-year

9%

29

10%

6 3

3

5

0 0 12/2015 6/2017

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0

1Q ’17

12/2015 5/2017

Forward Guidance The economy is cooling Real GDP growth, year-over-year

A rate cut looms The probability of action on India’s benchmark rate at the central bank’s 1-2 Aug meeting* 100%

10% Cut

75 No change 50

5 Hike

0

0 4Q ’15

1Q ’17

25

4/7/17 7/20/17

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All-Male Iran Minister List Draws Ire After Rouhani Gender Vow

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● The President is accused of failing to deliver on pre-election promises to address gender imbalance Iran’s Hassan Rouhani presented an all-male line-up of cabinet ministers to parliament, drawing criticism from female supporters and fuelling speculation he backtracked on a campaign pledge to avoid irking conservatives at a critical juncture in his presidency.

Rouhani nominated men to fill 17 of 18 ministerial slots in his second-term government, according to the semi-official Tasnim news agency, with no one yet put forward for science minister.

He did include three women among a dozen vice presidents appointed, mirroring their representation in his first administration, but that failed to match the rhetoric of the buildup to May’s election, when Rouhani vowed to further address the extreme gender imbalance in politics.

“Right now, many members are expressing their opposition,” Tayyebeh Siavashi, a reformist lawmaker who was among the 17 women elected last year to represent pro-Rouhani factions, said by phone from inside parliament after the ministerial list was submitted. “It’s a big question for us: Why after all our efforts and hard work do we have no women at all?”

Rouhani may have been attempting to avoid a backlash from hardliners who have opposed his goals of rebuilding the economy with investment from the West, as well as easing restrictions in a

heavily regulated society. They have grown ever more vocal since President Donald Trump entered the White House, swinging behind Iran’s regional foes and signaling he was preparing to withdraw from the 2015 nuclear deal that lifted most sanctions.

Two of the three women Rouhani nominated to be his deputies, Shahindokht Molaverdi and Masoumeh Ebtekar, were also vice presidents in his earlier term. Ebtekar will take charge of women’s and family affairs, while Molaverdi, who has led efforts to strengthen laws protecting women against violence and ease those restricting their ability to travel, will serve as a special adviser on citizenship rights to the president. Rouhani’s vice president for legal affairs, Laya Joneydi, is a new face.

Under pressure from the clerical leadership to deliver real economic gains for ordinary Iranians, and facing growing US threats to the landmark agreement, the overall makeup of Rouhani’s team suggests he was probably unwilling to push the cultural and political limits of the nation’s Islamic system.

“The only reasonable explanation for his choices is that he tried to be very uncontroversial to avoid increased tensions so his cabinet can do some work,” said Adnan Tabatabai, chief executive officer of the Center for Applied Research in Partnership With the Orient, a think-tank based in Bonn, Germany. “He

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can live with pressure coming from female activists.”

“There is no real colour in the composition of the cabinet,” said Tabatabai. “These people are not high profile, they are not figures that would embody a certain political current.”

Rouhani kept top allies in key posts as he presented his proposed cabinet to parliament, unveiling the team he’ll depend on to pursue an agenda being buffeted by escalating tensions with the US and opposition at home.

Foreign Minister Mohammad Javad Zarif and Oil Minister Bijan Zanganeh were reappointed, as was Abbas Akhoundi, the minister for roads and urban development who oversaw multibillion dollar deals with Boeing Co. and Airbus SE following the sanctions-lifting 2015 nuclear deal. The proposed ministers need to be confirmed by lawmakers, with votes underway.

Zarif and Zanganeh were central “figures for a lot of the business deals and policy discussions that were taking place,” said Ellie Geranmayeh, senior policy fellow at the European Council of Foreign Relations. From a foreign policy perspective, it was critical the two men remained, she said.

Rouhani was re-elected in May after promising to continue on the path of engagement with the world and to work to lift remaining US sanctions on Iran, a tall order as President Donald Trump expands them and threatens to pull out of the accord struck two years ago with world powers.

Within Iran, he faces hardliners who opposed the agreement, and other critics disappointed by the slow pace of economic and social change.

The cabinet picks reflect the “balance that Rouhani was trying to achieve between right, left and centre as part of his message of outreach and reconciliation,” said Geranmayeh.

A more supportive parliament elected last year should mean Rouhani has an easier time getting his team approved than he did in 2013, she said.

During his recent election campaign, Rouhani, a moderate cleric, often highlighted increased liberties for women and their improved participation in politics and business.

“Up until the last moment, serious efforts were underway to make sure there would be names on there,” said Amene Shirafkan, a journalist who campaigns on women’s issues and stood as a candidate in Tehran’s city council elections, referring to the list. “It’s a rather conservative cabinet, much like Rouhani himself.”

Women did make some advances during Rouhani’s first term. The oil ministry appointed its first female deputy minister to lead the petrochemicals sector, and last month state-run Iran Air announced its first woman CEO. But the president has failed to build on the breakthrough achieved by his predecessor, Mahmoud Ahmadinejad, who gave the Islamic Republic its first female minister -- Marzieh Vahid-Dastjerdi, who ran

the health ministry during his second term.

Nominating women “would have been going into uncharted territories in ways that would have distinguished his cabinet,” said Ellie Geranmayeh, senior policy fellow at the European Council of Foreign Relations.

“Perhaps it was too much of a controversial step for him to put women in such key positions. Perhaps expectations were too high.”

Siavashi, the lawmaker, said Rouhani’s failure to live up to his campaign vows could ultimately damage confidence in the political process.

“We had an expectation that he definitely would introduce women,” she said.

“We really don’t know the reason because it can’t be about expertise,” Siavashi said.

“If it’s a case of women just being needed for the ballot box, well that’s really upsetting.” � Golnar Motevalli and Ladane Nasseri

“ It’s a big question for us: Why after all our efforts and hard work do we have no women at all?”

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THE BOTTOM LINE President Rouhani’s failure to include women in his new cabinet is being blamed on his fear of alienating Iran’s conservative clerics.

Assad Allies Profit Off UN Money For Syria

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● Companies sanctioned by the US and the EU have received millions in UN contracts

The United Nations spent $140 million on goods and services in Syria last year. Of that, at least $18 million went to organisations with close ties to President Bashar al-Assad, some of them run by people sanctioned by the US and European Union. Contracts for telecommunications and security were awarded to regime insiders including Rami Makhlouf, Assad’s cousin and one of the wealthiest men in Syria. More than half the money, $9.5 million, was spent by UN staff staying at the Four Seasons hotel in Damascus, co-owned by Syria’s tourism ministry. Some UN money even went to a charity set up by Assad’s wife.

The data come from the UN’s annual report on procurement for 2016, a 739-page document published in June. The revelation that millions in

● Jupiter Investment, for providing accommodation and office space; Jupiter is partly owned by Muhammad Hamsho, blacklisted by both the US and the EU for providing support to the Assad regime

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supposed aid money ended up in the hands of the president’s cronies is driving criticism against the way the UN conducts its operations in Syria, where more than six years of civil war have left at least 400,000 people dead and millions more displaced.

“Any money going to Assad and his allies shows that the UN is not impartial but is in fact helping the largest player in the conflict,” says Kathleen Fallon, a spokeswoman for the Syria Campaign, an advocacy group. “The regime has been responsible for the majority of the deaths, and they are being rewarded.

It sends the wrong message.”

Part of the problem is that the UN isn’t bound by sanctions imposed by member states or regional blocs such as the EU. While the UN maintains its own list of sanctions, Russia has prevented them from being imposed on Assad allies with its veto power on the UN Security Council.

In their defence, UN officials point to the difficulty of operating in Syria, where the government has a stake in large swathes of the economy. “We source locally, and there are many places where the local economy is either state-owned or we have very limited options,” says Stéphane Dujarric, the UN’s chief spokesman. Of UN spending at the Four Seasons, he says: “That’s one place in Damascus that has been cleared for security.”

Assad’s cousin Makhlouf has been on the US Department of the Treasury’s blacklist since 2008 for corruption and for supporting the Assad regime.

He’s “known as Mr. 10 Percent in Syria because he has an interest in so much of the economy,” says Joshua Landis, a Syria expert who heads the Center for Middle Eastern Studies at the University of Oklahoma. “The key to getting anything done in Syria is to grease the palms of the powerful.” The mobile phone company Syriatel, which Makhlouf owns outright, was paid a total of $164,300 by three different UN entities last year, including the United Nations High Commissioner for Refugees and the children’s charity Unicef. Another UN agency, the United Nations Relief and Works Agency for Palestine, paid $105,043 to Qasioun Security Solutions, a company owned by Makhlouf that was added to the US Treasury’s list of sanctioned entities in December.

Muhammad Hamsho, another regime insider, was added to the US sanctions list in 2011. The EU followed suit in 2015, saying Hamsho “benefits from and provides support to the Syrian regime through his business interests.” Hamsho challenged the EU listing, but an EU court dismissed his objections in 2016, saying it found evidence that he was associated with the Assad regime.

Hamsho controls Jupiter Investment Co., according to the US and the EU. The company was awarded two contracts for office space and accommodation by the UN’s peacekeeping operation monitoring the Golan Heights border area between Syria and Israel.

The UN’s procurement report said the company got contracts worth $1.5 million. A UN spokesman said by

email that the world body had options to extend the leases, which have a total value of $7.7 million. Linda Robinson, a senior policy analyst at Rand Corp., says the UN’s reputation has been damaged over Syria but acknowledges the difficulties it faces. “Assad has the ability to shut down independent actors, and that limits who you can work with,” she says. “In some cases it’s not clear where the lines of company ownership lead, and you don’t know the connections.”

The UN’s efforts to bring food and medical relief to Syria have been targeted by Assad’s government. Last September, Syrian planes bombed an aid convoy carrying medicine and supplies to the city of Aleppo, then under siege by Assad’s army and since captured from the rebels. The attack left 14 dead, according to a UN report. Syrian and international nongovernmental organisations have complained that aid has gone disproportionately to government-­controlled areas, which received 88 per cent of food aid distributed from Damascus in April 2016, according to a World Food Program report. In September, 73 NGOs wrote to the UN condemning the manipulation of relief efforts. One local group that handled aid deliveries is the Syria Trust for Development, a charity headed by Asma al-Assad, Bashar’s wife. It was awarded $751,129 last year by the UN Office for the Coordination of Humanitarian Affairs.

“The UN wants to be as close as possible to the regime to get things done,” says Reinoud Leenders, an associate professor at the department of war studies at King’s College in London. Still, he says, it’s “puzzling” that the UN is ignoring American blacklists—“especially considering that the US is its main funder.” �Kambiz Foroohar

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● Syria Trust for Development: The charity was founded by Asma al-Assad, wife of the Syrian president

$751k

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by Rami Makhlouf, Assad’s cousin, and sanctioned by the U.S. Treasury since 2008

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THE BOTTOM LINE At least $18 million in UN money spent in Syria last year ended up being paid to companies and individuals with close ties to the Assad regime.

With Sharif Toppled, Pakistan’s Khan Sets Sights on Elections

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● Opposition leader Imran Khan has corruption battle at top of his agenda

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Riding on the success of his years-long anti-corruption crusade that led to the ousting of Pakistan’s premier Nawaz Sharif, opposition leader Imran Khan has begun to sketch out an economic agenda as he eyes elections next year.

He plans to lure new investors by cleaning up the South Asian nation’s “corrupt” institutions,

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saying more roads and other infrastructure could be built if politicians stopped inflating contracts for kickbacks. In a wide-ranging interview in a mountain town outside the capital Islamabad earlier this month, he said the rupee was overvalued and pledged to reduce Pakistan’s widening deficit by taxing the country’s “tiny, rich elite” via an independent agency.

The former cricket star and leader of the Movement for Justice, or Pakistan Tehreek-e-Insaf party, pledged to continue waging his anti-corruption campaign, which culminated in ousting Sharif, who stepped down last month after the Supreme Court barred him from office following an investigation into his finances. The Sharif family has denied any wrongdoing.

Khan, 64, has pledged to submit to court fresh graft charges against Shehbaz Sharif, the chief minister of Punjab, who may take over his older brother’s former role. “The moment you clamp down on corruption and you have clean governance, then people are willing to invest,” Khan said in the cloud-covered town of Nathia Gali.

“We borrow money and then to pay and service our debts we have to apply indirect taxes and that impoverishes the people more, and so we are caught in this vicious circle,” he said. “The only way we can get out of it is if we fix the state institutions, which then stops this money laundering and corruption.”

Things are looking up for the leader of the PTI, the second-largest opposition party. Khan’s court victory against the Sharif family creates the possibility that he could become the country’s next prime minister.

At the same time, the upstart party will face a tough struggle unseating Sharif ’s ruling Pakistan Muslim League-Nawaz, which has already appointed former petroleum minister Shahid Khaqan Abbasi as a replacement premier. The PML-N governs the most populous state of Punjab and has deep patronage networks across the country. There are also questions about Khan’s ties to the powerful military establishment that controls large parts of the economy and Pakistan’s foreign policy.

“Imran Khan is sitting pretty,” said Michael Kugelman, a South Asia senior associate at the Washington-based Woodrow Wilson Center. “Khan has a legitimate shot to become the prime minister next year, but it certainly won’t be easy.”

Khan, relaxing at a hilltop government residence in a white collared shirt, jogging pants and orange Nike running shoes, said corruption, money laundering and rampant debt accumulation remained the largest obstacles to growing Pakistan’s economy.

Citing his party’s rule in the northwestern province of Khyber Pakhtunkhwa, which borders Afghanistan, Khan said that he has attracted “record” levels of investment by clamping down on corruption, depoliticising the police and improving security. He could not provide exact figures

and the government does not release provincial GDP figures.

Khan said a PTI-governed Pakistan would follow a China-type model of economic growth, eliminating poverty by investing in infrastructure, providing more regular power in a country where blackouts are common and increasing tax collection. Only about 1 per cent of Pakistan’s more than 200 million people pay taxes.

Tax collection “is the number one thing, balance the budget and stop these huge deficits,” Khan said.

While Pakistan’s currency is overvalued, the country

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needs to “try and reduce the costs of doing business more than trying to look for devaluation, because if you don’t reduce the cost of doing business I worry the rupee could just go into a free-fall.”

Khan is facing his own Supreme Court battle, which is investigating his purchase of a London flat.

Khan said the case was politically motivated and described how he had filed documentation of his past cricket earnings with the court. He also said his party has provided details of 40,000 donors after accusations of illegal foreign funding, which is being probed by the election commission.

A harassment scandal has also been levelled at Khan, after female PTI lawmaker Aaisha Gulalai quit the party claiming he and other PTI officials sent lewd text messages to female members. Khan called the “smutty” allegations baseless. The prime minister has ordered an investigation into the charges.

Khan has been accused of close ties to the military, which has ruled Pakistan for much of its 70 years.

Reiterating long-held views about U.S. involvement in Afghanistan, he said peace in Pakistan’s wartorn neighbour requires the withdrawal of American troops. And while he wanted to increase trade with India to reduce poverty, Khan said better ties were unlikely with the country’s Hindu-nationalist Prime Minister Narendra Modi in power. � Iain Marlow, Chris Kay and Kamran Haider

▲ Pakistani opposition leader and head of the Pakistan Tehreek-iInsaf (PTI) party Imran Khan speaks at a rally in Islamabad.

THE BOTTOM LINE With a strong chance of winning in next year’s elections, Imran Khan hopes to improve Pakistan’s longterm prospects by ending deep-seated corruption.

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Opportunities clearly abound for both wealth managers and their clients. Private wealth in the Middle East and Africa grew by 8.5 per cent to $8.1 trillion last year, compared to less than 2 per cent growth in 2015, with double digit growth in the upper high net worth (HNW) segment, according to The Boston Consulting Group (BCG). Wealth managers’ ability to quickly master the ever-changing regulatory rulebook will be key to realising BCG’s forecast that regional wealth could grow annually by around 8 per cent up to 2021.

“From Know Your Client (KYC) and source of wealth to cross-border limitations, wealth managers spend much more time behind their desks meeting tight deadlines to be fully compliant. This comes at the expense of being out of the office meeting clients and prospects,” says Frederic Hilal, Head of Wealth Management in the Gulf region, excluding Saudi Arabia, at Deutsche Bank.

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The bank’s dealings in the Middle East started in 1899, when it received the ‘preliminary concession’ for the Baghdad Railway.

But there is a silver lining; a more transparent regulatory architecture helps stem the tide of disillusionment often associated with money management, especially amongst millennials. “The days when banks sold products that were not suitable for certain clients are long gone,” Hilal adds.

Wealth managers must also contend with shifting political and economic sentiment – China, the Eurozone, US – and the negative impact of lower oil prices since mid2014 on the region’s export-centric economies. Keeping pace with clients’ demands for simple and speedy services that utilise the rapidly growing Financial Technology (FinTech) market is also no small feat.

“Wealth managers are forced to focus on a number of key markets and those who are grasping this opportunity and investing will reap the benefits,” explains François R. Farjallah, Head of the Middle East Region for CA Indosuez Wealth Management.

Mutual funds, private equity, fixed income products, foreign exchange, offshore commercial real estate, pensions and insurance-linked saving plans are all popular options in the Middle East. Mashreq Bank, the oldest privately-owned bank in the UAE, says sukuks and Shariahcompliant mutual funds are also increasingly popular.

Golden talent The quality of in-house talent reflects the value of the client base; it is a simple equation with no shortcuts.

Meeting the hiring checklist can be expensive and timeconsuming, as talent must be highly personable, highly intelligent and digitally savvy. But those who secure this

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“Today’s investor will not passively accept the investment strategy recommended by a financial advisor. It is quite the opposite” - Hassan Abdalla, CEO of the Arab African International Bank (AAIB)

“Wealth managers are forced to focus on a number of key markets and those who are grasping this opportunity and investing will reap the benefits” - François R. Farjallah, Head of the Middle East Region for CA Indosuez Wealth Management winning combination will have the strength to fend off competition at a time when clients ask more questions than ever about the advice they receive. Digital tools are also making it very easy for dissatisfied clients to switch firms.

“Today’s investor will not passively accept the investment strategy recommended by a financial advisor.

It is quite the opposite. They analyse the markets and form their own conclusions using the resources available, such as web applications and financial platforms. The financial advisor’s job has become a lot harder,” says Hassan Abdalla, CEO of the Arab African International Bank (AAIB).

Enhancing in-house skills is a marathon, not a sprint.

AAIB has its own wealth management school, Standard Chartered Bank runs a “very successful” graduate programme and Deutsche’s Hilal says the bank trains local graduates to give back to the communities in which it operates. Local employees may eventually leave the banking industry to join family businesses, but Deutsche still benefits as the individuals evolve into ambassadors for the bank in local markets. Mashreq Bank says its Emiratisation goals are supported by several government entities, which organise Career Days and other national recruitment events.

Mark Mills, Managing Director, Head of Citi Private Bank, UAE and Head of Investment Counselling, Middle East says the bank adopts a holistic strategy to promote diversity. Recruits include millennials from top-tier universities, existing talent in the market and professionals crossing over from other financial sectors.

Present in the Middle East for more than 50 years, Citi opened its regional Middle East office at Dubai International Financial Centre (DIFC) in 2006.

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S2

“Wealth managers spend much more time behind their desks meeting tight deadlines to be fully compliant. This comes at the expense of being out of the office meeting clients and prospects” - Frederic Hilal, Head of Wealth Management in the Gulf region, excluding Saudi Arabia, at Deutsche Bank

“The market is likely to have fewer participants.

But it will be comprised of stronger competitors” - Mark Mills, Managing Director, Head of Citi Private Bank, UAE and Head of Investment Counselling, Middle East

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Predictive analytics, machine learning, wearables and robo-advisory functions are increasingly part of wealth managers’ daily vocabulary, but belatedly. Digitalisation aimed at enhancing clients’ experience has taken a back seat in favour of upgrading anti-money laundering (AML) and compliance systems, Deutsche’s Hilal explains.

Funds are now shifting towards modernising wealth managers’ digital tool box – a particularly timely transition for the client base in the Middle East. For its population, internet use in the region is already above the world average and regional social media use grew by nearly 50 per cent in the past year alone, according to Global Risk Insights.

“Keeping pace has become a method of survival more than anything else. If you cannot keep up with these technological changes, then you are out of the game,” says Gautam Duggal, Regional Head of Wealth Management for Africa, Middle East and Europe at Standard Chartered. Earlier this year, the bank launched Market Views on-the-go, which gives clients 24/7 access to market views. Citi has enabled their clients to view their accounts across multiple markets using a global view of accounts (GVA) feature on the bank’s online platform, while Mashreq recently launched the Mashreq Bot. As well as banking services, robo-advisors can gather feedback on investors’ risk tolerance, objectives, time horizon and other background de-

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“Keeping pace has become a method of survival more than anything else. If you cannot keep up with these technological changes, then you are out of the game” - Gautam Duggal, Regional Head of Wealth Management for Africa, Middle East and Europe at Standard Chartered

“Robo-advisors can gather feedback on investors’ risk tolerance, objectives, time horizon and other background demographics” - Ishrat Kiyani, Head of Mashreq Gold, Retail Banking Group at Mashreq mographics, says Ishrat Kiyani, Head of Mashreq Gold, Retail Banking Group at Mashreq. Deutsche’s LUNA system enables investment managers to have access to much wider data analytics and deeper and quicker investment analysis that is directly linked to client portfolios.

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sc.com/ae ‘Market Views on-the-go 24/7’ is not research material and it has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. These documents do not necessarily represent the views of every function within Standard Chartered Bank (“SCB”), particularly those of the Global Research function.

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SPECIAL REPORT: WEALTH MANAGEMENT “We will continue to see huge changes in the way wealth managers interact with their clients. Paper presentations on a real-estate opportunity will give way to online data rooms that enable clients to view a virtual tour via a drone, for example,” says Sascha Pietrek, Head of Wealth Management in the Kingdom of Saudi Arabia, Deutsche Securities Saudi Arabia.

Mastering the millennial tongue Triggering and then harnessing millennials’ appetite for wealth management is a must to hone firms’ competitive edge. Deloitte expects millennials to be the largest adult segment by the end of the decade, with the United Nations estimating that those aged 15–29 years old make up just under a third of the population in the Arab world – approximately 105 million people.

But it is not an easy sell. Millennials only have a moderate understanding of finance and tend to be more cautious than their parents when it comes to taking direction.

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“We will continue to see huge changes in the way wealth managers interact with their clients” - Sascha Pietrek, Head of Wealth Management in the Kingdom of Saudi Arabia, Deutsche Securities Saudi Arabia

“Clients still prefer faceto-face interaction when it comes to making investment decisions and building their financial portfolios” - Dinesh Sharma, Head of Consumer Banking in the Middle East for Citi

“It has become that much more important to have a sound financial plan, which enables you to go into retirement with your eyes wide open” - Gifford Nakajima, Regional Head of Wealth Management, Retail Banking and Wealth Management for the Mena region at HSBC

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Speaking the millennial digital language will hasten the turning of the tide.

“Millennials love digital – almost 90 per cent of millennials check their smartphone every 15 minutes. Wealth managers are now required to reach high net worth individuals (HNWI) – amongst other clientele – through apps, phones and e-mails. They also need to find fun and exciting ways to target new clientele online,” says Mashreq’s Kiyani.

Amid the excitement of digital dialogue, wealth managers must remember that inperson conversations remain a vital piece of the relationship-building puzzle.

“Clients still prefer face-to-face interaction when it comes to making investment decisions and building their financial portfolios, as they place a lot of value on the quality of advice.

We are therefore focused on building flexible products, which bundle specific digital capabilities alongside non-digital elements,” explains Dinesh Sharma, Head of Consumer Banking in the Middle East for Citi. Accordingly, Citi is enhancing its digital relationship management for remote clients – video calls, co-browsing, for example – and upgrading its branches in the UAE over the next six months. New branches will include dedicated Citigold and Citigold Private Client Centers, so clients can meet relationship managers and trusted advisors.

Nurturing family legacies Pension planning offers an opportunity for wealth managers, says Banque Audi.

Saudi Arabia launched the region’s first formal social insurance scheme in 1969 and Qatar’s emerged as recently as 2002, according to Ernst & Young. Advancing medical science means clients need financial support to run parallel to their increased longevity.

“We are all living longer and retirement can be as long or even longer than your working life. It has become that much more important to have a sound financial plan, which enables you to go into retirement with your eyes wide open,” says Gifford Nakajima, Regional Head of Wealth Management, Retail Banking and Wealth Management for the Mena region at HSBC. Wealth managers who improve their millennial game can maximise their share of more than $41 trillion in assets that PWC estimates will be transferred between generations in the next 50 years.

Assuming family alliances are passed on automatically could be a costly mistake – a proactive approach is essential.

13/08/2017 18:14

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Corruption scandals

Exploding phones

By Brad Stone, Sam Kim, and Ian King

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Countrywide protests

Record profits

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“How long does a horse live?”

On a Friday in June, Jay Y. Lee, the de facto head of the Samsung conglomerate, is enduring another afternoon at the Central District Court in Seoul, listening to the prosecution quiz a witness about the finer points of equine health. Lee is on trial for bribery and embezzlement, part of a series of scandals that led in March to the ouster of Park Geun-hye, South Korea’s first female president.

“It depends whether you’re talking about a competition horse, or …’’

The windowless fifth-floor courtroom is packed with lawyers, journalists, and citizens who, like the rest of the country, are captivated by the proceedings. Some people are sitting on the floor; everyone is sweating. Clerks shake their heads in disbelief at the suffocating heat, waving their hands in frustration in front of the stagnant air-conditioning vents. Lee, his four c­ o-defendants from Samsung’s executive team, and their phalanx of counsel sip water and mop their faces with handkerchiefs.

“It’s 20, no? It lives about 20 years and reaches its peak between 8 and 10?’’

“Yes. I believe that’s the peak.’’

Lee and his colleagues stand accused of bribing Park and one of her friends to facilitate a merger between two publicly traded Samsung companies—a combination, prosecutors contend, that was intended to strengthen Lee’s control over the Samsung empire. The form of the alleged bribe was Vitana V, an $800,000 thoroughbred show horse, plus $17 million in donations to foundations affiliated with the friend, whose daughter was hoping to

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qualify for the 2020 Olympics as an equestrienne. The Samsung executives describe the gifts as standard support for the country’s Olympic ambitions and deny allegations of bribery in this matter and others the prosecution has raised.

“Can the price of a horse drop if an incompetent athlete rides and fails to perform well?”

“I believe so.”

Lee, dressed in a dark blue suit and

open-neck shirt, is a former equestrian himself; in his 20s, he won a medal at the Asian championships. Today, on what happens to be his 49th birthday, he listens intently to the proceedings, occasionally smiling, passing notes to his attorneys, and otherwise breaking his stoic pose only to apply lip balm. Late in the afternoon the judge asks whether the participants need a break, and Lee replies that he will “follow what everyone else wants.” No one else expresses a preference, so the judge snaps that they’ll just have to get on with it.

Hours of testimony later, the court adjourns. As Lee departs, no one wishes him a happy birthday—another small sign of the seemingly diminished fortunes of South Korea’s mightiest company.

Founded in 1938 by Jay Y.’s grandfather, Lee Byung-chull, the Samsung group is a collection of about 60 interlinked companies, the kind of corporate family known in South Korea as a chaebol. There’s a shipbuilding division, a construction company, life insurance and advertising arms, soccer and baseball teams, and even a theme park 30 miles south of Seoul, called Everland.

Samsung Electronics Co. accounts for more than two-thirds of the conglomerate’s market value. Despite the accusations of corruption—and despite recalls in 2016 of some of its top-loading washing machines and, more famously, its Note 7 smartphone, which had a battery flaw that could cause it to burst into flames— Samsung Electronics remains associated, in the global public consciousness, with cutting-edge gadgetry. It’s also still making an extraordinary amount of money. In its most recent earnings report, released on 27 July, the company said sales were up 20 per cent from the previous year and operating profit had climbed 73 per cent. The growth was fuelled primarily by the memory-­chip division, but Samsung Electronics is now also the world’s top smartphone maker, thanks in part to the new Galaxy S8. And the company is close to surpassing Apple Inc. as the most profitable business in the world, and Intel Corp. as the largest maker of semiconductors.

But while investors are applauding the company, South Koreans are protesting it.

When the accusations against Lee and Park surfaced, weekly demonstrations in downtown Seoul against the government’s cozy relations with the chaebol swelled into the largest rallies since a 1980s democratic

reform campaign. Protesters wielded papier-mâché puppets of Park and Lee; one sign read, “Send Jay Y. Lee to prison for being the real culprit in the scandal!”

“What’s good for Samsung is good for South Korea” was once an over­riding national sentiment. Following the Korean War, chaebol drove the country’s devel-

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opment into a global economic power.

Now, polls show that domestic support for them has collapsed, amid fresh accusations that they’ve been illegally buying influence. The government formed by Moon Jae-in after Park’s removal includes prominent chaebol critics who are agitating for greater shareholder rights and less family control.

Inside Samsung Electronics, the anger looks like just another obstacle in a series of them. The company remains confident of its engineering prowess, but it has been working to transform a hierarchical culture that has long prized loyalty, tireless work, and deference. Although this culture has been well-suited to a hardware company, executives know it will have to change if Samsung Electronics is to compete with Silicon Valley in technologies such as cloud services and artificial intelligence.

The shift may take place, depending on the outcome of Lee’s trial, without the guiding hand of Samsung’s longtime stewards. For years the Lee family and its top strategists have coordinated interactions among subsidiaries, dealt with the government, and approved large expenditures out of a department alternatively called the corporate strategy office, the restructuring office, and the control tower. But with the conglomerate under scrutiny, that office has been shuttered, and strategic planning among subsidiaries “no longer exists,” according to DJ Koh, president of mobile communications and one of several senior executives Samsung made available for this story. For the moment, the chaebol is like a headless octopus, its tentacles thrashing about without coordination.

“This is a new experience,” Koh says.

“We must make our own decisions.”

A. Chung Yoo-ra, daughter of a friend of Park Geun-hye, in 2014 B. Effigies of Park and others associated with the scandal C. Lee Kun-hee (middle) in early 2014

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The figure most closely associated with Samsung’s global rise is Lee Kun-hee, the son of founder Byung-chull and Jay Y.’s father. Kun-hee, who became chairman in 1987, was known as reclusive but charismatic. Under his guidance, Samsung invested in massive semiconductor and display-panel factories, prodding engineers to overcome the company’s early reputation for creating subpar knockoffs.

In 1993, with sales of consumer appliances flat, he admonished executives to “change everything but your wife and children.” A few years later he commanded underlings to collect 150,000 defective cell phones into a pile and set them ablaze. Although not great for the environment, it sent a clear message about quality control.

Despite his eccentricities, Kun-hee is widely lionised. In 1997, after the value of Samsung Electronics fell to $1.7 billion amid a wider Asian financial meltdown, he jettisoned peripheral businesses and doubled down on chips, screens, and phones. Within a decade, Samsung Electronics’ market value had grown sixtyfold. Song Jae-yong, a professor of strategy and international management at Seoul National University Business School, calls Kun-hee “one of the great business leaders of the 20th century.”

In 2014, at the age of 72, Kun-hee had a heart attack at his home overlooking the Han River. Samsung reported afterward that he was “recuperating in a stable ­condition,” but he hasn’t been heard from since, and the company won’t comment further. Multiple people familiar with the situation, who don’t want to be quoted discussing a private matter, say the chair-

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man also had a stroke and remains in a vegetative state at the Samsung Medical Center on the outskirts of Seoul. When a Bloomberg reporter recently entered the VIP wing on the centre’s top floor, he was immediately sent back to the lobby by a frantic security officer wearing a blue surgical mask.

Kun-hee’s health emergency set off a further crisis inside the family. The Lees’

Who owns Samsung Electronics? It’s complicated Twenty-seven percent of all shares are owned

by Samsung Electronics, other Samsung companies, and three Lee family members. Shares in the other companies are in turn held by other parts of Samsung and other Lees.

Samsung Electronics

South Korea’s National Pension Service is the largest shareholder, with 10 percent.

Lee Seohyun

Hong Ra-hee

control over Samsung has always been somewhat fragile, at least by the standards of Western corporations, which allow founders to protect their stature with special classes of stock that grant extra voting rights. By contrast, the Lees own relatively small stakes in individual Samsung entities, maintaining voting control through a tangle of cross-­holdings.

For example, according to Bloomberg data, Kun-hee owns only 3.8 per cent of Samsung Electronics, but he’s the largest shareholder in Samsung Life Insurance Co., with 20 per cent of the stock. Samsung Life in turn owns 8 per cent of Samsung Electronics; that share, combined with those of other subsidiaries, adds up to a useful stake of more than 20 per cent.

This convoluted structure limits the rights of other investors and frustrates activist shareholders. It’s also vulnerable to turns of fate like major illnesses. In the event of Kun-hee’s death, his son and presumed successor, Jay Y., would have to pay a steep tax bill to inherit his father’s stock and maintain control of Samsung—as much as $6 billion, according to Chung Sun-sup, chairman of Chaebul.com, which tracks executive wealth. This might require Jay Y. to sell some of the Lee family’s holdings, further diluting their tentative sway.

That’s where the horse comes in.

Prosecutors say that in 2015, Jay Y. orchestrated the merger of two divisions: Samsung C&T Corp., which is dedicated to construction and trading, and Cheil Industries Inc., which owned several

Samsung Life Insurance

Samsung Foundation

Samsung C&T

Samsung SDI

Lee Boo-jin

Samsung Fire & Marine

National Pension Service

Lee Kun-hee

Jay Y. Lee

entertainment properties, including the theme park. The combination would have given the Lee family more power over the combined company and was allegedly intended to bolster its control over Samsung Electronics. The company says the move was designed to make the units more competitive.

To complete the merger over the objections of some activist investors, Samsung needed the approval of another major shareholder, the country’s National Pension Service. The prosecution theorises that Samsung’s senior managers were unsure enough of the fund’s support—it had recently cast an anti-chaebol vote in an unrelated matter—that they sought for the president’s office to intervene on their behalf. Prosecutors have produced financial documents linking the horse to Samsung and Park’s friend, as well as records of text messages and phone calls between executives and Park’s office that they say demonstrate collusion.

However the judge decides—he will likely render a verdict by the end of the summer—the case has struck an exposed nerve in South Korea. The formerly supportive local media has abandoned the presumption that what’s good for Samsung is good for the country (not to mention for their own bottom lines; Samsung is a major advertiser). The company’s influence was once such that, in 2008, on a day when Kun-hee appeared for questioning by a special prosecutor, only one of the country’s three biggest

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“It was a devastating experience. The Note 7 was our pride”

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A year ago, Samsung Electronics’ mobile communications division was jubilant.

The company had enjoyed a stellar year, surpassing Apple in the US smartphone market, and was preparing to cement this dominance with the August release of the Galaxy Note 7, which sported a stylus pen, an elegantly curved display, and finger­ print and iris scanners. A few days after the phone went on sale, the Summer Olympics kicked off with Samsung as a principal sponsor. Executives flew to Rio de Janeiro to bask in the attention. “It was a great moment,” recalls Lee Young-hee, Samsung Electronics’ executive vice president for global marketing.

A few weeks later, Lee, one of the few female senior executives at Samsung (and no relation to the Lees who control the company), was in Berlin for a conference when ominous reports started circulating on social media. Phones were bursting into flames and in some cases burning their owners. Lee says she didn’t believe the stories at first. Then more phones self-­ immolated. And still more. Airlines around the world banned the Note 7 from their flights. “It was a devastating experience,” she says. “The Note 7 was our pride.”

To contain the damage, executives at Samsung Electronics’ headquarters in Suwon, a suburb of Seoul, formed a task force under Koh, the mobile communications chief. For four months they met every day at 7 am, coordinating a response. Most important, they ordered the recall of the Note 7, which involved collecting millions of phones globally, and corralled hundreds of engineers into testing centres to figure out the cause.

Koh pegs the cost of the effort at more than $5 billion, but he doesn’t recall the Lee family blinking at the expense. When he met with Jay Y. during the saga, Lee just

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listened and pledged support. “I think he must have known how much it cost, but he never mentioned anything about money,” Koh says. “He just said, ‘Mr. Koh, please manage it properly.’ ” In January, Samsung held a press conference to announce the results of its investigation. The cause of the exploding Notes, Koh said, was improperly designed batteries supplied by a Samsung subsidiary and then a backup vendor that had rushed into production. Samsung pledged to test its phones and their component parts more rigorously. The press conference ended with Koh bowing deeply in apology.

The explanation left some Samsung watchers unconvinced. The company denied reports that it had cut corners to beat the iPhone 7 to market, and it hadn’t acknowledged that its hierarchical culture might have discouraged junior employees from raising red flags. Employees at Samsung feel “pressurised to make decisions that please the powerful boss,” says Paul Swiercz, a management professor at George Washington University. “There is no one pushing back.”

For years, Samsung has quietly sought to reform its demanding culture. In 2009 an internal programme called Work Smart urged employees to spend their office time more efficiently and take weekends off. In 2012 the company introduced its “119” programme, which dictates that employees at formal outings—at which they often felt compelled to appear and keep up with the boss—be limited to one drink, at one bar, ending at 9 pm. More recently it trotted out an initiative called Startup Samsung to streamline reporting structures and eliminate bureaucratic layers.

But deference remains ingrained, right down to the corporate vernacular.

For example, workers at Samsung, as at other South Korean companies, typically address one another by title or position rather than by name, unless they’re speaking with a close friend. Such traditions make it difficult for employees to speak frankly or to warn of major mistakes on the horizon. “I hate it,” Koh says.

“Juniors will freeze. They will not make any comment.” The company has been trying to get employees to call each other by their first names, adding the professional honorific “nim” as a suffix, and Koh has asked employees to call him “DJ” instead of “president.” But, he says, snapping his fingers, “For them it’s not easy to change in just a day.”

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Regaining its technological footing has come easier to Samsung. The Galaxy S8 has been combustion-free, and in a remarkable sign of tenacity, the company just issued a refurbished Note 7 Fan Edition in South Korea. Where many companies would have abandoned a besmirched brand, Samsung charges ahead.

To appreciate how deeply such relentlessness is embedded in the company’s makeup, you must drive 45 miles south of Seoul, to flat pastures that were once populated by pigs and cows. After navigating a well-­manicured path up a small hill in a newly fashionable neighbourhood, you arrive at an outcropping with an expansive view of a stupendously large construction site. Towering cranes dot the skyline above a 3 million-square-­ metre campus. Scattered buildings with unironic signs such as “disaster prevention centre” and “fire station” ring two enormous structures decorated with coloured squares in the style of the Dutch painter Piet Mondrian.

This is Pyeongtaek, site of Samsung Electronics’ newest semiconductor plant.

The facility is designed to extend the company’s dominance in memory chips and

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perhaps to expand its share of the more profitable logic processor business—­ competing with the likes of Intel to make the brains of smartphones and PCs. The plant, which broke ground in 2015, was one of the last projects Jay Y. approved before his legal troubles began. Already it’s producing its first chips, far faster than the industry norm of three to five years to get new plants up and running. Samsung Electronics can do this because it has mastered automation and precision manufacturing, and can draw on its corporate brethren to deploy hordes of construction workers with militaristic efficiency. It can also easily summon capital. Samsung says Pyeongtaek will cost $27 billion to build—a huge amount, but less than half the company’s $63 billion in reserves.

Over the years, deep pockets have allowed the Lee family to make investments during the memory-chip industry’s periodic, brutal downturns. When the inevitable rebounds occurred, Samsung

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newspapers covered the story on the front page; the others buried their articles deep inside. (Kun-hee was convicted of tax evasion the following year but was pardoned months later.)

Now Jay Y. is frequently photographed walking into court with a vacant expression on his face, shackled at the wrists and upper arms, and surrounded by as many as a half-dozen police officers. This daily, ritualised humiliation reflects a popular desire to bring down a chaebol businessman once known for hobnobbing with the global elite. And it’s only the latest embarrassment for the company.

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2017 revenue is estimated to be 237 trillion South Korean won ($211 billion)

Electronics would be ready to start selling the next generation of chips, leaving its competitors in the dust. “Even for us to build one factory we have to hedge risk,” says Mark Durcan, who stepped down as chief executive officer of Samsung rival Micron Technology Inc. earlier this year.

“The numbers are so big. They don’t have those issues.”

Samsung isn’t shy about c­ elebrating its dominance. On a trip to the Hwaseong chip plant, about 15 miles from Pyeongtaek, a digital clock in the visitors museum reports that it’s been “25 years, 17 days, 11 hours, 24 minutes, and 54 seconds” since the company became the world’s largest ­memory-chip maker. Nearby, a window opens onto one of the campus’s chip fabrication plants. Robots zip along ceiling tracks, zigzagging around a room that extends as far as the eye can see.

Each metallic arm totes several silicon wafers encased in a clear brown cartridge, which it periodically lowers and inserts into refrigerator-size machines that burn layers of microscopic circuitry onto the surface of the disks. The only two humans in sight look on in their yellow cleansuits, supervising the production.

In May, Samsung created an independent foundry business that makes processors for competitors, such as Qualcomm Inc. and Apple, that can’t or don’t want to build chip plants themselves. This profitable sector is dominated by Taiwan Semiconductor Manufacturing Co. Now Samsung is coming for it, confident it can walk the tricky line of making processors for both its rivals and itself. “Once we start something, a new business,” says Yoon Jong-shik, the executive vice president in charge of the effort, “we always make it a good success in 10 years.”

For all Samsung’s triumphs over Japanese and American manufacturers, one dominion remains elusive: software. The company pines to compete with Amazon.com Inc. and Google Inc. by developing popular cloud services and intelligent personal assistants—and especially applications capable of linking its smartphones with its flatscreen TVs, washing machines, and refrigerators.

A few years ago, Samsung tried introducing a smartphone operating system, called Tizen, which didn’t catch on and is now used mostly in smartwatches and some appliances. Other apps, including Samsung Health, Samsung Cloud, and

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you know, even though you’re engaged, you never fight with your wife or your girlfriend?

“Anyway, our competitor is not in Mountain View,” Koh hastens to add, leaving unmentioned the company down the road in Cupertino.

2006 2017

Milk Music, lag behind rival products.

Only its Samsung Pay digital wallet has shown much promise, adopted in almost 20 countries thus far. The company is hoping its new virtual assistant, Bixby, will be its first big hit.

Koh, who has been at Samsung for 33 years and has the top-floor office to prove it, says he knows that becoming a leading software developer will require Samsung to attract creative, entrepreneurial employees. His pitch for Bixby, though, demonstrates some of the company’s familiar culture issues.

Koh asks a reporter, “Do you touch your assistant? Your secretary?”

Reporter: “I don’t have an assistant.

Also, it would be a personnel violation.”

“Exactly! Touch is not allowed. Just say something. So if we change our interaction of touching [the phone] and [use our] voice, that would be perfect.”

When a reporter points out that Google has its own voice assistant, creating a potential point of friction with the company that makes the Android software powering most Samsung smartphones and tablets, Koh rolls out an old Woody Allen routine.

Koh: “I want to ask you: Are you married?”

Reporter: “I’m engaged.”

“Engaged! How many rings do you need?”

“Uh. … Two?” “I would say three. An engagement ring, a wedding ring, and another ring is always necessary: suffering.”

The joke draws hearty chuckles from Koh’s staff.

“In many areas, we’re working with Google very closely,” he explains. “But

D. The new semiconductor plant in Pyeongtaek

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Adjusted revenue, South Korean won

16 August, 2017

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A month after Jay Y.’s birthday court appearance, he’s due back on another sweltering summer day in Seoul. Today, the topic of testimony will be whether a Samsung pharmaceutical division illegally lobbied the government to get a listing on the national stock exchange. (Samsung’s response: no.)

Outside, beyond a heavily guarded gate, another battle is brewing. A small group of activists, led by a woman in a wheelchair, is waiting to confront Lee. The woman identifies herself as Han Hyekyung and says she’s a former Samsung worker in her 30s with a brain tumour.

She holds a sign saying “Punish Jay Y. Lee,” and her T-shirt reads, “No more death in Samsung”—a reference to former Samsung workers who contend that exposure to toxic materials caused disease, especially cancer. After years of fighting the workers and their families, Samsung created a roughly $90 million compensation pool, but many have refused to settle on its terms. The company says it’s keeping the application channel open and working to resolve the remaining cases.

As Lee’s lawyers and co-defendants enter the courthouse, the activists hurl invective at them. But Lee has supporters of his own—dozens of mostly older people, representative of a large group of South Koreans who have started to push back against the political changes wrought by the corruption scandal. The confrontation quickly gets heated.

“What did Jay Y. Lee do wrong? He was only trying to make our nation greater by making Samsung greater!”

“If you don’t like Samsung, just go to North Korea!”

“Samsung has fed us generation after generation. They made our nation famous!

You’re shameless!”

Security guards step in, and things momentarily quiet down. A reporter asks Han why she blames Jay Y. rather than his father, Kun-hee. She replies that if the son has inherited his wealth, he must also embrace the responsibility. Nearby, Samsung’s supporters start to chant “Free Jay Y. Lee!” <BW>

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E. Koh at a Galaxy S8 launch event

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The two mild-mannered Irish prodigies behind

Stripe are upending the brutal market for online paymentsâ&#x20AC;&#x201D;with Amazon at their side

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16 August, 2017

CELTIC TIGERS

By Ashlee Vance Photograph by Guy Martin

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very day, Americans spend about $1.2 billion online. That figure has roughly doubled in the past five years, according to the Department of Commerce, and it’s likely to double again in the next five as the internet continues to devour traditional retail. So it might come as a surprise that the web’s financial infrastructure is old and slow. For years, the explosive growth of e-commerce has outpaced the underlying technology; companies wanting to set up shop have had to go to a bank, a payment processor, and “gateways” that handle connections between the two. This takes weeks, lots of people, and fee after fee. Much of the software that processes the trans­actions is decades old, and the more modern bits are written by banks, credit card companies, and financial middlemen, none of whom are exactly winning ­hackathons for elegant coding.

In 2010, Patrick and John Collison, brothers from rural Ireland, began to debug this process. Their company, Stripe Inc., built software that businesses could plug into websites and apps to instantly connect with credit card and banking systems and receive payments. The product was a hit with Silicon Valley startups. Businesses such as Lyft, Facebook, DoorDash, and thousands that aspired to be like them turned Stripe into the financial backbone of their operations.

The company now handles tens of billions of dollars in internet transactions

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Patrick in Ramallah

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Bloomberg Businessweek Middle East

annually, making money by charging a small fee on each one. Half of Americans who bought something online in the past year did so, probably unknowingly, via Stripe. This has given it a $9.2 billion valuation, several times that of its nearest rivals, and made Patrick, 28, and John, 26, two of the world’s youngest billionaires.

But payments is a brutal battleground.

Countless startups, big banks, and companies such as Google Inc. and Apple Inc. are trying to grab what pennies they can with their own systems. This competition, combined with the industry’s minuscule profit margins, has left pundits asking whether Stripe’s lofty appraisal makes sense. “We’re a ways out before they can satisfy that valuation,” says Brendan Miller, an analyst at

16 August, 2017

village in central Ireland. Their parents had scientific backgrounds—father Denis in electrical engineering, mother Lily in microbiology—then became entrepreneurs. Denis ran a 24-bedroom hotel on the shore of Lough Derg, while Lily operated a corporate training company from the family’s home. “Entrepreneur is a long, fancy French word, but it didn’t seem like something you aspire to,” Patrick says. “It seemed normal, because whatever your parents do seems normal.”

The boys went to a school with fewer than 20 kids per grade. When bored in class, Patrick read books. “I would line up the angles so I was hidden from the teacher’s view,” he says, adding that he found out years later that an enlightened principal had instructed teachers to allow

and air of Silicon Valley,” says Moritz, a partner at Sequoia Capital and a Stripe board member. “They’re more humble and well-rounded. There’s such an improbability to their story—that these brothers from a little village would come to build what could well be one of the most important companies on the internet.”

Stripe made its debut in 2011 with Patrick as chief executive officer and John as president. The Collisons had spent two years testing their service and forming relationships with banks, credit card companies, and regulators so customers wouldn’t have to. With Stripe, all a startup had to do was add seven lines of code to its site to handle payments: What once took weeks was now a cut-and-paste

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Forrester Research Inc. “They’re valued higher than a lot of players who have been around for years with thousands of employees, tremendously more volume, and clients all over the world.”

One way to justify the number: Stripe’s new partnership with Amazon. com Inc., the largest and most sought-­after customer on the internet. Over the past couple of weeks, Stripe began handling a large, though undisclosed, portion of Amazon’s transactions. Neither company will address the scope of the deal—which was only revealed by Stripe’s addition of Amazon’s logo to its website—but it could help Stripe greatly increase its trans­action volume. (Amazon had no comment.)

Seven years in, however, Stripe’s mission is less to send more books, vacuums, and grooming kits into the world than to “increase the GDP of the internet,” Patrick says. To do this, it’s beginning to move beyond payments by writing software that helps companies retool the way they incorporate, pay workers, and detect fraud. It’s part of an ambitious bid to revamp how online business has been conducted for 20 years and to give anyone with a bright idea a chance to compete. “We think giving two people in a garage the same infrastructure as a 100,000-person ­corporation—the aggregate effects of that will be really good,” Patrick says.

The Collison brothers were born in Limerick and moved around as kids before settling in Dromineer, an idyllic

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it. Patrick spent his last year studying at home so he could take the required standardised tests early and graduate at 16. (“Surely the smartest redhead in Ireland,” read one headline about 16-year-old Patrick being named Young Scientist of the Year for developing a programming language and artificial intelligence system.)

He condensed what’s normally a two-year test-taking process into a 20-day period in which he aced 30 exams. Then he ran a marathon to celebrate.

Patrick enrolled at MIT in 2006 based on an SAT he took at 13; John followed him to America, attending Harvard a couple of years later. In their spare time, they developed iPhone apps. One of their first hits was an $8 version of Wikipedia that people could search offline—the brothers stripped out superfluous coding so the whole thing could fit in a downloadable file.

They also helped create a way to manage EBay auctions and sold that company, Auctomatic Inc., for $5 million in 2008.

The brothers dropped out of college and in late 2009 started noodling on the idea that would become Stripe. They set up an office in Palo Alto, which happened to be across the street from the old digs of transaction titan PayPal Inc. The Collisons would ride bikes to the office, sweating after trying to set personal bests. Part of this was competitiveness, and part of it was being too cheap to buy a car, says Mike Moritz, one of PayPal’s first investors. “They have the advantage of coming to California without being tainted and polluted by what’s in the water supply

job. Silicon Valley coders spread word of this elegant new architecture.

The genius of Stripe’s approach was twofold. Typically, finance managers decided what payment system to use. But Stripe appealed to developers, helping to solidify its importance in a startup’s early days. And its technology was crafted for the modern internet’s newfangled business models: Marketplace builders such as Shopify needed to divvy up payments between vendors and consumers, and sharing-economy upstarts such as Lyft had contractors and riders to move money between.

Setting up an accounting platform to pay Lyft drivers and charge millions of customers would have taken six months to build. “You have to keep track of who’s earning what, and the schedule they should be paid out on, and then you get into weird regulatory stuff,” John says.

“The work that all these businesses had to do to manage payments was a shared toil. We could take on much more of that and leave running the business to them.”

Although startups appreciated what Stripe was doing, most potential investors did not. How was a small group of young engineers going to alter the internet’s financial structure? Hadn’t they heard of PayPal? Ironically, it was Moritz and PayPal co-founders Peter Thiel and Elon Musk who wanted in. They got that its technology hadn’t kept pace. “The propeller of the good ship PayPal was pretty encrusted, and a lot of barnacles had formed on the hull since we invested

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in the company more than a decade earlier,” Moritz says. “The observation that accepting payments was still too difficult rang very true.”

Today, Stripe is the financial engine for more than 100,000 businesses. It stores key financial information such as credit card numbers, deals with fraud, and adds support for new services such as Apple Pay as they arise. Stripe charges a 2.9 per cent fee on credit card payments in exchange for its services, though the fee can be lowered with higher volumes. Stripe won’t disclose the number of transactions it processes, but analysts estimate it’s getting close to handling $50 billion in commerce annually, which would translate to about $1.5 billion in revenue. Stripe’s profit is what’s left over after I T H O U T banks charge it fees for their services.

Generally, banks can take as much as 2.5 per cent, but Patrick insists that Stripe has better margins than people assume, without providing further clarity.

The low margins point to an industry adage: There’s no money in payments.

Stripe is in a vicious universe dominated by banks and credit card companies and larded with regulations. Still, it’s in competition to own nothing less than the flow of global trade, which is

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breakout successes are still to come,” Patrick says. But Stripe is also trying to make deals with Target Corp., Under Armour Inc., and other merchants to snag money available outside the startup scene, partnerships made more possible by the trust Amazon is showing.

In 2016, Stripe moved into offices next door to AT&T Park in San Francisco’s startup-heavy SoMa district. The p ­ revious tenant, file-sharing company Dropbox Inc., had tricked out the space with a bar, a music recording studio, a Lego room, and sofa swings. The Collisons got rid of all that. The kitchen, where Dropbox employees dined on individually plated meals, is now a standard cafeteria chow line. “It’s slow and indulgent to wait for food,” Patrick says.

On a spring day, pop music plays in the white-orchid-lined lobby. Coffee tables are layered with eclectic reading material including the Paris Review and the Twelve Tomorrows sci-fi anthology. There’s an open floor plan—of course—and workers change desks every few months to meet new people. An algorithm will select a lunch buddy for you to dine with at communal benches. A placard on the bathroom door reads: “We believe that gender is non-binary. Please use the restroom that feels most comfortable to you.”

On weekends, John pays for a Stanford student to tutor him in law, and Patrick has a physics tutor. Conversations with them tend to move from Turkish politics to San Francisco’s water supply to the joys of ­aviation (they’re pilots).

When they’re not flying, they’re running and posting their times on Strava, a social network for people who like to brag about exercising. During company runs, Patrick lags behind to hang with the slowest person. Sometimes, John hands out pancake bundles at the end of early-­ morning jogs.

Three years ago, Stripe had 80 employees. Now it has 750. The company continues to try to cultivate its enlightened reputation among developers.

Recently it hired Susan Fowler, whose blog alleging a corporate culture of sexual harassment at Uber set off an internal investigation. (Ultimately, CEO Travis Kalanick resigned.) At Stripe, Fowler oversees a quarterly publication, Increment, that collects stories on how engineers at other companies solved problems. Stripe also acquired Indie Hackers, a site that specialises in case studies about apps and software tools.

The Collisons’ plan is to bundle new tools into the core product to make that 2.9 per cent fee seem ever-more reasonable. One feature, Radar, is a fraud-­

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B E I N G TA I N T E D A N D P O L L U T E D B Y. . . S I L I C O N VA L L E Y ” why there’s no shortage of participants.

Stripe competes most directly with Braintree Payment Solutions LLC, a subsidiary of PayPal (Moritz, Musk, and Thiel sold PayPal to EBay in 2002), and the Dutch company Adyen B.V.—older rivals that teamed up with name brands Netflix, Airbnb, and Uber Technologies, which provide massive transaction volumes. Meanwhile, Square Inc. has focused on processing in-­person sales at retailers, Google and Apple have concentrated on smartphones, and c­ ompanies such as Alibaba Group Holding Inc. have bespoke platforms. Old-guard payment ­processors—Chase Paymentech Solutions LLC, First Data Corp.—which contract with large, traditional r­ etailers, have been trying to modernise their technology.

Stripe continues to attract startups.

It intends to be behind the next Uber or Airbnb, to cash in on its meteoric growth. “If you think about the broad trajectory of the internet, most of the

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Patrick’s desk is covered in books.

There’s a copy of The Dream Machine, about J.C.R. Licklider, the technologist who conceptualised and funded the early internet. The volume was out of print, but Patrick loves it so much he bought the rights and paid to publish hundreds of copies for employees and guests. The wallpaper on his computer displays a countdown clock for his life: He has 52 years and a few days left. “This is a very coarse estimate, but it’s a reminder that you get old quickly,” he says, a touch of grey now in his red hair. “When you talk to people who are old, some wish they had enjoyed themselves more, but not many wish they had wasted more time.”

The brothers share a love for books and an apartment. They describe things in computing lingo. Patrick explains their lack of pop culture knowledge, saying: “It’s not that I don’t enjoy TV. If I had infinite time, I would watch it. This might be the entirely wrong optimisation.”

detection system. Stripe uses AI software to analyse payments on its network and identify suspect activity. By looking at such a large data set, Stripe says it can spot patterns better than a single company reviewing its own transactions. Radar comes free, but Stripe wants to find ways to charge monthly fees for add-ons, such as customer support for larger clients. The goal is for this side of the business to look more like a traditional software company, with services helping high-profit payments roll in month after month.

In May, Patrick went on a five-day tour of Israel to meet with investors and young entrepreneurs and tout these products.

Much of the trip felt like he was still in Silicon Valley: At Google’s Tel Aviv office, he talked to startup founders amid “Tech It Easy” posters and potted plants with stickers reading “You are outstanding!”

Midway through the trip, he went to Ramallah, in the West Bank. About 50 people were at the offices of Leaders,

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a Palestinian organisation that runs the region’s only technology park. The mid­ afternoon call to prayer had just gone out, and a few men smoked on the balcony of the third-floor conference room that overlooked tan buildings, fields strewn with garbage and rocks, and a shepherd goading sheep. Patrick hopped up on a stool to address the crowd, saying, “I unfortunately don’t speak Arabic,” and apologising for his rapid-fire brogue.

Much of the talk centred on Atlas, Stripe’s year-old service. For $500, a business can incorporate in Delaware, get a taxpayer number and US bank account, and receive legal and tax advice on forming a company. Typically, this would require months of work, visits to the US, and lawyers. As it did with pay­ ments, Stripe simplified the process to a few clicks. A large number of Atlas custom­ ers are US companies that want a quicker way to get up and running. But the major­ ity of its clients are overseas, where the service helps with credibility, lower fees, and access to American customers and venture capital.

In Ramallah, entrepreneurs trying to build tech com­panies have had to contend with travel restrictions, a 2G c­ ellular network, and poor access to investors.

Odeh Quraan, 30, one of the Leaders attendees, runs Mostawda Inc., a Middle Eastern version of Etsy Inc. that links artisans and consumers from Morocco to Oman. Quraan uses Stripe to manage cross-­border payments and help online merchants fill stores with hijabs, labneh, and mosaics. He turned to Atlas to incor­ porate and is trying to attract foreign venture capital. “When I found Stripe, it seemed unbelievable,” Quraan says.

During his talk, Patrick explained to Quraan and the others that he could iden­ tify with feelings of isolation because of his upbringing in rural Ireland. “There is that sense of comparative inferiority,” he says.

“You are clearly much less significant than the bigger forces around you.” Audience members told him they were set to deliver a petition with more than 100,000 signa­ tures to PayPal chiding the company for allowing Israeli settlers to use the service but not Palestinians. Patrick countered that Stripe wants to expand its business in Palestine and anywhere else entrepre­ neurs need help, adding, “We are drawn by places that the rest of the world tends to underestimate.” <BW>

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➡ Kerecis has found a fishy way to battle the growing problem of chronic wounds and faltering healing factors

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Six hours north of Reykjavik, along a narrow road tracing windswept fjords, is the Icelandic town of Isafjordur, home of 3,000 people and the midnight sun. On a blustery May afternoon, snow still fills the couloirs that loom over the docks, where the Pall Palsson, a 583-tonne trawler, has just returned from a three-day trip.

Below the rust-spotted deck, neat boxes are packed with freshly caught fish and ice. “If you take all the skins from that trawler,” says Fertram Sigurjonsson, the chairman and chief executive officer of Kerecis Ltd., gesturing over the catch, “we would be able to treat one in five wounds in the world.”

Iceland has a long history of working with fish leather. “My grandfather’s first shoes were the skin of a catfish,” Sigurjonsson says. Instead of kilometres, Icelanders used to mark distance in wornout fish shoes. Sigurjonsson and his small company have spent the past nine years applying this tradition to the treatment of chronic wounds, those that take longer than a month to heal.

The materials in fish skin, particularly omega-3 fatty acids, yield natural anti-­inflammatory effects that speed healing. When placed on wounds, the product, made from dried and processed fish skin, works as an extracellular matrix, a group of proteins and starches that plays a crucial role in recovery. In a healthy person, a matrix surrounds cells and binds them to tissue, generating the growth of new epidermis. But in chronic wounds, this natural structure fails to form. So like a garden trellis, the fish skin provides the body’s own cells a structure to grow around so they can form healthy tissue, gradually becoming incorporated into the closing wound.

About 6.5 million Americans suffer from chronic wounds, whether related to vascular disease, diabetes, or complications from normal procedures. The five-year survival rate is 54 per cent—compared with 88 per cent for breast cancer— and treatments cost more than $25 billion a year. That total is steadily rising, in part because of a greying population. But precisely because patients tend to be old and poor, they don’t get much attention.

The US Food and Drug Admin­istration approved Kerecis’s fish skin treatment, Omega3 Wound, late last year. The market for skin substitutes isn’t for the squeamish. Rival products include material from pig intestines, fetal cows, the

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➡ From Scales to Skin ① Kerecis collects cod skin and places it in a water bath and a dehydrator to begin drying and cleaning it

② The skin is then cut into squares for use in bandaging, a scaly pattern the only hint of its origin

③ Bound into dressings for human wounds, the fish skin acts as a structure around which healthy cells can grow

innermost layer of human amniotic tissue, and cadavers. (There are also synthetics made of silicone and other materials.) It can be tough to compare medical outcomes, as clinical trials are small and disease-­specific. But generally, because of the viral disease transfer risk, human- and animal-­derived products require heavy processing and tend not to work well in infected wounds.

That’s one of Kerecis’s talking points, as the only FDA-approved skin substitute derived from fish: Because of our evolutionary differences, there’s less disease risk and therefore less processing required. When Sigurjonsson makes this case on the trawler, leaning over his latest catch, he’s fairly persuasive.

From the Isafjordur docks, trucks haul the fish to a commercial processing facility down the road. There the fish land on a conveyor belt, where in short order they get filleted and skinned.

The meat is sold as food. Twice a week, a Kerecis employee comes early in the morning with a few Styrofoam boxes to collect skins of the right size, age, and species—the company uses plentiful, fatty cod.

The medical manufacturing takes place on the third floor of an old fish processing plant a few blocks away, beside a graveyard where Sigurjonsson’s forefathers rest and a larger-than-life statue depicts two men in slickers hauling a net. The facility has a sweeping view of

the fjord; on a recent tour with potential clients, a pod of whales made a cameo.

Inside, the fish skin is gently agitated in a water bath for a few days. “You need to get the mucus away, but we didn’t want to use harsh chemicals or wash away the fats or elastin,” Sigurjonsson says, referring to the protein that makes skin flexible. Then the skin enters a decontaminated room, where it’s placed in a dehydrator for about two days. Once dry, it’s cut into squares and sterilised. At that point, Sigurjonsson says, “one gramme of fish skin is worth more than a gram me of gold.”

In a 2015 clinical trial, Kerecis healed acute wounds faster than the leading product, a pig intestine compound called Oasis Wound Matrix. This capacity to support tissue growth could make the treatment useful for burn therapy, too, and has support from the Pentagon for a study this fall. Kerecis’s strength is its product’s ability to reduce inflammation, transforming chronic wounds into mere acute injuries, such as burns. “I tell my students, your work is inflammation,” says Baldur Tumi Baldursson, Kerecis’s medical director. “Practically all of internal medicine is just fighting inflammation.”

Although the hows and whys aren’t yet understood, reducing inflammation may also lead to pain reduction. Bjarni Hakonarson, a middle-aged IT specialist, was diagnosed with oral cancer in 2012 and has since undergone two rounds of radiation, chemo­therapy, and extensive surgery, including several muscle grafts and the removal of part of his jawbone. He showed up at Baldursson’s clinic earlier this year after hearing about Kerecis in the local news. At the time, Hakonarson’s mouth was so swollen from his wound (and operations) that the doctor couldn’t see the injury site.

But with a graft of fish skin, he says, “to my astonishment, all pain disappeared.”

The swelling ebbed, too.

Sitting in a coffee shop in Reykjavik, Hakonarson has a scarf tucked up under his chin to hide that half of it is missing. “As you can see, I know pain pretty well,” he says. The mouth sore that caused the agony is probably cancer and therefore not worth trying to heal.

Still, “to see the clarity coming back to your thoughts, that’s beautiful,” he says.

“If you can see your future relatively free of pain, that’s a lot of quality to look forward to.” <BW>

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A Haven for The Hunted Anantara Golden Triangle, a fivestar resort in northern Thailand, is one of the only places on Earth where you can ethically interact with elephants in the wild

By Nikki Ekstein Photographs by Wayne Lawrence

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60 Time to go green 62 Where wellness came from 63 Get on your bike 64 An economist friend to refugees

A mahout, wearing the traditional mohom outfitâ&#x20AC;&#x201D; denim, red neckerchief, and yellow straw hatâ&#x20AC;&#x201D;atop an elephant at Anantara

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’m half-submerged in the Mekong River—the watery border that s­ eparates Laos from Thailand and Myanmar—sitting atop a big-eared, pink-spotted, 3-tonne elephant named Poonlarp. Her skin looks soft from a distance, but it’s much coarser up close, covered in inch-long bristles. Her gait, which at first gives the appearance of flowing-through-honey movement, feels wobbly up this high. She’s alternately headstrong and playful. If you’ve ever walked a large, stubborn dog, you have an idea what it’s like to ride an elephant. This is the ­bucket-list item that brings people here to Anantara Golden Triangle Elephant Camp & Resort. Perching directly on top of Poonlarp’s wide shoulders, forcing my legs into a permanent straddle behind her ears, magnifies her immensity. At one point, she takes a deep drink and sprays the water gleefully, like a living fountain, out of her trunk.

It’s my second day at Golden Triangle, a 63-room honeymoon spot set among the rice paddies and tea plantations of far-north Chiang Rai province in Thailand. I flew with my sister to Bangkok from New York, then caught an hourlong connecting flight. The van that picked us up had massage chairs instead of passenger seats and a welcome basket filled with cold face towels and elephant-­shaped shortbread cookies. We arrived after sunset, in time for a late dinner of papaya salad and pad thai.

It wasn’t until 5 am this morning, jet-lagged and awake on the terrace, that I first heard the soundtrack of elephant roars.

It started off quietly but grew louder as the sun rose and a band of tiny-­looking animals emerged from shadows in the distance.

Anantara started in the early 2000s, when Bangkok-based Minor Hotels acquired a Le Méridien and transformed it into a five-star resort. The company’s chief executive officer, William Heinecke, had the idea to turn the new property into an elephant camp—he loves the animals and felt the Polynesianstyle resort’s small footprint on a 200-acre parcel of land would lend itself to a luxury wildlife experience. The task was given to John Roberts, a budding conservationist who’d been working with elephants in Nepal’s Chitwan National Park. He wasn’t formally trained, but Roberts had a promising vision of sustainable elephant tourism. Instead of buying the elephants outright, for instance, Anantara leases them on a permanent basis to discourage locals from snaring another animal in hopes of a big payout.

Fifteen years later, the resort has become a globally recognised standard-bearer for responsible wildlife tourism and one of the only options in Thailand for conscientious travellers who want face time with pachyderms. In 2006, Anantara created a sibling property next door at the Four Seasons Tented Camp—a more posh and colonial-inspired, if slightly less elephant-­obsessed, experience.

A third camp is on its way this fall, on a 44,000-acre conservancy Minor Hotels has pieced together in the Cardamom Mountains of Thailand and Cambodia. This resort will support an initiative to rehabilitate and rerelease native species such as the Asiatic wild dog, black bear, and clouded leopard into the wild.

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ome animal rights advocates say the line should be drawn at looking, not touching, and it’s an argument that’s i­ ntensified in recent months. One video making the rounds on Facebook, posted in February by Unilad Adventures, an online travel community with 1.7 million followers, begins with a warning about graphic content. “Thinking about riding

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elephants in Thailand?” the ­minute-long video asks in block letters as a melancholic violin plays. It then shows baby elephants chained to posts, workers kicking the gargantuan animals as tourists struggle to climb onto them, and trainers prodding their thick hides with long, crude pickax-type tools.

A 2010 study by the University of Oxford’s Wildlife Conservation Research Unit exposed Thai elephant camps as some of the travel industry’s most irresponsible businesses—not only for their poor treatment of the animals on their premises but also for encouraging locals to kidnap calves, some less than a year old, from their mothers and force them into submission.

By 2014 influential travel operators such as Intrepid Travel had removed elephant rides from their offerings. Mass petitions from World Animal Protection and Change.org rang up tens of thousands of signatures in a matter of days, encouraging more

“It’s extremely difficult to come up with workable and ­elephant-friendly solutions” than 100 travel companies, including slower adopters such as Thomas Cook Travel, to nix the rides from their itineraries.

By the time Unilad posted its video, travel junkies were primed to react with disgust. To date, the video has gotten almost 17 million views and about 400,000 shares on Facebook, along with 17,000 mostly horror-­struck comments. “I wish I hadn’t contributed to this,” one user wrote.

But in Africa, where poaching is the greatest danger facing elephants, travel has actually proved a strong engine for their conservation. Outfitters such as Singita are on the front lines of the issue, and Wilderness Safaris’ Abu Camp in Botswana’s Okavango Delta rehabilitates injured and orphaned elephants and reintroduces them to the wild.

For Southeast Asian elephants, the big threat isn’t poaching but indentured servitude. Roughly 30 per cent of Asia’s 40,000 to 50,000 elephants are in captivity, often working under dangerous circumstances in forestry or performing in the street.

The region’s legacy of elephant labour goes back 3,000 years.

The tradition is so old, the Arthashastra, an ancient text that guided Indian kings in the first millennium B.C., gave instructions regarding the health of the forests where elephants lived.

Among mahouts, the once-respected class of people who work with elephants, fathers teach their sons how to manage the animals, the way a rancher takes care of horses. But elephants are far more difficult to keep: They can eat 450 pounds of food a day—mostly bananas, vegetables, and grasses.

Considering how many elephants are still in captivity, “it’s extremely difficult to come up with workable and ­elephant-friendly solutions,” says Roberts, now the group director of conservation and sustainability at Anantara. Outside of the resort, he helps run the Golden Triangle Asian Elephant Foundation and a programme in Southeast Asia that teaches mahouts a gentler training technique focusing on positive

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t breakfast on the third day, we’re joined by a 5-yearold elephant named Pang Luck, who regularly takes her morning meal in the company of guests on the restaurant terrace. After we eat yogurt parfaits with fresh passion fruit and local honey, we give her handfuls of tiny bananas.

Using the two pointed “fingers” at the end of her trunk, she sucks the fruit out of our hands, peels it against her teeth, then helps her mahout clean up the discarded peels.

Like most of the 22 elephants here, Pang Luck’s short life has seen its share of tragedy. She was rescued from street performing, where she was patted and prodded in exchange for pocket change until the age of 3. Bounma, a fiftysomething elephant with a broken ear and distinguishing white hairs at the tip of her tail, was ill-suited for logging and spent years being badly beaten as a result; her owner took her begging until he gained admittance to join Anantara’s community.

When an elephant is accepted, Anantara also hires the animal’s mahout to train and care for it, employment that includes housing, health insurance, and education for his children.

There are also opportunities for women to join a traditional silk-weaving collective.

A two-minute drive brings us to the Dara Camp, where most of the elephants “on duty” are relaxing in a series of open-air, canopied stables. One by one the giant creatures amble toward us, perhaps not gracefully but with intention. Poonlarp wags her tail and bats her long lashes. Dah, who survived on the streets of Bangkok and Pattaya before coming to Anantara, waves her ears back and forth nearby. Bo, the largest female of the herd, stretches her jaw open for the on-site veterinarians, who reward her with handfuls of sunflower seeds after a successful oral checkup.

Elephants’ memory has been the subject of much ­mythology—the animals never forget, right? Absolute proof of that bit of conventional wisdom remains elusive, but over the past decade, scientists have confirmed that elephants exhibit a rare level of animal intelligence. They’re capable of solving simple puzzles and benefit from regular mental stimulation; like chimpanzees, they use tools in the wild, usually to shoo away flies. They collaborate with one another when problems arise; they flinch when they see a herd member get hurt; they mourn their dead. Elephants are capable of getting angry with one another and then reconciling. It takes only a week for them to learn a command, such as baen (turn) or toi (back up), and they’re capable of mastering as many as 70 of them.

Spend even a little time with them, and you’ll see it for yourself. One night we eat dinner above an elephant playpen, while below, Pumpui, who’s 50-ish, affectionately wraps her trunk around Dah’s body, like a human giving a one-armed squeeze of a hug. Later we look up at the gleaming tusks and towering proportions of Phuki, a 4-ton tusker and one of the resort’s two male residents. I offer a scoop of sunflower seeds.

His muddy trunk-fingers grip onto my hand and, with a formidable whooooosh!, the seeds are gone. <BW> Family suites at Anantara Golden Triangle Elephant Camp & Resort start from $1,707 per night, including meals, limousine transfers to and from the airport, high-speed Wi-Fi, and Dara Camp elephant experience; goldentriangle.anantara.com

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Mahouts and their elephants at the camp

The sun rises over the Mekong River in Chiang Rai

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Going Green

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VERDANT OFFERINGS

Carl F. Bucherer Manero PowerReserve, with a big date and small seconds, $11,000

MeisterSinger Neo in Rensing green, $1,350

Piaget Altiplano ultraslim watch in yellow gold, $25,200

Bulgari Serpenti, with a curved 18-carat pink-gold case, $7,400

gone unnoticed by watchmakers, either.

Seven months ago, IWC Schaffhausen released a limited-­edition green version of its Portugieser Automatic called the Kuwait, an appeal to oil-rich emirs if ever I’ve heard one.

At Rolex, the exact shade of the colour changes from model to model, but it’s usually light and soft, evoking baby greens or Granny Smith apples, and right in line with Pantone LLC’s 2017 colour of the year, “greenery,” a zesty ­yellow-tinged tone. In any case, Rolex makes it a point to have only one green watch in each collection—and therefore it just calls it green, without a modifier.

Getting the colour right ain’t easy.

“It’s an exercise in trial and error,” says Shinola Creative Director Daniel Caudill, speaking of the development of his forest green. The Detroit company has been working toward this precise shade since a billiard-green Runwell was ­introduced to the collection in 2013, helping establish the brand’s fresh sensibility. “This is a green that we have been perfecting since our launch, adding bits of blue, bits of yellow, bits of black, and tweaking it until we achieved the right colour.”

For Caudill, a colourful dial “is a way for the wearer to represent his personality—­e specially if there is an office dress code.”

And what does green say about said work personality? “Some people may respond to the symbolism of the colour,” says Jean-Bernard Forot, Piaget’s ­jewellery marketing director.

“It’s known to be a relaxing colour.

Above all, it’s a symbol of hope.”

To some it conjures the magic of nature. Others enjoy its associations with progressive politics. Or leisure-class lawn sports. For most, though, green will always be the colour of money. <BW>

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“COLOUR IS BACK in a big way,” says Matthias Breschan, chief executive officer of innovative Swiss watchmaker Rado. After a few years of pushing blue watch faces, brands have been seeking greener pastures. Deep-emerald dials, bezels, cases, and even bands are rolling out of the workshops of a diverse variety of companies.

“We’re seeing a lot of demand for watches with green elements,” Breschan says. His company offers its striking ceramic True Thinline models in seven colours; green is the second-best seller, after blue.

Rado calls its shade polished green.

“Selecting the right hue is critical,” Breschan says. “For us it was important to select a subtle green colour that looks both regal—think British racing green— and goes well with different styles.”

It’s common to hear Breschan and other watchmakers refer to racing green, an intense tint customary among UK professional motor sports competitors before the sponsorship era. The worlds of classic cars and heritage watches are intertwined; their fan bases overlap, and watch designers often channel ­vintage-car aesthetics. It’s a savvy play to woo key connoisseurs with a wristwatch recalling the verdant blur of a 1950s Triumph coupe, for instance.

The dominant tone for green watches is eminently jewel-like. Admire, for example, Piaget’s Altiplano 40mm, inspired by malachite and other stone dials that were a great success for the house in the 1960s. But the hue also takes a trip through enchanted woods: Watchmaker Carl F. Bucherer calls its shade—similar to the conifers near its headquarters in Lucerne, Switzerland—­ pine green.

The appeal of Islamic green (as seen on the Saudi flag, for instance) hasn’t

PHOTOGRAPH BY GABRIEL ZIMMER FOR BLOOMBERG BUSINESSWEEK; PROP STYLIST: KODY PANGBURN. ALL OTHERS COURTESY VENDORS

Watches with emerald-coloured dials and bands are invading stores, at price points of every hue. By Troy Patterson

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The Man Who Invented Wellness

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AMERICA’S HEALTH-CARE SYSTEM may be suffering all sorts of indignities, but the wellness industry is doing just fine. More than half the adults in the US take a dietary supplement, and about 20,000 spas offer uncounted treatments, from colonics to cupping. Wellness has become a multibillion-dollar antidote to a bruising medical establishment.

Most accounts of the origins of wellness as an idea, a movement, and a marketing effort go back to the 1970s, when Americans took to yoga, meditation, and carob chips. But before Deepak Chopra and Dr. Oz and Goop, there was Dr. John Harvey Kellogg. In 1878 he opened the Battle Creek Sanitarium, the Canyon Ranch of its time, and began promoting his rules for “biologic living,” a near-religion then. He treated executives, celebrities, and presidents at the San, as it was called; his most devoted followers were known as the Battle Freaks. He sold them special foods, unusual treatments, exercise machines, books, and albums.

For 60 years, Kellogg—­prescient and kooky—was the most famous doctor in America.

His life’s work was intertwined with that of his younger brother, Will, who helped run the San before starting the Kellogg cereal company. Their dramatic, poignant family saga is well told by medical historian Howard Markel in The Kelloggs: The Battling Brothers of Battle Creek (Pantheon Books, $35). Jealousy, mistrust, and meanness strained their relationship: They sued each other over the cereal company (Will prevailed); took credit separately for shared accomplishments; and, Markel writes, spurred each other on to greater success than they might have otherwise achieved.

They were estranged when John died in 1943 at 91. The San couldn’t survive without its charismatic, narcissistic founder, and his contributions to the wellness movement were lost, an omission Markel hopes to correct with this book.

Many personal accounts at the end of the 19th century include bouts of indigestion, constipation, diarrhea, and dyspepsia, and no wonder. Whether they were wealthy or not, Americans overate, consuming huge amounts of animal fat, salt, and sugar.

In the backwoods of Michigan, where the Kelloggs grew up, people ate cured pork with salty canned vegetables and sweetened canned fruit for lunch and dinner; at breakfast they consumed ham or bacon and potatoes fried in congealed fat from the night before. The average woman didn’t live past 41, and the average man only made it to 39.

John Kellogg, gregarious, intelligent, and obsessed with cleanliness, eventually made his way to medical school in New York, thanks to support from the Seventhday Adventist Church. When he returned to Michigan, he took over the church’s small health centre and converted

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it into a secular temple to wellness with a suitably dignified name.

(He created the word “sanitarium” from “sanatorium,” a facility for long-term illness.) As Markel writes, he “knew that this institution had to be an attractive, modern, luxurious, worthwhile destination for those wealthy enough to seek such commodities.”

At its peak, the San employed 1,000 people, cared for as many as 10,000 patients a year, and farmed 400 acres of vegetables and fruit. The place had its own dairy, canning, and food manufacturing facilities. Eventually Kellogg added a resort with 20 cottages “reserved for the most wealthy of the worried well.”

Henry Ford, Thomas Edison, and John D. Rockefeller were regulars. To garner publicity, Kellogg invited Harvey Firestone, J.C. Penney, Alfred du Pont, and the composer John Philip Sousa, among others, for free treatments, prompting some to say that his medical speciality was “diseases of the rich and famous.”

Kellogg’s rules for a biologic life make him sound like Michael Pollan— eat grains, nuts, fruits, vegetables, yogurt, and soy milk. Meat and sugar were forbidden. So was masturbation.

Smoking was a death wish, obesity a “definite health hazard.” Kellogg warned of the dangers of a sedentary lifestyle, advocating regular, vigorous Some of Kellogg’s exercise, plus massage, enemas, fresh Battle Freaks going air and sunlight, spirituality, laughter, through their paces sleep, and lots of pure water. He came up with an early, less-edible version of peanut butter and a fiberrich mix of grains he called granola. He sold psyllium as a laxative (hello, Metamucil) and treated Richard Byrd with acidophilus soy milk—a probiotic—after the admiral’s 1929 expedition to the South Pole. Kellogg also made his own very popular exercise albums with a brass band. Cue Richard Simmons.

Kellogg promoted some dubious ideas as well: Food should be chewed down to its atomic level; his patients should have four odour-free bowel movements a day; and women should receive pelvic massages, from him, a treatment whose medical purpose no doctor since has been able to explain. The benefits of electrotherapy exercise beds, vibrating chairs, and mechanical horses now seem a little suspect, too.

Kellogg spent his last years building and running a second sanitarium, outside Miami; he’d left the San after it was forced into receivership during the Depression. Kellogg’s legacy might have been more enduring had he not left his entire estate to his Race Betterment Foundation, which promoted eugenics. And some of his recipes might still be on the market if he hadn’t alienated the brother who could manufacture them. “Many of his sounder concepts of wellness remain sage prescriptions written out millions of times each day,” Markel concludes. Yet when most people hear Kellogg, they think corn flakes. <BW>

COURTESY UNIVERSITY OF MICHIGAN BENTLEY HISTORICAL LIBRARY

A new book looks at John Kellogg, America’s first health guru. By Susan Berfield

12/08/2017 20:20

MOTORCYCLES

Bloomberg Pursuits

16 August, 2017

A Silent Road Warrior

63

COURTESY ZERO MOTORCYCLES

The electric Zero DS ZF6.5 is the only city bike you need

By Hannah Elliott FOR 10 YEARS, California-based Zero Motorcycles Inc. has been carefully breaking into the broader bike market, offering power­ful emission-­free motorcycles. Its newest bike, the Zero DS ZF6.5, is the two-wheel equivalent of the much a­ nticipated Tesla Model 3: cute, reasonably priced, and superb for day-to-day use.

This is key, because even though consumers like to believe they’re altruistic, they’re in fact not. They say they’d buy an electric vehicle (if they could afford it), but studies show they’ll resist anything inconvenient. Who wants to worry about driving miles out of the way—and sitting and waiting—to recharge?

The DS 6.5 offers 74 city miles on one charge, usually more than enough for a day’s use. It’s easily topped off; you can plug it into your garage wall like a power saw (or even a lamp), and it will be fully charged from zero in four hours. A supercharger reduces that to 90 minutes.

For me—always on the move in a massive city—the DS 6.5 is a perfect fit. It has enough power to blaze past cars on the highway but is quiet enough to allow a polite person to feel a glimmer of pride, rather than horror, when riding through a peaceful neighbourhood. And it is silent. Be alert when weaving through traffic.

The DS stands for “dual sport,” which means the bike was developed for a variety of terrain, including dirt, mud, rocks, and pockmarked asphalt. It handles these admirably, thanks to an adjustable Showa Corp. suspension and a stiff aluminum body with a low centre of gravity.

Like the Model 3, the DS 6.5 has a clutchless drive, which

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produces 19 per cent more torque than previous Zero DS models, plus an 11 per cent increase in power. This means it can accelerate incredibly quickly and smoothly—no gears—and hang on through turns with a startling alacrity. The fat, knobby Pirelli tires help. Top speed is just under 100 mph.

As far as convenience, the bike comes with a fair amount of storage space; credit the newly compact 34-horsepower motor that helped shave 96 pounds from the previous year’s model to get the bike down to a trim 317 pounds. Now there are two locking and water-resistant compartments at the centre of the bike. They’re big enough to carry a phone, wallet, and water bottle but not, unfortunately, a laptop.

At $10,995, the DS 6.5 is among the most affordable electric motorcycles available: Lightning Motors Corp. sells a futuristic LS-218 for $39,000; Victory Motorcycles offers its insectlike Empulse TT for $20,000; and Energica has the $35,000 EGO. They’re all closer to hyperbikes, however—special occasion investments. BMW AG and Harley-Davidson Inc. have experimented with electric concepts, too, though these have yet to come to fruition.

Thank goodness price doesn’t preclude style. The DS 6.5 has a single headlight, high-set handlebars, a “tank” in a classic teardrop shape, and fenders elevated high over the tires. It looks futuristic, but people won’t immediately guess it’s electric. Jump on, and you’re atop the love child of a familiar Ducati and a relaxed Vespa. Ride it around town, and you may not want anything else. <BW>

12/08/2017 20:22

Bloomberg Pursuits

16 August, 2017

GAME CHANGER

Alexander Betts The academic has a data-driven argument for putting refugees back to work. By Arianne Cohen

AT THE END OF HIS FIRST catapulted him into policy year at England’s Durham adviser roles with the govU n i v e r s i t y, 1 9 - y e a r - o l d ernments in Jordan, Uganda, Alexander Betts faced, as he puts Canada, and elsewhere. There it, “a long summer with lots of free are still challenges ahead. “The time and not much money.” To pass first, second, and third thing in the the hours, he took a gig volunteering mind of policymakers is social inteat a reception centre for refugees in the gration of refugees rather than economic Netherlands. “What immediately struck me integration,” says David Miliband, president was that these people had something to offer,” he and chief executive officer of the International says. “A Bosniak lawyer taught me a bit of international law. Rescue Committee, who was formerly a Labour Party MP in An Iranian Olympian taught me a bit of table tennis.” The refu- the UK. “It’s important that the economic piece gets better gees, trapped in bureaucratic limbo and barred from working, understood, not least because economic integration can lead to had ample time to chat. With this in mind, Betts returned to social integration.” As a professor at the University of Oxford his studies in economics and discovered that idling refugees and director of its Refugee Studies Centre, Betts has continued are the norm: Afraid of taking jobs away from their own citi- his research. In Uganda, which allows newcomers to work, he zens, countries accepting the world’s 21.3 million found that 21 per cent of refugees in Kampala run a refugees typically ban them from seeking employbusiness employing at least one other person and ment on arrival. Much research had been done on that the workers are 40 per cent Ugandan nationthe negative effects of these policies, but alternative als. Betts is quick to point out that the people who strategies remained elusive. Betts used his undercan help most aren’t policy wonks but businessb. 1980, Bristol, England graduate dissertation to design more efficient ways people. “Some com­panies, like Wal-Mart and IKEA, Won the European to manage refugee populations, including a matchare placing orders with Jordanian and Syrian factoUniversities’ Debating ing programme that would align migrants’ location ries [that employ refugees], but more needs to be Championships while done,” he says. Betts highlights Starbucks Corp.’s an undergraduate preferences with host countries’ workforce needs.

Betts spent the next decade travelling to refugee pledge to hire 10,000 refugees worldwide, for Ran this year’s camps around the globe, working in relative obscuinstance. As Miliband says: “Refugees make great London Marathon in employees.” <BW> 2 hours and 38 minutes rity until the European crisis two years ago, which

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ILLUSTRATION BY SAM KERR

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12/08/2017 20:23

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