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ApprovedBusiness and financeFINANCEFinance and economics

A trade deal between the EU and east Africa is in trouble

Magufuli advises Museveni on how to tilt at colonialism

THE winds that waft along the Swahili coast change direction with the seasons, a boon to traders in times past. Shifts in the political winds are harder to predict. Last July a proposed trade deal between five countries of the East African Community (EAC) and the EU was thrown into disarray when Tanzania backed out at the last minute. An EAC summit, scheduled for months ago, was meant to find a way forward. Held at last on May 20th in Dar es Salaam, after many postponements, only two presidents showed up. The deal is in the doldrums.

The pact is one of seven “Economic Partnership Agreements” (EPAs) the EU wants to sign with regional groups in Africa, the Caribbean and the Pacific. The first was agreed with the Caribbean in 2008; southern Africa followed suit last year. But progress in west Africa has also stalled, with Nigeria raising objections. The EPAs were promoted as a new breed of trade deal, and…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

A new code aims to clean up the foreign-exchange market

FINANCIAL-MARKET traders have earned a pretty shocking reputation in recent years. From manipulating LIBOR, a benchmark interest rate, to rigging the daily fix of foreign-exchange (FX) rates, traders have shown themselves ready not just to stretch the rules, but to collude in outright illegality.

A global code of conduct for the FX market, unveiled on May 25th, aims to put things on a sounder footing. Drawn up over the past two years by a coalition of central bankers, known as the FX Working Group (FXWG), and supported by a panel of industry participants, the code’s 55 principles lay down international standards on a range of practices, from the handling of confidential information to the pricing and settlement of deals.

Such standards seem long overdue in the massive FX market. Roughly $5trn is traded every day (see chart). Many companies, pension funds and money managers depend on banks to hedge their exposure to currency fluctuations. Yet in the past traders colluded with one another…Continue reading

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ApprovedBusinessBusiness and finance

Why companies in the chemicals industry are mixing

AS SPRING arrives, the hills of Languedoc in southern France turn green with the leaves of grapevines. This is helped along by chemicals—lots of them, confides a winemaker based near the town of Thuir in the Pyrenees. In their absence, vineyards would need natural fertilisers and to be weeded by hand, both costly. French farmers use more chemicals than anyone else in Europe: 65,000 tonnes of pesticides alone each year.

Even the smallest of vine-growers has an interest in a series of takeovers proposed between their chemicals suppliers. After a decade without any big deals, since 2015 three mega-mergers, collectively worth around $240bn, have been proposed. When they were first announced, many doubted that regulators would allow the mergers because of competition worries. If all three proceed, as now seems likely, four companies will produce 70% of the world’s pesticides instead of six today.

The first mega-merger, announced in December 2015, was between Dow Chemical and…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

Machine-learning promises to shake up large swathes of finance

MACHINE-LEARNING is beginning to shake up finance. A subset of artificial intelligence (AI) that excels at finding patterns and making predictions, it used to be the preserve of technology firms. The financial industry has jumped on the bandwagon. To cite just a few examples, “heads of machine-learning” can be found at PwC, a consultancy and auditing firm, at JP Morgan Chase, a large bank, and at Man GLG, a hedge-fund manager. From 2019, anyone seeking to become a “chartered financial analyst”, a sought-after distinction in the industry, will need AI expertise to pass his exams.

Despite the scepticism of many, including, surprisingly, some “quant” hedge funds that specialise in algorithm-based trading, machine-learning is poised to have a big impact. Innovative fintech firms and a few nimble incumbents have started applying the technique to everything from fraud protection to finding new trading strategies—promising to up-end not just the humdrum drudgery of the back-office,…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

One bitcoin is worth twice as much as an ounce of gold

Fans of bitcoin, a crypto-currency, have long called it digital gold. Now this sounds like an insult: continuing its stellar rise, and adding more than 30% to its value in just a week, one bitcoin is worth more than $2,600, over twice as much as an ounce of gold. As The Economist went to press all bitcoins in circulation were worth over $43bn. A sum of $1,000 invested in bitcoins in 2010 would now be worth nearly $36m. Other crypto-currencies are also marching upward: together this week they were worth $87bn. But if the history of gold is any guide, what goes up will come down—and then go up again.

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ApprovedBusinessBusiness and finance

Netflix still gets booed at Cannes

THE rise of Netflix has been greeted frostily by some of the old guard at the Cannes film festival, where the American streaming giant’s disregard for releasing films in cinemas wins it few friends. It looked a bit more at home on May 21st, as the lights went up at the Louis Lumière theatre. The stars of its own film, “The Meyerowitz Stories (New and Selected)”, a comedy drama, accepted a standing ovation from the audience. Ted Sarandos, Netflix’s head of content, stood alongside Dustin Hoffman, Ben Stiller and other cast members. Festival-goers jostled for a word with him at a swanky after-party.

This is the first year that Netflix has been admitted into the festival’s competition, with two films, “The Meyerowitz Stories” and “Okja”, directed by Bong Joon-ho of South Korea. Still, cries of protest from French film-industry executives prompted Thierry Frémaux, the festival director, to declare that, in future, only films guaranteed a theatrical release in…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

How becoming a Hong Kong pensioner can save you tax

Not dodging but shuffling

THE global war on tax evasion rumbles on. What began as an American onslaught, with the Foreign Account Tax Compliance Act (FATCA) of 2010, has been joined by more than 100 countries through an initiative called the Common Reporting Standard (CRS). Under this, governments will exchange tax information on their financial firms’ clients on a regular, “automatic” basis, without having to be asked for it, starting this year. Holdouts such as Panama, the Bahamas and Lebanon have, one by one, been frogmarched into line.

But tax-dodgers and their advisers are enterprising sorts, eager to clamber through the smallest loophole—and gaps in the CRS there are. One involves becoming a pensioner in Hong Kong.

The territory, home to a big financial centre, has a type of pension known as an ORS (for Occupational Retirement Scheme). The beauty of ORS from a tax evader’s point of view is that anyone can get one and they are not…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

What the German economic model can teach Emmanuel Macron

IT IS heartening that the euro area has a knack for surviving near-fatal crises. Yet confidence in the durability of the single currency might be stronger if it suffered fewer of them. Europe dodged its latest bullet on May 7th in France, when Emmanuel Macron, a liberal-minded (by local standards) upstart centrist, defeated Marine Le Pen for the presidency. Even so, an avowed nationalist and Eurosceptic captured 34% of the vote, leaving Mr Macron with five years to assuage widespread frustration with the economic status quo. An obvious model lies just across the Rhine, where the unemployment rate—below 4%, down from over 11% in 2005—is testimony to the potential for swift, dramatic change. Yet Germany’s performance will not be easy to duplicate.

It would be unfair to call France the sick man of Europe; half the continent is wheezing or limping. Yet there is certainly room for French improvement. Real output per person has barely risen in the past decade. Government spending stands at 57% of GDP, outstripping the tax take; France’s budget deficit, at 3.4% of GDP, is among the largest in the euro area’s core. The biggest worry, however, is the labour market. The unemployment rate, now 10.1%, is stubbornly high. Nearly a quarter of French young adults are unemployed. Worklessness, especially among young people, is a source of rising social tension and a…Continue reading

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ApprovedBusinessBusiness and finance

Among private tech firms, Airbnb has pursued a distinct strategy

UNTIL recently “Uber envy” afflicted many top executives at Airbnb, a platform for booking overnight stays in other people’s homes. So admits a big investor in the firm. The two companies often raised money at the same time, and the ride-hailing giant reliably received more cash and closer attention. Uber is America’s most valuable private technology firm, with a valuation of close to $70bn at last count; Airbnb is still in second place with a value of around $30bn. But with Uber facing a series of setbacks, including allegations of intellectual-property theft, departures by senior executives and a consumer boycott, jealousy in Airbnb’s hallways has largely evaporated.

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ApprovedBusiness and financeFINANCEFinance and economics

Is efficient-market theory becoming more efficient?

BUILD a better mousetrap, the saying goes, and the world will beat a path to your door. Find a way to beat the stockmarket and they will construct a high-speed railway. As investors try to achieve this goal, they draw on the work of academics. But in doing so, they are both changing the markets and the way academics understand them.

The idea that financial markets are “efficient” became widespread among academics in the 1960s and 1970s. The hypothesis stated that all information relevant to an asset’s value would instantly be reflected in the price; little point, therefore, in trading on the basis of such data. What would move the price would be future information (news) which, by definition, could not be known in advance. Share prices would follow a “random walk”. Indeed, a book called “A Random Walk Down Wall Street” became a bestseller.

The idea helped inspire the creation of index-trackers—funds that simply buy all the shares in a benchmark like the S&P…Continue reading

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ApprovedBusinessBusiness and finance

An abrupt change at the top at Ford

Fun comes to the blue oval

THE abrupt departure of Ford’s boss, Mark Fields, which the firm announced on May 22nd, has two explanations. Investors had become restive at its performance, particularly in the past year. But Mr Fields was also perceived to lack the drive of Alan Mulally, the man he succeeded. In replacing him with Jim Hackett (pictured), who ran an office-furniture company before joining Ford’s board in 2013 and more recently led the firm’s mobility unit, Ford hopes to conquer current problems and shore up its future strategy.

Ford’s shares have declined by nearly 40% since Mr Fields took over (see chart). Though it made record profits in 2015 and had strong results in 2016, investors reckoned a booming North American market, on which it relies for nearly two-thirds of revenues, would slow. They also disliked the fact that Mr Fields had to invest heavily in new technologies. Ford suffered the ignominy of its market capitalisation being…Continue reading

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Masayoshi Son and Saudi Arabia launch a monster technology fund

“I HAVEN’T accomplished anything I can be proud of in my 60 years on Earth,” Masayoshi Son, the boss of SoftBank, a Japanese telecoms group, recently confided. Now he has enough money to make a dent in the universe: on May 20th SoftBank and Saudi Arabia’s Public Investment Fund (PIF), along with smaller investors including Apple and Sharp, launched the world’s largest technology-investment fund, worth nearly $100bn. How will Mr Son and his team deploy these riches?

He has a vision to match his vehicle. Within 30 years, he predicts, the world will be populated by billions of robots, many of them more intelligent than humans. Several of SoftBank’s recent acquisitions, most of which are expected to be part of the fund’s portfolio, should be seen in this light. ARM, a British chip firm acquired for a whopping $32bn last year, will design the brains for the robots. OneWeb, a satellite startup in which SoftBank acquired a 40% stake for $1bn in December, will connect them. Nvidia,…Continue reading

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Hunger for vinyl means a chronic shortage of pressing machines

Well under 45

FOR young hipsters and middle-aged sentimentalists alike, the resurgence of vinyl is cause for celebration. Since 2010 sales of vinyl records in America have tripled. Britain’s vinyl industry saw its biggest gains for 25 years in 2016. Big supermarkets are extending the amount of space that they allocate to the discs and even the turntables that twirl them have found a place on Amazon’s best-seller lists.

Meeting this demand has been tricky. Vinyl accounted for 76% of total album sales in 1973; by 1994 this had dropped to 1.5% as compact discs (CDs) took over. By then the bulk of the world’s vinyl-pressing plants had closed and most of their cumbersome machines had gone to the scrapyard. Only a very few plants that could diversify into new areas of printing and production stayed open. But they did so without any further investment in vinyl, so the few machines that kept on producing often date back to the 1960s.

GZ Media, a Czech…Continue reading

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Coca-Cola’s new boss tries to move beyond its core product

FEW companies are as defined by a single product as Coca-Cola. The firm has sold the sweet dark soda since 1886. At its headquarters in Atlanta, archives house the advertisements that sowed Coke in the world’s consciousness: posters urging consumers to “Have a Coke and a Smile”; Norman Rockwell’s 1935 painting of a boy fishing, Coke bottle in hand; a Coca-Cola record with tunes sung by Ray Charles, Aretha Franklin and The Who; advertisements with a red-coated, bearded Santa Claus—it was Coca-Cola that popularised the image of Santa in the 20th century.

Today Coca-Cola has $42bn in revenue and is available “within an arm’s reach of desire”, as the firm puts it, in every country but Cuba and North Korea. Its distribution is so broad, its marketing so expert that the Gates Foundation has urged vaccine campaigns to mimic its strategy. The question for James Quincey, an insider who took over as CEO this month, is whether Coca-Cola can move beyond Coke.

The company…Continue reading

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Antoine Frérot is overhauling France’s water-and-waste champion

Bin there, done that

WALK along Sugar Road in Aubervilliers, north-east of Paris, and it is obvious how a formerly scruffy area is gentrifying. New office blocks, a shopping mall and bistros have appeared in recent years, filling spaces left after wrecking balls flattened warehouses. Along a canal previously used by barges, commuter ferries deliver workers from richer parts of the city. A district long known for slums, cheap housing and support for the Communist Party is becoming a business hub—Chanel, a fashion firm, as well as several film producers and studios, have moved in and big banks are expected next.

The district’s centrepiece is a U-shaped glass block, the headquarters of Veolia, the world’s largest water-and-waste group. The building opened in January, after the firm moved out of central Paris to save costs and concentrate 2,000 of its 163,000 staff in one spot. Moving to a rehabilitated area carries symbolism for Veolia, which is experiencing…Continue reading

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