In his speech today at the WEF in Davos, British Prime Minister David Cameron encouraged the UK and the West to take back jobs and factories from Asia. This movement, which has already begun, will boost Western economies, he said.
In a move to further encourage this existing trend, UK Trade & Investment (UKTI), in conjunction with the Manufacturing Advisory Service (MAS), will launch Reshore UK, a program designed to assist the many UK companies now looking to bring manufacturing, software, textile production, and call centre work back to the UK.
Cost, quality and the reduction of lead times are the primary reasons why companies want to come home
“This new service will offer dedicated support for businesses that want to capitalise on the opportunities of reshoring, creating new jobs and ensuring that hard-working people can reap the benefits of globalisation,” said Cameron in his address at the forum.
“Reshoring is a huge opportunity for UK manufacturers and we are delighted to be working in partnership with UKTI to give both domestic and international firms access to this one-stop service,” said Steven Barr, Head of the MAS, in a government press release.
Combining competitive corporate tax rates, stable economy, strong legal frameworks, good regulation and a dynamic labour market, reshoring businesses looks more attractive than ever. Cost, quality and the reduction of lead times are the primary reasons why companies want to come home. So far, UKTI has identified 1,500 reshored manufacturing jobs since 2011.
Cameron is confident about the UK’s dynamism in the global context. “We are a global nation with global interests and a global reach, and if you think all of this is somehow an unashamed advert for the UK and UK business you’re absolutely right,” he said.
Google Chairman Eric Schmidt addressed leaders at the World Economic Forum in Davos yesterday, where he delivered a speech warning new technologies could threaten increasing numbers of middle class jobs. He also questioned whether workers have the right skills to compete in an increasingly tough market.
Schmidt argued that as technology evolves, the workforce needs to be equipped with the necessary skills. Currently, many workers are lacking the technological expertise to be re-hired, a problem Schmidt believes is likely to endure for the next two to five decades.
“It’s a race between computers and people, and people need to win,” he told the crowd, according to the BBC.
“As more routine tasks are automated this will lead to much more part-time work in caring and creative industries. The classic 9-5 job will be redefined.”
Tech companies have long since bemoaned the lack of a skilled workforce from which to hire from
The idea that rapidly advancing technologies will be a big threat to jobs in the future is by no means a new one – but the fact that a senior tech exec like Schmidt is raising the issue is significant.
Tech companies have long since bemoaned the lack of a skilled workforce from which to hire from, and some have even advocated for a change in the skills young people are taught in basic education.
Conversely, Schmidt insisted that it would be a huge mistake not to take full advantage of the efficient new technologies being developed. Jobs must be created.
For the former Google CEO, increasingly jobs will be created by smaller firms, and therefore these entrepreneurs need more support in order to continue hiring- otherwise the situation would only get worse.
“It’s clear to me that we can get full employment, but wages are still depressed,” said the chairman.
Schmidt’s analysis is somewhat worrisome because in a way it officialises the trend of companies striving to cut wage bills, and replacing staff with automation technologies whenever possible.
As a result wages as percentage of economies are likely to continue decreasing, which will ultimately mean demand in the economy will remain low.
A panel, comprising members of the political spectrum, business community and public servants gathered at the World Economic Forum (WEF) meeting in Davos yesterday to discuss the ways in which European leaders can craft a long-term strategy for competitiveness. As the region moves tentatively on from crisis response mode and onto stability, a plan must now be decided upon if Europe is to return to its former glories.
“We need to keep the momentum on reforms,” said José Manuel Barroso, President of the European Commission, who stressed that leaders must keep that sense of urgency if they are to continue to instrument growth and improvement. “There may be a temptation to sit back and relax,” he added, “yet there remains a great deal of work to be done on the structural front.”
You’re talking about a pretty tough situation that we’re coming out of, and we’re only just emerging
“You should not underestimate the capacity of people to learn from their own mistakes,” said Angel Gurría, Secretary-General of the OECD. “Europe is rebuilding itself, redesigning itself, reinventing itself, strengthening itself, and this is happening all the time. You’re talking about a pretty tough situation that we’re coming out of, and we’re only just emerging.” The Secretary-General admitted that there are still a lot of downside risks and institutional issues for Europe, but was confident that Europe was heading in the right direction.
Italy’s Minister of Economy and Finance, Fabrizio Saccomanni, encouraged the region’s leaders to “reopen the chapter of economic and institutional reforms” aside from fiscal and monetary policy, believing that there remains a great deal to be done yet.
The panel also conceded that Europe still has a competitiveness problem on the energy and digital front. President and CEO of Siemens Joe Kaeser said of the supposed European recovery, “are we really there yet?” and referenced the unemployment problem as testament to the region’s many structural shortfalls. “Is it really a recovery or is it about easing the pain?”
Although the panel agreed that Europe’s situation is improved from that of a year previous, they also agreed that there are numerous structural inadequacies that need to be addressed if the region is to up its competitiveness.
Hassan Rouhani, Iran’s new and supposedly Western-friendly President, spoke today at the World Economic Forum in Davos of his hopes that the country would be welcomed back into the international fold. In a much-anticipated speech, President Rouhani also spoke of his desire that Iran would be able to develop certain industries through foreign investment, now that sanctions were being eased.
Highlighting the global financial crisis, he said that it was better for increased cooperation between countries to solve economic issues. “The events of the last six years have shown that nobody can live alone. No power can regard its dominance as permanent. Globalisation amid the financial crisis has shown that we’re all on the same boat.”
[H]e said that it was better for increased cooperation between countries to solve economic issues
He added that the recent deal with global leaders of the country’s nuclear development was a “major development”*. “Iran’s relations with Europe will be normalised. Relations with the United States have entered a new phase. Last month for the first time politicians from both countries have negotiated and exchanged views and have made decisions to resolve differences in relation to the nuclear issue.”
* For more on the deal, read the latest issue of World Finance.
Chocolate is most people’s guilty pleasure; but when it comes to business, the industry is more guilt-free. Entrepreneur Peter Harris shows us around Hotel Chocolat, which has taken a slice of the global $100bn chocolate market and transformed it into one of Britain’s most advocated brands. And Laurent Pipitone from the International Cocoa Organisation explains the global outlook for cocoa, and what’s causing the supply deficit pushing prices up.
Peter Harris: Chocolate is an amazing thing. I mean, how people actually worked out that you would take this cocoa pod, take the beans out of it, and through a number of processes make it into this unusual but beautiful substance is absolutely remarkable.
World Finance: Chocolate. It’s most people’s guilty pleasure; but when it comes to business, the industry is more guilt-free.
Laurent Pipitone: Global sales of chocolate represent around $100bn. Then the cocoa market, which is the main ingredient for chocolate, represents around $10bn, which is the value of the cocoa produce around the world.
World Finance: Entrepreneur Peter Harris has taken advantage of this billion dollar industry, and turned his passion for chocolate into a flourishing business, having founded one of the leading boutique chocolatiers, Hotel Chocolat. But what does it take to succeed in the world of confectionary?
Peter Harris: People often say ‘that was a fantastic idea, how did you come up with it?’ But I actually think there are thousands of good ideas, and the most important thing is how you apply those ideas. And you’ve got to have an almost evangelical passion for your idea, or your business, to make it successful.
Global sales of chocolate represent around $100bn
In the very beginning, Angus [Thirlwell] and I lent money to the business, and the bank matched that with overdraft. That gave us the ability to develop the business to an early stage. But the biggest thing is to actually sell your product successfully. We did that, so we were able to then invest the profits of the business, back into the business, to then develop those ideas.
World Finance: So it really has grown organically, you could say?
Peter Harris: Absolutely, absolutely. You know, we’re one of the rare businesses that’s grown to the size we are now – we employ a thousand people, we’ve got 70 shops in the UK, we have our own factory, our own cocoa plantation – so all these are things that we’ve been able to develop in our business, and afford if you like, by reinvesting those profits.
World Finance: According to a Bain & Co survey, Hotel Chocolat was placed fourth in the top ten most advocated brands. It was also the only British name to make the list.
The company has a loyal customer base, and has found original ways to capitalise on this. The chocolate tasting club offers members a different selection box each month, and encourages their feedback, making the experience interactive. And in effect, a free and self-funded way to do market research.
Peter Harris: Innovation in itself is really important, and through the life of Hotel Chocolat, we’ve actually incubated many of our own businesses. So these are ideas that we’ve come up with, normally because of prompting from our customers, listening to our customers. And by then giving them a little bit of space within our business – in other words, a little bit of resource – we can then allow those to develop without the sort of spotlight of having to make profits in the early days.
World Finance: Innovation has played a large role in Hotel Chocolat’s success, even down to funding its expansion. In 2010 they launched Chocolate Bonds, where loyal customers could invest in the company’s future, and take their monthly yield in – you guessed it – chocolate, raising an impressive £4m.
We won’t pay you any money or interest, but we will pay you a return in chocolate
Peter Harris: We just thought it would be really nice if we could involve our customers in what we’re doing, so we said to them, would you be interested in lending us £2,000 or £4,000, and in return we won’t pay you any money or interest, but we will pay you a return in chocolate. And so you’d get six boxes for a £2,000 bond, and 13 boxes for a £4,000 bond. And this was something that people were a little bit cynical about initially, but we were very successful. And this is really about the relationship we have with our customers.
World Finance: But now the chocolate industry might be headed for darker days, with global chocolate supplies headed for the longest production shortfall in more than five decades.
Laurent Pipitone: Well, the money’s increasing. The long-term average is about three percent per year. On the other side, supply’s not following. One of the reason is that farmers are turning to other crops, which they feel are more profitable for them. Many cocoa farmers are still in poverty, so this is the main reason why cocoa producers are not choosing cocoa as a new investment.
Farmers are hedging, plantations are also hedging. Many cocoa plantations were planted 20, 30 years ago, so their yields are declining over time. So there has not been enough new investment in recent years to supplement what is existing.
Laurent Pipitone: Cocoa prices are expected to continue to rise over the coming few years, due to the supply deficit that the cocoa market is experiencing. So, we’ve seen the supply deficit over the past few years, we’ve seen price increases over the past few years, and we expect this to continue.
Then this will also have an impact on the chocolate price. Cocoa is the main raw material for chocolate, and the price of cocoa in chocolate products represents about 10 percent. So this will impact on chocolate prices to some extent as well in the coming few years.
Many cocoa farmers are still in poverty. Farmers are turning to other crops which they feel are more profitable for them
World Finance: While cocoa prices are forecast to rise, sales in China more than doubled in the past decade, outpacing gains in western Europe – the biggest consumer. And tighter supplies will translate into higher costs for food makers.
But Hotel Chocolat’s Peter Harris is not concerned.
Peter Harris: It’s important actually to put price rises of commodities into perspective. Invariably price rises are reported, but price falls aren’t. And if you actually look at cocoa, yes it is rising a little bit at the moment, but it actually went through a period of it going down quite a lot – but this was never reported.
So the answer is, obviously we manage that. We buy forward cocoa so that we know how much we’re having to pay, so we can obviously guarantee the prices to our customers. But I believe there’s a lot of speculation goes on in the cocoa market – as in other markets – which actually is designed to try to destabilise the pricing so that people can make money. But it’s not really relevant to the source of the product and the availability of it, because that’s very good.
World Finance: So with new restaurants in the pipeline, their turnover at an all time high, and customer satisfaction their driving force, the British start-up looks like it has found the lasting recipe for success.
The G20 conference will be landing in Brisbane this November, and Prime Minister Tony Abbott used his speech at the WEF to outline what he perceived as a chance for Australia to promote free-market economics across the world.
[Abbott] told the audience at Davos that Australia will be making the case for reduced government spending
He told the audience at Davos that Australia will be making the case for reduced government spending and the development of sustainable private sectors as well.
“Even though the crisis was the gravest economic challenge the world has faced since the 1930s, it’s important to remember that it was not a crisis of markets, but one of governance,” said Abbott. “Then it was the G20 which helped to coordinate the actions which prevented another Great Depression.
“The challenge as we continue to work through the weaknesses that brought on the crisis is to strengthen governance without suppressing the vitality of capitalism. The crisis after all has not changed any of the basic laws of economics.”
Abbott outlined his vision of a G20 in which business activity is key.
“Stronger economic growth is the key to addressing almost every global problem. Stronger growth requires lower, simpler and fairer taxes that don’t stifle business creativity,” he said.
“And stronger growth requires getting government spending under control so that taxes can come down and reducing regulation so that productivity can rise. In the decade prior to the crisis, consisitent surpluses and a preference for business helped my country, Australia, to become one of the world’s best performing economies.”
Abbott took the Davos stage after Iranian President Hassan Rouhani, and called for an end to the on-going violence in Syria.
2013 was widely cited as the year in which Europe’s economic prospects returned, however, regardless of credit spreads having narrowed, break-up speculation receded and stock prices climbed, questions remain about the continent’s recovery or lack thereof.
A panel of experts gathered at the WEF to discuss why there is still a great deal to be done in the current climate.
One issue that dominated proceedings was unemployment, especially with regards to widespread joblessness amongst the region’s youth
“Things feel better in Europe, but policy-makers should not be complacent,” said Axel Weber, Chairman of the Board of Directors at UBS, who added that GDP growth in the region’s largest countries is “lacklustre and too one-sided.”
One issue that dominated proceedings was unemployment, especially with regards to widespread joblessness amongst the region’s youth.
The Harvard Professor of Economics Kenneth Rogoff described the employment situation as “horrific”, and reiterated that only Germany had returned to its pre-crisis levels, whilst numerous other nations could take upwards of five years to regain their former strength.
“We asked 80 of our clients what the critical issues in Europe are in terms of their expansion. The answer was labour market inflexibility,” said Sir Martin Sorrell, Chief Executive Officer of WPP.
Although the panelists expected Europe to make progress this year, they agreed that deep-set structural unemployment problems needed to be solved, stressing that if graduates were unable to find work two or three years after graduation this could in turn lead to a lost generation.
“It is difficult for a company to hire a 30-year-old person without work experience,” said Giuseppe Recchi, Chairman of Eni.
In conclusion, the panel agreed that the continent’s governments must implement far-reaching structural reforms if they are to create a flexible labour market, boost competitiveness and better the cost and ease of doing business.
The internationalisation of the Renminbi has created some exciting opportunities in the Hong Kong Insurance sector. Choy Chung-Foo, CEO of BOC Group Life Assurance, talks about the benefits of close economic ties between China and Hong Kong, and why international investors should be considering Renminbi insurance.
Choy Chung-Foo: First of all, let me thank World Finance and the judging panel for giving BOC Group Life Assurance this award. We offer a full range of life, annuity, and health products that meet the needs of customers at the different life stages.
World Finance: And what is BOC’s position in the local life insurance market?
Choy Chung-Foo: In Hong Kong, insurance market ranking is based on annualised first year premium, generated by insurance. On this basis, BOC Group Life is among the top life insurers in Hong Kong in recent years. For the first quarter of this year, we were number one in the market share. Renminbi offshore insurance was first introduced in Hong Kong by us at the end of 2009. Being the pioneer in this business, we are solidly ahead of our competitors, taking over 50 percent market share in this business.
Like all Hong Kong based companies, we have been benefited by the close economic relationship between Hong Kong and mainland China
World Finance: China has been making huge economic reforms, so how has this impacted the insurance business in Hong Kong?
Choy Chung-Foo: Like all Hong Kong based companies, we have been benefited by the close economic relationship between Hong Kong and mainland China. The mainland of China is now promoting the increasing views of Renminbi globally, and Hong Kong is the major offshore market to achieve this goal. We seized this opportunity and have built our Renminbi insurance portfolio quickly to become the market leader in the Renminbi insurance market.
World Finance: Tell me more about Renminbi insurance. Why should international investors be looking into it and what resources are available?
Choy Chung-Foo: With the increase in economic activities between China and other markets, there is an increasing use of Renminbi globally. More and more people may want to go to China, for education, business, and for retirement. Also, as Renminbi increases its international presence, it becomes one of the world’s major currencies. Investors naturally have incentive to diversify their portfolio to improve Renminbi assets as a result.
The need to acquire Renminbi assets to support these activities increases. Renminbi insurance helps investors in their planning to meet these needs. Insurance business is now of the strategic focuses of the group. With the continuous support from the group we’re working on an international expansion plan, which we shall share in due course.
Japanese Prime Minister Shinzo Abe has discussed his country’s fraught relationship with China during a moderated discussion with journalists at the World Economic Forum meeting in Davos.
“Unfortunately with China we don’t have a clearly explicit roadmap,” said the Prime Minister. “There may be some conflict or dispute arising out of the blue or on an ad hoc level or inadvertently.”
Unfortunately with China we don’t have a clearly explicit roadmap
Abe also referred to a “new dawn” rising over Japan, speaking about his “Abenomics”. He alluded to the upcoming complete liberalisation of the Japanese electricity sector and of labour market reforms that are in the pipeline. He also suggested that corporate tax cuts are eminent as well. When FT correspondent Gideon Rachman pressed Abe on the risks associated with his economic policy, the prime minister answered with a golfing metaphor. “He said that like a golfer, stuck in a bunker for 15 years, but reluctant to reach for the sand wedge, in case they over-hit the ball and shot out of bounds,” wrote Rachman. “Now Japan had finally had the courage to use the sand-wedge.”
Abe was also keen to emphasise that much of his plans involve attracting significantly more women into the workplace than ever before.
However, the greater focus of the talk was on Japan’s relationship with China and Abe refused to rule out any conflict arising in the near future.
A panel of five experts gathered today at the World Economic Forum in Davos to discuss Africa’s growing population, which is forecast to reach two billion by 2050, and the ways in which the continent can ensure sustainable and inclusive growth for all.
The panelists opened by discussing the ways in which Africa differs to that depicted by the media, making specific reference to the conflict in South Sudan. “I want to agree that very much is positive on the continent,” said Winnie Byanyima, Executive Director of Oxfam International. “It’s so good to hear it from both the private sector and government,” she said, after Nigeria’s President, Goodluck Ebele Jonathan and CEO of Dangote Group, Aliko Dangote spoke about the region’s recent progress and bright prospects for the future, on both social and economic fronts.
“My vision is that if you look at the Africa of 2050, we should have a united Africa, an African economic community where we have only one common market, where there will be free movement of goods, services and people,” said Dangote. The company CEO then went to on to outline a vision for the future, in which Africa would supply not just raw materials, but the workers and factories required to facilitate these operations, in effect reaping far more sustainable rewards for the continent.
I feel ashamed that trade between our countries is only at 11 percent
“I feel ashamed that trade between our countries is only at 11 percent,” said the Nigerian President, “it’s unacceptable.” The inability to move freely from country-to-country without incurring extortionate border fees was an issue that dominated the hour-long discussion, as each member of panel conceded that it was an incredible opportunity for the continent going forwards.
“Our target by 2050 should be 80 percent of the inter country trade flows,” said Julian Roberts, Group Chief Executive of Old Mutual, who acknowledged that the barriers between African nations are holding the continent back. “The opportunities are there, and the trade will flow.”
The potential for growth was best summed up by Dangote: “Imagine if we had sufficient infrastructure or sufficient power, and not only that, but going forward, if we’re going to even grow at 4.5 percent until 2050, it means that Africa will have a total GDP of about $9trn; that’s twice China today.”
Panelists
Julian Roberts Group Chief Executive, Old Mutual, United Kingdom; Co-Chair of the Governors for Financial Services Industry for 2014
Mexico’s economy has undergone drastic change in recent years. The government is now looking to pass several tax reforms. Luis Gerardo Del Valle Torres and Alejandro Aceves Perez, Managing Partner and Tax Partner of Jauregui and Del Valle, talk about the proposed reforms and how they are expected to impact investors.
World Finance: Luis, tell us more.
Luis Gerardo Del Valle Torres: Economically speaking, it’s always stated that it’s better to have the resources in the hands of the businesses rather than in the hands of the government. The government is coming up with a 10 percent dividend tax, and that did not exist before, and it’s also increasing considerably the individual’s tax rate from 30 to 35 percent. So any tax reform that just intends to collect more revenue will always and has always been controversial.
World Finance: Alejandro, how will this impact on Mexico’s investment climate?
Alejandro Aceves Pérez: One of the objectives is to increase the collection of revenues for the government, so there is no doubt that it will affect the investment climate. However, we do not consider that this will have a significant negative effect, because the opportunities are there, the markets are there, and we still believe and consider Mexico to be a very attractive place for foreign investors.
Our advice to multinational companies is mainly to be careful to take care of the new regulations in order to avoid the negative consequence
World Finance: What advice would you offer multinational companies who could potentially be impacted?
Alejandro Aceves Pérez: As the tax climate becomes more complex, multinational companies are required to carefully analyse the way they have been performing operations in Mexico. Our advice to multinational companies is mainly to be careful to take care of the new regulations in order to avoid the negative consequence. From an operational perspective, everything becomes more complex, so they need to be closer to their tax advisors, to their legal advisors, so basically they do not have any future negative consequences with respect to the creation of liabilities. So everything basically gets to a more complete environment from a legal and tax perspective, that’s our view.
World Finance: And what opportunities are there for foreign investors? If you think about the various sectors, are there any that are specifically open to them and are there any that are off limits?
Alejandro Aceves Pérez: The real estate sector has been very attractive to both existing investors and new investors, either from Mexican sources or from foreign sources. That has been under a very dynamic environment very recently, so in the future for certain that is one of the major opportunities that our country’s offering. One of the off limits sectors, what we call the energy reform may provide the opportunity to open that sector to foreign investors. That has been under discussion and depending on how they perform the analysis, what the outcome is, we may be seeing more foreign investors coming to our country with respect to the energy sector, which now probably is closed to certain company profiles. That could be off limits at the moment but that might be opened in the very near future.
World Finance: The OECD commenced an action plan with respect to base erosion and profit shifting. Tell me more.
Luis Gerardo Del Valle Torres: What the report suggests is that governments come up with general anti-avoidance provisions, that they tighten the CFC. By CFC I mean controlled foreign corporations regimes, meaning that whenever the trans-nationals try to organise their business in a way that actually shifts profits from a higher tax jurisdiction to a lower tax jurisdiction, that that’s just included in the basis of wherever the company’s a tax resident.
Mexico is still a very powerful economy, there are a lot of opportunities
World Finance: How will this impact Mexico, and what is the country’s take on it?
Luis Gerardo Del Valle Torres: All of this tax reform will clearly impact the decision of trans-nationals, of where, when and how much to invest. Mexico is still a very powerful economy, there are a lot of opportunities and the Mexican government is relying on the fact that just increasing taxation with this 10 percent dividend tax shouldn’t affect the decisions of trans-nationals in a way that should affect the economy, or the investment that we’re expecting will come into country in future years.
World Finance: And finally, why should investors look to Mexico?
Luis Gerardo Del Valle Torres: The productions costs are still low, probably not as low as in China or as in certain other countries, but then the development of the Mexican economy, the services that are available, the privileged geographical location of Mexico, should be taken into consideration, so I think we’re clearly going to be competing strongly against great countries for foreign investment.
World Finance: Luis, Alejandro, thank you very much for your time
Alejandro Aceves Pérez: Thank you.
Luis Gerardo Del Valle Torres: Thank you for inviting us.
A Reserve Bank of India (RBI) panel has recommended an overhaul of the country’s monetary policy. The committee said that the consumer price index (CPI) inflation should be used to establish a formal inflation target of four percent. The report detailed that the long-term retail CPI target should be within a two percentage point range of the established target in just over two years.
Retail inflation currently stands at 9.9 percent, and as the panel suggested, this should be reduced to eight percent in 12 months and six percent the following year. Failure to meet targets would result in a public statement, as in the British model.
Failure to meet targets would result in a public statement, as in the British model
Currently, the Indian Central Bank doesn’t have a formal inflation target and the recommendation laid out by the committee is a big ask given the country’s near double digit price increases. Such changes would shift the emphasis from wholesale price inflation – India’s current main price movement indicator – towards global norms. This would result in greater transparency and predictability; a stark contrast to the central bank’s history of setting ad-hoc interests rates, often to the surprise of international markets.
Historically, the RBI has based policy on its own perception of inflation, currency stability and growth. “It will be a very, very important step for monetary policy in India,” chief economist in Asia for JPMorgan, Jahangir Aziz, told the Financial Times. “Until now, we’ve had no idea what the RBI is doing. If this proposal goes through, we will have a quantitative objective by which we can judge the RBI’s performance.”
The 130 page report also recommended the formation of a monetary policy group, whose primary objective would be inflation management. At present, interest rate decisions are made solely by the RBI governor. This committee would be led by the government and meet every two months to discuss monetary policy.
The current RBI panel was established shortly after former IMF chief economist Raghuram Rajan became governor last year. Its aim is to get New Delhi to cut its budget deficit to three percent of the GDP within three years, while loosening its control over prices. These suggested reforms coincide with general elections, which will be heavily based on being able to offer stable prices.
Despite normalising the country’s monetary policy, Indian business groups stand to be disadvantaged by such modern reforms. For years, these groups have blamed high interest rates for deterring new investment. Only once India successfully regulates its fiscal policy structures will the accuracy of these allegations come to light.
Three years after the devastating tsunami that led to the Fukushima power plant disaster, Tokyo Electric Power (TEPCO) has finally been given the go-ahead by the Japanese government to start rebuilding its business. The company, which is now state-controlled, has kept its nuclear reactors offline since the disaster. The agreement will involve over one trillion yen in cost cuts for TEPCO, and there are plans to restart its two main reactors as early as July.
There is fierce opposition in Japan to resorting back to nuclear energy after the Fukushima meltdown
“As an electricity utility we’d like to have nuclear power as an option to sustain a stable power supply,” Naomi Hirose, president of TEPCO, told reporters in a press conference. “If the Kashiwazaki-Kariwa plant restarts, the company will be able to generate electricity from sources that will allow us to cut rates.”
The Kashiwazaki-Kariwa plant is the world’s largest nuclear reactor, and TEPCO has announced its plans to restart it by July. There is fierce opposition in Japan to resorting back to nuclear energy after the Fukushima meltdown. Before the disaster, up to a quarter of Japan’s power was generated from nuclear plants, but it has since been relying on oil, coal and gas plants for power, at huge cost to the economy.
TEPCO has announced it is considering making investments of up to 2.67 trillion yen in order to rehabilitate its nuclear business by boosting upstream projects and overseas electricity businesses. When outlining the plans, TEPCO suggested it would borrow two trillion yen from fresh lenders as soon as possible.
The Social Market Foundation, a leading cross-party think tank, released a paper called In the Balance: The STEM Human Capital Crunch in March 2013. The key findings of the study were that a labour shortage was preventing growth in the Science, Technology, Engineering and Mathematics (STEM) sectors. The paper referenced a study published in 2011, in which it was reported that 26 percent of STEM vacancies could not be filled, and that 21 percent of these vacancies were “skill shortage vacancies”. The findings echo those of several other studies from around the world, and some high profile business leaders have weighed in on the debate.
One of the most prominent is Sir James Dyson. Writing in the Huffington Post, he claimed the UK lacks the engineers required to build the recently announced Hinckley Point nuclear power plant. He said: “The government… signed an agreement which means our looming energy crisis will be solved by nuclear power stations built by the French and owned, in part, by the Chinese. This demonstrates the impact of Britain’s skills shortage and our lack of ambition.”
As part of a plan to improve British infrastructure by encouraging innovation in technology and design, the government announced £400m will be invested in higher education science and engineering by 2016
In the same article, Dyson wrote that Britain only produces 12,000 engineering graduates a year. Speaking to The Telegraph before that piece was published, he quoted the same figure and said there are currently 54,000 STEM vacancies in the UK. He said: “The Chancellor wants to increase exports to £1trn by 2020. But how, when we are importing expertise and it is predicted that we will have a deficit of 200,000 engineers by 2015.” Dyson said his own company was struggling to fill 650 vacancies.
Dyson has been a long-term advocate for increasing the number of British engineers. In 2010, he was invited by the Conservative Party to compile a report outlining what needs to be done to boost the engineering and technology sector. In 2012, he told The Guardian tuition fees should be waived for engineering undergraduates and post graduates should be paid £40,000 a year. Dyson also suggests an overhaul of the visa system would allow international graduates to stay and work in the UK to improve the labour force.
As part of a plan to improve British infrastructure by encouraging innovation in technology and design, the government announced £400m will be invested in higher education science and engineering by 2016. According to David Willets, UK Science and Universities Minister, this investment will include £200m from the Higher Education Funding Council for England with the other half being matched by the universities receiving the funding.
The goal of the fund is to improve facilities and increase the number of science, technology and engineering students to compensate for a shortfall of workers in these sectors. Another focus of the investment is to double the proportion of women in the science and engineering sector from the current 16 percent, to 30 percent by 2030.
The STEM myth
There has been talk of a similar crisis in the US for decades – recently investigated by Dr Robert Charette, Contributing Editor at IEEE Spectrum Magazine. In his article “The STEM Crisis Is a Myth”, Charette strongly opposes the argument that there is such a shortage. The piece has received a lot of positive feedback from STEM graduates who claim they are unable to find work despite the supposed labour shortage: it has also received negative feedback from industry insiders who claim they are unable to find a sufficient quantity of candidates to fill vacancies.
Charrete analysed data published in articles, white papers and government studies about global STEM labour shortages from six decades and what he found was compelling. Charrete points out the same argument has been reiterated for decades, with a lot of inconsistency in the presented data. He suggests “powerful forces must be at work to perpetuate the cycle”.
Charrete’s work has received mixed reactions and has been asked to prove his findings. However, he says it is not up to him to prove anything as he was merely analysing the data provided: “It’s really not up to me to be proving you wrong, if you’re screaming that there’s a shortage, it’s really up to you prove that there is a shortage, given that you’ve been crying wolf for 50 years.”
One theory as to what is “perpetuating the cycle” is that an excess of science, tech and engineering professionals are necessary to create a bigger pool of skilled labour for employers to choose the best from. Charrete writes: “companies would rather not pay STEM professionals high salaries with lavish benefits, offer them training on the job, or guarantee them decades of stable employment.” The more skilled STEM workers there are, the greater the chance of the ‘best and the brightest’ contributing to innovation in areas such as national defence, manufacturing and computer technology.
Running the numbers
Comparing various reports of UK engineering and tech graduate shortages with the actual numbers reported by the Higher Education Statistics Agency (HESA), it is difficult to overlook the fact the data doesn’t match up. The point of comparing the two is not to prove anybody wrong. The increased investment in science, technology and engineering education is undeniably a good thing.
16%
Proportion of women in UK science and engineering
£400m
UK investment in higher education science and engineering by 2016
The improved measures to increase female representation in these sectors is also a good thing, as is relaxation of the current ELQ funding rule in order to allow people to retrain in these fields. However, the figure of 12,000 British engineering graduates is quite vague, especially seeing as, in 2012, the BBC reported there was a shortage of engineers due to there being 23,000 graduates a year. It was not specified if these were post-graduates, undergraduates or PhD graduates – although, according to the HESA, there were a total of 50,680 “broad based engineering and technology” graduates in the 2011/12 academic year across all levels.
Of those graduates, 23,595 were undergraduates, 1,785 were described as “other postgraduate” and 18,395 were described as “doctorate or higher degree”. In the broad sense of the definition, which seems to be what is being reported, there are a lot more than 12,000 graduates.
It appears several factors are contributing to the reported shortage of engineering and technology labour. It may be the shortage of STEM workers being referred to could be better described as a shortage of ideal candidates. This would explain why business leaders such as Dyson call for looser immigration policy in order to create a larger pool of professionals. This also explains the £400m investment in science and technology training to improve graduate skills.
Furthermore, employers require graduates to be ‘work-ready’, which is often difficult in any field, as graduates often need a period of real-world experience in order to apply what they have studied to reality. It could also be the case that STEM graduates without the grades or experience to be employed at companies such as Dyson are taking jobs in other sectors. It really doesn’t help that there are a lot of inconsistencies in the data quoted by various commentators as it is adding to the confusion about the matter. However, overall, it seems the reported shortage of STEM labour might be a matter of quality, not quantity.
CapitaLand has grown to become one of Asia’s largest developers. Arthur Lang, CapitiLand Group CFO, talks about CapitaLand’s focus on China and Singapore: China’s five ‘city-clusters’ that are driving the real estate market, and how Singapore’s low interest rates are affecting property investments.
World Finance: Mr. Lang, which countries are you targeting for growth and why?
Arthur Lang: CapitaLand today is in almost 20 countries all over the world, even in Europe and in the UK, where our serviced apartments are, but really the focus is very much on Singapore and China. I think for Singapore and China alone today, it’s about 75-80 percent of total assets for the group. If you look at all the projects and activities we’re involved in in these two countries, I think in the next five years I wouldn’t be surprised if it’s about 85 percent of our total assets and total business. Specifically if you look at China, it’s perhaps the best place to do business in Asia, with 1.3-1.4bn people; it’s a huge market. I think more importantly as well, urbanisation rates in China are still relatively low compared to the developed world, it’s still in the 50 percent area, the developed countries are in the 80s or even in the 90s, in terms of the population that’s urbanised.
World Finance: Well staying on the subject of China, and we obviously hear an awful lot about the potential in the country, but there is a lot of talk about a possible housing bubble. How much of a problem do you see this being?
The urbanisation rate for China is still relatively low compared to other large countries, so there is still a lot of room for growth
Arthur Lang: With the new government I think we are still fundamentally confident with the residential sector, the property market in China, for the reason I mentioned earlier; the urbanisation rate for China is still relatively low compared to other large countries, so there is still a lot of room for growth. I think we are also very encouraged by the recent measures from the Chinese government to cool the residential sector down, and not create bubbles. Because I think for real estate companies, what we really like is sustainable growth, where we can make proper investments, we can make judgments in terms of which cities to invest in. If there are a lot of bubbles I think things get a bit too volatile, and it’s quite disruptive to business, because real estate is a very long-term business, and actually we wanted to grow sustainably.
World Finance: Would you say the housing bubble is perhaps less of a concern in places like China because there’s so much demand for housing there?
Arthur Lang: It really depends on which city you are looking at. China has something like more than 600 cities with populations of at least a million, so we can’t be in every city, and I think that each city has its own dynamic, has its own regulatory requirements, has its own market demand dynamics. So we need to look at each city. China as a whole, we are very bullish on its overall economic performance over the next 10-20 years, but I think also at the city level we have to look at and see where we want to place our bets.
World Finance: So moving on to Singapore now, where CapitaLand is based, the property market there has been flourishing due to low interest rates, so how do you see the new total debt servicing ratio impacting the market?
Arthur Lang: There have been a series of property cooling measures instituted by the government for the last three years, the last one being the total debt service ratio, TDSR. Cumulatively, that has actually moderated the residential market in Singapore. Now in terms of what we think of the prospects, the fundamentals are still there for Singapore. Population growth is still increasing, and I think the government is still wanting to make sure Singapore is a great place to live as well as a place to do business.
World Finance: CapitaLand has achieved great success over the past few years, in part because you haven’t relied on one source of funding. So why do you think it’s important to diversify sources of capital?
I think the government is still wanting to make sure Singapore is a great place to live as well as a place to do business
Arthur Lang: The realistic developments are a very long gestation period, meaning that at the point of buying the land and when you actually spend capital, in putting capital to buy the land and to build, you don’t see that capital coming back to you until a few years later. In certain very large projects it could take seven to eight years before you actually see the capital return.
Two, I think real estate fundamentally or inherently is a very cyclical business. There are peaks, there are troughs, we talked about bubbles earlier. So I think one needs to understand the cyclicality of the industry.
Three, I would say that right now, especially in Asia, where we are focused on our cities in Asia, the ticket size of real estate has become a very intensive business. For example, in Singapore I always tell my colleagues that any building and any office building in the CBD in Singapore costs you at least a billion dollars. So large amounts of capital are actually needed to make sizeable investments in Asia.
World Finance: Well finally, I think the question most people want answering is, where’s the next big thing, where will you next be targeting for investment?
Arthur Lang: I think we’ve got our hands full in Singapore and China. It’s definitely these two countries, as I mentioned earlier, we’re fundamentally very confident about our prospects in these two countries, and we still want to continue to grow there.
World Finance: Will you maybe be going to more third tier, even fourth tier cities, rather than just the major cities like Shanghai, Chongqing?
Arthur Lang: I think at this point if you look at, probably about 90 percent of our China business is concentrated in about 10-11 cities in China. I think that what we want is to really go deep, deepen our presence in these cities. So what we have done is, we’ve actually created five city-clusters at CapitaLand within China for China business. And each city-cluster is anchored by one of the major cities. So in the northern part of China, we’re Beijing, in the eastern part we’re Shanghai, in the southern we’re Guangzhou, Central we’re Wuhan, and then in the southwestern with Chongzhou, Chongqing. So I would say at this point we’re still very much focused on these five city-clusters, but always keep your options open, so maybe next year there might be a sixth city cluster, but at this point it’s five.
World Finance: Mr. Lang, thank you.
Arthur Lang: Thank you Jenny, thank you very much.
