The shadow of a hard Brexit

The quest for national sovereignty – or a sovereignty recognised by a majority of Brexiteers – is almost at an end for Boris Johnson’s government. By the time World Finance goes to press, the picture will be clearer and several decades of mutual trading cooperation and easy travel will cease between the UK and the EU. New trading frictions will commence. Even with an agreement ratified by the end of 2020, the vast amount of red tape won’t be hugely reduced – the government’s harder Brexit line and quitting the customs union and single market has seen to that.

As early winter unfurled with much of the City of London emptied of life, Johnson did little to reduce the risk of an accidental no-deal. Though the influence of core Brexiteers was cut thanks to November’s ejection of chief adviser, Dominic Cummings, bringing much relief across Whitehall, there was little softening of the line from UK chief negotiator David Frost. In late November, Chancellor Rishi Sunak went on the offensive, claiming COVID-19 was a bigger threat to the economy than a no-deal scenario. Bank of England governor Andrew Bailey disagreed, however, and the London School of Economics supports his contradictory views.

Since quitting the EU on January 31, 2020, the consequences of a hard position – which is what the UK has now largely chosen – have become more stark. The UK exports more than £25bn worth of financial services a year. Did the government do enough to protect it? “Very early on, we called for regulatory equivalence for financial services to be at the heart of a post-Brexit trade deal,” London mayor Sadiq Khan said as negotiations neared the last furlough. “But the government has instead placed its red lines around symbolic, but relatively niche ground.” The niche ground Khan referred to in barely coded words is fisheries. Fish is a subject that pulls in public – and therefore voting – interest as opposed to the City of London, even if the City employs more than 500,000 and the fishing industry 24,000. The nautical roots run deep.

Across the channel, European leaders have been overwhelmed by COVID-19, putting pressure on Michel Barnier, forced into isolation in late November, to keep dialogue on track despite the threat of on-off suspensions (both Barnier and David Frost contracted the virus earlier in the year). If Barnier pulls off an agreement it still must chunter through a number of committees before a plenary vote. It has to be translated, be legally tight and approval must come from both the European Parliament and the EU Council.


Higher downside pound risk
Speaking to World Finance, Western Union International Bank currency strategist George Vessey said markets had broadly priced in a deal, and that compromise was more likely to come from the UK than Brussels. “In terms of traders holding short or long positions on the pound,” said Vessey, “it’s pretty much flat. If you compare that to the majority of the last four years, around 80 percent of the time traders have held a bearish position on the pound, expecting it to devalue.”

So while there is anticipation for a deal, with that comes more downside risk for sterling. “If we get a deal, then the pound should start to appreciate, but the upside potential to appreciate is definitely less so than the downside risk, should we end up in a no-deal scenario. That is the concern – that markets are anticipating a deal exposes more downside risk to the pound if it doesn’t come to fruition.” The many overlapping EU and UK rules – one example of the possible chaos may see EU banks re-route derivative trades via New York if working equivalence isn’t agreed – is just one of the City anxieties. The scale of derivatives trading is huge. The Paris-based European Securities and Markets Authority, an EU agency, has been working on a solution, but detail has been scant.


Does a post-Brexit European banking crisis loom?

The number of non-performing loans as a result of COVID-19 could hit levels well beyond those of the 2008 financial crisis thinks Andrea Enria, chairman of the supervisory board of the European Central Bank. “The European Central Bank,” Enria warned in the FT, “estimates that in a severe but plausible scenario, non-performing loans with euro area banks could reach €1.4tn, well above the levels of the 2008 financial and 2011 EU sovereign debt crises.”


Journey to the edge
Meanwhile, many British registered financial operators will lose their right to sell funds or give debt or insurance advice right across the EU, even if Barnier pulls off an agreement. But ex-EU trade spokesman Peter Guilford was confident that emotions, in the end, will be overcome. “The EU Commission’s job is to broker deals between forces bigger than itself, within Europe and outside,” he said in the FT. “It has nerves of steel, the hide of an ox and no fear of cliff edges.”

Stakes in previous trade negotiations – the so-called Uruguay Round, spanning 123 countries – he points out, “were higher than those of Brexit: more countries were involved, there were more sticking points and a less united EU, not to mention entrenched opposition from European and US farmers to a deal at all.” Practically, for British consumers, some food shortages may occur as around 40 percent of the UK’s food and agricultural products are currently EU-sourced. Grocer Sainsbury’s has already flagged up concerns about the supply of dairy and fish products unless EU controls for larger traders are waived. Fresh food supplies are certainly at higher risk. Inevitably, some supermarket prices will rise.

For Boris Johnson now comes the hardest part – piloting a responsible path out of the pandemic while reviving his government

Another issue surrounding potential shortages is the current supply to the UK shores. The UK’s biggest container terminal, Felixstowe, has been ranked the worst-performing container port when benchmarked against key competitors, including Hamburg and Rotterdam. The so-called ‘Port of Britain’ – it absorbs more than 35 percent of all the UK’s container goods – is subject to constant congestion, according to new data from IHS Markit. Felixstowe Ports is owned by Hutchison Ports, which blames Brexit stockpiling and COVID-19 related pressures for current delays, including around 11,000 containers of PPE. Some shipping companies have redirected ships away from Felixstowe due to worries about unloading capacity or berthing slots.

There are also complaints about the port’s vehicle booking system from trucking companies struggling to get loading slots, a problem that may be exacerbated without a trade agreement. Most Brexit voters gave Ireland little thought in the June 2016 referendum. But Northern Ireland is leaving the EU – sort of. While goods and people can move freely between Northern Ireland and the Republic of Ireland – a priority for peace – a customs border in the Irish Sea means goods coming from Britain are subject to EU customs rules. That means a customs declaration and detailed checks, in some cases. This remains in place for six years. Many Northern Ireland unionists deeply resent the so-called ‘sea border,’ seeing it as a move that undermines their existing membership with the UK. The threat to override parts of the UK-EU withdrawal agreement via the recent Internal Market Bill, breaching international law, has ratcheted up tensions.

Across the Atlantic, the Biden administration will be intent on putting pressure on Johnson to ensure that the Good Friday Agreement is linked to future trade negotiations. Johnson’s – at times slavish – relationship with Donald Trump has gone down badly with Biden and we should expect Biden to bypass Johnson in favour of Angela Merkel, at least initially. If there is no deal and a lack of commitment to the Withdrawal Agreement then a US-UK trade deal gets much trickier.


The regional and local reality
Whatever happens, the outlook for much of the UK does not look promising. The lack of access to EU funds for poorer parts of the UK may mean some inter-EU relations are reduced to the level of ‘town twinning.’ Europe remains vital to much of the north east of England with strong trading links to Oslo, Gothenburg and Rotterdam, as just one example of this. The north east, with its strong manufacturing centres including the car industry, is vulnerable to higher tariffs and trade costs, as is the West Midlands. The UK’s Society of Motor Manufacturers and Traders (SMMT) warned that failure to secure a good deal could cost the UK auto sector £55.4bn by 2025. And a default WTO tariff would pile on almost £3,000 to the price of a new electric vehicle, SMMT president Dr George Gillespie predicted.

No deal or thin deal, Britain is the only country that joined the EU and left. For Johnson now comes the hardest part – piloting a responsible path out of the pandemic while reviving his government. That means reaching out to the many he has sidelined or dismissed and addressing, with sincerity, the UK’s deep regional inequalities.

Confidential Cabinet Office notes reported by the media in late November point to a higher chance of UK “systemic economic crisis” – quitting the EU, COVID-19, a bad flu season, the threat of mass unemployment and higher risk of public disorder as many people’s finances deteriorate post-Christmas. It’s a hard winter ahead.

Is America back?

Stock markets barely turned a hair on the change-of-president news in early November 2020. There was no dive or Armageddon, no rush for the exits in anticipation of a Democratic Biden administration determined to punish climate-heating polluters and other stock market villains. But the market’s positivity was less an endorsement for the president-elect and more an exhalation of relief that the US had narrowly avoided a contested result: a constitutional crisis with Donald Trump firing grandstanding tweets, or even refusing to quit the White House. Above all, markets love certainty.

Market sentiment was also buoyed by COVID-19 vaccine hope shortly after, popping energy back into retail, travel and banking stocks. “We are still months away from any vaccine being widely available,” asset manager giant BlackRock noted in mid-November. “But the game changer is that we now know we are building a bridge to somewhere, providing more clarity for governments and companies about getting to the post-COVID-19 stage.”

But markets also have the certainty of the world’s most powerful democracy bitterly divided. In November 2020, Donald Trump pulled in the second highest number of votes in US election history, albeit less than his opponent. After four wild years, Trump’s centrifugal force is extraordinary. Chief investment officer Thomas Beckett of Punter Southall Wealth told World Finance that despite Biden’s victory, “it was a disappointing night for the Democrats and far below most expectations.

It is going to be challenging for the Biden administration to achieve anything structurally significant with the Senate in the grips (just) of the Republicans.” The disappointment for the Democrats is considerable. Biden won, yes, but without a clear majority in Congress, depriving him of a solid political base.


Hot influencers in a swing state
Biden’s capacity to govern may change with the Georgia run-off elections. Who wins in Georgia will determine which party controls the US Senate. Currently (as of December 2020) the Republicans have a 50–48 majority in the Senate. If Democrats take both seats in this once solid Republican state – now a swing state – Vice President-elect Kamala Harris gets the tiebreaker vote. So the stakes are enormous. Georgia has massive racial divisions and inequality. The capital, Atlanta, is the cradle of the state’s civil rights movement. Georgia hasn’t voted Democrat since Bill Clinton’s election nearly 30 years ago. Georgia, though, is increasingly polarised from rapidly changing demographics – mainly young and diverse, which favours the Democrats; think ‘hot’ influencers, Twitch and politically tinged live streams.

The 2020 election demonstrated that the economy must benefit the working class more in future if the ideological chasm between Democrats and the Republicans stands a chance of narrowing

Pollster and strategist Frank Luntz told CNBC it’s the most important Senate election in modern times – and could go either way. “Whether they roll back Trump’s tax cuts or introduce a green new deal – if the Democrats can win both of those seats back then they will be in control of the Senate and the President will have an agenda that won’t be able to be challenged by Congress.”

If Republicans win just one seat they control the majority and therefore the Biden agenda. So the Georgia run-off will determine the nuts-and-bolts of Senate decision-making and the committees spanning banking, finance, taxation and judiciary. The consensus is that the Republicans will hang onto the Senate. “US voters have this admirable ability to not give politicians too much power,” Chris Beauchamp, chief market analyst at IG, told World Finance. “The perception among many swing voters may be that while we’ve given Biden a chance, we don’t want to give him the keys for everything.”


Joe Biden: the 46th President of the USA core Biden quality – the capacity to work with opponents – has never grabbed headlines.

Biden is more the steady journeyman in search of a better outcome, though at some personal cost.

The twin tramlines of tragedy and success have closely tracked his life.

He became a US senator in 1972, defeating strongly liked rival J Caleb Boggs despite a campaign bereft of funding and, often, hope.But he clinched it by 3,162 votes – the closest Senate election of 1972 – thanks to an ability to connect with voters.

But this achievement was over-shadowed by the tragedy, almost immediately afterwards, of his wife Neilia and their one-year-old daughter, dying in a horrific car accident.

He’s held down torturously difficult positions on racial equality, notably the Senate school busing programme, in the 1970s.

The close relationship with ex-President Obama, a man he often calls his brother, has cemented support from African-Americans as well as blue-collar white voters.

While a big supporter of public healthcare and mental health programmes, Biden’s also faced allegations of misconduct, overcoming accusations of assault by ex-Senate employee Tara Reade.

In 2015 his son Beau, attorney general of Delaware, died of brain cancer, forcing Biden out of the race against Trump.

He now needs every ounce of his low-key bipartisan stamina and judgement to steer America back from four years of comparative isolationism to the familiar ground of multilateral agreements, compromise and the ability to work together – the essence of what the US Founding Fathers intended.

But he will also have to navigate a party with a diverse range of views. Many Democrats are going to be disappointed and the splits will be uncontainable.


Blue-chip help with gridlock?
If there is probable Senate gridlock then the chances of meaningful future US economic stimulus to support the economy – many states were coming to terms with more COVID-19 shutdowns back in November 2020, putting the brakes on a recovery – may fall. VTB Capital global macro strategist, Neil Mackinnon, told World Finance, “At best, it may be $1trn which would be mainly fresh income support and replacing unemployment programmes. It’s highly unlikely we’re going to get a $2.5trn package.” That $2.5trn figure had even been endorsed by Trump, going along with the Democrats, “though that had likely been driven by the opinion polls at the time” adds Mackinnon. Senate majority leader Mitch McConnell doesn’t believe Americans need a multi-trillion dollar aid package.

But Biden is determined to get collaboration from corporate America to tackle the pandemic crisis. Biden, remember, has been here before: in 2009 Barack Obama charged the President-elect with the oversight of a near $800bn stimulus package to drag the US out of the global financial crash. Little change is expected at the Federal Reserve. Fed chief Jerome Powell sees his tenure end in early 2022. Powell, a Republican, has paid attention to job growth, earning him brownie points from Democrats keen to see issues like wealth inequality – particularly racial wealth imbalances – raised. The inequality point is complex but vital: the 2020 election demonstrated that the economy must benefit the working class more in future if the ideological chasm between Democrats and the Republicans stands a chance of narrowing.

Elsewhere, hopes for sterner financial regulation, urged by Democrat senator Elizabeth Warren, could see Biden ultimately replace Powell, but the Fed boss himself has endured a fractious relationship with Trump. He remains a continuity figure. Currency moves are notoriously difficult to anticipate but a weaker dollar appears likely, helping US exports and lifting Asian currencies. While trade negotiations, particularly with China, will take a more conventional tilt, Biden leads a divided government, which impacts on the greenback because of policy uncertainty.

But with the money taps open from the Federal Reserve plus more government aid money to tackle COVID-19, inflation may climb if enough spending gets underway from both businesses and consumers. In ‘normal’ times this would reasonably see the Fed hike rates. The Fed has switched its inflation target from two percent to an average of two percent. It’s a small but important nuance, allowing it to delay hiking rates for longer. Many dollar-denominated investors may be deterred and look elsewhere for a home for their money.


Outlook for stocks
A normalising of geopolitical relations will likely favour biopharma companies, as Biden is keen to expand the Affordable Care Act. Chinese stocks – think e-commerce and payment names like Meituan and Tencent – may also gain thanks to a more stable trading US outlook. Some blue-chip European stocks have taken a beating from Trump tariffs, particularly on the automotive and engineering front. But Biden has pledged to rejoin the Paris Agreement, which the US pulled out of in 2017. So, spending on infrastructure for EVs, wind and battery science is good news for this sector.

Much depends on COVID-19. Biden has assembled a task force led by three respected and qualified co-chairs: David Kessler, Vivek Murthy and Marcella Nunez-Smith. Other members of this taskforce are specialists in their own right, says Russell Shor, senior market specialist at FXCM, “and bring a high level of competence to the table,” he told World Finance.
“That, to a large degree, has lifted the uncertainty of the COVID-19 spread and the insecurities accompanying lockdown,” Shor continues. “More testing is required, but two major uncertainties [Biden win and Pfizer’s and BioNTech announcement of a 90 percent potential vaccine] have diminished and this is good for markets.” The hope for the US must be for calmer waters ahead. There is a lot for Biden to get through during his four-year term and it would certainly be easier if it could start with the Trump sideshow being shown the exit door quietly.

Turning claims into money without the related risk and expense

Debenhams, Jaeger, Laura Ashley and TopShop are just a few of the high street names having gone – or being on the brink of going – into administration in the UK following a trading year obliterated by COVID-19. The who’s who of doomed retailers makes for stark reading. And similar stories can be found in many economies around the world. There is no denying that while the pandemic has hit many sectors hard, high street retailers have suffered significantly with the prospect of survival, let alone growth looking bleak.

For all businesses weathering the storm of the pandemic, minimising costs and realising value is more important than ever. If ever there was a time for lateral thinking and alternative solutions, it is now. To put the wider landscape firmly in the picture, the latest Business Impact of Coronavirus Survey (BICS) conducted by the ONS found that 64 percent of the UK’s six million businesses are currently at risk of insolvency, with 43 percent of companies running on fewer than six months of cash reserves. It will come as no surprise that industries such as retail and hospitality are at particular risk.

The survey also revealed that 14 percent of all UK businesses have already halted trading as a result of local lockdown restrictions. It is in this vein that the Business Secretary, Alok Sharma, has, under the Corporate Insolvency and Governance Act 2020, further extended the easing of insolvency rules until March 2021. This legislation governs whether company directors can keep trading if there is no reasonable prospect that the company can avoid insolvency. If there is no such prospect, the Insolvency Act 1986 requires them to cease trading. These rules were originally relaxed in March 2020 to help troubled firms deal with the financial shock of the pandemic and plot a course through the crisis.


The commodity of time
Businesses can take advantage of the breathing space this relaxation affords to try to avoid insolvency, which inevitably leads to redundancies and knock-on effects for suppliers and business partners. Thinking of new solutions and exploring alternative steps can buy precious time. One such alternative that has proven successful is to look at unrealised assets within the company that are not typical to their ordinary course of business. This can include a range of options, including one many firms will not have thought of – the pursuit of legal claims against third parties.

The prospect for businesses having to litigate is often unattractive and is usually a distraction from their core operations. Litigation consumes internal resources – management time as well as cash. Disputes can take years to resolve and even then, there are no guarantees of success. But the reality is that any commercial dealing comes with the risk of disputes and when they do arise, they need to be dealt with. Businesses struggling in the current economic climate may still have good claims – some may even be directly related to the pandemic – with commercial partners being found to have wronged a company. It could be an unpaid debt, a breach of contract, a breach of a statutory duty or a claim for negligence against advisors. There may also be historical claims that the company has not previously had the time or resources to pursue.

The key is a mindset shift towards viewing litigation as an asset rather than a drain on resources (some disputes can be worth tens if not hundreds of millions). Identifying, bringing and prevailing on these disputes can change the game completely, and the growing sophistication of the litigation funding market has provided support to companies when it comes to ensuring that value is realised from claims. Before the pandemic, the UK insolvency litigation market had grown by 50 percent over the previous four years to be worth approximately £1.5bn per year, largely assisted by an uptake in third-party funding. One study has estimated that the total value of claims funded through litigation funding is worth around £720m per year, accounting for roughly half of all insolvency claims.

Funders can provide funding for all of the legal costs incurred in bringing a claim on a non-recourse basis, as well as covering the adverse costs risk, should the claim not succeed. Funding can also be provided to meet liquidators’ fees, disbursements and other costs. A successful claim not only helps improve the financial position for the business but for its creditors and investors too. In the current and ongoing climate, that is an important factor to weigh up. HMRC is often on the creditors list, so the wider public interest is a factor as well. But litigation funding in insolvency cases is not the answer to all problems. Not every claim will be suitable for funding and it is incumbent upon professional funders not to support meritless claims – the truth is, experienced funders will not entertain them, which makes their decision-making process a good yardstick for what can be pursued.

While governments have sought to insulate businesses from the risk of insolvency in 2020 and 2021, there is no magic wand. The stark reality remains that many businesses, particularly those in more vulnerable sectors such as retail and hospitality, will take time to recover and until then, will remain in a precarious position. An important part of each business’ steps to improve its solvency should include consideration of the genuine claims it may have against third parties – and how securing funding for those claims may be in its best interests.

Citizenship by Investment programmes prove popular

COVID-19 has impacted and shaped the world we currently find ourselves in. 2020 has been unsettling – a year of uncertainty and immobility. With the weight of government decisions and imposed restrictions felt across the globe, it has forced many US citizens to think about their options. Are we safe? Is the economy secure? What does our future look like? Dual citizenship and Citizenship by Investment programmes have long been in place as a viable option for those wanting to diversify their options. The industry has seen a sharp increase in applications from US citizens this year with companies like CS Global Partners helping people gain back some of their freedom.

Micha Emmett, CEO of global legal advisory firm CS Global Partners, has not been surprised by the recent increase, “The coronavirus has hit us all hard. Whether it is through personal loss of loved ones, loss of income or the general loss of freedoms we took for granted. The way various governments have handled the pandemic has differed across the globe and the impact of these decisions have been felt hard by its citizens. Economies have suffered and the full financial impact on individuals is yet to be felt. It makes sense that people have started to think about their Plan B. What are the options? How can I ensure that my family, and my business, are able to thrive?”

As citizenship experts, CS Global Partners are on the pulse of global trends and are constantly monitoring spikes in applications – both from where these applications are coming and to where they are applying. In light of it being an election year and the undeniable controversy and uncertainty that has arisen from it, it is only natural that, combined with coronavirus uncertainty, it has pushed many Americans to look into dual citizenship.

“From US citizens in particular, we have seen an increase in applications to Citizenship by Investment programmes in the Caribbean which, given its proximity to America, makes sense. However, proximity is not the only reason. St.Kitts and Nevis, for example, is proving a very popular choice. The oldest and most established programme, since its inception over three decades ago, it has stood the test of time. Its economy is stable (managing to keep locals financially afloat during their lockdown), their government works well with its people and the lifestyle is a relative safe haven,” explains Emmett.

As a result of the impact of the pandemic on households in St.Kitts and Nevis, Prime Minister Timothy Harris noted that their established Poverty Alleviation Programme (PAP) – which provides low-income households with $500 per month – had supported close to 1000 individuals who had lost income as a result of COVID-19. In fact, PAP is funded by the St.Kitts and Nevis Citizenship by Investment programme donations which highlights the real impact and difference these investor contributions make to the country.

“The PAP beneficiaries count peaked at about 5,800 as more households lost their breadwinners and applied to the Ministry of Sustainable Development to become enrolled as a recipient of the PAP programme. Up to September 2020, my Government has paid out $23 million for the year so far in Poverty Alleviation stipends to assist the poor and vulnerable in our midst,” explained Prime Minister Harris.

Now with the peak of the pandemic having passed in St.Kitts and Nevis, they have been able to open their borders and, with health and safety protocols in place, been able to return to a relatively normal way of life. Which, in comparison with many countries across the world, puts them at an economic advantage.

US citizens wanting to expand their options can rest assured that they are legally allowed to obtain a second citizenship. It is now considered a sought-after benefit, especially in this currently immobile world, to have easy travel access for business. For some US citizens, who have chosen to live abroad and hold dual nationality, they have also chosen to renounce their US citizenship for tax purposes which is an option available to those who want to emigrate from their homeland.

“Obtaining visas this year has been near impossible. Those with dual citizenship have definitely had an advantage. Citizenship in St.Kitts and Nevis, allows you visa-free access to 160 countries across the globe. You cannot over-emphasise the value that ease of travel has in this current time, with borders continually opening and closing to non-citizens. The pandemic is unlikely to be fully eradicated for some time and so the stability that dual citizenship can offer is really an investment in your, and your family’s, future,” says Paul Singh, Director at CS Global Partners.

Citizenship by Investment programmes are a relatively easy way to gain this much needed dual citizenship. By making a donation to specific programmes in the country you are applying to, or by investing in real estate, you are able to secure your citizenship via a quick and easy process. It only takes around 60 days for the St.Kitts and Nevis Programme and, once you become a citizen you are able to pass that down to your children and grandchildren, securing the safety of your future generations.

“The pandemic has changed the world. It has changed how we work, how we live and how we travel. Dual citizenship is now more coveted than ever and, with many reputable Citizenship by Investment programmes in place, it is an accessible option for many,” concludes Singh.

The St Kitts and Nevis citizenship programme is currently offering a limited-time offer for families of up to four until January 15th, 2021. Applicants need only make an investment of US$150,000 instead of the usual US$195,000.

To learn more about St. Kitts and Nevis’s Limited-Time Offer

Click here

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XSpot Wealth: Democratising wealth management

In 2014, two investment professionals created XSpot Wealth, a wealth management business at the intersection of flexibility, transparency, technology and fees. Dimitris Kantzelis is one of those co-founders, and XSpot’s current CEO; he discusses the void created at the lower-income end of wealth management as a consequence of MiFID II, and how introducing XSpot’s AI and trading algorithms to the industry enabled the business to offer a convenient, transparent, low cost and flexible wealth management solution for everyone.

World Finance: Dimitris, why did you create XSpot Wealth?

Dimitris Kantzelis: Well Paul, it was a period of rapid regulatory changes in Europe, with MiFID I and MiFID II coming into place. And we knew that if Europe decided to push for those changes, big banks and traditional wealth management providers wouldn’t have any other option than increasing their fees; making it almost impossible for smaller clients – clients with less than €1m in their accounts – to make money in the long term.

At the same time, we had a going momentum of millennials: people who wanted to start with very low amounts, less than €10,000 possible, and they were seeking digital, robust services for an early retirement.

So, XSpot Wealth was built exactly for this: to help people of every level of income, taking ownership of their financial future.

World Finance: So how do you actually achieve that? How does XSpot innovate in order to deliver on that promise?

Dimitris Kantzelis: The key for us was the use of smart technology. We knew that big banks and traditional wealth managers, they were doing everything manually. Whereas on the other hand, us: we were already using artificial intelligence and trading algorithms when working. So we knew that if we apply some of those rules, we could democratise investing, making it available for everyone.

So, this required big investments in technology, long hours of programming, and filtrating investment strategies in order to bring these investment plans, making them available to everyone. Offering great flexibility, big transparency, and some of the lowest fees in the market.

World Finance: Why would someone choose XSpot Wealth over another wealth manager or bank?

Dimitris Kantzelis: Well I would say everything, but this could be summarised down to five key points.

Convenience: it’s so easy to open an account with us, it takes less than 30 minutes, and even if you have a question our excellent support team is there to help you.

Transparency: we’re fully transparent in the entire process, showing every bit of detail someone needs to know before opening the account, but also throughout the entire process.

Diversification: we give a very big variety of investment plans, matching almost every investment and risk profile. This is great and we let someone choose among those.

Low cost: because we believe that with low costs we help you boost your investments and grow your account even more in the long-term.

And, flexibility: flexibility in changing the plans whenever you feel like, or taking money out, because we don’t enforce high or hidden fees in our accounts.

World Finance: So looking ahead, what are your plans for the coming year?

Dimitris Kantzelis: Yes, after the COVID year 2020 being a bit turbulent – but we had great results in all our investment profiles, which makes us really happy. Our next target for 2021 is to enter another two European countries, reach the first target of 10,000 clients.

And from there onwards jump to the second target, which is 100,000 clients and €1bn assets under management. Then it would be natural to expand outside Europe and the Middle East, towards Asia and the US.

An excellent time for commodities: trading through the COVID-19 crisis

HYCM was one of the first retail forex brokerages to be regulated in the UK. With over 40 years’ experience and representation in the UK, Hong Kong, Cyprus and Dubai, the business has seen a lot of market turmoil; its Chief Currency Analyst, Giles Coghlan, outlines how traders have been responding to this year’s record high volatility, and explains why commodities are a good pick as the world looks forward to a vaccine.

World Finance: Giles, how have HYCM and your traders responded to this year’s crisis?

Giles Coghlan: Well, HYCM already has experience in successfully withstanding some of the biggest market crashes and major volatility over the years, so, our clients can be sure that they’re trading with one of the most solid and secure brokers in the world.

In fact, in terms of traders generally, they do favour volatility; so you do tend to see an uptick in trading activity whenever you get global events like these causing large swings in asset prices. And many brokers have been reporting increased volumes at this time. So generally speaking, it has been quite good for business.

However, the record high volatility also provides challenges. It is a very difficult investment environment, and the kind of uncertainty in markets at the moment favours a much shorter-term horizon, as longer-term investments – particularly early in the year – were crowded with considerable uncertainty.

For traders it actually has been a really good time to take advantage of some of our free online webinars and workshops, that are located on the HYCM website, and hosted by myself every week; in order to really enrich and deepen their trading skills and knowledge.

World Finance: So with your analyst’s hat on, what assets do you think will perform well in today’s environment?

Giles Coghlan: Well this is one topic that I’ve been speaking a lot with HYCM clients about. And this could be a really excellent time for commodities, as global growth starts to get going again on global vaccine hopes.

Now this could also be a very, very good time for gold. The Federal Reserve is set to keep interest rates at low levels right through 2023; the US is on the verge at the moment of releasing a large stimulus package, and quantitative easing levels are at record levels. So one of the key areas that we’ll be looking at is how quickly the Federal Reserve looks at raising interest rates. And as long as they keep interest rates low, you would expect that to be very good for gold, which has grown and gained in value in all of the last major financial crises that we’ve had. So gold long still looks good right now – but we need to keep a careful eye on what the Federal Reserve does.

Copper also looks very good from a medium-to-long term. Electric vehicles are growing in popularity, and they’re thought to account for about 9.4 percent of copper demand by 2030. And the current level is 2.4 percent. So we are over the medium term expecting a good boost in copper prices. So you would expect dips in copper to find buyers in the medium term.

Another interesting commodity is nickel. According to Morgan Stanley, electric car sales are seen to boost nickel the most of all the commodities used in producing an electric vehicle. So they predict that over the next five to 10 years there’s going to be a heavy investment in nickel mining, and a greater demand for nickel itself. So over the next five to 10 years, the commodity nickel could be a great investment.

World Finance: And how about currency trades?

Giles Coghlan: Well I think the currencies that you’d expect to benefit from this environment are currencies that are pro-cyclical in growth. So, typically the Australian dollar and the New Zealand dollar would benefit from a boost in commodity prices. If the US dollar weakens, that would further benefit the Antipodean currencies like the Australian dollar and the New Zealand dollar. And perhaps an AUD/JPY long, or a NZD/JPY long, could be a great trade over the medium to longer term, as we come out of this medical crisis.

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More digitisation, at a faster pace: How Baiduri Bank responded to COVID-19

One year after Ti Eng Hui was appointed CEO of Baiduri Bank, the first Bruneian started experiencing symptoms of COVID-19 – and the world turned upside-down. Six months into the global crisis, Ti discusses how Bruniean people and businesses have been affected, how the financial services industry responded, and how Baiduri Bank’s commitment to ongoing investments in technology and staff training payed dividends this year.

World Finance: Mr Ti, what has life been like for your customers since March? What new financial challenges are they facing, and how is Baiduri Bank supporting them?

Ti Eng Hui: So, COVID-19 has affected Brunei, like other countries. And the industries affected very much are the tourism industry: the airlines and the hotels.

So working together with my colleagues in the Brunei Association of Banks, together with the regulators MBD and also the Ministry of Finance, in early April we rolled out a financial relief package for those companies – businesses and individuals – affected by the COVID-19 situation, where their loan repayments can be deferred until next year for a period of 12 months maximum.

So that has really helped in terms of the financial stress that they’re facing. So yeah, that’s what we did at the beginning, very quickly.

World Finance: And how has Baiduri Bank had to adapt to this extraordinary year?

Ti Eng Hui: So what we’ve done is that we need to make sure that the staff are comfortable coming into work at the bank. So what we’ve done is we activated our business continuity plan, like other banks.

At the same time we need to make sure that staff who need to work in the head office can come in, feel safe to work. So we have done a lot of sanitisation, cleaning, giving them a lot of support in terms of the health packages to strengthen their immunity. Practise social distancing among the staff.

Secondly what we’ve done for those customers who need to come to the bank: we need to do all the scanning, the social distancing, just to make sure that when they come in they see a space that they are comfortable to come in. Obviously we encourage them to go digital. We launched a new mobile banking service in March. So that new channel has really, really helped us, in terms of diverting the traffic away from the branch network.

World Finance: When we talked last year, you spoke about the importance of ongoing investments into technology and into staff training; I suppose this year really has just highlighted the importance of those investments?

Ti Eng Hui: Yes, definitely. You know, our online transactions now account for more than 90 percent of overall banking transactions. And we continue to see that number climbing.

What we also see is that there’s a lot of online payments being made – those we see tremendous growth throughout COVID-19 and also now. So I think the digitisation has really gone a lot faster than before. And we have also rolled out internally more online training for our staff.

So really digitisation is the way to go, online is the way to go, and more and more we see the need to do even more, just to make sure that we are one step ahead. Because we know there could be a second wave, a third wave of COVID-19. You know, we just have to be prepared for it.

World Finance: Finally, on a corporate level, has this disrupted your mission or your strategy at all?

Ti Eng Hui: I think we are very firm, and we are very clear on what we want to achieve. COVID-19 has delayed the pace a bit, but it’s something that we can pick it up. Definitely we think that it has given us a clear idea of what we need to do more – especially online payments, online training. Everything that’s online.

So really I think given the good infrastructure we have in the country in terms of internet access, it’s something that we can definitely do a lot more coming up. So strategy-wise, continue the same strategy. But towards more digitisation, at a faster pace.

How businesses can reduce their cost-to-serve to survive the recession

Already, the UK has seen thousands of job losses, with more expected while some businesses are even closing stores to cut costs. During a recession, the mentality of many businesses and organisations shifts to survival.

However, although their minds might be on the immediate, their actions should still have the future in mind. Within their supply chains, businesses should always be looking at ways they adapt to meet shifting customer expectations. At the same time, organisations must create the necessary agility to address demand and supply variability, while all the time trying to cut costs. It can be a hard balance to strike. Yet, for many, there is huge room for improvement within their supply chain which can help to reduce their cost-to-serve, creating a more efficient, profitable and, most importantly, customer centric business model in the process.


Tough times
The Great Shutdown sent the world into a historic recession – countries from all over have witnessed double digit economic contractions. This means that businesses across the globe will now be looking to cut costs and become leaner to survive the economic turbulence.

This necessity to cut costs is vital as, during a recession, consumers are often more careful with their money. Uncertainty over job security, which is part-and-parcel of a recession, only amplifies this frugality. For businesses, this means they have to do more with less in order to operate at a profit and keep the doors open.

In this instance, businesses often look towards their labour force to cut the wage bill and towards their physical warehouses, stores and offices to reduce overheads. While this may be a quick way to reduce costs, it does result in losing valuable resources. By addressing inefficiencies within the supply chain, this doesn’t have to be the case.


A happy customer for less
When it comes to cutting costs, the supply chain is often overlooked for one reason: there is an assumption that it is a fixed cost and that increased sales naturally drive economies of scale. This couldn’t be further from the truth. Businesses looking to become leaner should address their cost-to-serve, defined as the analysis and quantification of all supply chain activities and costs necessary to fulfil customer demand.

This analysis will help businesses to highlight which customers and products are the most and least profitable within their supply chain. With this information, they can make decisions around whether it is worth continuing to provide that product or serve that specific customer and/or what needs to be done to make it more profitable. Often, businesses have the opportunity to make better use of their existing capacity by making smarter decisions. Understanding and deciding which product sells better or for a higher price in which market can ensure maximum profitability. For example, an unbranded product is likely to sell better in the UK than in France. With this knowledge, businesses can optimise their supply chain to ensure their products are going to the places where both demand and profit are highest.

In terms of cutting costs, one area within the supply chain which can lead to a high cost-to-serve and lower profit margins is transportation. Businesses looking to minimise this can evaluate their delivery routes to make them as efficient as possible. This can be optimised from the first to the last mile of the supply chain, accounting for both the raw materials needed to produce the product and delivery of the product itself. This also has the added bonus of enabling businesses to become more sustainable. As well as maximising profit, improving transportation efficiency will create a more carbon-neutral supply chain, helping businesses reach their goal of becoming net zero between 2030-2050.

There are, of course, other ways in which businesses can reduce their cost-to-serve, which is why it’s such an efficient way to cut costs. The manufacturing process is another area of focus. There is often huge scope for automation in this area, which can significantly reduce the cost of production and lead to greater productivity. However, businesses must be able to identify these pain points if they are to address them. Technologies that apply AI and machine learning could help them do exactly this.


A helping hand from technology
Optimising the cost-to-serve is achieved by analysing and assessing all the supply chain activities in the network. From this point, fixed and variable costs can be allocated according to each of these activities, allowing businesses to address the areas which can be improved. While many companies have the ability to do this at an aggregate level, eg, a product category, few have a truly granular view of the costs associated with individual SKUs or customers.

Understanding detailed cost-to-serve, by customer and by product, is a pre-requisite for any organisation looking to manage its profitability. Reducing organisational costs and improving delivery efficiency as well as ‘right sizing’ the service offering for a particular product, customer or channel is an imperative. Organisations can model routes to market and service strategies based on this segmentation, and understand the impact on their individual cost-to-serve

The ultimate goal is to increase company profitability by making unprofitable customers profitable or helping profitable customers become even more profitable. But, without accurate cost-to-serve data for current customers and products, this is a near-impossible task.

For this to be a reality, organisations need an end-to-end view of their supply chain. Using digital twin technology businesses can digitally replicate their supply chain, analysing and optimising its efficiency in the process.


Finding a solution
Running this analysis, businesses will be able to quickly identify which products and customers are less profitable than others and the reasons for this. With this information on hand, they can more readily address the problem, whether it is an inefficient delivery process or excessive manufacturing costs.

Using the same technology, businesses can then work towards a solution, which will help them become more efficient. The digital twin allows them to test-drive alternative strategies, before committing to them in the real world. This way, they can continue to try different options, at no cost, until they find the most efficient solution.

To achieve maximum efficiency, businesses can then look to forecasting technology, which will help them to predict oscillations in demand, even during the heightened disruptions caused by COVID-19. With recessions often causing a downturn in demand, it’s important that businesses are not creating excess supply, which will cost them money without a return on their investment. Forecasting technology will help them avoid this pitfall.

In today’s never normal world, whether it is recessions, pandemics or geopolitical tensions such as trade wars, businesses that want to stand the test of time must be prepared for all eventualities. While it may represent an initial cost, implementing technology which can consistently optimise your cost-to-serve will ensure that, no matter the economic climate, your business has the best chance of maximising its profit. That should be the benchmark of any successful business.

Securitisation – the antidote for non-performing loans

Without doubt, the collateral fallout from COVID-19 will herald in a new era for the global non-performing loan (NPL) market, as not only will there be the inevitable surge in NPL volumes precipitated by COVID-19’s impact on the economy, but these new volumes will be accretive to the current NPL stock that is residing in the banks as a hangover from the global financial crisis (GFC).

Indeed, as the banks commence the unenviable task of picking through their loan book and identifying those NPLs that they must offload, they will also be cognisant of how they do this in a highly efficient manner that maximises returns. In terms of process, although the prime candidate for this will be the hugely successful competitive auction processes that have become an intrinsic part of the NPL market, in practice we are likely to witness securitisation step up to the plate and assume a critical role in alleviating the pain of the banks.

Conceptually, the application of securitisation technology is the perfect medicine for the cleansing of bank balance sheets. In essence, these structures involve a bank selling a portfolio of NPLs to a special purpose vehicle that funds such an acquisition by issuing debt securities into the capital markets. The vehicle will in turn appoint a servicing entity that will manage the underlying loans on a daily basis with a fee structure that incentivises them to maximise recoveries.

The use of securitisation makes a lot of sense. This technology has the capacity to enable a significant volume of NPLs to be removed from the banks in one fell swoop. Given the only limitation in sizing a transaction is the magnitude of the universe of investors that can competitively price and absorb an issuance, then we could be talking about pretty hefty deals. The opportunity afforded by securitisation, of offloading NPLs in either one large deal or a series of large transactions, is infinitely more appealing than the alternate scenario of a protracted period of auction processes, that we have witnessed to date.

Securitisation technology also counteracts one of the major stumbling blocks that has traditionally made banks reticent about off-loading NPLs: the pricing. Although NPL securitisation cannot guarantee decent pricing, it does possess a number of features that load the dice in favour of the banks when it comes to trying to achieve the best possible return.

Given the bounty of benefits, it is hard to see why securitisation cannot play an instrumental role in mopping up the balance sheets of banks. Indeed this is not a new concept and there is precedent for this in the United States, in the late 1980s, when securitisation technology played a key role in enabling the Resolution Trust Corporation to liquidate assets once owned by the savings and loans associations.

Similarly, had securitisation not been perceived as one of the main assailants of the GFC, then without doubt it would have been the perfect candidate to clean up NPLs in the wake of the GFC.

Ten years on, it can now be said that securitisation is a very different beast. Through the actions of investors, regulators and market participants, securitisation structures have now been finessed and structural shortcomings fixed. Furthermore, the recent Securitisation Regulation has encouraged and incentivised securitisation structures to be simple, transparent and standardised.

In summation, given the hugely positive attributes of an NPL securitisation when coupled with the fact that this technology is now ‘fit for purpose’, then the requisite fertile conditions currently exist for these structures to be deployed at scale to offload NPLs. Indeed, the fact that the governments of Italy and Greece in recent years turned to securitisation for “GACS” (“Garanzia Cartolarizzazione Sofferenze”) and “HAPS” (“Hellenic Asset Protection Scheme”) respectively, could in itself be construed as a massive endorsement of the role that this technology can play.

Ultimately, since these structures efficiently enable incredible volumes of NPLs to be distilled from the banks, which in turn enables banks to eradicate their NPL issue on a more timely basis, then securitisation should truly be considered the NPL antidote. Banks choose not to embrace this at their peril.

What would a Biden term mean for oil?

Joe Biden has emerged with a commanding lead in the US polls and his presidency could have far reaching consequences, not just for the oil and gas industry, but for the energy sector as a whole. Not to be understated, Biden’s proposals for the sector are set to bring about the most significant changes to the US offshore industry in its history.

If the election were held today, polls suggest Biden would beat the incumbent Republican president Donald Trump in key battleground states. On energy policy, the two candidates appear worlds apart. Trump, who proclaimed an era of American “energy dominance” in 2016 has since taken the US out of the Paris Climate accord. On the domestic front, he has been equally aggressive in deregulating the environment and energy sector, pursing the rollback of hundreds of rules in areas such as fracking and methane. Fifteen states are also now suing the Trump administration for opening Alaska’s Coastal Plain up to oil and gas leasing in 2017, which they regard as a violation of environmental laws. The difficulty for Alaska is that nearly 85 percent of the state budget is dependent on oil revenues.

In contrast, Biden has earmarked $2tn in green energy spending for his first term. The investments dovetail with his economic plan to create jobs in manufacturing “green energy” products and focus on climate policy to drag the economy out of its pandemic-era recession. Some have suggested this will mark the beginning of an ‘offensive’ on the fossil fuels industry. In normal times, a move like this would be viewed as self-destructive during an American election, with so many states dependent on the oil industry for jobs. Yet, these are not normal times and it is made possible by a number of factors. The devastating pandemic has delivered a costly blow to the economy, the oil and gas industry, and the viability of new projects. A Green New Deal could be appealing as a stimulus package at a time when clean-energy costs are falling drastically and technological progress is advancing very quickly.

It puts the energy sector at the centre of the election. Critics argue that Biden’s plans lack clarity, as he is all too aware of the political gambles involved with climate change including the possible local industry losses and threat to jobs. Upstream producers have also spent billions on exploration and development projects, the value of these ventures could be eradicated, and litigation is likely. Despite these concerns, Biden and the Democrats have been quick to point out these climate policies can be a source of job creation, during a period when the US is looking to recover from the impact of COVID-19.

Pledges from the Biden campaign include a target of net-zero emissions by 2050 and to “decarbonise” the US electricity sector by 2035. This would involve installing a vast network of charging points for new cars and electrifying the US’s transportation sector. Crucially, deploying utility-scale battery storage across the US would enables power system operators and utilities to store energy for later use. This would be a key component to maximise the benefits of the installation of thousands of wind turbines, millions of solar panels, and the plans to double offshore wind capacity by 2030.

While worries in the oil and gas industry are growing and the climate debate becomes increasingly polarized from the two candidates, Biden’s plans include a policy that may alleviate some industry concerns. This involves the extremely expensive process of carbon capture and storage which is currently attracting huge amounts of climate-related investment. These machines serve a single and simple purpose: to remove carbon dioxide from the air through direct air capture. Biden’s camp has committed to research in the technology, not only as a mitigation tool for climate change, but because carbon capture may prove a useful campaigning tool. It would guarantee the oil and gas industry’s role in the US and help Biden avoid more tricky questions on fracking, from regions where Trump may easily collect votes. As things stand, Biden’s plans do not include any bans on industries like fracking, but he need not worry if they frighten off investors.

It may not come down to voters. Even if energy policy is overlooked, investors have a watchful eye on the White House and will be aware of the changing tides. Individual states have also been driving their own agendas for some time. California, for example, is the US leader in solar power, with 18% of its electricity generated from solar in 2019. Whatever the outcome of this election, greater consensus driven by corporates, investors, campaigners, and the wider population may result in stronger action, even when the policy prescriptions are still heavily debated.

This US election offers two extremely contrasting views on the future of energy, and the eyes of the world will be certainly watching.


Are Presidential campaigns worth the vast expense?

Campaigning to be elected president of the US is an expensive undertaking. During the 2012 presidential race, Barack Obama and Mitt Romney spent a combined sum of nearly $1.12bn, according to the Centre for Responsive Politics.

Although US elections have almost always been a costly affair, the costs have only spiralled over time. Between Abraham Lincoln’s 1860 campaign and Donald Trump’s in 2016, the amount spent to be elected president increased more than 250-fold, even when the numbers are adjusted for inflation.

There’s an obvious reason why candidates feel driven to outspend their opponents. Throughout history, the majority of winning presidential candidates have been those who spent the most on the campaign trail. Throwing money at the election, therefore, seems like the logical conclusion. As Mark Hanna, a US Senator, once said, “There are two things that are important in politics. One is money and I can’t remember what the other one is.”

But just because there is a correlation between campaign spending and winning the election, that doesn’t mean that money is the deciding factor. In fact, there is an ongoing debate among political scientists over whether campaign spending meaningfully affects election outcomes at all.


Money well spent
In September, it was reported that Democratic presidential nominee Joe Biden was vastly outspending Trump on the campaign trail. According to campaign officials, as they enter the final stretch of the race, Biden has $141m more left in the bank than his rival. If money determined the election result, then this suggests Biden could be on the path to victory.

But while being the bigger spender increases a presidential candidate’s chance of winning, it’s no guarantee of success. There are plenty of examples of electoral candidates who have spent big and failed to win the vote.

In some cases, a higher amount may be spent to compensate for other problems. As Brian Libgober, political scientist and Assistant Professor at the University of California at San Diego, explains, sometimes the candidates with the most cash are self-funded. The fact that they have to rely on their own money in lieu of donations can reflect their own weaknesses as candidates. “Often, these are particularly wealthy self-financed candidates who can raise funds without necessarily having the qualities that make a candidate electorally strong, for example relationships with key constituencies, experience running for office, charisma, a compelling policy platform and so forth,” he said.

Michael Bloomberg, who ran for president in 2020, is one such example. Despite pouring almost $1bn of his own money into his three-month long campaign, Bloomberg was forced to end his presidential bid after securing just one endorsement from the 15 up for grabs on a critical night in the Democratic primaries. His poor performance on the debate stage was a key reason why.

Another high-profile example that proves money doesn’t guarantee electoral success is President Donald Trump’s 2016 victory. The $398m he spent on campaigning was almost half the amount forked out by his opponent Hilary Clinton. As Libgober points out, clearly Trump would not have won “if campaign spending was decisive in presidential elections.”

Of course, Trump benefitted from a number of advantages his rival didn’t have: TV stardom and an anti-institution persona, with none of the baggage that accompanies a political career (or being married to a former president). But there are a number of other reasons why Trump succeeded despite being at a disadvantage financially.

‘Earned media’, or free press, is one. Trump had a huge advantage in the daily news cycle thanks to his controversial remarks. A study by The New York Times found that, overall, Trump enjoyed nearly $2bn worth of free media coverage during the campaign.

Others suggest that Trump’s campaign spending was more effective than Clinton’s. He invested more heavily in social media, whereas Clinton relied on more traditional advertising, like expensive TV ads. Also, a study by the Wesleyan Media Project found that most of Trump’s TV ads attacked Clinton’s policies, whereas most of Clinton’s went after his personality, which may have weakened her case to voters.

Libgober, however, doubts these factors would have made much of an impact. “I tend to view these claims with scepticism,” he said. “In a media environment already super-saturated with information and where partisan loyalties are strongly activated, we should not expect campaign spending to make a huge difference.”

Advertising is the cornerstone of any election campaign, usually making up the bulk of the budget. President Obama spent more than 70 percent of his campaign expenses on advertising. But, despite the huge sums put towards it, the effectiveness of political advertising is far from clear-cut.


Getting noticed
The most obvious benefit of a media campaign is name recognition. Unsurprisingly, many studies have found that people prefer candidates they recognise over those they aren’t familiar with. It goes without saying an enormous presidential campaigns tends to result in widespread recognition of the candidate.

Achieving this recognition is particularly important for newcomers. Unlike the incumbent, these challengers aren’t yet household names. Therefore it’s worth raising large funds in order to level the playing field. In this scenario, money can have a significant impact on the race, since it can determine which candidates fall down at the first hurdle.

Spending money early on in the race has also been shown to make a difference. A 2016 study found that early spending impacted who would win the primaries partly because it boosted the profiles of lesser-known candidates.

Raising public awareness is one thing. Actually persuading people to vote for a candidate is another. This is where the effects of advertising become less clear.

Some experiments have found political advertising to have only a negligible impact. One large field experiment measured the effect of TV advertising during Rick Perry’s 2006 campaign to be elected Governor of Texas. The results were surprising. Although Perry gained a 5 percent lead in the polls in the markets where the ads were played, this lasted only a week.

Potentially, that’s because a lot of voters had already made up their minds about Perry. Over the years, political partisanship in the US has increased. According to the Pew Research Centre, the overall share of US citizens who consistently stick with their political views more than doubled between 1994 and 2014 from 10 percent to 21 percent. The prevalence of “ideological silos” makes it less likely that voters will change their mind because of an advertising campaign.

“Persuading through advertisement is harder, particularly if the customer has strong brand loyalty or already knows the product. By analogy, campaign spending is least likely to help during elections where there is already substantial media coverage and hardened public perceptions. Since the US presidential election is the most extensively covered election where party attachments are the strongest, it is exactly the kind of election where we should expect campaign spending to matter least,” said Libgober.

If advertising’s ability to persuade is so fraught, then it may be that large portions of campaigning budgets are being misspent. Indeed, some suggest that elections are a case study in diminishing returns. The closer the race becomes, the more donors are prepared to spend and the less impact their money has.


Reading the dollar signs
Money may not dictate who wins the election. But it can tell us something about who is most likely to win.

Sometimes the number of donations indicates which candidate the wider population believes is strongest. “In elections at all levels, strong candidates typically attract more funding than weak candidates, so it is almost inevitable that there appears to be a relationship between campaign spending and winning,” said Libgober. “So maybe it isn’t that the candidate that spends the most typically wins because they spend the most, but rather that the candidate with the greatest electoral strengths tends to win and also spends the most.”

We can also get a sense of the probable winner by looking at how many small-donors have contributed to their campaign. Small-donors are very likely to vote, so the number that a campaign attracts is a useful gauge for a candidate’s popularity with voters. According to the Centre for Responsive Politics, Trump has raised almost $100m more than Biden from such voters.

So following the money can give us an indication of which way voters are leaning. As for whether the amount spent in the campaign will actually affect the election result, Libgober is doubtful.

“Of course, in a razor-thin election such as 2000 or 2016, even small differences can prove pivotal. At this point the polling does not suggest a razor-thin election outcome [for Trump versus Biden], although that could change. I suspect that the performance of the economy and the stock market, the direction of the pandemic, and issues around ballot access are more likely to matter than anything the campaigns do themselves,” said Libgober.

All things considered, campaign spending appears to be most effective when a candidate needs to improve their name recognition. After this, the impact of all that advertising spending becomes much harder to evaluate.

This raises questions that have a bearing not just on campaign officials, but for wider society as well. For example, if the effect that advertising spending can have on political outcomes is limited, then this may cast doubt on the influence of digital advertising behemoths like Facebook, which has come under such intense scrutiny for their relatively unregulated approach to hosting political ads.

Even so, there’s no denying that money can distort the political process. It’s important therefore that the public knows where campaign finances are coming from. Ever since Citizens United – a 2010 case in which the Supreme Court decided that campaigns could receive unlimited amounts from companies and individuals – many have been concerned about the level of influence that rich individuals and corporations can have on the election’s outcome. Alarmingly, ‘dark money’ – undisclosed donations – has been on the rise. While the effectiveness of a lot of campaign spending is unclear, more regulation and transparency around where these funds come from would surely benefit the political process.

Top 5 countries to be world’s next manufacturing hubs

There’s a reason China has been named “the world’s factory”. According to data published by the United Nations Statistics Division, China accounted for almost 30 percent of global manufacturing output in 2018. China earned this status in a relatively short space of time. According to The Economist, in 1990, China produced less than 3 percent of global manufacturing output. It first overtook the US, previously the world’s manufacturing superpower, in 2010.

But the US-China trade war has prompted many companies to re-examine global supply chains. A recent study by the McKinsey Global Institute estimates that companies could shift a quarter of their global product sourcing to new countries in the next five years. Climate risks, cyber attacks and the ongoing pandemic are only accelerating this trend. In this uncertain trade environment, a growing number of countries are hopeful that they could replace China as the world’s next major manufacturing hub.


1 – Vietnam
So far, Vietnam has been one of the main beneficiaries of the US-China trade war, absorbing much of the manufacturing capacity that China lost. As well as cheap labour and stable politics, the country boasts increasingly liberalised trade and investment policies that make it an attractive place for businesses looking to diversify out of China. Some of the biggest names in tech have relocated some of their operations to Vietnam since tensions between the two powers soured. In early May 2020, Apple announced it would produce roughly 30 percent of its AirPods for the second quarter in Vietnam instead of China.


2 – Mexico
A lesser-known beneficiary of the trade war is Mexico. In a report, the investment bank Nomura pointed out that Mexico could become a top destination for US companies, with the country having set up six new factories in a range of sectors between April 2018 and August 2019. In addition, Taiwan-based manufacturers Foxconn and Pegatron, known as contractors for Apple, are among a number of companies currently considering shifting their operations to Mexico. Mexico’s proximity to the US poses a major advantage as US companies embrace “near-shoring”. The Trump administration is exploring financial incentives to encourage firms to move production facilities from Asia to the US, Latin America and the Caribbean.


3 – India
In recent years, India has significantly stepped up efforts to attract manufacturing investments into the country. Prime Minister Narendra Modi’s “Made in India” initiative is designed to help the country replace China as a global manufacturing hub. A cornerstone of this plan involves encouraging the world’s biggest smartphone brands to make their products in India. In June of this year, the country launched a $6.6bn incentive programme to boost electronics manufacturing production in the country. So far however, the country has seen only modest gains from the trade war. Analysts blame India’s stringent regulatory environment; on the Organisation for Economic Development’s FDI Regulatory Restrictiveness Index, India ranks 62nd out of 70 countries.


4 – Malaysia
Between 2018 and 2019, the Malaysian island of Penang saw a surge in foreign investment. Much of this came from the US, which spent $5.9bn in Malaysia in the first nine months of 2019, up from $889m the year before, according to the Malaysian Investment Development Authority. US chip maker Micron Technology announced it would spend RM1.5bn ($364.5m) over five years on a new drive assembly and test facility. However, the loss of trade from China has hit Malaysia hard. Many tech firms in Penang rely on China for as much as 60 percent of their components and materials.


5 – Singapore
Singapore’s manufacturing prowess has somewhat depleted in recent years. While manufacturing contributes about 30 percent of the GDP of Taiwan and South Korea, it makes up just 19 percent of Singapore’s. However, the trade war and the coronavirus pandemic could change this. As a trade hub with liberal trade and investment policies and a history of stable economic growth, Singapore is well-positioned to boost its manufacturing capabilities and capitalise on this opportunity. However, like Malaysia, Singapore is also struggling with the knock-on effects of decreased demand from China. The export-dependent country has seen its manufacturing output slump as a result of the trade war – a sign that the country could benefit from greater independence from China.

How culture can help explain economic development

In the middle of the eighteenth century, Europe experienced explosive economic growth. GDP per capita in the Netherlands – one of the richest parts of Europe at the time – was 42 percent higher than in the Yangzi delta, then the economic powerhouse of China. By 1770, that figure had reached 90 percent. In just a few decades, Europe wealth had rapidly surpassed that of all other regions.

The Great Divergence, as it is called, helped spawn the discipline of economics as we know it today. Adam Smith’s landmark 1776 text The Wealth of Nations sought to identify the major contributors to a nation’s wealth and sparked a long line of economic inquiry analysing how culture dictates which countries become wealthy and which do not. Many of these analyses concluded that European culture alone was conducive to economic growth; the German political economist Max Weber argued that the Protestant work ethic was responsible for Europe’s high economic output.

In the twentieth century, cultural explanations for wealth inequality between nations began to lose their popularity with economists. There were two main reasons for this. One was the rise of the ‘Asian tiger economies’, which refuted the idea that only Western, Christian cultures could enjoy great economic success. The other was the growing prevalence of data, which gave rise to more quantitative theories for the explanations of markets as well as economic explanations of sociology.

“In the 1960s to the 1970s, mainstream economists began to argue that economics could provide explanations for many phenomena in social sciences,” said Paola Sapeinza, the Professor of Consumer Finance at Northwestern University’s Kellogg School of Management. “The paradigm became that economics affects culture, not the other way around. For example, basic economics was used to explain family decisions, such as the participation of women in the workforce and fertility choices, ignoring cultural influence.”

Now, the dial has swung back once again. Today’s economists are turning to culture to answer questions about people’s financial behaviours and what shapes them.


A different perspective
Towards the end of the twentieth century, economists began to see the pitfalls of imposing economic policies without paying heed to culture. The Washington Consensus, for example – a set of neoliberal policies presented to the International Monetary Fund in 1989 – is broadly seen as having failed to achieve its goal of bringing prosperity to Latin America. In the thirty years after the Washington Consensus was implemented, Latin America grew less than 1 percent per year per capita terms, compared to 2.6 percent annual growth between 1960 and 1981.

This shows that, while a certain kind of institutional reform may succeed in one country, it won’t necessarily succeed in another, and culture may be the reason why. “One example is Italy,” said Thierry Verdier, Professor of Economics at Paris School of Economics, “where you had reforms that worked in the north but not in the south. Why? People have begun to think that it’s down to very long-term factors such as the development of cities in the north of Italy and the building up of social capital there that happened over a long period of time. It didn’t exist in the south because of other historical developments.”

There are many scenarios where economics alone cannot account for the behaviour of a certain group. For example, immigrants and their children often exhibit different behaviour despite being in the same economic environment as other citizens.

“Immigrant children of a certain origin systematically outperform US-born students in the country, even if they attend the same school. These differences hold after taking into account the income and the education of the parent,” said Sapienza. “If the explanation for these differences in behaviour were economic conditions or the quality of the institution, we would not observe these differences.”

By identifying the cultural beliefs that proliferate in more productive and innovative countries, we could advance our understanding of the conditions needed for economic success. “We understand that if we invest more in physical capital or in finance or in technology the economy probably will grow more. But that doesn’t necessarily explain the variety of growth across the world,” said Verdier. “To explain that, we need to go to deeper causes which relate to how a country developed.”


The traits of successful countries
Economists have linked some cultural beliefs to higher levels of economic development. One of these, inevitably, is a population’s willingness to engage in markets, whether through investment or employment. “The decision to work has economic consequences for the individual and the family but more generally for the development of the nations,” said Sapienza, “as productivity is positively affected by the share of labour participation in the economy.”

To assess this willingness to participate in markets, economists will sometimes look at the prevalence of social trust in a given community. Many studies have associated increased social trust with higher rates of trade, innovation and development in a country’s financial sector. Countries that record low levels of trust between strangers, meanwhile, tend to be less economically developed. Of course, institutions have a role to play here as well. If a country’s economic institutions are less transparent and less reliable, it follows that people would be less likely to trust them with their capital.

Studies have also revealed a correlation between the strength of family ties in a country and that nation’s economic development. Stronger family ties usually means more family businesses. As family businesses are often less competitive and less efficient than other firms, their prevalence can have a negative impact on the economy.

A look into the past could explain why some of these traits develop in the first place. A 2019 paper by Benjamin Enke, Assistant Professor at Harvard University’s Department of Economics, proposes that pre-industrial groups with a higher occurrence of pathogens in their environment were more likely to forge close-knit family ties, because shunning outsiders was vital for reducing the risk of infection. Even as a culture evolves, deep-rooted factors like this may continue to play a role.

However, it can be hard to determine whether the level of economic development in a country is mainly down to culture or policy. In the case of the Soviet Union, low productivity wasn’t the result of a cultural trait but rather the collectivist regime that had been imposed on the population. Clearly, the economic environment itself has serious implications for a population’s financial preferences and social mobility. The same is true of a country’s physical environment. For example, a study published in the Journal of Human Development has found that landlocked countries are generally at a greater economic disadvantage.


Culture clash
Studying culture’s impact on economics is not without its complications. As the economic historian David Landes points out, one problem with discussing the pitfalls of a certain culture is that it could lead to xenophobic interpretations.

Another issue is that culture itself is difficult to define. The vagueness and breadth of the concept makes it hard to draw clear conclusion about its influence on economics. “It’s not necessarily only based on objective measures,” said Verdier. “There’s a degree to which it is very much subjective and how we measure subjectivity is an issue for economists.”

Attempts have been made to create a more precise definition for use by economists. In 2006, Sapienza and her co-authors Luigi Zingales and Luigi Guiso described culture as the “customary beliefs and values that ethnic, religious, and social groups transmit fairly unchanged from generation to generation”.

What’s more, over time, better techniques and more data have been made it easier to qualitatively measure cultural traits. The World Values Survey and the General Social Survey were introduced in the 1980s to evaluate people’s values and beliefs and how these change over time.

“Once you have that information,” said Verdier, “you can relate it to information which is much less subjective, such as growth rates or poverty rates or the fact that particular countries implement regulations on labour markets this way and some do it in another way. So economists take the subjective information from these surveys and relate it to the more objective economic indicators that are more systematically collected in a very well-defined manner from the start.”


The implications for policy
When taking culture into account, it’s important to consider the way it interacts with other factors that impact economics. Verdier believes that the complex interplay between culture and institutions is crucial for understanding why and how countries develop in different ways.

“There’s one aspect that is often debated among economists,” he told World Finance, “which is whether or not the interactions between institutions and culture are complementary. Certain types of formal rules are complementary to the development of the maintenance of particular beliefs. Say, for instance, that you have a discriminatory market institution like slavery. That certainly interacts in a complementary way with the beliefs of racism. And so that’s a case where the racist culture you have is complimentary to the types of institutions in the country and they reinforce each other.”

But the opposite can also be true. “You may have a situation where, on the contrary, institutions and culture tend to mitigate each other in terms of their effects,” said Verdier. “For instance, a country’s population could have a strong belief in the value of work and, at the same time, welfare programmes that are maybe too generous or just distributed without any conditions. And that could generate a notion that you have rights and those rights actually depreciate the value of work, which in turn creates, of course, inefficiency in terms of the social welfare system.”

Understanding how culture and institutions reinforce or counterbalance one another can have real-world applications for the way we implement policy. Before reforming an institution, it’s important to know whether an existing cultural belief or value could potentially undermine it. “In that sense,” said Verdier, “having some knowledge coming from sociologists to economists that do this kind of work from a quantitative perspective, may provide some insight on whether or not you have a framework in place of institutional reforms to make them more effective.”

For decades, economists turned their nose up at cultural explanations for economic outcomes. The economist Robert Solow said that attempts to meld the two subjects ended up in “a blaze of amateur sociology”. But no market is created in a vacuum. Today, economists are increasingly willing to recognise that the wealth of a given nation cannot be explained without acknowledging the complex interplay between many different factors, from its institutions to its cultural beliefs to its environment and its pre-modern history. “As wonderful as a tool economics is, it does not explain all behaviours. Incorporating culture among the explanations has made economics a much more powerful tool,” said Sapienza.

EU chief reveals plans for post-pandemic recovery

On 16 September, the president of the European Commission Ursula von der Leyen outlined plans to bring the bloc out of the deepest recession in its history while also making European nations more resilient in the future.

Von der Leyen is determined that the EU emerges from the coronavirus pandemic better prepared to face another looming crisis: climate change. Addressing EU lawmakers in her first State of the Union address, she reinforced her commitment to cutting greenhouse gas emissions, announcing that the EU should increase its emissions-cutting target to at least 55 percent by 2030, up from an existing target of 40 percent.

“I recognise that this increase from 40 to 55 is too much for some, and not enough for others,” she said. “But our impact assessment clearly shows that our economy and industry can manage this.”

She also stressed the importance of international cooperation during the pandemic, urging European governments to work together on common healthcare policies. She promised that the EU would create a biomedical research agency and convene at a global health summit. “We need to build a stronger European Health Union,” she said. “And we need to strengthen our crisis preparedness and management of cross-border health threats.”

Von der Leyen’s calls for cooperation stand in contrast with the union’s apparent fragility at this time. Her State of the Union address comes amid growing antagonism between the EU and the UK over a Brexit deal. The European Commission President warned that hopes of a post-Brexit trade deal were “fading” and that UK Prime Minister Boris Johnson’s attempt to override parts of the withdrawal treaty was illegal.

Universal basic income gains support during the pandemic

In his 1516 fictional work, Utopia, the philosopher Thomas More describes a conversation between Portuguese traveller Raphael Nonsenso and the Archbishop of Canterbury, John Morton, in which the former argues that cash handouts provided by the state could reduce theft in the city of Antwerp. “No penalty on earth will stop people from stealing, if it is their only way of getting food,” Nonsenso says. “It would be far more to the point to provide everyone with somne [sic] means of livelihood.”

This is thought to be the earliest written example of a concept that’s still considered radical today: universal basic income. Its advocates argue that the state should provide any individual with regular income, regardless of other factors such as their employment status, personal wealth or ability to work.

The concept of universal basic income has typically been popular among left-leaning economists and academics. Until recently, it had only been trialled in a number of small-scale pilots, including one in Finland and another in the Canadian province of Manitoba. Usually relegated to academic discussions, it was not a concept at the forefront of politicians’ minds.

But the coronavirus pandemic could change this. The crisis has led to unprecedented levels of government spending, with European nations guaranteeing wages through furlough schemes while other countries increase welfare provisions. More and more policymakers and politicians now believe that enacting unconditional universal basic income could mitigate some of the worst effects of the pandemic.


Desperate times, desperate measures
In March 2020, over 500 academics and public figures from around the globe signed an open letter urging governments to enact emergency basic income during the pandemic. Jens Lerche, Reader in Agrarian and Labour Studies at SOAS University of London, was one of its signatories. He explained his reasons for signing to World Finance.

“Across the world, millions of people have lost jobs and livelihoods because of the pandemic. The relief packages put in place only provide cover for some of them. Millions must rely on charity or survive on bare minimum support,” he said. “The only simple and straightforward system that could carry everyone through the crisis is universal basic income. It could ensure that no one fell through the cracks.”

Its proponents argue that an emergency basic income could provide vital support to small businesses and the self-employed, many of whom have been neglected in governments’ financial stimulus packages during the pandemic. Some commentators have also argued that universal basic income could limit the virus’s spread by increasing social distancing. They reason that, without the need to work, less vulnerable people would put themselves at risk of contracting the disease.

Some countries are already taking the idea more seriously. On 15 June 2020, Spain – one of the hardest-hit countries at the start of the pandemic – offered monthly payments of €1,015 ($1,145) to the nation’s poorest families. Germany announced in August that it was trialling such a system in a three-year study, giving monthly payments of $1,400 (€1,200) to 120 Germans and aiming to compare the results with 1,380 people who do not receive the payments.


Post-pandemic legacy
There are many, however, who believe universal basic income should be much more than an emergency response to the pandemic. These people would like to see universal basic income become integrated into economic systems around the world.

A number of arguments have been put forward in favour of this. One is that universal basic income could heal some of the wealth inequality created through capitalism. “As the share of the wealth generated in society for the last decades has disproportionally benefited the super-rich, while many wages have stagnated, universal basic income is also a way of redressing skewed wealth distributions,” said Lerche. “In the long run, it could lead to less divided societies.”

Liz Fouksman, Leverhulme Early Career Fellow in Area Studies at the University of Oxford, argues that, nowadays, people tend to think of basic income as a social policy or as a welfare provision. But, at its heart, the idea is about the redistribution of wealth. “From its earliest conception,” she said, “basic income was seen as a way of getting people their rightful share – whether it’s their rightful share of land wealth or their rightful share of the wealth created by previous generations or their rightful share of natural resource wealth. So its roots very much lie in the realm of distributary justice. And that’s something that often gets lost in the basic income conversation, especially when it comes to conversations around policy and implementation.”

Some also believe that, with the rise of automation and artificial intelligence, universal basic income could become a necessity. “The need for people to have a basic income that is linked not only to work is likely to become even more important in future as the progress in automation will lead to a shrinking job market,” said Lerche. In fact, the economist John Maynard Keynes predicted in 1930 that the grandchildren of his generation would work only fifteen hours a week, because their material needs would be satisfied. The fifteen-hour work week hasn’t yet materialised, but many academics continue to predict the decline of the global labour force.

Some economists argue that universal basic income could even benefit the economy. A 2017 study by the left-leaning Roosevelt Institute found that giving every adult in the US $1,000 a month could grow the economy by $2.5trn by 2025. Finally, it could also significantly improve people’s lives, by providing people with more income to spend on diet and by potentially eliminating homelessness.


Barriers to adoption
Despite its potential benefits, there are a number of reasons why governments have been reluctant to embrace universal income programmes. Unsurprisingly, a big one is cost. But proponents argue that universal basic income is much more affordable than people think.

In a working paper for the United Nations Development Programme, Eduardo Ortiz-Juarez and George Gray Molina estimate that the cost of providing temporary basic income to all people living below the poverty line could cost between $200bn and $465bn per month depending on the specific policy. Considering this could keep 2.78 billion people out of poverty, it’s a relatively modest amount. Meanwhile, the economist Karl Widerquist has found that, to fund a UBI of $12,000 per adult and $6,000 per child annually, the US would have to would raise an additional $539bn a year – much less than the trillions of dollars usually forecast.

“The cost issue is easily exaggerated but clearly more work and more political attention on this aspect is required; the fact that a universal basic income is affordable must be shown again and again,” said Lerche.

The feasibility of a basic income programme also depends on the existing institutional framework of a given country. Arguably, European welfare frameworks are better suited to a universal basic income than the welfare system of the US.

However, it’s not just a question of cost, existing institutions or political willpower. Some of the barriers to adoption are psychological in nature. “I think the biggest barrier is a kind of generalised sense that people can’t get money for nothing,” said Fouksman.

Fouksman argues that this mentality is deeply ingrained within capitalist society. “Of course, once you start picking this apart, you realise very quickly that it makes no sense,” she said. “Plenty of people get money for nothing by, for instance, investing in the stock market. But we don’t critique the wealthy for multiplying their money through passive investing.”


A change in mentality
An accusation often levied against universal basic income is that it could make people lazy. When Finland experimented with universal basic income for nearly two years between January 2017 and December 2018, the researchers concluded that while it may unemployed people happier, it did not lead to increased employment.

However, there were several problems with this study. The trial involved only 2,000 people and participants had to take cuts to other forms of government support. Both of these factors made it hard to measure the programme’s impact.

Moreover, as Fouksman points out, other studies have shown the opposite effect. “We actually know from tonnes of randomised control trials experiments and pilot programmes around the world dating back as far as the 1960s is that when people have a guaranteed income, actually, most of the time their participation in the economy increases,” she said, “whether it’s because they are more able to get jobs because they can migrate to places that actually have jobs, or because they’re able to finish their education and apply for more skilled for jobs, or because they now have the capital and the social insurance to take a risk and start their own businesses do all of these roots.”

The idea that it would support entrepreneurism is one shared by many tech leaders. Facebook CEO Mark Zuckerberg said in his Harvard Commencement speech in 2017 that he could only build the company thanks to his family’s financial stability. “The greatest successes come from having the freedom to fail,” he said. “Now it’s our time to define a new social contract for our generation. We should explore ideas like universal basic income to give everyone a cushion to try new things.”

According to Zuckerberg, a universal basic income would unlock equality of opportunity. It’s this line of thinking that has led some to conclude that it should be a basic human right. “You could think about it as a way of righting the wrongs of having an unequal initial distribution of resources, or giving people a rightful share of the wealth generated by previous generations that is currently being captured unfairly or unequally. Or you could think about it as simply a fundamental human right to life – in that, in order to live, you need basic resources.”

However, it could be a long time before the wider population share this view. Perceiving a universal basic income as a fundamental right, rather than another “handout”, would require a huge shift within the belief system of capitalist society. But now could be the optimum time for that shift in perception. Moments of crisis can often serve as catalysts for socio-economic change. Already, populations have had to adjust to new modes of working and more extensive welfare provisions as a result of the crisis brought on by COVID-19. It’s not unfeasible that universal basic income could become part of the legacy that the coronavirus pandemic leaves behind.