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Geo-economics and power

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After the fall of the Berlin Wall and the collapse of the Soviet Union, the international system witnessed a number of transformations like globalization of trade exchanges, de-industrialization of the Western World and the rise of new powers like China, Brazil and even post-Soviet Russia.

Before then the geo-economic analysis considered the enterprise as the center of the economic balance of power and was mainly focused on competition. At the present stage, this model appears not to be accurate enough to address the contradictions between power politics, market practices and territorial approaches. The chart elaborated by French strategist Christian Harbulot (PMT) allows considering other elements like power, market and territory that better address the complexity of this analysis.

The main challenge is finding a convergence between long-term business interests and state power politics strategies while taking an environmental friendly approach. The enterprises, for example, tend to have a preference for short-term policies, whereas state-led industrial policies are set on a long-term basis.

Nevertheless, there are indeed some cases in which coordination between corporate development strategies and state-led economic policies is successful: for instance, Russian state-led Gazprom as far as the choice of international markets for Russian gas supplies is concerned, and the American Boeing, that refused to open a branch for aircraft assembly in China, in order to avoid transferring sensitive technologies.

On top of business and state policies coordination problems, the economic needs of the territories do not necessarily merge with state-led or business practices, which refer to the logic of competition, like in the case of de-localizations.

The graph below (PMT) highlights the intersection between the three above-mentioned levels (power, market, territory). Its goal is providing a dynamic reading of different economic scenarios, not exclusively centered on the enterprise or on financial actors, whose decisions do not always take into account environmental contexts. This cross-referenced analysis facilitates the drafting of anticipation or corrective economic strategies.

The interpretation of power politics must take into account a political understanding of economic relations, which are promoted especially in developing countries. The interpretation of the market operations, mainly performed by entrepreneurs, must consider a certain amount of detachment from political objectives, especially in the Western world. Lastly, the interpretation of the actions of local stakeholders must consider the fact that the territory has always suffered from the aggressiveness of competition, to which territorial representatives tried to react through innovative management and appealing policies.

Another category that also influences economic decision-making is civil society that does not account to state, business or local stakeholders. Civil society’s stances are progressively boosting a broader reflection on market economy and advocating an ethical regulation of economic affairs through some forms of sustainable development.

The organization and management of strategic provisions is a fundamental feature of any discussion related to strategic economic development and the increase of state power. The strategic decision that are more often taken in order to increase strategic provisions security are: creating a special State-business committee, establishing partnership with other states, research and development investments, relaunching production capacity, adopting a recycle policy.

The creation of a State – Business commission on strategic provisions could better connect the public and the private sector so that services provided by the states in key sectors (defense, foreign affairs, industry, ecology, etc.) are available to the business sector. The Committee for strategic metals (COMES), established in France in 2011, is an example of this synergy even though its high level of specialization sometimes limits its broader efficiency.

Many of the OCSE countries, like the United States and Japan, set up a reserve of strategic raw material provisions to draw from in case of a block in supplies. However, this option presents some problematical aspects: 1) setting aside a certain amount of strategic raw materials to accumulate in the reserve can determine a lack of capital supplies for the entrepreneurs; 2) it is not really clear what is more convenient to fill the stockpile with. Accumulating low-alley materials or semi-finished products can be difficult for a country where the first transformation process of final products does not take place.

In order to keep supplies constant over time, the securitization of strategic provisions must rely on the partnership with foreign countries or companies as well. A good example of partnership could be setting up a mining site in a state possessing a given raw material and working on its production and transformation capacities through transferring capitals and know-how.  In this regard – as many businessmen highlight – the choice of the partner countries depends on geopolitical risk factors. Argentine and Brazil, for instance, are more likely to attract foreign investment compared with the Democratic Republic of Congo that is not considered as a safe country.

Investing in research and development (R&D), instead, is fundamental to find alternative solution to the substances that are either too expensive or toxic, and to decrease the quantities that are needed without affecting the performance.

Relaunching domestic production capacity contributes to the requalification of the abandoned production sites or whose value for some reasons decreased over time. This option can be challenging for a number of reasons: reopening existing plants is expensive, sometimes the know-how of a given district disappeared over the years, and it is difficult to identify what is the best business opportunity to restore (mines, transformation chains, etc.). On top of a cutting waste practices, businessman prefer to adopt a material recycling policy, especially in the automotive and aeronautical sector. However, even recycling has its downsides, like expensive and polluting processes, and cannot be considered as a determined solution because there is still some waste percentage that cannot be fully eliminated.

Nevertheless, even in a context of perfect synergy between the investments, the policies presented so far are just the starting point for the securitization of strategic provisions. A successful strategy to address this issue requires an accurate assessment and forecast of the current and the future needs of both enterprises and people of a given community. Before pursuing any kind of policy in this field, the state must necessarily have a clear perspective on its own plan for strategic provisions.

An accurate forecast should envisage future needs and the kind and quantity of the materials that are necessary for the functioning of technologies of the future. Identifying supply chains is another aspect worth considering – especially as far as rare materials are concerned – in light of the possible risks for the industrial plants.

The French government in the early ’70 adopted a similar plan after the oil crisis: assessment of future energy needs, development of technologies to cope with it (nuclear power plants), and identification of uranium supply chains and implementation of a strategy based on a reduction in hydrocarbons provisions. The creation of the COMES is part of this plan.

The issue of provisions can be observed from two different angles. Strategic provisions are mainly raw materials of which the state needs constant supply: energy sources like oil, gas, uranium and rare earth elements that are indispensable for the functioning of information technologies and communication, to “green” energy and defense technologies. The Strategy of provisions, instead, consists in the policies to be adopted to guarantee a sufficient supply of strategic materials to sustain prosperity of the French socio-economic model over time.

The enterprise is the main actor of the economy and plays a significant role vis-à-vis the economic war that is relentlessly replacing traditional conflicts in the international arena at the present moment. An example of the combination between war and economics is the fight in the acquisition of post-war reconstruction contracts, like in Bosnia and Kosovo in the ‘90s but even more in Iraq or Libya. In Africa, especially in the Great Lakes region, great powers compete between each other for the control of strategic raw materials that are vital for the future of industrialized economies.

At this stage of globalization in which the future of the economy is mainly determined by non-state actors, the presence of the State is highly put into question. Nevertheless, it would be impossible to completely cut out the state from the economy because the roles it inevitably plays in a market: client, sponsor and producer all at the same time.

According to the definition provided by British historian and WWII expert Liddel Hart, setting up a “strategy” means coordinating and canalizing all the resources of a given state (political, military, diplomatic, economic, cultural) towards the outcome desired. With the end of the Cold War, the importance of the military element is progressively decreasing, while trade and economic resources became the main domain of competition between states.

This new setting of inter-state competition is also the result of the rise of new actors, the BRICS countries, alongside the West and Japan, which represent the traditional industrial powers. As far as European countries are concerned, there are some less evident elements to rely on in order to draft a more accurate plan for the future: ensuring state control on strategic sectors through providing incentives for domestic enterprises and, most importantly, aiming at economic growth, employment and gaining presence on foreign markets.  

The United States and China are the major great powers that show how state support to the private sector – especially vis-à-vis the protection of strategic sectors and promoting domestic business abroad – is not only possible but also indispensable at power politics.

An interesting feature of the French economy is the difference of treatment – and sometimes the conflict – between multinational and small/medium enterprises. Multinational corporations are the driving force of the economy and although for a long time benefited from the national industrial policies, they are currently trying to weaken the ties with the state. Small and medium enterprises are instead more rooted in the national territory but are often struggling for financing, access to foreign markets, protection of their specific know-how and acquisition of new capacities that are indispensable for their survival. The state should then play a key role in coordinate public and private sphere. However, mutual mistrust between these two sectors – although understandable – turns out to be a hurdle for development in most European countries.

In the United States the situation is quite different: strong ties between public administration, private sector, academia and think tank built up a network that strongly favors communication and obtaining information. This aspect tends to get little attention in Europe, where state power is considered as a limit to overcome rather than an opportunity to take. It is true that public institutions have a significant advantage in terms of intermediation capacities and access to information compared to the private actors. However, if oriented towards the needs of the real economy, multi-level coordination between public and private sector can provide a competitive advantage for both multinational and small/medium enterprises.

Creating competitive clusters allows to use the networks at its full capacity, helps local sharing of good-practices with regard to economic intelligence, protection of intangible heritage of information, and know-how of the enterprises. The state cannot refuse to take this pressing challenge: it must promote the access to good practices especially for small enterprises following the rules of transparency.

In recent years, investment funds became a popular topic in the debate around economic power as possible threat to the survival of western corporation model, especially as far as middle-eastern and Chinese sovereign funds are concerned. However, Chinese investments in European companies are still quite low and mainly concentrated in sectors like raw materials, energy resources and other operations that does not lead to a real control the enterprise.

In some cases, however, some acquisitions are deemed to gain technological (or other) competences, without a real interest to invest in the local development of the acquired undertaking, as the cases of Intel (investment fund with CIA connections), Carlyle Group (in the aerospace industry) and TPG (that from 2006 controls the main French company producing smart cards) demonstrate. In this framework, there are several instruments aiming at protecting State’s sovereignty, which is threatened by massive purchasing of economic activities by sovereign funds. Firstly, a screening of foreign investment in strategic fields can be put in place, especially to protect Small and Medium Enterprises. Secondly, a change of attitude is needed, in order to accept that developing countries will control more and more European companies. In these cases, however, the principle of reciprocity shall be respected.

Particular relevance has to be granted to standard and rules, which are normally set out at the international level. Accordingly, lobbying within international organizations, as the United States knows very well, is of the highest importance. Otherwise States could elaborate their own standards or invest, for example, in the International Organization for Standardization, as China is doing.

In this subject matter, the European Union is not able to “speak with one voice”. In particular, the lack of a Union’s comprehensive strategy, and thus the predominance of national interests, is particularly evident. In accordance with the Treaties, in fact, in the internal market, the protection of competition takes precedence over an effective industrial policy. In light of the foregoing, new priorities should be set out, in order to enhance the coordination that could increase the penetration in non-EU markets (especially concerning some strategic sector, i.e. the defense one) and improve the existing competition. Nevertheless, it should be noticed that these changes might not be possible without the creation of real “United States of Europe”.

The current debate often focuses on energy security, not only from an economic point of view. The need to swift from “energy security” to the “energy supply” has been underlined, as well as the importance of securing the energy flows. This is demonstrated by the so-called “oil wars”, as the two Gulf wars, the war in Afghanistan and in Libya could surely be defined. However, despite the fact that the oil supply is one of the main causes of these conflicts, delicate international geopolitical balances are crucial elements to be take into account.

Along with the control of the “black gold”, the “gas issue” should be given a great importance for several reasons. Research demonstrates that the increasing in energy demand in the next years (from developing countries in particular) could not be satisfied by oil only. Furthermore, it is necessary to find alternative solutions in order to overcome difficulties stemming from extraction techniques in newly discovered oil fields.

Accordingly, States are trying to revise their energy policy, by reducing consumption and improving the quality of their infrastructures to avoid leaks, by diversifying their energy sources, especially by increasing the use of renewable energy (i.e. wind, sun and wave power), and by controlling the use of national resources (as France does with hydropower and nuclear energy).

Moreover, security of supplies is related to raw materials, where the interplay between economic and geopolitical aspects is evident. Agricultural products, minerals and rare earths elements are only few examples.

China holds more than 90% of rare earth elements and uses this monopoly to achieve its political purposes, against Japan for instance, towards which the Chinese government applies restrictions on exports in light of their territorial disputes. Furthermore, conflicts arise in relation to abundant resources, such as cultivable lands (as it happens with land grabbing) or common goods, such as water, air, biodiversity and the genetic heritage. In this framework, countries, in a globalized word, have to deal with the scarcity of resources, caused by demographic growth, as well as by the increasing of material and immaterial trade flows, flows of goods and people, information and money. In particular, supplies are granted only when flows are safe and this implies several economic and military consequences.

On the one hand, different economic elements shall be protected: the ownership of infrastructures, the technical control of the exploitation of resources, the choice of transport routes (such as pipelines for the European supply) and the control on access routes (such as harbours).

On the other hand, security depends on military capacity to oversee production and export areas, as well as on seaway’s extension and control. Examples are the protection of the Gulf of Aden by EU’s Atlanta and NATO’s Ocean Shield operations.

One of the main geopolitical issues in the current debate concerns rare earth elements These include 17 elements that are fundamental for high-tech industries, even though they are used in small quantities. For instance, lanthanum can be found in electric vehicle batteries and in sonar; samarium in some missiles’ elements; gallium in night vision devices; indium in flat panels. These specific Raw materials are actually at the center of the dispute between China and the United States, which are two of the main actors in international relations of XXI century. Evidence supports the predominance of China in this field: the country holds between 34 and 50% of world reserves and produced, in 2010, 95% of rare earth elements (130,000 tonnes out of 133,000). This was possible after having progressively abandoned the exploitation of western sites and the complete integration in the global economy system. Therefore, Pekin is able to use this leverage in its dialogue with western countries, by imposing very high prices or, even worse, by breaking their supply chain. There is no doubt, however, that a problem of dependence exists and that it is not clear how to solve it. Nevertheless, China’s position seems not to be so safe. The country should become an importer of rare earth elements by the end of the current decade.

Between 2006 and 2010 China reduced its export share of these metals from 5 to 10% per year. Furthermore, their production was limited, to avoid the depletion of reserves. However, China-Japan tensions of September 2010 (following the Japanese inspection of a Chinese vessel in “contested” waters) have worsened their relationship. As a result, the Chinese Trade Minister set 30% reduction of export share.

China was trying to use rare earth metals as an economic weapon, which led to a real embargo on its exports towards the European Union, Japan (representing one fifth of its final demand) and United States, whose diplomats were able to obtain by their Chinese colleagues full assurance concerning liability in the future. This demonstrated that Sino-US relations are of the highest importance in the American politics. Currently, 87% US imports of rare earth elements come from China, while the remaining 13% is from domestic reserves.

The Chinese embargo forced the United States to implement a strategic vision that was missing so far, because of the dependence of the country form external resources. Therefore, the US needed to undertake some measures stimulating mining, refining and transformation of this kind of raw materials.. As a result, the US pursued a policy of differentiation of trade partners.

Nevertheless, the exploitation of mines in order to obtain rare earth elements is rather difficult, both at the administrative (the re-opening of one of these mines takes 9 years) and at the political level (environmental organisations are often against these projects). Molycop case represents a successful story in this field. The enterprise, in fact, owned Mountain Pass mine, which is the biggest site of non-Chinese rare earth metals in the world, and obtained in 2010 (few months after the above-mentioned diplomatic tensions with China) the authorization to relaunch the activity. Molycorp’s efforts ended at the end of 2012 and the company increased its production from 3.000 tonnes to 20.000 tonnes per year and received 531 million dollars of funds. Currently, the company is the only one that extracts these materials outside China. The step of this process will be summarised in the following paragraph.

In June 2010 Molycorp signed an agreement with Canadian company NeoMaterial, which provides technical assistance and know-how on the production of rare earths elements. Moreover, in December of the same year, Molycorp set up a joint-venture with the Japanese Hitachi, in order to create several associated enterprises producing alloys and magnets in the United States. Furthermore, Molycor signed a memorandum of understanding with Sumitomo Corporation trough which Molycorp completed its supply chain of rare earth metal-manufacturing products. These products are then delivered to Sumitomo Corporation. In April 2011 Molycorp acquired the American branch of the Japanese enterprise Santoku for 17.5 million dollars and the Estonian Silmet for 89 million dollars. Therefore, Molycorp can actually count on a network of customers that goes from the Far East to Europe.

Molycop has secured funds, mines, know-how, logistical cooperation and a network of buyers, and became the only western enterprise with a full control of the entire supply chain of rare earth elements, from the mining to the sale process . The United States could thus avoid direct conflicts with China, after the threat of embargo and the increase in prices.

Despite the fact that China could not be excluded from rare earth elements-market, its power shall be controlled, as tensions arisen in 2010 showed. The idea of an embargo in September 2010 stimulated competition and pushed western countries to diversify their supply sources. As a result, the offer increased and Chinese power decreased.

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What an ‘Impossibility Clause’ can make possible

Mehrnoosh Aryanpour

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Since the implementation of the JCPOA in January of 2016, and throughout the current period of accelerating investment by foreign enterprises in Iran, many participants have taken for granted that in the event of a “Snapback” or the reimposition of UN, U.S. and EU sanctions under the provisions of the JCPOA, foreigners must perforce exit all investments in Iran and Iran’s major industries would be relegated to the shadows as an unlawful destination for foreign capital.

The operative assumption has been that any such reimposition of sanctions under a Snapback scenario would make it “impossible” for such foreign participants to maintain, lawfully, their investments in the various projects within Iran, investment they have made a huge effort to structure and uphold in the still-new era of significantly relaxed sanctions.  In fact, the very idea of the impossibility of maintaining significant investments in Iran under such sanctions has become something of a fixation. To the dismay of Iranian partners in various ventures, their foreign partners tend to focus on securing their own interests, rights, and recompense under a Snapback. An efficient exit strategy is often sought.

In reality, those who are here on the ground in Iran know that, regardless of the whims of the American President or the vicissitudes of foreign capital flows, the continued development and renovation of Iran’s domestic economy, both in terms of absolute production, as well as in terms of sophistication, efficiency, and integration, will continue apace, and therefore, the wiser among the stewards of foreign investment in Iran understand that it is as much a question of ensuring business continuity for their Iranian-Foreign joint venture projects despite changing international sanctions regimes, which have been imposed by the West against Iran for decades.

As a result, the most basic and fundamental considerations for any prospective foreign project participant and its Iranian partner become:

1. How the foreign participant can, through appropriately drafted “Impossibility Clause(s)”, remain invested in the Iranian venture for as long as possible under the threat of renewed or reimposed sanctions, and without incurring unacceptable risk.

2. How the foreign participant can contractually envision the broadest range of adverse sanctions scenarios through a single and efficient impossibility mechanism.

3. How the foreign participant can provide for a gradual approach to any putative withdrawal procedure, as opposed to the simplistic solution of outright termination upon Snapback after a period of suspension.

4. How the foreign participant can, in the event of the extinguishment of impossibility, subsequent relaxation or obtained exemption of sanctions, reasonably provide for the right, or at least the option, for itself to reenter an investment project which it may have exited because of Snapback.

The legal thought process underpinning successful solutions which industry practitioners may be likely to embrace is beyond the scope of this article, but the conceptual summary can be a useful guide for all of us as we come to grips with what can be made possible by “Impossibility Clauses”.

1. Remaining invested, minimizing risk: Of course, it is true that for many projects, a direct investment by the foreign participant though its stake in an Iranian joint venture entity may be the most straightforward means of effecting the transfer of capital that allows the foreign party to have a stake in a project.  It also allows for the simplest mechanism by which a foreign party may apply for and successfully obtain an investment license in accordance with the Foreign Investment Promotion and Protection Act.

Nonetheless, such a direct investment may, particularly in the case of European entities which also do business in U.S. jurisdictions or in jurisdictions which have significant links with the U.S. financial system, provide little or no cushion under even the most benign reimposition of any form of secondary sanctions.  This is because the direct investment leaves the foreign party little room to maneuver by way of restructuring or otherwise allocating its participatory interest in the project as sanctions change.

For this reason, a more effective solution could include the formation of a foreign special purpose vehicle to act for the project entity.  In the case of a joint venture, an SPV incorporated in a jurisdiction less likely to be adversely affected by reimposition of sanctions would allow for a more flexible platform to facilitate intelligent solutions such as exit and re-entry options, trustee or agency relationships, and contingent sale-repurchase strategies to prepare for the worst outcome of a sanctions scenario which may force a foreign party to exit Iranian investment.

2.Knowing unknowns, counting uncountables: Even now, with the most recently issued ultimatum by the American President declaring that the end of the JCPOA as we know it is nigh (to be either amended or abrogated, if Mr. Trump is to be believed), there exists a wide variety of circumstances involving the reimposition of sanctions, ranging from those that would make the maintenance of an interest in a project by a foreign party merely inconvenient to those which would make maintaining such an interest lawfully untenable.   These may range from largely toothless, otherwise symbolic targeted secondary sanctions which apply only to the entities of specific countries, as we have continued to see since Trump’s October 2017 decertification, or those which may apply only to certain economic sectors or types of goods or projects, to those which render further financial flows in support of such a project functionally impracticable.  Most challenging of all would be the failure of the UN to continue to waive the imposition of sanctions against Iran.

Thus, a single mechanism to classify sanctions in some way as materially adverse changes and evaluate consequences seems a more pragmatic solution than contemplating what may constitute an “impossibility” event, and including it under grounds for termination.

Under a scenario in which the foreign party has made appropriate structuring preparations as suggested, the determining exit remedies depends on compliance with mandatory applicable laws of the project vehicle’s jurisdiction.  To put it another way, the most straightforward test of whether the foreign party may have to adjust, or exit from its participation, comes down to whether it can fulfill project obligations while abiding by all applicable regulations that may apply to it.  Beyond such a litmus test, imagining or prognosticating about the myriad complexities of a possible Snapback scenario may be fruitless and contractually inefficient.

3.Avoiding the black-and-white trap: Of course, a foreign project participant can easily avail itself of the opportunity to stipulate that under any kind of scenario of project impracticability caused by sanctions, certain or envisioned, termination shall be the one and only prescribed remedy.

But this is likely to disadvantage the foreign party in the context of negotiations over comprehensive project terms with its Iranian counterparty, and it may limit the scope of the project work itself and fail to allow for a more complex investment structure which cannot survive the threat of termination overnight due to a “Snapback” of one kind or another.

Aside from termination, and its precursor remedy, suspension, there should also be the possibility to contemplate a variety of concepts including assignment, agency and delegation, in order to benefit from the vagaries of sanctions regulations and their exemptions. In some cases, project obligations which would be in violation of sanctions for some foreign entities may not be so for others.  As has been shown by the agreements between foreign export credit agencies (“ECA”s) such as EKF, BPI and Invitalia, developments at an international level, especially where adequate sovereign support and sufficiently ringfenced banking facilities exist, are being contemplated to facilitate the kind of continuity required for the decades-long projects now underway in Iran.   In addition to these ECAs, other parties such as quasi-sovereign corporations, particularly those from less dollarized jurisdictions, can play a role as fallback transferees of the exiting foreigner’s project interest or shares under Snapback.  Moreover, it should always be noted that under even the most negative circumstances, the potential for a foreign party to obtain a waiver does exist and can be specified for the benefit of all parties.

4.Saving face, weighing options: Although some foreign entities have a checkered past derived from cutting and running under the threat of or the actual imposition of sanctions against Iran, time has shown that many of the same foreign parties which were forced, or chose, to exit their project ventures are the first ones to have returned since the JCPOA. Such is the compelling nature of Iran as a destination for foreign capital.

Iranian parties to a project know both this history itself and its implications. Foreign participants may wish to keep close to the exits, but foreign companies that have been victimized by their own government’s whims regarding sanctions, and the slippage inherent in exiting and reentering, cannot be understated.
For this reason, foreign project partners may choose to consider the solution of exit and entry “options” for themselves under adverse sanction scenarios, and thus it is important for all parties involved to understand what an “option” precisely means, and how to value such an option.

In financial speak, an option is defined as the right but not the obligation to sell (or buy) an asset in a fixed quantity at a fixed price on (or before) a fixed date in time.  In the case in question, the asset is the participatory interest of the foreign party in the Iranian project, and the date is that point in time at when the parties to a project agree that the foreign party must leave due to sanctions (or is able to re-enter due to easing of sanctions).

However, it is not obvious immediately what the fixed price should be for foreign project interest at the time of exit or re-entry, and, most importantly, what may be overlooked is the tremendous value that such an option has.  In finance, the greater the underlying uncertainty about an asset, the more valuable any option on that uncertain asset is. Similarly, the longer the life of an option on an asset, the more valuable that option is.  In the context of long term investments, any option to exit (or re-enter) should be linked with a significant premium (that is, the worth of the option), and the contract parties should ensure that they successfully negotiate an appropriately fair value for the flexibility the options offer. As an illustrative example, the alternative to any exit put option for the foreign party is a fire-sale in the face of illiquid conditions for its share interest under the menace of reimposed international sanctions, or more problematic still, the inability to exit its share interest altogether, which an option is supposed to protect against.

Absent a foreign investor’s legal immunity to the whims of the UN, OFAC, or other authorities, there is no perfect panacea for fool proofing long-term Iranian projects against the kind of uncertainty which the spectre of sanctions create.  But although this threat, to a certain extent, has forestalled the growth in Iran’s industry and economy despite the strengthening of Iran’s relationships with the international community, it is now apparent, moreso than ever before, that foreign parties can be expected to take an increasingly pragmatic approach in efforts to remain engaged with their Iranian projects for as long as possible.  They can effectively do so by allowing for the most flexible and broad classification of sanctions-related termination risks, by specifying a menu of contractually stipulated responses to reimposed sanctions (in conjunction with intelligent and pre-emptive project structuring) and by exchanging due consideration with the Iranian party for the invaluable options which allow them to remain confident that they can, if absolutely necessary, exit the project and someday re-enter, at a fair price.

Thus, it seems that the operative watchword for all foreign investors in Iran is continuity: continuity of the progression towards innovation, development and growth, and continuity of the participation of foreign interests in that process, bolstered by intelligent structuring solutions, both legal and financial, for dealing with the complicated reality of international economic sanctions.  With a measure of foresight, and a functional, flexible contractual framework, all participants in long-term, large-scale project joint ventures can move closer to the ideal of mitigating most, if not all, of the adverse consequences of sanctions regulations on investment decisions and risk management.

First published in our partner Tehran Times

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Creating Quality Jobs Crucial to Boost Productivity, Growth in Indonesia

MD Staff

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Indonesia must create good and quality jobs to help increase the country’s productivity and competitiveness for sustained and inclusive growth, says a new Asian Development Bank (ADB) study.

The study, titled Indonesia: Enhancing Productivity through Quality Jobs, takes an in-depth look at the challenges in creating better jobs and raising the country’s labor productivity, as well as the necessary skills needed for a youthful and increasingly better educated workforce to meet the demands of the digital age. The publication was launched today at an event in Jakarta hosted by ADB and the Coordinating Ministry for Economic Affairs.

“Indonesia has a tremendous potential to capitalize on its youthful workforce by addressing the country’s long-term challenges to job creation and inclusive growth,” said Rudy Salahuddin, Deputy Minister for Creative Economy, Entrepreneurship, and SME Competitiveness, Coordinating Ministry for Economic Affairs.

“Not only does the country need to create a more skilled workforce, but it also needs to adjust to new global patterns of technology and the demand for new skills,” said Bambang Susantono, ADB Vice-President for Knowledge Management and Sustainable Development.

The study provides three key messages on how to create good and quality jobs for Indonesia’s large workforce. First, improved education and skills development are necessary to create enough quality jobs to raise productivity. Second, as urban jobs are expanding faster, supportive public policies for sustainable cities are fundamental in generating quality jobs. Lastly, there should be continued efforts to improve labor market institutions and regulations that promote a wider range of employment options and better income security for workers.

The study identifies policy initiatives focused on creating better jobs in the labor market, raising labor productivity, and facilitating worker adjustment to the challenges of the digital age. These issues are addressed both from the supply side and from the demand side of the labor market. Policymakers should ensure that initiatives aimed at increasing productivity also target the poor, women, older people, and other disadvantaged groups.

Labor market institutions like private businesses, small-scale enterprises, and community groups also play a critical role in helping improve the employability of Indonesians. Combining new work opportunities with new technology, ideas, and organization will raise productivity and contribute to improved living standards.

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Agriculture Is Creating Higher Income Jobs in Half of EU Member States but Others Are Struggling

MD Staff

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Half of EU member states have leveraged the Common Agricultural Policy (CAP) to significantly reduce poverty and drive higher incomes in farming, while other countries are still lagging, according to the latest World Bank study.

The ‘Thinking CAP’ report details how new investments and services in farming, reinforced by the EU’s flagship agriculture policy, can drive down poverty and transform agriculture into a sector which can provide higher paying jobs for those who farm.

Hungary, Slovakia, Estonia, Denmark and the Netherlands are all examples of member states that have successfully modernized their agricultural sectors by providing advisory services, roads, secure property rights and access to education and health services in rural areas. Others, such as Bulgaria, Portugal, Romania, Slovenia and Greece, still have some way to go in reducing poverty and ensuring that agricultural work pays. They can do so by improving the basic conditions for a successful agricultural sector, which would improve the results of the financial investments available under the CAP. Other remaining member states fall in between these two categories – achieving a successful transformation or lagging behind.

“Agriculture and poverty in half of the member states of the EU no longer go hand-in-hand. It’s clear that the income gap between agriculture and other sectors is narrowing and in some countries, such as the Netherlands, agricultural work can pay more than jobs in other sectors,” says Arup Banerji, Regional Director for the European Union Countries at the World Bank. “Today, about half of EU member states recognize that farming can boost shared prosperity, while the other half still has some work to do to provide the basic conditions to bring about necessary structural changes.”

The World Bank report shows that the EU CAP is associated with improving employment conditions in farming. Decoupled payments – annual payments based on how much land a farmer uses – and the co-financing of on-farm investments do show clear links with improvements in agriculture. For instance, in the newer member states agricultural labor productivity growth increases from 3.1 percent to 4.7 percent per year with a 10 percent increase in this type of CAP spending. However, there are certain categories of subsidy – known as coupled payments, which reward farmers for producing a particular crop or livestock— for which the report could find no such association. In the past, these coupled payments also led to extreme overproduction and price distortion on global markets.

“Some countries are running before they can walk by issuing payments to farmers who don’t have the necessary infrastructure to effectively bring their products to market or to make the best use of their investment,” said Rogier van den Brink, Lead Economist at the World Bank. “However, the processes the CAP has put in place are impressive. The CAP casts a very wide net and reaches farmers in every far-flung corner of the EU. Because of this, improvements in the CAP along the lines of the recommendations outlined in our report will further strengthen its role as a powerful instrument of structural transformation.”

Going forward, the report says the monitoring of CAP funds should focus on delivering tangible results rather than confusing bureaucratic processes. This would also encourage the co-financing of private investment into CAP-supported projects which are in the public interest such as environmentally sound practices, organic farming and animal welfare.

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