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Interview: Russia’s business and investment opportunities in Africa

Kester Kenn Klomegah

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With new trends and directions in global business, African countries have to look to the Eurasian region as a huge market for exports as well as make efforts to consolidate and strengthen economic cooperation, says Tatiana Cheremnaya, the President of ANO “Center for Effective Development of Territories” and Head of the working group on public-private partnership “Business Union of Eurasia” in this wide-ranging interview.

She further discusses Russia’s economic relationship, challenges and untapped potential business and investment opportunities with Africa. She spoke recently in this interview with Kester Kenn Klomegah, an independent research writer on Russian-African affairs in Moscow.

How important is Eurasian market for African countries?

The Eurasian marketplace, in scale and capital intensity, is huge. It includes some countries of Europe and post-Soviet countries and rather fast-growing Asian countries. It is obvious that the interest among African countries for access to these markets is enormous both in the context of just entering the market of a particular country and implementation of joint interstate projects. In this case, first of all, we are talking about high requirements in the implementation in Africa of infrastructure projects, including roads, bridges, pipelines, electricity and the search for alternative sources of energy, communication, without which it is impossible to imagine a dynamic and systematic development of the economies of African States.

The implementation of such projects can be possible with the introduction of public-private partnerships. Here you can define several main points of contact between the Eurasian and African companies:

1. The implementation of joint projects in the framework of BRICS. We know that the unit includes one African country – South Africa. Today in the framework of the unit formed the New development Bank BRICS, the funding of joint transnational projects. In 2016, the Bank has approved the financing of the first investment projects in the BRICS countries totaling more than $1.5 billion.

2. Joint cooperation between the units of the Eurasian Economic Commission and the African Union. It is qualitatively new direction in the cooperation between the two blocs was laid in July 2016, when in Addis Ababa in Ethiopia, the delegation of the Eurasian Economic Commission held talks at the African Union Commission. It is worth noting that the African Union itself includes the 54 African States, and in the area of Eurasia includes 89 countries. The scale of the Eurasian-African cooperation is evident.

3. Giant cross-country infrastructure projects, which can be safely attributed to the project Great Silk Road. Here the role of the Eurasian economic Union and the project “Economic Belt Silk Road” is the formation of a common economic space, institutional capacities mates, and the possible components of a proactive commercial and economic strategy of Russia and its Eurasian Economic Union partner. Project financing is also being implemented in the framework of interstate financial institutions creates a system of regional-global financial institutions with total capital to date $240 billion Asian Infrastructure Investment Bank, development Fund of Silk Road.

How challenging, of course, is this market?

Of course, to enter the Eurasian markets from Africa is quite difficult. Here we are talking primarily about the high-tech, and the competitiveness of African business. That is, on one hand, we have a cheap labor force, good climate, really good opportunities all appearing for business development on the African continent. But, on the other hand, it often happens that a business can’t compete with the Eurasian giants. However, in time within such a community as BRICS, or the cooperation between the Eurasian economic Union and the African Union, can be reached certain agreements on implementation of joint projects and the release of African companies into the Russian market, what needs to be done.

Do you also think that industrialists and business directors from the Eurasian region can cooperate with other foreign investors on projects in Africa?

Of course, we can talk about cooperation between the African and Eurasian investors. Generally, in the age of globalization, cooperation is a basic and necessary condition for the development of cooperation among countries and enhanced the pace of development of the economies of some African countries gives reason to predict the emergence of truly important and profitable joint projects.

It is worth noting that according to the World Bank, in 2013, among the 50 economies that have improved their economic performance since 2005, about a third owned by the countries of sub-Saharan Africa. Studies conducted over the past three years also show that Africa today is no longer perceived as a backward region. It becomes an attractive investment and Eurasian countries see it as a place for prospective business.

It is worth noting that the basis for cooperation, for example, Russia and Africa are already actively created. So, in 2014, the visit of the official Russian delegation to Zimbabwe, where they discussed a number of key bilateral agreements designed to provide preferential treatment to investment from Russia. Russian companies interested in developing major infrastructure projects in the African region, primarily in the mining industry, and have the necessary experience, technology and expertise for the development of industrial and infrastructure projects.

Between countries today are considered joint projects that can participate in such major Russian companies as KAMAZ, Russian Railways, ALROSA, Uralvagonzavod and “Inter RAO”. In addition, to the infrastructure of the Russian-African partnership is also planned in other areas, such as automotive, agricultural production, implementation of joint projects in the sphere of development of agriculture, education and tourism.

Specifically, there is an investment in the republic of Ghana “One District, One Factory”. Opportunities to attract investment from the Eurasian countries have in most African States. For example, South Africa is the infrastructure in Zimbabwe and high-tech projects, and Ghana is the implementation of the “One District, One Factory”. All projects are very important for economic development of the African continent. But in each case for the investor is important, and profitability of such projects. For example, for the “One District, One Factory”, each individual plant will be measured from the point of view of expediency of investment of the investor. Here one should not expect miracles, but you need to work on each project with the Eurasian partners.

Do you think potential investors from the Eurasian region face competition for investment projects with other foreign players in Africa?

Yes, of course, investors of the Eurasian region are interested in implementation of joint projects. It is worth noting that today for the African continent, plays an increasingly important role in the foreign policy of the developed countries, is real struggle among the major powers of the world. For example, countries such as the United States, England, France, China, and India are gradually increasing its economic and political influence on the African continent. The interest of the developed world to Africa is, of course, largely from the increased need of their industry in the extraction of raw materials, which are present on the continent of Africa.

Furthermore, Africa is still untapped market for technology products and consumer goods. Also other Eurasian countries have interest in the continent; we can hardly compete with the leading world powers. Russian business is very interested in business development and their presence in Africa.

So in the near future can predict the development of the Eurasian-African cooperation in the field of business. In this situation it is necessary to search for effective forms of cooperation that have a solid foundation for the cooperation of business, addressing the goals and objectives of the Eurasian countries and Africa

So these Russian companies such as KAMAZ, Russian Railways, ALROSA, Uralvagonzavod, “Inter RAO”…how do you assess their influence or activities in Africa? What are their levels of operations in Africa? For instance, Russia Railways, how do you measure this company’s success as compared to China in Africa? China has completed railway lines in a number of African cities including Addis Ababa, Ethiopia.

With regard to the participation of Russian companies in infrastructure projects in Africa, they are already there and as I wrote, will increase significantly. So, for example, Russian Railways is increasing its influence and implementation of joint projects in the field of railways, as Africa is actually very poorly developed railway infrastructure. If we consider the railway infrastructure in Africa, we note, for example that Algeria has an extensive network of railways in the north of the country; the rail infrastructure of Angola was virtually destroyed during years of civil war; in Botswana, Chad, the Gambia and Burundi passenger railways in general no; in Ethiopia, Djibouti, Guinea, Ghana and the Congo, there is one rail that is in poor condition; railroad developed only in Egypt, Kenya, Namibia, Zimbabwe.

There has been much activity in the railway sector in East Africa. From an economic point of view, it is a very profitable business. On the one hand, there is access to global markets and with another – stimulates regional trade. The countries themselves certainly can’t afford to implement such capital intensive projects, so come to the aid of other countries. And if the past is largely in the construction of railways helped the European countries, now in road infrastructure often puts China. Of the ongoing projects, it is worth noting the railway Mombasa – Nairobi to Kigali (Rwanda) and Juba (South Sudan), the road between Addis Ababa and Djibouti. The construction financing deals with Export-Import Bank of China. Except for the road construction, China also supplies and most of the rolling stock, including locomotives.

But the Russian Railways company is also one of the participants of the market of road infrastructure projects in Africa. In particular, the Sudanese government suggested that Russia participate in construction of Trans-African railroad from Dakar (capital of Senegal), in Port Sudan in the Red sea, which would connect many countries from the Atlantic to the Indian Ocean. In the future, this railway will connect the capital of Senegal, with the port of Djibouti. The management of Russian Railways said that the company is interested in participation in infrastructure projects in Ethiopia. The Russian Railways, in fact, can become a consultant or general contractor of the project in Africa, as the team has the necessary experience and knowledge.

As for the Russian company “KAMAZ” it is necessary to note that “KAMAZ” works in countries on the African continent since the days of the Soviet Union, the machine “Soviet-style” still can be seen on the roads of Africa. The share of the African continent in the global economy in the near future will increase, and the management of “KAMAZ” seeks to take advantage of a favorable situation. The company “MAZ” – the Russian manufacturer of trucks – in November 2016 began to put Africa right-hand drive trucks. While we are talking only about South Africa, but in the future cooperation is planned with countries such as Botswana, Zambia, Zimbabwe, Mozambique and Namibia.

However, the Russian production is not always able to compete with the Chinese, because in many areas of work in Africa, China has the best position. But currently, Russia is strengthening its position in Africa, these projects that implement only experienced Russian companies.

How important is Russian Export Center for Africa? Which Russian products “Made in Russia” are being promoted in Africa market currently, again compared to India and China whose various products including consumer goods, pharmacy and automobiles very common in Africa?

The importance of the Russian Export Center is difficult to overestimate. Indeed, the Center is doing a great job for development, including the African market. According to the report of the Russian Export Center, export of Russian goods to the African continent increased by more than 50 percent in 2016. In Africa, the demand for Russian goods, while their exports to other countries, by contrast, only falls. Given that the difficult economic situation in Russia contributed to a significant decline in exports in almost all countries of the world, has shrunk by nearly a third to US$129,7 billion and in African countries we are seeing demand growth, contrary to the general trend of demand for Russian goods. The maximum growth of exports showed Algeria (US$556 million), Angola (US$298 million) and Egypt (US$178 million).

It should be noted that the attractiveness of African markets is associated with a low level of competition because the market is actually free for low-end products. As for China, here directly is not a competitor to Russia because Russia is a strong player and China is interested in markets with much greater capacity. For Russia as a country that traditionally exported only raw materials, Africa is a very good place to start. However, we know that African countries are fast growing. So, the International Monetary Fund (IMF) predicts by 2016 economic growth in Tanzania 6%, Zimbabwe 3%, while, for example, in the USA only 2%. That is, for Russia, the African market is very interesting and we can talk about expanding cooperation with African countries to export products “Made in Russia” in various segments.

So what are the key problems and impediments to developing practical and active Russian-African business, especially in the manufacturing and consumer sectors, not theories but real active bilateral economic cooperation? What should be done from both sides, from Russian side and from African side?

The problems of effective cooperation between Russia and Africa are political in nature. Thus, the strengthening of Russia’s position leads to the strengthening of its influence in the world, including in Africa and vice versa, sectional policy has significantly reduced Russian exports.

The second problem for the development of Russian-African business is the lack of competitiveness of Russia which allows working only in the low-budget segment. This is due to structural problems in the Russian economy, the need for modernization, the bulk of the products produced during the Soviet Union.

The third problem is the unwillingness of the African market to cooperate, due to the strong backlog of the country in socio-economic aspects, for example, we are talking about the lack of qualified personnel, low standard of living of the population and hence the low effective demand.

The fourth problem is competition from the United States, China and India as more developed countries with more advanced technological solutions, and from the European countries as the former “patrons” of African countries. However, these barriers can be gradually removed by constant open dialogue between African governments and Russia, as well as directly between interested companies of the two countries. For cooperation with Russia is necessary to develop competitive solutions in terms of infrastructure development and proposals for the supply of consumer goods, as well as the removal of bureaucratic barriers. African countries need not only steps on the path to economic growth, but also political decision-making directed at improving living standards and increasing the stability of the political and economic systems of African countries which could significantly reduce risks for investing in African projects.

Kester Kenn Klomegah is an independent researcher and writer on African affairs in the EurAsian region and former Soviet republics. He wrote previously for African Press Agency, African Executive and Inter Press Service. Earlier, he had worked for The Moscow Times, a reputable English newspaper. Klomegah taught part-time at the Moscow Institute of Modern Journalism. He studied international journalism and mass communication, and later spent a year at the Moscow State Institute of International Relations. He co-authored a book “AIDS/HIV and Men: Taking Risk or Taking Responsibility” published by the London-based Panos Institute. In 2004 and again in 2009, he won the Golden Word Prize for a series of analytical articles on Russia's economic cooperation with African countries.

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Economy

Business Chemistry: Practical Magic for Crafting Powerful Work Relationships

MD Staff

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Ever wonder what it is that makes two people click or clash? Or why some groups excel while others fumble? Or how you, as a leader, can make or break team potential? “Business Chemistry: Practical Magic for Crafting Powerful Work Relationships” (Wiley; May 2018) by Kim Christfort and Suzanne Vickberg, helps answer these questions.

Based on extensive research and analytics, and years of proven success in the field, the Business Chemistry framework was developed to provide a simple yet powerful way to identify meaningful differences between people’s working styles. Launched in 2010 and profiled in a 2017 Harvard Business Review cover story, Business Chemistry explores the individual and collective power of four primary working styles: “Pioneers” who value possibilities and spark energy and imagination; “Guardians” who value stability and bring order and rigor; “Drivers” who value challenge and generate momentum; and “Integrators” who value connection and draw teams together.

Whether the goal is to raise your own level of performance, enhance customer engagement, or become a more effective leader, Christfort and Vickberg offer practical ways to grasp different perspectives, recognize the value they bring, and determine what is needed to excel.

  • Manage and motivate different working styles by learning what kinds of interactions and working conditions kill their potential, and what kinds unlock it.
  • Build empathy and stronger relationships by recognizing key differences in how people work and what they need to thrive, then flexing your own style accordingly.
  • Foster productive interactions among team members, including helping opposite types work better together).
  • Mitigate conflicts in the workplace through understanding the four working styles and their proclivities.
  • Embrace cognitive diversity on your team and harness it to improve your group’s performance, not undermine it.
  • Create powerful relationships with colleagues, customers and everyone else.

“One of our goals in writing this book was to shed light on the untapped potential that exists within many organizations, and provide people with a means to activate it,” said Kim Christfort, managing director, Deloitte LLP, and national managing director of Deloitte’s Greenhouse Experience. “And of course, we wanted to practice what we preach by infusing this book with elements that will appeal to different types—not only practical strategies and relevant data but also colorful stories, evocative images, and some humor too.”

On any given day, professionals interact with many different types of people: some prefer diplomacy while others prefer candor; some focus on the big picture and others hone in on the details; some work methodically and others rapidly. Business Chemistry addresses how to embrace differences and unite across them. Throughout this book, Christfort and Vickberg offer suggestions for creating better business chemistry with colleagues; techniques for managing, motivating, and influencing different types of people; strategies for earning their trust and respect; and ideas for leading teams so that everyone can excel and deliver their best performance.

“One of the unique features of this book is that it’s written by two authors with different perspectives and opposite working styles,” said Suzanne Vickberg, Ph.D., senior manager, Deloitte LLP and applied insights lead, Deloitte’s Greenhouse Experience. “We didn’t try to merge our styles into something neutral. Instead, we took advantage of our differences to create a book that has something to offer for everyone, regardless of their type.”

Deloitte developed the Business Chemistry® system to help provide insights about individuals and teams based on observable business behaviors. Business Chemistry draws upon the latest analytics technologies to reveal four scientifically based patterns of behavior.

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Economy

The petroyuan

Giancarlo Elia Valori

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Many oil futures denominated in yuan were launched on the Shanghai market at the end of March 2018 and quickly traded for 62,500 contracts – hence for a notional value of 27 billion yuan, equivalent to 4 billion US dollars.

The financial process of the new petroyuan, however, had already begun as early as 2016.

Hence there was obviously the danger of an internal financial bubble in China, but linked to the crude oil price –  yet the Chinese government had decided that the fluctuation allowed for those contracts had to be only 5%, with a maximum 10% fluctuation only for the first day of trading.

Furthermore considering the average level of oil transactions in China, we can see that oil and gas imports could back financial operations totalling over 200 billion yuan.

According to industry analysts, the level of Chinese oil  imports is expected to increase by approximately 2.1 million barrels per day from 2017 until 2023, which implies that the Chinese market will change the future level of oil barrel prices – be they denominated in dollars or in another currency.

Hence, from now on, China will explicitly challenge the “petrodollar” to create its petroyuan – with an initial foreseeable investment by the Chinese government, which will take place on the sale of a 5% shareholding of Saudi Aramco.

Nevertheless the prospect of an IPO on the Saudi “jewel in the crown” – which was also at the core of Prince Mohammed bin Salman’s Vision 2030, all focused on the Kingdom’s economic diversification – has been postponed to at least 2019.

The Saudi Royal Family is not at all homogeneous, both politically and for its different financial interests.

This is demonstrated by the attack – obscure, but thwarted with some difficulty -on Riyadh’s royal palace, launched by some armed units on April 21 last.

Should the sale of a 5% shareholding of Saudi Aramco finally take place, however, it would be the biggest IPO ever.

The magnitude of the deal is huge: according to the latest Saudi estimates, the company is worth 2 trillion US dollars – hence a 5% shareholding is at least equal to 100 billion dollars.

Moreover, China is doing anything to make Saudi Arabia accept payments in yuan –  the first step to replace the old petrodollar.

If Saudi Arabia did not accept at least a large share of Chinese payments in yuan, it could be “blackmailed” and witness a decrease in an essential share of its oil exports. Not to mention the fact that – also with reference to Saudi Aramco-as the saying goes, sovereign funds and Chinese state-owned companies have “deeper pockets” than many prospective Western buyers.

Moreover President Trump is doing anything to make the IPO on Saudi Aramco end up in US hands. However, it cannot be taken for granted that he will succeed. In spite of everything, Mohammed bin Salman is not the heir of the old Saudi bilateralism vis-à-vis the United States.

Nonetheless, in his visit to China last March, Prince Mohammed bin Salman already signed contracts with his  Chinese counterparts to the tune of 65 billion US dollars –  and they are only petrochemical and energy transactions.

Furthermore this major Saudi oil company is considering the possibility of issuing yuan-denominated bonds, at least to cover part of the trade between the two countries.

Moreover, the US imports of Saudi oil have been steadily declining for some time, which makes the US role in the future post-oil diversification of the Saudi economy – the real big deal of the coming years – more difficult.

Over the next few months, however, the Chinese financiers are preparing to launch on the market a yuan-denominated oil future convertible into gold.

According to Chinese sources, it will be open to foreign investment funds and to the various oil companies.

Hence if the use of the dollar is gradually avoided, it will be possible -also for Russia and Iran, for example – to circumvent the sanctions imposed by the USA, the EU and the UN and fully re-enter -precisely through the yuan – the global oil and financial markets.

Moreover, the “petroyuan operation” is rapidly expanding to Africa.

Just recently, we heard about the definition of a three-year currency swap between China and Nigeria worth over 2.5 billion yuan.

As is well-known, the currency swap is a special derivative contract with which two parties exchange interest and sometimes principal in one currency for the same in another currency. Interest payments are exchanged at fixed dates through the life of the contract.

Hence 2.5 billion yuan are exchanged with 720 billion Naira.

Obviously, also in this case, there is no need for either of the two contracting parties to buy US currency for trading and exchanges, while Nigeria is currently China’s largest trading partner in Africa and China is the largest foreign investor in Nigeria.

All this happens in Nigeria, with African exports to China  mainly consisting of oil and raw materials, exactly what is needed to keep China’s rate of development (and the yuan exchange rate) high.

The internationalization of the Chinese currency, however,  is mainly stimulated by the following factors: the expansion of the cashless economy, which favours large Chinese and global operators such as AliBaba (Alipay) or WeChatPay; the Belt and Road Initiative, which pushes China’s   investment and combines it with other monetary areas; the very fast globalization of Chinese banks and their adoption of the SWIFT gpi system; finally the development of the Interbank Paying System between China and the countries with which it trades the most.

Nonetheless there are some factors which still need to be studied carefully.

Meanwhile, Hong Kong is still the largest clearing center for the transactions denominated in yuan-renmimbi – with 76% of all transactions that currently pass through the island still under the Chinese special administration.

Still today the renmimbi account only for 1.61% of all international settlements, while 22 Chinese banks are  SWIFT-connected.

Many, but not enough.

Moreover, as much as 97.8% of the yuan trading is still as against the US dollar, while the exchange between the yuan and the other currencies other than the US dollar is worth very little in terms of quantities of cash and liquidity traded.

Still today 80.47% of payments whose last beneficiary resides in China is denominated in dollars.

As to the international renmimbi reserves, it all began when, in September 2016, the International Monetary Fund announced that, for the first time, the Special Drawing Rights (SDR) would include the renmimbi.

In June 2017, the European Central Bank converted the value of 500 million euro into dollars (557 million US dollars)  and then into renmimbi – equivalent to 0.7% of the total portfolio of ECB’s currencies, while in January 2018 the German Central Bank decided to include the renmimbi among its reserves.

Nowadays only 16% of China’s international trade is traded in the Chinese currency.

The real problem for the dollar is still the euro.

In fact, the transactions in US dollarsfell from 43.89% of total transactions in 2015 to 39.85% in 2017 while, in the same period, those denominated in euro rose from 29.39% to 35.66%.

However, as Vilfredo Pareto said, currencies are “solidified politics”.

In fact, China wants to use the renmimbi-yuan also in the Pakistani port of Gwadar and in its Free Economic Zone, which is the first maritime station of the Belt and Road initiative.

Furthermore the payments in yuan between China and the USA, which is still China’s largest trading partner – account for 5% only, while Japan – the second largest country by volume of transactions with China – already operates 25% of its transactions with the yuan-renmimbi.

Only South Korea – another primary commercial point of reference for China – does use the Chinese currency for a very significant 86% of bilateral transactions.

Certainly the oil market remains essential for the creation of petroyuan or, in any case, for the globalization of the Chinese currency.

Since 2017 China has overtaken the USA as the world’s largest oil and gas importer.

Furthermore, as early as 2009, the Chinese authorities have criticized the use of the US currency alone as a basis for international trade.

In fact, the Chinese political leadership would like to define a monetary benchmark among the main currencies and later build the progressive de-dollarization of trade on it.

Obviously the expansion in the use of the Chinese currency in global transactions, which peaked in 2015, corresponded to the phase when the yuan was undervalued and gradually and slowly appreciated as against the US dollar.

After the two devaluations of the yuan-renmimbi in the summer of 2015, the profitability of replacing the US dollar with the Chinese currency has clearly diminished.

Moreover, since the possession of the yuan is still subject to restrictions and checks, the globalization of the Chinese currency cannot fail to pass through the full liberalization of China’s currency and financial markets.

A project often mentioned  by President Xi Jinping and implemented by the Central Bank, especially with maximum transparency on transactions and the end of the capital “shares”, in addition to the quick acceptance of a price-based financial system.

Moreover, all the currencies with which China trades in the oil markets are still pegged to the US dollar and, for the Chinese authorities, this is  another difficulty to replace the US currency.

On the domestic side, the yuan has a big problem: it is a matter of investing Chinese savings, which are currently equal to 43% of GDP.

If we consider a similar investment rate, the Chinese economy is no longer sustainable.

Therefore, either all investment abroad is liberalized – but, for China, this would mean the loss of control over domestic savings – or the yuan becomes a new international currency, thus using it for long-term loans in the Belt and Road Initiative and for creating a market of yuan-denominated  oil futures.

Hence, unlike petrodollars, the petroyuan is not a US internal way to use the Arab capital stemming from the energy market, but a large internal reserve of capital to meet the needs of an expanding economy and support China’s fresh capital domestic requirements.

For Swiss banks, however, the flow of renmimbi-denominated contracts will radically change the energy financial market, but in the long run, thus obliging many global investors to invest many resources only in the Chinese financial market.

It is worth reiterating, however, that the Chinese currency has not fully been liberalized yet – nor, we imagine,  will it be quickly liberalized in the future.

In essence, China wants to govern its development and it does not at all want to favour the US single pole.

Hence either a small monetary globalization, like the current one, or the large and progressive replacement of the dollar with the renmimbi – but this presupposes the liberalization of the entire financial market denominated in the Chinese currency.

Moreover – but this would be fine for the Chinese government -foreign and domestic investors’ full access to the Chinese capital market should be granted.

It already happened in 2017 but, nowadays, it becomes vital for the geopolitical and financial choices made by President Xi Jinping’s China.

Hence, it is likely that in the future China would play the game that Kissinger invented after the Yom Kippur War, i.e. the game of the dollar surplus in the Arab world that is reinvested in the US market.

Obviously, this has kept the US interest rate unreasonably low with an unreasonably high US trade surplus.

A monetary manipulation made using one’s own strategic and military leverage.

Hence, with petrodollars, the USA has invented the monetary perpetual motion.

Therefore, if most of the Chinese oil market is denominated in yuan-renmimbi, a strong international demand for Chinese goods and services will be created or there will be a huge amount of capital to invest in the Chinese financial markets.

This will obviously change the role and significance of China’s engagement in the world.

With significant effects for the dollar market, which could be regionalized, thus highlighting the asymmetries which currently petrodollars hide: the US super-trade surplus and the simultaneous very low interest rate.

What about the Euro? The single European currency has no real market and it shall be radically changed or become a unit of account among new infra-European currencies.

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Economy

Circular Economy: New rules will make EU the global front-runner in waste management and recycling

MD Staff

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EU Member States approved a set of ambitious measures to make EU waste legislation fit for the future, as part of the EU’s wider circular economy policy.

The new rules – based on Commission’s proposals part of the Circular Economy package presented in December 2015 – will help to prevent waste and, where this is not possible, significantly step up recycling of municipal and packaging waste. It will phase out landfilling and promote the use of economic instruments, such as Extended Producer Responsibility schemes. The new legislation strengthens the “waste hierarchy”, i.e. it requires Member States to take specific measures to prioritize prevention, re-use and recycling above landfilling and incineration, thus making the circular economy a reality.

Commissioner for Environment, Maritime Affairs and Fisheries, Karmenu Vella said: “The final approval of new EU waste rules by the Council marks an important moment for the circular economy in Europe. The new recycling and landfilling targets set a credible and ambitious path for better waste management in Europe. Our main task now is to ensure that the promises enshrined in this waste package are delivered on the ground. The Commission will do all it can to support Member States and make the new legislation deliver on the ground.”

The Commission had originally presented proposals for new waste rules in 2014, which were withdrawn and replaced by better designed, more circular and more ambitious proposals on December 2015 as part of the Circular Economy agenda of the Juncker Commission. These proposals were then adopted and are now part of the EU rule book.

The new rules adopted today represent the most modern waste legislation in the world, where the EU is leading by example for others to follow.

The details of the new waste rules:

Recycling targets for municipal waste

By 2025 By 2030 By 2035
55% 60% 65%

In addition, stricter rules for calculating recycling rates will help to better monitor real progress towards the circular economy.

New recycling targets for packaging waste

  By 2025 By 2030
All packaging 65% 70%
Plastic 50% 55%
Wood 25% 30%
Ferrous metals 70% 80%
Aluminium 50% 60%
Glass 70% 75%
Paper and cardboard 75% 85%

Separate collection

Building on the existing separate collection obligation for paper and cardboard, glass, metals and plastic, new separate collection rules will boost the quality of secondary raw materials and their uptake: hazardous household waste will have to be collected separately by 2022, bio-waste by 2023 and textiles by 2025.

Phasing out landfilling

Landfilling of waste makes no sense in a circular economy and can pollute water, soil and air. By 2035 the amount of municipal waste landfilled must be reduced to 10% or less of the total amount of municipal waste generated.

Incentives

The new legislation foresees more use of effective economic instruments and other measures in support of the waste hierarchy. Producers are given an important role in this transition by making them responsible for their products when they become waste. New requirements for extended producer responsibility schemes will lead to improving their performance and governance. In addition, mandatory extended producer responsibility schemes have to be established for all packaging by 2024.

Prevention

The new legislation will place a particular focus on waste prevention and introduce important objectives for food waste in the EU and halting marine litter to help achieve the UN Sustainable Development Goals in these areas.

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