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The giants of world business are challenged to manage their enormous scale

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Gigantic corporations lead in business today: fewer than 10% of public companies worldwide account for 80% of all corporate profits. But the giants of world business are challenged to manage their enormous scale, create new products and contribute to society, agreed leaders of global manufacturers, technology companies and banks in a session on the opening day of the World Economic Forum Annual Meeting.

Consumers are increasingly uneasy with the immense size and power of big business. “That we are discussing this topic today is a clear message that something has gone wrong in the last 10 years. Suddenly, we have started to question: Is big good or not?,” said Sunil Bharti Mittal, Chairman, Bharti Enterprises, India. Recent populist votes in the US election and Brexit reflect a criticism of big business: “The biggest risk we run is to lose our mandate. We had a licence for a time, society wanted companies to grow; that mandate is getting weaker and weaker,” said Tidjane Thiam, Chief Executive Officer, Credit Suisse, Switzerland.

Big business needs a new narrative that articulates its contribution to society, the panel concurred. “What percentage of the world’s companies have 80% of the jobs? That’s the narrative. SMEs are thriving around us, every job I create makes another five,” said Andrew N. Liveris, Chairman and Chief Executive Officer, The Dow Chemical Company, USA.

Creating environments where innovation will prosper in gigantic companies tends to spawn new structures.

“Our number-one priority is leveraging the benefits of scale and size – that goes against trying to maintain entrepreneurialism and innovation in large companies,” said Sir Martin Sorrell, Chief Executive Officer of WPP, United Kingdom. The solution, he said, is that the business has to be big and small – the company can be split into units and then “the challenge is to figure out how to get them to work together.”

Innovation requires a focus on the long term, especially in terms of investment. “We are continuing to invest for the long run. Unless you stay focused on innovation, you can be disintermediated,” said Ruth Porat, Senior Vice-President; Chief Financial Officer, Alphabet, USA. Powerful market forces can swerve the focus away from that type of investment, however. Since the financial crisis of 2008, “there has been more emphasis on short-term performance because the system is focused on the short term,” said Sorrell. As a result, investments made are incremental and not the fundamental ones in innovation and branding, he added. “Incrementalism leads to irrelevance; the short-term view is the problem,” underlined Porat.

The phenomenon of gigantic corporations is here to stay, agreed industry leaders on the panel, although some expressed the view that shifts are in sight. We are heading to a world where companies will be like nation states, noted Liveris. Several panellists predicted that, 10 years from now, fewer companies will generate a higher proportion of profits than today. New forces, however, could alter this landscape. Subsidies for small business will become a force for change, said Mittal, and the concentration of profit-making in a few companies will be lower because technology will allow for improvements in small business, said Porat.

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EU Politics

Investment Plan for Europe exceeds €500 billion investment target ahead of time

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The European Commission and the European Investment Bank (EIB) Group have delivered on their pledge to mobilise €500 billion in investment under the Investment Plan for Europe. Some 1,400 operations have been approved under the European Fund for Strategic Investments (EFSI), using a budget guarantee from the European Union and own resources from the EIB Group. They are expected to trigger close to €514 billion in additional investment across EU countries and to benefit some 1.4 million small and mid-sized companies. In 2017, when the Council and the Parliament agreed to broaden the EFSI’s scope and size, the goal was to mobilise €500 billion by the end of 2020. The money was intended to address the investment gap left as a result of the 2007/8 financial and economic crisis.

Over the past years and especially after the coronavirus outbreak the focus of the EFSI shifted: it has inspired InvestEU, the Commission’s new investment programme for the years 2021-2027, and already now it contributes to the Corona Response Investment Initiative. EFSI will also play a key role in the NextGenerationEU package of measures to rebuild the European economy after the coronavirus shock. It will do this via a top-up for a Solvency Support Instrument, which aims to prevent insolvencies in European businesses.

President of the European Commission Ursula von der Leyen said: “The Investment Plan for Europe is a success. Over the past five years, it has enabled the financing of hundreds of thousands of businesses and projects, delivering on our ambitions of making Europe more green, innovative and fair. We will continue this through NextGenerationEU.”

European Investment Bank Group President Werner Hoyer said: “EFSI can serve as a blueprint for action during the coronavirus response. Knowing that we exceeded the headline figure of €500 billion of investment ahead of time is proof of the power of partnership. Implementing the financial pillar of the Commission’s Investment Plan for Europe has been an honour and a challenge for the EIB. We lived up to it not least thanks to the excellent cooperation between the Bank and European and national institutions. The success of this initiative shows what Europe can achieve with the right tools: our continent has become more social, green, innovative and competitive. We can and we should build on our experience to overcome the current crisis. It will help us to shape a Europe all of us can be proud of.”

What has the European Fund for Strategic Investments financed?

The EFSI allows the EIB Group to finance operations that are riskier than its average investments. Often, EFSI-backed projects are highly innovative, undertaken by small companies without a credit history, or they pool smaller infrastructure needs by sector and geography. Supporting such projects required the EIB Group to develop new financing products, for example venture debt with equity features or investment platforms. This changed the DNA of the Bank and revolutionised the way Europe finances its priorities.

Importantly, the EFSI also enables the EIB to approve a greater number of projects than would be possible without the EU budget guarantee’s backing, as well as to reach out to new clients: three out of four receiving EFSI backing are new to the bank. This proves the added value of EFSI operations.

Thanks to EFSI support, the EIB and its subsidiary for financing small businesses, the European Investment Fund (EIF), have provided financing for hundreds of thousands of SMEs across a wide range of sectors and in all EU countries. Examples range from sustainable agriculture in Belgium, to innovative medical technology in Spain, to an energy efficiency company in Lithuania.

Economic impact: jobs and growth

The impact of the initiative is sizable. Based on results from December 2019, the EIB’s Economics Department and the Commission’s Joint Research Centre (JRC) estimate that EFSI operations have supported around 1.4 million jobs with the figure set to rise to 1.8 million jobs by 2022 compared to the baseline scenario. In addition, calculations show that the initiative has increased EU GDP by 1.3% and it is set to increase EU GDP by 1.9% by 2022. As of the beginning of this year, 60% of the capital raised came from private resources, meaning that EFSI has also met its objective of mobilising private investment. 

Measured against the size of the economy the biggest impact is in countries that were hard hit by the 2007/8 crisis, i.e. Cyprus, Greece, Ireland, Italy, Portugal, and Spain. While the direct investment impact is particularly high in those countries, the calculations found that cohesion regions (mostly Eastern European countries) are likely to benefit more from a long-term effect. These calculations correspond with the actual financing activities under EFSI: top countries ranked by EFSI-triggered investment relative to GDP are Bulgaria, Greece, Portugal, Estonia, and Spain.

How has the Investment Plan for Europe benefited citizens?

The EIB’s EFSI report 2019 lists a number of concrete outcomes of the initiative. Thanks to the EFSI:

  • Some 20 million additional households can access high-speed broadband
  • Around 540,000 social and affordable housing units have been built or renovated
  • 22 million Europeans benefit from improved healthcare services
  • Some 400 million passenger trips/year will benefit from new or improved transport infrastructure
  • 13.4 million households were supplied with renewable energy.

Background

The Commission and the EIB Group launched the Investment Plan for Europe in November 2014 to reverse the downward trend of investment and put Europe on the path to economic recovery. Its financial pillar, the European Fund for Strategic Investments, was initially tasked to mobilise €315 billion in additional investment by 2018. Given its success, the European Parliament and Member States agreed to enhance the EFSI and extend the investment target to €500 billion by end 2020.

An independent evaluation of the EFSI published in June 2018 concluded that the EU guarantee is an efficient way of increasing the volume of riskier operations by the EIB, as it uses fewer budgetary resources compared to European grant programmes and financial instruments. It underlines that EIB support is key to EFSI beneficiaries: it provides a “stamp of approval” to the market, thus helping to facilitate future fund-raising. EFSI’s success is based not least on its efficient governance structure, which is responsive to constant changes of the markets. An independent group of experts decides if a project qualifies for backing by the EU guarantee. The goal: de-risking private investment into projects needed for a more sustainable Europe and adding value to what would have happened without public assistance.

In May 2020, the European Commission presented its revised proposal for the successor to the Investment Plan for Europe under the next Multiannual Financial Framework starting in 2021: the InvestEU Programme.

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EU Politics

“Together for Europe’s recovery”: Germany takes over Council presidency

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While the corona pandemic continues, Germany took over the six-month presidency of the Council of the EU on 1 July. We asked German MEPs for their expectations.

The coronavirus represents a significant challenge for the EU and immediate management of the pandemic and recovery are at the heart of the German programme for the presidency.

The aim is to reach a swift agreement on the recovery fund and the EU’s budget 2021-2027. Germany intends to make progress on climate protection, through the European Green Deal, and economic and social digitalisation. With a focus on Africa and relations with China, it also wants Europe to take more global responsibility and strengthen its role in the world. Another priority will be future EU-UK-relations.

German priorities for the presidency 

  • Overcoming Covid-19 pandemic; economic and social recovery 
  • A stronger and more innovative Europe 
  • A fair Europe 
  • A sustainable Europe 
  • A Europe of security and common values 
  • A strong Europe in the world 

We asked German MEPs what they expect from the German presidency.

Daniel Caspary (EPP): “The EU multi-annual budget for 2021-2027 and the recovery fund will determine whether the EU emerges stronger from the corona crisis. The German presidency of the Council and Chancellor Angela Merkel can bring experience and expertise on European issues, a positive sign for the controversial and hard discussions.” Berlin can also provide an “important impulse” for the success of the negotiations on the EU-UK agreement, he said.

Jens Geier (S&D) sees potential for change in the Covid-19 crisis: “The federal government’s strong proposal for a recovery fund is an opportunity to make Europe fairer, more social and sustainable. In line with the European Green Deal, the recovery fund should promote sustainable investments in renewable energy and digitalisation. The fact that regions in need should also receive grants rather than just loans for reconstruction is a major step towards a strong Europe.”

“Europe now needs the courage to rebuild,” said Nicola Beer (Renew Europe): “Germany will be measured, among other things, by whether it can quickly kick-start the economic recovery, relying on innovation and small and medium-sized enterprises.“ On Brexit, she said there was a need ”not to slide into a no-deal scenario”. The EU should also “finally live up to its geopolitical aspirations, externally with a strong common voice for peace, disarmament, human rights and trade, internally by releasing the blockage in asylum and migration policies”.

German interests should not come second, said Jörg Meuthen (ID). “It is already the debt presidency,” he said. Germany should “reduce the EU to its core tasks and the budget to the minimum necessary, prevent EU taxing competence and instead include, as a sign of genuine solidarity, the per capita wealth of member states in the calculation of financial redistribution”.

For Sven Giegold (Greens/EFA), climate protection remains a priority: “The climate crisis is not taking a corona break. The German presidency of the Council must therefore become a climate presidency in corona times. During the German presidency, we need to conclude the negotiations for an EU climate law with improved greenhouse gas reduction targets.”

Helmut Geuking (ECR) hopes that the German presidency of the Council will “finally fulfil the Child Guarantee and launch a European child benefit”. “Only with strong families can a strong and social Europe emerge that can hold its own in the globalised world in the future.”

The presidency could “lay the foundations for a solidarity-based EU,” said Martin Schirdewan (GUE/NGL). “Everyone should contribute their fair share to the social and economic recovery and revival of society. This means the introduction of a digital tax, a comprehensive financial transaction tax and a one-off wealth tax for the super-rich.”

Germany will work closely with Portugal and Slovenia, which take over the presidency on 1 January and 1 July 2021 respectively. This is the 13th time Germany has held the Council presidency. The last time was in 2007.

Chancellor Angela Merkel will present and discuss her country’s programme in the European Parliament in Brussels at the next plenary session on 8 July. You can watch it live on our website.

German ministers will discuss the presidency programme with parliamentary committees at the beginning of July.

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World Bank Financing to Help Kazakhstan Unleash Full Potential of its Livestock Industry

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The World Bank Board of Executive Directors approved today a $500 million loan for the Sustainable Livestock Development Program to support the development of environmentally sustainable, inclusive, and competitive beef production in Kazakhstan.

The program financing will support Kazakhstan’s state Agro-Industrial Complex Development program in improving veterinary services and animal recording systems, scaling-up a farmer-centric service delivery model, and improving agro-environmental policies for the sector.

Over a period of five years, the program aims to achieve a 10 percent increase in the share of public expenditure for sustainable beef production and processing, and a three-fold increase in the value of beef exports. In addition, around 20,000 small and medium farmers will be connected to export value chains.

“We are very happy to support Kazakhstan in developing its high-value export-oriented beef sector,” said Jean-Francois Marteau, World Bank’s Country Manager for Kazakhstan. “The country has a huge natural potential and favorable geographic position, which are conducive to export-oriented beef sector development. These can be utilized to benefit Kazakhstan’s long-term economic development goals, namely, diversification of exports and improving rural livelihoods. The Program is particularly important in a COVID-19 environment which is affecting employment countrywide.”

An export-oriented, high-value beef sector provides an opportunity for Kazakhstan to achieve its national development objectives, by mobilizing significant investments from domestic and foreign agribusiness firms and expansion of production by small and medium farmers.

A potentially competitive expanded resource base and geographical proximity to important consumer markets will also help attract private investment in meat processing, packaging, and logistics companies to Kazakhstan.

The program will promote green growth and sustainability policies aimed at promoting climate-smart practices for beef cattle production, reducing greenhouse gas emissions and improving the overall agri-environmental outcomes of the government’s beef sector support programs.

The five-year (2021-2025) implementation of the Sustainable Livestock Development Program for Results will be financed through a $500 million IBRD loan, which will be disbursed on the basis of Program-for-Results (PforR) – a financing instrument that links the disbursement of funds directly to the achievement of specific program results.

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