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Why Western Finance Will Continue to Dominate the Stock Markets

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Exclusive conversation with prof. Alessandro Pansa, Finance Professor at LUISS Guido Carli University, Rome and former CEO of Finmeccanica Group (now Leonardo SpA) the ninth-largest defence contractor in the world.

Recently the Shanghai-Hong Kong trade link has been signed, who will benefit the most from this agreement?

It’s an attempt to integrate more and more Hong Kong into the Chinese financial system, so at the moment I can not say who between the two cities will have the greatest benefit.

It is well known that when a territory is financially integrated it can also obtain a political homogenization, something that Hong Kong tends to reject in alternating phases. So it’s hard to say who will receive more benefits. It will benefit for sure China, which will control two financial centers of huge importance that in the end will tend to be integrated with each other to present a single financial center, which is now possible through the use of information technology.

Among the three financial centers of Shanghai, Hong Kong and Singapore, which of them will prevail among the others in the medium and short term?

Nowadays I should say Singapore, since it contains all the good factors in terms of stability, regulation, independence and the absence of a strong political authority, but all of this depends on the evolution of the chinese financial system, which is much less modernized than we think.

Today about 50% of global financial assets is held by 45 banks, 42 of which are Western, and only three are Chinese, but the chinese banks find a place in this ranking only because of the chinese companies being extremely indebted, so these banks have obviously large credits. From the point of view of financial technology China is still quite underdeveloped, you can not see these large Chinese banks as heads of international placements or financial consortium, even Singapore today represents an advantage thanks to its independence and neutrality and legal certainty system that goes around.

In your last article on Limes you wrote that: “The financial technology controlled by major Western intermediaries, prevails on the capital. The latter – whose accumulation is now concentrated in developing countries – has lost importance and became a kind of “raw material”. It is not worth much because freedom of movement makes it virtually infinite, and it becomes relevant only when, to generate an adequate return, is structured by banks that incorporate it in financial assets to be placed on the markets. All of this makes western banks ver powerful “. My question is: what is this financial technology you are referring to and how is capital structured?

Let’s start from an assumption: Western countries have historically operated as great capital accumulators and exporters; just to give an idea at the end of nineteenth century when Britain was dominating the financial markets in the world, it was a capital exporter for about 80% of the capital that was being produced at home. Today on the contrary western countries are capital importers. Most of the capital production is taking place: in the Middle East, from oil-producing countries and in the Far East. All of this is combined with the freedom of capital movements wanted in particular by US and British governments since the second half of the ’80, that has slowly been spreading around the world.

In a rational world who governs the financial markets? Those who accumulate capital, so it should be the emerging countries whether they are oil producers or countries with higher rates, except that the capital of companies has become practically infinite. In a world where capital movements are free, the need for companies to be financed is a very small percentage of the total world financial assets, that today are about 770 trillion dollars which is considerable amount. Except that capital, if you think about it, at the actual moment is available for each company so it is a good of scarce value unless it is turned into an asset that generates returns. The liberalization of capital movements involved that inactive capitals can not exist anymore.

So in which way you transform capital into an asset that creates returns? Through the financial technology, in other words through what is called financial innovation: the ability to do three things:

1. Building products, such as derivatives,

2. Placing them on the market through the placing power, or the ability to locate financial products; 3. Knowing how to invest properly in them, typical behavior of institutional investors which, by using algorithmic models and artificial intelligence, control a very high proportion of the assets.

Who has this technology? Western countries. They have it, because they are the ones who have historically guided the markets evolution and thanks to that they slowly have taken advantage on the rest of the world.

Regarding the topic of regulation. Why UK has always been a big financial center? Because it found itself to have a friendly financial regulation and legislative system, able thanks to the common law system to adapt the legislation to the needs of capital lenders or borrowers. So now the financial technology is something very expensive. The development of the algorithms and passive trading systems, the so called robotic ones, can be achieved only by the largest banks because they are able to used them by spreading on the huge amount of financial asset the investments, the people and the software to develop this technology.

So here they are those who are now in position to dominate the financial market because they have: competences in terms of financial innovation, placing power that no one has and relationships with institutional investors. I must say that now what really counts is the ability to work the capital.

Think about the Islamic world, if it was different, Islamic finance should prevail, but actually Islamic finance has remained a small segment after all.

By now the technological gap is much wider in terms of years needed by the rest of the world to be able to achieve the level of skills, placing power, credibility and authority of the major Western banks, which control the market.

What were in your career the most difficult moments and how you managed to overcome them?

The most difficult time was exactly when I became CEO of Finmeccanica, because the day before they arrested my President and CEO while I was general manager. Overnight I found myself in charge of a company under investigation by four different prosecutors accused, in my opinion incorrectly, for international corruption in an Italian political system between 2012/2013 not able to adequately protect state enterprises.

On one hand we had to rebuild the international credibility of the group, on the other we had to keep it from bankruptcy by immediately introducing a series of ethical standards that until then were not been adequately developed.

So I assure you that the first few months the only strength I had was in the fact that I had nothing to hide, I was not afraid of anything because I had nothing to fear, this gave me the opportunity to work seriously.

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Economy

Blue Economy and the opening of new horizons in Bangladesh

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The sea is called the lungs of the earth. The land beneath the sea is a world full of diversity and abundance of life. Professor Gunter Pauli, an Australian citizen, gave the first idea of ​​the huge economic potential. In 2010, at the invitation of the United Nations, the idea of ​​formulating an environmentally friendly sustainable economic framework was expressed in his speech.

Blue economies are the water resources of the oceans, the resources of the oceans and the economies that surround the oceans. Blue Economy means the color of the sea is blue. That is why the sea-centric economy is called Blue Economy. The main components of Blue  economy are mineral resources, water resources, transportation services, energy resources, tourism industry etc. The planned use and sustainable development of these will bring huge potential to the maritime economy. Like other countries in the world, Bangladesh will be able to use its marine resources for economic development.

Bangladesh has already established absolute sovereignty and sovereignty over 1,17,173 square km of waters from the International Court of Justice (ICJ) on March 14, 2012 over the dispute over the Bay of Bengal with Bangladesh and Myanmar through historic sea conquest. The mineral resources of the Bay of Bengal in the south of our country are not found in any other sea or bay in the world and it is said that whoever controls the Bay of Bengal will control the whole of South Asia. That is why the superpowers are trying to occupy the Bay of Bengal.

Blue Economy  is becoming more and more popular in the world at present. By 2050, the world’s population will be about 950 million. We have to lean towards sea resources as we are forced to provide food to this huge population. The developed nations of the world are already harnessing marine resources and increasing their economic growth. Ninety percent of Indonesia’s national economy is dependent on the sea, and the government has already taken steps to ensure that, if implemented successfully, the value of resources extracted from the sea would be 10 times the budget. Australia currently earns 44 billion from their marine resources. Now the question is what are the future prospects of blue economy in the dark bay of maritime resources of Bangladesh, how will Bangladesh be able to create employment through blue economy and what will be the future economy of Bangladesh ??

There is a gulch like area in the Bay of Bengal in Bangladesh, which is about 6 km long and is known as a fish sanctuary. There are 450 species of fish, 337 species of snails and oysters, 6 species of turtles, 36 species of shrimps, 10 species of dolphins and 5 species of lobsters in the Bay of Bengal. These include the economic demand for snails, snails, shellfish, crabs, octopuses, and sharks, and are widely considered as food in many countries. There are also marine weeds, creepers, shrubs. Medicinal weeds from the Bay of Bengal are processed to make medicines for various diseases and among these weeds, Espirulina is the most valuable which is consumed as food in China, Japan and various European countries. It is possible to make different types of sauces, bitumen, etc. from marine fish with food, fish oil, which will result in employment and earn huge amount of foreign exchange. There is also a lot of demand for tuna fish in the Bay of Bengal.

According to the Bangladesh Atomic Energy Commission, the total mineral reserves in the beach sand are 4.4 million tons. Of this, the actual stock is 16 lakh 44 thousand tons. Out of 16 types of minerals in the Bay of Bengal, there is a possibility of extraction of 1 million tons of mineral sand in 13 places. Molybdenum, manganese, crust, copper, lead, zinc, sulfide are found in the deep sea floor and raw material clays of cement industry have been found 30 to 60 km deep in the bottom of the sea. Monazite is a very valuable substance in mineral sands and is used in atomic bombs and nuclear reactors. At the bottom of the Bay of Bengal there are ores called manganese edible, phosphorus deposits, polymetallic sulfide. These ores refine rare metals, including cobalt and lead, and can be used in shipbuilding and chemical plants. There are also gems, pearls, gold, silver, corals and other precious gems.

Precious metals uranium and thorium have been found in the deep and shallow seas of the Bay of Bengal. It is expected that 1-5 metric tons of salt will be exported if advanced technology is used in the production of good commercial salt along the coast. Black gold is found in Maheshkhali, Teknaf, Nijhum Island, Kuakata in Cox’s Bazar which is affecting our economy.

There is darkness in the gas field in the Bay of Bengal. There are 200 trillion cubic feet of gas reserves in 23 blocks of the Bay of Bengal from which crores of rupees can be earned.

There is potential tourism industry around the Bay of Bengal. Various industries will be formed around this industry and there will be huge employment. Millions of tourists will flock to enjoy the natural beauty of the Bay of Bengal.

There is a possibility of increasing international trade through the Bay of Bengal. Bangladesh is already building international standard ships and exporting them abroad and at present Bangladesh is in the 3rd position in ship exports. The ship breaking industry is also gaining popularity in the world.

Businesses can be expanded locally and internationally through the resources extracted from the sea. The demand for local products in Cox’s Bazar and Kuakata markets is high among tourists. Demand for this specialty has grown significantly as a result of recent corporate scandals.

The Blue Economy is not only the expansion of the ocean economy, but also the opening up of eco-friendly new horizons by mitigating the risks of climate change. In addition, the role of the sea in poverty alleviation, increase in capital flows, investment-friendly environmentally friendly infrastructure development, reduction of unemployment, job creation, elimination of regional and gender disparities and sustainable development is immense. About 80 percent of human food and livelihoods and world trade is handled by sea.

It is possible to implement the Blue economy by making proper use of the resources of the Bay of Bengal in Bangladesh. The Bay of Bengal is considered as the “mine of gems” of Bangladesh. The Bay of Bengal, the heart of South Asia, is of great commercial importance as it is easy to communicate with different countries. The Government of Bangladesh has already set up an “Oceanographic Research Institute” in Cox’s Bazar district to take the Blue economy forward. Again, maritime economy has been given priority in the master plan of Bangladesh Delta Plan-2100. The Blue Economy Cell was formed in 2014. Therefore, with the proper utilization of the resources at the bottom of the Bay of Bengal, the wheel of Bangladesh’s economy will turn and the future has bright aspects.

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Economy

Fashion Week & Sustainability

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Fashion is always fun and constantly evolving. Old fashion styles are still being popular and new trendy styles are being designed and distributed in the market every day. We can also see people wearing various types of fashion styles starting from business wear, casual, retro to streetwear, etc in everyday life. The personality and the culture reflect the fashion style of a person. Although we shouldn’t judge the personality of a person based on the fashion style, the social status and personality of people can be perceived more or less from the way they style themselves like;” You are what you wear”. Indeed, fashion plays a vital role in the culture, society as well as in economy. France, Italy, UK, and so on have been using fashion ad a soft power which is one of the essentials for economic growth.

The successful “Fashion Week” events from the fashion capitals and their influence on the current and upcoming fashion trends have proved the reputation of the fashion industry. The original fashion week which was initially named “ Press Week” was started in New York City in 1943. Then, in 1984, London Fashion Week was organized by the British Fashion Council and became the first fashion show with live broadcasting. After that, the London Fashion week was followed by the Milan Fashion week arranged by the National Chamber for Italian Fashion which presented the luxurious Italian designer brands. In 1933, the French Fashion Federation organized the Paris Fashion Week which is famous for the “haute couture”. Later the Miami Fashion Week was started in 1989, then discontinued and continued again in 2005. Unlike the other big four fashion weeks, the Miami Fashion week showcases the swimwear brands around the world and is usually held before the big four fashion week events.

Fashion Weeks are being held twice a year, usually in February and September, and divided into spring/summer and fall/winter to showcase seasonal collections. During the fashion week, London, New York City, Milan, Paris, and Miami which are regarded as the international fashion capitals, designers from famous luxury brands present their upcoming collections on the runway. The luxury brands also hire popular celebrities as brand ambassadors and attract buyers and fashionistas around the world. The fashion industry has a great impact on the economy. According to the statistics of Women’s Wear Daily, the fashion week created a total of $887 million with approximately 232,000 participants in more than 500 shows. Fashion Weeks are concentrated on sustainability lately. Hence, in London Fashion Week for this season, designers combine sustainability to their collections. Moreover, In New York Fashion Week 2021, we can see the sustainable designs but still, there are criticisms evolving that event is not sustainable enough because not all designers follow sustainability aspects. Also, recent Milan Fashion had the latest designs from brands like Max Mara, Genny, and so on, which align with sustainable rules. Likewise, in Paris Fashion Week,brands like Chloe, Stella McCartney, etc present their designs align with the values of sustainability but other big-name brands can’t able to integrate sustainable facts into their brands. Based on a recent McKinsey report, the fashion show which lasts for 10 to 15 minutes costs around $1 million. But the number of profits from the fashion week exceeds that amount. According to Fashion United’s calculations, New York Fashion Week, leading all the Fashion Weeks, earned  540 million euros per fashion week.

Although generating abundant profits, some brands are lacking to integrate sustainability and hence, the whole Fashion Week event couldn’t shift towards sustainability. The brands are only focusing to maximize their profits. They constantly produce trendy fashions and attract the consumers to buy each and every latest product. Honestly, sustainability can increase the cost of production, so most brands couldn’t shift to sustainable production. As a result, the brands neglect their impact on the environment such as carbon emissions, massive amount of water consumption, pollution of rivers and streams etc as well as their impacts on the society like labor exploitation etc.

However, the “Degrowth” theory which emphasizes on reduction of production, consumption and shifting the priority of the society based on sustainability seems to be usable for the brands to approach sustainability. Based on the degrowth, the lesser the production, the lesser the consumption. Sustainable products have better quality and long life which makes the consumers spend less on unnecessary purchases. On the other hand, designer brands also have limited products and are usually sold out before they create other seasonal collections. The quality of the designer brands has a great reputation and are useable for a long time. So, some might argue that they are different from fast fashion brands. In reality, the supply chain and source of raw materials of some designer brands are unknown and the companies don’t even have transparency about the wages of the workers in the factories. Some brands even had a history of labor exploitation in their supply chain. For this reason, it is questionable that if sustainability and profitability coexist. Indeed, there are various ethical brands for instance; Stella McCartney, Levi’s, Patagonia, and so on, that are committed to advocating for sustainability and produce eco-friendly products only.

Sustainability means “meeting the needs of the present without compromising the ability of future generations to meet their own needs”. Thus, we have to take accountability to reduce environmental impacts while creating values according to the triple bottom line -people, planet, and profit. The fashion industry accounts for 2% of the global GDP and is one of the biggest industries globally. Being the growing industry, it has the responsibility for transparency and sustainability, thus, even all the famous Fashion Events around the world are trying to showcase sustainable fashion and influence the consumers. In addition, Fashion Events that are focused on sustainability have emerged in Asia as well as in ASEAN. Hence, ASEAN still has the best opportunity to create a 100% sustainable fashion industry globally.

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Economy

An Uneven Recovery: the Impact of COVID-19 on Latin America and the Caribbean

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Employment rates in some Latin American and Caribbean countries have experienced a relative recovery, although in most, rates fall short of pre-pandemic levels. The quality of available jobs has also declined, as has the number of hours of paid work per week, according to data from a new survey by the World Bank and the United Nations Development Program (UNDP).

The High-frequency Phone Surveys, the second phase of which was implemented this year in 24 countries of the region, provides a snapshot of families’ well-being and their perceptions regarding the crisis. The goal is to take the pulse of the region and measure the impacts of the pandemic in key areas such as the labor market, income and food security, gender equality, and household access to basic services, such as education, health (including the COVID-19 vaccine), Internet connectivity and digital finance. The survey took a representative sample of the population aged 18 and over with access to a telephone in each country.

“The COVID-19 pandemic underscored the pre-existing inequalities in the region, where the most vulnerable and poorest groups have been disproportionately affected,” said Luis Felipe López-Calva, UNDP Regional Director for Latin America and the Caribbean. “This survey allows us to take the pulse of the region and propose evidence-based solutions.”

“The pandemic severely impacted millions of families in the region,” said Carlos Felipe Jaramillo, World Bank Vice-president for Latin America and the Caribbean. “These surveys we present today are crucial for obtaining current data on the scope of the crisis and for recommending informed measures to help improve the quality of life in our countries.”

Survey results demonstrate that the crisis particularly affected women, both because of the stronger initial impact on them and their slower labor market recovery. Mothers of young children (aged 0 to 5 years) have been most affected. In fact, a year and a half after the onset of the crisis, women are twice as likely as men to be unemployed owing to the pandemic. This situation is exacerbated by an increase in women’s household responsibilities, including supervision of children in remote education, and a higher incidence of mental health problems.

For the region as a whole, the employment rate stood at around 62 percent, almost 11 percentage points below the pre-pandemic level. Employment rates surpassed pre-crisis levels only in Guatemala, Nicaragua and El Salvador.

Moreover, formal employment fell 5.3 percent in the region while self-employment grew 5.7 percent, and the proportion of workers employed in small businesses (maximum of four workers) increased by 8 percent. These figures point to a deterioration in the quality of available employment. Even among the employed population, regional survey results identified a decrease in weekly hours of paid work, from 43 to 37, confirming this negative trend.

The survey data found that 28 percent of people employed before the pandemic lost their jobs, and more than half (17 percent) of those with a job before the pandemic have left the labor force. These impacts disproportionately affected women with young children: 40 percent of female workers over 18 with children aged 0 to 5 years lost their pre-pandemic job, compared to 39 percent of women in general and 18 percent of men.

The pandemic had a greater impact on less educated workers (both men and women). Thirty-five percent of those with a primary education or less lost their job during the pandemic, as did 28 percent of employees with a secondary education. Approximately 19 percent of individuals with a tertiary education became unemployed.

Survey data revealed that as a consequence of labor market setbacks, just over half of the households in the region have not yet managed to recover their pre-pandemic income levels. This situation occurred despite government efforts to help families through direct transfer programs and other benefits. Approximately 38 percent of survey respondents had received emergency cash transfers.

The survey demonstrated that food insecurity still affects 23.9 percent of households in Latin America and the Caribbean. This figure is almost double that reported by households prior to the pandemic — 12.8 percent. However, most countries have improved in this area with respect to the levels observed in June 2020.

Results also demonstrated that more than a year after the onset of the crisis, 86 percent of school-age children and youth receive some type of education (face-to-face or remote). However, figures vary widely across countries: in Guyana and Guatemala, it is 64 percent while in Peru and Chile, it reaches 95 and 97 percent, respectively. Additionally, education coverage falls below pre-pandemic levels in the countries surveyed. Just under a quarter of students in the region attended face-to-face classes.

Access to health services improved significantly. However, the percentage of unvaccinated people remains high in some countries. Eight percent of the regional population has not been vaccinated or is not willing to receive a vaccine. This percentage is especially high in the Caribbean: 60 percent in Haiti, 49 percent in Jamaica and 43 percent in Saint Lucia and Dominica.

Finally, according to the survey results, the use of mobile banking and online transactions (e-commerce) rose sharply during the pandemic. The use of digital payments also increased — currently, 26 percent of survey respondents said they used mobile wallets. The highest increases were among the rural population, the population over age 55 and those with low levels of education (primary or less).

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