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Greece begins a new chapter following the conclusion of its stability support programme

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Greece has successfully concluded a three year European Stability Mechanism (ESM) stability support programme with its place at the heart of the euro area and European Union secured.

The successful conclusion of the programme is a testament to the efforts of the Greek people, the country’s commitment to reform, and the solidarity of its European partners.

European Commission President Jean-Claude Juncker said: “The conclusion of the stability support programme marks an important moment for Greece and Europe. While their European partners have demonstrated their solidarity, the Greek people have responded to every challenge with a characteristic courage and determination. I have always fought for Greece to remain at the heart of Europe. As the Greek people begin a new chapter in their storied history, they will always find in me an ally, a partner and a friend.”

Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said: “The conclusion of the stability support programme is good news for both Greece and the euro area. For Greece and its people, it marks the beginning of a new chapter after eight particularly difficult years. For the euro area, it draws a symbolic line under an existential crisis. The extensive reforms Greece has carried out have laid the ground for a sustainable recovery: this must be nurtured and maintained to enable the Greek people to reap the benefits of their efforts and sacrifices. Europe will continue to stand by Greece’s side.”

A total of €61.9 billion in loans have been provided to Greece under this stability support programme on the basis of implementation of a comprehensive and unprecedented reform package. This stability support programme took a coordinated approach to tackle long-standing and deep-rooted structural issues that contributed to Greece experiencing an economic crisis.

Greece has taken measures to ensure its fiscal sustainability, bringing the general government balance from a significant deficit to surplus in 2017, which is projected to be maintained. These reform measures and consolidation efforts will have cumulative effects over time, and will thus continue to positively impact fiscal sustainability well beyond the conclusion of the programme.

The financial sector is now in a much stronger position as a result of successful recapitalisation operations, an overhaul of bank governance, and work to implement a strategy to reduce non-performing loans, which must be sustained.

The efficiency and efficacy of the public administration has been improved including through the introduction of new rules on the appointment, assessment and mobility of public sector employees; the establishment of the Independent Authority for Public Revenue; and measures to make the judicial system more efficient.

Finally, important structural measures have been put in place to improve Greece’s business environment and competitiveness to make Greece an attractive destination for investment and allow businesses already in place to expand, innovate and create jobs; as well as to establish sustainable and universal pensions, health care and social benefit systems, including a guaranteed minimum income scheme.

When taken together, these transformative reforms have laid the foundations for a sustainable recovery, putting in place the fundamental conditions needed for sustained growth, job creation and sound public finances in the years to come.

Improving economic indicators confirm that while work remains to be done, the efforts undertaken are already delivering tangible benefits by restoring order to public finances, reducing unemployment, and securing a return to growth. Economic growth has rebounded from -5.5% in 2010 to 1.4% in 2017 and is expected to remain around 2% in 2018 and 2019. The fiscal balance has progressed from a massive deficit of 15.1% in 2009 to a 0.8% surplus in 2017 (corresponding to a primary surplus of 4.2% in programme terms). Although unemployment remains unacceptably high, according to figures recently released by the Hellenic Statistical Authority, unemployment fell to 19.5% in May 2018, reaching a level below 20% for the first time since September 2011.

The conclusion of the programme marks the end of one chapter and the beginning of another for Greece. It will be necessary to remain focused on fully addressing the social and economic consequences that are the legacy of the crisis years. This will require that the Greek authorities maintain ownership of reforms and ensure their sustained implementation, as per their commitments at the Eurogroup meeting of 22 June 2018. This is crucial to ingraining market confidence and strengthening Greece’s economic recovery, particularly in the immediate post-programme period.

Greece will be fully integrated into the European Semester of economic and social policy coordination to help ensure that the country and its people reap the full benefits of the efforts undertaken in recent years. In the post-programme period, the completion, delivery and continued implementation of reforms agreed under the programme will also be monitored through an enhanced surveillance framework.

The Commission’s Structural Reform Support Service will continue to assist the Greek authorities, upon their request, in the design and implementation of growth-enhancing reforms.

Background

Greece has benefitted from financial assistance from its European partners since 2010. The Greek authorities requested a new ESM stability support programme on 8 July 2015. The European Commission signed, on behalf of the ESM, a Memorandum of Understanding for a three year stability support programme on 20 August 2015.

On 23 June 2018, the Eurogroup confirmed that all of the prior actions under the fourth and final review of the stability support programme had been completed. The Eurogroup also reached an agreement on a strong package of debt measures, in addition to the short-term measures already in place, to ensure that Greece’s debt is sustainable in the longer run. On 6 August 2018, the ESM approved a final disbursement of €15 billion of financial assistance.

In total, €288.7 billion in loans have been provided to Greece since 2010. This includes €256.6 billion from its European partners and €32.1 billion from the International Monetary Fund (IMF).

In parallel to the stability support programme, the Commission launched the plan for a “New Start for Jobs and Growth in Greece” in July 2015 to facilitate Greece maximising its use of EU funds to stabilise its economy and boost jobs, growth and investment. As a result of the exceptional measures adopted under the plan, Greece is now among the top absorbers of EU funds. For the period 2014-2020, Greece has already received almost €16 billion from a large pool of EU funds. This is equivalent to over 9% of the 2017 annual gross domestic product of Greece.

Greece is also the top beneficiary of the Juncker Plan’s European Fund for Strategic Investments (EFSI), relative to GDP. The EFSI is now set to trigger well over €10 billion in investments and support more than 20,000 small and medium-sized businesses in Greece.

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Capabilities fit is a winning formula for M&A: PwC’s “Doing the right deals” study

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Ensuring there is a capabilities fit between buyer and target is key to delivering a high-performing deal, according to a new PwC study of 800 corporate acquisitions. . The study finds that capabilities-driven deals generated a significant annual total shareholder return (TSR) premium (equal to 14.2% points) over deals lacking a capabilities fit.

The “Doing the right deals” study looks at the 50 largest deals with publicly-listed buyers in each of 16 industries and evaluates the characteristics that delivered superior financial outcomes for the buyers, as measured by annual TSR.

A capability is defined as the specific combination of processes, tools, technologies, skills, and behaviours that allows the company to deliver unique value to its customers.

Two types of deals were found to outperform the market: capabilities enhancement deals – in which the buyer acquires a target for a capability it needs — and capabilities leverage deals – in which the buyer uses its capabilities to generate value from the target. These represent a true engine of value creation, delivering average annual TSR that was 3.3% points above local market indices. Deals without these characteristics – limited-fit deals – had an average annual TSR of -10.9% points compared to the local market indices.

While 73% of the largest 800 deals analysed sought to combine businesses that did fit from a capabilities perspective, 27% were limited-fit deals. The analysis shows that for every dollar spent on M&A, roughly 25 cents were spent on such limited-fit deals that in many cases destroyed shareholder value.

Alastair Rimmer, Global Deals Strategy Leader, PwC UK said: “Our analysis confirms that deals where the buyer is focused on enhancing its own capabilities or leveraging its capabilities to improve the target can result in a substantial TSR premium. Whether a deal creates value depends less on whether it is aimed at consolidation, diversification or entering new markets. What matters is whether there is a solid capabilities rationale between the buyer and the target.”

Capabilities fit delivers shareholder value across industries

The capabilities premium was found to be positive across all of the 16 industries studied. The share of capabilities-driven deals was highest in pharma & life sciences (92%), an industry where deals often combine one company’s innovation capabilities with another’s strength in distribution.  Other leading industries in capabilities fit deals were health services and telecommunications (both with 90% capabilities-driven deals) and automotive (86%).  Limited fit deals were found to be most prevalent in the oil & gas industry (62%), where asset acquisition can play an important role in addition to capabilities fit.

The analysis shows that the stated strategic intent of a deal, as defined in corporate announcements and regulatory filings, has little to no impact on value creation. Whether a deal fits or not depends less on stated goals of consolidation, diversification or entering new markets. What matters is whether there is a capabilities fit between the buyer and the target.  Deals aiming for geographic expansion notably stood out as performing less well than others, largely because many of them (34%) were limited-fit deals.

The M&A playing field has shifted due to COVID-19

More than ever, companies must be clear in defining which capabilities they can leverage to succeed, and which capabilities gaps they need to fill.

Hein Marais, Global Value Creation Leader, PwC UK added: “Deal rationales have shifted in a COVID context, reflecting the heightened need for new and different capabilities if an enterprise is to generate value and create sustained outcomes.  The need to move quickly increases the pressure to do deals at pace – and thereby the risk of failing to evaluate capabilities fit with enough care. Ensuring such capabilities fit, however, dramatically increases the chances of your deal creating value.”

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Companies may be overlooking the riskiest cyber threats of all

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A majority of companies don’t have a handle on their third-party cyber risks  – risks obscured by the complexity of their business relationships and vendor/supplier networks.  This is the finding of the PwC 2022 Global Digital Trust Insights Survey.  The survey of 3,600 CEOs and other C-suite executives globally found that 60% have less than a thorough understanding of the risk of data breaches through third parties, while 20% have little or no understanding at all of these risks.

The findings are a red flag in an environment where 60% of the C-suite respondents anticipate an increase in cyber crime in 2022. They also reflect the challenges organizations face in building trust in their data — making sure it is accurate, verified and secure, so customers and other stakeholders can trust that their information will be protected.

Notably, 56% of respondents say their organizations expect a rise in breaches via their software supply chain, yet only 34% have formally assessed their enterprise’s exposure to this risk. Similarly, 58% expect a jump in attacks on their cloud services, but only 37% profess to have an understanding of cloud risks based on formal assessments.

Sean Joyce, Global & US Cybersecurity & Privacy Leader, PwC United States said: “Organizations can be vulnerable to an attack even when their own cyber defenses are good; a sophisticated attacker searches for the weakest link – sometimes through the organization’s suppliers.  Gaining visibility and managing your organization’s web of third-party relationships and dependencies is a must.  Yet, in our research, fewer than half of respondents say they have responded to the escalating threats that complex business ecosystems pose.”

Asked how their companies are minimizing third-party risks, the most common answers were auditing or verifying their suppliers’ compliance (46%), sharing information with third parties or helping them in some other way to improve their cyber stance (42%), and addressing cost- or time-related challenges to cyber resilience (40%). But a majority have not refined their third-party criteria (58%), not rewritten contracts (60%), nor increased the rigor of their due diligence (62%) to identify third-party threats.

Simplifying the way to cybersecurity

Nearly three quarters of respondents said the complexity of their organization poses “concerning” cyber and privacy risks. Data governance and data infrastructure (77% each) ranked highest among areas of unnecessary and avoidable complexity.

Simplification is a challenge, but there is ample evidence that it is worthwhile.  While three in 10 respondents overall said their organizations had streamlined operations over the past two years, the “most improved” in our survey (the top 10% in cyber outcomes) were five times more likely to have streamlined operations enterprise-wide.  These top 10% organizations are also 10 times more likely to have implemented formal data trust practices and 11 times more likely to have a high level of understanding of third party cyber and privacy risks.

CEO engagement can make a difference

Executive and CEO respondents differ on how much the support the CEO provides on cyber, with CEOs seeing themselves as more involved in, and supportive of, setting and achieving cyber goals than their teams do. But there is no disagreement that proactive CEO engagement in setting and achieving cyber goals makes a difference.  Executives in the “most improved” group, reporting the most progress in cybersecurity outcomes, were 12x more likely to have broad and deep support on cyber from their CEOs.  Most executives also believe that educating CEOs and boards so they can better fulfill their cyber responsibilities is the most important act for realizing a more secure digital society by 2030.

Sean Joyce concluded: “Our survey shows that the most advanced organizations see cybersecurity as more than defense and controls, but as a means to drive sustained business outcomes and build trust with their customers.  As leaders of organizations, CEOs set the tone for focusing their cyber teams on bigger-picture, growth-related objectives rather than narrower, short-term expectations.”

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Are we on track to meet the SDG9 industry-related targets by 2030?

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A new report published by the United Nations Industrial Development Organization (UNIDO), Statistical Indicators of Inclusive and Sustainable Industrialization, looks at the progress made towards achieving the industry-related targets of Sustainable Development Goal (SDG) 9 of the UN 2030 Agenda for Sustainable Development. The report is primarily based on the SDG9 indicators related to inclusive and sustainable industrialization, for which UNIDO is designated as a custodian agency, showing the patterns of the recent changes in different country groups.

Six years after the adoption of the 2030 Agenda for Sustainable Development and its 17 SDGs, there has been increasing demand for information on whether the SDG targets could be reached, and what actions should governments take to accelerate progress. The UNIDO report introduces two new tools developed by UNIDO to help countries measuring performance and progress towards SDG9 industry-related targets: the SDG9 Industry Index and SDG9 progress and outlook indicators. The SDG9 Industry Index benchmarks countries’ performance on SDG-9 targets over 2000-2018 for 131 economies. In addition, the report develops two measures to answer the main questions:

  • Progress: how much progress has been made since 2000?
  • Outlook: how likely is it that the target will be achieved by 2030?

The global COVID-19 pandemic has inevitably had a negative toll on the progress towards reaching the SDG9 indicators, but the extent of the long-term impact remains to be seen. Industrialized countries continue to dominate global manufacturing industry, but their relative share has gradually declined over the past decade. In 2010, industrialized economies made up 60.3% of global production, which has decreased to 50.5% in 2020. China has been the largest manufacturer, now accounting for 31.7% of global production. This is a trend that has been reinforced by the pandemic.

Progress for the least developed countries (LDCs), at the heart of the 2030 Agenda, is a different story. While economic theory and countries’ experiences across the world have established that industrialization is an engine of sustainable growth, progress among LDCs remains very diverse. Asian LDCs are poised to double their share of manufacturing in GDP and thus meet SDG target 9.2, but African LDCs have stagnated.

SDG9 Industry Index

The SDG-9 Industry Index, consisting of five dimensions, covers three targets and five indicators and assigns a final score to countries. In 2018, the top ten consisted of exclusively industrialized economies, with Taiwan, Province of China, Ireland, Switzerland, the Republic of Korea and Germany making up the top five. In general, industrialized economies perform best in all dimensions of the Index.

The countries at the bottom of the ranking are LDCs, in particular those located in sub-Saharan Africa. Although some African countries have been displaying impressive growth rates, growth has been driven by an extended commodity boom and foreign capital inflows, while industrialization and structural transformation have stagnated. Additionally, substantial data is lacking for a significant amount of the countries. In the SDG9 Industry Index, only 24 out of 54 African countries are included, from which only eight are LDCs. It is clear that national statistics offices need strengthening, as data availability helps countries formulate, review and evaluate their development plans and programmes.

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