One of the main problems being discussed at the World Economic Forum, which opened yesterday in Dalian, China, was political, rather than economic, risks. A significant number of the participants in the “summer Davos” expect increasing problems for companies in developing markets because of increasing protectionism. Estimates of possible losses from “protection against globalism” are already comparable with the estimates of potential losses from global overvaluation of assets.
The first annual WEF conference for the 19 largest developing markets opened yesterday in Dalian, China. The WEF is the organization that holds the annual Davos conferences in Switzerland. The main problems connected with the development of new economies – those of BRIC (Brazil, Russia, India and China), the Middle East, Latin America and Africa – are being discussed September 6-8 in a format similar to that of the Swiss forum. The first day of the conference showed that, in spite of the organizers' intention to discuss developmental problems mainly at the corporate level (with CEOs and executives not only of the largest companies on the new markets taking part, but also those of transnational companies, Intel chairman Craig Barrett, for example), trade wars and growing protectionism worldwide are among the most pressing problems for new markets.
PricewaterhouseCoopers CEO Samuel DiPiazza presented company research at the conference that showed that the management of the world's 30 largest companies consider entering new national markets as the second-ranked possibility (23 percent of respondents) for increasing sales in the second half of 2008. (The first in popularity – with 24 percent of respondents – was developing the business within its current boundaries.) Territorial expansion was counted above merger and acquisition (13%), technological innovation (9%), personnel acquisition (8%), investments in client services (6%) and a supply network (3%). Restrictions on access to new markets, according to research by WEF Global Risk Network, can cause leading companies more losses than the risk of the overvaluation of the cost of assets throughout the world (15-20% likelihood). Even though the risk of a trade war or the imposition of protective measures by large countries was thought lower (5% likelihood), estimates of the scale of possible losses were similar – about $3 trillion per year. Losses from “oil shock,” connected with a sharp price rise in oil, was estimated by WEF analysts at $750-8000 billion through 2017, from a “hard landing” of the economy at $650-700 billion.
In the BRIC countries and the developing economies, the problem of protectionism has yet to be seriously noted. For instance, Chinese authorities are widely advertising a package of antimonopoly laws at the conference that will come into effect this year and, for the first time, limit the Chinese government's ability to give preference to state companies on the Chinese market. The develop of the business of Russian state companies is practically not being mentioned at the forum. Ruben Bardanyan, chairman of the board of Troika Dialog (the Russian co-organizer of the event), said that about 40 companies were representing Russia in Dalian, but only Vneshtorgbank vice president Olga Dergunova represented a state company. The largest problem where a problem could be expected is the European Union. Therefore, the key event of the first day of the forum was a discussion with Nelly Kroes, European Commissioner for competition policy.
The European Commission intends to discuss a number of new initiatives this month to limit access to EU markets, mainly access to the energy sector by third countries and “sovereign funds,” that is, state structures from such countries as Russia, Saudi Arabia and the United Arab Emirates, which the EU suspects of seeking access to European infrastructure for reasons other than economic.
Kroes defended the EU initiatives aggressively, mainly by comparing the situation with the in the United States. According to PwC research, barriers in the U.S. connected with government regulation are the most serious obstacles to companies from third countries entering that market. Kroes mentioned that, after the P&O Co. refused to sell a number of U.S. seaports to Dubai Ports, that company funneled its investments out of the U.S. to the EU and is now making major investments in the Port of Rotterdam. She also called attention to the successful investments by Chinese state funds in the Barclays banking group, the problems with which are now being discussed in the EU in the context of “economic nationalism.” Kroes said that EU statistical data show that the problem of protectionism in the EU is not a severe as in other regions.
The protectionist mood is serious, but reality so far remains better. She mentioned as an example that they expend a good deal of energy on explaining to countries such as France that initiatives to “defend the market” harm French companies that are developing their business beyond the EU. The EU's autumn initiatives, Kroes said, do not propose to defend national interests, but are grounded in other principles.
Championing national companies is a thing of the previous century, she said, and it no longer makes sense. She said that the EU's plans do not include restrictions by country, and that includes relations with Russian companies. The EU has a free capital market and all that the European Commission is insisting on is equal rules for European and extra-European investors in the EU.
Almost of those taking part in the discussion claimed that a new wave of protectionism is unavoidable. Merrill Lynch vice president Kevin Watts compared the situation today to that in the mid-1970s, saying that the problem with investments by third countries today is similar to that in Thatcher's England, when the whole country was afraid that a Kuwaiti state fund would buy BP.
Sovereign funds are not completely businesses, he said, adding that they are against restrictions on their investments, but those who are demanding restrictions have to be understood as well. Chairman of the board of Shamil Bank of Bahrain (Swiss) Khalid Abdulla Janahi expects a new wave of restrictions on investments in new markets, but not in the EU or U.S. He said that protectionism is strong in China, while Chinese investors complain that their investments face restrictions in India and Brazil and Russia have the same problems. He said the main problems is that developing countries once again have excellent opportunities on the mergers and acquisitions market, and that is what everyone is afraid of. A new world economic and political crisis may be needed before that problem is solved, he said.
Via: Kommersant / by Dmitry Butrin
The first annual WEF conference for the 19 largest developing markets opened yesterday in Dalian, China. The WEF is the organization that holds the annual Davos conferences in Switzerland. The main problems connected with the development of new economies – those of BRIC (Brazil, Russia, India and China), the Middle East, Latin America and Africa – are being discussed September 6-8 in a format similar to that of the Swiss forum. The first day of the conference showed that, in spite of the organizers' intention to discuss developmental problems mainly at the corporate level (with CEOs and executives not only of the largest companies on the new markets taking part, but also those of transnational companies, Intel chairman Craig Barrett, for example), trade wars and growing protectionism worldwide are among the most pressing problems for new markets.
PricewaterhouseCoopers CEO Samuel DiPiazza presented company research at the conference that showed that the management of the world's 30 largest companies consider entering new national markets as the second-ranked possibility (23 percent of respondents) for increasing sales in the second half of 2008. (The first in popularity – with 24 percent of respondents – was developing the business within its current boundaries.) Territorial expansion was counted above merger and acquisition (13%), technological innovation (9%), personnel acquisition (8%), investments in client services (6%) and a supply network (3%). Restrictions on access to new markets, according to research by WEF Global Risk Network, can cause leading companies more losses than the risk of the overvaluation of the cost of assets throughout the world (15-20% likelihood). Even though the risk of a trade war or the imposition of protective measures by large countries was thought lower (5% likelihood), estimates of the scale of possible losses were similar – about $3 trillion per year. Losses from “oil shock,” connected with a sharp price rise in oil, was estimated by WEF analysts at $750-8000 billion through 2017, from a “hard landing” of the economy at $650-700 billion.
In the BRIC countries and the developing economies, the problem of protectionism has yet to be seriously noted. For instance, Chinese authorities are widely advertising a package of antimonopoly laws at the conference that will come into effect this year and, for the first time, limit the Chinese government's ability to give preference to state companies on the Chinese market. The develop of the business of Russian state companies is practically not being mentioned at the forum. Ruben Bardanyan, chairman of the board of Troika Dialog (the Russian co-organizer of the event), said that about 40 companies were representing Russia in Dalian, but only Vneshtorgbank vice president Olga Dergunova represented a state company. The largest problem where a problem could be expected is the European Union. Therefore, the key event of the first day of the forum was a discussion with Nelly Kroes, European Commissioner for competition policy.
The European Commission intends to discuss a number of new initiatives this month to limit access to EU markets, mainly access to the energy sector by third countries and “sovereign funds,” that is, state structures from such countries as Russia, Saudi Arabia and the United Arab Emirates, which the EU suspects of seeking access to European infrastructure for reasons other than economic.
Kroes defended the EU initiatives aggressively, mainly by comparing the situation with the in the United States. According to PwC research, barriers in the U.S. connected with government regulation are the most serious obstacles to companies from third countries entering that market. Kroes mentioned that, after the P&O Co. refused to sell a number of U.S. seaports to Dubai Ports, that company funneled its investments out of the U.S. to the EU and is now making major investments in the Port of Rotterdam. She also called attention to the successful investments by Chinese state funds in the Barclays banking group, the problems with which are now being discussed in the EU in the context of “economic nationalism.” Kroes said that EU statistical data show that the problem of protectionism in the EU is not a severe as in other regions.
The protectionist mood is serious, but reality so far remains better. She mentioned as an example that they expend a good deal of energy on explaining to countries such as France that initiatives to “defend the market” harm French companies that are developing their business beyond the EU. The EU's autumn initiatives, Kroes said, do not propose to defend national interests, but are grounded in other principles.
Championing national companies is a thing of the previous century, she said, and it no longer makes sense. She said that the EU's plans do not include restrictions by country, and that includes relations with Russian companies. The EU has a free capital market and all that the European Commission is insisting on is equal rules for European and extra-European investors in the EU.
Almost of those taking part in the discussion claimed that a new wave of protectionism is unavoidable. Merrill Lynch vice president Kevin Watts compared the situation today to that in the mid-1970s, saying that the problem with investments by third countries today is similar to that in Thatcher's England, when the whole country was afraid that a Kuwaiti state fund would buy BP.
Sovereign funds are not completely businesses, he said, adding that they are against restrictions on their investments, but those who are demanding restrictions have to be understood as well. Chairman of the board of Shamil Bank of Bahrain (Swiss) Khalid Abdulla Janahi expects a new wave of restrictions on investments in new markets, but not in the EU or U.S. He said that protectionism is strong in China, while Chinese investors complain that their investments face restrictions in India and Brazil and Russia have the same problems. He said the main problems is that developing countries once again have excellent opportunities on the mergers and acquisitions market, and that is what everyone is afraid of. A new world economic and political crisis may be needed before that problem is solved, he said.
Via: Kommersant / by Dmitry Butrin
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