WEDNESDAY 8 FEBRUARY 2023
00
How Moscow opened a new front in Africa
SERIES BEGINS: BIG READ, PAGE 13
Erdoğan declares state of emergency
as earthquake death toll passes 7,000
3 5,400 dead in Turkey, 1,800 in Syria 3 Race to find trapped survivors 3 Aid groups struggle in Idlib
ADAM SAMSON AND
RAYA JALABI — ANKARA
ANDREW ENGLAND — LONDON
Turkish president Recep Tayyip
Erdoğan has declared a state of emer-
gency in areas ravaged by the region’s
worst earthquake in decades as the
death toll in his country and neighbour-
ing Syria crossed 7,000.
With efforts intensifying to rescue
people trapped under rubble since the
huge quake hit the region on Monday,
Erdoğan triggered the emergency pow-
ers to deal with the humanitarian crisis.
They will enable him to rule by decree in
much of Turkey’s south-east, bypassing
parliament and regional authorities run
by opposition parties.
“We have decided to declare a state of
emergency to ensure that operations
are carried out rapidly,” Erdoğan said
yesterday, also warning of a crackdown
on looters and those seeking to foment
unrest. “We are facing one of the biggest
disasters not only of the history of the
Turkish republic but also of our geogra-
phy and the world.”
The emergency powers, which he pre-
viously used for the country as a whole
following a coup attempt in 2016, are
scheduled to lapse in May, just before
presidential elections in which the
Turkish president is battling to secure
his legacy after two decades in office.
Under the country’s constitution,
such measures can curtail fundamental
rights, a sensitive issue in south-eastern
Turkey, which fell under emergency
rule during the decades-long conflict
with outlawed Kurdish separatists.
Authorities in Turkey and Syria have
been racing to move aid to the affected
areas and help victims trapped in the
rubble, but damaged roads, bad
weather and disruption to communica-
tions have hampered efforts.
“Every minute, every hour that
passes, the chances of finding survivors
alive diminishes,” said Tedros Adhanom
Ghebreyesus, World Health Organiza-
tion director-general. “Numbers do not
tell us about the perilous situation that
many families now face, having lost eve-
rything [and] forced to sleep outside in
the middle of winter.”
‘Baron Münchhausen’ of
Wirecard takes the stand
Wirecard chief Markus Braun is ready
to take the stand at the high-profile
Munich trial examining the failure of
the payments company. His personal
trustworthiness is key to the outcome
of the criminal case against him but he
must contend with many accusations
of having made misleading investor
statements. ‘Braun is as credible as
Baron Münchhausen,’ says a German
lawmaker, referring to the 18th-century
nobleman famous for outlandish tales.
Fraud trial i PAGE 6
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INTERNATIONAL NEWSPAPER OF THE YEAR
Mesut Hancer holds the hand of his
daughter Irmak, 15, who died in the
earthquake in Kahramanmaraş,
near the epicentre — Adem Altan/AFP via Getty
Crying, praying, waiting
‘I feel like this world is meaningless,’
explains Hacı Bulut, a retiree with
bloodshot eyes, as he waits for news
of six missing relatives, aged 22 to 90.
‘I’m just hoping that half of them come
out safe.’ They all died. Page 3
BP slows retreat from fossil fuels after
oil and gas drive record profit of $28bn
TOM WILSON AND
EMMA DUNKLEY — LONDON
BP has scaled back its industry-leading
commitment to cutting oil and gas pro-
duction after soaring fossil fuel prices
propelled the British energy group to
the highest annual earnings in its 114-
year history.
The company reported underlying prof-
its for last year of $27.7bn, eclipsing the
$26.3bn it made in 2008 and more than
double the $12.8bn it reported after a
strong 2021.
BP is in the midst of one of the most
ambitious strategic overhauls in the sec-
tor after pledging to cut oil and gas pro-
duction by 40 per cent by 2030. It is part
of a plan launched three years ago by
chief executive Bernard Looney to
reduce the group’s emissions and pivot
to lower-carbon forms of energy.
STOCK MARKETS
The death toll in Turkey reached
more than 5,400, with a further 1,800
killed in Syria, according to official
sources and groups operating in rebel-
held areas of the war-torn country.
Aid groups working in Syria’s Idlib
region, one of the remaining enclaves
controlled by the opposition where
more than 4mn people have sought
sanctuary, said they were struggling.
The UN said aid being delivered into
Syria from Turkey had been suspended
because of logistical problems.
Kieren Barnes, Syria director for the
Mercy Corps aid group, said the initial
But in what will be seen as a U-turn,
BP has scaled back its plans, indicating
that oil and gas output in 2030 was now
expected to be only 25 per cent lower.
The shift follows a tumultuous year in
energy markets driven by Moscow’s war
in Ukraine and the ensuing clampdown
on Russian gas and oil by western gov-
ernments. Soaring fuel prices that drove
up costs for households and businesses
supercharged profits for the world’s big-
gest oil and gas companies last year.
“Governments and societies around
the world are asking companies like
ours to invest in today’s energy system,”
Looney told the Financial Times.
Total shareholder returns since
Looney took the helm in February 2020
have been the lowest among western
energy majors, none of which set a hard
target to cut oil and gas production like
BP. Looney argued that the altered oil
World Markets
CURRENCIES
USA $2.50 Canada C$3.
Lessons on inflation from 1970s monetarists
MARTIN WOLF, PAGE 15
Briefing
i Son dodges spotlight as
tech fund posts $5.5bn loss
SoftBank founder Masayoshi Son
has opted out of his legendary
investor presentation for the first
time in decades as the group’s
Vision Fund took a big hit.— PAGE 5
i Ukraine tanks boost
Berlin has said Germany, the
Netherlands and Denmark will
supply 178 older Leopard 1 tanks,
more than expected, for Kyiv’s
war effort against Russia.— PAGE 2
i ‘Ghost fleet’ aids Russia
At least 16 tankers that helped
Iran breach US sanctions have
switched to carrying Russian oil
since western curbs on Moscow
intensified in December.— PAGE 4
i Sunak reshuffles cabinet
The UK premier has shaken up
his top team and broken up the
sprawling business department in
a bid to galvanise his government
and growth strategy.— PAGE 3
i Record Super Bowl punt
The betting industry has forecast
that $16bn will be wagered on
Sunday’s game as the growing
reach of online gambling pulls in
customers.— PAGE 5; LEX, PAGE 16
i Adani shores up ports
Apsez, the ports and logistics unit
of billionaire Gautam Adani, has
announced plans to pay off some
$605mn of borrowing and slash
its spending.— PAGE 6
Datawatch
China dominates
% of manufacturing capacity
in clean technologies
China Europe North America Rest
Solar panels
period after the quake had been charac- of territory trying to dig people from Batteries
terised by “chaos, confusion, fear”, add- buildings as emergency lights blinked
Wind
ing: “There’s obviously going to be huge behind them.
pressure in Turkey as well for supplies. Experts said the low quality of build- Electrolysers
So this is going to be a scramble for ings and lack of earthquake resilience Heat pumps
resources over the coming days and contributed to the destruction. Many
weeks.” buildings were “not designed from seis-
0 20 40 60 80 100
Source: IEA; electrolysers data 2022, rest is 2021
In Turkey, authorities closed roads to mic considerations to absorb this much
Hatay and the cities of Kahramanmaraş ground motion”, said Kishor Jaiswal, a China dominates the worldwide
and Adıyaman to anything besides res- scientist at the US Geological Survey. production capacity in technologies
cue and aid vehicles, as people on the “It’s difficult to watch this tragedy related to clean energy, a concentration
that increases the risk of supply chain
ground complained that rescuers had unfold, especially since we’ve known for
disruptions that might jeopardise global
been too slow to arrive. a long time about how poorly the build- net-zero targets
As night fell yesterday, television ings in the region tend to behave in
showed rescue workers across a swath earthquakes,” he added.
and gas output guidance, which means
its carbon emissions will fall slower than
planned, was not a shift in approach.
“The strategy that we have is to invest
in today’s energy system and to invest in
accelerating the energy transition,” he
said. “We’re leaning into it.”
On the back of the record earnings, BP
said it would raise its spending plans to
expand the business over the next eight
years. Looney said BP would spend $8bn
more on its “transition” businesses —
including renewables — and $8bn more
on oil and gas.
One top 30 shareholder welcomed the
decision to increase spending in both
areas, arguing the higher returns from
more oil and gas production would sup-
port a faster expansion into renewables.
“Everyone’s a winner,” the investor said.
Pilita Clark page 14
Lex page 16
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Russian invasion
Ukraine wins pledge of up to 178
German tanks from Nato allies
Delivery plan comes as
Berlin’s defence minister
makes surprise Kyiv visit
ROMAN OLEARCHYK —KYIV
PATRICIA NILSSON — FRANKFURT
Berlin announced yesterday that Ger-
many, the Netherlands and Denmark
would supply Ukraine with up to 178
older generation Leopard 1 tanks to help
Kyiv defend itself against Russian
aggression.
The plan to deliver more tanks than
previously expected came as German
defence minister Boris Pistorius made a
surprise visit to Ukraine, where he met
President Volodymyr Zelenskyy.
France
Macron’s pension reform meets growing resistance
LEILA ABBOUD — PARIS
Emmanuel Macron’s plan to raise the
retirement age in France by two years
to 64 is meeting stiff resistance in par-
liament and on the streets as legislators
start debating the draft law and unions
held a national strike yesterday.
Opposition politicians have filed 20,000
amendments to slow the debate, the
vast majority from the leftwing Nupes
alliance that opposes any increase in the
retirement age.
Across the country, protests are gath-
ering pace, and a recent Harris Interac-
tive poll shows 35 per cent of the public
support the government’s proposal,
9 points lower than in late December.
But it is in parliament where the real
risk lies since Élisabeth Borne, prime
minister, has yet to assemble a majority
needed to pass the draft law, despite
making concessions. The labour minis-
ter was shouted down as he presented
the plan in the National Assembly on
Monday and the debate was suspended.
The travails of the pension reform are
a sign of how Macron’s second-term
agenda has been complicated by his
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Published daily except Sundays, New Year’s Day,
Zelenskyy expressed his gratitude but
urged Germany and other western part-
ners to speed up supplies as his country
faces the threat of a big Russian offen-
sive.
“The recent decisions on the tank coa-
lition and the initiative from our Euro-
pean friends . . . can really give
us . . . parity on the battlefield,” Zelen-
skyy said. “It is necessary to understand
that it depends on time, on the quantity
and modernity of the tank coalition’s
equipment.”
The German economy ministry said
yesterday that it had issued licences to
the country’s arms companies for up to
178 Leopard 1 tanks to be exported to
Ukraine.
These tanks, which were decommis-
party’s losses in legislative elections in
June that left his centrist alliance with
250 MPs. It needs to win over opposition
politicians to reach 289 votes or con-
vince some to abstain.
The government has the power to
override lawmakers and pass legislation
by decree. But given the sensitivity of
the issue, Borne has so far sought to win
over wary MPs. “I want to find a major-
ity,” she told the Journal du Dimanche.
“My efforts have all gone in that direc-
tion in recent weeks and months.”
As part of her strategy to gain the
roughly 40 additional votes needed,
Borne has tried to reach a deal with the
conservative Les Républicains (LR)
party. Initially, it appeared the 61-MP
party led by Éric Ciotti would agree as
long as the government acquiesced in
certain changes, such as raising the low-
est pensions. The LR has long supported
raising the retirement age to 64 or 65 out
of a desire to clean up public finances.
But a rebel faction in the LR is pushing
for further concessions to ease the
impact on young people. Borne sought
to address those concerns on Sunday by
agreeing to an amendment allowing
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INTERNATIONAL
sioned by the German military two dec-
ades ago, will need to be modernised.
The announcement follows Berlin’s
decision to send an undis-
closed number of more advanced Leop-
ard 2 tanks, which are faster and have
more powerful cannons, after weeks of
pressure from Nato allies.
The number of vehicles would
depend on how many Leopard 1 tanks
could be repaired, with an aim to deliver
a minimum of 100 tanks, according to a
joint statement by German, Dutch and
Danish authorities. Further partners
were welcome to join the initiative, it
added, with Belgium having also shown
“initial interest to participate” in the
scheme.
“The financing and repair of the tanks
people who began work between 20 and
21 years to retire at 63 instead of 64, in
an expansion of an existing scheme for
workers with “long careers”.
Aurélien Pradié, an MP from the
south-west Lot region who is the LR’s
number two and leads the rebels,
rejected Borne’s idea as a “trick” they
would not fall for. “We have put our con-
ditions on the table so now it is up to the
government,” Pradié said. “If they do
not accept our amendment without
changing a single comma, they will not
get the votes they need.”
Macron’s government has argued a
higher retirement age is needed to
ensure the viability of France’s pension
system, which relies on workers to fund
retirees — otherwise, it says, deficits
would pile up as the population aged.
The proposal aims to generate €18bn
in annual cost savings by 2030 but about
one-third would be spent on sweeteners
to soften the impact on the most vulner-
able workers, such as by raising mini-
mum pensions to €1,200 before tax.
Further weakening Macron’s hand are
the presidential ambitions of both his
allies and his opponents as they vie to
Latin America
Ecuador leader’s referendum defeat puts full term in doubt
JOE PARKIN DANIELS — BOGOTÁ
Ecuador’s centre-right president suf-
fered heavy defeats in a referendum on
reforms and mayoral contests,
prompting calls from the leftist opposi-
tion for an early election.
Guillermo Lasso gambled on putting
eight changes, including a proposal to
allow the extradition of drug traffickers,
to a national vote on Sunday.
With 97 per cent of the votes in, each
change was rejected, raising questions
about his ability to complete the final
two years of his term.
Candidates loyal to Rafael Correa, the
leftist former president, swept prefec-
tures including Quito, the capital, and
Guayaquil, Ecuador’s largest city and
formerly a conservative stronghold.
Correa, who was convicted on corrup-
tion charges relating to his 2007-17 pres-
idency, is living in Belgium.
“When the people speak, it is the duty
of those that govern to analyse, under-
stand and accept,” Lasso said in a tele-
vised address in which he conceded
defeat in the referendum and called for
a “great national agreement” to help
solve the country’s problems.
as well as the training of the Ukrainian
armed forces is carried out in close co-
ordination with the European partner
countries of the Federal Republic of Ger-
many,” the German government said.
Berlin’s decision last month to send
tanks to Ukraine marked a notable pol-
icy shift, as German chancellor Olaf
Scholz had long hesitated to provide the
country with heavy armour, fearing that
it would increase the risk of a direct con-
frontation between Russia and Nato.
Der Spiegel reported that German
arms manufacturer Rheinmetall was
among the companies that would par-
ticipate in the scheme to supply Ukraine
with tanks.
Rheinmetall did not respond to a
request for comment.
Street protest:
demonstrators
gather at a rally in
Lyons yesterday
against the
proposed pensions
overhaul — Jean-Philippe
Ksiazek/AFP/Getty Images
replace him in 2027, when the constitu-
tion’s two-term limits mean he cannot
run again.
Some in Macron’s centrist alliance
have begun sniping at the reform plan.
Naïma Moutchou, an MP of the Hori-
zons party led by Édouard Philippe,
Macron’s former prime minister and
presidential hopeful, said the party’s 29
legislators would be “loyal but demand-
ing” while pushing for changes.
The Modem party, led by François
Bayrou, who also has presidential ambi-
tions, has been pushing for a clause to
require a parliamentary review of the
changes in 2027 or earlier.
With friends like these, it is no sur-
prise that Macron’s reform is struggling,
said Bruno Palier, an expert at Sciences
Po university in Paris. “Everyone with
ambitions in 2027 is positioning them-
selves because they know pension
reform is a very visible and salient issue
that shapes voters’ choices,” he said.
“Even if Macron gets this through, it
may well end up being a pyrrhic victory
that feeds the populist narrative that the
elites do not listen to them and helps the
far right,” he added.
Lasso’s agenda has stalled halfway
into his four-year term. Despite meeting
Covid-19 vaccination targets and
restructuring debt with China, the
former banker has faced a hostile Con-
gress while struggling to contain a rise in
drug-related violence in cities and jails.
In a note to clients yesterday, Citibank
said Lasso’s ability to govern would con-
Guillermo Lasso
responded to the
loss by saying
his government
accepted the voice
of the people
tinue to deteriorate following his defeat.
“The upcoming quarters will be key, as
the potential for new social unrest and/
or attempts from [Congress] to impeach
Lasso seems to have increased,” it said.
Lasso survived an impeachment vote
last June after lawmakers criticised his
response to protests against rising food
and fuel prices.
“Without a doubt Correismo is back
and looking towards the next presiden-
tial election in 2025,” said Sofía Cordero,
a political scientist at the Observatory
Surveillance. Sino-US relations
Spy balloon furore
sharpens focus on Xi
Concerns emerge about
decision-making at top of
Beijing’s policy apparatus
TOM MITCHELL — SINGAPORE
ELEANOR OLCOTT — HONG KONG
President Xi Jinping’s push to revive
China’s economy at the outset of his his-
toric third term in power relies on two
abrupt shifts in policy: a hasty retreat
from his zero-Covid strategy and a move
to stabilise tense relations with the US.
While the former effort is well under
way and will provide at least a short,
sharp boost to the world’s second-
largest economy, the latter has been
stalled by the “spy balloon” crisis, which
has threatened to freeze diplomatic con-
tact between the world’s superpowers
and deepen divisions over advanced
technology and Taiwan.
The fray prompted Antony Blinken,
US secretary of state, to call off a visit to
Beijing at the last minute, which was
intended to follow up on Xi and Presi-
dent Joe Biden’s constructive face-to-
face meeting on the sidelines of Novem-
ber’s G20 summit in Indonesia.
The balloon, which Chinese officials
insist was a meteorological “unmanned
airship” that inadvertently strayed into
Canadian and US airspace before it was
shot down on Saturday, prompted out-
rage and mockery as it drifted slowly
across North America.
If the aircraft was a surveillance oper-
ation, it would raise serious concerns
about decision-making at the top of
China’s policy apparatus just as Xi pre-
pares to begin his precedent-breaking
third term as president. Backed by a
new slate of loyalists, Xi’s elevation at
the annual session of China’s rubber-
stamp parliament next month will
cement his status as the country’s most
powerful leader since Mao Zedong.
The Biden administration said Chi-
nese surveillance balloons had transited
the US on only a handful of occasions
over the past six years, suggesting that
last week’s alleged spy mission was
either approved by Xi despite the risks
or was a relatively rare operation that he
was unaware of, an unsettling prospect
for both Washington and Beijing.
“An open question is whether Xi Jin-
ping knew about the mission and
approved it, and what the assumptions
were about its potential impact on [US]
relations,” said Drew Thompson at the
Lee Kuan Yew School of Public Policy in
Singapore.
“We don’t know whether this demon-
strates that the People’s Liberation
Army is not co-ordinating politically
sensitive missions with the party leader-
ship, or whether the PLA is throwing a
wrench into Xi Jinping’s effort to lower
the temperature of the US-China rela-
tionship.”
Xi Jinping: crisis threatens to freeze
diplomatic contact with Washington
for Political Reforms in Latin America,
referring to Correa’s political move-
ment. “Knowing the character and
practices of that movement, we can
expect belligerence against the govern-
ment.”
During Correa’s tenure, Ecuador took
out $18bn of loans from China to fund
public spending and distanced itself
from the US. In 2020, Correa, who left
office amid mounting legal troubles,
was sentenced in absentia to eight years
in prison.
Correa, who led the Citizens’ Revolu-
tion party, went on the attack on Mon-
day night, suggesting that the president
should cut short his term and call fresh
elections.
“A great agreement comes via bring-
ing forward elections,” he said on Twit-
ter. “We must overcome the simplicity
that democracy means waiting for elec-
tions every four years.”
Pachakutik, Ecuador’s indigenous
party, did not gain ground in the may-
oral elections on Sunday, but Conaie,
another indigenous group, has threat-
ened to resume social protests that par-
alysed much of the Andean nation last
summer.
Wednesday 8 February 2023
Any rapprochement with the US
would reinforce Xi’s efforts to right
China’s stalling economy, which
expanded just 3 per cent in 2022, the
second-weakest reading since 1976,
underscoring the costs of the zero-Covid
policy that crushed consumption with
rolling lockdowns.
Policymakers in Beijing are also grap-
pling with declining exports and a prop-
erty crisis that has plunged developers
into default and knocked home prices.
At the same time, the US has ramped
up efforts to hobble China’s semicon-
ductor industry in a tech war between
the powers. Washington has imposed
export controls to restrict China’s access
to advanced chips and has rallied allies
to choke off the flow of components and
manufacturing tools that would allow
Beijing to strengthen its domestic chip-
making industry.
Easing economic hostilities would
relieve pressure on Beijing to jump-start
growth as it reopens from the pandemic,
while warming ties with Washington
could help de-escalate tensions on
issues such as a possible conflict in Tai-
wan, over which China claims sover-
eignty and which it has threatened to
claim by force.
Paul Haenle, an Asia expert at the
Carnegie Endowment for International
Peace, said: “It’s pretty clear [Xi] wants
to put the relationship on better footing
at least in the near-term so they can deal
with their challenges at home.”
‘An open question is
whether Xi Jinping knew
about the mission and
approved it’
But he added that the furore over the
balloon “underscores the incredibly
fragile nature of US-China relations and
the potential for significant further
deterioration”.
At the very least, the balloon incident
will delay any bilateral reconciliation
for weeks or months — and even then,
Biden’s room for manoeuvre will be con-
strained by hawkish Republicans.
Steve Daines, Republican senator for
Montana, called the balloon a “tremen-
dous embarrassment for the US” after it
drifted over nuclear missile silos in his
home state. “It’s one more example of
the weakness of the Biden administra-
tion on the global stage,” said Daines,
who once worked in China’s Guangdong
province for Procter & Gamble.
Beijing has met Republican outrage in
kind, accusing the US of “overreacting”
and claiming the balloon’s straying into
US airspace was a “totally unexpected”
accident.
China’s vice-foreign minister, Xie
Feng, whom Xi has nominated as his
next ambassador to Washington, lodged
a formal protest with the US embassy in
Beijing on Monday.
Chinese analysts played down long-
term ramifications of the confrontation,
which they said was likely to blow over.
“The balloon thing is a temporary
incident and can be resolved,” said He
Weiwen, a senior fellow at the Center for
China and Globalization in Beijing and a
former Chinese diplomat. “It will not
have a long-term impact on Sino-US
relations.”
“I think [Blinken] will come to China
pretty soon,” said Wu Xinbo, a US expert
at Fudan University in Shanghai.
Additional reporting by Xinning Liu in Bei-
jing
See Lex
The constitutional referendum
included reforms that would grant the
attorney-general the power to appoint
prosecutors and reduce the legislature
from 137 members to around 100. Other
proposals included reform of political
parties to reduce fragmentation, and
the creation of a water protection
agency.
Beyond the substance of the reforms,
analysts said the core purpose of the
vote was to restore Lasso’s political capi-
tal, allowing him to claim some legisla-
tive achievements. All eight questions
put to the public would have been
legally binding and polls ahead of Sun-
day’s vote suggested that the majority
would pass. But Lasso’s low popularity
ratings, currently hovering around
20 per cent, were instrumental in sink-
ing the reforms.
“It’s a worst-case scenario for Lasso,”
said Sebastián Hurtado, president and
founder of Prófitas, a Quito-based politi-
cal risk consultancy, adding that the
government had designed the questions
in the referendum to have broad appeal.
“The possibility that the government
can now complete its term is seriously
complicated,” Hurtado added.
Wednesday 8 February 2023 ★ † FINANCIAL TIMES 3

INTERNATIONAL

Desperate relatives of Turkish quake

UK politics

Sunak tries to
steady ship
victims cry, pray and dare to hope with reshuffle
and renewed
Rescuers in the battered city of Şanlıurfa work round the clock to free those trapped in the rubble
growth focus
GEORGE PARKER AND JIM PICKARD
LONDON

UK Prime Minister Rishi Sunak, bat-

LAURA PITEL — ŞANLıURFA
The diggers had been working around
the clock in a side street of the Turkish
city of Şanlıurfa when a sudden hush
descended and the grinding of heavy
machinery came to a halt. Then the res-
cue team cried out in unison: “Is there
anyone under there?”
They stood still for a minute in eerie
silence, listening for a response. When
nothing came, they returned to their
work undeterred.
Those still under the rubble of the col-
lapsed apartment block in the city’s
Yenişehir district included Mustafa
Abak, a popular local football coach, his
wife Hacer and their six-year-old son
Ahmet. They are just three of the tens of
thousands who were caught up in the
terrifying earthquake that struck in the
early hours of Monday, devastating
south-eastern Turkey and a swath of
northern Syria, claiming more than
7,000 lives and counting.
Their close-knit family has kept vigil
outside the building — crying, praying
and waiting — after being unable to get
through to them by phone. “They are
very, very loved,” said Mahmut
Dikayak, 52, one of their in-laws. “This
is a very tough time for us.”
Hacer Abak’s younger sister, Selma
Uzundağ, still cannot believe the huge
force of the quake that hit the city.
“We’ve never experienced anything like
it,” she said. “The shaking just wouldn’t
stop. It was so strong.”
Şanlıurfa is the capital of one of 15
provinces across Turkey and Syria
struck by the worst natural disaster the
region has experienced in decades.
Known formerly as Urfa, it earned the
prefix Şanlı — meaning glorious — for
the resistance its people put up against
occupying French forces after the first
world war.
But glory is now in short supply as
families grapple with grief, anger and
despondency. “I feel like this world is
meaningless,” said Hacı Bulut, a retiree
with bloodshot eyes, as he waited for
news of six missing relatives, aged from
22 to 90, outside another collapsed
apartment block. “By now I’m just hop-
ing that half of them come out safe.”
Hours later, all six were pulled out of
the rubble, dead, an official said.
Urfa, a province of about 2mn
people, has suffered less damage
than some of its neighbours. Still,
officials estimated that about 100
locals have been killed and about
20 buildings have collapsed. The
region near the Syrian border is
already one of Turkey’s poorest, and
locals are anxious as to how it can get
back on its feet.
Countless buildings in Şanlıurfa have
cracks or other visible damage and sev-
eral of its mosques have lost parts of
their minarets. The city’s flyover, inau-
Devastation: gurated just two months ago by presi-
rescuers toil in dent Recep Tayyip Erdoğan, suffered a
the wreckage visible fissure that a municipal worker
of a collapsed was attempting to repair with what
building in appeared to be silicon sealant.
Şanlıurfa, The city centre smelt of dust and
Turkey. Below, woodsmoke generated by dozens of bra-
Haci Bulut, 58, ziers set up in the streets to help the res-
who lost six cue teams, police and other workers
relatives keep warm. Most of the shops were
Mehmet Yetim/PA
closed and residential streets almost
deserted, as fear of aftershocks and fur-
ther collapses prompted many people to
spend the night in their cars despite
freezing temperatures.
Others have taken shelter in the sur-
rounding villages where they can stay in
one- or two-storey farmhouses rather
than high-rise blocks.
In the courtyard of the İbrahim
Tatlıses primary school, named after a
local singer, about 120 members of
the city’s large population of Syrian
refugees sheltered under a yellow
tarpaulin tent erected by the
municipality.
One man originally from Deir
ez-Zour in Syria, named Abdulrah-
man, expressed bitterness that they
were given no blankets or heaters.
Among the city’s Turkish residents,
frustration centred on the perceived
slowness of first responders in reaching
the neighbouring provinces of Adiya-
man and Hatay, which have suffered
enormous damage.
Theories abounded about what went
Theories wrong in a city that, like most across
abounded Turkey, witnessed dramatic urbanisa-
about what tion in recent decades. Şanlıurfa’s popu-
lation has risen from 100,000 in 1970 to
went wrong near 1mn, fuelling a construction boom
in a city that, that experts have warned included slap-
dash building practices.
like most The block where the Abak family
across lived was 20 years old, locals said. Sev-
eral people in the crowd watching the
Turkey, rescue operation said the grocery store
witnessed on the ground floor had removed struc-
turally important pillars to make more
dramatic space — a claim repeated at the site of
urbanisation the other collapsed building 2km away.
A relative of one of those trapped
in recent whispered about businesses using influ-
decades ence with local officials to get away with
dubious practices. “It was a case of ‘don’t
see, don’t hear, don’t tell’,” she said.
Yet in polarised Turkey, responses are
often coloured by existing political iden-
tities. Erdoğan won 65 per cent of the
local vote in the 2018 presidential elec-
tion, and several locals praised his gov-
ernment for its investment in infra-
structure during his 20 years in power.
A local official said it was too early to
speculate on the causes of individual
collapses. An onlooker, who asked not to
be named, agreed.
“After we’ve dealt with the pain, we’ll
talk about blame,” he said. “Right now
we just want to see our loved ones and
give them a hug.”
tered by allegations of misconduct in
his cabinet, yesterday reshuffled his
ministers and broke up the sprawling
business department, as he attempts to
galvanise his government and its
much-criticised growth strategy.
Greg Hands, a Sunak loyalist and trade
minister, replaces Nadhim Zahawi as
chair of the ruling Conservatives, with a
remit to prepare the party for an
expected election next year. The Con-
servatives trail the opposition Labour
party in opinion polls by a large margin.
Zahawi was sacked by Sunak last
month after revelations about his tax
affairs. Dominic Raab, deputy prime
minister, is under investigation over
bullying allegations, which he denies,
but he stays in his post for now.
Sunak also used the reshuffle to create
four departments to put fresh emphasis
on energy security and turning Britain
into a “science superpower”.
He broke up the Department for Busi-
ness, Energy and Industrial Strategy,
the subject of repeated Whitehall re-
organisations over the years, as he
reconfigured his cabinet to focus on his
political priorities.
The prime minister set up an energy
security and net zero department,
charged with boosting Britain’s energy
supplies and its transition from fossil
fuels, and a science, innovation and
technology department.
Liz Truss, former prime minister, this
week urged Sunak to do more to boost
UK growth — including through deregu-
lation and tax cuts — while many Tory
MPs and business leaders have called
for a clearer growth strategy.
Whitehall veterans are sceptical
about the merits of such “machinery of
government” changes, warning that in
the short term they tend to cause dis-
ruption among policymakers. “You
spend months arguing about new jobs,
who has the best window view, who
keeps the yucca plant,” said one. With
an election expected in 2024, Sunak will
hope the new system beds in quickly.
Successive prime ministers have
attempted to redesign the business
department to reflect their priorities.
But in 2021, Kwasi Kwarteng, then busi-
ness secretary, scrapped the govern-
ment’s industrial strategy, saying it was
a “pudding without a theme”.
A new business and trade department
is charged with “promoting investment
and championing free trade”, taking on
the duty of export promotion and trying
to secure post-Brexit trade deals.
Trade deals with the Pacific region
and India are under negotiation but a
trade deal with the US is nowhere in
sight. Other post-Brexit trade deals have
been mainly “rollovers” of existing EU
trade deals. Energy is again a self-stand-
ing department, having been merged
into BEIS during the government of
Theresa May.

Obituary After seizing power in 1999, General

Pervez Musharraf proclaimed himself
long-term stability and, in seeking a
mandate to stay in power, undermined
Islamic extremism. On the other, he
considered it to be in Pakistan’s interest
Queen Elizabeth Prize

Nationalist
Pakistan’s “chief executive”. Over the
next decade, he likened himself to a
range of historical leaders, including
soldier whose Kemal Atatürk, Napoleon Bonaparte
and Abraham Lincoln. He believed he
was Pakistan’s saviour, and maintained
grand visions that only his military approach could
rescue the country from a self-serving
its civilian, democratic and federal insti-
tutions. The main victors of his era were
the religious parties he allowed to prolif-
to support the Taliban against their
northern, largely Tajik, rivals. His solu-
tion was to supply the US with mostly
Leap in efficiency of solar cells
erate in an attempt to counter the tradi-
tional separatist groupings and political
inconsequential, low-ranking al-Qaeda
and Taliban officials for capture.
predicted by lauded inventor
parties of Sharif and Benazir Bhutto, Still, Musharraf was seen by many
whom he had forced into exile.
Musharraf was born in Delhi in
religious nationalists within and outside
the army as a traitor and a US stooge. He CLIVE COOKSON “UNSW holds a record for a solar

ended in exile political establishment.

The general, who has died aged 79, set
out to free Pakistan from the “sham
democracy” of its civilian elite, and to
restore the nation’s economy. During
Pervez Musharraf nearly 10 years in power between 1999
Former president of Pakistan and 2008, he championed “enlightened
1943-2023 moderation”, a term he dreamt up to
marry Islam and secularism and justify
his rule. But his strategy failed, and he
resigned in disgrace in 2008.
He spent most of his final years practi-
cally confined to his Dubai home, in self-
imposed exile.
Musharraf came to power in a blood-
less military coup in 1999 that began as
he circled over Karachi in a civilian air-
liner running short of fuel. He had
learnt on board that he had been sacked
by Nawaz Sharif, then prime minister,
and would not be allowed to land. But a
fellow general took control of the air-
port, and the army ushered in Pakistan’s
fourth era of military rule in the 52 years
since its creation.
His seizure of power was welcomed at
the time as a way of ending widespread
corruption and Sharif’s increasing
authoritarianism. But the goodwill
began to evaporate after a legally sus-
pect referendum in 2002 gave Mushar-
raf five years in office as president.
Like all of Pakistan’s military rulers,
Musharraf failed to give the country
August 1943 into a family of middle-
class Indian Muslims. As a child during
the 1947 partition of India, he was taken
to Karachi, then capital of a newly cre-
ated Pakistan. Musharraf became a
fanatical nationalist and for the rest of
his life called India the “arch enemy”.
He won a place at Pakistan’s military
academy and worked his way up the
army hierarchy. He was a rumbustious
teenager, keen on practical jokes, and in
his adult life prided himself on his brav-
ery and his fellowship with his men.
As army chief in 1999, before he
seized power, he precipitated war with a
nuclear-enabled India by sending
troops masquerading as insurgents to
occupy the Himalayan heights of Kargil
on the UN boundary line. When he was
ordered to withdraw by Sharif, he
claimed his original action was to pre-
vent an Indian attack and accused the
prime minister of humiliating Pakistan.
Events in Afghanistan helped Mush-
arraf secure support from the US and
Britain. The general’s help was essential
to the US’s post-9/11 war against the
Afghan Taliban. He said that in 2001,
Richard Armitage, US deputy secretary
of state, had threatened to bomb Paki-
stan back into the stone age if he did not
co-operate. Washington denied this.
It was a difficult situation to navigate.
On the one hand, Musharraf disdained
survived at least two assassination
attempts.
A turning point in Musharraf’s
already waning popularity came when
Benazir Bhutto, the opposition party
leader, was assassinated by a suicide
bomber in 2007. Bhutto’s supporters
accused Musharraf of failing to provide
her with an adequate security detail. By
2008, Pakistanis had had enough of the
general, and he was forced to resign
amid an escalating public and political
backlash.
He tried to contest the general elec-
tion in 2013 but was unable to make
inroads without the army’s backing, and
left quietly for Dubai. In his absence, he
was sentenced to jail time in connection
with Bhutto’s assassination and to death
in 2019 for imposing a state of emer-
gency when in power, though these rul-
ings were subsequently revoked.
The general’s army colleagues
described him as a bold and adventur-
ous tactician. Yet, as a strategist, he was
severely lacking. During his time lead-
ing the country, he applied short-term
solutions to deep-rooted infrastructural
problems. He left Pakistan as unstable
as he had found it but with the army
more deeply entrenched than ever.
Michael Fathers, Benjamin Parkin and
Farhan Bokhari
The inventor of the silicon technology
that dominates solar power predicts
that combining other materials with
the silicon may boost the efficiency of
photovoltaic cells from about 25 per
cent today to more than 40 per cent.
Martin Green, an engineer and profes-
sor of the University of New South
Wales, who invented the tech used in
about 90 per cent of the world’s solar
panels, made the prediction in London,
where it was recognised with one of the
most prestigious accolades for innova-
tion in engineering.
The Perc, or Passivated Emitter and
Rear Cell, that was developed by Green
and his collaborators, reflects light and
electrons, which would otherwise
escape, back into a photovoltaic cell,
boosting its efficiency from 16.5 per cent
to 26 per cent and enabling solar power
to compete effectively with fossil fuels.
But Perc was near its peak, Green said:
“Perc will probably get over 27 per cent
some time this year and it will be the
mainstay for solar cells for most of the
rest of this decade, but there will be
challenges . . . down the track.”
Green’s research at the Australian
Centre for Advanced Photovoltaics now
focuses on “stacked cells” that layer oth-
er materials on silicon to turn more sun-
light wavelengths into electricity.
module that has four cells within the
stack. It’s 40.6 per cent efficient, so
you’ve got quite a margin there,” Green
said. But a cheap manufacturing proc-
ess for stacked cells is yet to be created.
Green and fellow laureates, Andrew
Blakers, Aihua Wang and Jianhua Zhao,
earned the Queen Elizabeth Prize for
Engineering yesterday for work on solar
cells in the 1980s, which made it possi-
ble to generate cheaper electricity from
sunlight.
They published their findings without
patent protection, “encouraging devel-
opments . . . and driving down the cost
of production to the benefit of wider
society”, said the judges of the £500,000
QE prize.
“We thought commercial use of the
technology would be far in the future,
and that turned out to be quite an accu-
rate assessment,” explained Green.
Wang and Zhao, a couple who arrived
from China to do photovoltaic research
at UNSW, returned to China in 2006
where they founded China Sunergy. The
company played a key role in building
the solar cell industry in China, which
accounts for 80 per cent of global out-
put.
“We’re in the process of global energy
transition with Perc and solar power in
the front seat,” said Lord John Browne,
who chairs the QE Prize Foundation.
4 ★ FINANCIAL TIMES Wednesday 8 February 2023

INTERNATIONAL

Energy sanctions

Iran’s ‘ghost fleet’ doubles down on Russian oil

Tanker owners command
high rates in wake of price
cap and other restrictions
CHRIS COOK AND DAVID SHEPPARD
LONDON
Tankers in Iran’s “ghost fleet” have
switched to carrying Russian oil since
western curbs on Moscow intensified in
December, as the Kremlin turned to
sanctions-busting techniques pioneered
by Tehran.
At least 16 vessels that formed part of
the ghost network that allowed Iran to
breach US sanctions have begun to ship
Russian crude oil over the past two
months, according to Financial Times
research. Before the surge, just nine ves-
sels had switched on to the Russian
route during the nine months since the
start of the war in February last year.
So-called ghost ships are vessels that
disguise their ownership and move-
ments to facilitate breaches of sanc-
tions. Networks of ghost ships enable
the trade in Iranian and Venezuelan oil.
Shipbrokers and analysts said Russia
was enticing tanker owners and opera-
tors with premium rates, as it sought to
shield its main source of export reve-
nues from western measures such as the
G7/EU oil price cap. Estimated Russian
oil export revenue is markedly down on
its prewar levels.
“We have seen a number of vessels
involved in Russian trade that previ-
ously did Iranian barrels,” said Svetlana
Lobaciova, a tanker analyst at shipbro-
kers EA Gibson in London.
“The premium for Russian trade is at
least 50 per cent above the normal mar-
ket rates and could be even more than
100 per cent in some instances, making
the economics even more attractive
than shipping Iranian oil.”
Iran has been able to maintain or even
increase its crude exports in recent
months. Tehran, which co-operates on
oil policy with Moscow through the
Opec+ group, has emerged as a key
backer for Russian president Vladimir
Putin’s invasion of Ukraine.
Competition for vessels is a possible
source of tension in the relationship.
However, Matthew Wright, an analyst at
Kpler, a data and analytics company,
said: “An increase in the number of
ships in the ghost fleets owned through
secretive offshore entities, which ena-
bles sanctions evasion, appears to have
helped avoid much of a problem with
sourcing vessels.”
The FT identified vessels involved in
the Iranian ghost fleet using a list of 288
ships subject to sanctions-breaching
complaints to marine registries and
Vessels making their first Russian delivery
Start of war
Jun Jan
2021 2022
Sources: Kpler; UANI; FT research
insurance companies by United Against other organisations. Data from Kpler
Nuclear Iran, a US-based group that was then used to monitor these vessels’
campaigns for sanctions enforcement. recent cargoes.
The FT checked the methods used by Strains in tanker markets are
UANI for identifying ghost fleet mem- expected to be exacerbated in the com-
bers by reviewing a sample of its analy- ing weeks. EU sanctions and the G7
ses, which are based on ship movement price cap were both extended on Sun-
data and satellite photography. The FT day to include Russia’s exports of
also checked that the findings on spe- refined fuels such as diesel and petrol.
cific ships were consistent with those of Russia has already sought to reroute a
lot of its crude to Asia after a ban on sea-
borne imports to the EU took effect on
December 5. It will probably need to
Sanctions and price cap introduced ship diesel and other fuels longer dis-
12 tances now that a similar ban is in place.
Western sanctions targeting Russia
10
are less onerous than US sanctions tar-
8 geting Iran. The G7 price cap is also
partly designed to limit revenues to the
6 Kremlin while keeping enough Russian
barrels in the market to avoid shortages.
4 Shipbrokers said terms made the Rus-
sian trade more attractive than dealing
2
with Iran or other heavily sanctioned
0 countries such as Venezuela. Ship own-
Jan
ers and operators are less likely to fall
2023 foul of the measures if they can show
they were told the Russian fuel was sold
under the cap.
FT analysis suggests the volumes of
Russian crude being shipped on vessels
identified as being part of the ghost fleet
rose from less than 3mn barrels in Nov-
ember to more than 9mn in January.
One shipbroker said that while a hand-
ful of big tanker operators were shun-
ning Russian oil trade, such as western
oil majors and US ship operators, many
others were taking part given the rates
on offer and leeway in the rules.
“Everyone is a sinner now,” the ship-
broker said. “The line between the grey
market and the conventional tanker
market has definitely gotten blurrier in
the past year.”
Some of the ships now serving the
Russian route are vessels previously
identified as likely to be part of Mos-
cow’s own shadow fleet, a covertly con-
trolled operation assembled over the
past year. Shipbrokers have estimated
that it consists of about 100 vessels.
Claire Jungman, chief of staff at UANI,
said: “The ownership behind [ghost
fleet] . . . vessels is often very opaque
and disguised through numerous front
companies that are constantly changing
to avoid sanctions.”

Africa. Voter trends

Nigeria election sparks pollster revolution

Start-ups are addressing the
paucity of reliable data in this
month’s presidential race
AANU ADEOYE — LAGOS
In an office in an upmarket part of
Lagos, young economists and analysts
fine-tune a data set they say will pro-
duce the most comprehensive publicly
available election polling in Nigeria’s
history, ahead of the country’s presiden-
tial vote this month.
The mainly western-educated team
at data company Stears aims to bring
evidence-based insights into one of the
world’s most complex electoral races, in
a country where official data is so unreli-
able that no one even knows the exact
size of the population.
“Over the last couple of election
cycles, data has not always been a big
part of the election conversation,” said
Preston Ideh, Stears’ chief executive
who co-founded the company in 2018 to
address a dearth of reliable information
in Africa’s largest economy.
Election polling has been done before
in Nigeria, but usually in the form of sur-
veys commissioned by political parties
and other organisations for internal use.
In this election cycle, however, start-ups
such as Stears and SBM Intelligence,
another Lagos data specialist, are aim-
ing to fill a gap in the market for high-
quality, publicly available information.
Afolabi Adekaiyaoja, an analyst at the
Centre for Democracy and Develop-
ment think-tank, views the introduc-
tion of polling as a sign of “how robust
Nigeria’s electoral space is becoming”.
Surveys covering big issues, such as
the proposed removal of fuel subsidies,
would also help Nigeria’s leaders in deci-
sion-making, he said. “It would be good
to have polling on any of the difficult
decisions the next administration may
have to take. Not just for the govern-
ment, but public policy analysts, to see
how Nigerians are thinking.”
Nigerians go to the polls on February
25 to choose a replacement for Muham-
Face time: madu Buhari, who is stepping down
posters for the after two terms, and members of both
candidate of the houses of parliament. On March 11, they
People’s are scheduled to elect governors and
Democratic members of state legislatures.
party, Atiku The presidential race is expected to be
Abubakar, on tight. The main candidates are Bola Tin-
display in ubu of the ruling All Progressives Con-
Abeokuta, gress, Atiku Abubakar, the main opposi-
south-west tion candidate of the People’s Demo-
Nigeria — Pius Utomi cratic party, and the Labour party’s
Ekpei/AFP/Getty Images
Peter Obi.
SBM’s polling is focused on helping
civil society groups identify issues most
important to voters. Ikemesit Effiong,
head of research, said: “We want to
understand how Nigerians perceive the
issues and how those issues are likely to
feed into the wider conduct of the elec-
tion, as well as the outcome and reaction
to [it].” Effiong said SBM’s survey
showed that voters were most con-
cerned about insecurity, the economy,
corruption and the proposed fuel sub-
sidy removal.
Stears launched Nigeria’s first real-
time election monitor before the 2019
poll. Some 2mn users logged on to fol-
low the results. Its 2023 database is
more comprehensive, with biographical
information on almost 15,000 candi-
dates in 1,500 contests, covering state as
well as national races.
Polling data is limited to the presiden-
tial race and a few governorship elec-
tions partly because of cost and logistics.
Ideh estimates that Stears has spent up
to N30mn ($66,000) canvassing 6,000
randomly selected respondents for this
year’s elections, almost double those
surveyed in other available polls.
The company raised $3.3mn in seed
funding last year from investors, includ-
ing MaC Venture Capital, US tennis star
Serena Williams’ venture capital fund
Serena Ventures and eBay founder
Pierre Omidyar’s Luminate Group.
Among the issues are a complex elec-
tion system in which people can vote
only at the polling unit where they are
registered, and an electorate divided
along ethnic and religious lines, which
complicates efforts to assemble a repre-
sentative sample. Previous polls have
been marred by unrest, and safety con-
cerns are known to depress turnout.
“The voting value chain in Nigeria is
fraught with risk,” said Michael Fam-
oroti, who’s leading the project at Stears.
The lack of historical information
hinders efforts to draw inferences about
voting behaviour. “It’s a very big prob-
lem,” said Stears co-founder Abdul
Abdulrahim. “More complex models
that try to understand people’s behav-
iour need yesterday’s picture.”
In an effort to obtain a representative
sample, Stears randomly selected just
over half of the 6,220 respondents in its
2023 survey from each of Nigeria’s 36
states and the capital, Abuja, with the
numbers based on the states’ share of
registered voters.
The others were drawn from Lagos,
Kano and Rivers, among states with the
highest number of voters, and three
states in the North Central region that
have a mix of religions and ethnicities.
Since 1979, North Central has backed
the eventual winner in every presiden-
tial contest.
The company has built voter profiles
for the main candidates based on their
supporters’ age, gender, education level
and perception of election day safety
and the likelihood they will venture out
to vote. Turnout in recent elections has
been low at about 35 per cent.
“Elections are a universe of possibili-
ties based on variations with turnout,
last-minute surprises and much more.
Without understanding that, you don’t
‘Elections have a business in this business,” said
political analyst Joachim MacEbong.
are a The industry has taken a hit to its rep-
universe of utation after failing to predict the elec-
tion of Donald Trump as US president in
possibilities 2016 or the UK’s Brexit vote in the same
based on year and for overstating the “red wave”
of support for the Republicans in last
variations November’s US midterms. Stears said its
with goal was to foster an environment
where polling became more accurate.
turnout, Adekaiyaoja warned that providing
last-minute the right context around polling data
was crucial: “Polls can be used as a
surprises means of disinformation by groups try-
and much ing to whip up sentiments or stir people
into violence. It’s a very sensitive land-
more’ scape, where the tiniest margins might
determine who becomes president.”

Inflation Reduction Act

US states offer incentives on top of Washington’s green subsidies to attract investment

AMANDA CHU AND DEREK BROWER
NEW YORK
GUY CHAZAN — WASHINGTON DC
French and German economy minis-
ters held talks in Washington yesterday
with their counterparts to lay bare con-
cerns about what they claim is unfair
competition sparked by $370bn in fed-
eral US subsidies for clean energy.
But there is another layer of support
over which they have less sway: incen-
tives offered by US states and localities.
Developers of projects from electric
car plants to green hydrogen refineries
are getting red-carpet treatment from
state and local officials. Long vying with
one another for inbound investment,
some states have revamped subsidy
schemes in response to last year’s pas-
sage of the landmark US Inflation
Reduction Act climate law.
In Georgia, the Norwegian battery
company Freyr announced a $2.57bn
factory investment after receiving
about $360mn worth of subsidies from
the state. The local Coweta County
Development Authority also offered
Freyr property tax breaks for 20 years
and job creation grants worth $250mn.
“This is the kind of project that you
want to attract,” said Sarah Jacobs, pres-
ident of the county authority.
Michigan in October awarded at least
$715mn in incentives to secure a deal
with Chinese battery company Gotion,
which will build a $2.36bn factory in
Grand Rapids. Texas, Georgia, Ken-
tucky, South Carolina and Illinois were
also in the running for the factory.
“IRA is a federal policy and we’re
going to continue to aggressively make
sure we leverage it for Michigan’s bene-
fit as much as possible,” said Quentin
Messer, chief executive of the Michigan
Economic Development Corporation.
Ahead of yesterday’s talks, Bruno Le
Maire, French economy minister, said
their aim was to ensure “as many Euro-
pean components as possible [are]
included in the framework of the IRA,
so they can benefit from the tax credits
and subsidies that will be given to Amer-
ican products.
Brussels
Commissioner criticises
EU response to Biden law
Brussels’ response to the US’s support
for green technologies has come
under fire from one of its own top
officials, who said the constant
revision of EU state aid rules created
too much confusion for businesses.
Thierry Breton, internal market
commissioner, spoke out as EU leaders
prepare for a fraught summit
tomorrow, where officials will discuss
how to respond to $369bn worth of US
tax breaks and other incentives under
the Inflation Reduction Act.
Breton, an ally of French president
Emmanuel Macron, told the Financial
Times the relaxation of state aid rules
outlined last week did not give
businesses enough clarity to plan for
the future.
The EU has amended its subsidy
regime three times in as many years,
first in response to the Covid-19
pandemic, then the energy crisis, now
the IRA — “a succession of temporary
fixes”, said Breton.
Responding to concerns from Italy,
Poland and other less-affluent
member states, Breton said lending
guarantees issued by the EU would be
the way to ensure all governments
could support their industries. But that
idea has little traction in Berlin and
other fiscally prudent capitals.
“We need a tool to bridge the gap,”
Breton said. “To make sure that we will
have an answer for every single
member state.”
Breton favours converting annual
extensions to the temporary relaxation
of rules into a longer-term regime.
Last week, the EU said €250bn was
“immediately available” for countries
to offer tax credits and subsidies for
green sectors. Javier Espinoza and
Andy Bounds in Brussels
“I am thinking of electric vehi-
cles . . . batteries, critical materials.”
He and German counterpart Robert
Habeck met Treasury secretary Janet
Yellen, US Trade Representative Kath-
erine Tai and Gina Raimondo, the Com-
merce secretary.
State and local economic develop-
ment agencies have for decades offered
tax breaks and other subsidies to com-
panies considering expansion or reloca-
tion.
Ohio is keeping 25 or more properties
across the state ready for large indus-
trial projects, while Indiana advertises
having half a dozen “shovel-ready” sites
and Michigan has touted three sites with
power, water and rail lines in place.
The federal climate law has changed
the equation, making it likely that more
of these sites will be used for manufac-
turing electric vehicles, batteries or
renewable energy equipment, which
benefit from new or expanded federal
tax credits. The state legislature of Illi-
nois, for example, last month agreed
extra credits for cleantech developers.
“Speed is the new incentive [for]
these companies looking into the energy
transition,” said Brad Chambers, Indi-
ana’s secretary of commerce. In May,
three months before the IRA was
passed, the state awarded Stellantis and
Samsung more than $186mn for a bat-
tery plant, including $25mn to cover
capital and infrastructure costs.
The IRA has prompted “more serious
conversations” in US states about how
to capture clean-energy investment,
said Alejandro Perellón, head of Ameri-
cas business for Hy24, a Paris-based
fund focused on hydrogen fuel projects.
“So they can focus on things like permit-
ting, helping attract businesses with
more tax-friendly systems for doing
business. You’re seeing that all over.”
Last year, Hy24 struggled to find one
project to invest in across the US. Now, it
is picking from a list of 10 to 15 thanks to
the federal IRA subsidies and state pro-
grammes.
“On August 16, when the IRA was
passed, it was like someone switched on
a lightbulb,” Perellón said.
Wednesday 8 February 2023 ★ FINANCIAL TIMES 5

Brazil turmoil Mystery of $4bn financial hole at retail chain Americanas has pitted bankers against billionaires y COMPANIES

SoftBank hit Revenue receivers Super Bowl betting likely

to exceed $16bn in boost for online bookies
Carlsberg
seeks buyback
as Vision Fund clause for large
Russian unit
suffers $5.5bn RICHARD MILNE — COPENHAGEN

Carlsberg wants to insert a buyback

clause when selling its Russian busi-

quarterly loss ness that would offer the third-largest

brewer a way of ultimately returning to
the country.
Cees ‘t Hart, chief executive of the Dan-
ish brewer, said Carlsberg was leaving

3 Son opts out of investor appearance Russia “full stop” and he hoped a sales
agreement would be in place by the end

3 Concerns centre on borrowing costs of June.

KANA INAGAKI — TOKYO
ROBERT SMITH — LONDON
Masayoshi Son has left the spotlight,
opting out of his investor presentation
for the first time in decades as Soft-
Bank’s Vision Funds suffered a quar-
terly investment loss of $5.5bn.
With SoftBank’s founder offstage, its
finance chiefs repeated that its balance
sheet and investment portfolio were
“safe” and “resilient”, in an effort to pla-
cate investors concerned by the group’s
borrowing costs as interest rates rise.
“There remains significant unpredict-
ability in the labour markets, future
monetary policy road maps, as well as
corporate earnings,” Navneet Govil,
executive managing partner at Soft-
Bank Global Advisers and finance chief
‘Our posture remains
defensive and is focused
on building resilience’
Navneet Govil, funds finance chief
of the Vision Funds, said yesterday. “So
our posture remains defensive and is
focused on building resilience.”
The conglomerate posted large
investment losses for the fourth straight
quarter with a fall in value for 73 per
cent of its 472 investments. It cut back
on deals, with its two Vision Funds
investing just $300mn in two compa-
nies, compared with $9.6bn during the
same quarter in 2021.
For the October to December quarter,
SoftBank reported an investment loss of
¥731.94bn ($5.5bn), compared with a
¥1.38tn loss in the previous quarter for
its two Vision Funds and a fund invest-
ing in start-ups in Latin America.
Owing to the losses, Son owed Soft-
Bank more than $5bn at the end of last
year. Govil said the outlook for China
had improved with the lifting of the
zero-Covid plan and the apparent eas-
ing of the tech clampdown. The expo-
sure of Vision Funds to the chip export
controls the US had imposed against
China was also limited. But he remained
cautious on the broader economic out-
look, warning of continuing volatility.
As of the end of December, SoftBank
said the fair value of the $100bn Vision
Fund I was down 4.4 per cent from a
year earlier due to markdowns in pri-
vately held companies, despite gains in
some listed holdings such as ride-
hailing groups Didi and Grab. The valua-
tion for investments in Vision Fund II
was down 6.2 per cent. During the three
months, the tech investor made a
¥783.41bn net loss, lower than analysts’
forecasts of a ¥103.59bn profit, accord-
ing to S&P Global Market Intelligence.
In the previous quarter, the group had
logged a ¥3tn net profit, mainly a result
of its selldown of its stake in Alibaba.
Kirk Boodry, an analyst with Redex,
said it would probably take time for per-
ceptions on SoftBank and its Vision
Funds to improve, making it hard to
expand investments in the near future.
“To be more proactive and aggressive
with investing, they need money.” The
Arm IPO was “the quickest way for
them to monetise, but beyond that,
there is not a lot you can sell within the
Vision Fund because many of the
investments are underwater”.
Son announced last year that he
would step back from day-to-day opera-
tions at SoftBank to focus on listing the
UK chip designer. “We don’t know when
it will be, but we also hope that Mr Son
will once again appear in front of every-
one at an early timing as possible,” Soft-
Bank’s chief financial officer Yoshimitsu
Goto said yesterday.
Goto said that Arm was on track to list
its shares in the 2023-2024 fiscal year,
though the group declined to say if Arm
would list in the US or the UK.
Punters’ delight: Kansas City Chiefs’ quarterback Patrick Mahomes in action late last month — Michael Owens/Getty Images
OLIVER BARNES — LONDON
US gamblers are expected to wager a
record $16bn on Sunday’s Super
Bowl, according to industry projec-
tions, as the growing reach of online
sports betting entices a rush of new
customers.
Some 30mn adults in the US plan to
place a bet on the game between the
Philadelphia Eagles and the Kansas
City Chiefs through an online betting
platform or a retail betting shop, up
from 18.2mn for last year’s event, the
American Gaming Association has
estimated.
In total, 50.2mn Americans will bet
on the event, either casually among
friends or through an official channel,
staking $16bn worth of bets, more
than double the $7.6bn wagered on
last year’s championship game, the
industry body said yesterday.
The fixture, which typically ranks
as the most watched US television
event of the year, garnering a viewer-
ship of more than 100mn people,
should provide a blockbuster windfall
for major online operators such as
FanDuel and DraftKings.
“It’s always one of the biggest days
of the year,” said Matt Kalish, Draft-
Kings co-founder and North Ameri-
can president. “It’s a one-of-a-kind
event where even if you’re not betting
on every game during the regular sea-
son, there’s something for you in the
Super Bowl.”
Operators have been on a quest to
lure customers in the run-up to the
Super Bowl weekend. DraftKings will
roll out more than 1,000 betting mar-
kets on everything from the colour of
the winning team’s Gatorade to the
first touchdown scorer, along with
offering a $5 free bet for new users.
Meanwhile, FanDuel, the market
leader owned by London-listed Flut-
ter, is offering bettors the chance to
win a share of $10mn in free bets if
former NFL player Rob Gronkowski
kicks a 25-yard field goal during an
advertising spot in the third quarter.
“It’s a huge customer acquisition
opportunity, bigger than even the
Kentucky Derby or the [football]
World Cup,” said Chad Beynon, a gam-
ing industry analyst at Macquarie
Group.
This year’s Super Bowl, which is the
game’s 57th edition, will be held in
Arizona and for the first time in a state
where sports betting is legal since a
landmark Supreme Court ruling in
2018. “It will be the first time you see
people in the stands able to take out
their phones and bet,” added Kalish.
This year also marks an inflection
point for the nascent industry as the
biggest operators seek to become
profitable. They have been spending
heavily in the battle for customers as
new US states come online. Some 23
US states, alongside Washington, DC,
have greenlit the industry.
But he said that he wanted to give his
successors the chance to return to Rus-
sia if the country took a “different direc-
tion”, something he did not expect for at
least 10-15 years.
At its peak, Russia accounted for
more than half of Carlsberg’s profits and
sales after the group made a big bet on
the market in the 2000s.
But a succession of woes stemming
from restrictions on where beer could
be sold and how it could be advertised
meant Russia now accounted for just
10 per cent of sales and 5 per cent of
group profits.
Shortly after Russia’s invasion of
Ukraine, Carlsberg said that it would
leave the country, but it has not
disclosed whom it is in talks with over
the sale.
Hart said that “reverse integration”,
the process of disentangling the Russian
operations from the rest of Carlsberg,
had proved more complex than he had
assumed, but he was hopeful of reaching
an agreement on a sale by the end of the
second quarter.
“Business leaders need to not only
look at the next year and the year after.
What I’m paid for also is to look at the
far future,” Hart said.
As part of the sales process, the Dan-
ish brewer will look at licensing to
the new owner many of its brands such
as Tuborg, 1664, and Somersby cider,
but not the Carlsberg brand. It would
not receive any future revenues from
this licensing, only as part of the sale,
Hart said.
Carlsberg said beer sales this year
would be hurt by higher prices and of a
potential squeeze on profits. While beer
“historically has been a resilient con-
sumer category”, the large price
increases required to offset rising costs
and the still high levels of inflation
would hit sales, especially in Europe.
In its full-year results yesterday,
Carlsberg posted a 17 per cent increase
in revenues to DKr70.3bn ($10.1bn), its
highest growth in at least a decade.

Global energy woes reopen Australian debate on uranium mining

the reserve as the Mirarr would never
INSIDE BUSINESS agree to it being mined.
Justin O’Brien, head of the Gundjei-
ASIA hmi Aboriginal Corporation, which rep-
resents the Mirarr, slammed the “false
Nic hope of ignorant investors” in ERA that
claimed the door should be left open to
Fildes mine Jabiluka. He noted the cost of
rehabilitating the Ranger site was
already A$2bn ($1.4bn). “Unlike many
reserves of uranium. The country is a
nation of miners and already exports
the ore to nuclear countries, so cutting
off nuclear power as a domestic option
seems perverse to some.
Alexander Downer, the former Aus-
tralian foreign minister who sits on the
board of a London-listed uranium com-
pany, argues it is “an intellectual
absurdity” that the country with the

T
he name Jabiluka has deep
resonance for Australians
of a certain vintage. The
Northern Territory location
was earmarked as a ura-
nium mine until a blockade of the site,
situated in Kakadu National Park, in
1998 stopped the project in its tracks.
This put Australia’s then burgeoning
uranium mining industry into stasis.
However, the rising price of the ore
driven by the revival in the global
nuclear power industry following the
Ukraine invasion and the push towards
decarbonising electricity has created a
conundrum in a country that felt it had
long settled on an anti-nuclear stance.
That has put Jabiluka back in the
spotlight. Control of what would happen
at Jabiluka was handed to the Mirarr
people, traditional owners of the land
that the prospect and now defunct
Ranger mine sit on, after the blockade.
The Mirarr are adamant they will never
give permission to mine at Jabiluka.
The Kakadu mining licence is held by
a company called Energy Resources of
Australia, which is majority owned by
Rio Tinto. With the uranium price rising
fast, minority investors commissioned a
report last year that calculated a value
of the uranium at Jabiluka to be worth
more than a billion dollars, or perhaps
substantially more. Rio Tinto countered
that no such value could be attributed to
other proposed projects on Aboriginal
land, Jabiluka is utterly impossible — it
is unfeasible both culturally and techni-
cally. Rio Tinto has acknowledged this.
It is hardly a secret,” he said.
The Jabiluka dispute has coincided
with Australia’s own nuclear reckoning.
Nuclear power was in effect outlawed
in 1998 — the same time as the blockade
— as the Liberal-led government of John
Howard agreed to ban its use to win sup-
port from minor
parties to build a The country already
reactor for the
medical industry. exports the ore, so
Yet some politi- cutting off nuclear power
cians and investors
are confident that as a domestic option
public opposition seems perverse to some
to nuclear power
has shifted. They point to the need for a
reliable energy source to complement
investment in renewable energy. The
decision by the government to form the
Aukus defence alliance with the US and
UK, with nuclear-powered submarines
at its heart, also prompts arguments
that Australia’s priorities have changed.
The Liberal party, which lost the elec-
tion last year after nearly a decade in
power, has swooped on nuclear power as
a policy. That has set it against the Labor
government’s policy to champion
renewable energy as key to the country’s
energy transition away from the coal
and gas that it sells to other countries.
The debate is framed by the country’s
largest exploitable uranium reserves in
the world refuses to use it for its own
baseline power.
Other countries, including the UK,
Sweden and Japan, have turned back
towards nuclear to avert energy security
and transition issues.
New uranium mining plans, including
Deep Yellow’s Mulga Rock project in
Western Australia and Boss Energy’s
Honeymoon project in South Australia,
have emerged as some miners smell a
new yellow boom on the horizon.
But nuclear power and uranium
remain an emotive issue in Australia
and the recent desperate, and ulti-
mately successful, search for a coin-
sized radioactive component lost on a
1,400km stretch of desert highway
highlighted the risks.
Jabiluka remains off limits for Rio
Tinto, which, following its destruction
of a sacred indigenous site at Juukan
Gorge in Western Australia, needs to
ensure that the damage done to the
Kakadu land and its traditional owners
is healed. The site now acts as a testa-
ment to the mining industry’s commit-
ment to deliver on its ESG promises.
Kellie Parker, Rio Tinto’s chief execu-
tive of Australia, said: “We want it to be
safe for the Mirarr people to walk that
land again. We want money to go into
rehabilitation [of the land] and not into
people making profit.”
nic.fildes@ft.com
6 ★ FINANCIAL TIMES Wednesday 8 February 2023

COMPANIES & MARKETS

Transport Banks

Adani’s ports arm to pay $600mn debt
Apsez unit seeks to ease
investor fears after short
seller’s attack on group
CHLOE CORNISH — MUMBAI
Gautam Adani’s ports and logistics com-
pany has announced plans to pay off
some $605mn of borrowing and cut
spending, as the under-fire billionaire
rushes to shore up investor confidence.
The company, the most widely traded
in Adani’s business empire, has been hit
by a brutal sell-off triggered by a short-
seller report that highlighted Adani
Group’s growing debt pile while alleging
“brazen” accounting fraud and stock
manipulation at the conglomerate,
which ranges from logistics to airports
and electricity.
Adani Group has denied the allega-
tions, but the ensuing stock market rout
has knocked more than $110bn off its
market value. Shares in Adani Ports and
Special Economic Zone (Apsez) are
about 27 per cent lower than before US
short seller Hindenburg Research pub-
lished its report last month.
Apsez’s announcement comes a day
after the Adani family said that it had
paid off a $1.1bn loan pledged against
company shares about 20 months early.
“When your shares have fallen 70 per
cent that obviously creates pressure,”
said Anish Teli, managing partner at
Financials. Fraud trial
QED Capital Advisors in Mumbai.
“Adani is wanting to appease foreign
investors especially as he is trying to
grow their image globally . . . they’re
obviously trying to put that to rest.”
The business controls
almost a quarter of India’s
cargo market and is the
jewel in the empire
Alice Wang, Asia ex-Japan portfolio
manager at Quaero Capital in London,
said that these actions “reflect the pres-
sure to soothe investor unease about
the group’s extremely high leverage,
particularly in recently tighter liquidity
conditions”. She added: “Even after the
57 per cent drop from their peak, Adani
Enterprises still trades at 255 times
price to earnings.”
Karan Adani, Apsez chief executive,
said yesterday: “We are considering
total loan repayment and prepayment
of around Rs50bn ($604mn)]” for the
year ending March 2024.
He said that this would “significantly
improve” the company’s net debt to
earnings ratio, which is at present 3-3.5
times earnings, and “bring it closer to
2.5 times by March [20]24”.
Apsez also said that it would halve
capital expenditure for the next fiscal
year from Rs86bn for the year ending
this March to Rs40bn to Rs45bn.
Apsez is India’s largest private port
company, controlling almost a quarter
of India’s cargo market, and is the jewel
in Adani’s business empire.
Although third-quarter operational
revenue was up 18 per cent year on year,
rising from Rs40.7bn to Rs47.9bn, net
profits fell year on year to Rs13.1bn, 16
per cent down on the previous year.
The company said that the profit fall
was because of bigger losses on foreign
exchange compared with 2022. Its quar-
terly earnings before interest, tax,
depreciation and amortisation were up
15 per cent to Rs30bn.
Apsez expects earnings this year of
between Rs122bn and Rs126bn.
BNP Paribas
raises profit
targets after
windfall from
US lender sale
SARAH WHITE — PARIS
BNP Paribas has lifted its profit targets
for the next two years, saying it
expected higher revenues as it starts
reinvesting the windfall from the
$16.3bn sale of its US retail bank in
technology and small acquisitions.
France’s biggest listed bank also out-
lined €5bn in share buybacks this year
as a record year for profits ended with
net income in the fourth quarter miss-
ing expectations.
Some of its businesses outperformed
in the three months to December, with
earnings from trading fixed income,
rates and commodities standing out

Boss of defunct Wirecard set to take the stand
Statements to investors by
Braun have been branded
incorrect and misleading
OLAF STORBECK — MUNICH
Wirecard chief executive Markus Braun
had barely managed to reassure share-
holders rattled by news of an internal
fraud probe in 2019 when the lawyers
leading it all but called him a liar.
The head of the German payments
group, which months before had
entered the club of the 30 largest listed
German groups, had vehemently denied
Financial Times reports on alleged
accounting manipulation, calling them
“inaccurate, misleading and defama-
tory”. There had been “no material
compliance findings as to the govern-
ance and accounting practices of any
Wirecard subsidiary”.
But in a letter dated February 13 2019,
Rajah & Tann, the Singapore law firm in
charge of the probe, took Braun to task
on these statements. “We . . . believe
that the statement with respect [to]
ourselves risks being misconstrued by
the public to imply that we have found
the allegations completely lacking merit
or credibility,” the firm wrote. “We
regret that we are unable to agree with
the views publicly expressed by Wire-
card AG and/or its CEO.”
The letter is one of several examples
of Braun being accused of making incor-
rect and misleading statements to inves-
tors, an FT analysis of Wirecard emails
and other documents reveals. The inci-
dents raise further questions about
Braun’s credibility, just as he is due to
take the stand at the Munich trial exam-
ining the company’s failure.
“Braun is as credible as Baron Münch-
hausen,” said Jens Zimmermann, an MP
for the Social Democrats who sat on the
parliamentary inquiry into the scandal.
“A CEO who does not notice that his
most important clients are not real may
exist in fiction, but I am certain that
Braun was very aware of his company’s
situation.”
Wirecard collapsed into insolvency in
2020 after disclosing that €1.9bn of cor-
porate cash, half its annual sales and its
outsourced operations in Asia did not
exist.
Braun’s trustworthiness is crucial for
the outcome of the criminal case against
him, which started in December. The
53-year-old, who has been in police cus-
tody for two-and-a-half years, has been
charged with fraud, embezzlement,
accounting and market manipulation.
Two other Wirecard executives are also
on trial.
So far, Braun has not made a state-
ment in court. His lawyer Alfred Dier-
lamm has said that his client is willing to
do so and to answer questions. Previ-
Braun comedown: ously, Braun has denied any involve-
Wirecard boss ment in the fraud and suggested that, as
Markus Braun led Wirecard’s single largest shareholder,
the payments he is also a victim.
specialist into the Braun has been implicated heavily by
club of 30 top one of his co-defendants, the former
listed German Dubai-based executive Oliver Bellen-
businesses — but haus. After Wirecard’s collapse, Bellen-
the group failed haus travelled to Munich and became
after disclosing chief witness. With a lack of conclusive
that €1.9bn of evidence that Braun knew about or was
cash, half its directly involved in the alleged fraud,
annual sales and the trial to an extent hinges on which
its outsourced man the panel of five judges believes.
Asia operations Internal emails and other documents
did not exist reviewed by the FT suggest that factual
FT montage/
Picture Alliance/dpa/AP
statements by Braun were not always
truthful and were sometimes chal-
lenged by lawyers hired by the group
and by its own auditors and supervisory
board.
After an FT story in January 2019
reported that a compliance probe by
Rajah & Tann had found evidence indi-
cating “serious offences of forgery and/
or of falsification of accounts”, Braun
told analysts that the probe had not
found “any proof, or conclusive find-
ings, that any of these allegations are
true” and was not expected to do so.
In its February 13 letter to Wirecard,
Rajah & Tann countered that in its last
formal update to the company it had
given the view that “many of the initial
suspicions raised in our preliminary
report . . . appear substantiated”. The
firm said it disagreed with Wirecard and
Braun’s view that it “has not made, and
is not expected to make, any findings of
material non-compliance as to the gov-
ernance and accounting practices of any
Wirecard subsidiary or employee”. It
rejected Wirecard’s suggestion that the
allegations were based on flawed or
forged evidence. Rajah & Tann said
Braun and Wirecard’s public position
“causes us concern” and urged the com-
pany to stop making public statements
about the investigation “until after our
final report has been issued”.
One year on, it was KPMG’s turn to tell
Braun that his depiction of facts was not
in line with reality. Forensic investiga-
tors from the firm had been trying to
establish for months whether Wire-
card’s outsourced businesses in Asia
were genuine. On April 21 2020, KPMG
told Wirecard that it had run into an
“obstacle to the investigation”, that too
many documents were missing and
Wirecard’s outsourcing partners in Asia
were not co-operating. The supervisory
board subsequently extended the
KPMG probe by just under one week.
According to people familiar with the
discussions, the supervisory board was
already concerned that Braun, who was
in charge of communication with inves-
tors, would distort the facts in the
required stock exchange statement. So
it provided a summary of points to men-
tion in the statement, including the fact
that KPMG had run into an “obstacle to
the investigation” as well as the assess-
ment that the auditors were “unable to
rebut the allegations raised against the
company with regard to [outsourced
operations in Asia] during the investiga-
tion period”.
Braun drafted an upbeat statement
suggesting that KPMG rather than Wire-
card was responsible for the delay and
claimed that “to date no substantial
findings have been made” by KPMG.
Before it was published, Braun shared
his draft with KPMG. Sven-Olaf Leitz,
the partner in charge of the probe,
responded by email, telling Braun his
“depiction is not in line with our percep-
tion of the actual facts and does not
match our written and oral reporting”.
Leitz said Wirecard should point out to
investors that KPMG had been unable to
investigate “multiple issues” due to
“obstacles”.
Braun would have none of this, and
sent out his version of the statement
after markets had closed, dismissing the
input from the supervisory board and
from KPMG. When trading opened the
next day, Wirecard’s shares rose 11 per
cent and in their charges against Braun,
prosecutors point to this regulatory
statement as an example of market
manipulation.
Braun’s defence has contended that
Wirecard had promised to submit new
‘A CEO who documents that were likely to change
KPMG’s view, according to people famil-
does not iar with the details, and that an external
notice that lawyer told Braun that the supervisory
board’s suggestions for the regulatory
his most statement were not in line with legal
important requirements.
But when the final KPMG report was
clients are published a week later, the stock fell 26
not real per cent. In an attempt to reassure
investors, Braun told analysts that the
may exist delayed annual audit by EY would not
in fiction be affected by KPMG’s findings: “EY
informed us this morning they have no
but . . . ’ problems at all to sign off the audit”.
The two EY lead audit partners Mar-
tin Dahmen and Andreas Budde
snapped. In an email to Wirecard chair
Thomas Eichelmann, which was seen by
the FT, they pointed out that EY had
given such a statement to Wirecard “at
no point”. Dahmen and Budde urged
the supervisory board to “conduct a
timely review of this matter and con-
sider whether it is required to issue a
corrective statement clarifying the sta-
tus of EY’s audit work”. Internally, EY
evaluated if it was legally entitled to
resign as Wirecard’s auditor, according
to people familiar with the matter.
That audit was never completed and
Wirecard collapsed on June 25.
EY, KPMG and Braun’s lawyer Dier-
lamm declined to comment. Rajah &
Tann did not respond.
compared with Wall Street rivals. How-
ever, costs in its investment bank also
rose more than analysts had expected.
BNP recently closed the disposal of
Bank of the West, which has given it a
bumper war chest for investments and
potential acquisitions at a time when
the bank expects to benefit from rising
European Central Bank interest rates
that will help lift earnings from loans.
The group confirmed it would return
€4bn of the US sale proceeds to inves-
tors through a share buyback this year,
plus another €1bn planned buyback in
2023. Half of the €5bn will be returned
to shareholders in the first six months of
the year, subject to ECB approval.
‘[We’re targeting] small
businesses that are easy to
integrate and . . . can be
brought in-house quickly’
The bank has also earmarked €7.6bn
for spending on its business, including
IT and systems upgrades. A slice of that
would be spent on acquisitions in areas
such as consumer credit, insurance,
equities and, potentially, asset manage-
ment, BNP Paribas chief executive Jean-
Laurent Bonnafé said. “[We’re target-
ing] small businesses that are easy to
integrate and . . . can be brought in-
house quickly,” Bonnafé said.
BNP said it now expected net income
to grow more than 9 per cent annually to
2025, from a previous 7 per cent fore-
cast, and after its profits rose 7.5 per cent
in 2022 to €10.2bn. The Bank of the
West windfall would contribute to gen-
erating an extra €3bn in revenues over
the next two years, with interest rate
increases yielding another €2bn.
BNP’s return on tangible equity, a
measure of profitability, would be more
than 12 per cent by 2025, BNP added, up
from a previous 11 per cent goal.
BNP shares were up more than 2.6 per
cent yesterday. Analysts at Barclays said
its revised guidance was a “positive”
after expenses in the fourth quarter
were higher than expected, including in
the investment bank and extra restruc-
turing costs in its so-called corporate
centre. BNP’s fourth-quarter net
income of €2.15bn was down 6.7 per
cent compared with a year earlier, when
it said one-off items had lifted earnings,
and below the €2.37bn expected in a
Refinitiv poll.
BNP’s fixed income, rates and com-
modities income surged 45 per cent
year on year. That compared with a 20
per cent average rise at other European
investment banks that had reported so
far, according to RBC Capital Markets
analyst Anke Reingen.
In BNP’s French home market, where
local constraints are limiting how
quickly banks can pass on interest rate
rises to households, the lender’s retail
banking revenues still rose year on year.
But costs in the division were higher
than expected, Reingen added.
See Lex

Financials

Carlyle’s new chief set to rake in $180mn if shares double and investor returns are strong
ANTOINE GARA — NEW YORK
Carlyle Group’s new chief executive
Harvey Schwartz stands to make more
than $180mn over the next five years, a
package that would make him one of
Wall Street’s highest-paid executives.
Schwartz, a former Goldman Sachs
executive, will receive up to $108mn in
performance-based stock awards to be
paid in annual instalments should Car-
lyle’s shares rise by a specified amount
over the five-year period, according to a
securities filing.
In addition, Schwartz, whose appoint-
ment was announced on Monday, is
being granted $72mn in restricted stock
awards that vest between 2024 and
2027, contingent on his continued
employment at the New York and
Washington-based investment group.
To earn the full award, Schwartz will
have to meet share price performance
targets that get harder over the five-year
period, with the stock appreciating by
more than double by 2028, according to
the filings. Carlyle would also need to
generate total shareholder returns
higher than 60 per cent of companies in
the S&P 500 index every year.
Schwartz will also earn a $1mn annual
base salary and be eligible for bonuses of
up to $6mn a year. Should he earn the
full amount, his pay would average at
least $40mn a year, more than many
other Wall Street executives, including
David Solomon, the current chief execu-
tive of Goldman Sachs. Solomon earned
$25mn in 2022, a cut of almost 30 per
cent compared with a year earlier.
Succession slowdown
Fundraising dwindled in
interval between leaders
Carlyle Group’s fundraising slowed
sharply last quarter as the absence of
a chief executive deterred some
investors from committing capital to
the private equity group.
The Wall Street group raised $4.9bn
in the quarter, far below what it
achieved earlier in the year and
compared with the $43bn that rival
Blackstone secured from investors
during the same period.
The slowdown underlines how much
is riding on Harvey Schwartz, the
former Goldman Sachs chief financial
officer who Carlyle picked as new chief
executive. The appointment ended a
six-month hunt to replace Kewsong
Lee, who left abruptly last summer
after falling out with the group’s
billionaire co-founders.
As well as investors’ unease over the
absence of a chief executive, the
downturn in global markets and an
industry-wide overexposure of
pensions and endowments to private
equity also hobbled Carlyle’s
fundraising last quarter, according to
people familiar with the matter.
Carlyle, which has almost $400bn in
assets, raised just $600mn for a new,
flagship buyout fund in the quarter.
But the package is worth less than the
$300mn deal former Carlyle chief exec-
utive Kewsong Lee had sought in con-
tract negotiations that broke down last
year, resulting in his abrupt exit. In
August, the Financial Times reported
that Lee was requesting a five-year stock
award that was also heavily tied to Car-
lyle’s stock price, with the full amount
paying out if it doubled.
Carlyle’s billionaire co-founders Bill
Conway, David Rubenstein and Daniel
D’Aniello, who sit on its board, would
not engage in talks on the proposal and
did not respond to the submission, the
FT reported. If Carlyle’s stock stagnates
or falls over the next five years,
Schwartz will be paid substantially less.
The arrangement mirrors stock
awards granted to top executives at rival
private equity groups KKR and Apollo
Global, although it is smaller, reflecting
the fact Carlyle manages less money and
has a lower market capitalisation.
KKR co-chief executives Joseph Bae
and Scott Nuttall were given deals in
December that will, in a best-case sce-
nario, pay out more than $1bn in stock
in a five-year period, filings reveal.
Other firms, including Apollo Global
and TPG, have granted top executives
multiyear stock awards that could be
worth hundreds of millions of dollars.
Carlyle has also agreed to pay
Schwartz up to $19.5mn in stock grants
he will have to forfeit from his former
employer Goldman Sachs. The overall
package can be terminated if Schwartz
is fired. It will also vest within two years
if Carlyle is sold to a competitor.
Wednesday 8 February 2023 ★ FINANCIAL TIMES 7

COMPANIES & MARKETS

Mystery of Americanas’ missing

Financials

GIC reduces
exposure to
billions shakes corporate Brazil fined asset
manager H2O
Financial hole at heart of retail chain has pitted banks against some of the nation’s richest men
ROBERT SMITH — LONDON
BRYAN HARRIS — SÃO PAULO MERCEDES RUEHL — SINGAPORE

Singaporean sovereign wealth fund GIC

With dull fluorescent lighting and
hodgepodge displays of confectionery,
personal care products and cheap elec-
tronics, Americanas stores are a staple
of the Brazilian high street that rarely
elicit much excitement.
Yet since last month a multibillion-
dollar accounting scandal at the centu-
ry-old retailer has gripped corporate
Brazil, ensnaring some of the nation’s
richest men and sparking bitter recrimi-
nations and accusations of fraud.
“For me, it is clear there was fraud,”
said Daniel Gerber, a lawyer represent-
ing 20 minority shareholders in Ameri-
canas, which in January filed for bank-
ruptcy protection after its cash pile
evaporated. The Rio de Janeiro-head-
quartered company declared debts of
R$41bn ($8bn).
“The fraud was malicious. It was a
procedure orchestrated and accepted
by all involved and which generated
fantastic profits for the distribution of
bonuses for years.”
Despite investor anger, much of the
case remains unclear, with investiga-
tors, regulators and shareholders now
attempting to piece together what hap-
pened and how exactly the company
came to report accounting “inconsisten-
cies” of more than R$20bn.
With many shareholders facing huge
losses and tens of thousands of employ-
ees facing an uncertain future, fingers
are being pointed at the company’s
board, auditing committee and auditor
— PwC — for their role in the crisis.
“Certainly the board failed to some
extent. It should have used its power to
be able to dig deeper. For something like
this to have happened on this scale, for
so long, a lot of people must have known
about it,” said André Pimentel, manag-
ing partner of da Performa Partners,
who was involved in a previous restruc-
turing of Americanas.
Fábio Coelho, president of the Associ-
ation of Capital Market Investors, said:
“We should be looking for answers from
those directly involved in approving the
accounting documents.
“If we think this is fraud and all clues
are now pointing in this direction, we
should be asking questions of the audit-
ing company and the audit committee
within Americanas.”
PwC, which signed off on Americanas’
last full set of accounts in 2021, declined
to comment on any aspect of the case.
In response to all allegations of fraud
and accusations that its board and audit
committee had failed, Americanas said
that its board had “as soon as it became
aware of the case, created an independ-
ent committee that is investigating the
facts with complete autonomy”.
It added that “all its bodies [including
the board] are working together with
the objective of maintaining operations
properly and supporting the work of the
independent committee”.
The scandal emerged when, after just
two weeks on the job, chief executive
Sérgio Rial disclosed a multibillion-dol-
lar hole in the company’s accounts and
then promptly resigned.
As the share price plunged, the com-
pany became embroiled in a bitter
fight with creditors, including
Banco Bradesco and investment
bank BTG Pactual, which had
been forbidden by a Rio court
from seizing assets.
Trouble in store: In response, BTG lawyers launched a
century-old broadside against the company’s three
retailer biggest shareholders — billionaires
Americanas was Jorge Paulo Lemann, Marcel Telles and
viewed as an Carlos Alberto Sicupira. The men, who
unexciting own 31 per cent of Americanas, had
business before been “caught with their hands in the
the accounting till”, BTG claimed in a court filing.
scandal emerged After two weeks of silence — and days
last month. after Americanas filed for bankruptcy
Below, Sérgio protection — the men published a note
Rial, revealed saying they had never been aware of any
the hole in the accounting issues and would never sup-
chain’s accounts port any such “manoeuvres”.
two weeks after The trio, the founders of investment
becoming CEO, group 3G Capital (which has no involve-
and promptly ment with Americanas), highlighted
stepped down that the retailer had employed one of
Gustavo Minas/Bloomberg;
Patricia Monteiro/Bloomberg
the “most respected independent audit-
ing firms in the world, PwC”.
Yet analysts believe the scandal will
tarnish the men’s reputations as king-
makers in corporate Brazil. “It raises
questions about the three billionaires.
Could they be doing such a thing at Kraft
Heinz [in which 3G owns a stake] and
others?” said Geraldo Affonso Ferreira,
chair of the advisory board at asset
manager ESH Capital and a corporate
governance activist.
The trio did not respond to a
request for further comment.
Pimentel added: “Everyone in the
market was always hesitant to raise
questions about Ameri-
canas and its execu-
tives, mainly because
they had this trio of
renowned share-
holders.”
Although the
facts are still being established, with the
Securities Commission launching mul-
tiple investigations, it appears from
what the company and Rial have said
publicly that the accounting “irregular-
ity” stemmed from an operation com-
mon among Brazilian retailers.
Banks, such as BTG or Bradesco,
would pay Americanas suppliers in
advance, with the company then
responsible for the repayment of these
loans, including interest payments.
These interest transactions, however,
were effectively camouflaged by the
company, which did not classify them as
financial debts. The practice, which
resulted in higher reported profits, is
believed by analysts and minority
shareholders to have gone on for years.
Established in 1929, Americanas —
which reported a $40mn loss in the
third quarter last year — was long
viewed as an unexciting business. While
its shares soared during the pandemic
due its ecommerce offerings, the brand
found itself in recent years compared
unfavourably with its more socially-
savvy competitor, Magazine Luiza.
The stock has fallen around 85 per
cent since the scandal exploded.
“The Securities Commission needs to
investigate not only the management,
but the reference shareholders, the
auditors and the creditor banks, which,
even if unintentionally, helped to struc-
ture what some are calling the biggest
fraud in the history of Brazilian capital
markets,” said Felipe Pontes, the chief
operating officer of Economatica, a
financial data platform.
He pointed out that last year the com-
‘Everyone pany approved more than R$300mn in
dividends, saying at the time it would
in the not impact the debt position.
market was “This does not include the bonuses
that were distributed — total compensa-
always tion bordered on $1bn to directors in
hesitant to recent years — based on completely
faked numbers,” he added.
raise For Affonso and other corporate gov-
questions ernance activists, the scandal demon-
strated the need to bolster the capabili-
about ties of the Securities Commission,
Americanas known as the CVM, which like many
Brazilian government agencies has been
and its hit by sharp budget cuts in recent years.
executives’ The CVM said that if any illegality was
found “each of those responsible may be
duly held responsible with the rigour of
the law and to the extent applicable”.
Many expect investigations by the
CVM into Americanas to go on for
months, if not years, and few retail
investors are hopeful they can recover
much.
Americanas’ 3,500 stores for now
remain open, but the company’s pros-
pects look bleak. Few analysts are opti-
mistic it can restructure adequately and
many expect it will struggle to obtain
financing following the scandal.
Gerber, the lawyer representing 20
minority shareholders, said he
requested that prosecutors freeze the
assets of all individuals involved in the
scandal. “When we are facing a R$20bn
loss that becomes R$43bn [at bank-
ruptcy], I don’t see how we can’t hold
responsible each and every citizen that
was checking the accounts of the com-
pany,” he added.
Additional reporting by Carolina Ingizza
is cutting its investments with H2O
Asset Management following recent
regulatory sanctions against the
French fund manager.
France’s market regulator last month
levied a €75mn fine against H2O and
banned its founder Bruno Crastes from
managing funds or an investment com-
pany for five years, as punishment for
“serious” rule breaches related to H2O’s
illiquid investments linked to financier
Lars Windhorst.
While H2O amassed more than
€30bn in assets at its peak by attracting
the savings of thousands of retail inves-
tors across Europe, it has also managed
billions of euros on behalf of sovereign
wealth funds. The firm’s two largest
fund investors have long been GIC and
the Abu Dhabi Investment Authority
(Adia), according to people with knowl-
edge of the fund manager’s client base.
GIC has been reviewing its invest-
ments with H2O after the French regu-
lator’s sanctions and has now decided to
start withdrawing its funds, according
to the people. The Singaporean sover-
eign wealth fund is likely to redeem its
investment in stages.
H2O manages billions of euros for GIC
and Adia, according to people with
knowledge of their investments, mak-
ing up a significant chunk of the firm’s
€11.6bn of assets under management. In
a US regulatory filing last year, H2O
reported that it managed $4.19bn of
assets on behalf of sovereign wealth
funds.
H2O said: “As a matter of policy, H2O
AM Group never has and never will
communicate on the identity of its
investors. This is strictly confidential
information and thus the group is una-
ble to confirm, deny or provide any
guidance.” GIC and Adia declined to
comment.
GIC was an early H2O investor, having
first invested in its funds over a decade
ago. The sovereign wealth fund has no
exposure to the illiquid bonds at the
heart of H2O’s regulatory sanctions,
according to people familiar with its
exposure, having invested through its
own segregated funds with additional
layers of monitoring and compliance.
In contrast, investors in H2O’s core
funds open to retail investors had
€1.6bn of savings trapped for more than
two years, after the firm hived off its
hard-to-sell assets linked to Windhorst
into so-called side pockets.
H2O recently returned a fraction of
these frozen funds after the German fin-
ancier made a partial repayment of the
money he owes the firm. The first repay-
ment equated to 10 per cent of the origi-
nal value of the side pocket for H2O’s
flagship MultiBonds fund, for example,
letters to investors last month show.
The Financial Times revealed the
scale of H2O’s investments linked to
Windhorst in 2019. Windhorst, who
shot to fame in Germany as a teenage
entrepreneur in the mid-1990s,
endured a downfall that culminated in
the financier receiving a suspended jail
sentence for “breach of trust” in 2010.
While H2O’s Crastes has relinquished
his positions as chief executive and a
portfolio manager following the French
regulator’s investment ban, he has con-
tinued to play an active role at the firm.
Additional reporting by Andrew England

Aerospace & defence Healthcare

Mitsubishi scraps plan to build short-haul jet
ERI SUGIURA — TOKYO
Mitsubishi Heavy Industries has
decided to abandon more than a dec-
ade’s work on developing a short-haul
commercial aircraft, bringing to an end
a $10bn national project to elevate
Japan’s standing in the global aviation
market.
The decision has been taken as the
industrial conglomerate embarks on a
joint military programme involving the
UK, Japan and Italy to build one of the
world’s most advanced fighter jets by
2035. MHI chief executive Seiji Izumi-
sawa told a news conference yesterday
that engineers involved in the “Space-
Jet” airliner’s development would be
relocated to the fighter jet project.
Investors had been pressuring the
company to terminate plans for the
short-haul jet, with work already halted
since October 2020 owing to the corona-
virus pandemic. Launched in 2008, the
project had struggled long before Cov-
id-19, with repeated delays as a result of
MHI’s lack of industry experience and
frequent change in leadership.
Despite freezing the project, the com-
pany had continued to prepare docu-
mentation to get the 88 to 92 seat plane,
known as the M90, certified. It was sup-
posed to have entered service 10 years
ago. The company had said it would cut
SpaceJet’s budget to ¥20bn ($151mn)
over the three years from the fiscal year
that ended in March 2022, compared
SpaceJet’s engineers will
be relocated to the fighter
jet programme involving
the UK, Japan and Italy
with the ¥370bn the group spent for the
three years before the freeze.
The Japanese conglomerate, whose
businesses include gas turbines, ship-
building, turbochargers, space rockets
and fighter jets, had acquired Bombar-
dier’s regional jet division for $550mn in
2019 to combine it with its own opera-
tions and take on Brazil’s Embraer and
other international groups in short-haul
jet offerings.
The SpaceJet programme, which
received investment from large Japa-
nese companies including Toyota, Sum-
itomo, Mitsui and other Mitsubishi
group companies, represented a high-
profile national endeavour to return the
legendary Mitsubishi name to the avia-
tion market. Japan was forced to aban-
don the sector after the second world
war.
Izumisawa told reporters the project
had been devastated by a collapse in the
market for passenger jets after corona-
virus brought travel to a standstill.
“We could not find enough business
potential to resume development,” he
said, adding that MHI would focus on
the regional jet maintenance service it
acquired from Bombardier.
During the downturn, the company
tried to keep the project afloat using
cash from stronger divisions, such as gas
turbines. That approach became unsus-
tainable as MHI began to focus its
resources on the transition to renewable
energy.
MHI also announced a 68 per cent
year-on-year fall in net profit to ¥12.3bn
for the October to December quarter,
with the recent strengthening of the yen
blamed. Its shares fell 2 per cent.
Illumina lifts US lobby outlay
to resist Grail antitrust move
JAMIE SMYTH — NEW YORK
Illumina has sharply increased its
spending on lobbying over the past two
years as it tries to build support against
antitrust regulators in the US and
Europe that have attempted to block
its $8bn acquisition of cancer testing
company Grail.
The biggest genome sequencing com-
pany and its subsidiary Grail spent a
combined $14.6mn in 2021 and 2022 on
federal lobbying in the US, more than
five times the $2.72mn combined they
spent in the previous two years, accord-
ing to public disclosures.
Illumina was the fourth-largest
spender on lobbying among biotech and
pharma companies in 2022 at $9.4mn,
behind only Pfizer, Roche and Amgen,
which are much larger companies,
found transparency group OpenSecrets.
Illumina’s market capitalisation is
roughly $33bn, about a quarter of
Amgen’s and well below Pfizer’s $246bn
valuation.
The lobbying data includes spending
by Grail, a company that Illumina
acquired in August 2021 but which is
Legal Notices
running as a subsidiary while it battles
an order from EU antitrust regulators
that want to unwind the transaction.
Illumina said it continued to run Grail
separately and had lobbied on a broad
range of healthcare topics.
“Illumina’s mission is to save lives
through groundbreaking technology
and innovation, and our advocacy work
reflects all aspects of that mission.”
The company’s efforts to persuade
regulators that its acquisition of Grail,
which it founded in 2017 before spin-
ning off, is not in breach of antitrust laws
has so far proven unsuccessful.
Illumina has recently contracted
more than a dozen Washington firms to
lobby for it, such as Sidley Austin, DLA
Piper and Dentons Global Advisors. Dis-
closures show they have tried to sway
lawmakers on the Grail acquisition.
Additional reporting by Javier Espinoza in
Brussels
8 ★ FINANCIAL TIMES Wednesday 8 February 2023

COMPANIES & MARKETS

Fixed income. Defaults optimism Crypto

Binance’s
US junk bonds rally as traders dominance of
digital asset
bet on soft economic landing trading grows
SCOTT CHIPOLINA

Binance has taken its largest share of

the market for trading cryptocurrencies
after scooping up most of the business
from defunct rival exchange FTX.
The controversial exchange hosted
55 per cent of the world’s spot crypto
trading in January, a rise of eight per-
centage points since the collapse of FTX
in November, according to data from
research provider CryptoCompare.
Its advances came even though
Binance, led by Changpeng Zhao,
rejected the chance to buy its struggling
rival in the days before FTX filed for
bankruptcy.
Several FTX executives including
co-founder Sam Bankman-Fried face
criminal charges including wire fraud,
and conspiracy to commit commodities
and securities fraud.
The offshore exchange, which claims
it has no formal headquarters, has faced
scrutiny from global regulators over its
activities.
US authorities this month identified
Binance as a counterparty to Bitzlato,
a crypto exchange that Washington
alleges has been a conduit for
laundering money. The exchange said
at the time that it was committed to
working with law enforcement.
Binance said this week that it would
temporarily halt bank transfers in US

‘You saw sharp declines in

Spreads between high-risk
corporate debt and Treasuries
are at lowest for 10 months
HARRIET CLARFELT — NEW YORK
Prices of risky US companies’ debt have
risen sharply this year as investors bet
the Federal Reserve will bring inflation
under control without triggering a
damaging recession.
Yields on US junk bonds — debt sold
by businesses with low credit ratings
— have fallen by more than one
percentage point since the end of 2022,
according to an Ice Data Services index,
trading at an average of 7.97 per cent.
The decline reflects a sharp increase in
prices.
In turn, the gap between junk yields
and those of US government bonds has
narrowed by more than 0.8 percentage
points to less than 4 percentage points —
the first time it has sat below that level
since last April.
The shrinking “spread” implies
waning expectations of debt defaults for
the $1.8tn low-grade corporate bond
market.
It also reflects continued bets that the
Fed will be able to relax its aggressive
tightening of monetary policy sooner
than the central bank has indicated —
reducing the likelihood of a sharp
economic downturn.
“I think the market’s priced for a
soft landing,” said John McClain,
portfolio manager at Brandywine
Global Investment Management. “It’s
been a combination of January
US junk bond spreads over Treasuries are at their tightest
in 10 months
Ice BofA US High Yield index, option-adjusted spread (percentage points)
Apr 2022
Source: Ice Data Services
euphoria, which has led to higher equity
prices, and higher equity prices have
pulled along high-yield credit spreads.”
Evidence of cooling US inflation has
helped to fuel the upbeat mood, with
December’s consumer price index
reading dropping for the sixth month in
a row, down to 6.5 per cent from a peak
of 9.1 per cent in June.
In turn, futures markets are pricing
in expectations that US government
borrowing costs will rise to a peak of 5.1
per cent in July before falling to 4.8 per
cent by the end of the year.
Those bets come even as Fed officials
themselves have indicated that they
expect rates will remain above 5 per
cent in December and after the latest
jobs report signalled a hotter-than-
predicted labour market.
US employers added 517,000 new
roles in January, compared with
forecasts of 185,000, despite the central
bank’s efforts to pour cold water on an
overheating economy.
6.0
5.5
5.0
4.5
4.0
3.5
3.0
Feb
2023
“The macro picture has definitely
improved, with inflation easing
sequentially,” said Kelly Burton, high-
yield portfolio manager at Barings. “The
jobs data alone [suggests] we’re not
heading to a deep recession in the
near-term.”
Burton also highlighted technical
factors driving this year’s junk bond
rally, with spreads and issuance
improving from a weak base.
“We were coming off a year with
hardly any issuance since companies
were able to patiently wait out the
volatility,” she said. “I think it’s more
of that starting point that has
generated interest in [high-yield] as
well as the technical backdrop”.
Dominique Toublan, US head of
credit strategy at Barclays, said 2023
had begun with people having “money
to invest” because they had “been
defensive for quite a long time” and
there was “a little bit of [fear of missing
out] going on”.
After the fall: At the same time, he said, “people
narrowing junk who had been short” — betting against
bond spreads improvements in credit prices —
reflect a belief “decided not to be short anymore, so
that the US they removed hedges”.
Federal Reserve High-yield spreads might continue to
will be able to tighten in the short-term, said Toublan.
relax aggressive But he anticipated them widening later
tightening of this year “quite significantly from where
monetary policy we are”.
sooner than Marty Fridson, chief investment
expected officer at Lehmann Livian Fridson
Stefani Reynolds /AFP/Getty
Advisors, also predicted that the gulf in
yields between junk bonds and low-risk
Treasuries would broaden. “You still
have a lot of signs pointing to recession,”
he said.
Spreads could increase by as much as
two percentage points, Fridson added,
“as that expectation starts to change
from ‘everything’s fine, the Fed’s going
to pivot, we’re going to have a soft
landing’.”
He added: “Historically, the high-
yield market has not really anticipated
recessions very well. [It is] not
unprecedented [for the market to be]
“ignoring the flashing yellow lights.”
For Brandywine’s McClain, the
“conflicting data” of recent weeks
‘January “provides cover for the Fed to continue
along its path of additional rate hikes
euphoria followed by what we believe is a long
and higher pause”.
He estimated that a scenario where
equities the US avoids recession was “becoming
have pulled more and more likely”.
However, he said there was a high
along high- chance that the US economy would see a
yield credit pick-up in inflation later this year,
which could create fresh challenges for
spreads’ the central bank.
Binance’s reserves and a
fear of a run on Binance,
and that didn’t materialise’
dollars, the world’s reserve currency. It
gave no reason for the move.
Last month, the exchange said one of
its banking partners, Signature Bank,
would no longer support crypto
exchange customers buying or selling
amounts of less than $100,000.
The size of the crypto market recently
exceeded $1tn for the first time since the
days before FTX’s November collapse
while the popular digital tokens, bitcoin
and ether, have risen about 40 and
30 per cent, respectively, this year.
Binance’s remaining rivals have
struggled to keep pace. Since FTX’s
collapse, US-listed Coinbase has raised
its share of the spot market by less than
one percentage point to 6.5 per cent.
Kraken and Crypto.com saw falls in
market share during the same period,
according to CryptoCompare. At its
height last summer, FTX controlled
roughly 5.6 per cent of the spot market.
Binance also increased its share of
exchange traded crypto derivatives, in
which FTX had a 4 per cent market
share before its collapse.
Since November, Binance’s portion of
on-exchange crypto derivatives trading
rose from 58 per cent to 61 per cent,
while rival OKX’s portion was flat
Our global between 13 and 14 per cent.
team gives you Ilan Solot, co-head of digital assets at
market-moving Marex Solutions, said: “You saw a
news and views, period of very sharp declines in
24 hours a day Binance’s reserves, prompting a fear of a
ft.com/markets run on Binance, and that just didn’t
materialise.”

Equities Commodities

Latest ETF launches allow investors to Indonesia’s Adaro struggles to secure

track dealing by members of Congress
EMMA BOYDE
Investors who believe that members of
the US Congress have access to infor-
mation that could give them a trading
advantage can now trade two exchange
traded funds that follow members’
stock transactions.
Subversive Capital Advisor, an asset
manager, and Unusual Whales, an
option flow platform and data provider,
yesterday launched the Unusual Whales
Subversive Democratic ETF (NANC)
and the Unusual Whales Subversive
Republican ETF (KRUZ).
The two ETFs, whose tickers are a
play on the names of US politicians on
opposite sides of the political spectrum
— congresswoman Nancy Pelosi, the
former Democratic speaker of the
House of Representatives, and Ted
Cruz, the Republican senator — will also
invest according to political affiliation.
NANC will focus only on equities pur-
chased or sold by members of Congress
who are registered members of the
Democratic party and their spouses, a
filing with the Securities and Exchange
Commission shows, whereas KRUZ will
focus on Republican members and their
spouses. Both ETFs carry a 0.75 per cent
management fee.
“We believe members of Congress
have more information than the rest of
us and if they can trade on that informa-
tion, we should be able to do the same —
and now we can,” said Christian Cooper,
the ETFs’ portfolio manager.
Cooper said the investments made by
members of Congress often outper-
formed the market. In 2021, they out-
performed the S&P 500 by 1.2 percent-
age points but average returns were 17.5
percentage points higher than the mar-
ket last year.
The NANC ticker is named after
congresswoman Nancy Pelosi
Todd Rosenbluth, head of research at
VettaFi, pointed out there was poten-
tially a significant time lag between any
financial transaction and the require-
ment to report it. The Stop Trading on
Congressional Knowledge (Stock) Act
requires mandatory reporting of any
trade worth more than $1,000 but gives
45 days for this to be completed.
But Unusual Whales said back-testing
had shown that the average gap between
the transaction date and the filing date
was becoming shorter and was now
averaging between 10 and 20 days.
Controversy has persisted over con-
gressional trading. Last month a bill was
reintroduced by congressman Chris
Pappas that would in effect ban mem-
bers of Congress and their spouses from
trading individual stocks.
“It’s clear that we must take addi-
tional action to stop insider trading and
prevent conflicts of interest among leg-
islators,” Pappas said at the time.
However, Cooper said he did not think
the bill would pass. “I think the US Con-
gress is so dysfunctional they won’t ban
it [stock trading]. They are more likely
to shorten the disclosure times and
increase the fines,” he said.
funding for $2bn aluminium project
MERCEDES RUEHL — SINGAPORE
Indonesian coal giant Adaro Energy is
struggling to raise money from
international banks to finance a
landmark $2bn aluminium project as
environmental groups accuse the
company and its partner, South Korea’s
Hyundai, of “greenwashing”.
Adaro Minerals, a unit of Indonesian
billionaire Garibaldi Thohir’s Adaro
Energy, is marketing the project in
North Kalimantan province as a
flagship green, renewable development
for the south-east Asian economy —
even though it involves building a
2.2GW coal power plant.
Adaro Minerals listed in January 2022
and was among the world’s best
performing stocks last year — rising
1,595 per cent.
It wants to expand into aluminium
and battery making for electric vehicles
but most of its revenue is still from coal,
helped by higher exports and prices of
the commodity following Russia’s
invasion of Ukraine.
The fundraising plans come as
Indonesia, one of the biggest producers
and exporters of coal and biggest
emitters of carbon, embarks on an
ambitious coal plant retirement plan.
Jakarta in November received pledges
of $20bn in financing from the US and
other developed nations to help wean it
off polluting fossil fuel.
Adaro signed a memorandum of
understanding with Hyundai the same
month to supply the Korean automaker
with aluminium, a deal that the
‘Marketing this as green
is greenwashing given the
first stages will be powered
by a huge 2.2GW coal plant’
companies said would “accelerate” the
transition to sustainable energy.
Adaro Minerals said it planned to
raise $1.1bn in bank loans for the
smelter, being developed in partnership
with Chinese investment group Legend
Holdings.
Global banks that had previously lent
to the Adaro group, including DBS of
Singapore, said they were not involved
in financing the smelter project.
A person familiar with the situation
said the UK’s Standard Chartered,
which continues to work with Adaro,
was also not participating.
DBS and other banks had pledged to
stop funding parent Adaro Energy as
part of climate change commitments.
Adaro has also approached European
banks BNP Paribas, ING and
Commerzbank for loans, according to
two people with knowledge of the situa-
tion. The banks declined to comment.
Environmental groups said Adaro’s
project was not only contrary to the
country’s claims about breaking its
dependence on coal but also shows
Indonesia’s transition away from it is too
slow.
“Marketing this aluminium smelter
as green is greenwashing given the
first two stages will be powered by a
huge 2.2GW coal plant,” said Nabilla
Gunawan, Indonesia campaigner for
climate group Market Forces.
“The Kalimantan project is support-
ing Indonesia’s green economy plan,”
Adaro told the FT. “The main power
source for the industrial park will be
renewables. However, as it takes longer
time to construct, transition to renewa-
bles will be powered by fossil fuel.”
Wednesday 8 February 2023 ★ FINANCIAL TIMES 9

COMPANIES & MARKETS

The day in the markets No early retirement

What you need to know
for inflation risks
3 Wall Street stocks dip as investors
from demographics
await Powell comments
Dax rally stalled by US interest rate fears
3 Fed chair set to address impact of German index up 9% this year
blockbuster jobs report on rates outlook
3 Crude oil rises after earthquake in
Turkey shuts big export terminal
15,500
Rebecca Patterson
Markets Insight
15,000
Wall Street equities saw modest gains
yesterday ahead of a public appearance 14,500

M
by US Federal Reserve chair Jay Powell
when he is expected to address the
implications of last week’s blockbuster 14,000 oderating inflation and retirement age from 62 to 64 are 2.2 per cent on average over 10 years.
jobs report. more benign interest rate evidence of how politically contentious Disinflation optimists will under-
The benchmark S&P 500 rose 0.1 per 13,500 expectations may have it is to address demographic challenges. standably point to Japan’s experience in
cent while the tech-heavy Nasdaq helped boost markets this Only Canada among the larger recent decades to question the link
Composite gained 0.5 per cent. year but there is a more economies seems willing to pull out the between a growing dependency ratio
13,000
Investors are weighing whether the Fed structural risk that remains under- stops to meet labour needs, dramati- and inflation. But it’s important to note
will temper market optimism for interest appreciated: demographic decline. cally raising immigration goals and at least two factors that helped Japan
rate cuts later in the year. 12,500 Policymakers have recently homed targeting half a million new immigrants keep wages and prices low that may not
Data from the US jobs report was far in on challenges stemming from in 2025. Immigration accounts for be replicable in other ageing countries.
stronger than investors expected, raising
12,000
ageing populations alongside shrinking nearly all its labour force growth and 75 First, the Japanese have stayed in the
market concerns that it could lead to a workforces. But so far, their responses per cent of overall population growth. workforce longer, which seems less
higher peak in interest rates. Aug 2022 2023 Feb are woefully inadequate to prevent Without significantly more immigra- likely in other countries where retirees
US government bonds and equities Source: Bloomberg
higher rates of inflation and more diffi- tion, more children, longer working appear content and financially able to
have sold off since the data was released. cult fiscal trade-offs in the years ahead. hours and lives, and/or more technol- remain on the sidelines.
“All eyes will be on Fed chair Powell’s This in turn suggests a greater proba- ogy to increase productivity, we face a Second, Japan was able to increase its
interview at the Economic Club of “Markets are in a holding pattern right energy crisis,” said Capital Economics. bility of higher interest rates as well as combination of lower labour output labour pool in recent decades via over-
Washington, DC,” said Deutsche Bank now,” said Steven Blitz, chief US Frankfurt’s Xetra Dax, which has risen 9 more policy uncertainty that weighs on seas investment and manufacturing
analysts in a note. “Clearly any economist at TS Lombard. “We know that per cent this year on hopes of a milder spending and investments — both a drag that relied on foreign workers — this will
implication that there are upside risks to retail is strong but what will CPI and economic slowdown, slid 0.2 per cent. on cyclical assets including equities. Labour supply trends will be less politically palatable for many
the Fed’s rate outlook would validate the industrial look like?” The FTSE 100 was a standout Demographics are often shrugged off give workers bargaining governments that would rather reshore.
shift in market pricing over the last European stock markets snapped two performer in Europe, up 0.4 per cent after — too slow moving, too far away. So why Beyond inflation, we should
couple of days.” days of selling with the benchmark Stoxx strong earnings from oil major BP. the policy focus now? Like many power in the years ahead expect more difficult fiscal trade-offs
The US Dollar index, which tracks the Europe 600 index up 0.2 per cent. Brent crude, the global benchmark, was economic forces today, it comes back to and support for wages for governments. Policymakers will
currency against a basket of six peers, German industrial output slumped, up 3 per cent and WTI, the US marker, the pandemic. increasingly have to choose between
nudged marginally higher while the yield falling 3.1 per cent against expectations of rose 3.6 per cent after the earthquake in Participation of those aged 55 and reducing expenditure in politically
on the US 10-year Treasury government a contraction of 0.7 per cent. Turkey shut down a big export terminal. older fell sharply during Covid-19, combined with a larger group of sensitive areas such as elderly-related
was flat at 3.63 per cent. “December’s drop could be an initial Asia stocks gained with the CSI 300 stabilising now in the US around 15-year dependants. spending programmes, raising taxes or
Traders were also eyeing the release of sign that, after being fairly resilient index of Shanghai and Shenzhen stocks lows below 39 per cent. This larger than The degree of the demographic accepting wider budget deficits.
the consumer price index as well as throughout last year, German industry is rising 0.2 per cent and Hong Kong’s Hang expected cut to the labour supply challenge can be debated but the risk for In the current polarised state of many
industrial and retail data next week. finally suffering the full force of the Seng up 0.4 per cent. Martha Muir helped push wages up to multi-decade longer term inflation and fiscal policy is countries, reaching any decision will be
highs and left many companies not sufficiently discounted. noisy, to say the least.
struggling to meet production goals. Even without the union participation For markets, these demographic
Markets update The rise in inflation has also put seen in the 1970s, labour supply trends headwinds should result in interest
governments under political pressure will give workers more bargaining rates settling relatively higher.
and central banks have had to pursue power in the years ahead, which should We should also expect higher labour
the fastest tightening cycle in decades to provide sustained support for wages. and borrowing costs to weigh on profit
US Eurozone Japan UK China Brazil bring inflation back towards targets, Further, without an offsetting rise in margins. Sustained higher levels of
Stocks S&P 500 Eurofirst 300 Nikkei 225 FTSE100 Shanghai Comp Bovespa slowing growth. This has left companies productivity, a smaller labour force sug- political uncertainty can also leave
Level 4114.46 1806.33 27685.47 7864.71 3248.09 107723.16 facing increased wage demands even as gests production will struggle to keep up individuals wary on spending. Just as
% change on day 0.08 0.22 -0.03 0.36 0.29 -0.92 the economy slows. with the broader population’s consump- sentiment feeds into equity valuation
Currency $ index (DXY) $ per € Yen per $ $ per £ Rmb per $ Real per $ While policymakers have taken note, tion — an added inflationary dynamic. multiples, more cautious investment and
Level 103.831 1.069 131.245 1.201 6.787 5.189 action so far is unlikely to materially Contrast that picture with signals spending will flow through to earnings.
% change on day 0.203 -0.373 -1.216 0.000 0.060 -0.107 assuage near-term voter unhappiness from trading in US Treasury inflation-
Govt. bonds 10-year Treasury 10-year Bund 10-year JGB 10-year Gilt 10-year bond 10-year bond or longer term economic risks. In protected securities. That implies Rebecca Patterson is a former chief invest-
Yield 3.645 2.342 0.490 3.314 2.895 12.845 France, protests over a push to raise the annual inflation is expected to be about ment strategist at Bridgewater Associates
Basis point change on day 2.140 5.100 -0.470 7.600 -2.400 -14.800
World index, Commods FTSE All-World Oil - Brent Oil - WTI Gold Silver Metals (LMEX)
Level 428.70 83.38 76.74 1873.25 22.38 4127.90
% change on day 0.12 2.95 3.55 -0.11 -4.73 -2.03
Yesterday's close apart from: Currencies = 16:00 GMT; S&P, Bovespa, All World, Oil = 17:00 GMT; Gold, Silver = London pm fix. Bond data supplied by Tullett Prebon.

Main equity markets

S&P 500 index Eurofirst 300 index FTSE 100 index
4320 1840 8000

4160 7680
1760
4000
1680 7360
3840
| | | | | | | | |
3680 | | | | | | | | | | | | | | | | | | | |
1600 | | | | | | | | | | | | | | | | | | | | 7040 | | | | | | | | | | |

Dec 2023 Feb Dec 2023 Feb Dec 2023 Feb

Biggest movers
% US Eurozone UK
Take-two Interactive Software 8.55 Saipem 5.19 Bp 7.95
Skyworks Solutions 8.29 Raiffeisen Bank Internat 5.12 Airtel Africa 3.15
Ups

Fiserv 6.29 Renault 4.05 Bt 2.61

Cinnati Fin 5.79 Wartsila 3.38 Shell 2.36
Activision Blizzard 5.50 Grifols 2.55 Gsk 1.68
%
yte -5.17 Carrefour -5.21 Pearson -2.78
Jacobs Solutions -4.51 Casino Guichard -4.47 Melrose Industries -2.56
Downs

Carrier Global -4.16 Airbus -2.99 Compass -2.31

Ross Stores -2.70 Amadeus It -2.74 Rentokil Initial -2.12
Public Storage -2.69 Carlsberg -2.39 Scottish Mortgage Investment Trust -2.06
Prices taken at 17:00 GMT Based on the constituents of the FTSE Eurofirst 300 Eurozone
All data provided by Morningstar unless otherwise noted.

Wall Street Europe London

Home furnishing retailer Bed Bath & Germany’s Synlab dived following a cut Topping the FTSE 100 index was BP,
Beyond slid as doubts grew about its to its 2023 outlook owing to lower which posted record annual profits and
eleventh-hour deal to avoid bankruptcy. Covid-19 testing volume and prices in set out plans to return more money to
Wedbush analyst Seth Basham argued some of its key markets. investors through a share buyback and
that BB&B’s plan to raise about $1bn The provider of diagnostics and lab boost in dividend.
through the sale of convertible preferred services forecast annual revenue of In the wake of soaring energy prices
stock and warrants was a “last gasp” €2.7bn, down from a previous estimate of last year, the oil major reported an
before the retailer filed for bankruptcy €3bn, with coronavirus testing sales underlying profit of $27.7bn, raised its
protection. expected to reach €50mn in 2023 — way dividend by 10 per cent and launched a
He subsequently cut his price target on below an earlier €250mn projection. $2.75bn share repurchase programme.
BB&B to zero from $1. Another underwhelming outlook The repercussions of a cyber security
Near the top of the S&P 500 index was knocked AMS Osram sharply lower with incident revealed last month pushed
semiconductor group Skyworks the sensor maker forecasting first- Morgan Advanced Materials lower.
Solutions, which announced a new $2bn quarter revenue and operating margin Owing to the breach, the engineering
share buyback programme. below analysts’ estimates. group warned that its adjusted operating
The news took the edge off a slight The Austrian group said demand in its profit for the full year would be 10 to 15
earnings miss for Skyworks’ fiscal first automotive markets remained “muted” per cent below its previous estimates.
quarter. while its consumer and industrial Exceptional costs linked to the incident
Video game group Activision Blizzard, businesses were navigating “weak ranged from £8mn and £12mn,
which is behind such titles as Call of smartphone volumes, negative comprising specialist professional fees
Duty and Candy Crush, rallied off the macroeconomic influences and Covid-19- and expenses associated with recovering
back of fourth-quarter net bookings related impacts in China”. a number of systems.
that beat consensus estimates by almost A softer performance for the current Media investment specialist Ebiquity
13 per cent. quarter weighed heavily on Norwegian rallied following an “encouraging” trading
Education platform Chegg fell sharply chipmaker Nordic Semiconductor, which update, said Shore Capital.
after its 2023 outlook proved forecast revenue of $140mn to $160mn, Revenue last year jumped 20 per cent
“disappointing”, said BMO Capital significantly missing the Refinitiv- while profitability showed “substantial
Markets. compiled estimate of $217mn. improvement”, said the broker, with
Andy Brown, chief financial officer, said: This meant that the group would no Ebiquity achieving an underlying
“The issues of lower enrolment, strong longer hit its $1bn revenue goal for 2023. operating margin of 12 per cent against 8
labour market and inflation impacted the Danish hearing aid group Demant per cent a year earlier.
higher education industry and led to rallied off the back of better than Shore said Ebiquity’s earnings
reduced traffic to education support expected growth in organic sales in the multiples suggested that it was modestly
sites.” Ray Douglas fourth quarter. Ray Douglas valued. Ray Douglas
10 ★ FINANCIAL TIMES Wednesday 8 February 2023

MARKET DATA

WORLD MARKETS AT A GLANCE FT.COM/MARKETSDATA

Change during previous day’s trading (%)
S&P 500 Nasdaq Composite Dow Jones Ind FTSE 100 FTSE Eurofirst 300 Nikkei Hang Seng FTSE All World $ $ per € $ per £ ¥ per $ £ per € Oil Brent $ Sep Gold $

-0.20% -0.03% -0.373% -1.216% -0.336% -0.11%

No change
0.08% 0.36% 0.36% 0.22% 0.36% 0.12% 1.36%
Stock Market movements over last 30 days, with the FTSE All-World in the same currency as a comparison
AMERICAS EUROPE ASIA
Jan 08 - - Index All World Jan 08 - Feb 07 Index All World Jan 08 - Feb 07 Index All World Jan 08 - Feb 07 Index All World Jan 08 - Feb 07 Index All World Jan 08 - Jan 20 Index All World

S&P 500 New York S&P/TSX COMP Toronto FTSE 100 London Xetra Dax Frankfurt Nikkei 225 Tokyo Kospi Seoul
4,114.46 15,320.88 27,685.47
20,606.44
7,864.71 2,395.26
7,724.94 14,792.83 2,356.73
3,895.08 19,857.07 25,973.85
Day 0.08% Month 5.67% Year -8.20% Day 0.03% Month 4.14% Year -2.83% Day 0.36% Month 2.13% Year 3.83% Day -0.16% Month 1.29% Year NaN% Day -0.03% Month 6.59% Year 0.89% Day 0.63% Month 1.83% Year -11.54%

Nasdaq Composite New York IPC Mexico City FTSE Eurofirst 300 Europe Ibex 35 Madrid Hang Seng Hong Kong FTSE Straits Times Singapore
9,172.40
11,930.00 1,806.33
53,754.55 3,380.84
1,771.30 8,694.90 3,292.66
10,569.29 51,730.50 21,388.34 21,298.70
Day 0.36% Month 12.95% Year -14.82% Day -0.94% Month 3.46% Year 4.42% Day 0.22% Month 2.74% Year -0.84% Day 0.14% Month 5.42% Year 6.79% Day 0.36% Month 1.60% Year -13.21% Day -0.15% Month 3.09% Year 1.40%

Dow Jones Industrial New York Bovespa São Paulo CAC 40 Paris FTSE MIB Milan Shanghai Composite Shanghai BSE Sensex Mumbai
27,118.74
7,132.35 3,248.09
33,630.61 33,824.37 109,129.57 6,907.36 60,286.04
108,607.17 25,385.09 3,089.26 59,900.37
Day -0.20% Month 0.58% Year -3.61% Day -0.92% Month -1.05% Year -3.73% Day -0.07% Month 3.96% Year 2.60% Day 0.36% Month 7.61% Year 1.85% Day 0.29% Month 2.86% Year -3.37% Day -0.37% Month 0.66% Year 2.89%

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12
Truth and lies since the dawn of photography
Reality has been bent and
manipulated from the
medium’s earliest days, as a
new exhibition in Oxford
illustrates. By Josh Spero
T
he first thing you see when
you walk into the show
A New Power: Photography in
Britain 1800-1850 is not, in
fact, a photo. It is an oil
painting of a pale man, smartly dressed,
hair combed, with one hand resting on a
small wooden box, the other removing a
cap from the box’s brass lens: he has a
new daguerreotype camera, the first
instrument of modern photography.
While this looks innocent enough, the
picture has the force of a slap: who needs
oil painters, who will trust them, when
you have photographers, accurate,
objective and instant? There’s a reason
the lens looks like a cannon trained on
an enemy. And if the man has removed
the cap, it means he’s taking a photo-
graph: of the artist — and of us. The little
box is coming for you too, dear viewer,
the unknown painter says.
It even came for Queen Victoria, as
this subtle, surprising exhibition at the
Weston Library in Oxford shows. In
1852, she and five of her children sat for
a daguerreotype — produced by expos-
ing to light a chemically treated
silver-plated copper sheet set within a
camera — in the Regent Street studio of
William Edward Kilburn, one of the
entrepreneur-artists who had popped
up to offer their high-tech services to
society. But the photographer caught
the Queen with her eyes closed
(“horrid”, she wrote in her diary) and in
her irritation she scratched her face off
the finished picture, leaving a rather
spooky decapitated figure stroking a
young prince’s head.
With her defacement, Victoria was
only doing in anger what others did on
purpose: manipulating photographs.
The great lesson of A New Power is pre-
cisely the opposite of what the unknown
portraitist presumably feared: photog-
raphy could be anything but accurate
and objective, put to use for propaganda
and profit. What was conceived as a
technology for capturing the world as it
was — art critic John Ruskin said a
daguerreotype was “very nearly the
same thing as carrying off the palace
itself” — became subject to that obscure
mishmash of human motives and emo-
tions which bends reality to desire.
Daguerreotypes were fragile and
expensive, so most of the general public
would not have had access to them; the
main means of transmission was repro-
duction by an engraver in newspapers
and magazines, line drawings accompa-
nied by the phrase “engraved after
daguerreotype” to vouchsafe their accu-
racy. Yet figures could easily be “cut and
pasted” from separate photographs into
a final engraving or reorganised to suit
the artist’s eye. A daguerreotype by
Antoine Claudet’s studio of Lajos Kos-
suth, exiled regent-president of the
kingdom of Hungary, was reproduced
again and again as he fundraised for an
independent Hungary, but subtly
altered: in an 1851 engraving, his hand
lingers on a balcony railing; a year later,
he’s holding a scroll. If anything, photog-
raphy demanded more trust and critical
★ FINANCIAL TIMES
ARTS
Above, from left: portrait of a man
with a daguerreotype camera
(c1845), artist unknown; portrait of
Jenny Lind (1848) by William
Edward Kilburn; an Irish street-
seller from ‘London Labour and the
London Poor’ (1851) — Royal Collection Trust
The camera never
really was impartial, or at
least as impartial as the
human eye is
engagement from viewers right from
the start.
It was not just the rich and powerful
who found themselves at the lens end of
the daguerreotype camera. In journalist
Henry Mayhew’s reporting, collected in
London Labour and the London Poor
(1851), he met those condemned to Vic-
torian England’s lowest professions: rag
salesman, sewer-hunter, barista. “The
struggle to get a living is so great . . . it’s
only those as can get good ‘pitches’ that
can get a crust at it,” says the coffee-
seller in Mayhew’s book, pictured in an
engraving after a daguerreotype, serv-
ing a cup from an urn on his stall. While
the several images from Mayhew’s book
in this show are far from caricatures, we
cannot trust that they are free from
pity either.
Louis Daguerre’s announcement of
the invention of photography in January
1839 quickly drew out his competitors,
who had also invented photography.
Shortly afterwards, English scientist
William Henry Fox Talbot raced to
declare his own process, which he called
photogenic drawing and which used
paper soaked in weak salt water then
brushed with silver nitrate solution,
rather than metal plates, before being
Police series that rewrote the script
UPSTREAM
FIONA STURGES
I
n the end, we never got to see Sarah
Lancashire’s police sergeant drive
off in her Land Rover and embark
on her planned retirement trip to
the Himalayas; it was enough that
she emerged from her last day at work
alive. The final ever episode of Happy
Valley brought the long-awaited show-
down between Catherine Cawood (Lan-
cashire) and Tommy Lee Royce (James
Norton), the violent psychopath who
raped her daughter and drove her to sui-
cide. “We’ve had another bit of a tussle,”
Cawood told her sister Clare (Siobhan
Finneran), which is one way of describ-
ing the face-off in her kitchen that cul-
minated in Royce, already injured with
a stab wound, setting himself on fire.
The popularity of Happy Valley is such
that it could run and run — the first epi-
sode of this third series drew 11.3mn UK
viewers — but its creator, Sally Wain-
wright, is too classy to allow it to outstay
its welcome. When it launched in 2014,
Luther and Sherlock were the UK’s big-
gest crime series — but who needs
brooding male sleuths in statement
overcoats when we have Lancashire in a
hi-vis police vest dispatching local thugs
with an exasperated eye-roll?
With Cawood, Wainwright has given
us a new kind of TV cop, a fiftysome-
thing woman who hasn’t got time for
your nonsense. It’s no wonder the US
detective series Mare of Easttown so bla-
tantly plundered Happy Valley, featuring
as it did a grumpy, middle-aged heroine
grieving a dead child and left alone to
raise her grandson.
All credit to Wainwright, too, for cre-
ating a three-dimensional monster in
Royce, the kind of man who pauses to
admire a view while fleeing police
following an audacious escape in the
middle of a court appearance. Royce
had wanted his son Ryan, born from the
exposed. He soon refined this further
into the calotype process, which needed
a shorter exposure.
He did not refine it quite far enough.
In 1846 the Art-Union journal asked
Talbot for 7,000 prints based on calo-
type negatives to be glued into an edi-
tion opposite an essay about his process;
Talbot and his former valet, now photo-
graphic printer, Nicolaas Henneman,
quickly produced them, but they
equally as quickly faded. If I say there’s
nothing worth seeing in the three exam-
ples on display here, it is not meant as
a criticism: the thin washed-out pillars
of a gothic building in one of them tes-
tify to Talbot’s technical failure and
consequent financial calamity. In the
last 30 years of his life, he did not take
another photograph.
But what he had enabled, the world
saw. At the Great Exhibition of 1851,
where exhibitors from all corners of the
British empire and beyond gathered
their finest commodities in London’s
Hyde Park, the official photographs
Above right: an
1852 engraving
of Lajos
Kossuth, exiled
Hungarian
leader. Right:
Queen Victoria
disliked this
1852 portrait of
her with five of
her children, so
she scratched
out her own face
rape of Cawood’s daughter, to go on the
run with him in Spain. But, after break-
ing into Cawood’s house, he realised that
she had given Ryan a secure and loving
home — something that he, the child of
an addict, never experienced. If, by
acknowledging this, Royce was offering
Cawood an olive branch, she was in no
mood to accept it, calling him a
“fucked-up, frightened, damaged,
deluded, nasty little toddler brain in a
big man’s body”.
One of the joys of Happy Valley is its
quiet subversion of cop show clichés.
‘Happy Valley’ gave us a
new kind of TV cop, a
fiftyish woman who has
no time for your nonsense
Has there ever been a slower car chase
than the one in which Cawood tailed her
sister as she took Ryan on a sneaky trip
to visit Royce in jail? All remained com-
fortably within the speed limit, yet the
tension was real. It has also allowed us to
bask in dialogue that combines the pro-
found and the mundane, such as when
Catherine delivers an impassioned
speech to Ryan about his father’s psy-
Wednesday 8 February 2023
were taken using Talbot’s calotype proc-
ess. A striking photo of a cabinet of
feathers, all abstract curls, anticipates
Man Ray’s Surrealist images by 70 years.
The camera’s use in such an imperial
project, as well as to illustrate “anthro-
pological” essays about the quaint or
outraging customs of imperial subjects,
shows it could also be a tool of ideology:
abusable like any technology, but per-
haps all the more disappointing (and
powerful) because of its implicit prom-
ise of impartiality.
It never really was impartial, though,
or at least as impartial as the human eye
is. It was capable of stirring documen-
tary, such as the massive crowds at a
Chartist rally for political reform in
1848, in surprisingly finely detail, top
hats and banners all discernible, and of
ravishing, radiant works of art, as in
Edward Kilburn’s portrait of Swedish
opera singer Jenny Lind, who is cap-
tured in person and in reflection, the
mirror acknowledging the constructed-
ness of the situation, the house of
images the camera created. The house
of images we still live in today.
To May 7, bodleian.ox.ac.uk
chopathic tendencies, and he responds
by telling her his tea will be getting cold.
“What you having?” she asks. “Stew,” he
replies. “That’ll be all right,” she says,
before resuming her lecture.
These moments of levity are a coun-
terweight to the darkness and dread
elsewhere, seen in a PE teacher deliver-
ing sadistic beatings to his young wife
and a crime lord visiting brutal revenge
on a lackey who has cost him money. If
there has been one mis-step, it’s in the
character of Faisal (Amit Shah), a nervy
pharmacist whose dealings with a
diazepam-reliant neighbour took a
grisly turn and whose Mr Bean-style
bumbling struck a cartoonish note in a
series celebrated for its realism.
As ever, the standout performance
comes from Lancashire, playing
Cawood as a beacon of forbearance and
survival, for which she has already been
festooned with awards; on the strength
of this final outing, she will doubtless
bag a few more.
As Cawood put it earlier in the series,
sardonically using police-speak for
going off-duty: “I’m the best copper that
ever lived but, code 11, job done.”
On BBC iPlayer in the UK now. Season 3
will debut on BBC America, AMC+ and
Acorn TV in the US in May
Job done: Sarah
Lancashire
played Catherine
Cawood as a
beacon of
forbearance and
survival
Wednesday 8 February 2023
FT series. Focusing on a strip of countries from Mali to Sudan, Moscow is challenging the west with an
anti-colonial message and opening what some call a ‘second front’. How long can the strategy work?
t Saint André’s Orthodox
cathedral in Bangui, capital
of the Central African
Republic, Regis Saint Clair
Voyemawa, the monsignor,
h a s s w i t c h e d a l l e g i a n c e f ro m t h e
patriarchate of Constantinople to that of
Moscow.
Ru s s i a f u n d e d t h e re s t o r a t i o n o f
frescoes and a new facade for his dilapi-
dated cathedral and paid for Voyemawa
to spend three months in Moscow last
year. It donated $6,000 to build a school
c l a s s ro o m w h e re 6 0 c h i l d re n , a l l
orphans from the country’s civil war,
re ceive basic Russian language
classes. Several small children recently
s a t b e f o re a b l a c k b o a r d re p e a t i n g
“ d o s v i d a n i ya , p a p a ; d o s v i d a n i ya ,
maman”, while others wrote “spassiva”
on personal chalkboards.
The Russian influences at the cathe-
dral are more than just an exercise in
cultural outreach: they are part of the
growing influence that Moscow now
wields over the political and economic
life of CAR, one of the world’s poorest
and weakest states.
This relationship is the most striking
example of how effective Moscow has
been in parts of Africa with a cut-price
strategy that mixes propaganda, arms
sales, mining activity and mercenaries.
Russia’s presence in the country
includes some 1,500 masked paramili-
taries from the now infamous Wagner
Group, gold and diamond operations,
and even a small distillery producing
15 cent sachets of Wa Na Wa vodka with
the logo of a rhino and the tagline:
“Made in the Central African Republic
with Russian technology.”
One senior western diplomat in CAR
des
esccribes the country as a “Petri dish”
for Moscow’s African ambitions. “There
is a hybrid war going on,” the diplomat
says. “And we are in it.”
In Europe, Vladimir Putin’s invasion
of Ukraine has been a humiliating and
costly disaster for the Russian state. The
w e a k n e s s e s o f i t s a r m y h av e b e e n
ex p o s e d a n d t e n s o f t h o u s a n d s o f i t s
troops have been killed. Sanctions have
cut Russia’s economy off from many
international markets and technologies.
But in Africa, Russia has been making
dramatic inroads. Even in the year since
Russian troops poured into Ukraine,
Moscow has notche d up further
successes on the continent.
Helped by a volatile mix of jihadist
terror, anti-French sentiment and coups
d’état, it has succeed eededed in challenging
western influence and establishing what
a senior adviser to Emmanuel Macron
calls “a second front” in Africa. “It’s
about weakening Europe and opening a
f ro n t w h e re E u ro p e a n d Fr a n c e a re
perceived as fragile,” he says.
Samuel Ramani, at think-tank Rusi
and author of a forthcoming b o ok on
Ru s s i a i n A f r i c a , s a y s Mo s c o w h a s
focused on a strip of countries running
from Mali to Sudan. “They think they
can build a ‘coup belt’ to give them influ-
ence and crowd out the west,” he says.
In what Ramani characterises as the
culmination of a long game dating back
to the Soviet era — but one that acceler-
ated since Putin regained the Russian
preesid
pr sidenc
encyy in 201
20122 — he sa say
ays Mosco scoww
has employed a “shadowy army of
powe
owerr-projection tools” to carry out
“hybrid interventions”.
These tools, Ramani says, combine
“counterinsurgency ope perrations, arms
sales, autocracy promotion and soft
power”. In employ oyiing them, he con-
cludes, Russia has become “a continent-
wide great power”.
Ru s s i a’s g a i n s, c o n c e n t r a t e d i n
francophone Africa, have come mostly
at France’s expense. Anti-French senti-
ment has reached boiling point in sev-
eral former French colonies, where its
military interventions have backfired
and its diplomats and businesses are
accused of neo-colonial meddling. Rus-
s i a n p ro p a g a n d i s t s h ave b e c o m e
experts at twisting anti-French senti-
ment into at least the semblance of a
pro-o-MMoscow upswell in public opinion.
Sylvie Baïpo po--Temon, CAR’s French-
e d u c a t e d f o re i g n m i n i s t e r, s e e s a
connection between France’s perceived
mistakes and Russian successes. She
blames France for failing to pacify the
c o u n t r y u n d e r a p re v i o u s m i l i t a r y
intervention, Operation Sangaris, that
ended abruptly in 2016.
Russia “graciously offered to make
weapo pon ns aavvailable,” she ssaays ooff subse-
quent negotiations. The last contingent
of French soldiers left the country last
month: “As nature abhors a vacuum,
Russia has arrived.”
‘Look opportunistically’
Putin first dramatically unveiled his
African ambitions in October 2019,
w h e n h e h o s t e d 43 A f r i c a n h e a d s o f
state at the first Russia-Africa summit in
S o c h i . S i n c e t h e n , c o u n t r i e s, f r o m
CAR to Mali and from Burkina Faso to
Sudan, have been pulled closer into
Moscow’s orbit.
“ Ru s s i a h a s b e e n s p e c t a c u l a r ly
★ FINANCIAL TIMES
FT BIG READ. RUSSIA IN AFRICA
By David Pilling and Andres Schipani
A child learns
how to say
‘goodbye’ in
Russian at his
Bangui school,
built by Russian
money
Barbara DeBout/FT
A new sphere
successful,” says Peter Pham, US special
envoy to the Sahel in the Trump admin-
istration and now at the Atlantic Coun-
cil. “Their diplomatic approach to the
re g i o n i s t o l o o k o p p o r t u n i s t i c a l ly
of influence
where, for very little cost, they can poke
at the west.”
Moscow has poked particularly hard
in the Sahel, a politically unstable strip
of semi- de sert running b eneath the
Sahara. In several countries that are
acquired on fighting jihadist insurgencies, coups
have installed military governments
a n t a g o n i s t i c t o Fr a n c e a n d o p e n ly
sympathetic to Moscow.
In September, Abdoulaye Maiga,
the cheap
interim prime minister of Mali’s mili-
tary government, used a spee peecch at the
UN to denounce the “French junta” and
to praise “the exemplary and fruitful
co-operation between Mali and Russia”.
In the same month, generals in Burkina
Faso seized po powwer for a sec ecoond time in
eight months, an event marked by dem-
Fatalities involving Wagner in the ‘coup belt’ onstrators waving Russian flags on the
streets of Ouagadougou, the capital.
300 50 5 In Sudan, another unstable country,
Moscow has cultivated close ties with
Lieutenant General Mohamed Hamdan
Dagalo, better know own n as Hemeti, the
number two in the administration that
e m e r g e d f ro m a 2 0 1 9 c o u p t o o u s t
former dictator Omar al-Bashir.
Ru s s i a n c o m p a n i e s o p e r a t i n g i n
Sudan profit from illegal gold exports,
MALI SUDAN according to the US Treasury, ship-
S a ments of which have increased since
h e l
Bamako Russia’s invasion of Ukraine. Moscow
has also won agreement in principle for
military access to Port Sudan, a strategic
BURKINA CENTRAL chokepoint on the Red Sea. Yevgeny
FASO AFRICAN
Prigozhin, Wagner’s founder , has
denied any connec tion to mines in
Bangui REPUBLIC Sudan and CAR.
Russia’s most stunning success has
c o m e i n M a l i w h e re C o l o n e l A s s i m i
Source: Acled Data is for the period Jan 2019-Jan 2023 G oita, leader of the military junta, is
© FT following the CAR playbook. He too has
contracted Wagner mercenaries to fight
insurg
ins urgent entss, in MalMali’
i’ss cas
casee aff
affili
iliate
ated d to
al-Qaeda and Islamic State. France’s
ambassador was exp elle d in 2021 .
F r e n c h t r o o p s, w h o i n t e r v e n e d i n
2013 at Bamako’s invitation to fight
Islamists, withdrew to neighbouring
Niger in August.
“Three countries were already taken
out of French control — CAR, Mali and
B u r k i n a Fa s o,” c r o w e d a p o s t o n
Colonelcassad, a pro-Russian channel
o n Te l e g r a m , t h e m e s s a g i n g a p p.
“Macron is effectively presiding over the
c o l l a p s e o f t h e Fre n c h n e o - c o l o n i a l
empire in north-west Africa . . . Niger
and its uranium mines are next.”
As the dominoes fall, a senior French
official who helps mould France’s Africa
strategy does not dispute Russia’s
Regis Saint Clair Voyemawa at Saint André’s Orthodox cathedral in Bangui. succes esss. “Mali, CAR and Burkina have
Moscow funded the restoration of the dilapidated building — Barbara Debout/FT failed in their attempt to face down the
challenge of terrorism,” he said, speak-
ing on condition of anonymity. “Wagner
has come as the new game in town.”
West caught unaware
Russia’s success in Africa has blindsided
the west, which had been more focused
on the inroads being made by China. As
recently as 2021, Tibor Nagy, former US
assistant secretary of state for African
affair
aff airss, tol
told d Ram
Ramani
ani thathatt Wash ashing
ington
ton
“viewed China as the Great Dane and
Russia as the little Chihuahua” on the
continent. Yet although Russia-Africa
trade was only $15.6bn in 2021, accord-
ing to the IMF — a fraction of the $254bn
between China and Africa — Moscow
has exerted an outsized influence.
Russia’s strategy has bee beenn bobollstered
by Putin’s broader propaganda agenda
o f p o r t r ay i n g Ru s s i a a s a b u lw a r k
against the adventurism of the west in
countries such as Iraq and Libya.
Putin’s “anti-colonial” message, artic-
ulate d in a Septemb er sp e e ch to cele-
brate the annexation of Ukrainian terri-
t o r y s e i z e d b y R u s s i a n t r o o p s, h a s
resonated in countries where suspicion
Russia in Africa
This is the first part in a
series which will also look at
Moscow’s propaganda and
control of resources in Africa
of former colonial powers runs deep and
n o s t a l g i a f o r t h e S ov i e t Un i o n s t i l l
flickers. In March, 25 African countries
e i t h e r a b s t a i n e d o r re f r a i n e d f ro m
voting in a UN resolution to condemn
Russia’s invasion of Ukraine.
Not everything has gone Russia’s
way. In Mozambique, where ties with
Moscow from the Soviet era run so deep
that the national flag features a Kalash-
nikov, Wagner quit the country in 2021
after five of its men were killed by Islam-
ist militants in a bungle d op eration.
“They came in all dressed as robocops,
with Go-Pro cameras and all kinds of
fancy gear,” says a senior Mozambican
defence official. “They got their arses
handed to them.”
In South Africa, Russia still has close
ties to the ruling African National Con-
gress, which has refused to condemn the
invasion of Ukraine. Still, Moscow’s
attempts to clinch a $70bn nuclear deal
fell foul of South Africa’s courts and
petered out when Jacob Zuma — who
trained in the Soviet Union — was forced
out of the presidency in 2018.
More recently, Russia’s effort to win
friends through “vaccine diplomacy”
backfired when promised doses failed to
materialise and African officials
complaine d that the Sputnik vaccine
against Covid-19 was more expensive
than western counterparts.
13
Still, Russia has had more successes
than failures. Its inroads into CAR, a
virtual “client state” of Moscow, accord-
i n g t o F r e n c h o f f i c i a l s, r e v e a l s i t s
preferred modus operandi.
A model in CAR
O n e o f t h e p o o re s t c o u n t r i e s i n t h e
world, CAR’s state is so fragile that rebel
groups control parts of the country.
Its president, Faustin-Archange Touad-
é r a , o w e s h i s s u r v i v a l t o Wa g n e r
mercenaries who helped put down an
attempt to overthrow him before elec-
tions in 2020. Today, they provide one of
the rings of his personal security. “It’s
not just that they are his close protec-
tion, he is a hostage,” says a western
diplomat in Bangui.
Russia first saw its chance in CAR in
2017 after a proposed deal by France to
supply CAR’s embattled government
with AK-47 assault rifles seized from
Somalia fell through after Moscow itself
opposed the transfer. President Touad-
éra, who met Sergei Lavrov, Russia’s for-
eign minister turned instead to Russia
for weapons and military instructors.
“For a couple of million dollars worth of
weapons they’ve essentially acquired a
government,” says Pham.
T h e w e s t re p e a t e d t h e m i s t a ke i n
M a l i , s ays P h a m , w h e n t h e U S s t a t e
department vetoed the sale of an Airbus
transport plane fitted with a US-made
transponder. Mali’s foreign minister
flew to Moscow to see eekk an alternative.
“ T h ey s h owe d h i m p l a n e s a n d a d d i -
tional services and that’s how Wagner
got in,” he says.
I n C A R , Ru s s i a q u i c k ly s e t u p a
c o m m a n d c e n t re a n d t r a i n i n g b a s e
about 80km from Bangui. Mercenaries
from Wagner and other Russian private
military companies, plus Rw Rwaandan
soldiers, have since been credited with
restoring a degree of order.
‘For the Russians, this
country is El Dorado.
There is no state. There
are no borders. There are
no controls’
“Since they came here, there is calm,”
says Gaultier Koumboti, supervisor at
the recently opened Russian Cultural
Centre in Bangui.
Russia’s presence goes well beyond
the military. During a recent reporting
trip to Bangui the capital, the FT saw
evidence of cultural and commercial
power too.
Touadéra has introduced Russian as a
compul
com pulsor
soryy lan
langua guage ge at uni
univverersit
sitie
iess,
alongside Sango and French. In May
CAR became only the second country
after El Salvador to make bitcoin an offi-
cial curre renncy, a move — in a country
with only 10 per cent internet penetra-
ay,
y,
tion — that analysts suspect provides a
way of bypassing financial sanctions
against Russia.
Russia is also shaping the political
landscape. Diplomats report a heavy
Wagner presence, in fatigues and civil-
ian clothes, at government ministries.
In CAR, as elsewhere in Africa, Russia
may do things on the cheap but it does
extract a price. Aside from a well-docu-
mented stint collecting customs reve-
nue on the border with Cameroon, the
US Treasury says that Wagner controls
“numerous” gold and diamond mines in
CAR and has even denied access to gov-
ernmen
ern mentt off
offici
icialsals trytrying
ing to ins
insp pect its
mining operations.
A UN group of ex exp p erts in 2021 con-
cluded that 95 per cent of gold mined in
CAR was exported illegally. Some of it
f l ow n v i a a i r s t r i p s i n n e i g h b o u r i n g
Sudan, analysts, western diplomats and
security officials say, where Hemeti, the
military leader with close Russian ties, is
heavily involved in the mining sector.
“For the Russians, this country is
El Dorado,” says a senior defence officer.
“There is no state. There are no borders.
There are no controls.”
Still, Russia’s victories on the conti-
nent may already have reached their
high watermark. Analysts says Russian
tactics wo worrk best in states with weak
institutions: in Mali, where the state is
somewhat more robust, Wagner has not
persuaded authorities to hand over gold
and other mining concessions, they say.
In contrast to just a few years ago,
when the strategy in Africa was starting
to unfold, Russian act ctiivity stands little
chance of flying under the radar. Last
month, the US designated Wagner a
“transnational criminal organisation”.
Lavrov’s tour of four African states
last July was swiftly followed by a flurry
of visits by senior US officials, including
Antony Blinken, US secretary of state,
and Janet Yellen, treasury secretary,
who spent 10 days in Africa in January.
The wewesstern diplomatic response,
says Ramani, is a clear sign of the “ero-
sion of Russia’s stealth advantage”.
Additional reporting by Aanu Adeoye
Cartography by Steven Bernard
14 ★ FINANCIAL TIMES Wednesday 8 February 2023

The FT View
The puzzle of the US economy leaves investors befuddled
Despite mixed data, the Fed
needs to remain steadfast in
getting inflation down
Financial markets got off to a rip-roar-
ing start to 2023. Equities, bonds and
even bitcoin rallied in January. Emerg-
ing markets, shunned during the pan-
demic, also saw big inflows. The risk-on
appetite hinged on expectations for a
“soft landing” in the US: speedy disinfla-
tion, without a recession. Investors were
brought back down to earth on Friday as
the US reported strong job numbers,
which raises the prospect that inflation
could be stickier than expected and the
Federal Reserve pushes interest rates
higher for longer. Investors are befud-
dled. Until a clear narrative on how the
economy will fare emerges, markets will
continue to whipsaw.
Markets were initially buoyed by
signs of easing price pressures in the US:
ft.com/opinion headline inflation has been dropping
from its highs since the summer and the
Fed’s rate rises were beginning to cool
interest rate-sensitive areas of the econ-
omy. Investors did not buy into the Fed’s
narrative that monetary policy needed
to do more heavy lifting before price
growth would come under control. They
had priced in a lower terminal rate and
cuts later this year — even after the Fed
raised rates by 25 basis points last week
and warned of more to come.
After employment figures showed the
US gained 517,000 jobs in January, much
higher than anticipated, with unem-
ployment at a 53-year low, markets
moved closer to the Fed’s line and sold
off. After all, solid jobs growth points to
a still red-hot labour market, which will
sustain price pressures. But markets are
still digesting what it means for the US
economic outlook, with a hard, a soft,
and even a “no landing” scenario on the
table, which have varying implications
for investors and their positioning.
For some, the “soft landing” narrative
remains intact. Sturdy jobs numbers
alongside a slowdown in annual earn-
ings growth — which reached a 17-
month low of 4.4 per cent — suggest dis-
inflation could be achieved without a
notable uptick in unemployment. The
employment cost index, which is closely
correlated with underlying services
inflation — a metric the Fed is monitor-
ing — also softened recently. In this sce-
nario, the Fed need not raise rates much
further, and could even cut rates before
the close of the year. But there is also dis-
comfort that bumper jobs growth, and
resilience in the service sector, could
point to a “no landing” in which the
economy does not slow and inflation
and interest rates reach new heights.
Others are more alert to a “hard land-
ing”. Indeed, economic activity is weak-
ening more broadly: forward-looking
indicators of the US manufacturing sec-
tor suggest it may already be in reces-
sion, while recent housing market and
retail data show frailty. If wage growth
fails to subside, the Fed may need to
push the cost of credit even higher,
Markets are still making an accelerated slowdown in the
digesting what US economy even more likely. But
equally, weakness across the economy
strong jobs
and faster pass-through of previous rate
growth means, rises could more rapidly drag down both
with a hard, a growth and inflation.
soft, and even Financial markets are finding it hard
a ‘no landing’ to price in all these risks. Conflicting
scenario on views mean asset prices will be particu-
larly sensitive to new data and com-
the table ments by Fed officials. For investors, the
surprising jobs numbers highlight the
risks of taking aggressive positions
when uncertainty remains high — and of
cherry-picking data to fit a narrative.
Making sense of the US economy after
recent shocks requires a degree of
humility. The Fed, meanwhile, needs to
remain steadfast in its aim to get infla-
tion back down to target and ensure its
communications are clear, at the same
time remaining alive to financial stabil-
ity risks as markets oscillate and reprice
positions. Whether the landing for the
US economy is soft or hard, there will be
plenty of turbulence on the way there.

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option for fossil fuel profits It’s time to demystify university spinouts
Andy Carter
nology has struggled to get off the
Pilita ground for decades, in part because it
would extend the life of fossil fuels
Clark that should ideally be replaced by
cleaner alternatives. But this tech-
nology is on track to mushroom any-
The debate about academic spinout
companies is incredibly significant for
UK research and innovation (The Big
Read, January 31). There may be
different views when it comes to issues
such as equity splits, but it is in
everyone’s best interests to optimise
the conditions for growing more
commercially successful spinouts.
Spinning out is a method of research
commercialisation that enables
academics to contribute to local
economic growth and employment
opportunities. The most recent annual
Spotlight on Spinouts report illustrated
England has long wrestled
with a land ownership levy
Despite Martin Wolf’s despair at the
power of England’s landowners, a land
value tax is possible (Opinion,
February 6)
that while half of all start-ups only
lasted five years, the average age of a
spinout was almost nine years,
demonstrating the value these
companies add to the wider economy.
But despite record levels of
investment in spinouts, these
businesses only represent 3 per cent of
high-growth companies in the UK. We
need to reduce the barriers to spinning
out and enable these companies to
grow. One point is very clear: there
needs to be improved transparency on
equity policies from the outset.
The Royal Academy of Engineering’s
Entrepreneur’s Handbook aims to
demystify the spinout process and is
informed by the lived experiences of
many academic entrepreneurs and
feedback from other key stakeholders,
including investors and university
technology transfer offices.
Where different parties disagree
about other barriers and enablers, a
proper public in-person debate should
be had to identify a way forward that
benefits everyone.
John Lazar
Chair, Enterprise Committee, Royal
Academy of Engineering, London SW1, UK
War’s too important to be
left to generals, FDR said
US air force general Mike Minihan’s
prediction about a war with China in
2025 —“my gut tells me” — is reckless,
and undermines civilian authority
Money won’t magic away a
health crisis, but it can help
What a relief to read Martin Wolf’s
wise words that changing the funding
of the NHS is magical thinking
(Opinion, January 23).
All healthcare systems in the
developed world are struggling in
similar ways to manage Covid, ageing
and long-term chronic diseases such as
heart disease, strokes, diabetes and
cancer. Massive political and
organisational upheaval, as Wolf says,
would achieve few benefits. However,
he is not correct in saying the health
crisis in this country lies in the plight of
the NHS. About 80 per cent of the
explanation for our poor health
comes from where and how we live,
with the main risk factors being what
we eat and drink, how physically active
we are as well as the risks of smoking
and alcohol.
Here, the UK has particular
problems. We are not alone among
developed countries in having
experienced an increase in income

I
n the past two weeks, Exxon-
Mobil, Chevron, BP and Shell
have reported their combined
annual profits for 2022 added up
to a record-crushing $160bn.
That’s a sign of the astonishing pay-
off oil companies have had from soar-
ing energy prices driven by Russia’s
invasion of Ukraine. And as govern-
ments grapple with the cost of living
aftershocks, plus rising climate
change concerns, there are predicta-
ble demands for tougher windfall
taxes. But is that really the only
option? Or should we be seizing the
chance to make more far-reaching
policy shifts?
One idea that British academics
have been pushing for years is gather-
ing pace. It would make fossil fuel
companies pay to clean up their car-
bon emissions in a way that would
create a safer climate at a relatively
‘Carbon takeback’ would
make companies clean
up their emissions at a
relatively affordable cost
affordable cost. This so-called “carbon
takeback obligation” would not
require carbon taxes or direct tax-
payer subsidies and a version of it
made it into last month’s weighty UK
government net zero review by Con-
servative MP Chris Skidmore. Some in
Westminster would like to include the
measure in an energy bill making its
way through parliament.
It’s by no means clear this will hap-
pen but if it did, this is how it could
work. Companies that extract or
import fossil fuels would have to
arrange for a percentage of the carbon
dioxide generated by the products
they sell to be permanently stored
deep underground. That percentage
could start off at around 1 per cent and
rise to 10 per cent by 2030, which
advocates say would add just a few
pence to the cost of supplying a litre of
petrol. The percentage would eventu-
ally rise to 100 per cent by 2050, trans-
forming the prospect of reaching net
zero.
Carbon could be captured initially
from cement plants or factories, and
oil companies would not have to store
the CO₂ themselves. The idea is that a
market based on tradable carbon stor-
age certificates would develop, which
would help to reduce costs.
The plan is by no means perfect.
Carbon capture and storage tech-
way, thanks to provisions in last year’s
US Inflation Reduction Act that boost
the availab-ility of tax credits for car-
bon capture projects.
Also, climate scientists have gradu-
ally reached the conclusion that some
forms of carbon removal will eventu-
ally be needed to meet the goals of the
2015 Paris Agreement that is sup-
posed to prevent disastrous levels of
global warming. That’s because cut-
ting emissions from sectors such as
aviation is going to be hard, and
because the world is set to overshoot
its carbon budget so much that some
CO₂ will need to be removed from the
atmosphere to ensure a stable, cooler
climate.
This has bolstered interest in direct
air capture companies that suck car-
bon dioxide out of clean air rather
than clouds of factory pollution. But
none of these developments guaran-
tee that global emissions will fall as
quickly as they must. “And also, why
should cash-strapped taxpayers pay
for this when the industry is making
out like bandits?” says Oxford univer-
sity’s Professor Myles Allen, who has
spearheaded the carbon takeback
idea.
That is an important point. So too is
Allen’s insistence that an idea like car-
bon takeback can never be a replace-
ment for all climate change policies.
“It’s a backstop policy,” he says. “It
guarantees that no matter what hap-
pens to other costs — if renewables
don’t work out as cheap as you hope or
if fossil fuels suddenly get cheaper
than expected — you still make sure
that you get to net zero at the date
you’ve set.”
When Allen was first writing about
the carbon takeback idea in 2009, crit-
ics understandably told him that fossil
fuels should be phased out entirely.
This has not happened and, mean-
while, emerging market countries
have become more insistent that they
should have the right to exploit their
own fossil fuel reserves. A carbon
takeback obligation would still allow
that, as long as the resulting carbon
emissions were safely disposed of.
Ultimately, the world is running out
of options. Last October, experts pub-
lished a report assessing progress on
40 of the big shifts needed to limit glo-
bal warming to 1.5C, from phasing out
coal-fired power plants to curbing
deforestation. Of those 40 indicators,
the number currently on track to do
what is needed is precisely zero. We
need to do much more, much faster
and that means looking at policies we
might otherwise wish we could ignore.
pilita.clark@ft.com
Ramsay MacDonald’s minority
Labour government enacted such a tax
in 1931, although it was never
implemented.
The Liberals had previously tried in
1909 but were thwarted by the (Land)
Lords — hence the Parliament Acts
which curbed the Lords’ ability to
stymie finance bills.
A land value tax was included in all
Labour manifestos until the second
world war. Thereafter the Labour party
only sought to capture the rise in land
value when permission for a higher
value use was granted — in effect, a
development tax which discourages
development.
The current infrastructure levy and
section 106 agreements — a measure in
England’s planning laws which obliges
developers to mitigate the impact that
any development would have on a local
community — are both also forms of
development land tax.
When LVT next appeared in Labour’s
2017 manifesto, the “Tory press” ran
headlines about “a garden tax” the
week before polling — claiming
house prices would plunge and taxes
would treble!
According to Guy Shrubsole’s book
Who Owns England? 50 per cent of
English land is still owned by 1 per cent
of the population, but the hereditary
landlords are no longer a force in the
legislature.
Even the Tories must recognise that
council tax is an abomination, where
the owner of a mansion in Westminster
pays little more than the tenant of a
bedsit in Weymouth.
A 2017 Labour Land Campaign
paper, which the Tory press traduced
during the election campaign that year,
actually proposed an LVT which
protected homeowners: a high rate
LVT for the owners of income-
generating, or potentially income-
generating land (like that under second
homes), and a lower affordable rate for
the owners of principal homes.
We issued our own press release
entitled “Land Value Tax:
Scaremongering and Misinformation”
and complained successfully to
the Independent Press Standards
Organisation. But by the time the
retractions were printed the damage
was done.
According to Office for National
Statistics figures, 60 per cent of UK
wealth is land value.
If you want a tax to address the UK’s
gross wealth inequality, what better
way than a tax on something you
cannot hide in a tax haven?
Carol Wilcox
Secretary, Labour Land Campaign
Christchurch, Dorset, UK
Respect for property rights
— the key to prosperity
Regarding Martin Wolf’s column
making the case for England to adopt
a land value tax (“The case for a
land value tax is overwhelming”,
Opinion, February 6), all the
components of economic production
— natural resources, labour and
capital — can flee those nations that
treat such components less favourably
than others.
Nations which hold private property
rights in high regard and value free
markets attract all the components of
economic production. It is for this
reason that nations which “preserve,
protect and defend” individual
property rights are the most
prosperous and peaceful.
The greatest entrepreneurs and
innovators flourish in strong property
rights nations; capital flows towards
strong property rights nations; and
natural resources flow to strong
property rights nations.
However, as Wolf accurately writes
“it is not hard to tax land, which
is . . . immobile”. Individuals,
technologies and hardware and raw
materials can leave inhospitable
nations for more welcoming ones.
However, land can’t leave.
A nation which seeks to treat land as
communal property is unsafe for all
components of economic production
and all a nation’s inhabitants.
“Private” ownership of land with an
unlimited tax thereon is either
communism, socialism, or monarchy
in capitalism’s clothing.
Wolf surmises that “it is possible
to value land if governments wish to
do so”. Of course governments can do
whatever they wish, because they are
the one with a monopoly on legal force.
But beware the “capitalist” offering
to institute an ever increasing land
value tax.
Clifford Sondock
President, Land Use Institute
Melville, NY, US
(Report, FT.com, January 28).
President Franklin D Roosevelt
would have dismissed him, and so too
would President Dwight Eisenhower.
President Harry Truman fired General
Douglas MacArthur over careless talk
of war with China.
Yet Americans have recently become
accustomed to military commanders
opinionating — to the press and
think-tanks — about grave issues of
foreign and defence policy. As FDR said
often, echoing Clemenceau, “war is too
important to be left to the generals”. A
similar strong hand is needed over the
military in time of peace.
Derek Leebaert
Washington, DC, US
Wiener warned about
computers, but in 1950!
In the Henry Mance Interview
“‘Privacy has been extinguished. It is
now a zombie’” (January 30) the
subtitle claims that Shoshana Zuboff
“predicted that computers would
change our lives”.
While the professor emerita at
Harvard Business School may have
pointed out the increasing efforts of
internet business chief executives to
control our data, it was Norbert Wiener
in his book The Human Use of Human
Beings, first published in 1950, who
made the prediction about how
significantly computers would come to
change our lives. Wiener’s remarkable
book outlined the future like no other
prediction of the effects of technology
in the past 200 years. He deserves
some credit for that.
Niccolo Caldararo
Department of Anthropology
San Francisco State University
San Francisco, CA, US
Here’s an idea to recoup
the cost of shadow work
Rana Foroohar (“The real cost of
shadow work”, Opinion, January 30)
has touched on a point which has
surely become a sore one for many of
us. Why do we consent to spend
precious time on the phone correcting
mistakes made by providers of goods
and services and wholly attributable to
their deficiencies?
What we need is a law that
customers should be paid for any time
they have to spend doing this,
including time on hold, as long as
blame for the mistake being corrected
belongs to the provider in question.
I would suggest a modest $75 an
hour. That would surely up their game.
Oliver Corlett
San Francisco, CA, US
inequality over the past 60 years, but
income inequality in the UK has grown
more than in most OECD countries.
The health crisis cannot be magicked
away, but increased funding for both
social care and the NHS would be a
start, as would an honest attempt to
address poverty.
Christine Hancock
Founder and Director, C3 Collaborating for
Health, London NW1, UK
How tables have turned
for Brit expats after Brexit
Your editorial (February 2) about the
“British disease” correctly identifies
Brexit as one of the factors behind the
UK’s poor economic performance but
this will not be resolved until both
main parties have the courage to deal
with the issues created by leaving the
EU. The Conservative leadership does
not want to upset the right wing of the
party who are still arguing that Brexit
was a success despite all of the
evidence to the contrary and the
Labour party will not mention Brexit
as it does not want to be labelled as
“rejoiners” and lose the lead it has in
the polls.
Thus the country is left with political
instability, an unreliable infrastructure
and disincentivised workforce. As a
UK expat working in the US, I used to
shake my head at the turmoil during
Trump’s presidency or the street
protests taking place in Emmanuel
Macron’s France. My US colleagues
now shake their heads at me.
Chris Kessell
Glenville, NY, US
Another cultural echo
Another cultural echo of “The Man
Who Broke the Bank at Monte Carlo”
was provided by Kenneth Horne in his
anarchic 1960s radio comedy Round the
Horne (Life of a Song, January 28).
With reference to the opening line:
“As I walked along the Bois de
Boulogne with an independent air”,
Horne had himself playing a special
agent, disguising his bald head in a
blond wig and declaring that he walked
along the Bois de Boulogne “with my
independent hair”.
Ian Wingfield
Auckland, New Zealand
Correction
c An article on February 7 about
Francesco Starace, chief executive of
Enel, the Italian power group, wrongly
identified him in the headline as the
boss of Eni. We apologise for the error.
Wednesday 8 February 2023
A Republican-led America would not shrink from the world
POLITICS
Janan
Ganesh
W
ith Lord Halifax rather
than Winston Churchill
in charge, does Britain
fight on in 1940? Had
Richard Nixon not
“opened” it, would China be a super-
power? What if Pilate had spared Jesus?
And so on. There is a repertoire of his-
torical counterfactuals and it was get-
ting stale until a year ago. Then a new
question was added to the parlour
game. What if Russia had attacked
Ukraine while Donald Trump was US
president? Imagine: the America Firster
looks away, a weapons-starved Kyiv
Lessons from
the great
reflation
Martin Wolf Economics
There is a danger not just of
loosening monetary policy
too soon but of loosening too far
W
hat can we learn from
monetarists about what
happened to prices
after the Covid-19 pan-
demic struck? What can
we learn from the mistakes made in the
1970s? The purpose of posing these
questions is to inject humility into cur-
rent debates, especially among central
bankers. Their failure to forecast, or
prevent, the big jumps in price levels of
recent years is significant. So, why did it
happen and what might history suggest
about the mistakes still to come?
It is possible to argue that there is
nothing to learn. Covid-19 was, it might
be suggested, a unique event to which
policymakers responded in the most
sensible possible way. Similarly, the
1970s are ancient history. Our policy-
makers would not make the mistake of
letting inflation shoot up again, so
embedding expectations of perma-
nently high inflation. I would like to
believe these propositions. But I do not.
Start with money. There have been
two obstacles to taking the money sup-
ply seriously. The more important is
that it was discarded as a target and
even an indicator by “respectable” mac-
roeconomists long ago. The less impor-
tant was the hysteria of so many about
the quantitative easing introduced after
the global financial crisis. This obscured
what was so very different this time.
As I noted in a column published
almost a year ago, the British economist
Charles Goodhart argued back in 1975
that “any observed statistical regularity
MARKETS
Megan
Greene
I
t’s Groundhog Day again for US debt
limit silliness. But unlike the Bill
Murray film, this is no comedy. The
US faces a needless, self-inflicted
financial mess that could drag on
the global economy. This is lunacy. And
investors must focus on it now.
Treasury secretary Janet Yellen is in
the role of Punxsutawney Phil, the
Pennsylvania groundhog whose shadow
supposedly determines the length of
winter. On January 19, she announced
the US had hit its arbitrary debt ceiling,
and that accounting legerdemain would
allow the country to borrow for only six
falls, autocrats the world over strike
other targets as the west stands exposed
as a paper tiger.
This low view of US Republicans is a
good thing. It spurs countries to make
provisions for their own security in case
Trump, or someone in his image, runs
America again. Germany and Japan are
cases in point. The arsenal of democ-
racy is set to grow.
It is just that, well, a useful misappre-
hension is still a misapprehension. In
foreign affairs, the Republicans are ever
more chauvinist. That is not the same
thing as isolationist. It is very often the
opposite. During his one term in office,
Trump fired missiles at Syria as punish-
ment for using chemical weapons,
assassinated an Iranian general on the
soil of a third country and began (or rec-
ognised) a struggle with China for mas-
tery of the century. He also increased
defence spending.
He doesn’t believe in the west, no. But
will tend to collapse once pressure is
placed upon it for control purposes”.
That insight proved relevant to the
monetarism of the 1980s. But, I sug-
gested, there is a corollary: if it is no
longer used as a target, money might
become a useful indicator once more.
Recently, Claudio Borio of the Bank
for International Settlements has sug-
gested how this might become the case
for money, once again. Thus, he argues,
whether money matters depends on
whether inflation is high, or not. In
other words, the presence of “excess
money” on balance sheets influences
behaviour more when people are sensi-
tive to inflation than when they are not.
In an excellent recent post on Money:
Inside and Out, Chris Marsh of Exante
Data explains how money fell out of the
thinking of monetary economists and
central bankers. He notes however that
a large expansion of the supply of
money is likely to affect spending signif-
icantly. That is even more likely if the
money created by central banks effec-
tively funds fiscal deficits, as happened
so strikingly in 2020. (See charts.)
A crucial point is that this differed
greatly from what happened after 2008.
The result of the financial crisis was a
dramatic slowdown in the creation of
money by bank lending. The money cre-
ated by the central banks through their
asset purchases (QE) offset this endog-
enous slowdown in monetary growth.
This significantly reduced the severity
of the post-crisis economic slowdown.
In early 2020, the opposite was true:
Forget Groundhog Day vibes on debt ceiling — this time it’s different
more months before defaulting. So far
financial markets have remained calm
because a last-minute deal has always
emerged to lift the debt ceiling.
But default is now a much greater pos-
sibility. A small group of Republican
hardliners have decided that the size of
the national debt matters more than the
full faith and credit of the government.
The House of Representatives is so
divided they may indeed take the coun-
try hostage.
The US Treasury market is the deep-
est, most liquid in the world. US sover-
eign securities are considered essen-
tially risk-free. Lending around the
world is based on spreads to Treasuries,
which also influence currency values. A
US default would roil global markets.
There is a market belief that if the US
can no longer borrow, it will at least pri-
oritise payments to bondholders over
other obligations. Technically this
should be possible, but both Treasury
★ FINANCIAL TIMES
Opinion
because its enemies tend also to be
America’s, and nothing is dearer to
him than American amour propre,
he often ends up acting as a Harry
Truman-ish “hard” liberal might. In
other words, jingoism has its uses. Yes, it
clashes with the give-and-take of inter-
national life: Republicans increasingly
dislike trade and multilateral bodies.
In foreign affairs, the party
is ever more chauvinist.
That is not the same
thing as isolationist
But it is an asset when things turn raw.
A conventional US president would
support an allied nation under attack
because it is the right thing to do. A pop-
ulist one might support it because any-
thing else looks weak. It is less about
M2 grew steadily before 2020 despite
jumps in the monetary base
Components of US money supply M2 ($tn)
Credit-backed
Monetary base
2000 2005 2010 2015
Source: Federal Reserve
private credit growth and money crea-
tion by the central banks were both very
strong. Average annual growth of US M2
from end 2008 to end 2019 was just 6
per cent. In the year to February 2021, it
grew 27 per cent. It is not surprising then
that, with the fiscal boosts as well, US
nominal domestic demand rose by over
20 per cent in the two years to the third
quarter of 2022. That generated a strong
recovery. But it also supported a jump in
the price level: in the two years to
December 2022, the core US consumer
There might be a case for
waiting to tighten, but
inflation may prove stickier
downwards than hoped
and the Federal Reserve have doubts it
can be implemented. There would be a
slew of lawsuits and the optics are politi-
cally toxic. Imagine President Joe Biden
telling Americans that firefighters and
soldiers won’t be paid, but rich foreign
So far things are calm
because a last-minute deal
has always emerged, but
default is a real possibility
investors will be. The Biden administra-
tion insists this is not on the table,
though its position may change as
default draws nearer.
If it cannot borrow, plans developed
by the Treasury in 2011 would have the
government delay payments of other
obligations until it had enough cash to
cover a whole day’s bills. This would be
principle than face, but leads to the
same forward posture.
Populism is as complex and self-con-
tradicting as the next political creed. To
an almost Freudian extent, it admires
strongmen. Had Russia taken Kyiv at
speed, a certain kind of rudderless
young man in the west would still be
“stanning” Vladimir Putin online as a
grandmaster.
At the same time, no one is likelier or
better-equipped to butt heads with
rough nationalists than other rough
nationalists. Trump would both flatter
North Korea’s Kim Jong Un and threaten
to “totally destroy” him, remember. He
had fewer moral qualms with Bashar al-
Assad than Barack Obama did, but only
one of those US leaders enforced the red
line on chemical weapons against the
Syrian despot. The other merely drew it.
In the populist id, strongman-
worship vies with a hatred of being seen
to give any quarter to anyone, ever.
A surge in money supply was followed by
domestic demand and prices
US indices (Q1 2018 = 100)
20 150
140
15
130
Domestic
10
120
110
5 4
100
0 90
2020 2022 2018 2019 2020
Source: Refinitiv
price index rose 11.5 per cent, far above
the 4 per cent implied by the Federal
Reserve’s 2 per cent annual target.
That was the past. What now? Meas-
ures of US broad money are now actu-
ally falling. In December 2022, for
example, US M2 was 2.5 per cent below
its peak in March. Data on broader
measures provided by the Center for
Financial Stability show the same pic-
ture. This suggests that inflation might
fall faster than expected. It is even possi-
ble that if the aim is only to stabilise
inflation rather than make the price
level fall back, policy is too tight.
Yet there still seems to be a monetary
overhang. In addition, the Danish econ-
omist, Jesper Rangvid, in his January
2023 blog, provides a sobering compari-
son with the 1970s. He notes, rightly, the
relevance of comparisons with another
recorded as “arrears” in the government
books, something often seen in emerg-
ing markets. Even without a default on
Treasuries, markets may decide failure
to meet any payment obligation consti-
tutes a default of some sort, triggering a
global financial meltdown.
We know from the past that even
brushing up against default is costly.
The Government Accountability Office
estimated the 2011 debt stand-off raised
government borrowing costs by $1.3bn
that year In 2013, Fed economists esti-
mated short-term government paper
yields rose 21 basis points in 2011 and
46 basis points in 2013, and yields on
other maturities by 4-8 basis points,
costing the Treasury around $250mn in
each episode.
If the debt ceiling were to bind, bor-
rowing costs would rise much more,
causing dislocations in markets with
thin liquidity and necessitating Fed
intervention. That’s another reason
Even in theory, then, there isn’t an
easy equation between populism and
appeasement.
True, polls suggest a decline of sup-
port among conservative Americans for
Ukraine. Republicans in Congress have
become ever more difficult about aid.
Nations from Europe to east Asia are
right to worry about a slackening of
American commitment to allies in
future. But that could happen under
anyone. The US was “leading from
behind” before Trump. There is a
butter-over-guns caucus on the left. A
Democrat (Obama) and an establish-
ment Republican (George W Bush) let a
Russian attack on a neighbour happen
on their watch without adequate
response. One of the most direct calls for
a “settlement” with Russia over the past
year came from the congressional left.
I used to think that US-watchers
invoked no spectre more often, more
baselessly, than “isolationism”. It digni-
US inflation tracks the 1970s remarkably
closely so far
US CPI inflation (%)
Jun 1967 to Dec 1984
Money supply
(divisia M4)
demand CPI all items
CPI excl food
& energy
2021 2022 2022 0 5
Source: Jesper Rangvid, Federal Reserve
period when a combination of strong
fiscal and monetary expansions inter-
acted with supply shocks to generate
high inflation. But in the 1970s, there
were two spikes. Energy prices played a
role in both. But so, too, did expansion-
ary monetary policy.
Rangvid adds that: “As soon as infla-
tion started falling in the early 1970s,
the Fed reduced the Fed Funds Rate.
This was too early. It implied the real
interest rate fell too fast and too much.”
In December 2022, what the Atlanta Fed
calls “sticky price” inflation was run-
ning at over 5 per cent on a one-month
annualised, three-month annualised
and annual basis. Rangvid concluded
that it might take even longer to get
inflation back down to 2 per cent than it
did in the mid-1970s, perhaps another
two years. But there is a danger not only
markets are relaxed for now. The Fed
could temporarily restart quantitative
easing and buy Treasuries, as the Bank
of England did last September when UK
government bond yields spiked. If a
default pushed short-term rates up, the
Fed could expand its standing repo facil-
ity. If demand for undefaulted govern-
ment securities pushed their yields too
low, the Fed could lend Treasuries to the
market via reverse repos.
The central bank could accept
defaulted Treasuries as collateral or buy
them, an option chair Jay Powell called
“loathsome” on a Fed conference call in
2013. Hoovering up defaulted securities
would be met with lawsuits and could
push up inflation when it is still too high.
The Fed will also be wary of creating
moral hazard by bailing out politicians
dithering on lifting the debt ceiling.
Meanwhile, breaching the debt ceiling
would depress government spending
as the Congressional Budget Office
15
fies a movement with little purchase on
public life since Pearl Harbor. There will
always be a Pat Buchanan or Gore Vidal
(note the right-to-left spread) but noth-
ing is achieved by talking them up as
though America might revert to Neu-
trality Acts and naval retrenchment.
The stunning thing about US politics is
how few votes for isolation there are in
perhaps the only major country that
could safely practise it.
Now, I think there is something to
be said for talking up the risk of a
withdrawn US. That fear is driving up
the military ambitions of Europe. It is
ending the “neutrality” of some dem-
ocracies. And framing isolation as a
Trumpist thing in particular rallies the
global left behind a cause — defence
spending — that it might otherwise
oppose. Keep the trope going, then. Just
don’t believe it.
janan.ganesh@ft.com
14
12
10
8
6
2
Jan 2015 to Dec 2022
0
years 10 15 17
of loosening too soon but also of loosen-
ing too far under what is quite likely to
be fierce political pressure, so generat-
ing another upsurge.
The big point is that the inflation
genie is now out of his lamp. I agree with
Rangvid that monetary policy should
have been tightened sooner. I also agree
with Marsh that central banks should
not have ignored money, as Mervyn
King has also argued. There might be a
case for waiting to see what happens
before further tightening, at least in the
US, especially if one focuses on the mon-
etary data. But inflation might also
prove stickier downwards than hoped.
Whatever happens, do not repeat what
happened in the 1970s: get inflation
down and then keep it down.
martin.wolf@ft.com
estimates that tax revenue meets only
80 per cent of US spending needs
beyond interest payments. Without
government payments, some house-
holds and businesses would be unable
to pay their bills, a drag on growth just
when the economy is nearing recession.
The long-term implications of
breaching the debt ceiling are the most
pernicious. If investors worry they may
not be paid what they are owed when
they are owed it, they may demand a
yield premium on Treasuries. Default
could also prompt some countries to
hedge their dollar bets by buying fewer
Treasuries and adding other currencies
to foreign exchange reserves. Those
politicians threatening default must
drop their demands immediately. And
markets should not delay in sending a
message: their folly will lead to disaster.
The writer is an FT contributing editor and
global chief economist at Kroll
16 ★ FINANCIAL TIMES Wednesday 8 February 2023

China airlines: turbo fans vindicated

The number of passengers using China’s airlines has plummeted since 2019. A rebound is expected to put
upward pressure on the price of jet fuel, which is already higher than it was a year ago. The airlines made big
losses in 2022. Their share prices have mostly fallen over the past year.

Twitter: @FTLex
BP:
a paler shade of green
BP’s Bernard Looney claims he is
“leaning in” on his renewables strategy.
Lean too far, and a person can end up
staggering. Energy prices soared last
year. But the shares of the UK-listed oil
major trail far behind those of US rivals
ExxonMobil and Chevron, which are
less fond of greenery.
Looney’s messaging when
announcing record full-year profits
yesterday reflected that pressure more
than demands in the UK for higher
windfall taxes.
When the chief executive took over
in 2020 he boldly promised to reduce
crude production by 23 per cent to
2mn barrels daily by 2025. He planned
to invest heavily in the energy
transition. Two years on, his
determination to forswear fossil fuels
appears to be weakening.
Last year’s surplus cash flow of
$19.3bn was triple the figure for 2021,
hence the UK hue and cry. But BP’s
effective tax rate has climbed 2
percentage points in the past year to 34
per cent, partly owing to added levies.
Exxon’s is closer to 26 per cent.
Total shareholder returns for BP —
and Shell — are roughly half those of
Exxon and Chevron over one year. This
reflects shareholder unease over
renewables investment as much as
over windfall taxes. BP has increased
the outlook of $16bn-$18bn in capital
spending this year from a target of
$14bn-$16bn back in 2020.
Some of that increase comes from
inflation. But oil production for 2025
would now fall only about 11 per cent
from 2019 to 2.3mn barrels per day.
Those volumes are needed, oil bulls
say, to cover the west’s lost supply from
Russia. BP’s oil price assumption for
income from those added barrels has
risen from $60 to $70.
Higher forecast upstream profit
helps pay for Looney’s renewables
spending, an additional $8bn
cumulative by 2030. Nearly half of this
money goes to hydrogen and
renewable power areas. The latter
offers modest investment returns of no
more than 8 per cent.
Looney read the presentation room
well, if not the mood of green
campaigners perturbed by
prevarication. The share price jumped
nearly 8 per cent. The reality is that the
marginal buyer of BP’s shares believes
the energy transition will take longer,
with scope for increased oil and gas
output.
BP is compromising in a bid to catch
up with US peers.
Super Bowl/sports
betting: hard yards
Sports-betting companies will perform
what is technically known as a “Hail
Mary pass” during the Super Bowl this
Sunday. This describes a desperate
attempt to gain ground. Over 100mn
people are expected to watch the big
football game. The contest between
gambling groups DraftKings and
FanDuel will be every bit as fierce as
between the Philadelphia Eagles and
the Kansas City Chiefs.
DraftKings and FanDuel lead the
league. Both have hired celebrity
spokespersons, spent millions on big
advertising campaigns and are offering
free bets to attract new users. A record
50.4mn Americans are expected to
wager some $16bn, according to the
American Gaming Association.
That is more than twice the amount
wagered in last year’s match, reflecting
rapid growth in sports betting.
Sports-betting companies have
already spent aggressively on market
share. That topline growth has not
come cheap. DraftKings and FanDuel, a
unit of Ireland’s Flutter Entertainment,
control 45 per cent and 27 per cent of
the US mobile sports-betting market.
Neither is profitable on a full-year
basis. Rising interest rates mean
investors no longer have much
patience with lossmaking groups.
Since hitting a high in March 2021,
DraftKings has lost more than three-
quarters of its market value. Flutter’s
shares have fallen by a third.
Both groups argue their short-term
investments will yield long-term gains.
FanDuel has said it will become ebitda
positive for the full year in 2023.
DraftKings expects adjusted ebitda
will turn positive in the fourth quarter
of 2023. Lex suspects that this will
depend on the absence of big states
legalising sports gambling.
Since the Supreme Court overturned
a ban on sports wagers nearly five
years ago, online sports betting became
legal in 23 US states. The only big
holdouts are Texas, California and
Chinese air passenger numbers Airlines vs MSCI China index
should rebound Share prices and index (rebased)
Singapore jet Passengers,
kerosene prices 2010 to 2022
(US$ per barrel) (mn)
600
200
500
150
400
100 300
200
50
100
0 0 Feb Apr
2010 2015 2020 2023 2022
FT graphic Sources: Refinitiv; Civil Aviation Administration of China; S&P Capital IQ
Chinese aviation suffered a setback
recently when the US popped an
overflying spy balloon. But the
civilian branch of the industry is
more buoyant. A rebound in
passenger numbers will help China’s
numerous airlines recover from
historic losses — and contribute to
upward pressure on oil demand.
Chinese airlines are ramping up
long-haul international flights as
restrictions to stop the spread of
coronavirus ease. The Chinese
economy is rebounding more
strongly than expected as the country
emerges from lockdowns.
China is projected to deliver about
half of a forecast increase in global oil
demand of almost 2mn barrels a day
this year, according to the head of the
Florida. Should any one of these give
the green light, expect DraftKings and
FanDuel to once again bet the farm.
BNP Paribas:
bloc party
Optimism is again in the ascendant in
the EU. Hopes are running high that
the bloc will dodge serious economic
damage from rate tightening.
The EU’s biggest lender, BNP Paribas,
has already recovered the eighth of its
market value that it lost in the gloom of
2022. Yesterday, boss Jean-Laurent
Bonnafé upped BNP’s annual growth
target for net income by 2 percentage
points to more than 9 per cent by 2025.
He also promised big payouts, totted
120
China
Air China
Eastern
Airlines
100
80
China MSCI
Southern China
Airlines index
60
Jul Oct Jan Feb
2023
International Energy Agency. Aviation
will contribute to that.
International flights at local carriers
are up more than threefold in January
as Chinese students and tourists take
their first trips abroad for months.
China was the world’s largest source
of outbound travellers before the
pandemic. China’s eight big airlines
suffered record losses last year. Flag
carrier Air China led the red ink
splurge, which totalled Rmb70bn
($10.3bn) for the peer group in the first
half alone. Debt is climbing.
Shares of the biggest carriers, Air
China and China Southern, are down
this year despite a rapid rebound in
passengers. Fuel costs account for more
than a quarter of the operating costs
for the largest carriers. While jet-fuel
up to €10bn by Jefferies. Both moves
took the sting out of lacklustre fourth-
quarter profits.
The bank plans to invest €7.6bn of
the proceeds from its $16.3bn sale of
Bank of the West in expanding existing
businesses and on bolt-on takeovers. It
aims to exploit retrenchment by rivals
and broaden its reach in insurance.
BNP expects this deployment of
capital to generate an extra €3bn in
revenues over the next two years.
Rate rises should generate another
€2bn by 2025. French banks cannot
fully benefit from higher rates because
of fixed-rate loans, and inflation-linked
savings accounts are common. But BNP
is in a better place than some, with
French net interest income accounting
for just 7 per cent of revenues.
BNP’s core equity tier one capital
Losses by Chinese carriers
H1 22 (bn Rmb)
China
Eastern
Air China
Hainan
China
Southern
Cathay
Shenzhen
Shandong
Sichuan
Shanghai
0 5 10 15 20
prices have fallen over the past week,
they are still higher by about 10 per
cent compared with the same time
last year.
Increasing demand from Chinese
airlines will add to upward pressure
on oil. This is trading well below last
summer’s highs at about $82 per
barrel of Brent. The wider effect
should not be overstated — jet
kerosene accounts only for about
7 per cent of global oil demand. But
Chinese airlines are braced for
steeper input costs.
The good news is that terrible 2022
numbers will flatter airline results in
2023. Moreover, pent-up demand
gives airlines leeway to increase fares,
offsetting pricier fuel. The worst of
the turbulence is behind the sector.
ratio of 12.3 per cent is slightly above
its 12 per cent 2025 target. Disposal
proceeds will help fund a €4bn share
buyback.
That is on top of a buyback and
dividend payout amounting to 60 per
cent of 2022 distributable income.
The bank has raised its return on
tangible equity to 12 per cent in 2025
from 11 per cent before. The price-to-
tangible book value has risen by two-
fifths to 0.7 in the past 18 months,
placing it 75 per cent per cent higher
than Société Générale’s.
Trading at a low price/tangible book
value multiple compared to return on
tangible equity has become the norm
for European banks. BNP has proven
itself to be a steady earner.
The mood of investors is brightening,
but that discount will be hard to shift.
Carlyle Group:
Harv time
Carlyle Group finally has a chief
executive. Now it just needs to firm up
an identity. The venerable private
capital firm, which manages $373bn,
has chosen former Goldman Sachs
executive Harvey Schwartz as its boss.
Not before time. A leadership void was
one reason fourth-quarter fundraising
pulled in a disappointing $5bn.
Schwartz has a background in
trading and no high-level experience as
an investor. This is in contrast to
predecessor Kewsong Lee. He departed
suddenly in August after clashing with
Carlyle’s founders. The C-suite turmoil
came at a tricky time. Rising interest
rates and falling asset prices hurt the
valuations of existing positions but
created opportunities to deploy cash.
Yesterday, Carlyle reported a healthy
40 per cent annual rise in
management-fee income, alongside
lacklustre fundraising. Portfolio
returns in 2022 were decent. All its big
groups reported positive returns
during a year when public debt and
equity markets suffered losses.
It is the task of leaders of
institutional investors to set growth
priorities. Blackstone has relentlessly
focused on property investing. Apollo
is a credit and life insurance specialist.
Carlyle’s strength has been in leveraged
buyouts, a lucrative but mature and
cyclical area.
It has laggard status. The stock
trades at 8 times 2022 cash earnings,
about half the ratio for KKR and
Blackstone. Schwartz needs to diversify
Carlyle to narrow the gap.
He must convince Carlyle’s
meddlesome founders first. Schwartz
will get a performance-dependent pay
package valued at $180mn. But several
executives make more working at
Carlyle’s rivals.
Schwartz lost out to David Solomon
in the contest to lead Goldman Sachs.
Carlyle represents a transformational
challenge just as great. His advantage is
strongest right now. Client confidence
is weak and founders will be emollient.
If Schwartz works fast, he can change
Carlyle for the better.
Lex on the web
For notes on today’s stories
go to www.ft.com/lex

CROSSWORD
No 17,327 Set by BASILISK
        ACROSS

 1 Acquire means of exerting force (8)

5 Set about politician in church (6)
  10 Predictable broadcast ignoring part
about sound measure (7)
11 Part of a circle of FBI agents infiltrating
group (7)
  12 Attempt to follow policy curtailed bad
language? (5)
13 Craftsman had to work with other
people (9)
  14 Perhaps rather tasteless blokes start to
try flattery (12)
  18 Popular subject matter about saint is
variable (12)
 21 Football team and highly rated player
reportedly try to make peace (9)
  23 Hackneyed introduction to short story
(5)
   24 This hit it — an iceberg in the main (7)
25 What could be done on-line with bank’s
support? (7)
26 Supporter losing billion in dodgy
  dealings (6)
27 Playful parody involved this (8)

DOWN
 
1 Livid theologian gets into row (6)
2 New cost of accommodation charged
by church (6)
3 Wicked creature lifting good bit of
homeless person’s jewellery? (9)
JOTTER PAD 4 Off licence ends suspect individual’s
personal credit? (4-10)
6 High flyer’s better-than-average result
Solution 17,326 on course (5)
7 Drafted new paper about origin of
, 0 3 $ 6 6 ( ( 1 6 / $ 9 ( dinosaurs (8)
0 5 + 0 3 2 * / 8 Petition tenants regularly blocking
% / , 1 , ' $ , 5 < 0 $ , ' doorway? (8)
, 1 6 ( & $ 5 2 9 Ill-informed guess that’s equally
% $ & . + $ 1 ' ( 5 / $ , 5 dangerous and ignorant (1,4,2,3,4)
( ( . 1 $ * $ 15 Browser feature used for training
' ( 6 ( 5 7 , 6 / $ 1 ' valuable perspective (9)
3 6 % ; 5 7 5 2 16 One occupying religious office? (8)
5 2 2 0 $ 7 7 + ( 7 2 3 17 Interference from Brussels is creating
( ) % 5 8 2 8 enormous enthusiasm (8)
0 $ 7 ( 0 ( & + $ 1 , & $ / 19 North American native’s tipi was almost
, 6 7 0 % ' 7 6 destroyed (6)
6 8 3 ( 5 + ( 5 2 , 1 $ 3 7 20 Measure The Grand National’s first and
You can now solve our crosswords last jumps (6)
( 2 8 / 0 1 9 ( in the new FT crossword app at
6 $ 7 , ( 7 < % 8 * % ( $ 5
22 Freedom of movement stirred up anger
ft.com/crosswordapp (5)*