FRIDAY 28 JULY 2023 EUROPE

Mongolia’s mission to tackle corruption Big Tech rivals play catch-up on AI

BIG READ, PAGE 17 RICHARD WATERS, PAGE 6

Conference call Exiled Wagner boss appears

ECB follows at sidelines of Africa summit in St Petersburg
Briefing
i Hottest July on record
fuels ‘global boiling’ alarm

Fed by raising
The planet is facing a new era of
“global boiling”, the UN’s head has
warned, as forecasts showed that
July is expected to be the hottest
month ever recorded.— PAGE 4

interest rates i Shell and Total profits hit

Profits at Shell and Total shrank
in the second quarter on lower oil
and gas prices as the impact on

to 22-year high
energy markets of Russia’s war in
Ukraine waned.— PAGE 6

i BNP Paribas faces US fine

3 Eurozone borrowing costs hit 3.75%
3 Investors bet increase will be the last
MARTIN ARNOLD — FRANKFURT
GEORGE STEER — LONDON
The European Central Bank has raised
interest rates back to their record high,
as it signalled that eurozone borrowing
costs may have peaked.
The ECB’s decision yesterday to raise
its benchmark deposit rate by a quarter-
percentage point to 3.75 per cent
matches a high last reached in 2001,
when it was trying to boost the value of
the newly launched euro.
The widely expected move, the ECB’s
ninth consecutive rate rise, came a day
after the US Federal Reserve raised rates
by the same amount.
Yet despite Fed chair Jay Powell’s
insistence that there could be more
tightening ahead, investors are betting
that these increases will be the central
banks’ last, as inflation falls faster than
expected on both sides of the Atlantic.
“We reiterate our call that in the base
case, the ECB — like the Fed — is done
raising rates, though there is certainly
still a material risk of a further hike,”
said Krishna Guha of Evercore ISI.
The euro dropped 0.8 per cent to
$1.099 following the ECB’s decision, as
the central bank indicated it might be
ready to bring tightening to an end.
The US currency was bolstered by a
stronger-than-expected figure for gross
domestic product yesterday, showing
that the world’s largest economy
expanded by an annualised rate of 2.4
per cent in the second quarter.
In eurozone government debt mar-
kets, the yield on the interest rate-
sensitive two-year German bond fell
0.05 percentage points to 3.22 per cent,
while the 10-year yield was steady at
2.47 per cent. Yields fall as prices rise.
Last month the ECB said in its policy
statement that it would ensure rates
were brought to levels that were “suffi-
ciently restrictive” to bring inflation
down to rate-setters’ 2 per cent target.
Yesterday, however, the central bank
altered that language, saying instead
that it would ensure interest rates “will
be set at sufficiently restrictive levels for
as long as necessary”. The eurozone
inflation rate stands at 5.5 per cent,
almost three times that level.
ECB president Christine Lagarde
acknowledged the new wording, saying
that it was not “irrelevant” and that pol-
icymakers had “an open mind as to
what the decisions will be in September
and subsequent meetings”.
“There is a possibility of a hike, there
is a possibility of a pause,” she added,
saying the vote would depend on the
economic data. Eurozone inflation has
dropped from a peak of 10.6 per cent last
year and a further slowdown is expected
when July data is published on Monday.
The ECB repeated its warning that
inflation was still expected to remain
“too high for too long”.
To cut the interest it pays to banks, the
ECB said it would cut the rate it pays on
the reserves that lenders are required to
hold at central banks in the region.
Rate-setters said that this would
improve the transmission of its policy
rates to money markets. But Carsten
Brzeski, an economist at Dutch bank
ING, said it risked “reducing the appe-
tite to pass on ECB rates to depositors”.
US growth accelerates page 4
Corporate fundraising buoyant page 10
Yevgeny Prigozhin, founder of the
Russian paramilitary group Wagner,
shakes hands with Freddy Mapouka,
from the Central African Republic
(CAR) delegation, in St Petersburg
yesterday.
The presence of the notorious war-
lord, who had agreed to go into exile
last month following a failed armed
rebellion, on the sidelines of the
Russia-Africa summit is a sign that he
is still beneficial to the Kremlin estab-
lishment, especially in regards to Mos-
cow’s African connections.
The photo was posted by Dmitry
Syty, one of Wagner’s most visible fig-
ures in CAR, on his Facebook page.
Prigozhin agreed to relocate to Bela-
Dmitry Syty/Facebook
rus last month to end Wagner’s rebel-
lion, which he described as a “march
for justice”, against the Russian army.
However, since then he has spent a
significant amount of time in Russia.
Prigozhin said last week that Wagner
was preparing to “gather our strength
and head off to Africa”.
Reports & analysis page 2
The French group is the latest
lender to face US sanctions over
its record-keeping of electronic
messages used by employees to
discuss business matters.— PAGE 8
i Coutts chief steps down
Peter Flavel has quit, saying that
he bore “ultimate” responsibility
for the private bank’s treatment
of ex-Ukip leader Nigel Farage.
— PAGE 6; PHILIP AUGAR, PAGE 19
i St James’s Place stock falls
News that the UK’s largest wealth
manager is to cut fees on a range
of investment products helped
trigger its steepest share loss in
seven years.— PAGE 10; LEX, PAGE 20
i VW forced to cut outlook
The second-biggest carmaker has
cut its global delivery forecast for
the year as sales drop in China, its
largest market, amid weakness in
the country’s economy.— PAGE 8
Datawatch
Britain heats up
Maximum UK-wide temperatures (C)
18.5C* = average daily maximum
temperature in July and August
Jul 19 2022
Jul 18 2022
Jul 25 2019
Jul 19 2006
Aug 2 1990
Aug 9 2003
Jul 3 1976
Jul 2 1976
20 22 24 26 28 30 32
Source: Met Office *Average for 1961-1990
This time last year Britain hit a record
average maximum daily temperature of
31.5C, beating the previous 31.1C high
set the day before. Temperatures in some
places passed 40C for the first time. June
this year was the warmest since 1884.

Gucci’s owner buys 30% stake in Italian

fashion house Valentino from Qataris
ADRIENNE KLASA — LONDON The deal comes as Kering is struggling in the past 12 months, giving it a market
to boost growth that has lagged behind value of €66.7bn. LVMH shares have
Gucci-owner Kering has agreed to buy
French rivals LVMH and Hermès. The risen 26.8 per cent over the same period,
30 per cent of Valentino from Qatar’s
Paris-based group last week announced leading to a capitalisation of €435bn.
Mayhoola, as part of a deal that will
that the chief executive of Gucci, its flag- Mayhoola, an investment vehicle
link two of the fashion world’s most
Lula maps ambitious path famous brands and give the French
ship brand, would step down. backed by Qatar’s emir, bought the
to greener Brazil economy luxury group the option to take full
Last month Kering bought high-end Roman fashion house from private
perfumer Creed for €3.5bn, paying equity firm Permira in 2012, for about
control of its Italian rival by 2028.
Aiming high i PAGE 4 23 times earnings before interest, taxes, €700mn. It also bought French family-
The €1.7bn all-cash purchase is “part of depreciation and amortisation for the owned fashion house Balmain in 2016.
a broader strategic partnership” company, according to people with “From day one in discussions with
Austria €4.50 Morocco Dh50 between Kering and Mayhoola, which knowledge of the deal. Mayhoola, we said . . . that we would
Bahrain Din1.8 Netherlands €4.30 could lead to Mayhoola becoming a Founded in 1960 in Rome, Valentino broaden [the collaboration] to look at
Belgium €4.50 Norway NKr45
Croatia Kn33.91/€4.50 Oman OR1.60
shareholder in Kering, the French group operates 211 stores worldwide and gen- other opportunities,” Pinault said.
Cyprus €4.20 Pakistan Rupee350 said yesterday. Kering, which will be erated revenues of €1.4bn and ebitda of Kering yesterday reported first-half
Czech Rep Kc125 Poland Zl 25 represented on Valentino’s board, has €350mn last year. results, with Gucci missing expectations
Denmark DKr46 Portugal €4.20
Egypt E£80 Russia €5.00
an option to buy 100 per cent of the Ital- Bernstein analyst Luca Solca said that and expanding sales by 1 per cent on a
France €4.50 Serbia NewD530 ian brand within five years. the agreement looked “promising” for comparable basis. Gucci makes up half
Germany €4.50 Slovenia €4.20 “I am very pleased with this first step Kering, which “has an established of Kering’s revenues. Total sales grew
Greece €4.20 Spain €4.20
Hungary Ft1450 Switzerland SFr6.70
in our collaboration with Mayhoola to record managing and developing fash- 2 per cent to €10.1bn, while operating
India Rup220 Tunisia Din7.50 develop Valentino,” François-Henri Pin- ion brands”. profit fell 3 per cent to €2.7bn compared
Italy €4.20 Turkey TL110 ault, Kering’s chief executive, said. Kering shares have fallen 3.4 per cent with the previous year.
Luxembourg €4.50 UAE Dh24
Malta €4.20

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Armed forces
Moscow raises maximum conscription age
Limit extended by three
years to 30, increasing
numbers to be called up
POLINA IVANOVA — BERLIN
ROMAN OLEARCHYK — KYIV
Russia is raising the maximum con-
scription age by three years, widening
the pool of men that can be called up as
fighting intensifies in Ukraine’s south-
ern regions.
A bill that passed through a key secu-
rity committee in the upper house of
parliament yesterday extends the upper
age limit to 30. Currently, men aged 18
to 27 are eligible for one year of compul-
Ukraine switches to artillery in Bakhmut push
Kyiv changes tactics after
heavy losses in early stages of
operation to repel invaders
CHRISTOPHER MILLER — BAKHMUT
The losses from Ukraine’s counteroffen-
sive were heavy and early. Pushing into
the sprawling southern fields this sum-
mer, Kyiv lost almost a fifth of Nato kit
provided for the operation, according to
Ukrainian and western officials.
Kyiv’s military response across much
of the front line is now becoming clear:
to change tactics. The shift in fighting
doctrine applied in recent weeks,
according to Ukrainian commanders,
appears to be achieving some hard-
fought but tangible results on the battle-
field, at a more tolerable cost.
Rather than dart across Russian
minefields aiming to punch through
enemy lines with Nato armour, Ukrain-
ian forces have moved their focus to
pounding Russian defensive positions
with heavy artillery fire.
Artillery gunners operating multiple-
launch rocket systems (MLRS) and
howitzers, some loaded with US-sup-
plied cluster munitions, aim to clear
pathways for small teams of sappers and
infantry units. These troops then try to
advance methodically on foot, moving
forward one narrow tree line at a time in
select spots along the 1,000km front
line.
“We strike the enemy, then our infan-
try advances,” said Viktor, a battery
commander in a Ukrainian artillery
unit operating US M777 howitzers, of
the new strategy between attacks. “We
prepare the conditions on the ground so
that our troops suffer minimal losses.”
The painstaking strategy has raised
questions in western capitals about
whether Ukraine will be able to main-
tain it for long, or produce the kind of
breakthrough that would bring Moscow
to the negotiating table. There are con-
cerns about how quickly Ukraine is ex-
pending its dwindling supply of artillery
shells, and about the time it will grant
Russia to dig in and train fresh forces.
But in the short term, the tactic has
reduced Ukrainian losses. Casualties
and the number of prized western battle
tanks and infantry fighting vehicles lost
in battle are down compared with the
first two weeks of the counteroffensive,
while Ukraine has made small but
steady gains.
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Spain: Bermont Impresion, Avenida de Alemania 12, CTC,
sory military service. The move is part
of the Kremlin’s plan to increase the
country’s armed forces, announced
soon after the start of its full-scale inva-
sion of Ukraine in February last year, as
Moscow prepares for a long-term con-
flict. The measure reflects a broader
militarisation of Russian society.
If signed into law by President
Vladimir Putin, the bill would come into
force in January and broaden the
number of potential conscripts by more
than 2mn men by 2027, according to
projections by independent demogra-
pher Alexey Raksha.
The move came as fighting intensified
in Ukraine’s southern front lines, partic-
ularly in the Zaporizhzhia region. Rus-
Counteroffensive. Russian defences
New strategy: Viktor’s artillery unit provided cover-
Ukrainian ing fire for infantry that pushed into the
soldiers reload northern and southern flanks of Bakh-
their artillery mut, the bombed-out eastern city that
as they fire was captured by Russia’s army in May
shells towards after a gruelling 10-month fight.
Bakhmut at Ukraine claimed further advances on
the weekend Tuesday and Wednesday.
Diego Herrera Carcedo/
Anadolu Agency/
Recapturing Bakhmut is an objective
Getty Images for Ukraine, even if the destroyed city
that was once home to 70,000 is of little
strategic value. Commanders believe
Artillery strikes raise hopes of breakthrough in Kyiv’s
counteroffensive
Russian-claimed control
Assessed Russian
advance Kyiv
Regions annexed by
Russia*
Under Russian control UKRAINE
Ukrainian-claimed
counteroffensive
City under Russian control
Nuclear power plant
Odesa
Updated 11:30am GMT Jul 25. Ukrainian
counteroffensives before May 1 2023 are
not shown
* These regions and Crimea are not
recognised by the international community,
Crimea was annexed by Russia in 2014 Black Sea
Source: Institute for the Study of War, AEI’s
Critical Threats Project, FT research
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FINANCIAL TIMES
INTERNATIONAL
sia also launched further missile strikes
on Black Sea ports in what western offi-
cials said was an attempt to cripple
Ukraine’s grain industry and disrupt
global food markets.
The number of Russian army recruits
depends on presidential orders issued
ahead of each conscription round.
These occur twice a year, in spring and
autumn, with 120,000-150,000 usually
called up each time.
Late last year the defence ministry
announced plans to increase Russia’s
regular army from about 1mn men to
1.5mn, including both conscripts and
those who sign up voluntarily as con-
tract servicemen, though analysts
doubt that either figure has much bear-
‘We prepare
the ground
conditions
so our
troops suffer
minimal
losses’
100 km
Kharkiv
KHARKIV
LUHANSK
Dnipro
DONETSK uhansk
ZAPORIZHZHIA
KHERSON
Sea of Azov RUSSIA
CRIMEA UKRAINE
Kerch
Cost of living
Turkish central bank predicts inflation will soar close to 60%
ADAM SAMSON — ANKARA
Turkey’s new central bank chief has
vowed to continue taking “gradual and
decisive” steps to slow price growth,
even as she acknowledged inflation was
set to soar to almost 60 per cent by the
year’s end.
Hafize Gaye Erkan said inflation would
reach 58 per cent by December, com-
pared with a previous forecast of just
over 22 per cent.
Speaking yesterday at her first signifi-
cant press briefing since she was
appointed in June, Erkan said that the
lira’s tumble this year, sharply rising
food prices and big rises in the mini-
mum wage would fuel price growth.
The central bank has more than
doubled interest rates in the past two
months and used other tools to tighten
monetary policy in a significant reversal
of the accommodative measures
pursued by the government of
President Recep Tayyip Erdoğan in
recent years that have set off an eco-
nomic crisis.
Erkan indicated in her remarks that
massive stimulus measures this year,
ahead of May’s election, had led to big
ing on reality. Conscripts are not sup-
posed to be sent to fight in Russia’s inva-
sion of Ukraine, though there have been
many reports of this happening.
The army has recently focused on
expanding its ranks of contract soldiers.
Others have joined more independent
fighting forces, such as the Wagner para-
military group.
The head of the lower house’s security
committee has described the bill raising
the conscription age as preparation for
“general mobilisation”. Andrei Karta-
polov, known for his fiery rhetoric, said:
“Now it is already beginning to smell
like a big war ahead.”
He criticised parliamentarians aim-
ing to soften aspects of the bill, for
the prospects of a breakthrough are bet-
ter there than along the southern front
line. It would also hit Russian morale.
Russian forces did not have time
around Bakhmut after capturing the
city in late May to erect the fortifications
laid down in southern Ukraine. There, a
deep network of minefields, “dragon’s
teeth” obstacles, anti-tank ditches and
trenches have kept Ukrainian troops at
bay. Kyiv has acknowledged slow
progress while stressing the counterof-
fensive is far from finished. Many west-
ern-trained and equipped brigades are
yet to be sent into battle.
Some reserves have already been qui-
etly committed in the south, according
to Sultan, a commander in the 78th Reg-
iment, a special forces unit, and other
soldiers who spoke near the front line in
the southern region of Zaporizhzhia.
Two soldiers in early operations said
they faced stiffer resistance than expec-
ted from the Russians, resulting in the
losses of US Bradley fighting vehicles
and western engineering equipment.
They also said many “inexperienced”
troops were “unprepared” for the com-
plex assault despite receiving training.
The troops described “chaos” in the
early days of the operation: friendly fire
and attacks that quickly evolved into
imbalances in Turkey’s economy,
including very high imports of con-
sumer goods that have driven a record
current account deficit in the first five
months of 2023.
Many independent economists have
said policymakers must do more to fight
inflation, which registered 38.2 per cent
in June after peaking last October at
above 85 per cent.
Significant increases in petrol taxes
and value added taxes on goods and
services, made recently as part of a
tightening in fiscal policy, are likely to
add to inflationary pressures, econo-
mists say.
The sharp increase in the central
bank’s inflation forecast will be inter-
preted as a positive signal to investors,
who had expressed concern ahead of
yesterday’s briefing that the central
bank would follow its previous path of
greatly underestimating the rate of
price growth.
Erkan, a former Wall Street banker
who was appointed governor after
Erdoğan’s re-election as president in
May, said that the central bank would
take a “holistic” approach to monetary
policy.
example by introducing caveats to pre-
vent fathers of children with disabilities
from being recruited, as “protectors of
draft dodgers”.
The bill was also expected to raise the
minimum conscription age from 18 to
21. But that aspect was dropped at the
last minute. Kartapolov claimed this
was in response to popular demand.
Other reforms introduced include a
ban on leaving the country for any men
mobilised to serve in Ukraine or con-
scripted to the regular army.
Hundreds of thousands of Russians
fled the country in September after
Putin announced that 300,000 would be
mobilised for war.
Additional reporting by Felicia Schwartz
rescue operations after being halted by
minefields, anti-tank rockets and Rus-
sian Ka-52 helicopters. Sultan, recover-
ing from a concussion from a mine blast,
complained his special forces unit was
now being forced to fight “like regular
infantry” to fill a void left by brigades
that took heavy losses early on.
“We should be four to eight guys doing
reconnaissance and operations behind
enemy lines. But we are being told, ‘You
have to fight like everyone else now’,” he
said. That has meant advancing meth-
odically over open fields where Russian
drones easily spot them. Luckily, [our]
artillery “covered our arses”, he said.
“We liberate 1-2 sq km of our territory
every day,” Colonel Vlad Voloshyn, a
military press officer, said on a visit to a
unit operating Soviet-era BM-21 Grad
multiple-launch rocket systems near
Soledar, north of Bakhmut.
Some Russian officers have lamented
Ukraine success in the area and the ina-
bility of their own troops to respond to
the artillery fire in kind. “The enemy’s
[artillery] crews do not change posi-
tions for hours, working with impunity
on our front line, and we are not able to
suppress them,” wrote Alexander Khod-
akovsky, a Russian commander in
Donetsk region, on Telegram.
That meant that in addition to inter-
est rate increases, the central bank
would seek to cool overheating demand
by taking steps to slow bank lending.
The central bank already this week cut
the monthly limit on commercial loan
growth as part of what it called its “selec-
tive credit tightening” strategy.
“Data is very valuable,” Erkan, who is
a specialist in developing mathematical
risk-management models, said as she
underscored how the central bank
would rely on quantitative analysis in its
decision-making.
Erkan also insisted that the central
Hafize Gaye Erkan: says central bank
will be ‘completely independent’
Friday 28 July 2023
Yevgeny Prigozhin
Wagner chief
in surprise
appearance
at Russia’s
Africa summit
MAX SEDDON — RIGA
ANDRES SCHIPANI — NAIROBI
Yevgeny Prigozhin, founder of the
Wagner paramilitary group, has
appeared during a Russia-Africa sum-
mit in St Petersburg, despite agreeing
to go into exile following his failed
mutiny last month.
The warlord’s continued presence in
Russia suggests that Prigozhin remains
an important part of the Kremlin estab-
lishment, with Vladimir Putin reluctant
or unable to exclude him.
Prigozhin was photographed shaking
hands with Freddy Mapouka, chief of
protocol for Central African Republic
president Faustin-Archange Touadéra,
who attended the summit.
Dmitry Syty, one of Wagner’s most
visible figures in CAR, posted the pic-
ture on Facebook with the message: “Mr
Ambassador shared with me the first
photos of the Russia-Africa Summit. We
see familiar faces,” with a smiling emoji.
Syty, director of a Russian cultural
centre in the CAR capital, Bangui, has
been hit with sanctions by the US, EU
and, a week ago, the UK, as one of sev-
eral Russian nationals active in CAR
with links to Prigozhin.
Fontanka, a local news outlet, said the
photo was taken in a hotel in St Peters-
burg owned by Prigozhin’s family, which
it said had been booked out for all three
days of the summit.
News outlets that were part of Prig-
ozhin’s media empire, whose ultimate
fate, like that of Wagner’s, remains
unclear, claimed Prigozhin also met offi-
cials from Mali as well as Niger, where a
coup attempt that began on Wednesday
threatened to remove its pro-western
president, Mohamed Bazoum.
Prigozhin agreed to relocate to Bela-
rus last month after its president, Alex-
ander Lukashenko, brokered an elev-
enth-hour deal to end the group’s rebel-
lion against the Russian army, which
Prigozhin has accused of mismanaging
the war effort. But he has spent a lot of
time since in Russia and even met Putin
at a roundtable in the Kremlin. Prig-
ozhin said last week that Wagner would
“gather our strength and head off to
Africa” after leaving for exile in Belarus.
His rebellion had called into question
whether Wagner could continue fight-
ing as mercenaries for Moscow-friendly
governments in countries such as CAR
and Mali. Russia has assured CAR that
Wagner will “continue their activity in
the necessary and required numbers”.
Wagner, a once-secret organisation
essentially directed by Russia’s military
intelligence, has been an important part
of the Kremlin’s power projection in
Africa, sending mercenaries to fight in
some countries and political spin-doc-
tors to work in several others.
CAR has been the major showcase for
Wagner’s efforts on the continent.
Touadéra owes his survival to the Wag-
ner fighters who arrived in 2018 to
instruct his army and helped thwart an
attempted rebellion two years later.
CAR has since become a vehicle for Rus-
sia’s African ambitions, according to
western diplomats in Bangui.
Touadéra has called a vote this week-
end to override a constitutional bar on
running for a third term, a move sup-
ported by Moscow, said former senior
members of the constitutional court.
bank would be “completely independ-
ent” from government pressure and
that its decisions would be “purely
driven by the science”.
Erdoğan, a diehard opponent of high
borrowing costs, has hitherto exerted
strong control over monetary policy by
insisting on interest rate cuts. He dis-
missed Naci Agbal, a former finance
minister, as central bank governor in
2021 after sharp increases in interest
rates.
Erkan responded to economists’
doubts about how much latitude she
would have in raising rates by saying:
“You have to take very careful steps
[and act with] precision.”
Tim Ash, an emerging markets
strategist at BlueBay Asset Manage-
ment, said that the “message is clearly
that they do not want to shock the sys-
tem and want to learn and calibrate as
they go on”.
However, he warned: “The market
just does not think that [finance minis-
ter Mehmet] Şimşek and Erkan have a
mandate to do whatever it takes to fight
inflation, at least not when it comes to
policy rates, and that Erdoğan is still the
rate setter.”
Friday 28 July 2023 ★ FINANCIAL TIMES 3

INTERNATIONAL

India edges out rivals to dominate cricket

Developments in the south Asian game have brought unparalleled riches but pose potential threat to international fixtures
BENJAMIN PARKIN — NEW DELHI
For many fans, the Ashes series between
England and Australia has been the pin-
nacle of cricket. Since the 19th century,
the two traditional powerhouses have
faced off in multiway Test matches, gru-
elling contests of skill that have entered
into cricket lore.
Yet the buzz around this summer’s
Ashes disguises that the pulse of global
cricket has decisively moved elsewhere.
Some 4,000 miles to the east, India is
quickly eclipsing England and Australia
as the ultimate power in global cricket,
revolutionising the game in ways early
proponents in London or Melbourne
could never have imagined.
Since it launched the wildly successful
Indian Premier League tournament in
2008, India has brought unparalleled
riches to the sport. Its teams now attract
the world’s best players and have
bought up international franchises.
Governing body the Board of Control
for Cricket in India dominates global
decision-making and takes a larger
share of global revenues than England
and Australia combined. India is even
influencing how the game is played,
with test teams such as England increas-
ingly adopting crowd-pleasing, aggres-
sive playing akin to the IPL’s short, fast-
paced Twenty20 format.
“India’s influence in global cricket
cannot be overstated,” said Arun Dhu-
mal, the IPL’s chair and a former BCCI
executive. “The IPL has been a game-
changer, not only for Indian cricket but
also for world cricket, in terms of the
traction it’s generated with fans across
the globe, in terms of the financial band-
width . . . It has been phenomenal.”
This is partly arithmetic. With 1.4bn
people, India has a larger population
than every other established cricket
nation put together. Yet it is also a prod-
uct of the IPL, whose powerful cocktail
of shorter, made-for-TV matches and
star appeal has proved irresistible for
players and fans around the world.
“It’s the first time cricket has been
brought into an area where it’s on a par
with the NFL, basketball and football,”
said Reece Topley, an England interna-
tional whose IPL debut was with the
Royal Challengers Bangalore this year.
“All I’ve ever wanted was to play cricket
and for it to be how a 10-year-old imag-
ines what playing professional sport is.”
India will enjoy a homecoming of
sorts this year when it hosts the men’s
World Cup in October for the first time
in more than a decade. For Prime Minis-
ter Narendra Modi, cricket has proved a
Bowled over: useful tool at a time when he is project-
Chennai Super ing India as a rising power. Many of the
Kings fans event’s key matches, including the final,
celebrate their will be in his political base of Ahmeda-
team’s win bad at the Narendra Modi Stadium, the
against Gujarat world’s largest cricket ground.
Titans at the IPL But some see India’s growing domi-
Twenty20 final nance as a threat to the game, as the
in Chennai on country exerts more control over the
May 30 rules, finances and politics of cricket.
R Satish Babu/AFP/Getty
The BCCI, which is run by loyalists of
Images
Modi’s Bharatiya Janata party, can dis-
play this power bluntly. Last year it said
it would refuse to travel to arch-rival
Pakistan for the Asia Cup, forcing the
tournament to be rescheduled, with
many matches now in Sri Lanka.
“India has become like a global crick-
eting superpower,” said Imran Khan,
Pakistan’s former World Cup-winning
cricket captain and prime minister. “It’s
the power of finances which they have,
and I think through that they’re wield-
ing a disproportionate amount of power
in the cricketing world.”
India’s clout is only growing, with glo-
bal governing body, the International
Cricket Council, this month agreeing a
revenue-sharing deal that will cement
the country’s financial dominance. The
BCCI will take nearly 40 per cent, about
$230mn a year, of the ICC’s earnings
A financial between 2024 and 2027, a board mem-
ber said. That compares with about 6
report by per cent each for England and Australia.
the England Advocates disclosed this was a fair re-
flection of the money India was bringing
and Wales into the game, with countries enjoying
Cricket higher overall revenues even if their
share of the pie had shrunk. Media
Board rights for the 2023-27 IPL games were
identified sold for an unprecedented $6bn, mak-
ing the league the second-most valuable
the ‘growth on a per game basis after the US NFL.
of global “When you see where that value is
created, I think it’s understandable,”
franchise Richard Gould, chief executive of the
leagues’ as a England and Wales Cricket Board, said
on a podcast last month. “Without
big risk them, we wouldn’t have the kind of rev-
enues that are coming into the game.”
Yet many smaller cricketing nations
fear they will struggle to survive. Some
said India’s ever larger share of riches
risked depriving teams such as the West
Indies, an erstwhile on-field force in
decline, of funds to keep the sport alive.
“India deserves to have the dominan-
ce because of the . . . commercial stand-
ing of Indian cricket, but that doesn’t
mean at any cost,” Thilanga Sumath-
ipala, a former president of Sri Lanka’s
cricket board, said. “Economically aff-
ected cricket-playing nations are help-
less unless the ICC puts its foot down.”
Dhumal argued India sustained the
game in many of these countries, with
matches against it helping generate luc-
rative television audiences. “BCCI is
very happy to share that revenue with
the other emerging countries,” he said.
India’s biggest impact is arguably set
to be felt at the club level. Flush with
cash, Indian teams such as Bollywood
superstar Shah Rukh Khan’s Kolkata
Knight Riders and tycoon Mukesh
Ambani’s Mumbai Indians have bought
franchises in new Twenty20 leagues
from South Africa and the Caribbean to
the United Arab Emirates. The first sea-
son of Major League Cricket, a US T20
tournament, started this month.
People familiar with the talks said IPL
teams were pushing to overhaul rules to
allow them to contract players year
round, moving them from league to
league in an international club model.
Players such as England’s Jason Roy and
Andre Russell of the West Indies have
already forgone international contracts
to play for global IPL franchises, a trend
fans fear will ultimately lead to fewer
stars being available at international
tournaments, including the Ashes.
“We try to have a core group of players
who can be involved in all the franchi-
ses,” one team owner said. This would
become “a caravan model”, moving
from one tournament to another.
Critics said this would undermine
international fixtures, cricket’s tradi-
tional mainstay. A recent financial
report by the England and Wales Cricket
Board identified the “growth of global
franchise leagues” as a big risk, with
long-form international Test matches
ceding ground to the T20 leagues.
Mike Fordham, a former chief execu-
tive of IPL team Rajasthan Royals, said
the game was “some way away” from
such a model, but the pressure would
build as “the money increases and the
influence of these teams increases”.
Even so, he pointed out: “A sport like
rugby would probably kill to have a
financial behemoth like India as its
main source of revenue.”
Ironically, India has not kept up its off-
field dominance on the pitch. While the
men’s team is among the best in the
world, it has not won an ICC tournament
since 2013 and was beaten by Australia
in the final of the World Test Champion-
ship last month.
“The IPL has increased the depth of
talent,” Fordham said. “They’re cer-
tainly due a major win.”
Additional reporting: Sam Agini, London

Obituary stepsisters. Her childhood, marred by

her parents’ separation, was turbulent.
She recalled being beaten by her
nor recorded for her second album I Do
Not Want What I Haven’t Got, she felt hol-
low. “I couldn’t understand why any-
Irish singer and mother, locked in her room with no food
and even being put in the passenger seat
body liked my songs or why anybody
clapped or thought they were good,” she

activist with of a car while her mother deliberately

smashed into an oncoming car. When
she was young, she would knock on
wrote. “I really had no self-esteem when
it came to songs or anything else.”
The award-winning artist’s papal pro-
mesmerising neighbours’ doors asking if she could be
their child.
test was preceded by her refusal in 1990
to allow the US national anthem to be

voice Angry and “not a nice person” during

Sinéad O’Connor
Pop star
1966-2023
Sinéad O’Connor never wanted to be a
pop star. A waif-like warrior with a mes-
merising voice, the shaven-headed Irish
singer, who has died aged 56, wanted to
be like Bob Dylan: “Not just an enter-
tainer, but an activist.”
The image of her ripping up a photo of
Pope John Paul II on US television show
Saturday Night Live in 1992 embodied
her refusal to compromise her beliefs,
and endeared her to a nation stifled by
religious repression.
The act was a protest at the sexual
abuse of children by the Catholic
Church in Ireland, by a self-confessed
“troubled soul” who suffered violence
and neglect at home and was sent as a
teenage tearaway to a Catholic institu-
tion that ran an infamous Magdalene
laundry for so-called fallen women.
“Everyone wants a pop star, see? But
I’m a protest singer. I just had stuff to get
off my chest,” O’Connor wrote in her
2021 memoir, Rememberings.
Ireland was stunned when the news
broke of the singer’s death. A radio pro-
gramme on national broadcaster RTÉ
shortly after the announcement felt like
a wake, as songs from her 10 albums
ranged from the cover of Prince’s “Noth-
ing Compares 2 U” that launched her as
a star, to her own material, traditional
Irish ballads and reggae.
Born in an affluent suburb south of
Dublin on December 8 1966, O’Connor
was the third of four children; her father
later had another son and she had three
her teenage years, O’Connor wrote that
she was “addicted to stealing”, even sell-
ing flowers to her neighbours that she
had pilfered from their gardens.
She was sent to An Grianán Training
Centre, “what is politely called a reha-
bilitation centre for girls with behav-
ioural problems”, at 13, but left two
years later to go to boarding school. The
poetry of WB Yeats inspired her to write
songs and aged 16, she left education to
pursue music.
An advert in Ireland’s music maga-
zine, Hot Press, led to a stint with the
group, Ton Ton Macoute, a move to Eng-
land at 18, months after her mother died
in a car crash, and a record deal.
O’Connor said that at 19 she shaved
her head to defy the record label’s desire
for a more feminine look. Soon after, she
gave birth to the first of her four chil-
dren and her acclaimed first album, The
Lion and the Cobra, was released.
But even after the runaway success of
“Nothing Compares 2 U”, which O’Con-
‘A lot of people say tearing
up the Pope’s photo
derailed my career . . .
having a No1 derailed it’
played before a show. Both decisions
provoked a public outcry. She was
booed and jeered at a Madison Square
Garden tribute to Dylan weeks after rip-
ping up the Pope’s photograph, and pro-
testers crushed her recordings with a
steamroller.
“A lot of people say or think that tear-
ing up the Pope’s photo derailed my
career . . . I feel that having a No1
record derailed my career and my tear-
ing the photo put me back on the right
track,” she recalled in her memoir.
Even posthumously, her career is set
to continue. A longtime friend, DJ BP
Fallon, told RTÉ on Wednesday, hours
after the news of her death broke, that a
“fantastic” new album by O’Connor is
“waiting to come out”.
Fans loved the artist’s integrity, as evi-
denced by the tributes that have poured
in from all corners of the globe. Irish
president Michael D Higgins praised her
“authenticity” and “fearless commit-
ment to the important issues she
brought to public attention, no matter
how uncomfortable those truths may
have been”.
Live performances and her children
were O’Connor’s enduring passions. One
of her last tweets, on July 17, recalled her
son, Shane, who died by suicide last year
aged 17. “Been living as undead night
creature since,” she wrote.
The singer had long battled mental
health problems, attempting suicide on
her 33rd birthday and suffering, in her
words, “a total breakdown” in 2015.
Besides child abuse in the church, the
singer spoke up for the rights of women
and immigrants. A deeply spiritual per-
son who explored Rastafarianism, she
converted to Islam in 2018 and changed
her name to Shuhada’ Sadaqat. “I hope
that if there’s a heaven, I qualify,” she
wrote in her memoir.
Higgins spoke for many when he
ended his own tribute to O’Connor:
“May her spirit find the peace she
sought in so many different ways.”
Jude Webber
4 ★ FINANCIAL TIMES Friday 28 July 2023

INTERNATIONAL
GLOBAL INSIGHT
Rising temperatures
SUMMIT

Hot July presages era of ‘global boiling’ Alan

UN warning comes after
experts caution weather is
becoming more extreme
CAMILLA HODGSON AND
CHRIS CAMPBELL
The world faces a new era of “global
boiling”, the head of the UN has warned,
as forecasts showed that July is expected
with the month now “extremely likely”
to be the hottest ever, it said.
The hottest single day ever recorded
was July 6, while the global mean tem-
perature temporarily exceeded 1.5C
above pre-industrial levels during the
first and third week of the month, the
group said.
The global average sea surface tem-
perature had also been “well above pre-
viously observed values for the time of
Beattie
Guterres. “The level of fossil fuel profits ‘Climate a 98 per cent likelihood that “at least”
and climate inaction is unacceptable.” one of the next five years would be the
change is
A temporary breach of the 1.5C
threshold is not a breach of the Paris
Agreement, which commits countries to
here. It is
warmest ever. It has previously pre-
dicted a 66 per cent chance that the
annual global mean temperature would
Brics nations run the
strive to limit long-term warming to
1.5C above pre-industrial levels, defined
terrifying.
And it is
temporarily rise above 1.5C in “at least”
one year by 2027. The WMO noted that
risk of looking like
as the 1850-1900 period. Temperatures
have risen at least 1.1C on that basis, the
UN Intergovernmental Panel on Cli-
just the
extreme weather impacts were increas-
ing in Asia, which was the world’s “most
disaster-prone region”.
a fan club for Beijing
mate Change has found.
beginning’ Large areas of Europe, the US and

to be the hottest month ever recorded.
“The era of global warming has
ended; the era of global boiling has
arrived,” António Guterres, UN secre-
tary-general, said yesterday.
The global average temperature this
month has at times been about 1.5C
higher than it was before human-in-
duced warming set in, according to the
EU’s Copernicus Climate Change Serv-
ice. The first three weeks of July were
the warmest such stretch on record,
the year” since May, said Copernicus. It is not the first time that the global
Copernicus director Carlo Buon- mean temperature has temporarily
tempo said it was “more probable than crossed the 1.5C threshold for a month,
not” that the next few months would however, with instances occurring in
also break temperature records for the previous years including 2016 and
time of year, adding that the hottest 21 2020, according to Copernicus.
days recorded had all occurred in July. Scientists say that extreme weather
“All this is entirely consistent with events such as floods and heatwaves will
predictions and repeated warnings. The become more frequent and intense with
only surprise is the speed of the change. every fraction of a degree of warming.
Climate change is here. It is terrifying. The World Meteorological Organisa-
And it is just the beginning,” said tion yesterday confirmed its forecast of
South America. Decarbonisation
T
António Asia are roasting this summer, with
Guterres records broken in places including Xin-
jiang in China, which hit 52.2C, and
Rome in Italy, which hit 41.8C. In the US,
Phoenix has suffered 26 consecutive
days of more than 43.3C, a record.
The simultaneous heatwaves fuelled
by a specific jet stream pattern have
sparked wildfires in Greece and led to
heat-related fatalities in countries
including the US, Mexico and Italy.
Opinion see Letters page
here cannot be many international summits
where a head of government stays away for
fear of being arrested for war crimes, but the
Brics grouping has managed it.
Vladimir Putin will skip next month’s meet-
ing of Brazil, Russia, India, China and South Africa in
Johannesburg because the hosts, as a signatory to the
International Criminal Court, would have to detain him
under a warrant for Russia’s activities in Ukraine.
It is unlikely he will miss much policy substance. Apart
from a lot of defiant rhetoric against the rich world, one of
the main themes will be barely hidden tension around the
role of China.
Brics nations look seriously lopsided. Invented by Gold-
man Sachs economists in 2001 as a marketing tool, the
grouping became a political entity when the four countries
(South Africa joined later) held their first summit in 2009.

Brazil aims high with green transition drive
Initiative envisages marriage
of environmental goals
and economic development
BRYAN HARRIS — SÃO PAULO
Brazil is to launch a green transition
plan requiring hundreds of billions of
dollars in public and private invest-
ments that officials hope will become
the signature policy of President Luiz
Inácio Lula da Silva’s third term.
The package, to be unveiled in August
or September, would encompass about
100 initiatives including carbon trad-
ing, the bioeconomy and infrastructure
adaptation across six policy areas, said
officials co-ordinating the plan.
“The idea is to have the most ambi-
tious plan to decarbonise an economy in
the world, at least among developing
countries,” said a senior official.
Word of the package comes as Brazil
appears to have slowed the rampant
deforestation of the Amazon during the
previous administration of Jair Bol-
sonaro, the far-right president. Official
data suggests destruction of the rainfor-
est was more than 33 per cent lower in
the first six months of this year than the
same period last year.
Brazil is the latest country to launch a
bold programme to green its economy.
US president Joe Biden’s Inflation
Reduction Act pledges hundreds of bil-
lions of dollars in subsidies and tax
breaks to encourage companies to
develop green technology and create
jobs. The EU is also relaxing state aid
rules to unlock more government
spending on the green transition.
Some activists are cautious about
Lula’s environmental commitment at a
time when Petrobras, the state-control-
led energy group, is increasing oil and
gas production, but many investors
have lauded the change in attitude.
“We are already seeing specific oppor-
tunities tied to the environment receive
more international investment,” said
Daniel Rummery of Brunel Partners,
which advises foreign investors. “More
significant is how it changes the mood
music internationally that Brazil is no
longer an environmental pariah.”
Lula officials hope the package will
continue beyond his presidency, with a
view to fulfilling international commit-
ments to climate neutrality by 2050.
Tree battle: Among the first initiatives will be leg-
under Luiz islation for the creation of a regulated
Inácio Lula da carbon market, which will be sent to
Silva, seen with Congress in the coming months.
indigenous “We’re very confident that it’s not
women last year, going to be very tough to approve it in
the rampant Congress because the sector that is most
deforestation directly affected — industry — is sup-
of the Amazon, porting the carbon market,” said an offi-
below, has cial at the finance ministry.
slowed The plan envisages the redeployment
Christophe Gateau/picture-
alliance/dpa/AP; Ueslei
of federal funds for research and devel-
Marcelino/Reuters opment to focus on green technologies
and the expansion of technical educa-
tion in relevant areas, such as biotech-
nology in the rainforest or renewable
energy in the sunny, gusty north-east.
It will target the development of prod-
ucts and industries based on the diver-
sity of Brazil’s biomes. Such bioecon-
omy initiatives have long been champi-
oned by environmentalists. Pedro
Côrtes, professor at São Paulo univer-
sity’s energy and environment institute,
said: “Brazil needs to adopt a proactive
stance that associates environmental
preservation with economic develop-
ment. For example, biotechnology
could use national flora for the develop-
ment of pharmaceutical products.”
It is a reality acknowledged by offi-
cials, who admit that the elimination of
illegal deforestation and gold mining in
the Amazon requires new opportunities
in the impoverished region. The finance
ministry official said: “We have to put
together economic opportunities
because otherwise it won’t be sustaina-
ble in the medium and long run.”
With more than 90 per cent of its elec-
tricity generated by clean energy, nota-
bly hydropower, officials want Brazil to
develop as a hub for green technologies,
such as renewable hydrogen.
The official said: “Our challenge is to
have more stages of the value chain pro-
duced in Brazil. We want to export the
technologies necessary to produce
renewable hydrogen and [other] tech-
nologies for the decarbonisation of our
economy.”
The government estimates the pack-
age will be worth hundreds of billions of
dollars over the next decade. But it says
the bulk of that will come from partner-
ships with the private sector and private
investment. In the areas that require
public money, “we are working on mak-
ing tweaks in existing funds, so that it
will fit in our budget. We don’t want to
break our fiscal rules,” one official said.
Sérgio Margulis, chief economist of
Convergência pelo Brasil, a business
roundtable, said the package was
“timely” but warned many initiatives
were likely to face political obstacles.
“It is a difficult political moment with
a behind-the-times Congress and an
agricultural sector that is thriving but
also very conservative in relation to the
environment,” he said.
But Rafael Dubeux, an adviser at the
finance ministry, is optimistic the
agenda would succeed, saying it was not
only pro-environment but pro-develop-
ment.
“We’re still a poor country . . . and we
do have to make it politically feasible to
show to the population that it’s also
going to bring opportunities in terms of
well-paid jobs and productivity
increases,” he said.
“The merger of these two objectives is
very central to the plan.”
Dan Ciuriak, a former deputy chief economist at Can-
ada’s trade department and now a senior fellow at the Cen-
tre for International Governance Innovation think-tank,
notes that only a fortuitous confluence of events in the late
1990s and 2000s made the group look vaguely equal, even
in aspiration.
While China’s low-cost manufacturing was benefiting
from Deng Xiaoping’s economic reforms, Russia and Brazil
were emerging from economic chaos (Russia after the fall
of communism, Brazil from its stabilisation of the cur-
rency after 1994) to ride the commodities boom of the
2000s. India had a burst of growth after the economic lib-
eralisation that followed a balance of payments crisis in
1990-91. South Africa was
boosted by the end of
apartheid in 1994.
China’s support
But during the 2000s for other Brics
and 2010s only China
m a n a g e d t o m ove
members is
towards rich-world status not exactly
by adopting technological
advances to become a
unconditional
knowledge-based econ-
omy. The others remained stuck in low-growth models
dependent on commodities, their policy apparatus ham-
pered by political dysfunction and corruption.
The Chinese economy now rivals that of the US — it is
larger in purchasing power parity terms — and its size and
income fund a belligerent foreign and military policy.
The idea of a new Brics currency, mooted in particular
by Brazilian president Luiz Inácio Lula da Silva, is essen-
tially fantasy: the renminbi is the only one of the five inter-
national currencies with any significant overseas role. The
Brics nations’ New Development Bank has so far extended
$32.8bn in loans, while China has lent about $1tn bilater-
ally. Its Belt and Road Initiative not only builds infrastruc-
ture but also aims at trade and political alignment.
Nor is China’s support for other Brics members exactly
unconditional. Even leaving aside its longstanding military
rivalry with India, China has given Putin diplomatic cover
for Ukraine, but is in effect charging for it by buying Rus-
sian oil below market price. Geopolitically, China also
unbalances the club. It is in an economic, technological and
strategic rivalry with the US, while other Brics members are
trying to stay on good terms with Brussels and Washington.
China mooted the idea of expanding Brics last year but
other existing members including Brazil seemed distinctly
reluctant. If nations enter who are beholden to China
through ties of debt or investment, Brics will look ever less
like a steering group for the emerging world and more like
a fan club for an aspiring hegemon.
If the Brics remain a pressure group united by resent-
ment against overweening US power through sanctions or
military intervention, they can be cohesive, if not particu-
larly constructive. If the group tries to run the show itself,
its disparate economic prospects and strategic interests will
become a powerful centrifugal force. As Ciuriak points out,
if you have a collection of emerging markets whose ambi-
tion is to become advanced economies and only the largest
one is really on track, you do not have a cohesive club.
It is now established wisdom to say the Brics grouping
has come a long way since it first got together as a political
unit. Certainl its rhetoric and ambition has. The disjointed
and unbalanced reality has a lot further to go.
alan.beattie@ft.com

Economic output West Africa

US growth accelerates 2.4% despite rate rises
NICHOLAS MEGAW — NEW YORK
Economic growth in the US was
stronger than expected in the second
quarter of 2023, as activity proved
resilient in the face of the Federal
Reserve’s campaign of aggressive inter-
est rate rises.
The world’s largest economy grew
2.4 per cent on an annualised basis
between April and June, according to
preliminary figures released by the
commerce department yesterday.
That marked an acceleration from a
2 per cent growth rate in the first quar-
ter and was well above the 1.8 per cent
predicted by economists.
Consumer spending growth slowed
after an unusually strong start to the
year but the reduction was more than
offset by strong business investment.
“We’re seeing some encouraging signs
of resilience, especially when you look
at private sector demand,” Gregory
Daco, EY Parthenon chief economist,
said. “Whether it’s consumers or busi-
nesses, there’s still a desire to drive
growth and spend, albeit with more cau-
tion than in the past.”
The data comes a day after the US cen-
tral bank raised its benchmark interest
rate to the highest level in 22 years as
part of its effort to tame inflation.
The consumer price index in the US
has fallen from a peak of more than
9 per cent in June 2022 to 3 per cent last
Jay Powell:
aims to move
inflation nearer
to target without
a significant
downturn
month, while the unemployment rate
remains close to record lows and con-
sumer confidence has improved.
The combination of recent data has
raised hopes that the central bank will
achieve the rare feat of a “soft landing” —
bringing inflation under control without
significant economic damage. But others
are concerned that the economy’s resil-
ience will make it harder to bring infla-
tion to the Fed’s 2 per cent target. Fed
chair Jay Powell said his “base case is that
we will be able to achieve inflation mov-
ing back down to our target without the
kind of really significant downturn that
results in high levels of job losses”.
Eric Winograd, senior economist at
AllianceBernstein, said: “To me the
most important signal out of [yester-
day’s data] is that households continue
to consume . . . And I don’t think we
should expect the consumer to weaken
until the labour market does.”
Outlook upgrades and upbeat com-
mentary from several US companies
this week have also painted a picture of
a resilient domestic consumer.
McDonald’s chief executive Chris
Kempczinski said yesterday that the
fast-food chain had not observed a “dra-
matic” change in the US consumer.
“Sentiment is actually improving a little
bit but we’re certainly still far off of
where we were back in 2019,” he said.
The S&P 500 was up 0.7 per cent in
morning trading while the Nasdaq Com-
posite advanced 1.2 per cent.
Niger army backs coup to avoid ‘bloodbath’
DAVID PILLING — AFRICA EDITOR
Niger’s army has come out in support
of this week’s coup in a move it said was
intended to prevent “a bloodbath”
between different military factions and
to protect the life of the ousted presi-
dent and his family.
General Abdou Sidikou Issa, the chief of
staff, said the army had decided to
endorse the coup against President
Mohamed Bazoum “to avoid a deadly
confrontation between the various
forces and a consequent potential
bloodbath threatening the security of
the population”.
His statement yesterday marked a
sharp reversal of an earlier position in
which the army had sworn allegiance to
Bazoum, who was democratically
elected in 2021. That changed after a
group of special forces led by Colonel
Amadou Abdramane, went on televi-
sion late on Wednesday to declare that
they were taking over and suspending
the constitution.
One person who has been in contact
with Bazoum, who is still believed to be
trapped in the basement of his resi-
dence, said Omar Tchiani, the head of
the presidential guard, had threatened
to kill the president and his family if the
army “fired a shot” against his men.
The coup in the west African country
began earlier on Wednesday when Tchi-
ani moved against the pro-western
‘The situation is fluid but
the window is narrowing.
The momentum has
swung to the putschists’
Bazoum and confined him to his home.
Bazoum sought to rally support for a
fightback, insisting in a Twitter post yes-
terday that “hard-won achievements
will be safeguarded”.
A second person who spoke to the
president on Wednesday said Bazoum
still harboured hopes that the army
would come to his rescue and force the
presidential guard to stand down. Issa’s
endorsement of the coup would appear
to end those hopes.
“The situation is still fluid but the
window is narrowing,” said Peter Pham,
a former US government envoy to the
Sahel region. “The momentum has
swung to the putschists.”
Demonstrators, some chanting pro-
military slogans and a few brandishing
Russian flags, came out on the streets of
the capital, Niamey, yesterday. The pre-
vious evening, pro-democracy protest-
ers had been dispersed when the presi-
dential guard fired shots in the air.
Pham said ousting Bazoum put at risk
the entire US and French strategy for
fighting a jihadi threat across the Sahel,
a strip of semi-desert that runs beneath
the Sahara where affiliates of Isis and al-
Qaeda have made significant gains.
After military coups in Mali and
Burkina Faso, where the jihadis are
most entrenched, the US and Europe,
led by former colonial power France,
had bet heavily on Niger as their centre
of operations to halt the spreading
insurgency, said Pham.
Friday 28 July 2023 ★ FINANCIAL TIMES 5
6 ★ FINANCIAL TIMES Friday 28 July 2023

Pain in Spain Siemens Energy’s turbine travails deal latest setback to wind sector hit by rising costs and competition y COMPANIES

Shell and Total Beauty spots L’Oréal on the lookout for further
acquisitions after $2.5bn Aesop deal, chief says
Coutts chief
steps down
profits shrink after furore
over Farage
after fall in oil SIDDHARTH VENKATARAMAKRISHNAN
LONDON

Coutts chief executive Peter Flavel has

and gas prices stepped down, saying he bore “ulti-

mate” responsibility for the bank’s
treatment of former UK Independence
party leader Nigel Farage.
The private bank and its owner, Nat-
West, have been engulfed in a crisis
3 Majors’ quarterly earnings down by half since Farage revealed last week that
Coutts had closed his account in part
3 Shares hold steady despite sharp drop because of his political views.
“In the handling of Mr Farage’s case,
we have fallen below the bank’s high
TOM WILSON — LONDON Sawan, who took the top job in January. standards of personal service,” Flavel
A Shell lifer and former head of the said. “As CEO of Coutts it is right that I
Profits at Shell and TotalEnergies group’s oil, gas and renewables busi- bear ultimate responsibility for this,
shrank in the second quarter on lower nesses, Sawan has pledged to focus on which is why I am stepping down.”
gas and oil prices as the impact of Rus- performance to close a market valua- The revelation prompted a political
sia’s war in Ukraine on energy markets tion discount to US rivals. backlash and this week cost NatWest
wanes. Last month he laid out a plan for Shell chief executive Dame Alison Rose her
Shell reported adjusted earnings of to cut costs, boost shareholder payouts job after she admitted inaccurately
$5.1bn in the second quarter, missing and devote a higher proportion of briefing a BBC journalist over why
analysts’ estimates of $5.6bn — less than spending to oil and gas. Farage’s account was closed. A 40-page
half the record $11.5bn it reported last Shell will continue to invest in clean dossier prepared by Coutts’s wealth rep-
year at the height of the energy crisis energy but will work with more partners utational risk committee and obtained
and in line with the $5.5bn in the same in areas such as renewable power gener- by Farage was scathing in its criticism.
period in 2021. ation, leaving it to focus on energy trad- “Continuing to bank NF was [not]
Total said adjusted net income ing and supplying low carbon products compatible with Coutts given his pub-
dropped to $5bn, down 49 per cent com- to its customers, Sawan said yesterday. licly stated views that were at odds with
pared with the same period last year. The strategy could involve Shell sell- our position as an inclusive organisa-
Shares of the two groups held rela- ing part of its existing power portfolio to tion,” the memo read. Farage used
tively steady yesterday despite the fall- outside investors. “We are going into the “extreme, hateful and emotive lan-
market and looking for those partners guage . . . At best he is seen as xenopho-
who can hold hands with us as we try to bic and pandering to racists”. The bank
The decline signalled that unlock the renewable generation to Soap show: luxury skin care products from the Australian company Aesop, which has been acquired by L’Oréal had to be in a position to act quickly if he
18 months of bumper access green electrons that feed into made “public comments that created an
that integrated power value chain that ADRIENNE KLASA — PARIS have driven prices up for a small driven by the consumer division, its increased reputational risk”.
profits for the industry we think we can actually create value number of prime acquisition targets. biggest by sales thanks to booming A person with knowledge of the bank
French cosmetics group L’Oréal is
may be drawing to a close out of,” Sawan said. “The energy transi-
still on the lookout for deals, hot off
Paris-based luxury group Kering in demand for make-up. said Flavel was not on the reputational
tion is going to require unprecedented June purchased perfumer Creed for Operating profits increased 13.7 per risk committee but would have made
the back of its biggest acquisition
ing profits, with Shell down 1.4 per cent partnerships to take place.” €3.5bn or about 23 times earnings cent to €4.26bn following two consec- the decision to close Farage’s account.
after it agreed to pay $2.5bn for lux-
and Total up 0.9 per cent. The sharp Shell said yesterday that it had before interests, tax, depreciation and utive years of post-Covid 19 rebound. On Tuesday, a few hours before her
ury skincare company Aesop.
drop in earnings signalled that 18 reduced its capital spending plans to amortisation, according to people Growth in Europe, L’Oréal’s biggest departure, Rose said she had not
months of bumper profits for the indus- $23bn to $26bn for 2023, down from Chief executive Nicolas Hieronimus with knowledge of the terms of the market, and North America pro- received the memo herself when she
try may be drawing to a close. previous guidance of $23bn to $27bn. said the world’s largest beauty group deal. Analysts estimate high end gressed in the mid-teens. The post- had spoken to the journalist and inaccu-
Prices for liquefied natural gas, for It increased its quarterly dividend by had firepower left after buying the beauty deals currently fetch a pur- lockdown recovery in China is under rately suggested that Coutts’s decision
example, averaged $10/mmbtu in the 15 per cent to $0.33 a share and slowed Australian maker of $40 soaps in chase price of up to 25 times ebitda. way although sales have not yet was primarily commercial.
second quarter, Total said, down from the pace of planned share buybacks to April, pointing out that only three of Hieronimus, who became CEO in reached pre-pandemic levels. After NatWest chair Howard Davies
an average of more than $50/mmbtu in $3bn in the third quarter and $2.5bn in the company’s 36 global brands had 2021, insisted L’Oréal would maintain contracting in the first quarter, they announced an investigation into
August last year. the fourth quarter. been created in house. financial discipline: “When there’s an grew at 7 per cent in the second. Coutts’s handling of Farage’s account,
The biggest decline in Shell’s profits Like most rivals, Shell has used record “We have cash and L’Oréal has opportunity, we look at it [but] we are “The rebound in China has been a describing it as “unsatisfactory, with
came in LNG, with earnings in the profits from the past 18 months for a always made acquisitions,” very disciplined in how much we are bit slower than expected . . . I guess it serious consequences for the bank”.
group’s integrated gas division almost massive share repurchasing scheme. It Hieronimus said in an interview yes- willing to pay,” he said. takes a while to come out of three The departure of the Coutts head
halving to $2.5bn, from $4.9bn in the distributed $26bn to shareholders last terday ahead of the release of the com- He added that he was pleased with years of lockdowns,” Hieronimus came with “mutual consent” from
first quarter of the year. Lower prices year including $18bn in share buybacks. pany’s first-half results. “Being able to the performance of recent acquisi- said. L’Oréal’s luxury division drove Paul Thwaite, marking his first big deci-
and weaker trading profits owing to Total increased its interim dividend spot brands that have both dimen- tions including a deal for dermatologi- most of the rebound in China, growing sion on his first day as Rose’s interim
“seasonality and fewer optimisation by 7.25 per cent to €0.74 a share and sions — have stood the test of time a lit- cal skin brand CeraVe, which became “in the high teens” in the second quar- successor.
opportunities” had weighed on perform- committed to $2bn in share buybacks in tle bit and still have growth potential so popular in the US in recent years it ter, he said. But the lag in the group’s Thwaite said Mohammad Kamal
ance after a strong first quarter, it said. the third quarter. around the world — remains some- has often run out of stock. biggest market for luxury sales Syed, head of asset management, would
The quarterly results are the second ExxonMobil is expected to publish thing we really keep our eyes on.” First half sales were up 13 per cent resulted in slower sales growth com- become Coutts’s interim chief executive.
under Shell’s chief executive Wael earnings today and BP next week. Cosmetics groups including L’Oréal on a like for like basis to €28.5bn, pared with other divisions. See Opinion

Legal Notices
Big Tech takes off in race to give generative AI a central place
ant. This week’s earnings calls at Micro-
INSIDE BUSINESS soft, Alphabet and Meta were beset by
questions about when generative AI
TECHNOLOGY enhancements will feed through into
higher revenue (and how much AI-pow-
Richard ered services might cost to build and
run).
Waters Microsoft’s decision last week to slap a
$30-a-month premium on the AI fea-
tures it plans to add to its productivity
apps has been the most confident asser-
including offering its customers access
to a wider range of LLMs from other
companies.
The 3.9bn people who use a Meta app
at least once a month, meanwhile, make
up a huge potential audience. Chief
executive Mark Zuckerberg this week
gave a hint of what to expect: a range of
AI-powered assistants, agents and ava-
tars will soon populate the company’s
services, he suggested, helping users

I
s artificial intelligence best seen as a
business accelerant — something
that brings new, “smart” features to
existing products and provides a lift
to tech companies’ revenues?
Or is it a disruptive new platform,
with the potential to change the balance
of power in the tech industry?
That question has been hanging in the
air ever since ChatGPT burst on to the
scene. Generative AI — the type that can
compose an essay for homework or pro-
duce a picture on command — promises
to bring a valuable dimension to many
tion yet about the coming generative AI
wave.
But if large language models become a
core technology on which many future
tech products and services depend, it
suggests control of a cutting-edge LLM
will be a prerequisite for entry into
tech’s big leagues. Microsoft, through its
close tie to OpenAI, and Google are the
furthest ahead in developing this tech-
nology. Can others
match them as Earnings calls at Microsoft,
they race to build
ever-larger AI Alphabet and Meta were
models — and what beset by questions about
produce better content and increasing
their interaction with chatbots.
To support such ambitions, Meta has
produced a family of open-source lan-
guage models called Llama. Amazon is
developing its own models, called Titan,
and Bloomberg reported last week that
Apple has also joined the race.
Zuckerberg told Meta’s investors this
week that he didn’t believe there would
be “one single AI that people interact
with”, and that creators and others
would prefer different tools for different
purposes. AWS boss Adam Selipsky
made the same point in an interview

Imagine your advert here software products. How much more

useful would the application you are
using be if it could anticipate your next
need and produce a creative suggestion?
By offering a whole new way of inter-
acting with computers, however, the
technology could also become a plat-
Business for Sale, Business Opportunities, Business Services, form in its own right. Many applications
Business Wanted, Legal Notices, Company Notices, Public Notices, Floating Rates Notes, already plug into OpenAI’s large lan-
Shareholder Messages, Property For Sale, Tender Notices guage models, drawing on them to add
.........................................................................................................................................................................................................................................................................
Classified Business Advertising AI features. Historically, tech platforms
Tel: +44 20 7873 4000 | Email: advertising@ft.com such as this have tended to be very con-
centrated — whether that involves the
software behind laptop computers
Notice to Advertisers (Windows or MacOS), smartphones
Calls to the Financial Times Advertising Department may be monitored. (iPhone or Android) or browsers
Acceptance of any advertisement for publication will be subject to the then current terms and conditions of insertion (Chrome or Safari). How many of the
of advertisements in FT publications. so-called AI “foundation models” will
A copy of the terms and conditions of insertion of advertisements in FT publications can be obtained from
the market support?
+44 (0)20 7873 3000, or viewed at www.FT.com/advertising Investors, for now, are very much
focused on the idea of AI as an acceler-
will it mean if they
can’t? when generative AI
Apple, Amazon additions will lift revenue
and Meta have
tended to look at machine learning as an
important ingredient in their products,
but still only an ingredient — something
to improve a recommendations system
or provide analytical tools to advertis-
ers. They are now hurrying to give AI a
more central place in their operations.
Amazon Web Services seems to have
been caught flat-footed by Microsoft, its
closest rival in cloud computing, when it
comes to running generative AI serv-
ices. It’s still early days, but Microsoft
predicted that AI would add more than
2 percentage points of growth to its
cloud business this quarter. AWS is now
moving fast to catch up — this week it
announced a flurry of developments,
with the FT. There won’t be “one model
to rule them all”, he predicted.
It is too early to judge the outcome. In
the early days of internet search it was
also widely believed that a number of
rival services would compete, with spe-
cialised search engines filling different
niches in the market. Instead, a single,
general-purpose search service ended
up dominating. OpenAI’s bet on build-
ing ever-larger language models is that
the same will be true of AI.
If Wall Street’s optimistic predictions
prove right, it won’t be long before the
first fruits of the generative AI boom
start to show up in tech companies’
earnings reports. The ultimate impact
on the tech industry will take far longer
to become clear.
richard.waters@ft.com
Friday 28 July 2023 ★ FINANCIAL TIMES 7
8 ★
Banks
BNP faces sanctions over messaging lapses
Resolutions lined up with
US regulators as quarterly
results beat expectations
SARAH WHITE — LONDON
BNP Paribas is the latest bank to face US
regulatory sanctions over its record-
keeping of electronic messages used by
staff to discuss business matters, follow-
ing fines across Wall Street.
The eurozone’s biggest bank by mar-
ket value said yesterday that it had
reached “proposed resolutions” with
the enforcement divisions of the Securi-
ties and Exchange Commission and the
Commodity Futures Trading Commis-
sion, which had been investigating its
Technology
Brussels
investigates
Microsoft’s
bundling of
software
JAVIER ESPINOZA — BRUSSELS
EU regulators have opened a formal
investigation into claims that Microsoft
is unfairly bundling its Teams video
conferencing app with its popular
Office software as Brussels intensifies
its scrutiny of technology groups.
The European Commission, the execu-
tive body of the EU, said yesterday that
it feared Microsoft “may be abusing and
defending” its market dominance in
productivity software “by restricting
competition”.
It was concerned that the US tech
business may grant Teams “distribution
advantages by not giving customers the
choice” over access to the product, the
statement said.
The move is the first such probe
against Microsoft in more than a decade
and comes after rivals said that the
group’s concessions to stop tying in
Teams with its Office 365 software in
Europe were insufficient for fair compe-
tition, according to multiple people with
direct knowledge of Brussels’ thinking.
The investigation could lead to formal
charges against Microsoft as early as the
autumn, according to two people with
direct knowledge of the matter. The
Financial Times first reported that the
EU was poised to open a formal probe
into the matter last week.
“We respect the European Commis-
sion’s work on this case and take our
own responsibilities very seriously,”
Microsoft said. “We will continue to co-
operate with the commission and
remain committed to finding solutions
that will address its concerns.”
The European Commission said yes-
terday: “We have not received any com-
mitment by Microsoft that would
resolve our concerns. It is too early to
discuss a remedy to potential abuse.”
The EU has stepped up its actions
against Silicon Valley giants in recent
years. Margrethe Vestager, the bloc’s
executive vice-president in charge of
competition and digital policy, last
month threatened to break up Google.
The investigation into Microsoft
comes three years after Slack, now
owned by Salesforce, filed a complaint
with the EU. The workplace messaging
app accused Microsoft of using its domi-
nance to crush competitors by tying
Teams to its Office 365 tools.
Food & beverage
Nestlé expects prices to ease in second half
MADELEINE SPEED — LONDON
Nestlé has said price rises will start to
ease in the second half, as the KitKat
maker raised sales forecasts on better
than expected performance in the six
months to the end of June.
The biggest food company reported a
dip in sales volumes in interim results
yesterday, in a sign that customers were
resisting rising food and drink prices.
Nestlé posted a drop in real internal
growth — a proxy for sales volumes — of
0.8 per cent in its first half, having raised
prices to cope with higher production
costs and hived off underperforming
brands.
The fall was bigger than the 0.6 per
cent forecast by analysts and followed a
0.5 per cent dip in the first quarter.
The maker of Smarties and Nescafé
raised prices 9.5 per cent in the first six
months of the year, down only slightly
on a 9.8 per cent increase in the first
three months of the year, which was
compliance with requirements to keep
records linked to the “use of unap-
proved electronic messaging platforms
for business communications”.
BNP, which reported forecast-beating
second-quarter results yesterday, also
disclosed a €125mn charge linked to
unspecified litigation. It declined to con-
firm whether it was linked to the mes-
saging probes, which shook the banking
industry after investigations began to
emerge last year.
Lenders have since cracked down on
unauthorised use of encrypted messag-
ing services such as WhatsApp and Sig-
nal, while some bankers have been dis-
missed. HSBC fired a trader last year for
using messaging services inappropri-
ately. It was among the banks on which
Stargazing
Twitter seeks
the X factor
in Hollywood
Talent spotting: Twitter chief
executive Linda Yaccarino with
Paris Hilton during her trip to
Hollywood in the social media
platform’s attempt to attract stars
and influencers — Linda Yaccarino/Twitter
close to the fastest pace in more than
three decades.
Speaking to analysts yesterday, chief
executive Mark Schneider said price
rises would slow in the second half.
“It’s safe to say pricing won’t reach the
same levels as [the first half], but it’s
clear that in the overall macro [infla-
Consumer goods groups
have reported falling
volumes and in some cases
have lost market share
tionary] environment, higher prices
would still be needed.”
Consumer goods companies have
reported falling volumes and in some
cases have lost market share, suggesting
that shoppers are balking at consistent
price increases.
Nestlé said yesterday, however, that
consumer “demand elasticity” had
FINANCIAL TIMES
COMPANIES & MARKETS
sanctions were imposed, paying a total
of $45mn to the SEC and CFTC this year.
Goldman Sachs, Morgan Stanley and
Barclays agreed collectively to pay more
than $1.8bn in fines last year.
BNP said in its filing yesterday that its
“proposed resolutions” had yet to be
finalised.
The bank beat profit forecasts in the
quarter as charges on bad loans fell and
it kept a tight leash on costs, countering
a mixed performance in its investment
bank as earnings from debt trading fell.
It posted a near 5 per cent drop in net
profit from a year earlier to €2.8bn,
while revenue was down 1.5 per cent to
€11.4bn, though it still beat analysts’
expectations on both counts. It said that
without charges linked to litigation and
Linda Yaccarino, Twitter chief
executive, went to Hollywood this
week to woo talent agencies and
entertainers days after Elon Musk
announced the app’s sudden
rebranding to X.
Yaccarino met agents at Creative
Artists Agency and United Talent
Agency in Los Angeles, pitching her
vision for X in an attempt to bring stars
and influencers from cooking to music
and sport to the social media platform,
according to people familiar with the
matter. She also held meetings with
Disney, one person said.
The Hollywood trip comes days after
Musk announced an overhaul of the
Twitter brand, changing its name and
logo to “X” and abandoning the bird
logo that has been associated with the
platform for more than a decade.
While cast as part of his plan to expand
further into areas such as video, audio
and even payments, the unexpected
move prompted concern among
analysts that Musk was impulsively
wiping out years, and billions of
dollars, of brand equity.
One person who attended the
meeting with CAA said that Yaccarino,
the former advertising head at
NBCUniversal, told agents to “dream
up what they would want and X will try
to build it”. She urged those present to
consider ways they might have a
“mutually beneficial monetary
partnership”, the person said.
One format suggested by Twitter was
getting brands to sponsor an event on
Spaces, Twitter’s audio feature, with a
remained “limited” despite the rising
cost to customers.
Reckitt Benckiser and Unilever this
week reported lower volumes in
Europe, where consumers are battling
the cost of living crisis.
The Swiss business said that lower
volumes were also driven by actions it
took last year to shed some underper-
forming products and varieties in its
portfolio.
It warned in April that the measures
could have a “net negative impact” for
the first half, and “a slightly positive
impact” for the full year 2023.
However, Nestlé said that organic
sales during the period rose 8.7 per cent,
beating analyst consensus of 8.1 per
cent. The improvement was led by dou-
ble-digit growth in its Purina petcare
range, infant nutrition and confection-
ery, with strong sales of KitKat.
Nestlé expects full-year organic sales
growth in a range of 7-8 per cent, up
from a range of 6-8 per cent.
restructuring costs, profits would have
risen from a year earlier.
BNP’s share price rose 3 per cent yes-
terday.
Operating expenses were up 1.6 per
cent from a year earlier, less than ana-
lysts had expected, while its cost of risk
fell just over 9 per cent to €689mn,
reflecting a low level of provisions set
aside on souring loans.
RBC analyst Anke Reingen said that
against a backdrop of high inflation in
the eurozone, a “beat on better cost con-
trol is rare and reassuring”.
Under chief executive Jean-Laurent
Bonnafé, BNP has sought to position
itself as Europe’s go-to corporate and
investment bank, outside dominant US
rivals. It has vaunted a diversified
celebrity or influencer, the person said.
The meeting, headed by talent veteran
Jeffrey “Jake” Jacobs on the CAA side,
ended with the agency telling Twitter
that they would come back to them
with ideas, the person said.
Twitter, CAA, UTA and Disney all
declined to comment.
By courting big names, Twitter hopes
it can sell more advertising and
facilitate sponsorship and brand deals
between advertisers and creators. One
former senior staffer said Yaccarino,
known for her deep relationships in the
media industry, had been engaging
with celebrities since her first week as
chief executive. She has experience in
the space, including as global chair of
UK-headquartered talent agency YMU
since February.
Yaccarino posted a photograph of
herself with Paris Hilton, signalling a
possible partnership between the
celebrity and the platform. Former Fox
News anchor Tucker Carlson already
has a show on Twitter.
Earlier this month, Twitter launched
a creator advertising revenue share
initiative, giving influencers meeting
certain criteria the chance to cash in
directly from the platform.
But attempts to support features
beyond the text-based
communications for which Twitter is
known have not always been smooth,
especially since Musk has slashed its
workforce. Prior to Yaccarino starting,
Florida governor Ron DeSantis
announced his entry into the 2024
presidential race via a Twitter Spaces
Automobiles
VW cuts delivery forecast after China sales fall
PATRICIA NILSSON
Volkswagen has cut its global delivery
forecast for the year as sales drop in
China, its biggest market.
Despite strong sales in the first half, the
second-largest carmaker has been
forced to lower its delivery ambitions
because of weakness in the country.
Finance boss Arno Antlitz said a 1 per
cent drop in Chinese car deliveries in the
first half had forced the group to lower
its delivery target for 2023.
“We have a mixed picture on deliver-
ies in the first half,” he said, stressing
that the revision was based on China, as
growth in Europe and North America
had been strong.
The forecast of about 9mn deliveries
in 2023 compared with its original aim
of about 9.5mn comes a day after its
announcement of a $700mn investment
and 5 per cent stake in Chinese electric
car group Xpeng.
The move was aimed at boosting
model that is helping it ride out some of
the highs and lows of historically ele-
vated rate rises.
In the second quarter, BNP benefited
from underlying momentum across
businesses, including in its Arval car
leasing unit and in its European busi-
nesses including in Italy.
Like its Wall Street peers, the French
bank had a mixed quarter in its corpo-
rate and investment bank, which posted
a 2.3 per cent fall in revenues. But BNP
did well in bond issuance, sustaining a
much stronger performance in what it
calls its global banking unit.
BNP’s return on tangible equity
reached 13.6 per cent in the second
quarter, hitting its longer-term goal of
above 12 per cent to 2025.
audio session in May that was beset
by glitches.
More broadly, Twitter’s sudden
rebrand to X has surprised
advertisers, many of which have left
the platform over Musk’s leadership
style, decision to loosen content
moderation, and drastic cost-cutting
since he bought it for $44bn in
October.
With Twitter’s revenues down by
about 50 per cent since Musk took
over, mending those relationships —
and building new ones in the
entertainment business — has fallen
to Yaccarino.
In a tweet responding to news of
the rebrand, she presented the
broad vision for the platform: “X is
the future state of unlimited
interactivity — centred in audio,
video, messaging, payments/
banking — creating a global
marketplace for ideas, goods,
services, and opportunities.”
Nevertheless, some advertisers
and talent agencies said they
remained unimpressed with the
shake-up, saying Musk quickly
undid any of the goodwill that
Yaccarino created. One advertising
executive said the sudden unveiling
of X “feels like nonsense”, adding:
“Let’s see how [Yaccarino] can
handle this.”
Another said: “I don’t get the
point of the acquisition at all and
wonder how much patience his
investors have left.” Hannah Murphy
and Christopher Grimes
market share in the battery segment.
Analysts at Deutsche Bank said the
investment suggested that the company
“has partially admitted defeat with
regard to its current EV products” in
China, relying on its relationship with
Xpeng to revive sales.
VW chief executive Oliver Blume,
aware of the need to raise the company’s
game in China, said yesterday that VW’s
next capital markets day would be held
in Beijing next April and focus on the
company’s strategy in the country after
a poll of analysts and investors showed
its biggest market to be a concern.
The group, which other than its VW
brand includes companies such as Por-
sche and Audi, was one of the first west-
ern companies to enter the Chinese
market in the late 1970s and has estab-
lished itself as one of the country’s mar-
ket leaders.
Its share in the country for combus-
tion engine vehicles is 19 per cent,
according to Deutsche.
Friday 28 July 2023
Technology
Meta says AI
bet and rejig
have paid off as
revenues climb
HANNAH MURPHY — SAN FRANCISCO
Meta shares rose yesterday after it
reported its first double-digit revenue
growth since 2021, as chief executive
Mark Zuckerberg said the company’s
costly bet on artificial intelligence was
showing signs of paying off.
The rebound comes as Zuckerberg has
sought to revive Meta from a period of
sluggish growth, wider macroeconomic
woes and investor concern over the
metaverse. Like many of its Big Tech
peers, Meta has seized on wider market
enthusiasm about emerging AI technol-
ogy to invest in the space.
Zuckerberg has also led a significant
restructuring in recent months, includ-
ing a flattening of the management
structure and lay-offs affecting about
20,000 staff, in what he has dubbed the
“year of efficiency”.
“It’s really good to see the decisions
and investments we made start to play
out,” he told investors and analysts after
the company reported second-quarter
earnings late on Wednesday.
Analysts peppered Zuckerberg with
questions on the company’s bets on AI,
particularly generative AI, technology
that can create text, images and code.
He said that investments in using AI
to improve the personalisation of user
feeds and its recommendation systems
were “clearly paying off”.
Meta was now focused on building AI
agents, or chatbots, to help businesses
as well as creators engage with users,
Zuckerberg added, as well as using gen-
erative AI to boost the effectiveness of
advertising and improve productivity
internally. This month, Meta released a
commercial version of a large language
model Llama 2, upon which the com-
pany’s chatbots will be built, in a bid to
compete with rivals OpenAI, Google and
Microsoft.
But Zuckerberg added that how
quickly potential new AI products
might scale was “one of the big
unknowns for the business”, saying it
was “one of the things that we’re debat-
ing heavily when thinking through the
amount of AI capex to bring online”.
It also remains unclear how AI will
translate into a meaningful source of
revenue for the company, given it has
released some technology, such as
Llama 2, open source — meaning devel-
opers can see the source code and build
upon it themselves.
Zuckerberg said that he intended to
make “deals” with the largest compa-
nies with public cloud offerings such as
Microsoft or Amazon or Google that
might use its technology at scale.
Meta said it expected revenue in the
current quarter to be in the range of
$32bn-$34.5bn, well above analysts’
expectations of a rise to $31.1bn, in a
sign that the digital advertising slump
that has weighed on its growth for the
past 18 months is easing.
Revenues in the second quarter rose
11 per cent to $32bn, topping analysts’
expectations of an increase to $31.03bn.
Meta shares rose 6.8 per cent in after-
hours trading. Net income in the second
quarter increased 16 per cent to $7.8bn,
compared with consensus expectations
of a rise to $7.4bn.
Meanwhile, costs rose 10 per cent to
$22.6bn, partly because of legal
expenses of $1.9bn and restructuring
charges of $780mn. In May, Meta was
hit with a €1.2bn fine by the EU for pri-
vacy violations. Meta expects higher
infrastructure-related and operating
costs in 2024, as it continues to plough
investment into data centres and serv-
ers supporting AI and the metaverse.
See Lex
However, it has struggled to gain
share in the electric market; the equiva-
lent figure for the rapidly growing bat-
tery vehicle segment is 4 per cent.
Blume, who has tried to restructure
the group since taking over last year,
said the company had to “fulfil the
expectations of our Chinese customers”.
The “initial stage” of the carmaker’s
relationship with Xpeng will focus on
jointly developing two VW-branded
electric vehicles, one of which is
planned to hit Chinese roads in 2026.
VW’s investment in Xpeng comes
with an “observer” role on the Chinese
company’s board.
Separately yesterday, Renault
announced that higher prices, new
models, and the fruits of cost-cutting
had pushed its profits to records in the
first half.
Mercedes-Benz, which has moved to a
strategy of selling more premium cars,
on Wednesday raised its full-year guid-
ance.
Friday 28 July 2023
Siemens Energy buffeted by Spanish unit woes
Technical problems at Gamesa turbine venture are revealed to be far worse than feared and a fix is set to prove costly
RACHEL MILLARD — LONDON
LAURA PITEL — BERLIN
As Siemens Energy took full control of
its Spanish wind turbine joint venture
last month, it said it was seeing the “first
moves in the right direction” at a divi-
sion that had suffered a string of profit
warnings.
But within two weeks it revealed that
quality issues at Siemens Gamesa were
far worse than feared and could cost
€1bn to fix, sending shares in the com-
pany down 30 per cent.
“You can imagine what the state of my
mood is,” said Siemens Energy chief
executive Christian Bruch as he pulled
the group’s profit guidance for 2023,
describing the problems as “more
severe than I thought possible”.
It is the latest setback for a company
and a sector hit for the past few years by
rising costs, fierce competition and
costly technical problems that have led
to heavy losses despite surging demand
for clean energy.
“I think the industry has driven in
certain parts themselves to a business
model which needs to be reworked,”
Bruch said. “That has started.”
Siemens Energy has released few
details about the turbine flaws other
than that they involved bearings and
rotor blades and could affect up to 30
per cent of the models in question.
But people familiar with the matter
said the problems were related to the
group’s flagship 5.X turbine, along with
its predecessor, the 4.X, which entered
the market between 2017 and 2019.
Released in 2019, the 5.Xs are Sie-
mens Gamesa’s biggest turbines, with
€1bn 30 %
Potential cost Decline in share
of addressing price since the
the turbine problems were
quality issues revealed
rotor blades spanning up to 170 metres
and a generation capacity of 5.8 mega-
watts, enough to meet electricity needs
of roughly 5,000 households each.
Siemens Gamesa has sold about 15GW
of the two platforms combined, accord-
ing to people with knowledge of the
matter, implying that customers have
bought more than 2,000 units.
An internal committee is carrying out
a review, with its focus expected to
include suppliers, including in China.
Bruch has spoken of an “urgent require-
ment to fix the corporate culture” at Sie-
mens Gamesa, formed in 2017 in a
merger of Siemens’ wind unit and
Spain’s Gamesa.
“Too much has been swept under the
carpet,” he said in June. He and Siemens
Gamesa chief executive Jochen Eickholt
are under pressure, although people
familiar with the matter said the pair
enjoyed the trust of the supervisory
board at Siemens Energy, which is 25
per cent owned by Siemens. The prob-
Siemens Energy
Share price (€)
25
20
15
10
Jan 2022 2023 Jul
Source: Refinitiv
Airlines
Wizz censured over handling
of customer compensation
PHILIP GEORGIADIS — LONDON
The UK’s aviation regulator has repri-
manded Wizz Air over “unacceptable”
handling of customer compensation
claims for delayed or cancelled flights,
ordering the airline to revamp the way
that it deals with complaints.
The Civil Aviation Authority said it had
told the low-cost Hungarian carrier to
review a swathe of compensation claims
involving UK flights made since March
last year. Any Wizz passenger who has
made a claim over the past six years can
also request to have their case reopened.
The regulator cannot fine airlines, yet
the enforcement action yesterday was
unprecedented, marking the first time
it has made such an order for a carrier to
review all complaints.
Paul Smith, joint-interim chief execu-
tive of the CAA, said the regulator
had identified a “really unacceptable
handling of claims” for compensation
★ FINANCIAL TIMES 9
COMPANIES & MARKETS
said Akash Gupta, analyst at JPMorgan.
“Some of the quality and design issues in
the industry now are the result of that.”
That is changing, with General Elec-
tric moving to greater standardisation
and wind farm developers starting to
gain higher offtake prices. “There has
been a correction in the market,” said
Tim Evans, partner at Copenhagen
Infrastructure.
Deirdre Cooper, head of sustainable
equities at Ninety-One, said Siemens
Gamesa’s problems might turn out to be
“helpful in the long run” by prompting a
focus on quality. “We have had such
price competition. This will be support-
ive of pricing going forward.”
For now, Siemens Energy will need to
focus on containing the damage. Shares
in the company, which is due to update
investors on August 7, remain more
than 30 per cent below their price
before the problems were announced.
“We have a handful of failures, and
now I have to derive from that an indica-
tion of what to expect over the next 20
years,” Eickholt said as he revealed the
problems in June. “That’s what makes it
Blades at Siemens Gamesa’s manufacturing facility in Le Havre, France. The flaws are said to be related to the operator’s flagship 5.X turbine — Nathan Laine/Bloomberg so fraught.”
lems at one of the largest turbine suppli-
ers have cast a cloud across the industry
at a time when wind farm developers
are scrambling to meet demand.
The 5.X platform accounted for 74 per
cent of Siemens Gamesa’s 1GW onshore
wind order intake in the first quarter of
2023, according to its May accounts.
“It’s very embarrassing for Siemens
Gamesa,” said one European wind
industry insider. “I’ve heard from sev-
eral projects that are a bit in the [lurch]
now . . . Financials are getting strained
by the situation. This is bad for the
energy transition.”
Iberdrola, one of the largest wind
developers, has bought 11 of the 5.X tur-
bines for a project in Spain and has been
assured by Siemens Gamesa that any
problems will be resolved ahead of
installation, according to a memo to
investors seen by the Financial Times. It
had not noticed any technical problems
on its fleet so far, the memo said.
Copenhagen Infrastructure Partners,
an investor with 120 gigawatts of renew-
able energy, including several wind
projects said it was “working proac-
tively with Siemens to understand any
potential impacts on our development
portfolio”, although it does not have any
affected products in its current fleet.
Swedish wind developer Eolus said it
had not noticed any “serious qualitative
issues so far” with Siemens Gamesa
products, which were being delivered as
normal. It was confident the company
would “retain its focus on quality” as
one of the “most respected suppliers”.
Brazil’s Essentia Energy and Sweden’s
Rabbalshede Kraft, both of which were
announced in December 2020 as buyers
of the 5.X turbines, did not return
requests for comment.
A UK wind developer raised concerns
that the move would push up turbine
prices at a time when developers say
they are being squeezed by low fixed-
price electricity sales agreements and
windfall taxes. “The difficulty is that the
problems will limit competition,” it said.
“If they have to redevelop components
or revisit designs, this could cause
delays. Competitors will take advantage
of this but prices will go up.”
Rivals have suffered quality prob-
lems, with the industry scrambling to
produce bigger turbines at low prices
despite rising costs.
“Turbine prices fell sharply in 2017,
which was then followed by the industry
introducing new technology and turn-
ing to emerging markets for suppliers,”
and a “failure to pay customers what
they are owed”.
Wizz was caught up in disruption to
hit airlines and airport last summer
when staff shortages led to cancellations
and delays across the industry.
The problems identified by the CAA
centred on the requirement to provide
alternative flights as well as care and
assistance such as covering hotel costs.
The CAA had already raised “signifi-
cant concerns” with Wizz in December
over complaints and delays in paying
compensation. A “large number” of
county court judgments against Wizz
were also found to have been unpaid.
The airline has repeatedly apologised
for its handling of the disruption last
summer and said it has invested £90mn
to improve the resilience of its UK oper-
ations, such as increasing staffing levels.
It engaged with the regulator and
committed to introduce changes to its
policies, the CAA said.
10 ★ FINANCIAL TIMES Friday 28 July 2023

COMPANIES & MARKETS

Fixed income. Benign environment Equities

Wall St banks
Corporate fundraising buoyant face prospect
of tougher
despite impact of US rate rises requirements
on capital
COLBY SMITH — WASHINGTON
STEPHEN GANDEL — NEW YORK

US bank regulators have advanced

Looser financial conditions
neutralise influence of Federal
Reserve’s policy tightening
HARRIET CLARFELT, KATE DUGUID AND
NICHOLAS MEGAW — NEW YORK
Rising stock prices and falling bond
yields have made it so much easier for
US companies to raise funds that much
of the impact of the Federal Reserve’s
interest rate rises has been neutralised,
according to investors and several
closely watched measures.
The degree to which the environment
has improved in recent weeks is
reflected in the National Financial Con-
ditions Index, compiled by the Chicago
Fed, touching its lowest point in 16
months.
But looser financial conditions run
counter to the Fed’s goal of slowing the
economy to bring inflation under con-
trol and make it more likely it will have
to keep interest rates higher for longer.
“The reality is that financial condi-
tions have loosened — we have [effec-
tively] unwound roughly 450 basis
points of rate hikes,” said Sonal Desai,
chief investment officer for Franklin
Templeton Fixed Income.
“Financial conditions are enough to
take us back to March of last year,” Desai
added. “As the market comes around to
the belief that we are not going to have a
recession, that implies that demand will
remain strong [and] that implies that
we will not have any need to cut interest
rates.”
The more benign fundraising envi-
ronment comes as the Fed has jacked up
interest rates from near-zero in March
last year to more than 5 per cent with a
further 0.25 percentage point rise on
Wednesday. Following the Fed’s latest
hike, Goldman Sachs’ daily US Financial
US financial conditions are at Junk bond spreads have
their loosest since March 2022 narrowed this year
Chicago Fed National Financial
Conditions index
0.4
0.2
0 5.0
-0.2
-0.4
-0.6
-0.8
2020 21 22 23
Sources: Federal Reserve Bank of Chicago; Ice Data Services
Conditions Index dropped, approaching
the low it hit in mid-July, which marked
the loosest conditions in a year.
This is because the looser conditions
reflect a view among investors that the
Fed has effectively finished raising
interest rates since its main focus is
bringing down inflation — which has
fallen sharply in recent months.
“I would say that conditions right now
are loosening, probably to the chagrin of
the Fed,” commented Andy Brenner,
head of international fixed income at
Natalliance Securities. “But as long as
the Fed gets better inflation numbers,
they’re going to care less and less.”
But they also reflect dynamics in
stock and corporate bond markets that
have bolstered sentiment: enthusiasm
about artificial intelligence has driven
US stocks into bull market territory this
year and a shortage of new deals in the
junk bond market has driven investors
into the few that have been on offer.
The premium that low-rated compa-
nies have to pay to borrow is now
around its lowest since April 2022 with
the gap between junk bond yields and
Treasuries narrowing by roughly 0.9
percentage points between the end of
Option-adjusted spread over US
Treasuries (percentage points)
6.0
5.5
4.5
4.0
3.5
3.0
2022 23
ICE BofA High Yield index
last year and July 26 to approximately
3.9 percentage points.
Investors said the tightening of
spreads this year had been fuelled partly
by a shrinking junk bond market — with
relatively low new issuance and several
upgrades to “investment grade” terri-
tory helping to anchor prices at artifi-
cially high levels. Higher overall credit
quality and waning fears about a reces-
sion have also buoyed valuations.
Noting the narrowing of credit
spreads and the broader loosening of
conditions, Brenner said: “People are
coming off the sidelines.”
He added: “In some respects, banks
are tightening their lending standards.
But private credit has come to the res-
cue. If you need money, you can get it —
one way or the other . . . It might be a
little more expensive but money is
available.”
However, Mike Chang, a high-yield
portfolio manager at Vanguard, said
financial conditions had not loosened
across the board.
“The market is still discriminating
between stronger and weaker issuers
and many weaker issuers still don’t have
access to capital markets,” he said.
Higher calling: “Higher interest rates generally take
the US Federal time to work [their] way through the
Reserve has economy and through corporate bal-
raised interest ance sheets”, Chang added. “Given how
rates from near- much refinancing activity has occurred
zero in March over the past several years in the high-
last year to more yield market, it will take more time for
than 5 per cent maturities and refinancing to become a
with a further larger issue.”
0.25 percentage Equity markets have risen on the back
point rise on of enthusiasm for Big Tech stocks tied to
Wednesday the growth of artificial intelligence.
Nathan Howard/Bloomberg
The S&P 500 has climbed almost 20
per cent year to date, making it easier
for companies to raise cash through
share sales.
Fundraising through US initial public
offerings is up 104 per cent year on year,
according to Dealogic data, while fol-
low-on sales by listed companies and
their shareholders are up 65 per cent.
Economic growth data published yes-
terday provided further signs of the
encouraging environment for busi-
nesses with a sharp increase in business
investment driving the stronger than
expected increase in gross domestic
product.
Markets will closely scrutinise next
Monday’s Senior Loan Officer Opinion
Survey on Bank Lending Practices after
the last quarterly report by the Fed
found that banks expected to tighten
lending standards over the rest of 2023.
‘As long as Fed chair Jay Powell acknowledged
the potential risks from easing condi-
the Fed tions after the latest interest rate rise on
gets better Wednesday, telling journalists that, “if
financial conditions get looser, we
inflation [may] need to do more”.
numbers, But he added that he was confident
interest rates were affecting economic
they’re activity and inflation. “What tends to
going to happen is financial conditions get in and
out of alignment with what we’re doing
care less [but] ultimately, over time, we get
and less’ where we need to go.”
plans to impose more arduous capital
requirements on the country’s large
lenders, which could require the six big-
gest institutions to put aside an addi-
tional tens of billions of dollars collec-
tively for potential losses.
Shares of big banks initially rallied
yesterday following the news but then
pared their gains after some industry
groups said the regulations would be
more costly than watchdogs suggest.
The one exception was Citigroup,
which was up 2 per cent.
Analysts at Morgan Stanley had esti-
mated this week that Citi would need
more than four years to comply with the
new regulations without making any
major changes — or about twice as long
as many of its rivals.
Regulators said they would give banks
until the beginning of 2028, or nearly
four and a half years, to fully comply
with the rules and predicted that would
give lenders “sufficient time to adjust to
the changes while minimising any
potential adverse impact”.
The new rules, which were proposed
by the US Federal Reserve, Office of the
Comptroller of the Currency and the
‘[It] would improve the
resilience of the banking
system by modifying
capital requirements’
Federal Deposit Insurance Corporation,
would apply to banks with more than
$100bn in assets and mark regulators’
most comprehensive effort in more than
a decade to fortify the financial system.
In general, the new rules would set an
industry standard for measuring the
risk of lending and other activities —
something banks have previously been
allowed to do for themselves.
The uniform standards are more con-
servative than how individual banks
have typically measured their risk,
effectively forcing them to hold more
capital in case of losses.
“The proposal would improve the
resilience of the US banking system by
modifying capital requirements for
large banking organisations to better
reflect their risks and apply more trans-
parent and consistent requirements,”
the regulators said.
The plans would spare smaller insti-
tutions such as community banks but
capture larger regional lenders that pre-
viously were not subject to more strin-
gent requirements on capital.
The regulators said the new rules
would make banks less prone to the
types of financial distress that hit in
2008 and, to some degree, the recent
Our global turmoil this spring, which resulted in
team gives you three of the four largest failures of feder-
market-moving ally insured banks in US history.
news and views, The regulatory overhaul also aims to
24 hours a day bring the US into compliance with inter-
ft.com/markets national standards — the so-called Basel
III endgame reforms.

Equities Commodities

St James’s Place shares slide on lower
inflows and plan to cut customer fees
SALLY HICKEY — LONDON
St James’s Place is to lower fees on a
broad range of investment products,
denting its forecast profits and
prompting the steepest decline in the
FTSE 100 company’s share price in
seven years.
The UK’s largest wealth manager said
alongside interim results yesterday that
changes to its fee structure — driven by
regulatory changes — would reduce its
net income by £12mn in the second half
of the year.
Annual product management fees for
long-term clients of the firm who hold
bond and pension investments are to be
reduced from 1 per cent to 0.85 per cent
from next week, the company said.
About 65,000 clients of St James’s Place
stand to benefit.
Shares in St James’s Place were down
16 per cent yesterday. Analysts said a
bigger than expected decline in client
inflows also contributed to the sell-off.
The fee changes come ahead of the
looming introduction of the Financial
Conduct Authority’s so-called con-
sumer duty, which will require financial
services companies to demonstrate they
are acting in customers’ best interests.
St James’s Place chief executive
Andrew Croft said the rules had been
the “catalyst” for it to implement the fee
changes. “We have looked at every part
of our business through the consumer
duty lens and where changes needed to
be made we have made them,” he said.
St James’s Place charges fees for the
advice it gives as well as the products it
provides. Clients are charged an initial
advice fee of 4.5 per cent of their invest-
ment value and pay an additional
The wealth manager is the UK’s
largest, with a network of offices
0.5 per cent annually to cover the cost of
their adviser.
They are also charged an initial prod-
uct fee of 1.5 per cent and an additional
1 per cent on an annual basis as a prod-
uct management charge. It is the latter
fee that is being lowered to 0.85 per cent.
Net inflows in the six months to the
end of June fell 38 per cent year on year
to £3.4bn. Croft said a tough economic
environment “naturally” had an impact
on clients’ capacity to invest.
Despite the slowdown in inflows, total
closing funds under management nev-
ertheless rose 6 per cent in six months to
a new high of £157.5bn.
Analysts were more positive on the
long-term outlook for St James’s Place,
which has a “market-leading” client
retention rate of 95.6 per cent, accord-
ing to David McCann, an analyst at
Numis.
The company produced a pre-tax
profit of £385mn in the period com-
pared with a loss of £296mn in the same
period a year ago.
The board declared an interim divi-
dend of 15.83p a share, an increase of
1.5 per cent.
See Lex
Big mining groups warn of weaker
price outlook for natural resources
HARRY DEMPSEY AND LESLIE HOOK
Some of the world’s largest mining
companies have become increasingly
pessimistic about a sustained rally in
global commodity prices this year after
an insipid recovery in China led to a
slump in first-half earnings.
Duncan Wanblad, chief executive of
Anglo American, said yesterday that an
“enormous amount of economic pres-
sure” was making it hard to wager that
sustained gains in the prices of its key
commodities such as iron ore, copper
and steelmaking coal would take place
by the end of the year.
“We’ve been a little bit surprised at
how slow the opening of China has
been,” he said, adding that the world’s
largest metals-consuming nation was
still suffering from “Covid overhangs”
that had sapped demand.
In reference to when commodity
prices would bottom out and rally, he
added that “it’s more likely to be early
next year than later this year quite hon-
estly”.
His comments came after the FTSE
100 miner cut dividends by more than
half to $700mn following a fall in first-
half core earnings of just over 40 per
cent to $5.1bn.
This occurred off the back of a 19 per
cent drop in the price of its commodities
and inflationary cost pressures.
On Monday, Beijing vowed to boost
consumer spending and revive the
economy but fell short of announcing
stimulus measures that would help
‘Will China continue to fuel
demand? No, it won’t be as
strong a demand story as
it has been for 20 years’
manufacturing rebound, prompting a
shortlived bounce in metal prices.
Citigroup analyst Wenyu Yao said
China’s politburo meeting set a “positive
tone” yet it was not the sort of “bazooka-
style” stimulus required to push up Chi-
nese demand for metals in the second
half of the year.
Goldman Sachs analysts said: “The
industrial metals complex has been
caught for much of this year between
disappointing growth momentum in
China, a manufacturing slowdown in
the west and accelerating supply for sev-
eral metals.”
But they saw enough of a shift point in
China’s rhetoric to merit upgrading the
bank’s six-month copper price forecast
by 3 per cent to $9,500 per tonne com-
pared with $8,600 per tonne at present.
Mining companies have been touting
a prospective boost to prices from green
policies around the world since building
wind farms, transmission grids and
electric cars requires a lot of metals.
Simon Morris, head of base metals at
CRU Group, a business intelligence
company, said a lift to demand from the
clean energy transition looked unlikely
to materialise as quickly as hoped, while
China is unlikely to compensate given a
shift in its economic model.
“Will China continue to fuel demand
as it has done? No . . . China won’t be as
strong a demand story as it has been for
20 years,” he said. “There’s a lot of
hyperbole around the energy transi-
tion.”
Rio Tinto, the largest producer of iron
ore, which is used to make steel, said on
Wednesday that its main commodities
were trading below their 2010 average
prices during the first half of this year.
Friday 28 July 2023 ★ FINANCIAL TIMES 11

COMPANIES & MARKETS

The day in the markets Income inequality

What you need to know
means US debt will
3 Global stocks rally as ECB joins Fed in
continue to increase
European stocks rise to highest level since Ukraine invasion
lifting rates
Stoxx Europe 600 index
3 Traders sense monetary tightening
policies nearing end of cycle
3 Dollar attracts buyers but US
Treasuries offloaded
500
Michael Pettis
480
Global stocks rallied yesterday as traders
sensed the global cycle of monetary
Markets Insight
policy tightening was nearing its end 460

W
after the European Central Bank followed
the US Federal Reserve in lifting interest hile much of the debate decline and in response businesses will American stocks, bonds, factories and
rates by a quarter of a percentage point. 440 about limiting US gov- cut back on production and fire work- real estate.
Wall Street’s benchmark S&P 500 ernment debt assumes ers. To prevent this happening, Wash- These net inflows push up the value of
added 0.5 per cent by midday in New that rising debt is a con- ington typically does one of two things. the dollar and make US manufacturing
York and the tech-heavy Nasdaq 420 sequence of profligacy First, the US Federal Reserve can less competitive, so rather than run
Composite gained 1.2 per cent after data on the part of Washington policymak- implement policies that encourage trade surpluses to manage excess sav-
showed the US economy grew more ers, the problem is in fact structural. household borrowing to fund additional ings, the weak demand created by
strongly than expected in the second 400 Americans are forced to choose consumption. In that case, the reduc- income inequality is exacerbated as
quarter of 2023. between rising debt and higher unem- tion in the income share of ordinary America runs the trade deficits needed
European stocks also climbed, ployment largely because of the level of Americans is balanced by an increase in to absorb excess foreign production.
extending early gains after the ECB’s 380 income inequality — exacerbated by their borrowing so the same level of con- To stop unemployment rising, either
widely anticipated decision to increase 2021 2022 2023 their large trade deficit — that has sumption can be maintained. the Fed must encourage even more
the benchmark deposit rate by 0.25 Source: Refinitiv
sharply reduced the demand for US Second, Washington can itself borrow household debt or Washington must
percentage points to 3.75 per cent businesses and manufacturers. and use the proceeds to replace the run even larger fiscal deficits.
yesterday. The rise in US income inequality is the demand lost by the reduction in house- The mistake lawmakers make is to
The pan-regional Stoxx Europe 600 “We are confident that she won’t do the one more rate rise this year, boosting the key driver of debt. Because the wealthy hold consumption. Borrowing is effec- assume that rising debt in the US is the
rose 1.4 per cent, closing at its highest same for September today but we think US Dollar index by 0.8 per cent, which save a much larger part of their income consequence of irresponsible behaviour
level since Russia invaded Ukraine in she will keep her cards close to the body.” measures the US currency against a than do workers or the middle class and on the part of American households and
February 2022, while the CAC 40 in Paris In a similar move a day earlier, the Fed basket of six peers. use a much smaller part for consump- The choice is not between the government. In fact, it is a structural
was up 2.2 per cent and Frankfurt’s Xetra lifted its benchmark federal funds rate by The euro, which had earlier been up 0.4 tion, rising income inequality reduces more debt and less debt problem, and the choice Americans face
Dax advanced 1.7 per cent. 0.25 percentage points to a target range per cent against the dollar, gave up all its overall consumption and forces up sav- is not between more debt and less debt
The ECB has increased rates nine times of between 5.25 and 5.5 per cent. gains to slip 0.8 per cent lower to $1.1. ings by effectively transferring income but between more debt but rather between more debt and more
in the space of one year in efforts to Traders are now pricing in an almost 80 Yields on benchmark 10-year from high consumers (ordinary Ameri- and more unemployment unemployment.
tackle raging eurozone inflation and did per cent probability that US policymakers Treasuries gained 9 basis points to 3.94 cans) to high savers (the wealthy). As long as Americans are willing to
not rule out the possibility of rates rising will keep rates steady at their next per cent while those on two-year bonds, If the higher savings funded higher accept high levels of income inequality
further in September. meeting in September, according to data which are particularly sensitive to short- investment by US businesses, this would tively the opposite of saving and, by and large trade deficits, this is the trade-
“Last month, [ECB president Christine] compiled by Refinitiv and based on term interest rate expectations, rose by be a good thing for the economy. Lower increasing the fiscal deficit, the US can off the US must continue to suffer.
Lagarde all but pre-committed to today’s interest rate derivatives prices. the same amount to 4.92 per cent as the consumption would be balanced by undo the adverse consequences of rising To get debt under control without
hike,” said Claus Vistesen, chief eurozone The better than expected US growth debt was sold. Daria Mosolova and higher investment, with total demand savings among the wealthy. raising unemployment, Americans
economist at Pantheon Macroeconomics. figures marginally pushed up the odds of Hudson Lockett remaining the same in the short term There is a third option for many econ- must eliminate downward pressure on
and rising in the longer term as more omies. If a country’s savings rise faster demand by reversing several decades of
investment caused growth to accelerate. than its investment — or if demand policies that favour income inequality
Markets update But must more savings lead to higher declines relative to production — it can or that allow foreigners to dump their
investment? This belief is at the heart of export the excess production in the excess savings and excess production
supply-side economics but, while it was form of a trade surplus. into the US.
true many decades ago when business But the US cannot do this. Because of That is why for all the excited
US Eurozone Japan UK China Brazil investment was mainly constrained by its open and well-governed financial debate, debt ceilings won’t limit the rise
Stocks S&P 500 Eurofirst 300 Nikkei 225 FTSE100 Shanghai Comp Bovespa scarce savings and the high cost of capi- markets, the rest of the world prefers to in US debt. They just allow Congress to
Level 4587.19 1865.60 32891.16 7692.76 3216.67 121232.20 tal, it is no longer true today — when it is offload its excess savings there so the US pretend that it is doing something
% change on day 0.45 1.42 0.68 0.21 -0.20 -1.08 constrained mainly by weak demand. is a net importer, not a net exporter, of meaningful about America’s surging
Currency $ index (DXY) $ per € Yen per $ $ per £ Rmb per $ Real per $ Business investment has not risen in savings. debt burden.
Level 100.945 1.099 141.255 1.285 7.141 4.731 line with the savings of the wealthy. This This will happen as long as foreign
% change on day 0.057 -0.633 0.620 -0.542 -0.131 -0.019 creates a problem for the economy. If central banks, businesses, oligarchs and Michael Pettis is a finance professor at
Govt. bonds 10-year Treasury 10-year Bund 10-year JGB 10-year Gilt 10-year bond 10-year bond lower consumption is not balanced by owners of financial assets can employ Peking University and a senior associate at
Yield 3.949 2.469 0.436 4.380 2.684 10.534 higher investment, total demand must their surpluses in unfettered access to the Carnegie China Center
Basis point change on day 7.460 -1.100 -0.710 3.200 -1.000 1.600
World index, Commods FTSE All-World Oil - Brent Oil - WTI Gold Silver Metals (LMEX)
Level 464.83 83.98 80.01 1966.30 24.67 3818.90
% change on day 0.47 1.28 1.56 0.39 0.47 -1.04
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
4640 1880 7840

7680
4480 1840
7520
4320 1800 7360

| | | | | | | |
4160 | | | | | | | | | | | | | | | | | | | |
1760 | | | | | | | | | | | | | | | | | | | | 7200 | | | | | | | | | | | |

May 2023 Jul May 2023 Jul May 2023 Jul

Biggest movers
% US Eurozone UK
Align Technology 16.30 Asml Holding 5.25 Centrica 7.54
Textron 11.48 Heidelbergcement 5.12 Relx 4.68
Ups

Royal Caribbean 10.70 Reed Elsevier 5.03 Informa 4.08

Lam Research 10.41 Saint Gobain 4.94 Airtel Africa 3.56
Seagate Technology Holdings 7.31 Alstom 4.67 Burberry 3.02
%
Chipotle Mexican Grill -9.45 Jeronimo Martins -6.25 St. James's Place -16.03
Southwest Airlines Co -9.16 Deutsche Bank -2.86 Sse -5.87
Downs

Ebay -8.53 Grifols -2.76 Barclays -5.28

Willis Towers Watson -8.42 Airbus -1.89 Endeavour Mining -3.63
Edwards Lifesciences -8.19 Commerzbank -1.50 Bt -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

Facebook and Instagram owner Meta Record major Universal Music rose after British Gas owner Centrica topped the
rallied off the back of an 11 per cent jump delivering second-quarter results that FTSE 100 index after boosting its interim
in second-quarter revenue to £32bn, were “comfortably ahead of expectations dividend by 33 per cent and reporting a
topping the $31.1bn Wall Street had at pretty much every level”, said Citi. 55 per cent year-on-year jump in adjusted
expected. Core profits of €590mn were up 16.4 operating profit to £2.08bn in the quarter.
Bank of America, which tuned in to the per cent year on year, helped by an 8.2 Heading the FTSE 250 index was car
earnings call, noted that time spent per cent rise in recorded music revenue. dealership Inchcape, which forecast
across Meta apps had also increased 7 Top sellers King & Prince, Morgan adjusted pre-tax profits towards the top
per cent, “primarily driven by artificial Wallen and Taylor Swift supported a 2.9 end of a consensus range of £470mn to
intelligence improvements”. per cent rise in streaming revenue £506mn for the full year.
Forecast-beating profits lifted alongside “strong CD sales in Japan and Jefferies said the update reflected
Comcast, the media and broadband improvements in vinyl sales”, it said. Inchcape’s strategy of “leveraging its
group, which posted quarterly earnings of Better than expected results sent Italy’s geographic footprint”, enabling it to
$1.13 per share — more than 16 per cent Moncler rallying. “penetrate more territories”.
ahead of analyst estimates. The fashion group, known for its puffer Inchcape was joined by Jupiter Fund
Peacock, its streaming service that jackets, posted a half-year operating Management in the top half of the mid-
began in 2020, added 2mn subscribers profit of €217.8mn — 5 per cent ahead of cap index, which reported a 56 per cent
from the previous quarter to reach 24mn, analyst expectations. year-on-year jump in underlying pre-tax
nearly doubling year on year. This came as first-half group revenues profit of £46.4mn for the half year.
Near the bottom of the S&P 500 index surpassed the €1bn mark “for the first Assets under management expanded 2
was online marketplace eBay, which time in our history”, said Remo Ruffini, per cent to £51.4bn by the end June,
forecast earnings for this quarter of $0.96 chief executive. helped “by another strong performance
to $1.01 per share, missing analysts’ French outsourcer Teleperformance in the institutional channel”, said chief
estimate of $1.02. dived after cutting its full-year outlook, executive Matthew Beesley.
Entertainment group Imax, known for forecasting like-for-like growth At the bottom of the FTSE 250 was
its immersive movie screens, rallied (excluding the impact of Covid support Mobico, formerly National Express, which
after reporting earnings of 26 cents per contracts) of 6 to 8 per cent, down from 8 reported first-half adjusted pre-tax profit
share in the second quarter, eclipsing the to 10 per cent stated in April. of £25.4mn — well below Liberum’s
16 cents expected. An earnings miss pushed Finland’s £65.5mn estimate.
Richard Gelfond, chief executive, added Neste down sharply, with the oil refiner Russ Mould, investment director at AJ
that Christopher Nolan’s biopic, and biofuel producer posting core profits Bell, said the transport company had
Oppenheimer, had lifted “the company to of €784mn in the second quarter, more “been hit by the withdrawal of Covid-
one of its best weekends of all time at the than 9 per cent below analyst estimates. related support and a big increase in
global box office”. Ray Douglas Ray Douglas costs — notably on wages”. Ray Douglas
12 ★ FINANCIAL TIMES Friday 28 July 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 $

-0.633% -0.542%
No change
0.45% 0.93% 0.08% 0.21% 1.42% 0.68% 1.41% 0.47% 0.620% 0.98% 0.39%
Stock Market movements over last 30 days, with the FTSE All-World in the same currency as a comparison
AMERICAS EUROPE ASIA
Jun 28 - - Index All World Jun 28 - Jul 27 Index All World Jun 28 - Jul 27 Index All World Jun 28 - Jul 27 Index All World Jun 28 - Jul 27 Index All World Jun 28 - Jul 27 Index All World

S&P 500 New York S&P/TSX COMP Toronto FTSE 100 London Xetra Dax Frankfurt Nikkei 225 Tokyo Kospi Seoul
4,587.19 20,568.59 7,692.76 16,385.28 2,603.81
7,500.49 32,891.16
15,949.00 32,538.33 2,564.19
4,376.86 19,733.09
Day 0.45% Month 4.75% Year 13.98% Day 0.10% Month 4.29% Year 6.88% Day 0.21% Month 3.23% Year 4.82% Day 1.70% Month 1.84% Year NaN% Day 0.68% Month 0.67% Year 19.03% Day 0.44% Month 0.84% Year 7.91%

Nasdaq Composite New York IPC Mexico City FTSE Eurofirst 300 Europe Ibex 35 Madrid Hang Seng Hong Kong FTSE Straits Times Singapore
14,258.55
1,865.60 9,694.70 19,639.11 3,337.42
54,480.63 9,481.30 19,172.05
1,809.03 3,205.35
13,555.67 53,460.06
Day 0.93% Month 5.18% Year 18.50% Day 0.46% Month 1.49% Year 16.84% Day 1.42% Month 3.86% Year 10.74% Day 0.98% Month 4.54% Year 20.14% Day 1.41% Month 4.55% Year -6.01% Day 0.98% Month 4.56% Year 4.48%

Dow Jones Industrial New York Bovespa São Paulo CAC 40 Paris FTSE MIB Milan Shanghai Composite Shanghai BSE Sensex Mumbai
35,547.32 121,490.24 29,597.81
7,461.37 66,266.82
33,926.74 7,286.32 3,216.67
116,681.32 27,637.46 3,189.38 62,970.00
Day 0.08% Month 4.77% Year 10.40% Day -1.08% Month 3.14% Year 19.50% Day 2.05% Month 3.91% Year 20.19% Day 2.13% Month 8.64% Year 39.88% Day -0.20% Month 2.10% Year -1.85% Day -0.66% Month 5.47% Year 20.17%

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UK SERIES
FTSE ACTUARIES SHARE INDICES www.ft.com/equities FT 30 INDEX FTSE SECTORS: LEADERS & LAGGARDS FTSE 100 SUMMARY
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UK RIGHTS OFFERS UK COMPANY RESULTS UK RECENT EQUITY ISSUES

$PRX W /DWH W &RPSD 7XU RYHU 3UH WD (36 S YS 3D GD 7RWDO XH XH 6WRFN &OR H 0NW
XH SD G UH X FOR J %DUFOD W GDWH SU FH S 6HFWRU FRGH 6WRFN SU FH S JK /R &DS eP
SU FH XS GDWH JK /R 6WRFN 3U FH S RU %RG FRWH W 1RY &$%3 &$% 3D PH W ROG J 3OF
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6W -DPH 3ODFH W / /

Figures in £m. Earnings shown basic. Figures in light text are for corresponding period year earlier. †Placing price. *Intoduction. When issued. Annual report/prospectus available at www.ft.com/ir
For more information on dividend payments visit www.ft.com/marketsdata For a full explanation of all the other symbols please refer to London Share Service notes.
Friday 28 July 2023 ★ FINANCIAL TIMES 13

MARKET DATA

FT500: THE WORLD'S LARGEST COMPANIES

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Friday 28 July 2023 ★ FINANCIAL TIMES 15
16
Horror possessed of a superior intelligence
This week’s new film
releases reviewed by
Jonathan Romney
S
ome time ago, people started
applying the term “elevated
horror” to a certain strain of
chiller. It meant films that had
loftier aspirations than sim-
ply freezing your marrow, ones that had
complex contemporary themes, or sty-
listically veered closer to art-house than
charnel house. Examples included
Hereditary, Us and the extraordinary
Australian film The Babadook, which
addressed childhood fears and the ago-
nies of lone parenting.
Twin brothers Danny and Michael
Philippou got their start as crew mem-
bers on The Babadook. You suspect that,
like many genre fans who consider the
tag spuriously snobbish, they have little
time for “elevated horror”; that’s cer-
tainly what you’d guess from their
YouTube channel RackaRacka, which
exults in gonzo gross-out farce. Yet their
feature debut Talk to Me suggests that
they can be as serious as anyone —
though not straight-faced. The film
could almost be a routine American-
style scarer about teenagers messing
with the dead, except that it does the job
with so much more verve.
The setting is suburban Adelaide,
where teenager Mia (Sophie Wilde) is
mourning her mother’s death, but hop-
ing for distraction while hanging out
with best friend Jade (Alexandra
Jensen). As it happens, a local craze is an
occult game of dare involving a plaster
hand that supposedly contains the sev-
ered remnant of a psychic. It is said that
if you grasp the hand and say “Talk to
me”, weird things happen, notably an
intense rush of otherworldly possession.
Scripted by Danny Philippou and Bill
Hinzman, the film cleverly frames the
ritual as something like surreptitious
teen experimentation with a novelty
drug, cautious novices egged on by older
members of the circle. That there might
be a recommended minimum age for
★ FINANCIAL TIMES
ARTS
Talk to Me exposure to the Beyond gets a horrifying
Danny & Michael Philippou demonstration when one youth suffers
AAAAE a self-destructively bad trip with no end
in sight.
The Beanie Bubble Talk to Me has its share of jump scares
Kristin Gore & Damian Kulash
AAAEE
and mouldering revenants. But it has
subtler touches too: the game’s varied
and unpredictable effects; themes such
Everybody Loves Jeanne as loneliness and the contagious nature
Céline Devaux of desperation. There are witty contem-
AAAEE porary touches: when something hor-
rific suddenly happens in the opening
My Name Is Alfred party scene, the first thought of every-
Hitchcock one present is to whip out their phones
Mark Cousins and film it.
AAAAE There’s also a distinctive Australian
flavour: the mixed Oceanic make-up of
the cast, Antipodean rap on the sound-
track, even the macabre but poignant
appearance of a kangaroo. Cinematog-
rapher Aaron McLisky uses suburban
claustrophobia effectively, with even
daylight scenes ominously overcast, an
extra layer of Shining-like dread coming
from a balefully textured sound design.
The young ensemble cast crackle with
energy, with spiky adult support from
Australian cinema stalwart (and some-
time Lord of the Rings player) Miranda
Otto. Joe Bird is show-stealingly fearless
as Jade’s younger brother, while Sophie
Wilde’s Mia is a very appealing mix of
impetuous, intrepid and deeply vulner-
able, her presence carrying us through
to a snappily executed, bracingly dark
pay-off. Talk to Me may not be elevated
as such, but it’s certainly lifted a good
few notches above the ghoulish norm.
In cinemas now
Where once lumbered the earnest Hol-
lywood docudrama, there now flour-
ishes a fleeter beast — the flip fictional-
ised exposé. It’s a painless, sugar-coated
approach to complex topics, and equally
effective — some would argue, equally
superficial — whether it tackles eco-
nomics (The Big Short), politics (Vice) or
true crime (American Hustle). Now The
Beanie Bubble examines the shenani-
gans behind a singular phenomenon in
recent US commerce: a line of pocket-
sized soft toys that in the late 1990s
became as avidly sought after as tulips
in 17th-century Holland.
Directed by Kristin Gore, who
scripted, and Damian Kulash, The
Beanie Bubble recounts the bizarre trad-
ing boom in Beanie Babies, the plush
animals made by the Ty toy company.
Based on Zac Bissonnette’s book The
Great Beanie Baby Bubble: Mass Delusion
and the Dark Side of Cute, the film sug-
gests that the craze was a classic exam-
ple of American something-for-nothing
fever — it ends by making comparisons
with cryptocurrencies and NFTs.
While company founder Ty Warner
(Zach Galifianakis) was the public face
of the business — and, the film contends,
a neurotically clueless self-promoter —
the film is really about three women and
their role in the Babies’ success.
Renamed for this account, the women
are Robbie (Elizabeth Banks), who
becomes Warner’s domestic and busi-
ness partner; later fiancée Sheila (Suc-
cession’s Sarah Snook), whose young
daughters help inspire the toys; and
Maya (Geraldine Viswanathan), a
college-age employee who becomes the
company’s under-appreciated and
underpaid marketing genius.
The female leads are terrifically zest-
ful and nuanced, with Viswanathan
especially striking as the clued-up
young powerhouse behind the toys’ suc-
cess. The broad comic content comes
from Galifianakis as a needy, narcissistic
man-boy with big glasses, slicked coif
and luxuriant bulk, a look that suggests
Michael Douglas’s Gordon Gekko if he
had believed that missing lunch was
for wimps.
A breezy feminist demolition of self-
made-man mythology, The Beanie Bub-
ble is marred by clunky ironic retrospec-
tion, based on showing its characters
unschooled in the internet or excited
about this new thing called “ePort?
eBay!”. The toys’ selling point was that
they were “understuffed” to make them
adorably floppy, but no one could call
the film understuffed: it is dense with
incident and highly intricate.
The story is told in the first person,
alternating the women’s accounts, with
a time scheme that zigzags between the
1980s and ’90s, craftily working towards
the three narratives’ intersection. In
other words, while the film has the can-
dy-coloured pop-culture appeal of Bar-
bie, it displays the structural complexity
of Oppenheimer — a useful consideration
if you still can’t get tickets for either.
On Apple TV+ now
Top: documentary ‘My Name is Alfred Hitchcock’ is a study of the director.
Above: Laurent Lafitte and Blanche Gardin in ‘Everybody Loves Jeanne’
Friday 28 July 2023
Left: Sophie Wilde in ‘Talk to Me’.
Below left: ‘The Beanie Bubble’ tells
the story of a 1990s toy craze
Leisurely comedy Everybody Loves
Jeanne is the sort of polished, intelligent
confection that French cinema turns
out in high quantity — elegantly con-
ceived, sparkily acted, yet a little under-
baked in a way that leaves you going,
“Euhhh . . . c’est tout?” Debut filmmaker
Céline Devaux is a live-action director
and an animator, and here she merges
the two forms in the story of a hapless
heroine fleeing personal calamity.
Blanche Gardin plays Jeanne, riding
high as the creator of a revolutionary
eco-project until her brainchild sinks
ignominiously in an incongruous pas-
sage of ocean-going slapstick. Crushed,
she leaves France for Lisbon, where she
grew up, and en route meets a bump-
tious ex-schoolmate, the presentable
but motormouthed Jean (Laurent
Lafitte). Once in Lisbon, Jeanne checks
in with an unreliable ex (Nuno Lopes)
and tries to shake off the ghost of her
mother, who is guilt-tripping her from
beyond the grave. She’s played, in the
merest cameo of a cameo, by Marthe
Keller, who was the Garbo-like diva in
Billy Wilder’s 1978 Fedora.
The stylistic twist is that Jeanne is also
haunted, and taunted, by her naysaying
‘Talk to Me’ has its share
of jump scares and
mouldering revenants.
But it has subtler
touches too
inner self — a cartoon creature oddly
resembling a roughly sketched half-
cucumber. This apparition has its
moments, but introduces an archness to
a film otherwise made of sharper stuff —
a pity because, in the more abstract,
decorative passages of Devaux’s anima-
tion, there’s real style at work.
Jeanne’s ace card is Gardin, an
increasingly visible comic fixture in
French cinema. Her flustered energy
makes Jeanne more quizzically acerbic
than the self-deprecating Bridget
Jones-y flustered femme we think we’re
in for. In its last stretch, alas, the film
goes nowhere — although Lisbon in the
quiet season is the nicest kind of
nowhere to be.
On Mubi now
Documentary essayist Mark Cousins
could legitimately have trademarked
the term “indefatigable” by now, and
here’s the latest of his highly personal
accounts of cinema history. Previously,
Cousins has given us takes on Sergei
Eisenstein, Orson Welles and indeed the
entire phenomenon of cinema (his
monumental The Story of Film); now it’s
the turn of the Leytonstone-born mas-
ter of suspense in My Name Is Alfred
Hitchcock. You might think that Hitch-
cock’s art had been thoroughly covered
in documentary — in recent years alone
we’ve had Kent Jones’s Hitchcock/Truf-
faut and Alexandre O Philippe’s 78/52,
about the Psycho stabbing scene.
But Cousins offers a novelty, a film
“written and voiced by Alfred Hitch-
cock”, as the credits cheekily announce.
Not quite: the premise is that Hitch is
giving a wry masterclass on his art,
voiced by impersonator Alistair
McGowan, who offers a fairly uncanny
approximation (despite the faintest
overtone of Michael Caine with ill-
fitting dentures).
Built ingeniously around six themes
— escape, desire, loneliness to name
three — the film can’t be faulted on com-
prehensiveness. Crammed with clips, it
has all the classics, but also the less dis-
cussed greats, plus an extract from the
documentary German Concentration
Camps Factual Survey (“Sometimes,”
says Hitchcock ruefully, “you have to
see with your own eyes.”). While sea-
soned Hitchockians may find nothing
radically new here, this is an insightful,
entertaining study with a light touch.
In UK cinemas now
Friday 28 July 2023
The Asian country is making sweeping reforms in the hope of setting off a years-long resources boom.
Its push for western investment also holds the promise of a buffer against Beijing and Moscow.
T
hirteen-hundred metres
beneath the vast Gobi
Desert, the heat, dust and
a sense of claustrophobia
are unshakeable after a
rapid trip down a mine shaft in a freight
elevator known as “the cage”.
Yet Ganbat Tuvshinbat, a local min-
ing engineer, grins broadly. “This is the
warmest place in Mongolia,” he says of a
country where the average temperature
is below zero. “Here you can experience
summer all year round.”
Tuvshinbat and his employer Rio
Tinto, the Anglo-Australian multi-
national, have reason to smile. Towards
the end of this decade, the company
plans to produce about half a million
tonnes of copper from the Oyu Tolgoi
mine each year, enough of the metal
to help build 6mn electric vehicles.
When the underground mine is fully
operational, it will be the fourth biggest
copper project in the world — a boon
for the Mongolian government, which
holds a 34 per cent stake.
Despite setbacks and delays, Oyu Tol-
goi — already the biggest foreign invest-
ment in the Asian country’s history — is
emblematic of what the Mongolian Peo-
ple’s party government sees as its path
to prosperity. Luvsannamsrain Oyun-
Erdene, Mongolia’s Harvard-educated,
reformist prime minister, wants west-
ern mining groups to tap the country’s
vast deposits of copper, uranium and
other critical minerals essential to the
world’s fight against climate change.
Much is at stake for the country of
3.4mn people which only emerged from
single-party socialist control in the
1990s. If Oyun-Erdene is successful,
the developing country will enjoy a
years-long resources boom. The govern-
500 km
RUSSIA
Ulaanbaatar
MONGOLIA
Oyu Tolgoi mine
Beijing
CHINA
Tianjin
©Mapcreator.io | OSM.org
ment hopes to more than triple gross
domestic product from $15bn last year
to nearly $50bn by 2030 and halve
Mongolia’s poverty rate to 15 per cent.
There is another goal, too. Investment
from the west holds the promise of giv-
ing Ulaanbaatar a much-wanted buffer
against Beijing and Moscow. The land-
locked nation is highly dependent on its
only two neighbours: China accounts for
84 per cent of Mongolian exports, such
as copper and coal, and Russia provides
about 30 per cent of its imports, includ-
ing all its petroleum products.
“Mongolia is still trying to safeguard
its democracy because we have a very
difficult geographical and geopolitical
situation,” Oyun-Erdene tells the Finan-
cial Times, urging foreign investors to
“pay close attention”.
Oyun-Erdene is cognisant of the rare
opportunity at hand. Climate commit-
ments are fuelling a historic transition
to clean technologies, sparking an
intense global race to secure access to
minerals. Locations once considered too
remote or too risky are now in play.
To win over investors, however, he
must convince them that the days of
convoluted policymaking and deeply
entrenched corruption are over. He
also needs to counter criticism from
environmentalists and a discouraging
lack of modern geological data.
The prime minister has swiftly set
about cleaning house to present his
country to the western mining industry
as a secure investment destination:
sweeping constitutional and judicial
reforms, a crackdown on graft and an
overhaul of the policies and regulations
governing the resources industry. “Our
main goal is to improve transparency,”
he says. “After that, we can discuss
investments from abroad and which
countries to co-operate with.”
Oyun-Erdene is not the first Mongo-
lian leader to have this vision. The ques-
tion is: can he be the one to realise it?
Cleaning house
Oyun-Erdene was halfway through his
first term in office when he faced his big-
gest test. In December 2022, he left the
state palace and stepped into sub-zero
temperatures to face Mongolia’s biggest
protests since the country’s democratic
revolution three decades ago.
The demonstration was sparked by
the release of official records that con-
firmed what many citizens gathered at
the capital’s Sükhbaatar Square already
knew: corruption was rife among the
country’s state-owned coal industry.
Billions of dollars had been stolen,
including by members of parliament.
The fury revealed not only the degree
of public alarm over endemic graft and
abuse of power — it was also a bitter
★ FINANCIAL TIMES
FT BIG READ. MINING
By Edward White
Will Mongolia’s crackdown
on graft unlock its riches?
Mongolian
leader
reminder of the broken promises of
earlier mining booms.
Luvsannamsrain A month later, speaking in Ulaanbaa-
Oyun-Erdene tar, Richard Buangan, the newly arrived
sees the US ambassador, was unsparing when he
country’s vast
deposits of
summed up Mongolia’s prospects:
“Capricious, non-transparent, unpre-
copper, uranium dictable and corrupt application of laws
and other and regulations make Mongolia unat-
critical minerals tractive for investors and challenging
as a path to for importers and exporters.”
prosperity In response to the criticism at home
FT montage/Bloomberg and abroad, and driven by a resolve to
avoid taking on international finance
loans, Oyun-Erdene has prioritised
making Mongolia investable at the heart
of his economic agenda. He has tapped
his right-hand man, justice minister
Khishgee Nyambaatar, to spearhead an
aggressive anti-corruption campaign.
Seventeen people have been extradited
to Mongolia to face investigation and the
government has asked Interpol to issue
red notices for a further 92 individuals.
Oyun-Erdene has also changed the
way politicians are elected. Constitu-
tional reforms have increased the
number of legislators from 76 to 126 and
established a mixed-member propor-
tional system, with 78 constituent mem-
bers and the remaining elected from
party votes. The new system, which is
akin to those in Germany and New Zea-
land, is intended to increase oversight of
the cabinet and provide greater civil
society representation.
New rules are also being established
As Mongolia’s ... there is hope that
economy emerges foreign investment
from the pandemic ... will help fuel it
Annual GDP growth (%) FDI ($bn)
15 6 sector increases, then the people’s
5 and that only 4 per cent of Mongolia’s
10
4 landmass — about the size of Alaska — is
5 3
2 reforms, there are signs that Oyun-
0 Erdene’s message is cutting through.
1 Hundreds of investors, miners and
-5 0
2012 15 20 22 2012 15 20 22
Sources: Government of Mongolia; IMF
for the appointment and dismissal
of judges, requirements for public
information disclosure, and protection
for whistleblowers as well as changes to
the governance of state-owned enter-
prises and controls over the financing of
political parties.
All of this shows Mongolia is “moving
in the right direction”, insists Nyambaa-
tar. “The revelation of previously
hidden details, such as licensing proce-
dures, land allocations and concessional
loans incited anger and frustration
among citizens,” he says. “We have
come to the belief that the government
should reduce its involvement in
numerous business sectors.”
Oyun-Erdene’s plan also hinges on the
country’s ability to forge new connec-
tions to the outside world. At its closest
point, Mongolia is nearly 700km from
the ocean. The prime minister points
out that transporting goods by air is at
least 100 times more expensive than
by sea. Mongolia, he says, is working
to secure routes for its exports
through China.
Amid concerns that tapping the
country’s mineral wealth will leave its
finances exposed to commodity price
fluctuations, there is also a push to move
higher up the value chain: from mining
to processing and refining minerals, as
well as building solar and wind projects
in the Gobi to export power to China.
Oyun-Erdene, who is seeking re-elec-
tion in 2024, must also keep the public
onside. To that end, the government is
drawing up plans for a sovereign wealth
fund to ensure resource revenues are
channelled towards health, education
and economic growth. “We believe that
as the revenue coming from the mining
support will also increase,” he adds.
Critical minerals
While many say it is too soon to judge
the stickability of the prime minister’s
diplomats joined in celebrations at
Mongolia’s annual Naadam festival on
July 10 at the lavish Shangri-La hotel in
downtown Ulaanbaatar. Their presence
was taken as proof positive of renewed
interest in Mongolia’s resources.
Underpinning their attention is a
looming shortage of the resources
needed for the world’s transition to
cleaner energy systems, including
electric vehicles, and the infrastructure
needed for wind and solar energy.
The International Energy Agency says
that over the past five years, the market
size for minerals vital to the energy
transition has doubled to $320bn. Yet
demand for critical minerals including
rare earth elements, lithium and cobalt
are expected to surge by as much as
600 per cent over the coming decade.
Demand for copper is forecast to double
to about 50mn tonnes annually by 2035
and, according to the IEA, annual
investment in nuclear energy will also
have to triple to about $125bn over the
coming five years.
Megan Clark, a minerals expert and
advisory board chair for the Australian
Space Agency, says Mongolia is
“extremely well placed” in terms of its
mineral endowment. She points to
strong copper, uranium and rare earths
potential as well as the possibility for
“new niche industries” to emerge in
high-tech materials processing.
Supporters of nuclear energy are
equally bullish about the country’s
potential as a long-term supplier to the
nuclear power industry. Olivier Thou-
myre, a representative for the French
group Orano, which is developing
Mongolia’s first uranium mine, says:
“I believe that it is a big source of diversi-
fication for Mongolia.”
In presentations to investors about
the potential in Mongolia, Rio execu-
tives tout a “vast mineral wealth
predominantly untouched by modern
exploration and extraction methods”,
held under exploration licenses.
In reality, mineral explorers coming
to Mongolia are quick to discover reams
of Soviet-era land surveys that targeted
coal and gold but only at relatively
shallow depths. So, while Mongolia is
marketed as a rare greenfield opportu-
nity, the lack of exploration data is a
problem for the industry.
17
To address this, the European Bank
for Reconstruction and Development,
with backing from Australia, has helped
establish a national geoscience database
for Mongolia. However, that database
needs to be filled with new geological
surveys. Local industry leaders are
quietly lobbying Oyun-Erdene’s admin-
istration to spend about $200mn to pay
for the modern surveys, which they
believe are needed to reduce risk and
attract private-sector explorers.
Clark, of the Australian Space Agency
who also sits on the Rio board, says
Mongolia must ensure its mining-
focused officials are properly resourced,
adding that agencies responsible for
controlling exploration and mining
permits should be considered a “vital”
national capability.
Mongolia’s potential has been likened
to South Korea’s evolution into a tech-
nology manufacturing powerhouse.
Dominic Barton, the chair of Rio Tinto,
notes that in the 1970s South Korea had
“very little energy supply . . . no indus-
trial market whatsoever, and very little
access to capital”. Barton, a former sen-
ior McKinsey executive and Canadian
diplomat in China, argues: “There is
every reason and more to believe Mon-
golia can go through the same transfor-
mational change in the next 30 years.”
Squeezed by superpowers
Yet as Mongolia reaches out to the west
to boost growth, it must also avoid
flaring rising geopolitical tensions.
This careful navigation was apparent
on June 27, when Oyun-Erdene met
Xi Jinping, China’s president, in Beijing.
His visit resulted in agreements to triple
the capacity of an increased number of
China-Mongolia border crossings and
negotiations over access to the port at
Tianjin, south-east of the Chinese
capital. On the same day, Jose Fernan-
dez, the US under secretary of state for
the environment, signed a memoran-
dum of understanding with Mongolia to
jointly work on securing a supply chain
for critical minerals.
The simultaneous deals with the US
and China highlighted the Mongolian
leader’s pragmatic approach, diplomats
say. This strategy has also included
abstaining from voting on UN resolu-
tions on Ukraine.
Leif-Eric Easley, a professor of inter-
national studies at Ewha Womans
University in Seoul, says that Mongolia’s
“best bet” to hedge against Moscow and
Beijing is to attract investment. “The
key variable for Ulaanbaatar is credible
democratic leadership that signals to
diplomatic partners and international
organisations the genuineness of
domestic reforms,” he says.
In Ulaanbaatar, there is a palpable
sense of urgency. Three years of trade
restrictions along the 4,630km border
‘The key with China during the pandemic
battered the already-fragile Mongolian
variable is economy. Then the Russian invasion of
Ukraine dashed any hopes of a strong
credible recovery with headline inflation soaring
democratic to an average of 15 per cent last year.
The start of underground mining at
leadership Oyu Tolgoi in March is expected to help
boost Mongolia’s economy to growth of
that signals 5.2 per cent this year, up from 4.7 per
to partners cent in 2022.
The World Bank has warned Mongo-
that lia that fiscal discipline remains essen-
domestic tial in the short term. In years to come,
however, sustainable growth and resil-
reforms are ience to future external shocks will
hinge on the results of the government’s
genuine’ reforms. “They need foreign invest-
ment,” says one foreign diplomat. “They
would prefer it was western.”
Yet Oyu Tolgoi’s own chequered past
highlights the rocky road ahead. The
copper deposit was considered one
of the world’s most exciting minerals
discoveries in 2001, but its development
has been marred by billions of dollars in
cost overruns, years of delays and, at
times, a toxic relationship between
Ulaanbaatar and Rio, especially under
Jean-Sébastien Jacques, the chief execu-
tive from 2016 to 2020.
His replacement, Jakob Stausholm,
has worked to smooth over tensions,
brokering a deal to write off debts of
$2.3bn owed by the Mongolian govern-
ment. Rio took greater control over
the operation from Canadian miner
Turquoise Hill.
Rio points out that for the past dec-
ade, about 10 per cent of the Mongolian
government’s revenue has come from
Oyu Tolgoi. However, an acute point of
tension remains around the timing of a
dividend payment from the project,
which could still be years away and
depends, in part, on the price of copper.
Most of the Oyu Tolgoi saga predated
Oyun-Erdene’s time in office, but
the prime minister says the mine’s
problems have underscored the critical
importance of transparency and
accuracy when it comes to feasibility
studies and financing plans: “We’ve
learnt our lessons,” he says. Now,
Oyun-Erdene just needs western
investors to believe him.
18 ★ FINANCIAL TIMES Friday 28 July 2023

The FT View
Time to retire the ‘emerging markets’ label
Clumping the developing
world together obscures
risks and opportunities
Humans have an innate desire to sort
and categorise the world around them.
The economist Antoine van Agtmael is
no exception. In 1981 at the World Bank,
he coined the phrase “emerging mar-
kets” as a more aspirational alternative
to the term “third world”. The label
has since become synonymous with a
hotchpotch of fast-growing nations con-
sidered to be riskier investment pros-
pects than “developed markets”. While
it may have been a successful rebrand,
for economists and investors the catch-
all term has become unhelpful.
Emerging markets, which account for
the bulk of the world’s population, are
not a homogeneous group. Rather, they
consist of dynamic and highly diverse
countries at different stages of develop-
ft.com/opinion ment — and their composition has
changed vastly since the term became
popular. For instance, the breakneck
growth of China and India makes them
particular outliers when compared to
fellow EMs. Recent shocks have also
underscored the economic diversity
across EMs. On the policy front, central
banks in emerging Europe and Latin
America were particularly aggressive
in raising interest rates to get ahead of
inflation in the aftermath of the pan-
demic and the war in Ukraine. Mean-
while, some EMs have prudently built
up foreign currency reserves and issued
more home currency debt making them
less susceptible to crisis dynamics.
Volatile commodity markets have
also distinguished net energy exporters
from importers and those with critical
reserves. And tensions between the
west and China are having differing eco-
nomic impacts too, depending on geog-
raphy and diplomatic relations. Indeed,
though trade liberalisation since the
1990s helped most EMs to take off, the
next phase of globalisation, which looks
to be punctuated by rising protection-
ism and friend-shoring, is set to have
more differentiated impacts.
This variation makes the EM moniker
increasingly unfit for macroeconomic
and investment analysis. The broad-
brush label can obscure risks and
opportunities. For instance, the rising
narrative around EMs’ economic resil-
ience — with fewer than anticipated
debt defaults in the aftermath of the
pandemic — risks playing down the
pockets of vulnerability that still exist.
Turkey has a dearth of FX reserves, pri-
vate sector debt servicing costs in Brazil
and China are concerning, and Tunisia
and Pakistan are on the brink.
Financial markets also still rely on the
EM-DM dichotomy or other regional
groupings. But investors will want expo-
sure to countries likely to benefit from
new trends, including the scramble for
critical minerals and “China plus one”
supply chain strategies. Indeed, disaggre-
gating EM bonds, equities and alternative
assets, such as infrastructure projects, on
The breakneck a country or thematic basis could help
growth of investors to unlock higher returns and
enable developing countries to obtain
China and India
more capital. For that, access to reliable
makes them country-level data will be important.
particular There have been numerous attempts
outliers to popularise other groupings. The Brics
nations — Brazil, Russia, India, China
and South Africa — are perhaps the
most famous. Then there are “emerging
and growth leading economies”, or
Eagles. Few have proved useful, given
large economic differences in terms of
trade, growth and financial openness.
Definitions also vary. Investment indi-
ces focus on market access metrics,
while economic bodies prefer macr-
oeconomic thresholds.
The developing world does not fall
neatly into a single category. And, in a
global economy hit by multiple crises
and geopolitical upheaval, there are
even greater upsides for economists
and investors that can differentiate
between them. Perhaps it is time to
retire the EM label altogether.

Opinion Data Points

Letters
Email: letters.editor@ft.com
Include daytime telephone number and full address
Corrections: corrections@ft.com
If you are not satisfied with the FT’s response to your complaint, you can appeal

Net zero must not to the FT Editorial Complaints Commissioner: complaints.commissioner@ft.com

become the new UK’s leading role in aviation emissions policy hit by Brexit
partisan divide Cait Hewitt and Henry Mance made
some interesting points about aviation
aviation climate change team when she
took up her Aviation Environment
AEF and other civil society groups.
Most notably, the UK was the leading
Organization’s committee on
environmental protection in 2004,
sustainability in their conversation Federation role 16 years ago. In my advocate for climate change mitigation known as CAEP 5 — a meeting which I
(The Henry Mance Interview, July 24), second post as a senior civil servant measures in the EU, along with the chaired, in a neutral capacity.
John Burn-Murdoch although her criticism of the planning
system is somewhat churlish given that
(2001-04), I was head of DfT’s aviation
environmental division, which was
Dutch, Swedes, Swiss (who were part of
the EU effort) and European
One of the inconveniences of the
UK’s exit from the EU is that it is now
the UK system appears designed to already a well-established unit in the Commission officials. The UK and EU harder to influence EU policy and no
make any new significant department. The division had separate fought long and hard against longer possible to play our previous
Britons are very supportive of green policies, with infrastructure as difficult and costly as teams working on aircraft noise, air opposition from pretty much every leading role in European efforts to
Conservatives often as green as the centre-left elsewhere possible — hence no new full-length quality impacts and climate change other corner of the globe, led by the US, shape global policy on aviation
runway in the London/south-east area mitigation, as well as support from and managed to make decent progress emissions reductions.
Net support for green policies in western nations, by party or candidate (% points) since the second world war. scientific, economist and legal on a range of environmental measures Graham Pendlebury CBE
A ban on the sale of new petrol and diesel cars after 2030 However, it is not true that the colleagues. We had regular and at the fifth triennial meeting of the (Former Senior Civil Servant, DfT)
UK AfD CDU Con Lab Department for Transport had no constructive discussions with the International Civil Aviation Surrey, UK
Germany SPD
US Rep Dem
France Le Pen Macron
−75 0 +75 Deterrence tactics drive Diversity initiatives will Technology can play key
A tax on flights linked to how frequently people fly
UK Con Lab
tensions in Taiwan Strait unlock start-ups’ potential role in motivating workers
Germany AfD CDU SPD Dealing effectively with the Chinese The article discussing tax relief for The article by Andrew Hill (“UK lags
US Rep Dem military’s escalation in the use of the UK’s regional start-ups (FT.com, behind G7 peers on productivity due to
France Le Pen Macron
“grey zone” tactics requires a clear July 24) is right to call for boosted ‘complacency’”, FT.com, July 18) raises
Tripling government investment in renewables understanding of the dynamics driving venture capital investments outside some well-founded questions about
Lab
UK Con it and the essential elements involved London. Yet, the article leaves diversity the state of productivity in the UK.
Germany AfD CDU SPD in countering it. Unfortunately, initiatives as a footnote, undermining However, the article fails to highlight
US Rep Dem
France Le Pen Macron Kathrin Hille’s and Demetri their crucial role in unlocking the full the potential of technology to engage
Sevastopulo’s analysis falls short on potential of the start-up landscape. workers and improve productivity.
Source: FT analysis of data from YouGov both counts (The Big Read, July 24). The Treasury committee report Improving productivity requires

I
t’s not often these days that one
thinks of Britain as having advan-
tages over other developed coun-
tries, and less often still that those
advantages stem from unity
across a famously divided electorate,
but for some time now support for the
pursuit of net zero has been broader
and deeper in the UK than any peer
country. And it’s not just flimsy sup-
port for vague concepts, but for real
policies, including those that would hit
people in their wallets or otherwise
impact their daily lives.
The current implementation of Lon-
don’s ultra low emission zone has
proved unpopular among many of the
city’s drivers, but Britons are solidly in
favour of the planned ban on the sale
of new petrol and diesel cars from
2030 — something that cannot be said
for the publics of France, Germany or
the US. More striking still, support for
this policy is higher among British
The public, including
Conservative voters, is
fully behind ambitious
green growth
Conservatives than even among the
centre-left in France and Germany.
It’s a similar story with proposals to
tax frequent flyers, or to triple invest-
ment in renewables. The British public
overall is much more supportive
than those of other wealthy western
nations, and both Labour and Con-
servative voters rank among the
greenest of all major parties’ backers.
This public support has been
reflected in policy. Britain’s govern-
ment was the first in the G7 to commit
its net zero ambitions to law, and there
were rapid rollouts of solar and wind,
alongside the phasing out of coal.
Between stagnant wage growth and
flatlining productivity, the 2010s are
rightly considered a lost decade for
Britain, yet amid the gloom was an
under-appreciated success: in 2015,
the UK installed as much renewable
capacity as any peer country, and up
until 2017 it decarbonised its economy
at a faster rate than any peer country.
But the green boom fizzled out.
First, in 2015 the Conservative govern-
ment in effect banned new onshore
wind farms when they sharply tight-
ened planning restrictions in England.
Between 2008 and 2014, at least 50
new wind farm applications were sub-
mitted each year, but that had plum-
meted to single digits by 2016, and has
not recovered. Similarly, after the
withdrawal of government support for
solar, new applications fell from 488 in
2015 to just 10 two years later.
Despite solar and wind enjoying
very strong public support at the time,
both were casualties of David Cam-
eron’s desire to “get rid of all the green
crap”. This bid to bring down house-
hold energy bills had the opposite
effect, with the resulting poorly insu-
lated homes and over-reliance on gas
adding £9.8bn to UK energy bills over
the past year. Today Rishi Sunak is
making the same mistake, only the
stakes are higher and the outcome
may well be worse for all involved,
starting with his party.
Thirty per cent of current Conserva-
tive supporters say that if Sunak
waters down the net zero targets it
would put them off voting Tory at next
year’s election. The environment is
simply a much bigger issue for voters
in 2023 than it was in 2013, and former
Tory voters are disproportionately
more likely to say they’ll switch to
Labour if they think the government is
not doing enough on climate. Being
seen as lackadaisical on global warm-
ing also risks exacerbating the party’s
problem with millennials.
But, more important, making green
policies into a wedge issue will apply a
brake just at the point when the UK’s
energy transition is most in need of
thrust. The construction of a huge off-
shore wind farm that could increase
Britain’s electricity generation by
three per cent has been put on pause.
Britain had only 2.5 heat pump sales
per 1,000 households last year, fewer
than all major European countries and
far behind the target of 21 installations
per 1,000 by 2028. Government-
funded energy efficiency installations
fell to a record low.
Solving these problems takes green
ambition, but it will pay dividends for
energy security, household budgets
economic growth — and the planet. It
would be wrong to interpret a close by-
election result and a poorly designed
policy as Britons cooling on net zero.
The British public — including Conserv-
ative voters — is fully behind ambi-
tious green growth. Confident parties
and leaders would channel those sen-
timents, not undermine them.
john.burn-murdoch@ft.com
The US, China and, to some extent,
Taiwan are locked in an interactive,
escalating dynamic marked by a
myopic focus on military deterrence
over credible levels of reassurance.
China’s escalating military threats
against Taiwan are — to a great extent
— a reaction to what Beijing regards as
various US and Taiwanese efforts to
establish the permanent separation of
the island from China. They are
deterrence actions, which prompt
further destabilising military and
diplomatic deterrence behaviour by
Washington and Taipei, in an endless
escalatory spiral. This dynamic is
the key to understanding increasing
tensions in the Taiwan Strait, not
a possible factor to be mentioned
in passing.
The authors make only a passing
reference to such possible motives. The
bulk of their article is spent defining
the features of China’s growing grey
zone threats and the calls for greater
levels of military deterrence by
(primarily Taiwan) observers. They
should have framed China’s behaviour
in this fundamentally interactive
context from the start, not merely
allude to it as a possibility.
The authors fail to grasp that
effective deterrence requires not only
well-defined military capabilities and a
convincing willingness to use them, but
also credible signals of an intention to
avoid using those capabilities to
threaten the most vital interests of
your adversary, in this case Taiwan’s
future unification with China. The
authors do mention that some analysts
cite the need for (undefined)
assurances as a critical part of any
strategy to counter China. But this is
done at the very end of the piece, again
only in passing.
No level of military deterrence, by
either side, will reverse the current
downward spiral over Taiwan absent
credible assurances that Washington
remains committed to its “one China”
policy, and Beijing remains committed
to the search for a peaceful resolution
of the issue.
The gradual erosion of this original
understanding underlies the kinds of
dangerous behaviour we now see in the
Taiwan Strait. Reporters on the Taiwan
situation need to recognise this reality
more clearly and put it at the centre of
their writing.
Michael Swaine
East Asia Senior Research Fellow,
Quincy Institute for Responsible
Statecraft, Olney, Maryland, US
The US and Chinese navies have been
more active in the Taiwan Strait
Central banks should ease
fears over CBDC privacy
While Eswar Prasad is right to highlight
concern that retail central bank
digital currencies could be used for
“surveillance purposes” (Opinion,
July 25), there are three key ways in
which central banks can mitigate the
privacy risks associated with CBDCs.
First, central banks must maintain a
design framework that upholds data
anonymity. Although CBDC would be a
liability of the central bank, it doesn’t
follow that the central bank would
have access to user data. Under an
intermediated model, for example,
customers would hold accounts or
wallets managed by private providers,
with data protection in line with
existing banking solutions or better.
Second, central banks should
examine novel technology solutions to
allow CBDC users to enjoy as much
“cash-like” privacy as possible. The
public should have absolute confidence
that their data is confidential.
Technologies such as zero-knowledge
proofs and secure enclaves can
technically enforce privacy while
protecting system integrity.
Finally, the central bank must
first and foremost embrace its
responsibility to service citizens in its
design of CBDC. It is not beholden to
shareholders but to us, the people. This
is an opportunity for a best-in-class
solution that sets the standard for all
payment offerings for years to come.
The ability to hold cash and spend it
without authorisation is an important
source of personal privacy, so it’s
entirely natural for people to be wary
of new technologies digitising this type
of money. Open collaboration between
central banks, regulators and
technology providers across both the
public and private sectors will be key in
fostering the necessary consumer trust
to make this transition credible.
Jack Fletcher
Head of Policy and Government Relations
for Digital Currencies, R3
London EC2Y, UK
sheds light on the concerning situation
for women entrepreneurs in the UK.
Failing to invest in the potential and
skills of half the population puts a
ceiling on the growth prospects of
female founders, as well as holding
back the economy at large.
Start-ups that prioritise gender-
balanced boards and inclusive
decision-making consistently
outperform their peers; success stories
from the Nordics and eastern Europe
should serve as a beacon for what can
be done in a truly diverse tech space.
We also, as VCs, need to do better in
empowering women in our industry.
This means more women at general
partner level, and more women fully
included in leadership at funds. The
recent European Women in VC report
said female general partners controlled
less than 10 per cent of total assets
under management in Europe — yet
accounted for 15 per cent of GPs.
By incentivising funds to address
bias in their decision-making and
ensuring firms are evaluated on return
on investment and growth potential,
we can create a win-win scenario for
investors and founders alike.
Ekaterina Almasque
General Partner, OpenOcean,
London W1, UK
Netanyahu is being held
captive by extremists
History demonstrates that you
should never compromise with or
accommodate extremists because they
are never satisfied. They will never give
up their maximalist demands.
This is a lesson that Prime Minister
Benjamin Netanyahu has failed to
learn (“Knesset sets judicial reform in
motion”, Report, July 25). He is being
held captive by ultrareligious and
nationalist parties that provide the
seats in parliament needed for him to
form a coalition government. He has
clearly lost control of his government
with extremists now in charge of
dictating government policy, as
illustrated by the passage of the bill to
restrict the use of reasonableness in
judiciary rulings by the Supreme Court.
This bodes ill for Israeli democracy
as the ultrareligious and nationalist
parties seek to impose their vision on
Israeli society, which is diametrically
opposed to a secular democratic state
with checks on government power that
are supported by the opposition.
Steven E Cerier
Forest Hills, New York, US
a comprehensive approach that goes
beyond adjustments made solely by
managers. It’s a complex issue without
quick-fix solutions. Information and
deskless workers have different
motivations that require different
engagement methods to improve
productivity. For example, deskless
workers are often motivated by
a desire for greater autonomy,
whereas information workers are
more motivated by opportunities
for promotion.
As Anthony Impey of Be the Business
points out, businesses must delve into
behavioural science to understand
what motivates their workforce and
genuinely affects productivity. Armed
with these insights, they can deploy
innovative technologies, from mobile
apps to digital signage to enhance
employee engagement, tailored to each
team or business section.
Addressing the challenges of
complacency and poor productivity is
among the UK’s most pressing issues. If
the UK continues to fall down the list of
productive countries, this could have
significant knock-on effects in terms
of foreign investment levels or the
number of new start-ups being
founded, ultimately making the
country less innovative.
It’s time to transcend traditional
management methods and embrace
technology intelligently. By replacing
complacency with innovation,
businesses can forge a path towards
lasting productivity improvements.
Luke Hubbard
Chief Technical Officer
Screencloud, Bangkok, Thailand
Ireland has enjoyed free
protection by Nato forces
What Dónal Denham doesn’t mention
is that for too long successive Irish
governments have been happy to enjoy
the protection of UK and Nato defence
forces without making an equitable
contribution to the cost (“Irish
neutrality move creates UK
conundrum”, Letters, July 24).
Admiral Lord West of Spithead
House of Lords,
London SW1A, UK
Correction
c The boss of P&O Ferries was involved
in firing 800 crew over Zoom, not the
boss of P&O Cruises as incorrectly
stated in an article on July 27.
Friday 28 July 2023
Europe should not relax this summer — challenges await
POLITICS
Adam
Tooze
t moments of stress, the EU
i nvo ke s Je a n Mo n n e t ’s
maxim that Europe will be
forged in crisis and will be
the sum of the solutions
adopted to address those crises. That is
comforting when you are in the thick of
it. But when you emerge from the state
of emergency, as Europe seems to be
doing this summer, it forces the ques-
tion: what crisis comes next and what
will be the solution?
Sometimes this questioning of
Europe’s future is a distraction. To think
a lw ays i n t e r m s o f c r i s i s — a s i n t h e
anglosphere’s endle ss scepticism
t o w a r d s t h e e u ro — u n d e re s t i m a t e s
resilience. But, sometimes, it is pre-
cisely the right question to ask.
S i n c e 2 0 1 9 , u n d e r Ur s u l a vo n d e r
Fear and
loathing in
US education
SOCIETY
Gillian
Tett
nother week, another wave
of bitter controversy about
American education. Four
weeks after the Supreme
C o u r t s p a r ke d f u ro re b y
banning affirmative action in university
admissions, the education department
opened a civil rights investigation into
Harvard University’s admission policy.
This followed allegations that a prefer-
e n c e f o r t h e re l a t i ve s o f a l u m n i a n d
donors discriminate s against black,
Hispanic and Asian applicants.
Cue a wave of parental — and political
— angst that will undoubtedly intensify
as the next round of university applica-
tions loom, along with the 2024 presi-
dential election.
But if you want another perspective
on the saga, it is worth looking at a tale
that has quietly unfolded over years in a
different setting: public high schools in
Silicon Valley districts such as Cuper-
tino, where Apple has its headquarters.
A l m o s t t w o d e c a d e s a g o, re p o r t s
emerged there about so-called “white
flight” or the departure of Caucasian
families. But this was not the type of
exoodus seen in the early to mid-20th
ex
century, when white families fled neigh-
bou
bo urhoodoodss after African-American or
NatWest saga shows running a bank is more of a high-wire act than ever
Philip
Augar
he financial crisis of 2008
turned banking into a
highly political business,
guaranteeing the sustained
i n t e re s t o f g ove r n m e n t s
and their arm’s length bodies. Especially
in the UK, where the now discredited
light-touch regulation was once an
article of faith, the authorities have
s t e p p e d i n w h e n e ve r t h e y s u s p e c t
weak governance. This turns running
a bank into a high-wire act where the
r i c h r e w a r d s f o r s e n i o r e xe c u t i v e s
a re a c c o m p a n i e d b y t h e r i s k o f ve r y
public humiliation.
That is the context for this week’s
enforced resignation of NatWest’s chief
executive, Dame Alison Rose, just hours
after the board left her in post, deliver-
i n g o n ly a re b u ke ove r h e r h a n d l i n g
of the banking affairs of politician
Nigel Farage. What changed in the seven
Leyen’s surprisingly powerful European
Commission, the “EU fix” has consisted
of forward-looking investment in digital
infrastructure and the green energy
transition. Faced with the pandemic,
t h i s f o r m u l a u n i t e d E u ro p e a ro u n d
common borrowing. It has since been
adapte d to me et Vladimir Putin’s
aggression in Ukraine, the challenge of
America’s Inflation Reduction Act and
escalating tension with China.
Paradoxically, the very success of this
strategy leads conservatives to imagine
Europe’s future lies in returning to a
normality defined by fiscal rules dating
back to the early 1990s. This is wishful
thinking. It may be complacent to say
so, but a repeat of the eurozone crisis of
the 2010s is not Europe’s main worry
right now. No doubt a big banking or
public debt crisis would find Europe’s
fiscal and monetary architecture want-
ing. The fiscal rules and the role of the
European Stability Mechanism remain
contentious. But bond markets are calm
and Europe weathered the US and Swiss
banking crises this year well.
A n e s c a l a t i n g re f u g e e c r i s i s i n t h e
Medit diter
erran
raneean is a bigger
bigger immimmeedia diate
te
Hispanic families moved in — because of
their racism and a fear of crime and
falling house prices.
Instead, the reports suggested white
parents were pulling their offspring out
of public schools in these suburbs
because of fears they would be outper-
formed by Asian-American children.
At the time, these politically sensitive
tales were downplayed by local officials;
Steve Rowley, a Californian school
superintendent, insisted that there was
“relatively little” factual proof of such
flight . But this m moonth a ttrrio ooff econo-
mists — Leah Platt Boustan, Christine
Cai and Tammy Tseng — published the
first extensive, data-driven study of the
issue. And this concludes that the tales
of “white flight” were indeed true.
Most notably, after crunching popula-
tion, economic and school enrolment
data in high so cio - e conomic status
Californian suburbs between 2000 and
2016, they argue that the arrival of each
new Asian student was correlated with
the departure of 0.6 white pupils. When
adjusted for demographic factors, “on
average, the arrival of one Asian student
in a suburban school district leads to the
departure of 1.5 white students”. They
note this “rate of white flight is some-
what lower but not too dissimilar from
flight from black/Hispanic populations
documented in different settings”.
Of course, this pattern could have
multiple reasons, not least because of
wider problems in America’s public
s c h o o l sys t e m . B u t t h e f a c t o r s t h a t
sparked “white flight” from African-
American and Hispanic incomers —
h o u r s b e t we e n t h a t e n d o r s e m e n t a n d
her abrupt departure were the signals
from Number 10 and 11 Downing Street
t h a t h e r a p o l o gy a n d t h e b o a r d ’s
response were not enough. Off she went.
It is part of a pattern. Since the finan-
cial crisis first broke, three out of the
four chief executives at NatWest and its
prered decessor RBS have left suddenly
after political intervention. The first to
go was Fred Goodwin in 2008. He had
driven the bank on to the rocks with an
overambitious growth plan and hoped
to stastay
ay on as par partt of a rescu scuee pla
not surprisingly given the mess the bank
plan n. But
was in, the government required his
resignation as part of the state bailout.
His successor Stephen Hester patiently
s t e e re d t h e b a n k o u t o f t ro u b l e b u t
made a sudden exit after five years,
apparently at then chancellor George
Osborne’s bidding. His successor, New
Zealander Ross McEwan, succes esssfully
lasted the course but then came
Rose and NatWest’s third government-
induced exit in just 15 years. The Olym-
pic Games come round nearly as often.
It is becoming quite a habit. The polit-
i c i s a t i o n o f b a n k i n g h a s b ro u g h t a l l
★ FINANCIAL TIMES
Opinion
risk. It is with good reason that diplo-
macy with Tunisia’s unappetising gov-
ernment has shifted into high gear. Nor
is it coincidence that Germany and Italy
are pushing a hydrogen pipeline that
offers development prospects for north
A f r i c a . E x t e n d i n g t h e Nex t G e n e r a -
tionEU investment agenda to the wider
Me d i t e r r a n e a n w o u l d b e l o g i c a l . A
rational long-term strategy would envi-
Ukraine’s accession is
arguably the most
daunting problem
the EU has faced
sion a managed migration programme,
backed by large public investment.
The chances of realising that kind of
pragmatic sustainable dev eveelopment
thinking depends on not crushing
Europe’s economy with arbitrary and
decades-old fiscal rules. It also depends
on preserving a political balance. It was
the centrists’ political victory in 2019
that allowed Brussels to promote cli-
namely racism, crime and house prices
— do not se em to b e to blame. High
socio-economic status (SES) areas have
low crime and high house prices. And
while separate research by experimen-
tal psychologists suggests white families
do sometimes see Asian-Americans as
“a foreign cultural threat” in other US
l o c a t i o n s, t h e e c o n o m i s t s s e e l i t t l e
evidence of overt hostility in Cupertino.
Instead, they point to education as a
p o s s i b l e re a s o n f o r t h e f l i g h t : w h i t e
parents wanted to use public schools in
other districts, where their children
could come top of the class, and thus
have more chance of entering California
universities, which emphasise class
order in admissions.
“Asian arrivals lead to test score
gains for the full student body in these
It is hellishly difficult to
create a ‘fair’ and ‘diverse’
system when smart parents
are so adept at arbitrage
banks into the spotlight, not just
NatWest. Its great rival, Barclays, which
unlike NatWest does not have UK plc as
a shareholder, is on its fifth chief execu-
t i ve s i n c e t h e c r i s i s a n d t w o o f t h e m
h av e b e e n f o r c e d t o l e av e a f t e r t h e
authorities intervened. In 2012, Bob
Diamond became a scapegoat for
the industry-wide Libor interest-rate
r i g g i n g s c a n d a l. W h e n t h a t s c a n d a l
broke, Diamond waived his bo bonnus but
Such public defenestrations
may cause some potential
chief executives to think
twice about the role
the Barclays board wanted to keep him
in po
posst. The authorities
es,, in this case in
the form of Bank of England governor
Mervyn King, would have none of it and
the board was forced to change its mind.
In 2021, Diamond’s successor but one,
Jes Staley, resigned after Barclays’ regu-
lators
lat ors rep
eport
orteed on the wa
wayay Stale
taley had
characterised his relationship with the
mate to the heart of the Europ ean
project. A lurch to the right in the 2024
European elections would put von der
Leyen’s formula in question.
Vox’s failure in Spain has for now
allayed fears of a nationalist populist
surge. But their challenge dragged the
entire agenda of Spanish politics to the
right. And the same appears to be hap-
pening with the CDU in Germany under
pressure from the AfD. As the centre-
r i g h t i n t h e E u ro p e a n p a r l i a m e n t
showed in their abortive effort to sabo-
tage the nature restoration law, von der
Leyen’s own party cannot be counted on
to support the green agenda in the face
of farmer protest.
After the po pollitical invesesttment of the
pastt fi
pas fivve year
earss, a rightw
rightwinging lur
lurch ch tha
thatt
stunted Europe’s green programme
would be tantamount to an identity cri-
sis for the EU. A further escalation of
xenophobia at the same moment — with
Italy’s Giorgia Meloni rather than von
der Leyen as the champion — is a very
ugly prospect.
In the ele c tion to the parliament in
2024, Europe’s voters will make an
important choice on climate and refu-
h i g h - S E S d i s t r i c t s, b u t d o n o t b o o s t
most measures of tes estt scores for white
students,” the authors note. “The learn-
ing of white students app ears unaf-
fected [by immigration] but the relative
performance in the class for the average
w h i t e s t u d e n t wo u l d f a l l w i t h A s i a n
entry . . . raising parental concerns
about competition.”
This is unlikely to elicit much
sympathy from the wider American
public, given that the “fleeing” families
are probably fairly elite — and white
kids already have better educational
outcomes than Hispanic and African-
American families in California.
But this pattern is striking for at least
three reasons. First, it shows how con-
fusing and unhelpful the “minority” tag
is today, since it is not always synony-
mous with disadvantage; economic dif-
ferentials are more important. Indeed,
Asian-American plaintiffs initially par-
ticipated in the lawsuit that culminated
in last month’s Supreme Court ruling,
since they felt universities were dis-
criminating against them. (Sixty-four
p er cent of Asian Americans opp ose
s e x o f f e n d e r Je f f re y E p s t e i n w h i l e a t
JPMorgan. Just the year before, the
Barclays board had investigated that
relationship and expressed full confi-
dence in their chief executive. But the
regulators carried on with their own
inquiry, took a different view and Staley
left to fight his corner.
That’s a lot of big banking beasts to
have stood down after official interven-
t i o n f o l l ow i n g i n i t i a l b o a r d b a c k i n g .
A more vigorous regulator, the politici-
sation of banking and more media inter-
est have changed the dynamic for senior
e xe c u t i v e s a n d b o a r d s. U n d e r a n y
circumstances, banks are complex busi-
nesse
ne ssess to run wit with h man
manyy interl
parts and financial risk management
interloockinkingg
always looks easier in hindsight. But the
additional dimension of heightene d
reputation risk and intense political
scrutiny makes solving a Rubik’s Cube a
doddle by comparison.
NatWest’s latest mishaps now leave it
looking for a new chief executive as well
as a new chair after Sir Howard Davies
let it be known this year that he planned
to step down in 2024 . That’s quite
some task for the bank’s head hunters.
gees. But another challenge is even more
decisive in defining Europe’s future.
Before 2022, Brussels, Paris and Ber-
lin all preferred to hold Ukraine at arms-
length. Putin’s aggression has robbed
them of that option. Ukraine’s EU acces-
sion is now squarely on the agenda. It is
arguably the most daunting challenge
t h e E U h a s e ve r f a c e d . T h e € 70 b n i n
civilian and military aid currently under
discussion are just the beginning. Esti-
mates of the eventual spending required
run to more than €400bn for a state that
is not yet a member of the bloc.
One can imagine stretching the Green
D e a l i nve s t m e n t f o r m u l a e ve n ove r
Ukraine. But that does no justice to the
fundamental political decision that will
b e ne ce ssary to accommo date a war-
battered nation of 38mn as an EU mem-
ber. The first decision will come in Octo-
ber on Ukraine’s progress towards
accession negotiations. If we apply Mon-
net’s maxim, it is the solutions found or
not to the Ukraine crisis that will define
the EU for the foreseeable future.
The writer is an FT contributing editor and
writes the Chartbook newsletter
Efi Chalikopoulou
considering race in college admissions).
Second, the saga also underscores
how the racial angst gripping American
universities starts at a young age, since
high school rankings shape admissions.
And that leads to a third point: it is
hellishly difficult to create a “fair” and
“diverse” educational system when
smart parents are so adept at arbitrage.
Of course, in theory, everyone should
be delighted by super-smart children of
any race in their public schools. But
p a re n t s c a n a l s o s e n s e t h a t f u t u re
competition for elite jobs will get more,
not less, intense — not least because
separate inequality research shows the
wage premium for so-called “abstract
cognitive” job, compared with routine
cognitive occupations, has risen from
1.5 to 1.9 times in the past 50 years.
In that sense, then, the fac t that
this pattern erupte d in the suburbs
around the Apple headquarters is all too
symbolic. It is a foretaste of the tensions
that will keep poisoning the politics of
American education for a long time.
gillian.tett@ ft.com
Finding top bankers means fishing in a
small pond, while Rose’s public defenes-
tration — some of which has been
unnec ecesesssarily vindictive — may cause
some potential chief executives to think
twice, despite the financial rewards.
Meanwhile her nemesis, Farage, is
calling for Davies and the entire board to
go. Both board and chair do have some
q u e s t i o n s t o a n s we r b u t w h o l e s a l e
change is unrealistic and unwise at an
institution that is at long last financially
s t a b l e . I t a l s o a s s u m e s t h a t t h ey c a n
be replaced easily, an assumption
that should not be taken for granted
givevenn t h a t t h ey a p p e a r t o b e s e r v i n g
governments as well as shareholders.
It is an uns unsatiatisfa
sfacctor
toryy sit
situat
uationion but
the industry has only itself to blame
following decades of mismanagement.
It will only get the authorities off its back
if its governance becomes as muscular
as the government on which it relies
in times of crisis. And that is perhaps
the intended message behind the
recent interventions.
The writer is the author of several books on
the City and Wall Street
19
Poland can
achieve its goals
with a more
open approach
Grzegorz
Kołodko
wenty-seven years ago, on
July 11 1996, as Poland’s
deputy prime minister and
finance minister, I signed
the ac t of acce ssion to the
OECD. This paved the way for my coun-
try to join the EU less than eight years
later. Where does Poland stand now, as it
prepares to take over the EU ’s six-
month rotating pres esiidency in January
2025? We held this prestigious position
for the first time in 2011, but left no last-
ing trace on the process of European
integration. How will matters turn out
next time?
With national elections due later this
year, we do not yet know who will be
governing Poland in 2025. But we do
know a great deal about the views of the
rightwing Law and Justice (PiS) party,
which at present holds power. President
Andrzej Duda believes that Nato’s east-
ern flank needs further strengthening,
so “more United States in Europe, more
European Union in the United States” is
de sirable. Prime Minister Mateusz
Morawiecki likewise says that strength-
ening the transatlantic community “is
the most imp ortant task of our [EU]
presidency”. This approach does not
bode well.
Poland doesn’t contribute to world
histor
his toryy, but the EU dodoees. To mak makee th thee
most of the Polish presidency, we should
not con
confus
fusee the EU
EU’’s resp sponsonsibi
ibilit
litieiess,
many of which are primarily economic
in nature, with those of Nato, which is a
military alliance. In this era of growing
global confrontation, however, what we
c a n d o i s m a ke a p o l i t i c a l a n d d i p l o -
matic eefffort ttoo een
nsure tth he E EUU aan
nd tth he
The nation’s standing as a
liberal democracy with an
independent judiciary has
suffered damage since 2015
larger Euro-Atlantic system competes
peacefully with the Euro-Asian one. The
E U i s a n i n a l i e n a b l e p a r t o f b o t h sys -
tems, a point that has obvious geopoliti-
cal implications.
During the eight years that PiS has
held po pow wer, Poland’s standing as a lib-
eral democracy with independent insti-
tutions, n nootably the jju udiciary, h haas ssu
uf-
f e re d d a m a g e . B u t t h e e c o n o m y h a s
flourished. Gross domestic product per
head, at purchasing power parity, is 40
per cent higher than eight years ago. By
this measure Poland ranks 40th in the
world, after Estonia and before Portugal.
Yet there are better measures of the
socio-economic situation. In terms of
the Human Development Index, Poland
is ranke ked d 34th, between Gre reeece and
Saudi Arabia. The inequality-adjusted
HDI ranks Poland 28th, just behind the
US and ahead of Israel.
There is no unanimity as to what is the
overriding goal of economic activity and
society. Both current income and accu-
mulated wealth are only means to an
end of life satisfaction. Using the Happi-
ness Index as a measure re,, Poland has
moved up over the past eight years from
6 0 t h p o s i t i o n i n 2 0 1 2 -1 4 t o 3 9 t h i n
2020- 0-222. With this rating, we are behind
Panama and ahead of Nicaragua.
So where is Poland in this rapidly
c h a n g i n g wo r l d ? T h e a n s we r t o t h i s
que stion is imp ortant , but the most
important aspec t is that things do
improve over time. Doubtless the situa-
tion, in terms of happiness, would be
even better if not for the often nasty
p o l i t i c a l a t m o s p h e re c a u s e d b y t h e
quarrel between the ruling coalition and
aspiring opp osition. The Happine ss
Index also takes into account trust in
government and the extent of corrup-
tion in p olitics and busine ss. In this
respect, the situation has deteriorated
under the rule of PiS. Perceived levels of
corruption have increased since 2014.
I believe the upcoming elections in
Poland will be the most important in
Europe this year. Poland is now some-
times viewed as a flawed democracy,
w h i c h i s n o t w h a t I ex p e c t e d w h e n I
signed our OECD accession more than a
quarter of a century ago. Before the elec-
tions that brought PiS to power in 2015,
things were better.
When making our choices in 2023,
let’s not make a mistake. Openness and
pro-Europeanness are the best way for
Poland to achieve its most important
goals. This is the way to a better future.
The writer is economics professor at Koz-
minski University in Warsaw and a former
finance minister of Poland.
20 ★ FINANCIAL TIMES Friday 28 July 2023

Meta: extravagant Quest

Spending on servers and network assets has jumped at the social media group. Meta has big plans for
artificial intelligence and virtual reality and is attracting more users to its family of apps. But the metaverse
generates big operating losses and little revenue. Forecasts predict losses will continue for years to come.

Metaverse operating losses dwarf revenues Meta's server assets

Twitter: @FTLex
St James’s Place:
call of duty
St James’s Place has a deeply ingrained
sales culture. One would expect
nothing less of a wealth manager whose
life president Mark Weinberg set up
such high-pressure marketing
operations as Allied Dunbar.
A “consumer duty” that goes live at
the end of this month is forcing the
business to shift ground. The obligation
is perplexingly vague. “Outcomes” are
heavily emphasised.
Yesterday, SJP announced modest fee
cuts. There will be more to come. The
Financial Conduct Authority appears
unsympathetic to the argument that a
fuller advice service needs fuller fees.
The UK retail financial services
industry is subject to cost-down
pressures. SJP nevertheless charges
5 per cent upfront on its typically brisk
sales of individual savings accounts.
It would be premature to say that the
consumer duty will clip the wings of
this golden goose. But a little
lightweight plucking is under way
SJP is cutting annual product
management fees on bonds and
pensions by 15 basis points to 85bp for
investments that are 10 or more years
old. About 65,000, or 7 per cent of
clients will get an immediate benefit.
The change will lower the margin on
funds under management by 4 basis
points. Net income from client assets
will fall £12mn, from estimates of
£324mn, in the second half of this year
after the cap comes in next month.
SJP expects to spend more heavily on
customer communications. It needs to
trade carefully. A press exposé in 2019
claimed that SJP rewarded top self-
employed sales people with Montblanc
pens and diamond cufflinks.
Analysts interpreted a 15 per cent
drop in the shares as a response to net
new money inflows of £3.4bn in the
first half. That is about 15 per cent
lower than expected.
They may be underplaying the
impact of negative secular change, as
the professionally bullish are prone to.
The shares now trade at 11 times
forward earnings, compared with 24
times in 2019.
SJP deserves credit for its strong
shareholder returns. It was a standout
winner from the demise of
independent financial advice in the
UK. Regulators accidentally killed this
off with an earlier clampdown.
The new consumer duty is less
helpful to the group. Given the vague
legislation, much depends on the FCA’s
enforcement. Early interventions will
set the tone for SJP and the industry.
Emerging market bonds:
the beautiful south
Emerging market central bankers have
shown up western counterparts. The
Federal Reserve raised rates to their
highest level in 22 years on Wednesday.
Fed chair Jay Powell’s peers to the
south acted faster, unpersuaded by the
idea inflation was transitory.
The Central Bank of Brazil lifted
target rates a year before the Fed.
Inflation in the country appears to be
tamed and rate cuts are expected soon.
EM bond investors are taking note.
Inflation may fall faster than EM
central banks cut rates, generating
steeper real yields on local debt.
Emerging market bonds have been
the best-performing fixed income
investments so far this year. That was
reflected in recent results from
Ashmore. The specialist asset manager
added $1.1bn to assets under
management thanks to investment
performance in June. But net outflows
of $2.9bn more than offset the gains.
Dollar weakness is helping emerging
market bonds. Against a trade
weighted basket the reserve currency is
now down 12 per cent since peaking
last September. Currencies such as the
Brazilian real, the Mexican and
Colombian pesos, and the Polish zloty
have all risen well against the dollar.
Spreads against US Treasuries are
now at their highest levels since 2000.
The best-performing currencies are
likely to have peaked with local rates
set to fall before any Fed cuts arrive.
Structural changes underpin economic
strength. Mexico is experiencing a
strong reshoring effect while Brazil is
pushing through the simplification of
its tax system.
Inflation in the South American
country was 3.2 per cent year on year
in June, below the central bank target
of 3.25 per cent. Target interest rates
remain at more than 13 per cent.
Mexican inflation is also down to 5 per
cent year on year in June versus policy
rates of more than 11 per cent. Longer-
dated yields have begun to fall.
Reality Labs division ($bn)
Revenue Operating income
2019 2021 2023
FT graphic Sources: Visible Alpha; S&P Capital IQ; company
How does Meta’s “year of efficiency”
square with pouring ever more
money into a lossmaking project with
limited public appeal? The latest
metaverse-related quarterly
operating loss takes the bill to almost
$43bn. By the end of this year, it
could near $50bn.
The real total is even larger. It
could include the $2bn cost of buying
virtual reality company Oculus in
2014.
Meanwhile, Meta is ramping up
spending on the data centres needed
to power artificial intelligence
applications. Net property and
equipment assets have more than
doubled since 2019 to almost $88bn.
Meta spent half of that amount on
servers and other assets. Increasing
Ashmore shares have lagged behind
the EM bonds they track. That creates
opportunity for bargain hunters.
Sage/SAP:
Tyne lord
You can grow your business, or grow
old with your customers. Sage, wisely,
decided on the former a few years ago.
The accounting and financial
software group, which issued an upbeat
trading statement yesterday, is a
stalwart of the UK’s quoted tech sector.
It began shifting customers wholesale
to the cloud before the pandemic. This
gave its small and medium-sized
enterprise clients an edge at a time
when most workers remained at home.
Balance sheet value ($bn)
10
5
0 0
2018
User numbers are still growing
-5
Meta family of apps monthly active users (bn)
-10
-15
-20
2025 2027 2030 2020
computing power is a priority across
tech. But Meta’s spending stands out.
Over the same period, fellow digital
advertising group Alphabet also raised
its property and equipment assets but
only by about two-thirds.
Chief executive Mark Zuckerberg
steered clear of investment, the
metaverse and AI during his call with
investors on Wednesday. New app
Threads and short video product Reels
were his priorities.
This could be because rebounding
digital advertising means investor
attention is more focused on growth
than spending. Almost half of the
world’s population uses one of Meta’s
products at least once a month. The
share price slide of late 2022 is now all
but forgotten.
It has not always looked so smart.
Newcastle-based Sage initially
struggled to move customers to the
cloud. When asked, many simply said
they did not want to switch over.
German enterprise software group
SAP only realised how far it had fallen
behind after lockdowns had begun. A
profit warning in late 2020 forced SAP
to accelerate its transition. That partly
explains why its share price has trailed
Sage’s 58 per cent climb since 2020.
Sage has a different client base to its
German counterpart. Functionality
and service matter most to Sage’s SME
customers. Multinational corporations
rely on SAP to help them cap
overheads as well, says Numis.
Sage was able to move to a
subscription model earlier than SAP.
As a result, the former has 96 per cent
40
30
20
10
2019 2020 2021 2022 Q1 2023
4 by regulation, market conditions and
3 Groups with challenged models that
2
1 immediate distress is unlikely.
0 from Carlyle amid a liquidity crunch.
2021 2022 2023
Meta is not alone in spending
heavily to build new areas of
business. Alphabet reported a $3bn
operating loss for Google Cloud last
year. Still, this pales beside Meta’s
near $14bn operating loss in Reality
Labs. Efforts to monetise VR,
including offering a monthly
subscription service, have been poor.
VR lacks a compelling game or social
draw. There is no timeline for
breaking even. Operating losses will
increase “meaningfully”, said Meta.
At the start of this year, Zuckerberg
said he would save money by cutting
underperforming projects. Heavy
investment means AI and the
metaverse are safe, for now. The
question is what return Meta will
produce on all this invested capital.
of its group sales in this format whereas
SAP has just 79 per cent.
Investors will pay up for the promise
of such recurring revenues. Sage’s
forward earnings multiple has risen
from about 18 times five years ago to
30 times today. SAP’s has remained in
the low 20s.
That reflects Sage’s ability to
integrate its frequent acquisitions
successfully. SAP did this less well
when it acquired companies to
accelerate its cloud transition before
the pandemic, believes Citi.
Miserabilists gripe that the UK’s tech
champion is a mature accounting
software business rooted in the north-
east, rather than some metropolitan
artificial intelligence start-up. They
should pipe down. Sage is doing nicely
and is unlikely to decamp to the US.
Private debt capital:
coupon clipping
Legacy private equity firms have been
smart to jump into corporate lending.
Rivals are thin on the ground.
Traditional banks are too constrained
politics.
take on expensive debt may be good
bets too. With the US economy strong,
This week, iRobot borrowed $200mn
In the most recent quarter, iRobot
revenues fell nearly 50 per cent. The
group behind the Roomba vacuum
cleaner had already drawn a portion of
an existing credit line. New cash from
Carlyle functions as bridge financing
until an Amazon buyout, now held up
in regulatory reviews, can save the day.
In return for its lifeline, Carlyle is set
to earn a floating interest rate starting
at as much as 15 per cent. If the loan is
repaid early — a real possibility if
Amazon can acquire the company —
Carlyle could be owed between 1.3 and
1.75 times its invested capital. Should
the Amazon deal not close, part of a
termination fee that Amazon pays will
be contractually sent to Carlyle to pay
down the loan.
Amazon has reduced its purchase
price for iRobot commensurate with
the new debt. That stings for
shareholders. But the chance to keep
the company afloat is worth it.
Similarly, the auto retailer Carvana
struck a balance sheet restructuring
deal with bondholders led by Apollo
Global a few weeks ago. This provides a
couple more years of runway, albeit
with big concessions.
For the likes of Apollo and Carlyle,
however, these financing deals are not
intended to be aggressive. They do not
wish to take over the companies.
Simply clipping coupons and fees will
be worth double-digit returns without
much heavy lifting.
If either iRobot or Carvana do
struggle, it will be interesting to see
whether these Masters of the Universe
seek sharply to enforce their rights
or not.
Lex on the web
For notes on today’s stories
go to www.ft.com/lex

CROSSWORD
No 17,480 Set by PETO
ACROSS

1 Shot during surrender (4,2)

4 Time to track back in great numbers
(6)
8 Former pupil reflective, during summer,
in Paris Match (7)
9 More cat hair mostly in that place (7)
11 Lad with pliers repaired Earl’s shoe (10)
12 Fellow worker’s mother runs off (4)
13 Public display of anger witnessed on
the radio (5)
14 Chum’s swallowing Labour leader’s
nonsense (8)
16 Organ grinder finally tucking into
assorted canapés (8)
18 Bringer of good luck needing no
introduction in town (5)
20 Contents of file? Another list (4)
21 The largest part of ship filled with
animals? Just the opposite (5,5)
23 Attendant largely opposed to showy
display (7)
24 Perhaps Joan of Arc’s horse gets home
at last (7)
25 Screw former revolutionary on the way
back (6)
26 Argue about crime Morse essentially
dismissed (6)

DOWN

1 Occasions for millions to stuff

JOTTER PAD restrictions (5)
2 Free from obligation with regard to
rental agreement (7)
3 Meddle with current rent-free
Solution 17,479 arrangement (9)
5 Complain — not great at first in stir (5)
6 Best to beat it? Heading north after
work (7)
7 Was suspicious of fish-eating American
animal getting upset (5,1,3)
10 Sooty to identify dangerous place (5,4)
13 Draw from opening of spy story by
ship’s officer (9)
15 Support for old club starts to
reinvigorate Everton (9)
17 Politician dispatched by agreement (7)
19 Those colluding may be in them? (7)
21 Person avoiding company of fellow
You can now solve our crosswords beyond help has left for good (5)
in the new FT crossword app at 22 Argument at home over sharing work
ft.com/crosswordapp (3-2)*