Category: Foreign Direct Investment

Foreign Direct InvestmentFunds of Funds

Bitcoin: Stability Not Likely For Burgeoning Investment Product

Since it first became accepted as an investment product, Bitcoin and other cryptocurrencies have been fluctuating in price and popularity, going from a viable replacement for cash and credit cards through to merely another flash-in-the-pan concept. Hannah Stevenson, Staff Writer, shares an insight into this product and how its value has changed since it first took off.

Cryptocurrencies, a digital currency that can be exchanged for goods and services in a similar way to cash, have been in circulation since around 2009, although they only became mainstream more recently. Some firms even started accepting it as genuine currency, whilst others have viewed it as an investment opportunity.

Over the years, the currencies have fluctuated in value, as investors and users alike try to understand their potential and adjust to the realities of using online currency as opposed to physical money.

On 8th May, the world’s largest and original digital currency, Bitcoin, jumped around 10 per cent within 24 hours, pushing past $3,700 for the first time in three weeks. Nigel Green, chief executive of deVere Group, commented on the increase.

“It was a relatively sudden jump, and, of course, positive news for those currently holding Bitcoin. However, the price only reached the top of the trading range and investors should not be popping champagne corks just yet.”

 “There are three likely drivers of Bitcoin’s price spike. First, there are widely published reports that according to a leaked interview with a commissioner, a Bitcoin ETF could imminently secure approval from the U.S. securities watchdog.

“Second, the development of the lightning network which will dramatically improve Bitcoin’s well-documented scalability issues, allowing it to move towards mass adoption. And third, the 2020 Bitcoin halving. The code for mining Bitcoin halves around every four years and the next one is set for May 2020. When the code halves, miners receive 50 per cent fewer coins every few minutes. History shows that there is typically a considerable Bitcoin surge resulting from halving events.”

“Bitcoin is the flagship cryptocurrency and, as such, we can expect when its values climb, it will drive prices of other major digital currencies such as Ethereum and XRP.”

This increase is a positive point for Bitcoin, which has faced many challenges in 2019 already, with a number of firms deciding that the currency’s popularity in 2017-2018 was not enough to continue to make it a viable option as a form of payment. 

Among those firms whose attitude towards Bitcoin and other cryptocurrencies is forward-thinking waste management firm, BusinessWaste.co.uk, which has recently said that it is ‘reluctantly’ no longer accepting cryptocurrencies – such as Bitcoin – as payment for its services.

The company originally announced it had become the first refuse and recycling business to accept these virtual currencies as payment in 2017 in order to give flexibility to their customers in an increasingly digital age. However, the firm says that despite its efforts, the uncertainties of the market are making digital currencies an unreliable source of payment.

Mark Hall, Communications Director of BusinessWaste.co.uk, commented on the figures and his firm’s inability to accept the currency as a form of payment.

“Cryptocurrencies have become much more mainstream in recent years – which is why we were happy to move with the times and accept these digital forms of money as payment. As a business we are dedicated to being thought leaders and innovating to provide the best service to our clients, and accepting internationally-recognised digital currencies was one way we could do that – but, as with many emerging technologies, there are still wrinkles to be ironed out within the cryptocurrency market.”

These forms of currency – which include the most well-known, Bitcoin, as well as other forms such as Ethereum and Litecoin – are not tied to a particular country’s economy as with standard, or fiat, currency. This means it has a tendency to be much more volatile than fiat currency; for example, in 2010, when the currency made its first real-world transaction, 1 Bitcoin (BTC) was worth less than £0.01. In December 2017, 1 BTC was worth over £15,000 – a fluctuation many times higher than a fiat currency would experience over a 7-year period.

This volatility has come to be considered an intrinsic hazard of a currency whose value works much like traditional stocks and shares – where market rumours and movement have potentially massive knock-on effects on its value. This could have potentially serious ramifications for businesses who accept crypto payments and then find themselves with a payment which has dropped significantly in value within a short period – such as in December 2017, when 1 BTC fell in value from £15,000 to £2,500 today in response a crackdown on improper practices in the market.

However, the popularity of cryptocurrencies has also led to unscrupulous users attempting to use ‘scam’ or fake coins to pay for goods and services. Cryptocurrencies rely on key information to verify that they are legitimate, such as the ‘white paper’ which details the origins of a coin, who made it, and how it works. These papers can be forged and simply just made up – which can cause businesses who end up with scam coins to be out of pocket, and as such firms such as BusinessWaste.co.uk have come to realise their fallibility and declined to accept them as payment.

Overall, the issue of Bitcoin and other cryptocurrency’s effectiveness and continued acceptance rests on proving their legitimacy as a currency and creating systems where they can be safely traded. This will remain a challenge for the future and will provide many interesting developments for investors and users alike.

Corporate Finance and M&A/DealsFinanceForeign Direct InvestmentIslamic Finance

Smart Dubai Launches Guidelines on Ethical use of Artificial Intelligence

  • Smart Dubai outlines standards for AI systems to ensure they are fair, transparent and accountable
  • World’s first city-government endorsed Smart AI Ethics Self Assessment Tool launched to help assess level of ethics in AI systems
  • Initiative aims to accelerate Dubai’s goals of becoming an AI powered city of the future

Dubai’s quest to become the world’s smartest city has received a strong ethical grounding with the unveiling of guidelines for the use of Artificial Intelligence (AI). The new ‘Ethical AI Toolkit,’ which provides advice to individuals and organisations offering AI services, has been formulated by the Smart Dubai Office (Smart Dubai) – the government department that has a mandate to make Dubai the world’s happiest city through innovation.

 

Outlining the need for the new guidelines, Smart Dubai says that they will encourage organisations that deliver AI services to place a priority on fairness, transparency and accountability and that they will serve to elevate the city’s position as a thought leader in in the adoption of AI across government services and beyond.

 

“Our vision is for Dubai to excel in the use of technology to maximise human benefit and happiness, as well as to be a global technology standard-setter. Artificial Intelligence plays an integral role in all of this. And with the use of AI growing exponentially across the globe, the ethical dimension of this nascent but rapidly proliferating technology is an increasing topic of discussion on the international stage,” said Her Excellency Dr. Aisha bint Butti bin Bishr, Director General of the Smart Dubai Office.

 

“There is an understanding by governments, NGOs and the private sector that AI regulation is needed, but that the field is not yet mature enough to devise fixed rules to govern it. However, organisations still require guidance and regulators still need to begin to learn how to oversee this emerging technology, but without creating restrictions that could stifle innovation. Smart Dubai’s Ethical AI Toolkit aims to provide advice in this area for all those involved in the AI sector,” she added.

 

As part of the toolkit, Smart Dubai has also launched the world’s first city-government endorsed AI Ethics Self-Assessment Tool. The AI Ethics Self-Assessment Tool is built to enable AI developers and operators evaluate the ethical level of their AI system, if implemented using Smart Dubai’s AI Ethical Principles and Guidelines.

 

Smart Dubai’s Ethical AI Toolkit was created using a benchmarking exercise and a consultation approach. Government sector entities, such as the Telecommunications Regulatory Authority, Dubai Electronic Security Centre, Dubai Health Authority, the Roads and Transport Authority, Dubai Municipality, Dubai Electricity and Water Authority and Dubai Land Department, were consulted during the initial feedback gathering, as were private sector companies including Microsoft, IBM, Google, Etisalat and PWC.

 

Smart Dubai is actively encouraging ongoing critiquing from across the AI community in relation to the guidelines. This feedback, combined with Smart Dubai’s research, aims to help iterate the Ethical AI Toolkit so that its framework and guidance keeps pace with technological advancements. The office is also establishing an Advisory Board, comprising leading AI and ethics experts from the private and public sectors, who will review the guidelines and help make continuous ongoing improvements to them.

 

Smart Dubai says that it wants to start discussions between different stakeholders in Dubai around AI ethics and for all components in the city’s technology ecosystem to work together to achieve a unified approach and reach common agreement on becoming more responsible on the use and development of AI systems. The office highlighted that it would like to see the Ethical AI Toolkit evolve into a universal, practical and applicable framework that informs ethical requirements for AI design and use and one that offers tangible suggestions to help stakeholders adhere to the ethics principle.

 

“By fusing data and innovation we’re preparing Dubai to become the AI city of the future. Artificial Intelligence will streamline day-to-day work life by providing fast and easy access to a wealth of data-driven information. Its consequences will be far-reaching and will impact every area of life, so creating guidelines for AI operatives is essential to provide an ethical underpinning to this evolution. Our aim is to offer unified guidance that is continuously improved in collaboration with our communities, with the eventual goal being to reach widespread agreement and adoption of commonly-agreed policies to inform the ethical use of AI, not just in Dubai but around the world,” said His Excellency Younus Al Nasser, Assistant Director General, Smart Dubai and CEO, Smart Dubai Data.

 

Smart Dubai’s Ethical AI Toolkit addresses some of the key issues around establishing regulatory principles relating to AI. These include the rapid evolution of the AI landscape that is leading to a fragmented approach to ethics, with each company dealing with ethical issues in their own way. They also intend to clear the ambiguity around what constitutes ethics in AI, as it is thought that ambiguity could supress innovation through entities holding back on research because they are unsure of future government actions. The toolkit also aims to improve trust in AI systems, with confidence in them cemented by the public being able to see that companies are following the new advice that is published transparently online.

Cash ManagementForeign Direct InvestmentPrivate FundsStock MarketsTransactional and Investment Banking

Can You Predict The Future Price of Bitcoin?

You can’t spend five minutes reading about cryptocurrencies without stumbling across at least one prediction for the future price of Bitcoin.

Across forums, social media, newsletters, blogs, news sites and every other corner of the internet — financial analysts, expert investors, bankers, tech icons, and new enthusiasts offer up their views.

Some cite careful analysis, some base it on past trends. While others are guessing or acting on their ‘intuition.’ Their predictions are varied, ranging from a plummet to zero, to millions.

With all this noise surrounding the Bitcoin price, you might be wondering whom to believe. Or if you should believe anyone at all. Is it possible to predict the future?

Investing begins with education, not buying. So it’s important to think about the information you base your buying decisions on.

How do people make price predictions?

There are two types of analysis used for predictions: fundamental and technical.

They’re used for everything from the stock market to Bitcoin. While other types of analysis do exist, these are the main ones.

Fundamental analysis

Fundamental analysis is all about intrinsic value. You look at the factors that give something value, then decide if it’s under or overvalued. Publicly traded companies release lots of information to help with this. So, for a stock you might look at a company’s:

  • Revenue (how much money it’s making)
  • Profit margins (how much of the revenue is profit)
  • Growth potential (how much money it could make in the future)
  • Management (how competent the people in charge are)

Some of these factors can be defined in numbers. Others come down to the judgement of the analyst.

For a cryptocurrency, you might look at its:

  • Price growth (how the price has grown over time)
  • Scalability (if it has the potential to keep growing)
  • Security (if the network is secure and safe from attacks

​Technical analysis

Technical analysis is different as it focuses on an asset’s price, not the asset itself. Maybe you’ve heard the phrase ‘past performance is not an indicator of future performance.’ But technical analysis bases future predictions on the past. This can be based on a short time frame (hours or even minutes) or long (months or years.)

To do this, you look for patterns and trends in price charts, such as:

  • The average price over a chosen time span
  • The price at which a lot of investors start buying
  • The price at which a lot of investors start selling
  • The overall price trend

Do fundamental and technical analyses work?

There’s no straightforward answer to that question. Both techniques can be useful, but they also have their limitations for cryptocurrencies.

Fundamental analysis works when investors base their decisions on fundamentals. This isn’t always the case for Bitcoin. Many investors base their decisions on the decisions they expect others to make.

Technical analysis assumes that a market follows rational rules and patterns. It’s less useful for cryptocurrencies because the market is still young. There isn’t as much past data to analyse. Cryptocurrencies also have less liquidity than something like stocks.

Self-defeating and self-fulfilling prophecies

When we talk about price predictions, we run into an important concept: self-defeating and self-fulfilling prophecies.

Making a prediction about the future can end up changing what actually happens.

The prediction about the future creates the future.

This isn’t the case when we talk about a system like the weather because we can’t change it.

But when you make predictions for a system involving people, it’s different.

Hearing predictions can cause people to change their behaviour.

Sometimes this happens in a way that prevents the prediction from coming true — a self-defeating prophecy — or it can cause the prediction to come true — a self-fulfilling prophecy.

Predictions about cryptocurrency prices have the power to influence how investors act. If it’s predicted the Bitcoin price will increase, this encourages more people to buy. This can drive up the price, and vice versa.

That brings us to incentives.

The issue of intentions

Incentives are what motivate people to do what they do. It’s an important concept in investing. Financial gain is a powerful driving force.

Most investors understandably want to do whatever will make them the most money. This can include making predictions that benefit them.

Let’s say you come across an article where the author claims Bitcoin will be worth $100,000 by December 1st 2019. Rather than taking that at face value, it’s important to ask: why are they saying this? If they know for certain, why don’t they put all their money into Bitcoin, and make a huge profit? Why are they sharing that information?

Likewise, if someone claims Bitcoin will drop, you might wonder why they’re saying that. If they know for certain, why don’t they keep quiet, short it, and make a big profit?

In both cases, we need to consider the underlying incentives.

If someone stands to profit from the Bitcoin price increasing, it’s natural they’ll predict it’s going to do that. They’re hoping this will turn into a self-fulfilling prophecy. If someone stands to benefit from it decreasing or to suffer if it increases, it’s not unexpected that they’ll predict it’s going to decrease.

Luck and probability

But if no one can predict the future, how come some people do make correct predictions?

Maybe you heard that your brother’s roommate’s cousin’s coworker’s uncle correctly predicted the price of Bitcoin. Or you’ve seen someone on Youtube who seems to always get it right.

The fact that no one can predict the future doesn’t mean no one can make correct predictions.

It comes down to luck, probabilities, and information asymmetries.

First, luck. Every day, thousands of people make predictions about Bitcoin prices. It’s inevitable that some of them will be correct by luck.

As they say, even a stopped clock is right twice a day. With so many people making predictions, it’s likely a percentage of them will be correct.

When professional forecasters make predictions, they usually base them on probabilities. What’s the most likely outcome? A weather forecaster might say it’s going to rain tomorrow because there’s a 62% probability. They don’t know it for sure. It’s just more likely than not.

Then there’s insider information. If you know something most investors don’t, you have a big advantage. For example, if you have insider information that Apple is about to release a new product, it’s reasonable to expect the stock will go up. But other investors buying Apple stock aren’t aware of that information, so they can’t predict it.

Insider information is less meaningful for cryptocurrencies. There’s a less direct link between fundamentals and prices. Events that seem like they should cause an increase or decrease can do the opposite or nothing.

Conclusion

The next time you look at a cryptocurrency price chart, imagine a crowd of people in a stadium, all moving at different times but appearing to create an organised rippling motion. Because that’s what you’re seeing: the combined actions of many people.

There’s no mystical, secret order to it. There’s just lots of people making decisions based on the information they receive.

Corporate Finance and M&A/DealsEquityFinanceForeign Direct InvestmentInfrastructure and Project Finance

Mobeus invests £9M in fast-growth customer experience specialists, Ventrica

Ventrica, a European, award-winning, outsourced contact centre, has attracted a £9 million investment from Mobeus Equity Partners. Ventrica provides intelligent, multi-lingual and omni-channel outsourced customer service to a range of global ‘blue-chip’ brands.

“Ventrica is right in the sweet spot for the growing outsourcing contact centre market”

Southend-based Ventrica was founded in 2010 by Dino Forte and has undergone rapid growth, doubling in size over the last two years. Ventrica is an innovation leader in the changing sales and customer service sector. As e-commerce continues to grow, especially in the retail space, and customers expand their communication channels from the phone to email, social media and webchat, companies are increasingly looking to specialists to provide around the clock customer-facing support. Ventrica works closely with its clients, leveraging its people, technology (including support for Artificial Intelligence and Automation) training and resourcing expertise to provide a high quality service, across multiple channels, that supports their brand and their values. 

Ventrica is already one of Essex’s top employers and now plans European expansion

Ventrica is a key employer in Southend and in 2017 the company launched a second site in the town. Employing over 450 staff, and growing to 600 this year, it is one of the town’s major private employers. With support from Mobeus, the company plans further investment to expand its footprint in the UK and Europe to support its growing multi-lingual client base that serve customers across global markets. However the strategy is to remain medium-sized.

Danielle Garland, Mobeus Investment Manager, said, “Ventrica is right in the sweet spot for the growing outsourcing contact centre market – it is large enough to deliver multilingual and leading-edge technology solutions to its blue-chip clients but small enough to be dynamic and innovative and to provide the personalised service its clients require. As more clients onshore back to the UK, Ventrica is very well placed to continue to deliver very strong growth.”

Dino Forte, Ventrica CEO, added, “Mobeus stood out as the right partner because of the team’s immediate enthusiasm for, and deep understanding of, our offering at Ventrica. We have a significant market opportunity and are winning new customer contracts at an increasing rate and of an increasing scale. With Mobeus as a partner, we are well positioned to strengthen our team to support our significant growth whilst also allowing us to better focus on our existing clients which will be our key priority moving forward. 

Mobeus Partner Ashley Broomberg worked with Danielle Garland who sourced and led the transaction on behalf of Mobeus. Guy Blackburn, Mobeus Portfolio Director, has joined the board to support Ventrica in achieving its full potential. Dino Forte was advised by Sarah Moores and Rob Dukelow-Smith (Forward Corporate Finance). 

Euroclear and China Construction Bank Announce Venture to Increase Renminbi Markets
FinanceForeign Direct Investment

Euroclear and China Construction Bank Announce Venture to Increase Renminbi Markets

Euroclear, the Brussels based bank which operates as an international central securities depository, have signed a Memorandum of Understanding with the China Construction Bank. The document ensures both parties are committed to developing the interests of the Renminbi, Chinese currency, abroad.

Under the Memorandum both parties will be responsible for cooperating to develop and distribute offshore Renminbi financial products and provide high quality services to offshore Renminbi market participants.

The China Construction Bank will work closely with Euroclear through their subsidiary the China Construction Bank International Holdings Limited, particularly with the further promotion of the international issuance structure, following the launch in London this March of Exchange Traded Funds which were both internationally distributed and formed of
Renminbi.

Wang Hongzhang, the Chairman of the CCB who presided over the signing ceremony for the Memorandum of Understand, indicated the vast scope of the deal. ‘We are delighted to be a partner in this forward-looking
and mutually supportive initiative between CCB and Euroclear. The development of robust and reliable infrastructure to support RMB denominated financial instruments is key to achieving our ambitious goal of truly internationalising
offshore RMB products. By leveraging Euroclear’s global network, CCB will help drive the development of offshore RMB markets and assume a leading role in the financial cooperation between China and Europe.’

This idea of using combining the two firms’ joint market influence to help encourage the offshore Renminbi markets was echoed in the statement of Marc Antoine Autheman, the Chairman of the Euroclear group.

‘Euroclear has keenly supported the offshore RMB market’s rapid growth over the past few years, further promoting Belgium’s development as a financial centre. Partnering with CCB enables us to provide our global client base enhanced access to the flourishing offshore RMB market. This milestone reflects Euroclear’s commitment to foster an open and connected marketplace, safeguarding both growth and stability in the world’s capital markets.’

 

 

Tips for UK Businesses Dealing With A Strengthening US Dollar
FinanceForeign Direct Investment

Tips for UK Businesses Dealing With A Strengthening US Dollar

The strengthening US dollar is wreaking havoc on US exports in the same way a strengthening sterling thwarted UK exporters in the summer of 2014. As the US dollar grows stronger, US companies are seeing currency swings unfavourably chipping away at their profits; the Financial Times reported that Apple Inc. lost $2bn in the fourth quarter of last year due to unfavourable currency exchange rates as a result of a strengthening US dollar. This was over 10% of their net profits.

Given the capricious nature of currency markets, UK businesses currently benefitting from US dollar strength need to have strategies in place to deal with a strong dollar and the possibility of significant changes in the current dollar trend.

1. Timely Currency Repatriation

UK businesses need to gauge when to repatriate income charged in US dollars back to sterling, for use on home ground. For instance, a UK company invoicing in dollars may want to convert dollars back to sterling sooner rather than later, in case the dollar starts to weaken, resulting in less income per dollar earned.

2. Assets and Liabilities

UK companies with operations in the US need to ensure that their assets and liabilities are valued in the same currency as much as possible, so that any strengthening or weakening in currency does not affect their ability to finance their operations and business growth.

3. Robust Currency-Buying Strategies

Most important of all is the need for UK businesses trading with the US (or any other country) to set in place a currency strategy that helps them to mitigate risks should currency exchange rates move against them.

Currency markets can fluctuate greatly, and UK businesses need to be aware of the severe impact that this can have on their bottom line, as well as the steps available to mitigate the risks involved.

Nepal Signs Biggest-Ever FDI to Launch Hydropower Growth Plan
FinanceForeign Direct Investment

Nepal Signs Biggest-Ever FDI to Launch Hydropower Growth Plan

A Mountain River in NepalPicture courtesy of Shutterstock

The deal with Indian firm GMR will see the creation of a 900 megawatt (MW) dam on the upper Karnali River. The project was agreed in principle with the infrastructure group six years ago but has been in limbo due to the ongoing political and civil tensions in Kathmandu.

Ending Nepal’s powercuts

The project is set to be the first in a series of four such projects undertaken by Investment Board Nepal (IBN).

In addition to helping end Nepal’s own power shortages electricity will be exported to India.

It is the next step in a trend to exploit the untapped power within Himalayan Rivers. Bhutan, located to the east of Nepal, recently announced its own round of hydropower projects.

In Nepal, the potential for hydropower is thought to be around 80,000MW. Of this, just 700MW is presently tapped. One of the world’s poorest countries and with a dearth in exports, the economy is propped up by income directed from expats and through tourism.

Of its own energy consumption around 75% presently comes from the burning of firewood – according to the IBN. It has one of the worst ongoing instances of power cuts across the globe.

Transforming Nepal’s finances

The IBN was advised on the FDI deal by Adam Smith International. Speaking to the Financial Times, Peter Young from Adam Smith said:

“It’s a major change for Nepal in that it’s actually opening up this hydropower on a large scale,”

My Young went on to say that the deal, which has been financed by aid from Britain, should ‘transform’ the financial position of the Nepali government as well as turn around its power supply issues.

Mr Young also went on to explain the terms of the deal which will see Nepal given:

• 27% of free equity share of the project
• 12% of the electricity output

The project is expected to be signed off by 2021.

It is understood that the project will be wholly transferred to Nepal after the dam and tunnel system’s 25-year operating-life concession has ended.

 

Chinese FDI Falls to Two-and-a-Half Year Low
FinanceForeign Direct Investment

Chinese FDI Falls to Two-and-a-Half Year Low

Courtesy of Shutterstock

Undermining the economic growth in the country, the August figures come as the country suffers from slowing output growth and falling levels of imports.

The Commerce Ministry figures show that in August, China saw $7.2 billion (4.45 billion pounds) in FDI heading its way. That is a drop of 14% from August 2013 and the lowest total value since February 2012.

For the year to date the country has accrued $78.3 billion in FDI. That too is down on 2013 figures by 1.8%. One of the economists at ANZ, Zhou Hao, commented:

“It reflects the downward pressure on the manufacturing sector,

“The sector has not been doing well so it’s logical that companies are reducing their investment.”

Though FDI in China is an important indicator as to the health on a global level, the contribution it makes to the overall flow of working capital is fractional compared to other factors. The export level is more important for example, achieving a level of around $2 trillion last year.

Domestic Slump

The growth of output falling back to its slowest rate in six years is more of a worry for investors in China with fears rising of an impending downturn. The news has also seen a number of economists downwardly adjust their Chinese forecasts for the year.

Another concern is the drop in domestic demand which, together with a slowdown in the housing market, is dragging the economy away from a higher rate of growth.

The news that FDI has fallen in China is still a concern though.

Steady Growth and Records

This is largely because it has maintained a steady rate of year on year growth since joining the World Trade Organization in 2001 reaching a record high last year of $118 billion.

Despite the fall in August many are still predicting another record year in 2014. Excepting a disruption to global capital flow, it China’s FDI this year could attain $120 billion.

Levels of FDI into China are also up from some countries, with investment from South Korea increasing by over 31% annually. Investment from Britain too has leapt up by nearly 19%.

Conversely, Japanese investment has plunged by over 43% with US and European investment falling by around 17% to 18%.

China Becomes World’s Third Largest Investor
FinanceForeign Direct Investment

China Becomes World’s Third Largest Investor

The second year in succession the Asian country has topped the list, outbound direct investment (ODI) from Chinese individuals and organisations has hit a record high, according Xinhua.

According to the findings from the Chinese state-run news agency, ODI figures for mergers, acquisitions and stake investments soared to $108 billion (£66.98bn) in the year. That is a near 23% increase on the ODI figures for China from 2012.

Figures Set to Go Higher

This year though, reports suggest the level of ODI will have receded according to data collated by US Think Tank the Heritage Foundation.

The levels of investment from Chinese firms could actually be set to rise even higher though.

The country’s government has said it intends to relax restrictions on ODI levels. According to the Chinese government, the new overseas investment rules will be introduced on October 6.

Under present rules, firms wishing to make an overseas investment exceeding $100 million from their Chinese base of operations have to meet with government approval. This restriction is set to be dropped, in a move which the Chinese Ministry of Commerce says is:

“aimed at allowing more freedom for outbound investment”

Investments being made into what the government rates as ‘sensitive’, be it a country, region or industry will still need to seek prior approval before closing the deal.

A Global Approach

China is increasingly investing in many areas of the world, from Africa and Europe to South America. There are favoured countries for the country though. The most popular five destinations for investment out of China are:

> Australia
> The USA
> Canada
> Brazil
> Indonesia

There are also favoured sectors, with infrastructure and transport seeing particularly heavy investment in East Africa for example. The majority of the money being invested overseas from China however is being directed to the energy and power sector.

FDI Investment Slumps in Zimbabwe
FinanceForeign Direct Investment

FDI Investment Slumps in Zimbabwe

That is the message from the head of the African country’s central bank, with John Mangudya explaining:

“The country received a paltry $67m (£40m) compared to $165m during the same period in 2013”

Mr Mangudya went on to say that his government’s policy of handing economic control to black Zimbabweans had been a factor in the slump. He said the policy had been misunderstood by investors considering Zimbabwe.

The slump comes following Zimbabwe President Robert Mugagbe’s landslide victory in the country’s elections last year. However, it comes after the country had made some recovery from years of hyperinflation.

That was under a unity government however.

Mugagbe’s victory was largely campaigned on his indigenisation policy, which is the cause for the lack of investment according to Mr Mangudya.

He said it is imperative that the government more clearly outlines what the policy means. He said that investors should also be provided with clear guidelines about the policy.

The news of the downturn in Zimbabwean FDI came as the country signed a number of new deals in China. On a visit to the Asian country, with which Mugabe has previously enjoyed strong ties, nine investment deals were signed.

According to reports in the Zimbabwe Herald newspaper, the investments are across a number of sectors including, agriculture, energy, transport and telecommunications. Investment in the country’s tourism industry is also understood to be wrapped up in the deal, but no financial terms or details were provided.

 

UK Inward Investment on the Rise
FinanceForeign Direct Investment

UK Inward Investment on the Rise

Inward investment projects into the UK rose by 15% last year, as it retained its position as Europe’s number one destination for global investors while simultaneously increasing its market share.

The 799 projects were the highest number ever secured by the UK according to professional services firm EY’s annual UK Attractiveness Survey.

The overall European market grew by just 4%, meaning the UK secured one-fifth of all European projects, close to its record high over the past decade. Its performance saw the UK extend its lead over second-placed Germany as a Foreign Direct Investment (FDI) destination, as both countries pulled away from the remainder of Europe.

The UK has also moved from eighth to fifth in the worldwide ranking of countries investors regard as attractive for FDI over the next three years – its highest ever position – overtaking Germany for the first time. Only China, the United States, India and Brazil are ahead of the UK.

Steve Varley, EY UK&I chairman and managing partner, said: “The UK’s performance was nothing short of stellar and was achieved against the backdrop of more modest increases across Europe. The message that the UK is open for business is being received loud and clear by international investors, but as the global economy evolves, the UK must continue to respond in order to stay ahead.

“With intra-European FDI increasing and almost two thirds of our survey respondents identifying the UK as a gateway to Europe, clarification on the UK’s relationship with the wider continent is essential.”

The UK was the clear leader in attracting projects in the knowledge industries. Software investments surged by more than 50%, meaning the UK secured more than a third of all projects in what is now Europe’s largest FDI sector.
It also attracted 52 research and development (R&D) projects. That was 20% more than Germany, giving the UK a Europe leading market share of 18% R&D FDI. The UK also led the way on headquarters, contact centres, logistics, international distribution centres and sales & marketing projects.

Mark Gregory, EY’s chief economist, said: “The UK’s success in attracting R&D and HQ investments reflects the positive impact of initiatives to reduce corporation tax and incentivise R&D investment via the Patent Box.
“It would be sensible to consider approaches that have the potential to strengthen the UK’s appear for other types of project as we look to the future of UK FDI.”

Ukraine Crisis Hits Investor Confidence in Russia
FinanceForeign Direct Investment

Ukraine Crisis Hits Investor Confidence in Russia

In addition to souring relations between Russia, Europe and the United States, further escalation of Russia’s engagement in Ukraine could cost Russia more than 3 percent in GDP in real terms or USD115 billion in current dollar terms on average in 2015, according to global information company IHS.

The conflict could also exacerbate recessionary pressures, and lead to a reduction in European real GDP of about 0.15 percent overall.

Russia’s economy, already likely in recession, will dampen further in the face of a deteriorating political situation; tougher sanctions; falling investor confidence; and a business climate worsened by fears of retaliation against western companies that produce in or sell to Russia, according to the IHS scenario.

A severe slowdown of Russia’s economy in the second half of 2014 and continuing into 2015 would lead to a reduction in European real GDP growth by about 0.15 percent overall, but with large variations between countries, the IHS study says. Most affected would be traditional machinery and equipment and chemical products’ exporters such as the Netherlands, Belgium and Germany. Also impacted would be Italy and Spain, as would countries highly dependent on Russian imports, such as Finland.

Additionally, non-European economies stand to suffer from the slowdown. Among these are Argentina, Australia and Brazil, who would suffer from lower world demand for their commodity and manufactured exports, triggering spill-over effects on their own trading partners in Asia and Latin America.

IHS economists developed the scenario in response to heightened tensions brought about by Russia’s annexation of Crimea and its ongoing dispute with Ukraine following the ouster of Ukraine’s president and scheduling of new elections in May.

IHS Chief Economist Nariman Behravesh said: “While Russia could end up paying a very heavy economic price for its annexation of Crimea and its ongoing conflict with Ukraine, the negative impacts on other parts of the world, notably Europe, will also be hard to avoid.”

Africa’s Growth Set to Reach 5.2% in 2014
FinanceForeign Direct Investment

Africa’s Growth Set to Reach 5.2% in 2014

Economic growth in Sub-Saharan Africa (SSA) continues to rise from 4.7% in 2013 to a forecasted 5.2% in 2014.

Growth was notably buoyant in resource-rich countries, including Sierra Leone and the Democratic Republic of Congo. It remained steady in Cote d’Ivoire, while rebounding in Mali, supported by improved political stability and security. Non-resource-rich countries, particularly Ethiopia and Rwanda, also experienced solid economic growth in 2013.

Capital flows to Sub-Saharan Africa continued to rise, reaching an estimated 5.3% of regional GDP in 2013, significantly above the developing-country average of 3.9%. Net foreign direct investment (FDI) inflows to the region grew 16% to a near-record $43 billion in 2013, boosted by new oil and gas discoveries in many countries including Angola, Mozambique, and Tanzania.

With lower international food and fuel prices, and prudent monetary policy, inflation slowed in the region, growing at an annual rate of 6.3% in 2013, compared with 10.7% a year ago. Some countries, such as Ghana and Malawi, have seen an uptick in inflation because of depreciating currencies. Remittances to the region grew 6.2% to $32 billion in 2013, exceeding the record of $30 billion reached in 2011. These inflows, combined with lower food prices, boosted household real incomes and spending.

Tourism also grew notably in 2013, helping to support the balance of payments of many countries in the region. According to the UN World Tourism Organisation, international tourist arrivals in Sub-Saharan Africa grew by 5.2% in 2013, reaching a record 36 million, up from 34 million in 2012, contributing to government revenue, private incomes
and jobs.

“High-quality university programs in Africa, particularly in areas such as the applied sciences, technology, and engineering, could dramatically increase the region’s competitiveness, productivity and growth,” says Makhtar Diop, the World Bank Group’s Vice President for Africa. “Strategic reforms are needed to expand young people’s access to science-based education at both the country and the regional level, and to ensure that they graduate with cutting-edge knowledge that is relevant and meets the needs of private sector employers.”

Diop further notes that a number of African countries are now routinely among the world’s fastest-growing countries as a result of sound macroeconomic reforms in recent years and the fact that the rest of the world has steadily updated its reality of the continent as a high opportunity region for trade, investment, business, science and technology, and tourism. “Poor physical infrastructure will, however, continue to limit the region’s growth potential. Significantly more infrastructure spending is needed in most countries in the region if they are to achieve a lasting transformation of their economies.”

Africa’s Pulse says that the region’s infrastructure deficit is most acute in energy and roads and that across Africa, unreliable and expensive electricity supply and poor road conditions continue to impose high costs on business and intraregional trade.

FDI in China Rises 10.4%
FinanceForeign Direct Investment

FDI in China Rises 10.4%


FDI, which excludes investment in financial sectors, totalled US$19.31bn cumulatively in January and February, the commerce ministry said in a statement.

Separately, Chinese overseas investment in the two months fell 37.2% year-on-year to US$11.54bn, the ministry said, with investment to Hong Kong and the European Union leading the decline.

By far the greatest proportion of investment in China comes from a group of 10 Asian countries and regions including Hong Kong, Taiwan, Japan, Thailand and Singapore.

FDI from those economies rose 11.6% to US$16.94bn, the ministry said. US investors piled US$711m into the country during the period, up 43.3%.

“Investment from the 10 Asian countries and the US maintained relatively fast growth,” the ministry said in a statement.

Investment from the European Union declined 13.8% to US$1.05bn.

Of China’s outbound investment, 65.4% of the total, or US$7.55bn, went to Hong Kong, the Association of Southeast Asian Nations (ASEAN), the EU, Australia, the US, Russia and Japan.

But the amount being invested in Hong Kong, the EU and ASEAN declined 62.9%, 11.6% and 2.2%, respectively.

Investment in the US jumped 45.6%, while that to Australia gained 31%. Investment to Russia and Japan “at least doubled”, the ministry said, without providing amounts or specific percentage changes.

China’s total outstanding overseas investment as of the end of last month stood at US$537.2bn, the ministry said.

The figures come after foreign investment into China rebounded in 2013 to US$117.59bn as confidence in the country’s growth potential picked up.

It had declined the year before. Investment by China overseas also rose last year, hitting US$90.17bn, and officials said it could overtake the incoming total as early as this year.