1. OECD's Base Erosion and Profit Shifting (BEPS) Project Pillar 2 on minimum corporate tax rate takes effect from January 1.
From January 1, countries including all of the EU, the UK, Australia, South Korea, Japan, Canada and Norway are applying an effective tax rate of at least 15 per cent on profits of multinational companies with annual revenues exceeding €750mn. Several countries long viewed as havens by international business are taking part, including Ireland, Luxembourg, the Netherlands, Switzerland and Barbados. A series of interlocking rules, expanding over time, means that if a big company is taxed below the global minimum in one country, other countries can charge a top-up tax levy — so neither the tax haven nor the company benefits from the lower rate. That creates a robust incentive for non-participating nations to join up, or watch other countries collect tax at their expense. The OECD, the driving force behind the initiative, estimates it will increase global annual tax revenues by up to $220bn, or 9 per cent — vital extra proceeds for governments struggling to fund ever-expanding needs from public services to defence.
US and China have not yet signed up.
There's also the danger that low tax jurisdictions like Ireland will subvert the Pillar 2 with tax breaks and subsidies. The success with Pillar 2 is nevertheless an impressive achievement for global co-ordination. It now remains to also start implementation of Pillar 1, which involves corporate taxation based on the location of sales and profits.
2. Private equity firms are faced with a pile of cash with limited investment opportunities at sight.
Private equity firms were sitting on a record $2.59tn in cash reserves available for buyouts and other investments as of December 15, according to S&P Global Market Intelligence. Nearly a quarter of that cash was held by 25 of the industry’s largest groups, including Apollo Global, Blackstone, KKR, CVC Capital and Advent International... With the market for IPOs still lukewarm and global dealmaking slow, the number of private equity exit transactions last quarter was near a decade low, according to consultancy Bain & Co. That has left buyout groups with a record $2.8tn in unsold investments and what Bain described as “a towering backlog” of companies to exit... The conditions have frustrated many large institutional investors that normally expect a regular flow of cash to be returned to them as private equity groups sell down profitable investments. Instead, these investors have received just a trickle of money over the past five years, even as they committed enormous sums to fund new buyout deals.
3. Chinese state owned enterprises pivot towards green energy.
As a result of SOEs channelling capital expenditure towards clean technologies, China has increased the share of renewable electricity generation capacity — mostly solar, wind and hydro — to about 50 per cent in 2023, from 38 per cent in 2019 and 29 per cent in 2013, according to the Shanghai-based consultancy Rystad Energy. According to a recent analysis by analyst Xuyang Dong of Climate Energy Finance, a new Australian think-tank, China is on track to exceed Beijing’s target for a 50 per cent boost in the installed capacity of renewable energy generation over the period of the state’s 14th five-year plan, from 2021 to 2025.
4. Pointing to past peak-China, in nominal terms, China’s GDP is now 66 per cent of US GDP, down from 76 per cent in 2021.
5. As more than 30 democracies with 46% of the world's population turn up to vote in 2024, Ruchir Sharma writes that it's the biggest year for democracy since 1800.
FT has this long read and a graphic on democratic backsliding across the world.
At present the system consists of five investment options, known as funds A, B, C, D and E. Fund A is the riskiest, while Fund E is the most conservative. Workers are expected to transition gradually from Fund A to Fund E as they age, depending on their risk tolerance. The regulation attempted to control the risk in these funds through time-independent limits — minimum and maximum percentages by asset class — rather than portfolio-level risk metrics. The unfortunate result of this decision has been that in terms of risk-adjusted returns the funds are in severe disarray.A recent study published in the Journal of Retirement shows, for example, that in more than half of the cases Fund E outperformed Fund A. In short, participants in riskier funds were not adequately compensated for the risk they took. The regulation also discourages investments in alternative assets, which is ill-conceived considering the long-term horizon of pension funds’ portfolios. Another problematic regulation dictates that any investment not denominated in pesos must be at least partially hedged, which is tantamount to negating the benefits of currency diversification. The additional requirement that the hedge must be done on an asset-by-asset basis rather than at a portfolio level has only exacerbated this inefficiency. Together, I estimate these policies have effectively pushed returns down by more than 2 percentage points in most cases as suboptimal asset allocation choices with significant practical implications. Note that a mere 1.5 per cent difference in annual returns over a 35-year period can lead to a 30 to 40 per cent reduction in pension payouts.Additionally, there are three more critical issues to consider. First, the initial design mandated an insufficient 10 per cent contribution from a worker’s salary. Studies suggest that a 15 per cent to 17 per cent contribution is necessary to obtain an acceptable pension. But there has been political reluctance to increase this figure, which would require workers to sacrifice their current take-home pay for future benefits. Second, about 30 per cent of Chile’s labour market operates informally, and many workers frequently shift between formal and informal employment. Unfortunately, during informal periods, they seldom contribute to their pension accounts. Third, surveys and anecdotal evidence indicate that most workers do not understand how the pension system operates. For example, they do not know in which of the five funds they have their savings (most workers are assigned to a default option based on their age). Moreover, they are not aware that their funds are in segregated accounts, and do not belong to the private asset managers, or AFPs.
7. Britain's struggles with getting renewable power from generation sites to consumers.
In the past five years, the number of applications to connect to the electricity grid — many of them for solar energy generation and storage — has increased tenfold, with waits of up to 15 years. The underinvestment is restricting the flow of cheap energy from Scottish wind farms to population centers in England and adding to the delays for those with high power needs, like laboratories and factories. Laws that give local planning authorities considerable power are blamed for Britain’s shortage of housing and blocking the construction of pylons needed to carry electricity from offshore wind farms. Residents’ objections to noisy construction and changes to the landscapes have been a stumbling block... In November, the government announced measures to speed up planning approval for major projects and impede NIMBY-ism. The moves would, among other things, give communities financial benefits for approving grid infrastructure projects in their area and shake up the first-come-first-served queue for grid connections to remove stalled projects.
8. James Galbraith defends team transitory in the great inflation debate. He excoriates the orthodox economists like Larry Summers whose models rely on Phillips Curve, inflation expectations, and fiscal spending. He describes those as akin to medieval medical care of bloodletting and incantations.
9. The resignation of Claudine Gay as President of Harvard is unfortunate at several levels. For sure with evidence mounting about plagiarism, it had become untenable to continue defending her even for her biggest supporters. Harvard could live with the controversy around her Congressional testimony, but surely could not turn a blind eye to these academic perversions.
Her resignation has now emboldened vain and wealthy elite funders to elite educational institutions. This is an unfortunate outcome. The rapid emergence of plagiarism evidence meant that Harvard could not afford to give Gay an exit which would not be seen as capitulation to donor bullying. This raises the question, as Bret Stephens writes, as to why she was appointed in the first place.
It was why she was brought on in the first place, after one of the shortest presidential searches in Harvard’s recent history. How did someone with a scholarly record as thin as hers — she has not written a single book, has published only 11 journal articles in the past 26 years and made no seminal contributions to her field — reach the pinnacle of American academia?
Even when one is making allowances for other considerations, and those allowances for diversity and equality are critical parts of social and public policy in any realm, we should be careful not to compromise excessively on the core elements of the organisation. From hindsight it appears that Harvard has made a huge mistake and dealt a massive blow to not only its credibility but also the cause it espoused while appointing Gay, besides of course allowing a section of bigoted and vain elites to declare victory. The incident is a triple loss!
10. US venture capital raising hit a six-year low of $67 bn in 2023, down 60% from $173 raised in 2022. This puts pressure on startups as their reserves dwindle and survival prospects being threatened.
11. We don't realise that flying remains the safest mode of travel.
In 2023 there were no fatal accidents involving large jet-engine passenger planes. There were two accidents involving smaller propeller aircraft that killed 86 people, but that figure is still a record low, according to To70, a Dutch aviation consultancy. The figures represent the equivalent of less than one fatal accident every 15mn flights.
I think this track record owes to ultra-detail oriented painstakingly designed processes and protocols and their monitoring carried out in-house by traffic controllers.
12. Interesting snippet about concentration of equity market wealth in the US
Two decades ago, the wealthiest 10 per cent of Americans held 77 per cent of corporate equities and mutual funds, according to calculations by Lyn Alden, a strategist. The poorest 50 per cent held just 1 per cent, leaving the middle-to-upper cohort with 12 per cent. Today, however, the wealthiest 10 per cent own 92.5 per cent of the market — a “record high concentration”, Alden notes. And while the richest 1 per cent owned just 40 per cent two decades ago, their share stood at 54 per cent in the most recent data from 2022.
13. In 2023 China has leaped ahead after a slow start to become the world's largest automobile exporter eclipsing Japan, and Shenzen-based BYD moved ahead of Tesla as the world's largest EV manufacturer. Chinese auto exports have quintupled since 2020 to close in on 5 million.
BYD's batteries have the highest energy density and are also the cheapest. Tesla and Toyota buy batteries from BYD. This presents the company with a leverage to drive down its own car prices.
Given the economy-wide importance of the automobile industry, the surge in Chinese car exports have already become a matter of great concern and a contentious political issue in western countries. The Chinese manufacturers like BYD and Chery have been establishing plants in places like Hungary and Mexico to export to US and Europe. A flood of cheap and heavily subsidised Chinese imports in everything from steel to renewable power equipment have devastated manufacturing in the US, and it's only natural that they act early to prevent the same happening with automobiles. A wave of protectionism to keep out the cheap Chinese car imports is more certain.
14. Finally a scathing description of Saudi Arabia's Neom project which is being architected by Los Angeles architects Morphosis
A city defined as a wall, driven through an uninhabitable desert, hermetically sealed and reliant solely on technology to make it liveable. It wears its mirror walls like the Aviators of a highway cop, impenetrable, expressionless, sinister. It purports to reflect the beauty of the landscape. The ultimate architectural cop-out — a dereliction of duty by designers unwilling to take responsibility for the aesthetics of a megacity. The inside is, of course, rendered as a bucolic techno-utopia, a valley of trees and foliage, the new Babylon. This is the great contemporary cliché. No matter how huge the building, how hideous the ethics, everything can be concealed by a bit of greenery... This is to be a city without cars; a train will whisk passengers rapidly from end to end... Volocopters, delivery drones and robot servants are planned... The walls are 500m high — it is actually an extruded vertical city...Flitting between the kind of imagery that evokes a dystopian Death Star evil empire, the apartheid architecture of a post-apocalyptic security-city and a rendering of a glamorised and unlikely central business district seeking gullible investors, Neom carries a dizzying dash of techno-optimism. Despite claiming to be a solution to environmental crises, it assumes the endless free energy of the Saudi oil glut and disregards the consequences. The biggest question though is who, exactly, is it for? Who is clamouring for this city? Neom might stand with Donald Trump’s wall against Mexico, Buckminster Fuller’s glass dome over Manhattan and Superstudio’s dystopian renderings as the unrealised totems of late modernity — or it might be realised, in part at least. It’s difficult to think of anything more emblematic of our age than a sliver of mirrored desert city crumbling back into the sands, solar-powered drones still darting about its long-deserted ruins purposefully, trying to clean the windows.
The only winners from this vanity project of the Saudi Prince are western architects, consultants, and contractors, who'll be laughing their way to the bank.
On the same lines, the aggressive acquisition and expansion spree of Saudi SWF Public Investment Fund (PIF) is certain to end in tears. Consider this
In 2023, the fund chaired by Crown Prince Mohammed bin Salman spent $31.6bn, the most among its peers, according to data compiled by Global SWF. The Saudi fund dethroned Singapore’s GIC, which had topped the ranking for five consecutive years. The PIF increased its spending by a third when everyone else retrenched: overall sovereign wealth funds invested a fifth less at $124.7bn, opting for prudence in a difficult macroeconomic environment. GIC halved its spending despite sitting on more than $140bn in “dry powder” — cash not yet invested.The PIF also stood out for the size of its investments: of 49 last year, three were the largest among those led by state funds last year. It spent $4.9bn on US gaming group Scopely in April, bought Standard Chartered’s aircraft leasing business for $3.6bn and took over the steel unit of Saudi chemicals group Sabic for $3.3bn. Other investments have included 8 per cent of Nintendo, 10 per cent of Heathrow airport and 49 per cent of UK hotel chain Rocco Forte. The dealmaking is the result of a recent overhaul of the 53-year-old fund by Prince Mohammed... The fund’s headcount has soared from 40 to 2,500 in just a few years and has stepped into almost all national economic spheres, engineering domestic consolidation from construction to sports to create new national champions... Its risk appetite is higher. When its peers generally invest through third party fund managers, “PIF prefers to invest directly — mostly in strategically important areas of the Saudi economy — from football clubs, tourism and gaming . . . to construction and heavy industry,” said Diego López, head of Global SWF. It is also in a hurry: the fund has a goal of increasing its assets under management to more than $1tn by the end of 2025 and $2tn by 2030, from about $700bn.
When all's said and done and history written in fifty years, it's most likely that Prince Mohammed Bin Salman will emerged atop the list of the biggest wealth destroyers in history!
No comments:
Post a Comment