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Worker at Pearl GTL, Qatar flickr/royaldutchshell

Worker at Pearl GTL, Qatar flickr/royaldutchshell

Among the greater macro-economic shifts which we can expect for this new century, is the disappearance of major business channels as we have known them, and the appearance of new ones. The next one may well be Chinese countries establishing an industrial business stronghold in Gulf countries, namely Qatar. Unencumbered by governments, be it their own or the ones in client countries, Asian countries are reaping the spoils. This trend seems to be setting in, and will therefore investor choices heavily, for years to come.

Since the 1990s, Asian firms started slowly turning away from their initial markets, to address emerging countries, in the hope to stabilize and find new growth areas. The jackpot turned out to be Qatar. Here is a non-comprehensive list of large industrial deals performed in Qatar over the past few years, by Asian firms.

10 km away from Doha, a new high-tech desalination plant is to be built, “RAF A2” (1), to bring an additional 36 million gallons of fresh water to the capital, daily. The 500 million-dollar project is just the start. Not only will maintenance and upgrades pad the envelope for the engineering companies, but as Qatar’s population expands, the total fresh water production level is to be brought to 350 million gallons per day (from a current 328) in 2018. Of the three firms selected to build the plant, one is Spanish (Acciona), and two are Asian (Mitsubishi – Japan, and TCL – Thailand). These firms owe their success to their state-of-the-art water technology (reverse osmosis (2)), which Qatar simply doesn’t master – nor will they anytime soon, given the state of their technology.

In 2011, the Hyundai engineering corporation (3) was handed three-quarters of a billion dollars, to build the giant Hamad hospital complex (4). In view of the FIFA world cup, Doha knows it will be under international spotlights in 2022, and scrutinized both on its industrial development and on its human rights observance. It therefore chose to build a giant hospital complex, with special attention brought to women (gynecology and obstetrics) and children, so as to be able to process the increased attendance and improve its international image. Again, being utterly enable to build such a complex (or even draft requirement specifications), it called upon the Korean engineering firm which, 2 years before, had won the Gold Medal for “top civil engineering structure”, thanks to the Ma-chang great bridge.

In the lower (yet not less lucrative) B2C segment, Samsung backlashed at business analysts recently, who had predicted record losses in smartphone sales on all emerging markets, Qatar included, by posting record profits (5) unexpectedly.

Samsung is the most telling examples: in 2012, Samsung landed a deal (6) which was considered “unusual”, to say the least. The Qatari Lusai Real Estate Development company tasked Samsung with building a new city. This mega-project included the construction of power plants, highways (some buried), bridges, and utilities networks. The amounts associated to the deal were left undisclosed, but one can guess an order of magnitude, given the scale of the order and Qatar’s financial reserves. Samsung knows it can rely on this market in the long term, because Qatar may be sitting pretty for the moment, but it is at the dawn of a national challenge. Doha knows oil and gas reserve will not last forever, and needs to diversify its economy. In 2015, Qatar’s revenues still depend almost exclusively on fossil fuel. In short: Qatar needs to build a country, and it doesn’t have the first engineer to do it. Luckily for Korea, Samsung has them all.

How does Samsung do it? It reined in Qatari officials. As one of the most commercially voracious companies in the field, Samsung is one of the few businesses which remains unimpressed with Qatari money. In fact, the Samsung Corporation is worth more than all of Qatar. And Qatar needs Samsung a lot more than Samsung needs Qatar. Over the years, the Korean firm has built a solid credibility base and influence network. With these weapons at hand, Qatari decision-makers are afraid to displease Samsung, which would be well able to pull the rug under anyone’s feet, something that scares Qatari officials.

Although it may be hard for some readers to believe, these truths are supported by the fact Samsung even reined it its own government. In 2012, in an article named “South Korea, the Republic of Samsung” in the Washington Post, Woo Suk-Hoon wrote “You can even say the Samsung chairman is more powerful than the President of South Korea. [South] Korean people have come to think of Samsung as invincible and above the law”. In the following presidential debate, Lee Jung-Hee, one of the candidates, added: “Samsung has the government in its hands. Samsung manages the legal world, the press, the academics and bureaucracy”. The Korean success story has arrived to the ears of enough people for everyone to know that no one contradicts Samsung and walks away.

Asian countries, namely Samsung, built their empire on peddling goods to the western world, namely North America and Europe. Now that these markets have reached maturity, Asian industrial firms have turned to new ones to consolidate and further expand. They still have the technical know-how which gave them their initial success. Except now, they have deep pockets and the authority that comes with it. In the next major industrial deal, Qatar’s public works authority, Ashghal, is due to select its engineering firm to expand and upgrade the capital’s water network (the so-called Idris project). Given the influence Asian companies have developed to coax Qatari officials (including Nasser bin Ali Al Mawlawi, Ashghal’s president) into handing over their national industry deals, it is very likely that and Asian firm will once again be selected. This is something investors about to choose their engineering vehicles should keep in mind.

References

(1) http://www.water-technology.net/projects/ras-abu-fontas-raf-a2-seawater-desalination-plant/
(2) https://www.espwaterproducts.com/about-reverse-osmosis/
(3) https://eng.hec.co.kr/
(4) https://www.hamad.qa/EN/Pages/default.aspx
(5) http://www.thepeninsulaqatar.com/business/international-business/359273/samsung-electronics-tops-q3-smartphone-sales-in-emerging-markets
(6) http://www.constructionweekonline.com/article-16336-samsung-inks-major-infra-deals-for-lusail-city/

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Economy

Hungary And Poland To Lose Up To 25% Allocation Of EU Funds

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Hungary and Poland are set to be hit with new cuts in cohesion support after EU commission proposed new radical changes. This came to light after a series of propositions were published recently by the EU executive. Eastern European countries will be hard hit by the propositions, but more impact will be felt in Hungary and Poland.

The changes come in light of the immigration policies that certain countries have chosen to adopt. The two most affected countries will lose nearly 25% in cuts due to their problematic policies. The repercussions of the cuts could be felt very soon especially if the Eastern European countries decide to take on Western Europe.

Even though the commission has maintained that the new changes are not meant to be punishment for inconsistency and criticism, there is a general feeling that the countries will not take the changes well. The commission also argued that there is no need to compare the allocations between EU member states as each country has their own share of prosperity.

The proposed changes will also affect more countries in Eastern Europe including Lithuania, Czech Republic, Slovakia, and Malta. Germany will also get a reduction in the allocation to the tune of 20%. There are some countries however that will get a raise in their allocation including Greece, Romania, Bulgaria, and Italy.

The EU commission, through its commissioner for regional development, Corina Cretu, says that the recent changes have no political bearing behind them.

How the commission arrived at the figures

In previous years, the commission had an established formula for calculating the allocation of funds. This year though, it seems like there was a break from tradition since the calculation method was visibly adjusted. The GDP would be used to determine prosperity in the region during the past, for instance. This criterion seems to have been adjusted in addition to the inclusion of other factors like climate, education levels, employment levels, and of course the attitude of the countries towards immigrants.

It is yet not clear how these changes will affect the forex market in Europe. What is clear though is that the aftermaths of major decisions in recent years have often caused some disturbances in the stocks and forex markets. At times like these, stock and forex traders need to be on the lookout for any major breaking news. Admiralmarkets.pl suggests using the current forex and stock platforms to get market feeds in real-time.

The current feeling from the Eastern European countries is that the commission is finding ways of diverting money from the region to other regions that have faced challenges in recent years. The southern part of Europe has for instance been in the red for a couple of years now. The crisis in Greece and Spain is yet to completely settle.  The sentiments of Eastern Europe do not seem to bother the commission, however. The commission argues that these countries have seen major growth in recent years and that they would even handle stiffer cuts. This, the commission argues, would especially be true if issues like GDP per capita were to be considered.

EU officials have spent much of the time explaining how their recent propositions are in no way related to the crisis in the south. Instead, the commission has used every opportunity to highlight the changes in GDP as the key reasons for the allocation cuts. It is indeed easy to find reason in this rationale when you analyze the economies of Eastern European countries.

Poland has for instance seen a lot of positive growth in the past few years. In 2017, the economy grew by 4.6%. This growth came in the backdrop of a similarly strong growth the previous year where the GDP growth was recorded as having been 3%. The forecasts for this year do not look bad either. The GDP is expected to grow by at least 4.3% as per what the commission has established on its forecasts. The growth pattern in Hungary was also comparable, being 3.3% in 2016, 3.45% in 2017 and with a projected growth of 4% year.

Looking south, the economy of Italy recorded growths of 0.9% and 1.5% in 2016 and 2017 respectively. The forecast does not look any different also as a projected growth of 1.5% is expected. In order to argue their case, the commission argued the case of Portugal, which is still struggling but which got some cuts due to its strong performance recently.

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Hungary Economy: Population, GDP, Inflation, Business, Trade

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The Hungarian economy is ranked as the 55th freest according to 2018 statistics. This economy has undergone a lot of transformation and it has particularly improved in the areas of the judiciary, labor freedom and investment. There are some realms however that have not seen great improvements especially in the areas of business freedom, government integrity, and property rights. In overall, Hungary is below average in most metrics in Europe compared to other peers in the region. The country is also just above the world average on the global scale.

Looking at its recent past, this country has seen a bit of relapse into some laws that were previously abandoned. The country has definitely seen much freer and liberal laws in recent years just before the government began to intervene in the areas of policy. Much of the changes over the years have been instituted to support economic growth and to balance out the budget while steering clear of areas that might cause conflict with the European Union. There are many targets that the government has including reducing public debt. It plans to achieve all of them by taking an active role and instituting sectoral laws.

The history of Hungary is long and colorful. It was once part of the communist realm until 1990 when it became completely independent. The country is currently a member of NATO having been in the organization since 1999. When the EU was formed, Hungary was not among the founding members and only joined the organization in 2004. There have been numerous economic reforms in the last decade and today, the economy is supported by strong local demand as well as exports. In recent years, things have been looking very optimistic for the country. The construction industry has boomed and there is a hands-on approach by the government on economic matters. The unemployment rate in the country is low.

Despite these improvements, there are still some challenges that face the government. It is for instance not as open as it ought to be and the judiciary is weak and subject to government interference. The policies surrounding land tenure are pretty straightforward and the government keeps updated records. Because of its somewhat domineering government and a weak judiciary, there are always concerns about corruption. The business sector is thus highly affected by the apparent indifference in the government towards corruption. A lot more needs to be done by the government to deal with prominent figures who have been a menace to business.

Moving on to the financial sector, there is a generally fair support by the government to the financial markets. The tax for corporates is maintained at 19% and tax for individuals is at 15%. The stock market is pretty vibrant with the Budapest SE index enjoying some good figures in recent years. Forex traders can do many things in this country even though the market is not as developed especially compared to the West. Forex trading is supported a lot and there are dedicated providers that allow Hungarians to access tens of thousands of markets.

As a country that is still developing many sectors, Hungary has a government that has a direct oversight over some sectors. You will thus often find direct government support for some industries. There are some sectors where there is not enough manpower. The labor regulations are somewhat basic which makes mobility a little difficult. Most of the product prices are market-determined but some goods’ prices are regulated by the government. Some of the areas in which the government has a hand on the prices include the markets of pharmaceuticals, tobacco, digital money, some machinery and electronic appliances and telecommunication products.

The health of the economy is definitely good considering that the trading industry is pretty vibrant. Hungary relies a lot on both exporting and importing goods. The total value of goods that either leave or enter the country comprises of up to 175% of the GDP. There are no strict tariff regulations and there is a general preservation of a 1.6% tariff rate. While there is much more government presence in many areas of the economy, the impact is not too big to disrupt economic activities. The financial sector is still in its formative years and it will take sometime before the banks get the necessary regulatory policy that supports growth.

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Volcker Rule 2.0: First Major Rule Revisions Proposed

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The Volcker Rule, which has been guiding trading and the financial sector for a long time, is set to be revised according to the news. This rule and its changes are however not likely to affect trading activities as the revisions will focus on banking activity and not individual trading entities. There have been several proposed changes over the years even though there has never been a momentous time where the changes were taken seriously until recently. Among the changes proposed in the new revision exercise include:

  • Restructuring banks so that they can have more tiers dedicated to asset and liability compliance
  • Liberalizing what has come to be known as the TOTUS exemption and thereby pave way for trading personnel to have more control over transactions
  • Changing the structure of the risk capital prong to allow foreign banks to operate under similar regulations with local banks
  • Changing the manner in which banks are supposed to reveal the information on financial commitments

The above are just some of the issues that are covered by the long proposal rule. There have been other changes that were made recently but they will not be implemented together with the new proposals if they go through.

The Fundamental Tenets of the Volcker Rule

The Volcker Rule was made to regulate banking entities of all kinds. The details of the rules have been criticized lately for being extraneous and overly complicated. This is what has prompted some of the proposed changes to be made.

The rules were proposed in 2011 and adopted in 2013, but since that time, the opposition to the rules has been gradually increasing. First, national institutions like the Treasury made moves towards analyzing the rules. Afterward, the OCC wanted the public to have comments on the rules as they are. The entry of new officials in the top government institutions has however been the main reason why much more light has been cast on the rules. A recent Treasury Report has many proposed changes already and the Congress has recently passed laws that overlook the Volcker Rule.

Some of the Main Areas the Proposed Rule Will Affect

The proposed new rule will definitely have a significant effect on the current Volcker Rule. Of the many areas that the proposed changes will affect, the following are the most significant:

1.Proprietary trading

The first key area that will change is the proprietary trading regulatory realm. As of now, the rules prohibit this kind of trading for all banking entities. There are many provisions provided by the Volcker rule which all touch on banking entities and dealers. Issues of liquidity management, trading errors and market exemptions are some of those that will be affected by the proposed changes. If the changes go as planned, banking entities will have more control on the market. It will be possible to determine whats new on markets by just relying on financial entities.

2. Private equity funds and hedge funds

Hedging has been widely known as one of the activities that are prohibited by many financial laws in the country. Banking entities are specifically prohibited from having relationships with any clients that either deal with or have some form of hedging funds. The proposed rules will touch on many issues but the most vital will be on the likelihood of changing the prohibitions.

3. Compliance

The Volcker Rule outlines a series of compliance issues that banking entities must follow in case they want to change policy. There is a great detail of compliance categories as specified by the Volcker rules complete with accompanying requirements. The proposed rules seek to change such compliance obligations.

4. Reporting

Metric reporting requirements are also heavily underscored under the new proposed rules. There will be a strong focus on qualitative information schedules and also on how the reporting is done. There are currently discussions on whether a centralized approach will be adopted. In overall, several metrics will be discussed and the new rules will give details on what has been agreed upon.

5. Recent changes in laws

Finally, the recent changes that have been made especially by the Congress will also be looked at. This will be done in order to bring harmony to the proposed rules. Some of the recent changes in the law have been progressive and as such should be retained. There are also several other provisions that the new proposal will cover and the details of the final rule will emerge in due course.

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