World Economic Journal (WEJ#13)

WEJ#1 (23)

January 2013

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January 2013

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WEJ#1 (23)

DESPITE THE AWAKENING OF INVESTOR INTEREST IN EMERGING MARKETS FOLLOWING THE CRISIS, RUSSIA CAN'T BOAST OF INVESTMENT INFLOWS FROM ABROAD; IN FACT, CAPITAL CONTINUES TO FLOW OUT OF THE COUNTRY

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Facts, news, statistics

The infamous recession caused terrible consequences that have little to do with money, such as the increasing rate of women refusing to have children and suicides among people living in bankruptcy

Cover Story

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From Nooses to Workouts: The Effects of the Crisis

Why Money Is Leaving Russia Affairs

Opportunities

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The Palestinian Economy Won’t Sustain Independence

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The UN General Assembly has recognized Palestine as an observer state

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Don't Hurry Into the Crisis It is expected that next year, the European economy will start to grow once again. Special attention is being right now to the recessions in the countries of Central and South Europe

Sometimes They Come Back…

But not This Time

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76-year old Silvio Berlusconi hinted that he wouldn’t mind running for the post of prime minister for the sixth time

Hungary’s Dance with Taxes The Hungarian government, in its attempt to decrease the budget deficit, has come very close to strangling the national market

Trends THREATS

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The Insurance Market Becomes More Lively

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The United States government will soon implement a new law regarding insurance for chronic patients

Europe is Scared Again The recovery of the global economy is at risk once again

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January 2013

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80 68

40

72 42

46

76

46 64

Investment

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How Long Will the Georgian Miracle Last?

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Peter Löescher: “The Global Importance of Emerging Economies is Changing”

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Maria Pinelli: "You Can’t Pinch Pennies on the Road to Growth"

Who is investing in Georgia’s economy and what is on Prime Minister Ivanishvili’s agenda The Continent

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The Norwegian Ketchup Bottle Financing for Norway’s petroleum sector is increasing, and analysts attribute this to the discovery of new deposits. The economic stability of the country today is based on “black gold,” thanks to which Norway doesn’t fear strikes or the crisis in Europe

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Power Industry

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Against the Wind Could alternative types of energy completely replace coal, gas, and peat, which have long been the standard?

Experts are in no hurry to give a positive answer

Champions in Debt For the Spanish, soccer, like bullfighting and flamenco, is a national sport. They talk about the “Barcelona” players or the Madrid “Real” team more than about the royal family or the financial crisis

Hi-Tech

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Hewlett-Packard is in Need of Repair

Finance

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The Canadian Bank is Exporting the “Know-How”

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Car Industry

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Words

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notabene

Lexus is Not Afraid of Taxes

iPhone 5 Turned Out Not to Be So Progressive

The Future of Digital Media

The Toyota Motor Cooperation is planning on increase its volume of sales for the luxury Lexus car brand in the upcoming new year. The head of the American office of Toyota Motors is positive that they can increase their number of sales by % in the span of one year, as a minimum. The company’s leaders say that they can achieve the goals they set even if America continues to increase taxes on luxury items in its markets, because the demand for the automobile luxury class is continuing to grow at a faster tempo than the rest of the auto industry. On top of that, the Lexus brand in particular is very popular in the American market.

The long-awaited smartphone, the iPhone  from Apple, has already received a fair amount of criticism from industry experts. Their one major flaw, according to these experts, is the absence of a new NFC chip (near field communication) for the device, which allows consumers to make mobile payments. NFC-technology allows for high-frequency, short-range communications for the purpose of instantly making payments for goods and services, simply by waving your phone near an ATM or other payment device. Smartphones from HTC, Nokia, RIM, and Samsung already have these chips, while Apple continues to force their clients to make payments from separate apps, such as Passbook.

The modern media environment is posing new difficulties to major manufacturing companies, and to be successful, it is first important to make their content available on a digital platform.

Walt Disney, the film company, was one of the first to realize this important fact and drew up an agreement that allowed all Disney, Pixar, and Marvel movies to be posted to Netflix. This is one of the biggest deals Netflix, which streams live video from the Internet, has ever reached. Walt Disney gave up their long-term cooperation with the cable channel, Starz, and starting from , all new Disney movies will be released on the Internet immediately.

THE AMERICAN MARKET ACCOUNTS FOR ALMOST

THE ABSENCE OF NFC-CHIPS IN APPLE SMARTPHONES CAN CAUSE A HOLD-UP IN THE DEVELOPMENT OF THEIR TECHNOLOGY FOR TWO YEARS

WALT DISNEY'S CONTRACT WITH THE INTERNET SITE, NETFLIX, IS ESTIMATED AT ABOUT

50 % OF ALL LEXUS AUTOMOBILE SALES

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$300 MILLION A YEAR

January 2013

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Enjoy

News Corp Says Goodbye to Another Manager

Festive Advertising

New Year, New Leaders

The Execute Officer of Rupert Murdoch’s media company, News International, has left his position. The company’s former executive, Tom Mockridge, has stated that his resignation was completely voluntary and practical.

Mockridge was appointed very recently, in July of , after the phone hacking scandal that rocked the company – in its aftermath, News International’s management fired then-CEO Rebekah Brooks and Rupert Murdoch stopped leading News International.

The period right before New Years is the perfect time for most companies to launch massive advertising campaigns. Coca-Cola, the world’s largest soft drink company, signed a season advertising agreement with the cable network HSN. Under the terms of this agreement, HSN will advertise Cola-Cola products not just on its cable channel, but on its website, mobile apps, and social networks as well. In turn, Coca-Cola will also promote HSN products under their own resources, such as My Coke Rewards. The partners hope to work together for many years.

The Head of Strategic Planning at HSBC, John Flint, will be in charge of all of the retail banking services starting next year. HSBC, one of the largest financial conglomerates in the world, focuses its activities on four global aspects, and one of these is providing retail banking services and making its asset management company (RBWM) available to the public. John Flint’s appointment is a direct result of the former head’s resignation, Paul Thurston, who wanted to leave two years ago, but decided to stay until the reorganization of RBWM started.

THE NEWS CORPORATION OWNS

THE “MY COKE REWARDS” SITE HAS ABOUT

THE RBWM DIVISION OF HSBC HAS MORE THAN

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50

MILLION REGULAR USERS

MILLION CUSTOMERS

OF "NASHE RADIO" AND BEST FM IN RUSSIA

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notabene

The Nobel Foundation Deals with the Crisis

Businessmen Need to Reade

Investors Should Look Toward Jakarta

The Nobel Foundation is no longer able to award its winners with monetary bonuses. Because the European debt crisis negatively impacted the fund’s financial transactions, which was unable to successfully manage its assets, the size of the cash awards decreased, and the fund’s leaders had to start thinking about raising funds using other means.

For now, a solution was found: part of the premium will be paid for by private equity funds, even though this directly contradicts the Nobel Foundation’s intentions. But the current economic situation has forced some changes, making hedge funds necessary.

The latest edition of the Business Insider has put together a list of  books that every entrepreneur and businessman should read. The collection of books suggests that the most important economic topics today are consumer behavior, business start-ups, social responsibility, making corporate strategy more efficient, and innovation. On top of this, it is recommended that businessmen learn the psychology of relationships and some philosophical concepts. Some of the “business sharks” who mastered these topics include Richard Branson, Steve Jobs, and Muhtar Kent.

The consultant company, PriceWaterhouseCoopers, has reported that Jakarta, the capital of Indonesia and its largest city, will be the most appealing market for real estate investments next year.

The city’s GDP growth has averaged .% per year, both inflation and interest rates are under government control, and the increasing volume of foreign investments and growing demand for real estate show significant and steady growth. However, experts warn potential customers that reasonable banking credit is hard to find in Jakarta, as well as reliable partners, and land can only legally be owned by one person.

IN 2012, THE SIZE OF THE NOBEL PRIZE FELL BY

THE BOOKS FROM BUSINESS JAKARTA’S POPULATION INSIDER’S LIST ESTIMATE EXCEEDS THAT BECOMING A GENIUS REQUIRES

10 000

10

HOURS OF PRACTICE

MILLION PEOPLE OF PRACTICE

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January 2013

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Greece is the Most Corrupt Country in Europe

In a Crisis, Act Like Everyone Else

University Diplomas are in Demand

Transparency International, an international organization designed to fight corruption, has once again rated countries on its famous “Corruption Perceptions Index”, an index that evaluates corrupt countries based on the perceptions of its population. This year, the most “transparent” countries were Denmark, New Zealand, and Finland, and the most corrupt were Uzbekistan, Turkmenistan, and Iraq.

Greece, which was listed as th on the list, is not as clear, given that it is in the arms of European countries. Other members of the European Union that were suspicious were Italy, Serbia, and Bulgaria.

New disputes between the politicians of the European Union have resulted in London becoming a major European financial capital. In an economic crisis, the status of the British capital and its legislation get in the way of regulatory measures and do not allow for the implementation of capital controls, according to senior officials from continental Europe. Christian Noyer, the Governor of the Central Bank of France, sees London as an “offshore company” for Europe, which allows its financial companies to escape the attention of certain authorities. This means that the European Union does not have access to British funds that they could use to stimulate the economy and help solve the crisis.

The research-consulting firm, McKinsey & Company, predicted that by the year , the world may face a shortage of professional specialists with university diplomas. In that same time frame, the number of people with only secondary education will reach  million people, and the market will need – million of such workers. Unfortunately, the current conditions of the labor market do not motivate high school students to continue onto higher education – the unemployment rate among young adults is still the highest in the world.

RUSSIA RANKED 133RD ON THE CORRUPTION PERCEPTION INDEX, OUT OF THE

17 4 COUNTRIES RANKED

MORE THAN

OF GLOBAL INDICATORS SHOW LONDON AS A LEADING FINANCIAL CENTER

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BY 2020, THE WORLD WILL ONLY HAVE

150 MILLION HIGHLY SKILLED WORKERS

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WHY MONEY IS LEAVING RUSSIA Despite the awakening of investor interest in emerging markets following the crisis, Russia can't boast of investment inflows from abroad; in fact, capital continues to flow out of the country. Experts attribute this not so much to image difficulties of the Russian authorities, but rather to insufficient legal mechanisms for the protection of investors.

Text:

Oxana Chaika, Nadiya Aliullova, Daria Getmanova, Anastasiya Yakovleva

In the Red Having more or less recovered from the consequences of the global financial crisis in , most countries faced a tough battle for investment. But after four postcrisis years, the top countries in restoring and increasing the amount of direct foreign capital are China, Hong Kong, Singapore, and Brazil.

At the beginning of the s, a shift towards investment flows began: Interest in developed countries is falling, while the role of emerging markets is growing. By the mid s, there was investment activity in practically every country, and by –, foreign direct investment (FDI) reached its maximum. Then the global financial crisis took its toll and sustainable growth was adjusted.

At the end of , the top three leaders in terms of FDI inflows were the U.S.A. with $ billion, China with $ billion, and Belgium with $ billion. Russia ranks th among counties with the highest FDI inflows, with $ billion in . However, it is estimated that in the first half of , only China was able to maintain its high rates of FDI – in six months, cash inflows were $ billion, or % of  levels. Brazil is also worth mentioning: It attracted $. billion in FDI, or % of its  levels. Most other countries are seeing a decline in investment activity, as in Russia, for example, where for the first six months of , FDI was only $. billion, or % of  levels.

SOURCE: UNCTAD, OECD INTERNATIONAL DIRECT INVESTMENT DATABASE, IMF

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CO UNT RY

2008

2011

1 2 3 4 5 6 7 8 9 10

USA CHINA BELGIUM HONG-KONG BRAZIL SINGAPORE UK

306 366 108 312 193 950 59 620 45 058 11 797 91 489 51 722 75 002 47 217

226 937 123 985 89 142 83 155 66 660 64 003 53 949 53 716 52 878 41 316

BRITISH VIRGIN ISLANDS

RUSSIA AUSTRALIA

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PERCENTAGE OF VOL. IN 2011 55 700 118 000 21 400 29 700 30 800 7 800 23 500

25% 95% 24% 45% 57% 15% 57%

January 2013

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Among the most important components of FDI are “from scratch” projects, when foreign investors don’t buy existing businesses, but rather open new ones, which creates new jobs. The top three leaders in this indicator in  were China ($. billion), Brazil ($. billion), and India ($. billion). In Russia, the figure reached $. billion.

SOURCE: UNCTAD

COU NT RY

2006

2007

2008

2009

2010

2011

BRAZIL UK GERMANY INDIA KAZAKHSTAN CANADA CHINA RUSSIA SAUDI ARABIA USA

15 459 33 500 18 028 86 028 4 176 15 507 127 325 39 271 20 205 38 666

18 988 27 321 18 562 54 002 4 251 8 632 110 419 50 144 26 630 50 094

46 994 68 224 36 871 80 588 20 468 20 541 130 518 61 607 42 318 94 039

44 515 52 008 20 039 57 170 1 949 14 084 116 765 31 298 14 860 73 529

44 007 26 983 17 108 51 956 2 536 18 913 98 406 34 658 10 332 63 145

62 916 36 140 15 325 58 273 7 993 27 197 100 696 22 522 14 722 57 349

The outflow of foreign direct investment created the following situation by the end of –.

The largest outflow of foreign funds in  was from the United States ($. billion), followed, by a wide margin, by Japan ($. billion), the United Kingdom ($. billion), and France ($. billion). Russia is listed in eighth place, with FDI outflows for  of $. billion, which is $. billion less than inflows for .

SOURCE: UNCTAD, OECD INTERNATIONAL DIRECT INVESTMENT DATABASE, IMF

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COUN TRY

1 2 3 4 5 6 7 8 9 10

USA JAPAN UK FRANCE HONG-KONG BELGIUM SWITZERLAND RUSSIA CHINA

2008

308 296 128 019 161 056 155 047 50 580 221 023 45 333 55 593 52 150 BRITISH VIRGIN ISLANDS 44 118

PERCENTAGE OF VOL. IN 2011

201 1 396 656 114 353 107 086 90 146 81 607 70 706 69 611 67 283 65 117 62 507

195 300 59 800 27 000 29 300 22 400 18 900 16 500 28 100 -

49% 52% 25% 33% 32% 27% 25% 43% -

According to FDI estimates for the first half of , FDI outflow from Russia was $. billion, which is $. billion more than the FDI inflow for the same period. You could, of course, cite the growing interest of Russian companies in investment projects outside the country, but these figures really say more about “capital flight” and the decline in investment activity due to increased nervousness in the global markets. Looking at other countries, there was more FDI outflow compared

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Dr. Ros Altmann, Director General of the Saga Group, economics policy expert: “It’s difficult to give exact reasons since you can find many factors.

Sometimes the whims of the market have an impact on investors.

Sometimes investors get nervous about the political risks and market sales ahead of elections. Sometimes they simply run with their profits and redirect them into new areas.

High yields and guarantees – those are what investors are looking for. Overall, the peculiarities of the market go in and out of fashion. Investors have a kind of ‘herd mentality,’ where some start selling stocks because others are doing the same thing.”

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to total inflow for the first half of  in the U.S. also, although the reverse is true in most of the countries that were reviewed. FDI inflow in the first half of  was higher than outflow in China, the UK, France, Canada, and others.

Where Are We Drifting To? According to various estimates, the net capital outflow from Russia for the last four years amounts to $– billion. This, despite the launch of a program during this period to improve the country’s investment climate. Admittedly, they realized this rather late in the day. And you don’t have to look far for examples of that – the consequences of the crisis for the BRIC “comrades” were much less serious than for the Russian economy, which saw a drop in GDP in  of .%.

At that time, China and India had GDP growth of .% and .%, respectively.

The Brazilian economy lost about .%, but the following year they made up for two years with +.%.

Overall, it’s clear that investors have left the assets that they consider risky and have remained where there aren’t any threats to their capital. It became clear during this period that vague promises to allure major funding into Russia’s economy were not successful and it would be necessary to create competitive conditions.

That meant changing investment policies.

The effectiveness of the government’s investment policy may be judged based on the ratio of net FDI inflow (or outflow) to the national GDP. Here Kazakhstan takes first place with an index value of .%, followed by a wide margin by Brazil (.%) and Saudi Arabia (.%). The maximum FDI outflow/GDP value belongs to the UK (−.% in ), France (−.%), and the U.S. (−.%). In Russia, the index value of FDI outflow/GDP in  was .%, while over the past  years, the best figure was recorded in , when the FDI inflow to GDP ratio was .%.

SOURCE: UNCTAD

COU NT RY

2006

2007

2008

2009

2010

2011

BRAZIL UK GERMANY INDIA KAZAKHSTAN CANADA CHINA RUSSIA SAUDI ARABIA USA FRANCE

20.3 46.6 20.4 7.5 40.6 29.3 10.5 26.9 14.2 24.6 49

22.7 44.2 20.9 8.8 42.5 36.4 9.4 37.8 19.1 25.3 48.2

17.4 37.2 18.4 9.8 44.2 29.9 8.3 13 23.1 17.4 31.9

25.2 48.6 21.3 12.7 62.3 40.9 9.4 31 38.2 21.5 39.5

32.3 51.6 21.3 11.9 55.7 37.1 10.2 33.1 39.2 23.4 40.8

27.7 49.8 20 10.4 52.5 34.3 10.1 24.8 33.6 23.2 34.7

The ratio of accumulated FDI inflow to GDP shows the result of foreign investment in the country over the long term. The table shows that the maximum index values belong to Kazakhstan (.%), the UK (.%), and Canada (.%). China and India show low values of accumulated FDI inflow/GDP – .% and .%, respectively – which shows, on the one hand, the substantial size of these countries’ GDP, and on the other hand that only recently have foreigners sought to make major investments in, for example, Indian projects. In Russia, the index value is .%. The FDI Attraction Index, which

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Tim Campbell, Advisor to the Mayor of London on training and enterprise, UK: “After 1991, when the federal government broke up, people wanted to achieve the prosperity they saw in other countries. As soon as training centers developed outside of Russia and financial and commercial opportunities developed, capital and brains flowed over to these new centers.

If we look at the changes over the past 20 years, I would rather settle in Moscow than try to leave there.

Russia has intellectual potential, unique specialists, and most importantly, natural resources, which will play an important role in the future.”

January 2013

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SOURCE: UNCTAD

COU NT RY

2006

2007

2008

2009

2010

2011

BRAZIL UK GERMANY INDIA KAZAKHSTAN CANADA CHINA RUSSIA SAUDI ARABIA USA

65 8 80 86 17 45 36 52 42 68

75 7 63 96 14 17 47 40 35 78

68 12 90 68 5 17 51 35 18 66

60 14 98 52 5 20 55 26 6 65

51 24 107 47 5 53 51 17 6 65

34 29 86 59 7 57 43 19 12 62

characterizes the success of various countries’ economies in attracting foreign investment, shows that among the top  countries,  are emerging or transitional economies and  have developed economies. Ten years ago, only  countries with emerging or transitional economies were on the top  list of countries most attractive for investment.

Russia steadily improved its position in the ratings between  and , rising from th place to th! But in , it fell to th. Countries with better placement in the ratings than Russia included Kazakhstan (th place in ) and Saudi Arabia (th place in ).

Leading in the ratings are Hong Kong, Belgium, Singapore, and Luxembourg – and these governments consistently occupy the top places in terms of attracting foreign funds, in light of their favorable investment climates.

The success of emerging countries in improving the investment climate and increasing the amount of foreign investment has not just been noticed by UNCTAD analysts. The World Bank’s Doing Business –  report states that in the last year alone,  countries introduced more than  institutional reforms aimed at making it easier to do business. And most of the reform work is being done in emerging countries, although even in the context of financial instability, developed countries continue to improve the basis for reviving and strengthening economic growth.

In , Russia occupied th place which is  positions better than even just two years ago. And although Russia is among the  countries that have made the greatest progress over the past seven years in regulating its business climate, attitudes of foreign investors are slow to change towards our country.

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Paul Ostergaard, Senior Vice-President of Urban Design Associates (UDA), former president of the Pittsburgh Chapter of the American Institute of Architects, member of the Urban Land Institute: “In order for capital not to flow out and for the protection of investments, the situation with private property rights needs to be improved. But most importantly, transparency of legislation should be improved and modernized.

Businessmen withdraw their funds primarily because they do not feel safe investing in Russia.”

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Nonetheless, since , experts from the World Bank have recorded  positive changes in  out of  possible indicators. The weak link is still investor protection – Russia has a “dash” for this indicator. For the past three years procedures have been simplified in the construction industry, but decisions can still take up to three years in some regions. Laws were passed aimed at improving customs administration, but current approaches still require overhaul and revision “on the ground.”

Federal authorizes aren’t in the position to control the implementation of each investment project – this is more in the scope of regional authorities, who are often not interested in attracting investors and don’t try to implement federal legislation at the local level. Or rather they take the initiative if it satisfies their personal interests. Hence, the second major problem is administrative barriers, or put more simply, corruption. In a report published at the end of  that ranks corrupt countries, Russia was ranked rd, earning  out of a possible  points on the “corruption perception index.” Analysts at Transparency International suggest that any result under  points be treated as a “disgrace to the nation.” You can react however you want to the ratings, but Russia’s image as a corrupt country has already been formed and it will be very difficult to change.

Although it seems that work in this direction has been going on for many years, the percentage of kickbacks is growing and only federal officials are talking about the increased transparency in concluding transactions. Thus, solving this second problem can only happen if the mentality of civil servants is changes.

There can’t be any discussion of improving the investment climate in this area until officials begin solving problems with businesses that don’t become incentives in their work.

The Neighbor’s Affairs It becomes clear that besides the BRIC “frenemies,” Russia has another serious competitor in the battle for foreign capital – Kazakhstan. Net FDI inflow to GDP in recent years in this country hasn’t fallen below % and in good years was –%. That means that the investment policy of Kazakh authorities is regarded as effective, as reflected in its high th place rating in the attracting FDI index.

But what could the government of Kazakhstan offer investors? Work to improve the country’s attractiveness in the eyes of potential investors was started

by Kazakh officials back in the ’s by adopting laws to protect foreign investment. The consistent implementation of investment strategies, numerous eco-

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January 2013

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nomic reforms (including simplifying procedures for starting new companies and getting loans), improvement of the overall legal and regulatory frameworks and specifically taxation, privatization, the transition of accounting and reporting to international standards – all of this led to the creation of a favorable business environment and is confirmed by experts from the World Bank. In their Doing Business –  report, Kazakhstan is ranked th (Russia is ). But this “fly in the ointment” is vital. There is a problem that can’t yet be conquered and which worries foreign investors – the corruption of officials and the arbitrariness of local authorities. In the same rating of corrupt countries prepared by Transparency International, Kazakhstan, like Russia, was in rd place with  out of a maximum  points.

COUNTRY

SOURCE: UNCTAD

BRAZIL UK GERMANY INDIA KAZAKHSTAN CANADA CHINA RUSSIA SAUDI ARABIA USA

MARKET ATTRACTIVENESS

47 40 11 24 16 17 6 14 4 20

AVAILABILITY OF AVAILABILITY CHEAP AND OF INFRASTRUCTURE PROFESSIONAL LABOR FORCE

20 48 47 1 50 51 3 24 14 25

73 4 2 79 75 27 43 31 70 11

AVAILABILITY OF NATURAL RESOURCES

7 13 10 5 11 3 6 2 25 1

RANK

25 16 8 3 33 17 1 6 15 2

Russia’s potential is very attractive to foreign investors. This can be judged based on the potential FDI index, in which it ranks th.

It should be noted that in th place, Russia led such indicators as natural resources while in other indicators, Russia is much weaker. For example, Russia is ranked st in availability of infrastructure and th in availability of labor. As for comparing the attracting FDI index and potential, the amount of attracted foreign funds by the State is generally in line with expectations.

Russian authorities should continue to work to establish improved and effective rules for regulation, which are an integral part for enabling favorable conditions for business. But in addition to carrying out a wide range of policy reforms aimed at simplifying the business environment, increasing competition, and supporting innovation, it is important not to forget that all efforts fall apart because of massive structural and administrative barriers “on the ground.”

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Torberg Falch, Professor at the Department of Economics at the Norwegian University of Science and Technology (NTNU) in Trondheim, Norway, the Chairman of the Department of Economics at NTNU: “First of all, investment activity is in general is less today than before the financial crisis.

Secondly, with regards to the Russian authorities there is a certain bias. All of this creates uncertainty that investors don’t like. But Russia’s accession to the WTO is a positive fact.”

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Affairs

THE PALESTINIAN ECONOMY WON’T SUSTAIN INDEPENDENCE

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Affairs

The UN General Assembly has recognized Palestine as an observer state. A resolution was approved by 138 of the 193 UN member states, while 9 countries were opposed, 41 countries abstained, and the other countries did not vote.

Text: Robert Abdullin

Until recently, Palestine had only observer status at the UN. Its new status, which was vigorously rejected by Israel and the United States, gives Palestine the right to participate in discussions of the General Assembly but not to vote. In does, however, open up the possibility to take legal recourse at the International Criminal Court and to file numerous suits against Israel.

“The General Assembly reaffirms the right of the Palestinian people to self-determination and to independence in their State of Palestine on the Palestinian territory occupied since ,” states the resolution adopted by the General Assembly. The document also expresses the hope “that the Security Council will consider favorably the application submitted on  September  by the State of Palestine for admission to full membership in the United Nations.”

However, placing any hopes on the last point would be in vain; the U.S., which has the right to veto, will not allow such a resolution to pass. Their argument is that in order for Palestinians to gain statehood, they first need to reach an agreement in the negotiations with Israel.

But does Palestine really need statehood?

Let’s say that in a few years, the dream that has occupied the minds of the Palestinians for the past six and a half decades and on the altar of which hundreds, thousands of people have died, does come true. Then what? How can such a state survive?

Politics aside, at the end of day, complete Palestinian independence would take many years.

It is better to talk about numbers. What is the chance of Palestine surviving from an economic point of view?

At the end of last year, the Palestinian National Authority (PNA) commissioned

THERE IS POVERTY, CHRONIC FOOD SHORTAGES, AND AN AVERAGE INCOME OF $2,900 PER CAPITA A THIRD OF THE WORLD AVERAGE. FIFTY-SEVEN PERCENT OF THE POPULATION LIVES BELOW THE POVERTY LINE, WITH THE WORST SITUATION IN EAST JERUSALEM, WITH POVERTY RATES NEAR 80%

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a study to demonstrate how, if the occupation were ended and an independent economy established, a Palestinian state could fully support itself and eliminate the enormous dependence on donor countries (international aid is currently % of GDP).

The experts calculated the amount of damage that, in their view, the occupation is causing the Autonomy: In  alone, the PNA failed to receive $ billion that was its due. That, by the way, is actually more financial aid than was allocated by donor countries in . But is this really the case?

ary  (the “Cast Lead” Israeli military operation in Gaza). Once restoration was completed, the source of growth dried up.

It is possible that after the next Israeli military operation in the Gaza Strip in November of this year, which destroyed part of the infrastructure, the economy will once again recover for a while. But what state promotes economic growth by engaging in military action?

There is poverty, chronic food shortages, and an average income of $, per capita – a third of the world average. Fiftyseven percent of the population lives below the poverty line, with the worst situation in East Jerusalem, with poverty rates near %.

For comparison, in  there was only % unemployment in the West Bank, and now that number is %. And these are just the official figures.

“The trade deficit is about % of GDP, or $. billion. More than % of this deficit is because of trade with Israel. The Palestinians’ main problem is their economic dependence on Israel,” says Mahmoud Elkhafif, Coordinator of Assistance to the Palestinians at UNCTAD. The main buyers of Palestinian goods are Israel and Jordan, which account for % of total Palestinian exports.

In , Palestine saw decent economic growth, allowing the advocates of independence to talk about the wonderful prospects of autonomy. But it didn’t last long. The United Nations Conference on Trade and Development (UNCTAD) announced that economic growth has been slowing since Spring . While Palestinian economic growth was .% in , such indicators are nowhere to be found this year. Moreover, it has become apparent that all the hoo-ha about the excellent economic prospects is little more than self-deception by the local authorities. Indeed, growth was only possible on the back of restoring infrastructure destroyed by the fighting in December -Janu-

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Palestine is using only a quarter of its agricultural capacity (agriculture as a percentage of GDP declined from % in  to .% in ), even though agriculture together with textiles are their main exports. Industry isn’t doing any better – just % of GDP. More than % of income comes from the service sector.

Real gross domestic product growth for  was .%, a very respectable figure which even permitted the IMF to say that the Palestinian economy is stable and therefore the Autonomy is ready for statehood. But how are the Palestinians reacting to these statements?

This autumn, anti-government protests began in the West Bank (which, by the way, is stable according to the Palestinian territory’s indicators), which fit quite easily into the concept of the Arab Spring. And there is much to be unhappy about – there are jobs for less than % of men, just over % of women, and % of youth; about % of those with higher education are unemployed. And so Palestinians are taking to the streets to burn portraits of Prime Minister Salam Fayyad and PNA President Mahmoud Abbas.

Such sentiments on the West Bank are also disturbing to Israel. The collapse of a stable Palestinian Authority, which lost the Gaza Strip but still retains the West Bank, is heading towards the need to take urgent military actions. Tel Aviv is trying as hard as possible to prevent the economic collapse of the West Bank and even requested a loan from the IMF for a billion dollars for the Palestinians. But the IMF did not grant the money.

As for the long-awaited economic independence, the latest verdict was handed down by the World Bank. Their report states that the Palestinian Authority’s economy is not stable enough for an independent state, mainly because of the dependence on foreign aid.

Only a strong private sector can provide the Autonomy with jobs and reduce unemployment. Experts with the bank talk about the need to integrate the Palestinian economy into the global system. But, they say, “Israeli restrictions remain a serious obstacle for the development of the PA’s economy,” yet even in such circumstances, the Palestinian leadership “can take measures and lay the foundations for economic growth.”

ONLY A STRONG PRIVATE SECTOR CAN PROVIDE THE AUTONOMY WITH JOBS AND REDUCE UNEMPLOYMENT. EXPERTS TALK ABOUT THE NEED TO INTEGRATE THE PALESTINIAN ECONOMY INTO THE GLOBAL SYSTEM. BUT, THEY SAY, “ISRAELI RESTRICTIONS REMAIN A SERIOUS OBSTACLE FOR THE DEVELOPMENT OF THE PA’S ECONOMY,” YET EVEN IN SUCH CIRCUMSTANCES, THE PALESTINIAN LEADERSHIP “CAN TAKE MEASURES AND LAY THE FOUNDATIONS FOR ECONOMIC GROWTH

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SOMETIMES THEY COME BACK...

BUT NOT THIS TIME

Illustrations by Alexander Ardabiev

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Immediately after Italian Prime Minister Mario Monti announced that he would resign after parliament approved the national budget for 2013, 76-year old Silvio Berlusconi hinted that he wouldn't mind running for the post of prime minister for the sixth time. This statement provoked a strong reaction from the European Union - Berlusconi's departure was one of the EU's main conditions for helping Italy out of the crisis.

Text: Ekaterina Tikhomirova

External Control Former European Commissioner Mario Monti took control of the highest political office in Italy in November , though to call a spade a spade, the EU practically imposed this trusted crisis-manager on the debt-ridden country. Soon thereafter, a package of tough anti-crisis measures was adopted – following the European Union’s recipe, of course. It was initially suggested that the Monti government would be a technocratic one and new elections would be held before the appointed time. And so it was: In early December, the Prime Minister announced that he would resign immediately after the  budget was approved by the Italian parliament. Of course, nothing prevents Monti from not leaving politics at once, in order to participate in the election as the leader of one of the centrist electoral blocs. However, the technocratic government, which forced Italians to tighten their belts to the max, does not enjoy the warm support from voters needed to ensure a victory. Perhaps the role of crisis manager who temporarily stepped off to the side in order to make way for professional politicians might not be such a bad thing for Monti.

What suits Italy in the new elections? In mid-December, statistical data were released showing that the national debt for the first time in history exceeded € trillion, and that could increase -% by the end of the year. Opponents from the right accuse Monti of following instructions from Germany to a T – instructions that lead not to recovery, but deeper into crisis. Unemployment data is also disappointing, placing the Prime Minister under fire from left-wing parties and trade unions.

It was amidst this situation that Berlusconi, out of the blue, made a statement about his intent to return to the big game.

EXPERTS SEEM TO HAVE NO DOUBTS ABOUT BERLUSCONI’S ABILITY TO TAKE THE MOST DRASTIC POPULIST STEPS, WHICH WILL BE IMMEDIATELY DESTRUCTIVE, NOT JUST FOR ITALY’S ECONOMY BUT FOR ALL OF EUROPE Rough Days for the Cavalier It should be said that the former Prime Minister’s last few months have been a real test of strength. Two concurrent court cases on allegations of sexual crimes and tax crimes are the first in a long time not to turn out in his favor. In late October, the Cavalier (Italian journalists’ nickname for Berlusconi) was sentenced to four years in prison for large-scale tax evasion, but during sentencing, the judge said that, in view of the country’s amnesty rules, Berlusconi should not be imprisoned for more than a year. Few in Italy, however, believe that it will come to that – by law, the Cavalier still has the right to two appeals, and a reduction of the sentence within that time is quite likely. There is yet another, more graceful was of escaping punishment: to invoke immunity as Prime Minister.

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Berlusconi has been very cautious, however, in voicing criticism of Monti. “As a person who feels personally responsible for the country, I cannot not allow Italy to once again spiral into a recession,” said the former Prime Minister, explaining his intention to return to the Palazzo Chigi (residence of the Prime Minister). The first to react to the Cavalier’s announcements were the financial markets: The euro went down and Italian stocks fell. The potential return of Berlusconi delighted his loyalists and cheered his party’s inner circle.

But the decision caused extreme disapproval, bordering on outrage, from former allies of the National Alliance. According to Italy’s political establishment, Berlusconi broke the unspoken contract mandating that he stay out of politics.

The Cavalier won a little bit back by saying that he would not contend in the elections against the current Prime Minister if the latter headed the centrist forces. But he has begun developing a plan for a grand battle, which will apparently continue until the parliamentary elections.

which has high debt and is in a deep recession,” says German political analyst Gerd Appenzeller.

“The EU countries and the financial markets felt confidence in the country and its Prime Minister, reflected in decreased interest rates on Italian government bonds. Monti’s resignation is therefore logical, since it allows for early elections. But the very idea that Berlusconi, the Lord Voldemort of European politics, could come to power again, will drive up the cost for Italy to procure loans and thus drive up the debt.”

Comparisons with French President François Hollande, who made a multitude of populist promises during the campaign, are in this case most likely inappropriate: It seems that nobody in Europe really does not admit that Hollande will suddenly start keeping his commitments to voters. But experts seem to have no doubts about Berlusconi’s ability to take the most drastic populist steps, which will be immediately destructive, not just for Italy’s economy but for all of Europe.

“No one is expecting reasonable solutions from him,” says Appenzeller with evident agitation.

“We can expect that Berlusconi will admire the ruins of Rome burning like a late-Roman dictator.”

Perhaps this is why EU leaders have, contrary to usual diplomatic practice, allowed themselves to direct rather sharp statements at the Cavalier.

“I don’t think Berlusconi has very good prospects in the elections. Though it seems he himself has ruled out candidacy, with him everything changes with from one day to the next,” said François Hollande.

President of the European Commission José Manuel Barroso even met with Berlusconi in Brussels and made it unequivocally clear that a return is highly undesirable. “You can guess what I told him and what I am telling you,” Barroso said the next day in a conversation with Monti. “First and foremost, it is imperative that Italy take the chosen path of stability and reform. This is very important for Italy, and of course, for the European Union.”

European Union Against Voldemort “The technocrats have tormented the country,” say Italian political analysts in unison, meaning that Berlusconi can most likely count on the support of those most affected by the anti-crisis measures. Yet recent scandals seem to have shaken the undying love Italians had for the Cavalier not so long ago. “I’m looking for a suitable reason not to run. Because then I could also avoid a dangerous exit from the arena after a devastating defeat,” said Berlusconi with surprising frankness, in an interview with a TV station that he owns. “Look at how things ended with Nicolas Sarkozy…”

Indeed, the campaign launched against him in Italy, and more importantly in Europe, makes it extremely difficult for him to win reelection.

“Mario Monti has made impressive progress in restoring the financial welfare of Italy,

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THE INSURANCE MARKET BECOMES M RE LIVELY

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The United States government will soon implement a new law regarding insurance for chronic patients. According to experts in America, this is a step towards creating a better health system. However, these steps are only the first on the road to recovery for the health care system.

Text: Daria Getmanova

In , U.S. health care reform laws, enacted by president Barack Obama, will come into force, especially legislation regarding health insurance.

These new laws will allow people with chronic conditions to receive health insurance without prejudice, a necessary provision that has been long overdue in the States. According to statistics, the number of people diagnosed with chronic illnesses increases every year. Over the past ten years, for example, the percentage of adults over  with hypertension and diabetes increased from % to %, and the number of people exposed to high blood pressure and heart disease grew from % to %, according to the National Center for Health Statistics. On top of that, data from recent cases shows that in , about  million Americans, or % of the population, suffered from chronic illnesses – in , that figure reached  million, which is nearly half of the US population.

Because of all this, the U.S. government is in desperate need of providing security for these people. Many experts support the president’s initiative, such as Gerald F. Kominski, a Professor for the Department of Health Policy and Management and the Director of Health Research at the University of California in Los Angeles. “There are too many uninsured people today who are seriously ill and have to wait to receive medical attention.

And these are the people that need to be taken care of – they suffer chronic diseases, but even that it can help stop their disease’s development, they simply cannot afford it,” he says. Professor Linda Bergthold, a Health Policy Consultant, agrees, and adds, “The law prohibiting insurance providers from denying car to people with preexisting conditions is a very important change.

Before this new law, it was extremely difficult

for these people to get insurance, and they were often deprived of coverage. Now, starting in , sick people will finally be able to buy health insurance in the commercial market.”

Denied!

According to various surveys, many peoples’ applications for insurance today are denied because of their chronic conditions, and very often, they lack adequate medical care because of run-ins with insurance companies. Last year, for example, the number of people, with two or more chronic conditions between  and , who were not given medication increased from % to %.

INCREASE IN VALUE OF HEALTH INSURANCE (FOR A FAMILY PER YEAR)

2010

+18 %

2011

+9 %

AS COMPARED WITH 2010

2012

+8.5 %

AS COMPARED WITH 2011 SOURCE: THE NEW YORK TIMES

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If people cannot participate in public programs and employers do not provide insure, there is no guarantee that they will be able to get insurance, according to Linda J. Blumberg, a senior fellow with the Urban Institute at the Health Policy Center. Researchers believe that until the law takes effect, people who have had health problems previously or those who have health issues today may face insurance providers who will try and exclude them from the industry, either directly or indirectly. For example, some sick people can be scared away by the prices or offered insurance only on certain parts of the body or particular organs.

Blumberg’s colleague, Robert Berenson, agrees, adding that over the years, the increase in prices has mainly been driven by a growth in spending, despite the fact that the quality of service has stayed the same. According to him, people need to find a solution to fix the tariff rates and then work on the balance of market power.

Timothy Jost, a professor of health care, added his own opinion to that of the researchers.

“One of the goals with our recent reforms is to slow the growing costs of health care in government programs and force insurance companies to compete with each other to keep prices level,” he

NUMBER OF EMPLOYERS OFFERING HIGH DEDUCTIBLE HEALTH INSURANCE PROGRAMS

2010

23 %

2011

32 %

2012

36 %

says. Studies are showing that the cost of health insurance each year is still rising – in , for example, the average annual consumption for an American family was $,, % higher than the previous year. And preliminary estimates show that in , that number will jump up another .%. According to analysts, staff salaries are one of the reasons for increasing prices shown in recent data, and according to the Hays study, these high salaries are also draining America.

THE COST OF DISEASE TREATMENT (ANNUALLY)

Expensive Health In addition to rising prices and other difficulties in health care, though, Americans are facing other drawbacks. The expensive, yet tax-deductible health care plan is one of them, which provides employers with a lower premium and pushes higher out-of-pocket costs onto employees. A report published in “Kaiser Health News” further exemplifies how the program works.

In the article, Angela Werner from Wisconsin explains how her husband’s employers refused to pay for his increasing health insurance costs, because of terms that specified that employers may only cover costs only up to certain value.

And the costs for their daughter, Emma, who was diagnosed with juvenile arthritis, has increased  times – from a few hundred dollars to $,. Because of these provisions, the family is forced to pay for these costs themselves, and

HEART DISEASE

$ 432 BLN DIABETES

$ 174 BLN PULMONARY DISEASE

$ 154 BLN ALZHEIMER'S

$ 148 BLN SOURCE: WWW.FORAHEALTHIERAMERICA,COM

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with no change in their family’s income, these health costs have hit their budget hard and put their child’s life at risk.

Hopefully when the new health care reform laws come into effect in , life for people in these types of situations will become a little easier. Some European analysts believe that the American health care system is in need of reform today – reports from the Organization for Economic Cooperation and Development, for example, say that the United States has far fewer doctors per person than the OECD countries. According to their statistics, the U.S. had about . hospital beds for every , people in , and that number has been steadily decreasing since then.

American experts, however, explain that they are deliberately trying to reduce the number of beds available per capita and applying outpatient treatments as little as possible, according to Linda Blumberg. Their primary reason for doing so is to minimize costs and save money in maintaining hospitals and paying physicians’ salaries. According to U.S. analysts, it is important to encourage professionals to do their jobs and focus their efforts on helping patients recover, rather than maintaining chronic diseases. OECD experts, however, do not see

January 2013

THE PERCENTAGE OF CHILDREN WITH CHRONIC DISEASES INCREASED TO 26.6% IN 2006 FROM

12.8% IN 1994.

this as an efficient system and believe that it is the most expensive in the world today. The Americans argue that some operations are more expensive in other countries, such as the stenting, among others, says Robert Berenson.

Another expert talked about the high prices of the American system as compared with other countries. According to Robert Kirsch, a Senior Fellow at the Roosevelt Institute, the United States has the most expensive health care system, because, in addition to staff salaries, a large part of their expenditures goes towards prescription medicine, whose prices increase every year.

Despite the fact that some experts in health insurance remain skeptical, people in America have shown more loyalty this year. One study conducted by Gallup showed that % of Americans believe their health insurance system is good, and even excellent. This is a big jump from , when the percentage of people who approved of the system was not above %.

Robert Berenson is also optimistic for the future of the health insurance system. According to him, the results of the last presidential election showed that affordable health insurance will continue to develop. Reforms like this will help contribute and improve the insurance market – competition between different companies will increase, and the market will separate into categories, such as “low cost” and “high quality”.

IN 2012

22% OF AMERICANS ARE SATISFIED WITH THE HEALTH CARE SYSTEM, AND

77% ARE NOT SATISFIED SOURCE: GALLUP

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FROM NOOSES TO WORKOUTS: THE EFFECTS OF THE CRISIS Illustrations by Anna Demidova

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The infamous recession caused terrible consequences that have little to do with money, such as the increasing rate of women refusing to have children and suicides among people living in bankruptcy. But the impact that the recent economic turmoil has had on peoples physical health, according to scientists, is yet to be determined.

Text: Anna Kim

Fewer Children In , the American birthrate fell to its lowest point since the beginning of its statistical history: preliminary estimates show that for every , women between the ages of  and , only . babies were born. Prior to , the indicator had been rising, but it peaked in  and started falling again. Data from the Pew Research Center shows that one of the largest contributing factors to this trend was the sharp decline in fertility among U.S. immigrants.

The rate of birth among American natives fell by % from  to , but among women of international origin, the same indicator fell by %, more than twice as much. Immigrants from Mexico experienced the largest drop in birthrate – almost %. One study has shown no obvious indications that could explain this phenomenon. But analysts at the Pew Research Center believe this trend is loosely connected with problems in the economy.

An early analysis showed that in states where economic growth slowed the most between  and , the potential for a reduced rate of birth was clearly pronounced. Furthermore, researchers noted that the recession had the most negative impact on families of Hispanic origin, and the population drop in that group specifically was most directly linked to a drop in fertility.

For now, Americans can only hope that the decreasing birth rates are temporary, and once the global economic situation stabilizes, the recovering economy will help fertility rates bounce back up, as it was in the past. But this demographic shift poses a greater threat to institutions such as Social Security than ever before. Fewer births means that in a few decades, the country will have

A STUDY OF CONSUMER BEHAVIOR PUBLISHED IN “THE GUARDIAN” CONCLUDED THAT THE DIETS OF PEOPLE WITH LOWER INCOMES HAVE SIGNIFICANTLY MORE FAT AND SUGAR IN THEM AND THEY EAT MORE SEMIFAST FOOD, FRIED FOOD, AND OTHER “JUNK FOOD”, BUT FEWER FRUITS AND VEGETABLES a smaller number of workers to support the economy, which is especially bad news for the United States, given that its era of “baby boomers” is already past working age and there are fewer taxpayers to fund the country’s pension system and Medicare program.

Living Without Happiness Unfortunately, the aftermath of the crisis can cause even more dire situations. Recently, according to data from the Office for National Statistics in the United Kingdom, there has been a sharp increase in the amount

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of suicides among full-time students from England and Wales. The number of suicides among male students from  to  increased by almost %, as compared to women of the same age. This trend is unsurprising, given that students are already under constant stress and often feel isolated from their families and friends. If financial troubles are added to this already delicate situation, such as losing a job or accumulating excessive debt, the situation could spiral out of control. Earlier this year, the British Medical Journal published a study confirmed an important theory: that the rising rate of suicide, which has steadily increased since , is directly related to the deteriorating economic situation. People who live in areas of England with higher unemployment rates are much more likely to commit suicide, especially men. “Our estimates show that with for every time the number of unemployed men increases by %, there is an approximate .% increase in the number of suicides in that same category,” says the author.

A similar study, published by “The Lancet” journal, showed that the annual number of suicides from  to  in the United States was, on average, higher than what was predicted before the crisis. From  to , statistics revealed that there were . suicides for every

hundred thousand Americans every year – that figure rose to . from  to .

The situation is even grimmer in Greece, where the unemployment rate has reached % of the population and social programs are on the brink of elimination. Before the first economic crisis, Greece had one of the lowest suicide rates in Europe. But the Head of the Greek Ministry of Health, Andreas Loverdo, announced in mid that in just  months, the country’s suicide rate grew by %. A wave of suicides also swept through Spain from  to , when many mortgage borrowers were evicted from their apartments and houses en masse. The government adopted new legislation to protect the country’s most vulnerable debtors and oversee the eviction process after public pressure, threatening the stability of the banking system at the same time.

On the Couch with a Chocolate Bar The current economic situation’s impact, beyond increasing suicide and decreasing fertility, is hard to say. On one hand, there are many negatives – for example, it is becoming more clear that the increasing number of suicides has a lot to do with the

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deterioration of the psyche of healthy people. Reductions in the cost of medicine are also leading to catastrophic results. Estimates from the European Centre for Disease Prevention and Control show that over the past two years, the number of HIV cases among frequent drug users in Greece has increased by  times. Even though researchers did not directly link this increase to the declining economy, denying its role in the growing trend is counterproductive.

Additional negative effects can manifest themselves in more subtle forms as well.

A study of consumer behavior published in “The Guardian”, a British newspaper, concluded that the diets of people with lower incomes have significantly more fat and sugar in them and eat more semi-fast food, fried food, and other “junk food”, but fewer fruits and vegetables. One reason for these trends is because food products continue to rise while wages stay the same or decline, which makes consumers more likely to choose cheaper, high-calorie foods because they feel poorer. People also tend to work more to earn some extra money, which means they have less time to spend on cooking homemade meals.

U.S. researchers Gregory Coleman, from Pace University, and Dhawan Dave, from Bentley University, took a closer look at the lives of Americans who lost their jobs and concluded that unemployed people do not use their time to work out or be more physically active.

At face value, unemployed citizens should have more time for sports and fitness, which they somewhat take advantage of. But physical activity is still declining on average, as people start sleeping more, watch more TV, and do household chores. The gap between physical activity and non-physical activity is especially noticeable because most of the layoffs during the recession were from professions using physical labor, such as construction workers, industrial workers, and so on.

THE NUMBER OF CHILDREN BORN IN THE U.S., ONE THOUSAND WOMEN AGED 15-44 YEARS 120

100

80

60

40

20

0 ALL WOMEN

WOMEN BORN IN THE U.S

1990

2010

2007

WOMEN BORN OUTSIDE THE U.S.

ple, Room shows that when GDP grows, people, especially employed men that are of “working” age, lead less healthy lives. The author also concluded that mental health deteriorates when there are downturns in the economy (which has been confirmed by recent statistics) and physical health deteriorates when markets expand – more often than not, people suffer from heart disease.

There is a lot of ambiguity concerning the relationship between economic cycles and health in later works. Researchers from Iceland and the U.S., for example, studied peoples’ behavior in Iceland after the banking system collapsed in October of . They found that because of the crisis, the unemployment rate increased four times, which caused islanders to smoke less and reduce their consumption of alcohol and sugary beverages. Those positive and healthy changes were somewhat counteracted when people started eating fewer fruits and vegetables, but they also ate more fish, which has essential fats, and slept better.

Could the Crisis Be Good?

Other studies are suggesting that these economic problems could have a positive effect on peoples’ health and lifestyle choices. When an economy prospers, it usually leads to the deterioration of disease and mortality statistics. Christopher Room, from the University of Virginia, has examined this trend in a series of publications, even before the recession hit. In one work, for exam-

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OPPORTUNITIES

DON'T HURRY INTO THE CRISIS

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The recession in the Eurozone and the European Union will continue until the end of this year, according to the European Commission. It is expected that next year, the European economy will start to grow once again. Special attention is being right now to the recessions in the countries of Central and South Europe, especially those that have not yet accepted the Euro as part of their national economies. Most predictions agree with the gloomy forecast made by the Ministry of Finance in the Czech Republic - in 2012, the GDP of the republic fell by 1.3%, but in 2013, it is already predicted to rise by 0.8% once again.

Text: Catalina Kochkina

It was assumed that of the countries in the European Union, those not in the Eurozone are more strongly affected than others by the recessions, especially the Czech Republic. The situation in Hungary is not much better either – the country’s GDP is expected to fall by .%. In fact, the problems in Hungary go much deeper than that. The current recession is the second in the country over the last four years. Last month, the government refused to change its previous decision and cut special taxes for banks next year, which was part of a package deal designed to cut back on the budget deficit so as to meet the European Union’s limit (%).

In the meantime, the value of the Hungarian forint, compared to the Euro, fell by .% as a result of the country’s BB ratings assignment by the international rating agency, Standard & Poor’s. Hungary’s statistics back those ratings – the country is known for diluting its money, but the adverse economic situation may negatively affect its ability to make payments.

A year ago, when the forint’s value was falling at record highs, the Hungarian government turned to the European Union and the International Monetary Fund for financial help. But their negotiations for a loan amounting to  million Euros were put aside when the Prime Minister of Hungary, Viktor Orbán, refused to accept the terms put up by the creditors. Economists believe that the drop in Hungary’s ratings on the Standard & Poor’s scale is tied to the fact that the market grew tired of waiting for said transaction to take place. And right now, there is no possibility of the forint replacing the Euro – Hungary’s path into the Eurozone will be lengthy and difficult.

The opposite is happening in Poland. At the moment, the Czech Republic is fighting to save its national currency – and recently, Czech Prime Minister Petr Nečas revealed, that in connection to the crisis of the Eurozone, the republic is considering introducing the Euro no sooner than  to  years from now. On the other hand, Poland is working on meeting all of the necessary requirements by next year so that it can become a member of the Eurozone in . The Agence France-Presse (AFP) reported that Francois Hollande, in comparison to his predecessor Nikolas Sarkozy, wants to help facilitate Poland’s early entry into the Eurozone. The French president revealed his intentions during a recent trip to Warsaw. In conjunction with his announcement, the Polish Prime Minister, Donald Tusk, relayed to the agency that Poland will

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enter the Eurozone as soon as everything is % ready. The Polish Prime Minister hopes that all the necessary economic and other terms will be fulfilled in , but right now, they cannot name a specific date. And one of the terms essential for Poland’s entry into the Eurozone is for the crisis to stabilize.

Poland is firmly determined to become one of the flagships of the European economies.

Even now, the country is already sixth in terms of value within the European Union and it has demonstrated annual growth over the last twenty years. On the th of November, the Polish government approved a European financial agreement that mandates countries with high debts to keep their structural deficit at less than .% of its gross domestic product. Another one of the requirements, designed to increase the competitiveness of Eurozone, is that a country’s national debt cannot exceed  percent of GDP, a condition that Poland also meets. Supporting this agreement will accelerate Poland’s accession into the Eurozone.

While Hungary isn’t considering replacing the forint for the Euro, the government of the Czech Republic is trying to, as much as possible, delay its moment of entry. The president of the republic, Václav Klaus, was determined to veto the Czech Republic’s entry into the Eurozone since its initial accession to the EU. Now, the rest of the government has realized that he is correct. Last week, Prime Minister Petr Necas said that the question of whether or not the Czech Republic will join the Euro countries will be decided at the national level. But before any discussions regarding the Euro begin, the country must hold a referendum. “The situation has changed since the last referendum we held, during which we voted to join the European Union.

We voted for the Eurozone, but at that point, it was only a monetary union, without any debt attached.” The Czech Prime Minister also said that the government is not on board with the new financial agreement.

Of all the countries in the Eurozone, Slovakia is actually in the most stable position. The European Commission predicts that the GDP growth in Slovakia this year will reach .%, although forecasts at the beginning of the years predicted only .%. And among the Eastern European countries, Slovakia is showing the best economic performance. It is expected that the center-left winged Slovakian Democratic Party, which won

THE NATIONAL ECONOMIES OF CENTRAL AND EASTERN EUROPE DIFFER DRASTICALLY FROM ONE ANOTHER. SOME BLAME THE EURO AND THE EUROPEAN UNION LEADERSHIP, WHILE OTHERS HANG ONTO THEIR INDIVIDUAL CURRENCIES AND REGIONAL ECONOMIES the country’s parliamentary elections in March of , will focus on balancing the budget and enacting reforms in Slovakia’s social programs, such as health care, pensions, and tax reforms.

With these reforms, and assuming the economy’s growth continues as predicted, the Slovak government will be able to reduce its budget deficit to %, which was the limit set by the Maastricht Treaty, and it will become one of the few European countries to meet that limit.

The national economies of Central and Eastern Europe differ drastically from one another – some blame the Euro and the leadership within the European Union for the ongoing recession while others hang onto individual currencies and their own regional economies. Still others, however, realize that they have no choice but to “go with the flow.” And when Croatia joins the European Union in , it will also have to make this important decision.

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HUNGARY’S DANCE WITH TAXES

Photos: deposotphotos.com

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The Hungarian government, in its attempt to decrease the budget deficit, has come very close to strangling the national market. Raising its tax rates, instead of fostering positive change, has caused an outflow of international capital. Today, the country is faced with a difficult economic puzzle: how long should they wait for things to get better?

Text: Daria Getmanova

At the end of November, Hungary revealed that the temporary taxes it placed on banks would become permanent, while corporations and companies grow by %. The original bank tax was instated back in , and it was assumed that by , its time would almost be up. In fact, the tax was supposed to be taken back by . But Hungary’s economic situation introduced a new measure. In light of the Hungarian budget deficit and the economic recession, the latter of which has been going on for the past for years, the country was forced to resort to unpopular measures. “The tax is part of a wider set of economic policies, which includes some unorthodox measures, such as dipping into the national pension funds in . But the financial sector carries most of the burden for these new economic measures, such as the “crisis taxes” and new taxes placed on financial transactions,” says Dragana Ignjatovic, an analyst for Grayling, a global communications network company. On top of the new taxes, the government is allowing domestic households to pay off their mortgage loans in one sum that is below the market rates. According to the analysts, this is just one way for Hungary to survive the crisis.

The Eurozone Protests But several of the desperate attempts that the country is employing to minimize the budget deficit did not receive approval from the Eurozone countries. And the chances that Hungary won’t get help from the IMF and the EU when it needs it ranges from between % to a high of % last month. “From what I can tell, getting authorization from the IMF will be much more difficult now than it would have been one year ago,” remarks András Simor, the current governor of the Hungarian Central Bank. According to analysts, the EU is most concerned with the outflow of foreign capital that Hungary is experiencing, which started because of the rising taxes. The volume of investments in the country today is lower than the depreciation of working capital, analysts note. And even foreign borrowers are leaving the country. “While banks are being forced to cut interest rates, the tax burden is accelerating foreign liabilities, which is leading to the emergence of so-called “zombie banks”, based on old loans from borrowers in the private sector of Hungary,” says Professor Zoltàn Schepp, an Assistant Professor for the Department of Economics and Business at the University of Pecs. The main objective of a “zombie bank” is to maintain the bank’s most vital functions without external help. They do not provide new loans, but they also don’t go bankrupt. And according to experts, the situation in the banking sector will continue as is for now.

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From the perspective of , the Eurozone believes that the budget deficit will increase by more than .% in Hungary. The home of worldfamous George Soros, however, does not accept “pessimistic forecasts” easily. According to the Government of Hungary, the predictions made by various analysts are unjustified and the EU is wrong from both professional and economic points of view, as Gyorgy Matolcsy, the Minister of Economy, said at a press conference. But the value of the Hungarian currency – the forint – is plummeting, which further highlights the decline of the country’s financial situation. At the start of December, for example,  Euro could purchase . HUF. And in October, the Cabinet stated that they would be freezing  billion forints within the  budget (or close to half a million Euros), and that for next year, they already planned on freezing  billion forints (approximately . million Euros).

In these times of economic instability, Hungary is grabbing at straws. Its primary instinct was to resort to new taxes – so in , along with other similar measures, the government introduced a new program called “Telenalog”, which taxes every minute of phone use and every text message. For individuals, the cumulative fee amounts to  HUF per month, and it is  for organizations. Despite the fact

that the tax itself is small (about . Euros for individuals and  Euros for businesses), the top three telecom companies – Magyar Telekom, Telenor, and Vodafone – have decided to appeal this new tax. And despite assurances from the Hungarian government, which claims that the tax does not violate any rules set by the EU, the European Commission asked the Court to examine the fairness of “telenalog” in late March.

In November, reports from the European Commission came back, and according to the EU, “telenalog” shows no discrimination against Hungarian operators.

The Winds of Change Today, in connection with several unpopular measures, the taxing of the commerce sector has lead to another difficulty: the market is still not fully recovered after the economic recession, and the question to deal with now is whether or not to increase the volume of taxes already instated as part of the “crisis program”.

In the same train of thought, leaders now are trying to maximize the savings on the government’s expenditures so as not to go bankrupt.

The majority of the blow has fallen on personnel as a result – managers are deciding to reduce their staff. According to research, % of companies are planning to reduce their staff by %.

Several analysts now are saying that at this moment in time, the new government measures are very difficult to analyze fully. This means that only time will whether or not these measures will be effective. “Many measures taken by the government are used to help strengthen the small and medium-sized sectors of business. But for now, we cannot see any tangible results from the new legislation,” says Dr. István Csendes, an expert in management.

It is also possible that, on top of the already existing measures, another one will be implemented to push out of the crisis once and for all. Not long ago, it became clear that the government is preparing to transfer its municipal debt onto the fragile shoulders of the banks. In the words of the government, it is possible that the banking sector will take on damages from restructuring the debt, amounting to  billion forints (or close to  billion Euros).

ANALYSTS EXPECT POSITIVE CHANGES IN NO HURRY, AND IF THERE ARE CHANGES, THEY WILL ONLY TAKE PLACE AFTER THE ELECTIONS FOR THE NATIONAL ASSEMBLY IN 2014, AND THEN ONLY IF THE “FIDES” DOES NOT RETURN TO POWER

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UNEMPLOYMENT

GDP

YEAR

RATE

AMENDMENT

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

2.082 8.415 9.303 11.29 10.118 10.17 9.886 8.731 7.1 6.5 6 5.6 5.9 5.5 6.3 7.3 7.5 7.7 8 10.075 11.243

292% 304% 11% 21% - 10% 0.5% - 3% - 12% - 19% - 9% - 8% - 7% 5% - 7% 15% 16% 3% 3% 4% 26% 12%

2011

-1.3%

2012

-1.5%

REDUCTION

BUDGET DEFICIT

2011

1.73TRL FORINTS

2012

404BLN FORINTS

IN EARLY JANUARY

FROZEN FUNDS IN THE BUDGET

2012

133BLN FORINTS

2013

397BLN FORINTS

SOURCES: INDEXMUNDI.COM, BLOOMBERG.COM, BUSINESSWEEK.COM, BBJ.HU

Because of the rise in tax rates contributed to a cooling in the relations between the banks and the state, it is more important now than ever for confidential professionals to build trust to build trust among all market participants. “In my opinion, trust and cooperation between the market players – the government, banks, and debtors – are incredibly important to help find new paths of sustainable growth and increase the growth of loans,” said Zoltàn Schepp. But there are currently opportunities to change the situation – according to the expert, the private sector has used up almost all its savings.

Therefore, analysts expect positive changes in no hurry, and if there are changes, they will only take place after the elections for the National Assembly in , and then only if the “Fides” (one of the current parties in charge, formerly known as the “Hungarian Civic Union”) does not return to power. Even in the most favorable scenario, financial improvements can only come about in a few years, when the economy starts to revive. And given the many aspects necessary for that growth, one can only assume that it will start in only two to three years, according to Dr. István Csendes.

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EUROPE IS SCARED AGAIN According to an updated forecast from the Organization for Economic Cooperation and Development (OECD), the recovery of the global economy is at risk once again. The May prediction showed that the economic growth of 34 countries within the OECD has fallen to 1.4% from 2.2% in 2013.

Text: Elizaveta Kotova

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It came as a surprise to many people when the Organization of Economic Cooperation and Development released a statement stating that they did not exclude the possibility of another economic crisis. As for the current issues in Europe, they will be even more severe than expected, experts say. The economic downturn will affect all of the EU countries, and Greece most of all, whose economy fell by .%.

The OECD says that the Eurozone crisis is becoming a much greater threat to the world economy. According to Angel Gurria, the OECD Secretary General, the inability to resolve the European debt problems can lead to “serious financial turmoil around the globe and effectively stop economic development.”

But in the words of Richard Daley – a member of the Board of Directors of the Coca-Cola Company, Managing Director of the investment firm Tur Partners, LLC, and the former mayor of Chicago – Europe is still coming out of the crisis. “The crisis is not a problem specific to Europe; it is global. The economy is a global structure. Earlier, when there was no European Union, the European countries were dependent on each other, as they are now, and the same applies to China and the United States as well. It is just not possible to escape the international financial system,” said the former mayor. According to Daley’s projections, economic leaders can come from countries such as Russia, Brazil, China, Indonesia, Singapore, and Mexico in the coming years.

Tim Campbell, the Advisor to the Mayor of London in training young professionals and businesses and the owner of Blight Ideas Trust (an estate office), believes that the European project is in a very unstable situation.

“The success of the EU in the future will depend on key decisions taken by European leaders now. There are two ways this can happen – either one country is established as dominant, or an unbiased situation is created from which every country can benefit,” says Campbell. According to experts, if Germany is in the strongest and most stable position of the European countries, it should bury the competition and take control, which is one way of solving the situation. But another way is not to have one single leader and have all the countries benefit as a result. In the first version, many of the countries currently in the Eurozone may have an incentive to leave, making the Germans the victors in this situation. Otherwise, steps would be taken to ensure that all countries evolve equally and are responsible for a specific area of development. This, in general, would help create a stable economic structure.

“The second version would form a very different future – we could use the beneficial implications of collaborating and cooperating with China, the U.S., and other countries to our advantage,” said Campbell.

“The German economy is currently struggling with weak global growth. Because exports are traditionally the main driving force of the economy, the slowing growth in China and the economic recession on the outskirts of the Eurozone have left their mark on Germany,” says Joost van Lenders, the CFA and a specialist for Investment Allocation Strategy for BNP Paribas.

In his opinion, the labor market is holding its own, but there is virtually no growth in consumer growth.

Consumers have paid attention to the global economic slowdown and the financial tensions rocking the Eurozone, causing them to stop spending as much money. But the most significant decline was experienced in the industrial production and export sectors.

Experts predicted that in , BNP Paribas will be slightly more stable. The Eurozone crisis will also affect the UK because of slowing caused by

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international factors, such as the tightening of fiscal policy in the domestic market. This means that even the UK economy could remain weak for some time. “OECD forecasts tend to be quite accurate – they are put together with a variety of methods, including the help of simulation and evaluation experts. But like any forecasts, they too can be reviewed. One of the drawbacks to the OECD, as well as with many other official financial predictions, is the fact that they are published several times a year.

This puts them behind private forecasts, which can change at any time, especially when the changes are often progressive in nature,” says Joost van Lenders.

As for the possibility of weaker countries leaving the Eurozone, the expert maintains that it would be contrary to the interests of the country and the interests of the entire economic union.

“There are both economic and geopolitical incentives to keep Greece in the Eurozone, but at the same time, we realize that Greece now is associated with a lot of risk,” Lenders said. Considering how quickly these reforms are taking place in some of the outlying Eurozone countries, experts believe that by , the countries will become more competitive and dynamic, which in turn will lead to more balanced growth in the Eurozone.

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HOW LONG WILL THE GEORGIAN MIRACLE LAST?

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In 2012, Georgia took 34th place out of 184 in the Index of Economic Freedom, losing one place from the previous year, while the October elections had foreign investors holding their breaths. Who is investing in Georgia's economy and what is on Prime Minister Ivanishvili's agenda?

Text: Anastasia Yakovleva

The biggest investors in Georgia today are the Netherlands, the United States, and Azerbaijan.

According to Gruzstat, the national statistics agency, foreign direct investments (FDI) for the first half of  are $ million, up % from the same period last year.

While first-quarter investments were $. million, the second quarter has attracted a bit less, $. million. According to Oleg Dushin, Senior Analyst for Zerich Capital Management, this is mainly because of the crisis in Europe. “The total volume of global foreign investment in the first half of  declined %, so Georgia is looking better compared to others,” the expert notes. Nonetheless, year on year investment will inevitably decline in the third quarter and also in the fourth quarter. FDI for the year will be $-. billion (it was $,. million in ). In addition, Georgia took th place out of  in the Index of Economic Freedom, losing one place from the previous year.

Whereas previously investors were interested in real estate, energy, the finance sector, transportation, and processing industries, now businessmen are increasingly looking at construction and agriculture.

One of the most talked-about investments in the construction industry was the signing by American investor Donald Trump of a letter of intent at the end of September with the multinational developer Silk Road Group for construction of a residential building in Tbilisi. Now Georgian authorities hope that others will follow the famous billionaire’s example. In order to attract investors to its construction industry, the government is offering plots of land along the Black Sea coast for just $ to developers who invest a minimum of $. million. Among other benefits, investors will be exempt from sales tax and income tax for  years.

Such benefits from Georgia’s government have taken effect. Michael Rasmussen, the cousin of the NATO Secretary General Anders Fogh Rasmussen, announced his intention to invest in the country, in an exclusive interview with the newspaper Kviris Palitra. The investments will be in Georgia’s oil, tourism, energy, and agricultural industries, he said (Palitra Nedeli). Rasmussen noted that he hopes “the newly elected officials’ principles and ways of operating will bring success to Georgia.”

The most ambitious project is the construction of Lazika, a planned city. In December , President Mikheil Saakashvili announced the project, saying it would be the second largest city after Tbilisi, with a special status and separate legislation. Over the next ten years, Georgia plans to attract private investors for Lazika who will develop the infrastructure. The city will have its own laws, but the Georgian Constitution will take precedence. In the event disputes arise, the Constitutional Court will have the final word.

Experts’ opinions are mixed on this project – some say it is a utopian idea, while others are convinced of its potential.

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Georgia’s new government has big plans for agriculture. The authorities are trying to interest South African Boer farmers in investing in Georgia. In April, Tbilisi held the first conference for South African farmers. As a result, the Boers are now buying land in Adjara and Kakheti.

In addition, the Swiss Agency for Development and Cooperation and the Danish Neighbourhood Programme, together with the Georgian Ministry of Agriculture, have announced a four-year program to develop agriculture and the economy in the south of Georgia. The budget is $ million. According to the Georgian Ministry of Agriculture, the project will contribute to increasing the potential of farmers, entrepreneurs, and service providers, including for production of potatoes and dairy products, raising their productivity and competitiveness.

In November, Georgian Minister of Agriculture David Kirvalidze met with U.S. Ambassador Richard Norland and USAID representatives to inform them about the priorities of the new Georgian government. These include the creation of agricultural coops, restoration of ir-

rigation canals, land registration, and the creation of in-country consultation centers. At a press conference in Tbilisi, Kirvalidze stressed that the strategic partnership with the U.S. remains a top priority for Georgia.

Oleg Dushin, Senior Analyst for Zerich Capital Management (Russia), notes that agriculture is just a small part of the overall cooperation the U.S. and Georgia have shared for many years. In the second quarter of , .% of foreign investment came from American companies. This is in a wide variety of sectors – real estate, energy, transport, etc. The U.S.-Georgia Bilateral Investment Treaty has been in force since . After the  war, the United States gave Georgia $ billion for reconstruction of infrastructure and economic growth.

But although Georgia has implemented many energy projects, Dushin says that only one of them is Georgian-American: the hydropower project with Dariali Energy on the Russian border. It is aimed at increasing the export potential of Georgian electricity. In addition, an English-American company

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is constructing a huge fountain in Tbilisi ( meters high). The main contractor for the Baku-Tbilisi-Ceyhan oil pipeline (–) was the American company Bechtel, Dushin notes.

Besides the U.S., Georgia is also interested in European investors. Thus, the European Development and Investment Fund for Eastern Europe announced the allocation of funds for developing Georgia’s environmental and energy sectors. The priorities will be infrastructure as well as renewable energy projects. The Fund’s decision to invest in Georgia, as well as in Armenia and Azerbaijan (a total of € million), was adopted following successful investment in waste management plants in Moldova.

Among the CIS countries, Georgia has identified Kazakhstan as a promising trade partner with which the country has positive experience. Kazakhstan was the first country to invest seriously in Georgia. The gross amount of direct investment from Kazakhstan in Georgia is more than $ million. There is a lot of interest in the transit of Kazakhstan’s goods through Georgia to world markets.

Georgia’s relationship with Russia has been uneasy in recent years, but the new government plans to eventually restore trade and subsequently diplomatic cooperation.

Speaking on how to attract investors, Georgian Prime Minister Bidzina Ivanishvili noted that the planned investment fund in Georgia will assist investors in promising projects. If an investor is prepared to invest %, the Fund will provide the remaining %.

The Prime Minister also has plans to create a working group to improve the attractiveness of potential areas of investment and create a database of potential projects.

Ivanishvili said that he sees “the development of the Georgian economy as coming from private investors and reforms in anti-monopoly legislation.”

Experts’ opinions vary greatly about how foreign investors in Georgia will respond to the election of Ivanishvili as the new Prime Minister. Some analysts believe that investors will observe the country’s new economic policies for about six months, while others are sure that investors will plunge in at the beginning of . For now, though, the general view is that investors are in stand-by mode.

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THE CONTINENT

WEJ#1 (23)

THE NORWEGIAN KETCHUP BOTTLE

Illustrations by Anna Demidova

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THE CONTINENT

Financing for Norway's petroleum sector is increasing, and analysts attribute this to the discovery of new deposits. The economic stability of the country today is based on "black gold", thanks to which Norway doesn't fear strikes or the crisis in Europe.

Text: Daria Getmanova

By , the petroleum sector in Norway is expecting record levels of investment. According to forecasts from Statistics Norway, NOK  million (approximately $ million) will be put into oil.

Scheduled infusions will exceed the  record levels: “Larger investments are due to the recent discoveries of oil reserves. The certainty that oil prices will remain high is also playing a role,” says ErlingSteigum, Professor at BI Norwegian School of Management.

TorbjørnEika, head of the macroeconomic research unit at Statistics Norway, also associates revival in the oil market with the new resources: “Oil was discovered in geological structures which were previously believed to have no oil.

This is encouraging and gives us hope that there might be more new discoveries.” In early January , the state oil company Statoil announced the opening of a new field in the Barents Sea. Various data show that the field contains between  and  million barrels of oil equivalent. Helge Lund, CEO of Statoil, compared the unexpected discovery after several fruitless years with a bottle of ketchup:Sometimes large amounts of ketchup come gushing out of the bottle unexpectedly. He says the company plans to significantly expand the processing of oil drilled on Norway’s continental shelf by .

REFINED OIL

98

3723

2010

2011

A year earlier, in December , Lundin Petroleum and Statoil jointly discovered one of the largest deposits ever found in the North Sea, The Aldous Major South. Reserves of recoverable oil from its various sources range between . and . billion barrels. In , experts put this figure at slightly less at between  million to . billion barrels.

New technologies used in the extraction and refining of oil are playing an important role in the petroleum sector today, analysts say. That is why Statoil announced at the beginning of last year that it had increased investments in research and development by %, putting about NOK  billion (about $ million) into this sector.

Experts expect that mining the “black gold” will increase in the near future. But last year the sector also saw decent growth. Based on data from a joint report issued by the Ministry of Petroleum and Energy together with the Norwegian Petroleum Directorate, entitled “Facts  – The Norwegian Petroleum Sector,” oil production hasincreased  times since  and the number of discoveries  times.

“The high level of investment in the oil sector is also important for the strengthening of aggregate demand and employment,” says ErlingSteigum.

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Give us a Boost!

However, the strikes of oil workers that swept the country in the summer made company executives and government officials a little jittery. The workers’ discontent, which lasted  days, was aimed at increasing wages, restoring benefits, and reducing the retirement age for oil workers from  to . The driving force of the strikes were the trade unions, which made the demands. European analysts noted that the strikes affected a short-term drop in prices, which fell below $ a barrel. It was feared that the unrest could lead to an overall decline in the petroleum sector. In light of these concerns, the government put an end to the strike.

But Norwegian analysts believe that the unions had little chance of making serious changes in any case. Experts believe that worker strikes are a small nuisance that could not lead to serious consequences for the sector. Even if the government had met all the demands for a pay increase, it would not be reflected across the petroleum industry, since workers’wages are only a small fraction of the total costs, notes Professor TorbergFalch of the Department of Economics, Norwegian University of Science and Technology.

The strikes didn’t particularly have so much effect on the petroleum sector as they did on the overall labor market, experts believe. “Today, only a little more than one percent of Norway’s working population is directly involved in oil and natural gas production. If we take into account the professionals engaged in supplying intermediary goods,

REMAINING OIL RESERVES

356

2010

2011

823

2010

2011

we estimate that they account for % of Norway’s total work force,” says TorbjørnEika.

Professor Falch agrees, but adds that satisfying the demands of the trade unions to increase wages could wreak havoc with the mood of society: “For the rest of the labor market, it could have negative external effects, because of a generous union that seeks higher wages for low-skilled workers in the petroleum industry.”

Among these “external effects” could be disturbances in the labor market and pessimism among workers who don’t contribute to the employment records at all.

Speaking of unrest, experts note that this was caused by an increase in the amount of work, which arose from the growth in the petroleum sector. However, as to the level of social protection

PROSPECTIVE OIL RESOURCES IN DEPOSITS

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-5

NUMBER OF UDISCOVERED DEPOSITS

1140 2011

PROSPECTING RESOURCE DISCOVERIES

319

574

2010

2011

-60 2010 DATA FROM THE REPORT “NORWEGIAN OIL SECTOR”

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for specialists, all agree that they are quite high.

The average salary in the oil production division is approximately twice the national average, notes TorbjørnEika. A constant shortage of oil workers was one of the reasons that salaries for workers in this sector in the country of the fjords are today the highest in the world, analysts say. According to a study by the recruiting company Hays, oil workers make on average $, a year.

January 2013

assumed that about . billion barrels of oil equivalent will be found in the foreseeable future. Perhaps the new fields will be found close to the Lofoten Islands, which, according to different sources, contain up to % of unaccounted stocks, or . billion barrels of “black gold.”

“The oil and gas industry is the largest sector in Norway and high prices on the global market offer significant advantages to the entire Norwegian economy,” says Laurence Westerlund, Press Officer for SEB Group communications.

Today, the country of fjords, with its rich resources and promising production outlooks, looks like a solid house that isn’t worried about the European Union’s economic storms.

The Economy’s Driving Force After the workers’ passions simmered down a bit, analysts chimed in about the stability of the petroleum industry in Norway, which will continue long-term. According to data from environment.no, this sector will demonstrate relative stability until , with the volume of oil increasing year over year. Experts forecast that new, larger fields may be discovered in the near future;it is

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CHAMPIONS IN DEBT

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For the Spanish, soccer, like bullfighting and flamenco, is a national sport. They talk about the Barcelona players or the Madrid Real team more than about the royal family or the financial crisis. The crisis, however, isn't just reflected in the cost of bread but in entertainment as well. One look at unsophisticated soccer accounting and it becomes clear that the Spanish League, in its current form, will not last for long.

Text: Valentina Rinkon

What It Means To Be First José Luis Astiazarán, President of the Liga de Fútbol Profesional (Professional Football League), remained upbeat even after the financial results of the operation under his supervision were divulged. “I was in Istanbul at a meeting with colleagues from the European League and was pleasantly surprised at the number of people, not just tourists, wearing the Spanish national team’s jersey. I thought this popularity must be of some use,” he said.

In Spain, soccer accounts for % of GDP – € billion and , jobs. Spain’s victory in Kiev was watched by  million people, which is reflected in these figures. Spanish businesses made more money during the European Championship just from the sale of t-shirts, flags, and beer in bars, than they did the whole past year.

This soccer euphoria must be of some use.

“Success in sports will affect the country’s economy only if the Spanish brand is used in an intelligent way,” says ESADE Professor Gerard Costa.

“That includes attracting tourists, increasing foreign investments and exports. Otherwise we get a passing effect with temporary jobs and nothing to show except pride in the country.” He emphasizes that the effect can be both external and domestic: “Once the consumer demand increases in a country, people tend to join in with the sporting successes. The Real Madrid Museum is the most visited place after the Prado. It is really positive that the ‘Spanish’ brand is gaining fame, but we need to show that Spain isn’t just a Mediterranean country, but a country of emotions, faith, and development.”

The fact is that so far no one has made use of this success – neither for displaying emotions nor for improving the financial situation. Spain is strong in soccer, but has a weak economy. No amount of sports victories will help to achieve a stable economic effect. That the whole world is talking about Spain is very powerful advertising, but it’s fleeting. “We have to add other values to these successes, like innovation, technology, design, and ecology, in order to convince investors of our own importance,” says Professor Costa. In , after Spain’s victory in the World Cup, the number of tourists increased dramatically, but Spaniards were unable to identify the true value in this influx of funds.

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Aboard the Gravy Train

THE SOCCER BUSINESS IS THE NEXT OVERBLOWN BUBBLE AFTER REAL ESTATE IN THE SPANISH ECONOMY. WHILE LARGE NUMBERS OF SMALL AND MEDIUM-SIZED BUSINESSES ARE CLOSING BECAUSE OF THE INABILITY TO PAY BANK LOANS, SOCCER PRESERVES ITS ICONIC STATUS

The Deloitte company’s research confirms that the Spanish League is third in Europe, with its revenues beat only by the English Premium League and the German Bundesliga. At first glance, it would seem that the soccer market has resisted the crisis: In the - season, club revenues went up % to €. billion. The “Big Five” (UK, Germany, Spain, Italy, and France) brought in €. billion, more than half of which came from television and advertising. Ticket sales for matches fell %.

The Spanish League, which consists of  first and second division clubs, had revenues of €. billion in  and expenses of €. billion.

Twenty clubs of the first division got €. billion for the period, % of which went to Real and Barcelona. Total growth for the two clubs was %, while the remaining  clubs lost %.

The Spanish League professes to be first in the world. But behind the successful facades of the two main clubs, the rest of the League is practically coming under the hammer. The soccer clubs’ total debt is € million in taxes plus €. billion in social contributions. Real and Barcelona are also leading the ranks of debtors, with € and € million in debt, respectively.

To date, their income and the rapid growth of the “business” allows them to keep the situation under control.

When satellite TV came to Spain, soccer clubs were divided into provisional categories. TV stations paid enormous sums for the broadcasting rights to matches and teams ran into debt, betting on future big returns that eventually failed to materialize. Of the € million earned from the sale of broadcast rights in , € million went to Real and € million to Barcelona. Of the remaining clubs, only Valencia exceeded the € million mark.

nomic program to control costs was created for soccer as the people’s favorite leisure activity. Sports teams rejected these controls and as a result, at the end of the reporting period, ended up in debt.

In contrast to the other European leagues, the Spanish teams were not protected by the law in this situation. As a quick fix to the problem, a cost optimization agreement was drawn up which accepted all but four clubs: Real Madrid, Barcelona, Athletic Bilbao, and Osasuna. The “Big Four” had had no financial losses for the preceding five years. The others had to either unite and turn over a new leaf or switch divisions from first to second. This happened to the Málaga and Real Murcia clubs, which ceased to exist, not having found financial support from investors.

José Luis Cano, a consultant for KPMG, says: “There is an urgent need for reforming the soccer clubs.

They have to stop spending more than they earn and finally start planning a budget. Getting out of such a situation would be aided by distributing television profits.

In other countries, the League acts as a unified whole, whereas in Spain it’s every club for itself. Clubs bring in huge revenues, but they are growing poorer because their individual players are getting richer. At the end of the month, not a single club can pay its debts.”

Depleted Credit Spanish soccer has already evolved. In recent years there had not been equality of investments, and soccer clubs have evolved into joint stock companies.

Most investors were hoping for high returns, but never received them. The first debt crisis emerged back in , when sports clubs were sanctioned by the State for their existing debts and the default claims against them. In the mid-’s, a special eco-

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Analyst José Maria Gay de Liébana predicts a quick death for Spanish soccer if its administrators don’t do something. He holds them responsible for this situation. “Only Madrid and Barcelona are improving their positions, while the others are at the same level as five years ago. Spanish soccer is dying. It has five years left, and the empty stadiums only back up my words,” says Gay de Liébana.

In addition to the unequal distribution of the funds received thanks to television, and the bad administration, the finances of the Spanish teams are damaged by the “cult” surrounding several players. While the team is dealing with creditors, its stars go shopping for Ferraris and buy up mansions in the United States. Last season, Spanish clubs spent € million to buy players. Through the fault of one of the banks that gave out loans without hesitation for purchases like Cristiano Ronaldo for Real Madrid, Spanish authorities were literally forced to beg the European Union for financial assistance.

The soccer business is the next overblown bubble after real estate in the Spanish economy.

While large numbers of small and medium-sized businesses are closing because of the inability to pay bank loans, soccer preserves its iconic status. Neither banks nor the government are deciding on radical measures. Nevertheless, as the analysts say, it is a vivid reflection of the economic situation in the country.

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THE CANADIAN BANK IS EXPORTING THE “KNOW-HOW” OF BANKING America's neighbor, which the global arena barely notices, has recently been attracting a lot of attention to itself ever since exporting the head of its central bank to the world's leading financial center. As it turns out, Canada has something more valuable to offer the world than just oil and hockey - namely, successful experience in economic management and their regulation of the banking sector.

Text: Robert Grant

Illustration: depositphotos.com

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On the other side of the world, Great Britain is continuing to deny being conservative. But the British need to be more open-minded and less prejudiced so as to trust foreign methods – specifically, foreign macroeconomic policy, which can fix oversights in the centuries-old banking system. On July st of this year, Canadian Mark Carney is set to replace the current head of the Bank of England, Governor Meryyn King.

Carney reacted to the new turn in his career and to the UK with great enthusiasm, and while he is proud, he is not without regret entirely for leaving Canada, where he still maintains the same position. “Carney represents a new generation of leadership for the Bank of England – he was the perfect choice,” said Meryyn King on Carney’s appointment. “Since Mark became governor of the Bank of Canada, I have worked closely with him, and I greatly admire the many contributions he has made to central banks around the world, all of which have respect him.” In this context, “new generation” is an entirely accurate reflection of the appointment – Mark Carney will not only become the first nonBritish citizen to be in charge of the Central Bank’s finances, he will also be the youngest at just . While the Head of the Bank of Canada, he was also the youngest out of his counterparts in the G countries.

In this type of financial situation, Carney has a wide amount of experience. He did more than just lead the Bank of Canada – he also created the G Financial Stability Board. And across the board, he is known for his advocacy of strict regulation in the sector as well as his ability to withstand lobbying on the behalf of the world’s most powerful bankers. One of his most well-known moments is his argument with Jamie Dimon, the CEO of JP Morgan, concerning their differing opinions on reforms for the global financial sector – and it showed the world that, with  years of works experience at Goldman Sachs behind him, Mark Carney is able to see the world of finance as more than just a politician.

While it is never officially mentioned, appointing a new head from outside the existing British system was another important motive for Carney’s selection. After Meryyn King stepped down as Deputy Governor, Paul Tucker was the first choice as his successor, a name that has since become famous in the scandals surrounding the corruption of the Libor rate. During the case, the Bank of England’s deputy listened to allegations saying Tucker ignored information showing the manipulations, and there were even suspicions that he encouraged the underreporting going on at Barclays bank, which is the main party involved in the scandal.

At this time, Paul Tucker gave explanations that humiliated the parliamentary committee. Even though no conclusions were drawn regarding Tucker’s guilt, however, the scandal cast a shadow on his reputation, which ruined his chances of becoming a candidate for the position. Mark Carney’s history has no such slights.

High Hopes

Setting an Example in Other Fields

With any luck, the moment Carney officially steps into his new role will become known as a turning point for the British banking system.

The country is in the midst of huge financial regulation reform, and the Bank of England’s powers will be significantly enhanced when the Financial Regulation and Supervision branch of the Financial Services Authority (FSA) is abolished and its responsibilities transferred over.

Of the upcoming changes, perhaps the most significant is the addition of a new office in the structure of the Central Bank – namely, the Office of Sensible Regulation, which will be responsible for maintaining the security of the bank and decreasing the amount of risk in the country’s financial system. Major players in the system will include not just banks, but investment and insurance companies, as well as businesses that run in large part because of contributions from the public.

On the more traditional macroeconomic side of things, the Bank of England is far from calm. The country finally emerged from the recession in the third quarter of last year, largely because of the positive effect the London Olympic Games

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ed special operations to rescue the state, despite the fact that the Bank of Canada was reduced to record-low interest rates and had to resort to infusions of cheap liquidity to maintain some of its financial institutions.

So what is Canada’s secret? The answer was a “blessing in disguise”. The financial sector went through a severe crisis in the s, and had to go through a complete reformation as a result. Canadian banks had to deal with higher capital requirements because of this, and they enforced strict rules for risk insurance on mortgage loans.

Because of the severity of regulations at the time, the regulatory system continued to be conservative throughout the s, which allowed them to stay away from new innovations that later turned out to be “toxic assets”.

A similar situation occurred with the public finances – in the early s, Canada suffered from chronic budget deficits and a growing public debt, forcing them to take “austerity measures”. It was a hard lesson for the country to learn, but the authorities since then have followed fiscal discipline strictly (with help from the financial boost in the s, and the rising price of oil). But in the midst of the – financial crisis, the government was able to support its economy using fiscal levers without any fear of serious consequences.

It would be unfair and childish to attribute the country’s success entirely to Canada’s Mark Carney, when he had a solid foundation laid out before him. But the future head of the Bank of England also carries “know-how” with him, which can provide the UK and the rest of the world a great service.

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IN THE MIDST OF THE 2008-2009 FINANCIAL CRISIS, THE GOVERNMENT WAS ABLE TO SUPPORT ITS ECONOMY USING FISCAL LEVERS WITHOUT ANY FEAR OF SERIOUS CONSEQUENCES

had on the economy. By the end of , unfortunately, the national GDP declined by .%, according to estimates from the OECD, and its rate of growth has not yet reached pre-crisis levels.

The current head of the British Central Bank also warned his successor that the likelihood of a high rate of economic recovery within the next couple of years is very low. But one aspect of the Bank of England’s leadership is that it does not exclude additional measures of quantitative easing.

Looking at the British situation, it becomes easer to see why the stability of the Canadian economy makes most developed countries jealous, including Albion. The financial crisis, and subsequent recession, did not cause much damage to Canada’s economy, mainly because of its close connection with the American economy. At the same time, however, Canada did not experience the same decline as the U.S. and the U.K. did back in , and its financial rebound was far more pronounced. None of the Canadian banks went bankrupt, and none need-

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INVESTMENT

Peter Loescher is the President and Chief Executive Officer of Siemens AG. He studied economics at Vienna University of Economics and Business and at the Chinese University of Hong Kong. In 2004 Peter Loescher worked for General Electric Company as the President and CEO of GE Healthcare Bio-Sciences. In 2006 he was the President of Global Human Health of Merck & Co., Inc. And in 2007 Mr. Loescher joined Siemens AG.

“THE GLOBAL IMPORTANCE OF EMERGING ECONOMIES IS CHANGING” Siemens AG, one of the biggest corporate players in the BRICS markets, is planning on building a stronger presence in developing countries in the "second wave" of development since they were first formed. The WEJ talked to Peter Löescher, President and CEO of Siemens AG, about the "correct" way to do business and how, in 2012, it allowed the company to achieve some of its best operational results in the history of its development.

Text: Elizaveta Kotova

Photo from press archive

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Despite the global economic slowdown, your company has managed to sustain a good position, which gives you reasons to expect a moderate revenue increase in . What will be the drivers behind this increase? What are your current financial results (profit, revenue)?

Siemens always wanted to be a strong and reliable partner for its customers worldwide – that is our aspiration for  years now. As our   employees operate in about  countries on innovative products, we can offer customized solutions and buffer regional and temporary difficulties at least slightly. With that competitive advantage, we achieved one of the best operating results in our history in fiscal  – despite a challenging economic environment. In figures, we achieved an income from continuing operations of €. billion. And thanks to a sustained strong order backlog our revenue rose seven percent company-wide up to more than € billion. For the next year, we are expecting moderate organic growth of our order intake and sales should come close to about last year’s level.

But we want more. With the latest implementation of the “Siemens ” program, we aim to increase the Total Sectors profit margin to at least  percent by fiscal .

RUSSIA’S ENTRY INTO THE WORLD TRADE ORGANIZATION IN FALL 2011 SENT A SIGNAL THAT FOREIGN INVESTORS CAN COUNT ON LEGAL GUARANTEES AND THE PROTECTION OF THEIR INTELLECTUAL PROPERTY RIGHTS IN THE COUNTRY

In what regions does the company have the biggest market share? In what regions are you planning to strengthen your positions? In what regions do you have the highest sales figures?

What regions have experienced the biggest decline, what are the reasons behind it? What are your forecasts – what regions may be expected to demonstrate a considerable increase?

The difficult economic situation in Europe burdens development worldwide. In fiscal , we saw order declines in almost all regions of the world and a decrease of % in total – the only exception was the region America. And although there was a little slowdown in emerging countries, they will still have a large weight in economy: accounting for % of world growth by . Thus we are proud to be already a big player in emerging markets. And we are investing consistently and continuously in Emerging Markets such as Russia for more than  years now. And we aim to continue our strong growth rates year by year! But the map of the world’s most important economies continues to change significantly over the next  years. And we intend to be part of this development from the outset. Especially

Second Wave Emerging Countries (SEWEC) are crucial areas of growth and will play an important role in the future. Therefore we are continuing to strengthen our position in second wave countries such as Indonesia, Turkey, Colombia, Mexico, South Africa, Thailand and Vietnam.

What are the specific features of different markets (e.g. the USA, the EU and BRICS)? How mature these markets are? What are their development trends?

In general, all regions of the world face similar challenges such as climate change, globalization, the demographic change and a lack of resources.

Of course, they have different priorities. In fastgrowing populations for example, we need to create jobs, while at the same time having to build up infrastructure in healthcare, transportation, energy and automation, to name just a few. But with our widespread portfolio, we’re well positioned to be a key driver towards and partner in achieving the region’s ambitious goals. It involves complex infrastructure projects, providing state-of-the art healthcare products as well as wind solutions.

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INVESTMENT

And concerning the current development: economic growth in the BRIC countries has clearly cooled off. But Russia’s entry into the World Trade Organization (WTO) in fall  sent a signal that foreign investors can count on legal guarantees and the protection of their intellectual property rights in the country. So they will definitely remain very important drivers of the worldwide economy and they are still important for us, too. Therefore I don’t anticipate more drastic declines in growth in this region. The same applies for Europe. Due to drastic declines in the crisis countries, industrial production has dropped since mid-. But the European Union has taken important and farreaching steps to overcome the crisis. So things are on the right track, but without a doubt  will be a year of transition for Siemens.

ware portfolio within the Siemens Industry Automation Division. Industry software is clearly a field where we see growth opportunities for the future.

PLM software is already internationally used by over , companies in automotive production, mechanical engineering, and others. And the market in the area of industrial processes is yearly growing around %. We expect an increase from € billion in  up to € billion in .

What segments are the most profitable? How much did the crisis affect consumer demand in different segments? What segments do you ‘bank on’ right now?

In , we had a very positive development of the Healthcare Sector, which substantiates the Sector’s success in rigorously implementing our Agenda  program launched last year. The Sector increased new orders by  percent to roughly € billion and thus profit even grew by more than one-third to nearly € billion. That is a profit margin of almost % – way more than the margin of our other Sectors.

But we continue to focus on all our sectors: Energy, Healthcare, Industry an Infrastructure & Cities. And that’s where we will put our efforts in. Lately with the launch of our company program “Siemens ”.

Do you feel any competition from Korean and Chinese manufacturers of cheaper equipment?

Are you planning to do something to improve your competitive performance?

We do not fear competition. But we didn’t fully succeed in significantly boosting our performance vis-à-vis competitors, as we did in recent years.

So Siemens kind of lagged behind its own high objectives. To get back to reaching our own goals, we’ve launched our two year company-wide program “Siemens ”. Its goal is to raise our Total Sectors profit margin from . percent last fiscal year to at least  percent by fiscal . In total, we are aiming to reduce costs by € billion, increase our competitiveness, and become faster and less bureaucratic. So we know what we have to do – and we are doing it!

What is your investment policy? Volume and areas of investment? (what do you invest in, when?)

What we are aiming is profitable growth. And of course we’re only investing in areas with growth potential. One good example is our green portfolio.

Green technology-based products and services became a central business area that already counts around € billion revenue today – that is € more billion than in . With our portfolio, we are one of the biggest provider for environmental technologies worldwide: we have products, services and technologies that cover areas that correspond to % of the potential reduction in CO emissions.

But newest marketable technologies require constantly investments in R&D. The intensity of our R&D work is for years more than  percent of revenue. This year, our R&D expenditures were about €. billion with approximately , employees working in this field. And with . patents from continued operations so far, that clearly is a very successful investment. But to point out once again: we take great care that we don’t skimp on the future even in times of crisis.

Could you please tell more about your company’s M&A policy? What companies has Siemens acquired lately? What companies are appealing for your company acquisition-wise?

As a part of our company program “Siemens ”, we are achieving to strengthen our core activities.

This includes both: reinforcements through acquisitions as well as the divestment of businesses whose profits remain below company’s expectations over a certain period. For example, we expanded lately our portfolio of industry software by acquiring LMS International NV, a leading provider of test and mechatronic simulation for complex products. The business activities of LMS are to be integrated into the product lifecycle management – PLM – soft-

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With more than 20 years of experience, Maria Pinelli has in-depth knowledge of the needs and issues of companies experiencing rapid growth.

Throughout her career, she has supported clients with acquisitions, due diligence, financing and IPOs. Maria has acquired significant knowledge of the global capital markets, having led over 20 IPOs in Canada, China, the United Kingdom and the United States.

“YOU CAN’T PINCH PENNIES ON THE ROAD TO GROWTH” By 2015 the emerging markets will have become large and important economies and will stimulate a large portion of the world's growth. The size of the BRICS economies could triple, reaching 60 trillion dollars. Maria Pinelli, Global Vice Chair Strategic Growth Markets at Ernst & Young, discussed this in an interview with WEJ. Text: Anastasia Yakovleva

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Ms. Pinelli, what is stimulating vigorous economic growth today in the emerging markets?

Worldwide, the middle class is on the rise. In markets where the average consumer can spend $– a day, we are observing a brisk turnover of goods, which, of course, has a substantial growth effect on the economy. I don’t mean just China, Brazil and India, but Russia as well, which is still in the beginning stages of discovering its economic strength. We are very optimistic about the development of all the BRICS economies. We have invested more than $ million in emerging markets over the past few years and are going to continue investing capital.

their own pockets, allocating funds to schools; in short, helping students any way they can to learn management skills and become highly qualified, in order to keep up with the modern economy and develop the future. Speaking of the future, I want to mention women as a separate market…

Nevertheless, China and India remain the key markets?

Yes, these are the most rapidly growing markets.

The business models of China and India are completely different. China has become the secondlargest economy in the world; it is continuing to grow and will eventually be the world’s leading economy. India, in terms of GDP at dollar parity, is the fourth-largest economy in the world. And by the way, recently there have been some important regulatory changes in the legislation there. We think that these economies will continue to grow.

How are things in the Middle East?

We view the development of markets in the Middle East, Turkey, and Vietnam optimistically. More than % of the population are youth under the age of , who are looking to the future, seeing the possibilities, and asking themselves “What will I become?” I think we will see more entrepreneurship in these countries in the near future. We also think Africa will be interesting for investors. It is rich in resources and has a strong work force. We are very optimistic about parts of Southeast Asia.

Would you say these countries are fully integrated into the global economy?

China and India are actively involved in the global economic cycle and are demonstrating their competitiveness. They are making changes to their tax regulations in order to attract more interest from investors worldwide. Today, China leads the world in IPO activity. Following in their footsteps, other countries have begun increasing their capital, such as Malaysia, Indonesia, Singapore, and India. In fact, their capital is growing, as is Russia’s.

Unfortunately, the problem China and India are facing is a lack of qualified staff, although there is a huge demand for it.

So there is no one to develop a modern economy?

The number of professionals per capita in these counties is much lower than in developed countries. Our goal is therefore to educate as many people as we can, as quickly as possible. Our partners in India and China are actually funding educational programs for young people from

So women can be viewed as a separate market that will be extremely important for this new economy?

Just as we think about markets in China and India, we can identify women in the same way. They control more than % of spending on non-essential goods. Women are diligently studying; % of them in the U.S. alone are college graduates. And thus they will be important for future economic reforms.

Is it possible that Mexico might become the 5th largest global economy?

We are also observing growing markets like Mexico and Indonesia. Indonesia is the fourth most populous country in the world. These countries are investing capital and know how to properly operate in a difficult economic situation.

Indonesia and Mexico may become among the ten best economic systems in the world. For example, Mexico has the goal of becoming the fifth-largest economy by –.

And it is completely possible.

What is your forecast for the eurozone’s economic recovery?

Overall, the outlook is not optimistic and we see the second half of  as the time for important decisions to be made.

We see some clear signs of progress, such as increasing cooperation among EU member states. When there is close cooperation, we get a surge in the market; but once EU members descend to particulars at their meetings, the market falls, at least for a little while. A key barrier currently is an agreement between the financially distressed countries and the budgetary constraints that the capital-rich countries want to impose on the poorer ones. But I think you should not pinch pennies on the road to recovery. This could be said with respect to any company.

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POWER industry

AGAINST THE WIND

The renewable energy sector is growing with each passing year. Investors are increasing their influence and governments are planning their transition from fossil fuels to wind, water and, solar energies. Could alternative types of energy completely replace coal, gas, and peat, which have long been the standard? Experts are in no hurry to give a positive answer.

Text: Daria Getmanova

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POWER industry

SOURCES OF ELECTRICITY IN THE U.S. Under conditions of environmental stress, there has been a significantly increased interest in renewable energy sources. Each year, global interest is growing in natural energy derived from the sun, water, and geothermal sources. According to a joint report from Bloomberg and the UNEP Collaborating Center, total investments last year in renewable energy increased by % to $ billion. The U.S. led with total investments increasing % to $ billion from  to .

Wind energy is also gaining popularity. The U.S., China, India, and other countries are increasingly turning to wind turbines, which convert wind energy into electricity.

China is the king of the wind market today. According to a study published by Global Data, a consulting company, in  China’s share in the global market was %. From  to , investments in wind energy in China jumped %, according to the Bloomberg and UNEP Collaborating Center report. China plans to increase the amount of wind energy it uses for heating in the winter, for irrigation, and for household use, said Liu Qi, deputy director of the National Energy Bureau, at a conference in Beijing. Developing countries like China and India are currently investing heavily in wind and photoelectrical energy (technology that produces electricity using sunlight) because these investments give them a guarantee of energy security, which they see as the path towards future development, says Philip Jennings, an expert on renewable sources and professor at Murdoch University (Australia).

The professor’s words are confirmed by a report prepared by an association of the group Greenpeace, the Global Wind Energy Council, and the European Renewable Energy Council. The study claims that by , % of all energy sources in India will be replaced by solar and wind.

COAL

55.1% NUCLEAR

22.5% NATURAL GAS

10.3% HYDROPOWER

9.8% OIL

Nature Smiles on Europe’s Energy Sector While some countries are only increasing their use of renewables, others are trying to switch completely, such as Germany and Denmark.

The Danish government’s “Our Energy” plan, for example, aims to replace fossil fuels with renewable sources by . “The renewable energy sector is popular among investors today, as many countries are seeking to increase their percentage of renewable sources,” says Edgar van der Meer, analyst for NRGexpert.com The European Union’s “––” plan confirms this. It aims to reduce emissions by % by  and to increase the production of renewable energy by %.

Energy technologies are developing rapidly today. According to R&Dmag.com, the U.S. spent about $. billion on energy research in , which is .% more than the previous year. Though experts consider this investment insufficient, many of them agree that the amount will increase every year: “Renewables bring in good profits for investors.

This is the primary reason that growth in this sector will continue,” according to Chris Varrone, President of Riverview Consulting, Inc.

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2.0% GEOTHERMAL ENERGY

0.2% SOLAR, WIND, AND BIOMASS

0.1% SOURCE: NEW.WVIC.COM

POWER industry

WEJ#1 (23)

GLOBAL INVESTMENT IN RENEWABLE ENERGIES INVESTMENTS IN NEW CAPACITIES OF RENEWABLES TECHNOLOGY

TOTAL AMOUNT OF POWER (EXCLUDING HYDROPOWER, IN GIGAWATTS)

WATER POWER CAPACITY (GW):

$ 1 6 1 BL N $ 220 BLN $ 257 BLN

250 315 390

915 945 970

WIND POWER CAPACITY

SOLAR ENERGY AS A SOURCE OF HOT WATER

PHOTOVOLTAIC SYSTEMS

159 198 238

153 182 232

23 40 70 2009

Besides investments, analysts predict a rise in the number of scientists competing in ingenuity. In January , Andrea A. Rossi and Professor Sergio Focardi of the University of Bologna announced that they had managed to create a special water-nickel reactor that can produce thermal energy. According to the developers, the reactor requires just  watts to operate, but can produce up to ,.

The revived interest in renewables has prompted many researchers to talk about what the prospects are in this fairly young sector. EU officials and scientists from member countries published a report entitled “Roadmap ,” which discusses the future of energy.

In particular, the experts propose that in order to avoid any problems with a lack of energy in Europe, new low-carbon technologies need to be developed, which themselves will use renewable resources as their energy source. Interchangeability is yet another factor in their favor: “By , Europe could be close to using % renewable sources, including biomass, hydro, wind, and solar,” suggests one of the report’s authors, Chris Varrone.

Economic Security or Useless Frugality?

Another attractive factor is safety. Renewables are safer than fossil fuels. Using these sources, the probability of recurrences of accidents

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PROPORTION OF RENEWABLE SOURCES OF ENERGY like those at Chernobyl or Fukushima is virtually zero, analysts say.

“There are some hazards, such as electrical current, but they are the same at all power plants. Renewables typically do not pollute the water or air, unlike fossil fuels. And unlike fossil fuels, they do not emit large quantities of greenhouse gases,” says Professor Philip Jennings. Chris Varrone agrees: “Developers will always feel at ease, because working with renewable resources helps protect the environment from pollution on a local level, such as sulfur dioxide, and on a global level, from carbon dioxide.”

Another expert also sees a bright future for renewable resources. According to Lisa Frantzis, Managing Director of Renewable Energy, wind has become an important part of the global energy structure over the past decade, and it is highly likely that this sector will continue to grow. “Wind and solar energy are undoubtedly playing a vital and growing role in the global structure, alongside conventional power sources,” she says. It is therefore no coincidence that more attention is today being given to developing wind power technology. In late November, one of the largest producers of wind energy in the world, Gamesa, received a € million loan from the European Investment Bank for the development of two platforms for wind turbines.

Analysts look with optimism to the future of solar energy.

Experts believe that it will occupy a significant share of the market: The prices of this type of energy continue to decline, and it allows reduced costs, which, considering the Eurozone crisis, is quite relevant. In the UK, for example, research shows that solar energy can help save a family of four, on average, about $ a year.

Not all experts agree, however, that renewables can fully replace non-renewable sources. Of particular concern to them are solar and wind devices: “Wind and solar installations can, at best, provide only % of energy consumption. The demand for energy is growing at an astonishing pace and today’s technology isn’t efficient or reliable enough to cover this growth,” says Edgar van der Meer. Wind energy is increasingly subject to the skepticism of experts and some think that wind is unreliable, since its force is always changing and wind turbines cannot produce the same amount of constant energy. According to analyst Edgar van der Meer, hydro and geothermal are more effective sources of renewable energy. Many countries use hydro resources to generate electricity. Research suggests that about % of the world’s electricity is produced from hydropower. The leaders of hydropower are Canada and the United States. In addition, America also uses geothermal energy from the Earth’s interior. According to the annual “U.S. Geothermal Power Production and Development Report for ,” the United States is the global leader in “terrestrial” energy, with a capacity of about , MW annually. However, experts have found notable shortcomings in these resources: “The total capacity coefficient for renewable sources is too low to ensure a constant flow of basic, intermediate, and peak load energy,” says Edgar van der Meer.

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HYDROPOWER

97.9% OTHERS

2.1% GEOTHERMAL

1.6% BIOMASS

0.5% WIND

0.004% SOLAR

0.001% SOURCE: NEW.WVIC.COM

WEJ#1 (23)

HI-TECH

HEWLETT-PACKARD IS IN NEED OF REPAIR Unluckily, the acquisition of the British software company Autonomy has become just another link in the chain of events that has led Hewlett-Packard to its current deplorable condition. Looking back over the company s history, the past several years will probably go down in the management books under the section titled, "How Not to Direct a Company".

Text: Anna Kim

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January 2013

Stanford University

The scandal involving $. billion in losses, which HP incurred because of an unfortunate purchase, is threatening to stay in the headlines for many months.

The plot is unfolding according to every rule in the playbook of corporate law dramas: mutual PR attacks from the protagonists (or, more appropriately, antagonists), administrations and criminal investigations from the side of the authorities are being launched, hearings are being scheduled – just like in the classic genre.

classmates Bill Hewlett and Dave Packard founded HP in 1939.

The company’s first product, built in a Palo Alto garage, was an audio oscillator – an electronic

Buying Air

test instrument used by sound engineers.

The deal with Autonomy was completed in August of . Originally, the buyers didn’t agree with the set price – $ billion – for what was considered to be a “global leader in infrastructure software solutions” and a “highly profitable and globally respected company whose management team deserves high recognition”, according to a press release by HP, which was released in honor of the absorption and greatly flattered the software company.

Then-CEO Leo Apotheker and HP Autonomy founder Mike Lynch (who remained in charge of the business management, but on the American side of the corporation) were incredibly optimistic about the implications of the collaboration. But in May of , Meg Whitman, who replaced Apotheker, dismissed Lynch, citing the significant drop in license revenue in the company’s new division as the deciding factor. And six months later, with % of the company’s “British” value paid for by HP, the former executives of Autonomy were accused of “purposefully incorrect accounting, misrepresentation, and concealment of information”, all of artificially inflated the value of the company. According to the Americans, the result of Autonomy’s fraudulent behavior means HP overpaid at least $ billion in the transaction.

Mike Lynch is denying all these charges. “Finance Autonomy, as a public company, which is the period in question, was following every relevant regulation and reporting its transactions accurately,” he said.

Meanwhile, investors are imploring members from both parties to fix the situation – understandably so, especially given that $. billion is about a third of HP’s market capitalization. After the announcement confirming the write-off as a loss, HP shares fell to their lowest value in the past ten years, and just  months since absorbing Autonomy, the value of HP paper fell by more than half. Defendants in the oncoming lawsuit will include both Mike Lynch and Leo Apotheker, who was the predecessor of Meg Whitman and was a member of the Board of Directors during the decision, where he voted for the acquisition. On top of all this, the plaintiffs are demanding a response from the external auditors and consultants that worked to prepare Autonomy through the transaction. The list of the defendants includes Deloitte, KPMG, Barclays Bank and the Perella Weinberg Partners company, which allegedly “deliberately ignored numerous red flags” that pointed to inaccuracies in the company’s statements. In terms of government representatives, the UK

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One of HP’s first customers was Walt Disney Studios, which purchased eight oscillators to develop and test an innovative sound system for the movie Fantasia.

HI-TECH

WEJ#1 (23)

NET INCOME / LOSS OF HEWLETT-PACKARD, MLN OF US $ 60

50

40

30

20

10

0 2008.07.02

2008.01.02 2008.05.02

2009.01.02 2008.11.02

2009.07.02 2009.05.02

2010.01.02 2009.11.02

2010.07.02 2010.05.02

2011.01.02 2010.11.02

2011.07.02 2011.05.02

2012.01.02 2011.11.02

2012.07.02 2012.05.02

department that deals with large-scale fraud is getting involved, as is the U.S. Commission on Securities and Exchange Commission and the Federal Bureau of Investigation.

For right now, there are many more questions than answers. Did Autonomy adhere to its controversial methods of reporting fairly, and does that mean it is still protected under the law? Why couldn’t HP’s top management and the dozens of people involved in the audit and due diligence process correctly assess the value of the company before the deal took place? And is there reason to believe that when it comes to the rules of reporting within IT companies, there is not enough transparency?

While the parties involved in the conflict and the authorities look for who is to blame, businesses from both sides of the Atlantic are trying to understand what happened and learn a lesson. One lesson is that even when enlisting auditors and consultants to go over mergers and acquisitions, companies should trust them but verify the information. More likely than not, Autonomy’s story will support the preexisting trend – companies planning mergers and acquisitions are relying increasingly on internal resources, especially if the deal will not turn out to be that great.

The Tip of the Iceberg The failure of HP deserves special attention in and of itself. This is not the first time that something like this has happened – in the global corporate world, the largest write-off of goodwill was actually from AOL Time Warner ten years ago, for

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HI-TECH

a total of $ billion. But looking back at HP’s history, it is impossible to overlook the fact that just last summer, HP wrote off a loss of $ billion of the $. billion invested into purchasing Electric Data Systems, a services company bought in .

And an acquisition in , when the company purchased Palm, a manufacturer of smartphones and handhelds, for $. billion in , turned out to be a complete disaster as well – an entire unit had to shut down. All this, however, are just symptoms of a more permanent crisis that HP has been dealing with for the past seven years at least.

The market conditions in which the company has to operate are not easy to call, especially in light of the recent consumer craze for smartphones and tablets. HP continues to get a large portion of its revenue from the sale of “iron”: PCs and accessories, printers, and servers, segments that do not show any high profitability or growth.

A recent series of acquisitions, both successful ones and complete flops, were aimed at diversifying the company into more profitable businesses (such as with Autonomy, for its production software). This type of strategy worked well for its competition, such as IBM. But HP and the assets it has bought in recent years seems less like a self-confident company management team that knows what it’s doing and more like a drowning man clutching at straws.

Since , the company’s chief executive officer was changed three times. Each of the CEOs accused tried restructuring the business in their own way, and many times, they made decisions contrary to the logical development started by their predecessors. In other words, finding a sustainable development strategy was not simple. On top of that, HP has had to cut thousands of jobs as a result of its constant struggle to reduce costs. This has caused employee morale to fall dramatically.

Meg Whitman, who is directly responsible for the success of the operator’s manual online auction eBay site, has been trying to clean up the backlog of problems for over a year now, a project that is no easy feat. According to forecasts, bringing HP back to life will take about  years, and in that time, it will have to refrain from any more acquisitions and focus instead of investing in research and development. But arguably the most important task facing the company’s new leaders is giving its workforce faith in HP once again.

January 2013

ACCORDING TO FORECASTS, BRINGING HP BACK TO LIFE WILL TAKE ABOUT 5 YEARS, AND IN THAT TIME, IT WILL HAVE TO REFRAIN FROM ANY MORE ACQUISITIONS AND FOCUS INSTEAD OF INVESTING IN RESEARCH AND DEVELOPMENT

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January 2013

CAR Industry

While corporations struggle exhaustedly to reduce costs and get rid of excesses in France, Italy and even in the relatively prosperous Germany, countries on the other side of the English Channel are in a drastically different mood. According to predictions from the Society of Motor Manufacturers and Traders (SMMT), the automobile industry in Great Britain went up  places over the last year, or by .% as compared with the level of the same period in . “Although European car manufacturers still threaten demand levels in Great Britain, English plants are continuing to gain their share of the European market, despite the fact that producers in the “premium automobile” segment still benefit from the strong demand coming in from developing countries,” says the Head the KPMG Operating Unit in Great Britain, John Lich. “We’re waiting for this trend to continue over the next few years.” Forecasts from KPMG agree, stating that the production of passenger cars will grow by an average of % annually Britain, and by , their production rate is expected to reach . million vehicles.

KPMG’s optimism is shared by PricewaterhouseCoopers. “Recent investments in the British motor industry will ensure its revival for the next five years at least,” predicts Phil Harrold, an expert from the company. “I would say that by that time, we will see a gain in skills and an improvement in the quality of the workforce, and that, combined with our capabilities in research and development as well as a strong supply chain, will allow us to build on this success.”

THE MOST DIRE PREDICTIONS CAME FROM THE 1980S, WHEN ROVER, MINI, JAGUAR, LAND ROVER, AND ASTON MARTIN STARTED TO PASS INTO THE HANDS OF AMERICAN AND GERMAN CORPORATIONS

Colossal Plans 3000

According to estimates from SMMT, the volume of money from European companies going into conjoined projects with British companies in the last two years alone amounted to  billion pounds ($. billion). In November, the first Toyota Auris appeared from the assembly lines in Derbyshire, as a result of an  million Pound sterling Japanese investment.

The Jaguar Land Rover, in comparison, invested  million pounds into the largest car producer located in the West Midlands county. And the largest car factory in the country is located in Sunderland and owned by Nissan, which is also planning to expand – its new facilities will continue to produce the improved “Note” cars and a newer model that will replace the current version of “Qashqai”. The project will require an investment of  million pounds. Honda also placed to construct facilities in Wiltshire worth  million pounds, and as companies continue to expand, the list moves onward.

2500

2000

1500

1000

500

0

2002 2003

2004

2005

2006

2007

2008

2009

2010

2011 2012

THE NUMBER OF NEW CARS REGISTERED IN THE UK, THOUSANDS OF CARS CAR PRODUCTION IN THE UK, THOUSANDS OF CARS

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Why did all these car companies choose the UK as their production site? It is a good question, considering that some analysts predicted the extinction of the local British automobile industry. The most dire predictions came from the s and s, when brands such as Rover, MINI, Jaguar, Land Rover, and Aston Martin started to pass into the hands of American and German corporations. It is also important to note that the changing of ownership continued after the millennium – the climax of the process was when India’s Tata Motors acquired the Jaguar Land Rover from Ford in . And in the middle of the last decade, the world’s automobile makers started to develop manufacturing sites in Eastern Europe, South America, and Asia, all of which saved them money.

And at the same time, Nissan, which based its investment decisions in Sunderland, rejected alternatives such as India and Mexico.

THE SHARE OF EXPORT IN CAR PRODUCTION, % 90 80 70 60 50 40 30 20 10 0

2004

2005

2006

2007

2008

2009

2010

2011

A Magnet for Investment It s well know that England is not the cheapest place to do business. But when it comes to production efficiency, especially in automobile innovation, the country has very little competition, given that they have no shortage of skilled engineers or blue-collar workers working at the highest levels. The local workforce is very flexible, however, and the country’s authorities are therefore reluctant to burden investors with “social guarantees”, the way it’s done in Italy and France.

Great Britain is almost a paradise for companies that are looking to reduce their costs without cutting back on quality – they have a huge amount of suppliers with the right materials and components, and close to three thousand companies ready to fight for their business. The country itself produces about % of the components needed to build cars, and a couple of years ago, the Council of Representatives discovered what automobile assembly plants they need most by having them place orders with British suppliers and subcontractors. Without exception, all the companies asked by the Council found benefits in working with England’s lower costs – % said that the cost of labor was the same, as well as taxes and tariffs, and close to two-thirds cited the quality control as a huge plus. In other words, the “high cost” of manu-

facturing in England was all based on rumor, and its ratio of price to quality turned out to be more than acceptable.

During the difficulties of the recession, it is important to work with the right markets, and because of this, there is an apparent bias towards the premium British automobile segment, where the demand is most stable. And to a potential buyer of an expensive car, the words “British assembly” sound good! Not to mention % of British plant exports are not affected by the crisis in the European Union, which helps keep the industry afloat.

There is another very specific factor that is influencing investors’ activities – approximately half of the cars produced by the Japanese have caused concern, which has caused the price of the yen to rise during the crisis and create even more problems. The pound sterling, compared to the yen, fell by about half over the past five years, which is more than enough incentive for a car company to expand its production into the UK. We also have to give credit to the government, which provides assistance to the industry in a timely manner and in the correct format – for example, it offers tax incentives for conducting research and furthering development, pushing companies to allocate grants for new projects. The Eurozone crisis revealed the weakness in the suppliers of the financial component, and the Cabinet has also expounded on the problems of lending, led by Prime Minister David Cameron. A specially designed model, called Supply Chain Finance (SCF), was already tested by companies such as Rolls Royce and the Jaguar Land Rover, and according to SMMT, it can provide members of the network with a supply of low-cost financing for up to  billion pounds.

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MOTOR

PLAYING WITH CARS

It's easy to understand enthusiasts who, despite the difficulties, continue making the legendary AC Cobra. Or those who recreate Doc's car from Back to the Future, or those who make replicas of the famous gull-winged Mercedes. It isn't painful to drop several hundred thousand dollars for these beautiful, legendary cars. An altogether different story, though, is the Peel, which has always been an odd thing on three wheels, making it the smallest and probably the most bizarre car ever. But some people have decided to breathe new life into this strange project.

Text: Sofia Ponomareva

Photos from press archive

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MOTOR

The Birth of the Tripod The Isle of Man, located in the Irish Sea smack between England, Scotland and Ireland, is a strange place. A tailless breed of cat mutated and turned up here. They were the first in Europe to move to a parliamentary government and the last to abolish flogging in . During World War II, British fascists were held here.

And the Isle of Man, not giving a hoot what anyone thought, did not join the European Union.

Today, this piece of land is sustained by offshore companies and tourism. The only thing that has disturbed the everyday routine of the islanders for more than half a century is the Tourist Trophy race (TT). The Manx  kilometer course is notoriously deadly. But even this small island has its own car manufacturer.

Manx-based Peel Engineering, located on this patch of land about  kilometers long, was initially in a high-demand business making fiberglass boats and fairings for motorcycles.

Then one day, they decided to produce their own car, and they quickly moved from word to deed.

By , they presented their first prototype, the Manxcar. It had a motorcycle engine and three wheels: two for steering in the front and a traction wheel in the back. Amusingly enough, the coat of arms of the Isle of Man also depicts three legs. However, Peel Engineering was by no means guided by patriotism: Three-wheelers simply fell under the preferential tax bracket in the UK.

The car rested upon the three wheels of a cart.

The prototype had a single wheel in the front and two in the back, but the production model reversed everything. Using a chain belt, the rear wheel was powered by a -cc two-stroke DKW motor with just . hp. Gears on the three-speed manual transmission were shifted with a lever on the steering wheel. There was no reverse. Instead, a suitcase handle screwed in on the rear was used to turn the -kilogram car around or pull it onto the sidewalk. Advertising posters showed it being easily done by long-legged beauties.

The Peel P cost just £ and used a little under three liters of gas to go  km. “Almost cheaper than walking,” said the advertisement. But walking was certainly more comfortable and less scary. In theory, the P could reach  km/h, but even at low speeds, the self-propelled travel bag, with its high center of gravity, would sway mercilessly. It would list dangerously on turns, testing the vestibular system of the driver, who was already having a tough time inside the procrustean cabin. When turning the wheel, the driver’s elbow would hit the cabin walls.

On top of that, the motorcycle engine under the seat roared and vibrated deafeningly.

They’re Spreading!

The prototype would have been the only one if it hadn’t been for Chief Engineer Cyril Cannell.

In , he began promoting the microcar project with the phrase “one adult and a shopping bag.”

The cost of this mode of transportation was supposed to be like that of a moped. A year later, he demonstrated his creation at an auto show in London. The odd little fiberglass body was slightly more than a meter high and  cm wide and could fit only one person. The first generation of Peel P had only one headlight, one windshield wiper, and a single driver’s seat set on a tubular frame.

Cyril Cannell had to demonstrate miraculous dexterity to climb into the car through the only door.

As he did, the rickety, three-wheeled car swung away from the cart. Not that the former military bomber pilot was unaccustomed to cramped space.

WHEN VINTAGE CAR COLLECTOR GARY HILLMAN SAW ONE OF THE SURVIVING P50S AT AN AUCTION, IT WASN’T BY CHANCE THAT HE HAD THE IDEA TO BRING THE VINTAGE BRAND BACK

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The launch of microcars in those years in post-war Europe was nothing out of the ordinary. Gas was expensive and people’s income didn’t inspire optimism. But the P stood out among the other selfpropelled, ugly microcars of that time. Owners of three-wheelers were laughed at even by pedestrians who attempted to turn parked Ps around. It’s clear that this car brought Peel nothing but frustration and dubious publicity. Production of the P began in autumn  and continued throughout the following year, but they produced fewer than  cars.

Nonetheless, one P made it to Finland while another reached Canada.

Mini Two-seaters Failure did not discourage Cyril Cannell, however.

A year later, the Isle of Man was invaded by “aliens.”

With their gleaming, transparent domes, they filed out from the gates of Peel Engineering Co. and crossed the bridge over the River Neb. They were then loaded onto a car carrier and taken to the port.

From there, Cannell’s new brainchild went to the mainland. Two people could ride, jostling elbows,

under the transparent dome of the Peel Trident. To fit both of them, the front part and the dome were tilted forward. Vent windows were cut into the sides of the body. The heavier car ( kg) was equipped with the same DKW motor. Later Tridents were outfitted with the more powerful -cc Triumph Tina motor.

But despite the fact that the two-seater Peel sold for the same price as the one-seater, sales were slightly better. And over two years, from -, a total of  cars was produced.

Peel had tried producing normal cars.

Back in , it introduced the fiberglass hull for a roadster on the Ford block. Later in , the Peel Viking Sport coupe was developed, with a plastic monocoque body on a Mini assembly. In  the company ceased production, and five years later they closed.

The Resurrection of Lilliput But in the early s, interest in the curious little P and Trident began growing, mainly thanks to television. Remember Jeremy Clarkson who was cruising around the BBC office

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in the P? By then, only half of the three-wheelers remained. However, replica Peel Ps and Tridents could be ordered from Andy’s Modern Microcards for £,. Customers could even choose a Peel Viking Sport replica.

The odd little Peel was by now a symbolic part of a British car industry that is now in ruins.

This explains why attempts to revive this strange but distinctive brand continued. And the ’s had stylish trends, like the popular Austin Powers. Not to mention the desire to save gas, which after the war was an unpleasant necessity, but is now considered good form for people concerned with the environment. And everyone envies Peel drivers in traffic – just think about the suitcase handle.

So when vintage car collector Gary Hillman saw one of the surviving Ps at an auction, it wasn’t by chance that he had the idea to bring the vintage brand back. Some time later, he found an investor, Faizal Khan.

Further funding was found in a non-standard way. In , they took part in the BBC series “Dragon’s Den,” in which a person can present his idea to several millionaires and get investments

in exchange for a share of the future profits. One of the Den’s experts and famous British businessman and investor, James Caan, showed interest in reviving the lilliputian brand. He invested £, in exchange for a % share in the company and two cars, a P and a Trident.

Once again, the Peel Engineering Company was registered. The production volume was meager – a series of  cars, most of which had been pre-paid. The new P and Trident don’t really differ from the originals, and they are asking £, for a car with a -cc four-stroke engine (. hp) and an option for a reverse gear. It is capable of accelerating to  km/h, but there is also an electric version with a -kilowatt engine and a cruising range of  km/h.

Cyril Cannell himself worked on a fourwheeled electric Trident. The electric Peel was faster and could reach  km/h. The safe speed for the factory cars is limited to  km/h. They are also offering a FUN version, which is an electric Peel not intended for roads. Its top speed is around  km/h. True, you can drive it without a driver’s license – but slowly and sadly.

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January 2013

WEJ#1 (23)

Words

“Autumn end November: The night has fallen The bare branches can be seen Even more lonely”* Herman van Rompuy, the European Council President

* The European Council President tweeted a haiku. In the wake of his failure to persuade EU leaders to agree to a budget, the former Belgian prime minister has expressed his mood in haiku poetry.

Illustration by Alexander Ardabiev

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