It’s the moment of truth for the silent majority

First Brexit, then Trump, then Matteo Salvini, then Jair Bolsonaro and now Merkel is leaving after dismal results in German regional elections. Add in a Saudi assassination, a far-right Austrian, Hungarian and Polish axis in the EU and a constitutional change to make President Xi Jinping the new President for life…It has not been a good few years for the supposedly growing moderate majority of the world’s population, who apparently long for non-ideological, pragmatic and technocratic policymaking.

In Latin America, North America, Africa, Europe, the Middle East and Asia, populists are in vogue and established parties are reeling. The CDU and SPD in Germany are increasingly shadows of their former glory, but even they’ve fared better than the total annihilation of the French Republican and Socialist parties, not to mention Forsa Italia or the Socialist Party in Italy. Indeed, few social liberal democratic parties are doing well in any global context, nevermind a European one.

All of this poses a paradox. The world today is infinitely richer than at any previous point in history. There are no new ideological positions for developing a global economy, that have shown any evidence of gaining greater popularity than capitalism. Nor is there any sign that the world has become more violent or that global health has gotten worse. Indeed, to objective analysts the world seems to be doing really rather well. It is this analysis that is part of the problem.

Believers in centre ground politics believe that the majority of voters and citizens are rational. Given sufficient education, economic opportunity and information, political centrists maintain that the world will become less religious, less racist, less sexist, less LGBTQ-phobc and will prefer government policies set by highly educated panels of experts. Indeed the whole theory of modern liberal democracy and centrist movements like New Labour depends on these assumptions being true. But if they are true, why don’t we see people talking in favour of them, standing up for them and voting for these ideas, parties, movements and centrist leaders?

The answer, according to believers of centrist politics, is that the “silent majority” want centrist policies, ideas, parties and people, but they do not want to actively engage in the process. According to this theory, as soon as a candidate occupies the centre ground, where it has been abandoned, they will succeed. Indeed, the election of Emmanuel Macro and En Marche is held up as the perfect illustration of this phenomenon. The problem is that its wrong.

Politics is fundamentally a spectrum. There is no such defined place as “the left” and “the right”. What there is however, is a tendancy for society to cluster at points along the spectrum. Contrary to theories about centrist politics, they do not gather at the centre. Indeed, the reason why there exists a dominant political left party and political right party in every global democracy is because the number of people who truly seek out a “middle ground” is extremely small. Thus by focusing on the middle ground as a political tactic, parties actually alienate the majority of their constituency by chasing a small vote. This can work in an extremely tribal political system, where party loyalties is seen as a badge of identity and is often more important than the parties actual policies. But in the long run, parties that focus only on the centre lose touch with their base. This is the problem facing democracies today.

En Marche is the wrong lesson to learn. Electing a party consisting of a re-hash of Socialist and Republican candidates, run by a former socialist minister, who was ultimately pushed into power by a French public who were loath to support the National Front, is not an endorsement of technocracy and centrism. Indeed, the fact that Macron now has lower public opinion polling than his predecessor did (Macron now has the record for the most unfavorable reviews of any French President in the history of the French republic), shows that his political movement has little real support. Nor has the USA done any better. Rather than creating a fracture in the political right, the Republican party has embraced as its leader a dangerous egotist, whose attempts to sow division and hatred will leave scars across the national landscape that will outlast his own hotel chain.

There is a better way.

True democracies focus on addressing politics and how people feel. Worrying about trigger words, safe spaces, what is political acceptable to discuss and avoiding giving a “platform to hate” are terrible tactics that will end in misery and failure. What is actually needed is for centrist voters and politicians to hold their breath and dive into public discussions on anything and everything. Failing to engage with a problem is more dangerous than ignoring it. Nowhere is this guidance clearer than in the unmitigated disaster than is the European Union’s immigration policy and that of its individual member states (including the UK).

 

Governance is not meant to be easy. It is a service, not a stepping point for another career. The politics of the centre has believed that it is easier to talk about complex topics behind closed doors, amongst small groups of PHd armed individuals and then to return to the public eye with a flourish and say “we have studied and can empirically prove that this is the optimal way forward”. To anyone who has actually worked in business (and spoiler here, many centrists politicans and technocrats have not), the idea that you can make significant changes happen without buy-in and engagement with key stakeholders is laughable. If you do not explain the problem to people and talk about what the solutions are, then the idea will get nowhere.

Small steps could help moderate political forces take to move their agendas forward. Explaining a complex concept in an accessible way is among the most powerful. The impact of Blue Planet II on public and corporate attitudes to plastic has been phenomenal. Just as the original Al Gore film, an Inconvenient Truth, also helped transform the global climate debate. But real change cant be done by a film, documentary, art installation or music video. Certainly not on their own. Real change needs families, friends, co-workers and residents of communities to actually sit down and talk. Importantly, they need to get off their phone and do it in person.

In 2017 Heineken captured this idea with a wonderful video called Open Your World: https://www.youtube.com/watch?v=etIqln7vT4w but turning an ad campaign into reality would do more than help sell beers.

It may be the case that the world is full of a silent, moderate majority. But if they don’t talk to each other and the wider world, there is only one obvious outcome. Political parties and their voters will move away from centre ground politics.

Advertisements

Germany’s Electric Vehicle (EV) dilemma

Why the coming electric vehicle revolution threatens to up-end the entire German economic model

While Germany has long been admired as a leader in the clean energy transformation, notably for its package of energy policies termed the “energiewende”, the reality is that German industries have often born the brunt of these changes as have the tax payers. However, while Germany was able to absorb the hits to Siemens, RWE and Eon resulting from power sector reforms, the challenge posed by Electric Vehicles is altogether more serious. In this article I want to outline why, without a major new strategic plan, the global shift towards electric vehicles may not only up-end the entire German automotive industry, but transform the German economy as a whole.

First thing to note is how fast the Global EV market is growing:

It is hard to underestimate just how flat-footed policymakers have been, as have industry analysts, in predicting the uptake of electric vehicles. In fact, the growth has been so rapid that the International Energy Agency (IEA) revised up its original estimates for Global EV demand, such that The EV30@30 Scenario sees 228 million EVs (excluding two- and three-wheelers), mostly Light duty vehicles, in the global fleet by 2030. To contextualise this figure, the current light duty vehicle market is estimated at around 1.2bn, therefore EV’s will account for roughly 20% of global vehicles within the next 12 years[1].

Image 1

In 2013 the world had less than 500,000 EVs on the roads. By 2017 this number had reached 3 million. To reach the IEA target (which many believe is still conservative), the Global EV market will have to grow by an average of more than 12 million sales per year. But that doesn’t look unrealistic, given that the current EV market is growing by between 40%-60% per annum.

Image 2

But that number doesn’t tell the whole story. Current EV growth is not evenly distributed, rather it is heavily skewed towards a few key economies, with China accounting for 50% of Global EV demand, followed by the USA, then Norway[2].

Image 3

Car companies can see the threat:

Whatever your personal views on Elon Musk, it is hard to argue that Tesla has not been a huge driver in explaining why global automotive companies are increasingly focusing on the EV space. As Forbes noted in its summary on the market in 2018:

“Porsche aims at making 50% of its cars electric by 2023. JLR has announced it will shift entirely towards electric and hybrid vehicles by 2020. General Motors, Toyota and Volvo have all declared a target of 1 million in EV sales by 2025. By 2030, Aston Martin expects that EVs will account for 25% of its sales, with the rest of its line up comprising hybrids. By 2025, BMW has stated it will offer 25 electrified vehicles, of which 12 will be fully electric. The Renault Nissan & Mitsubishi alliance intends to offer 12 new EVs by 2022.[3]

However, while manufacturers see the need to pivot towards EV’s they need domestic infrastructure and demand to drive that growth. This is why Germany has a problem.

The German economy literally begins and ends with cars:

The German economic model is based on exports. Germany remains the World’s largest exporter, running a trade surplus in excess of 6% of GDP, and as of 2016, Cars represented 12.3% of the total exports of Germany, followed by Vehicle Parts, which account for 4.63%[4]. To put this another way, according to the German Trade and Investment (GTAI) association, the automotive industry accounted for 10% of German GDP in 2016[5].

Image 4

Source: OEC, 2018[6]

The German car industry also explains the unique model of the German economy. Due to the highly specialised demands of traditional, internal combust engine (ICE) vehicles, automotive manufacturers have traditionally required an extensive range of specialist suppliers. This has not only helped to create the famous German “Mittlestand”, but also to sustain it. This has been essential to ensuring a distribution of wealth and job opportunities across Germany and as a result, the German automotive industry employed 825,500 people in 2018, generating a turnover of Eur 423bn and sustaining over 940 German businesses from OEM’s to parts suppliers.

But EVs are very different. By some estimates, a regular ICE vehicle has around 2,000 moving parts requiring exactly the specialists that Germany have. By contrast, EVs have 20[7]. This dramatic change is estimated to put at least 75,000 German jobs at risk in the car powertrain sector alone, according to research by the Fraunhofer institute[8] (up to 100k if the switch was faster than modelled). But as if losing 10% of the workforce alone wasn’t a concern, the other issue is that future car models won’t make sense to build in Germany at all.

Car manufacturing is driven by domestic demand:

Germany remains a minnow in the Global EV demand scene. It was only ranked 4th in Europe in 2016, and barely scraped 2nd place by new EV sales in 2017.

Image 5To add insult to injury, there were only 28,000 EVs in Germany as of 2016 (from over 2 million globally) and[9] even worse, the most popular EV in Germany isn’t even one of the multiple German brands, its Kia[10].

Image 6

It is perhaps unsurprising then, that given Germanys considerable lag in entering the EV space, a number of leading German manufacturers have decided that they cannot compete with the lead that competitors have built up in parts of the new automotive supply chain. In a particularly embarrassing blow for German Industry, Bosch, “Germany’s biggest and most important supplier of car components[11]”, ruled in March 2018 that it wouldn’t even try and compete with the Chinese and Korean firms that dominate the manufacturing of batteries for electric vehicles[12].

Image 7So what does this mean?

It is clear that Germany has a formidably capable and resourceful industrial base. But it is also clear that the transformation of the EV market has caught Germany’s leading companies badly off-guard. Despite widespread anticipation that German car companies would easily and rapidly overtake Tesla, the initial feedback from the first wave of “Tesla killers” has been disappointing[13].

Time has not run out on Germany to adapt to the disruptive forces roiling the global automotive sector. But Germany is starting from far-behind and the stakes are high. A failure to adapt could mean more than job losses and faltering economic growth. It could mean an end to the German “Mittlestand” and the economic engine that built the modern Germany. What that means in a time of populist politics should give all German politicians pause for serious concern.

 

References

[1] IEA, 2018, https://webstore.iea.org/registerresult/1?returnurl=%2fdownload%2fdirect%2f1045%3ffilename%3dglobal_ev_outlook_2018.pdf

[2] EV sales, 2018, http://www.ev-volumes.com/

[3] Forbes, 2018, https://www.forbes.com/sites/sarwantsingh/2018/04/03/global-electric-vehicle-market-looks-to-fire-on-all-motors-in-2018/#62970a12927f

[4] OEC, 2018, https://atlas.media.mit.edu/en/profile/country/deu/#Exports

[5] GTAI, 2018, https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&ved=2ahUKEwjQjrrMotLdAhWJTt8KHXqQDgAQFjABegQIBRAC&url=https%3A%2F%2Fwww.gtai.de%2FGTAI%2FContent%2FEN%2FInvest%2F_SharedDocs%2FDownloads%2FGTAI%2FIndustry-overviews%2Findustry-overview-automotive-industry-en.pdf&usg=AOvVaw1MoymuoslNxq8CGePOtmYu

[6] OEC, 2018, https://atlas.media.mit.edu/en/visualize/stacked/hs92/export/deu/all/show/1995.2016/

[7] Cnbc, 2018, https://www.cnbc.com/2016/06/14/electric-vehicles-will-soon-be-cheaper-than-regular-cars-because-maintenance-costs-are-lower-says-tony-seba.html

[8] Autonews, 2018, http://europe.autonews.com/article/20180605/ANE/180609877/ev-push-threatens-75000-german-auto-industry-jobs-study-says

[9] EV sales, 2017, http://www.ev-volumes.com/country/germany/

[10] Cleantechnica, 2018, https://cleantechnica.com/2018/05/19/shocking-electric-car-takes-1-in-germanys-april-2018-electric-car-sales-ranking/

[11] The Verge, 2018, https://www.theverge.com/2018/8/15/17685634/germany-car-industry-battery-cells

[12] GTM, 2018, https://www.greentechmedia.com/articles/read/bosch-abandons-ev-battery-manufacturing

[13] FT, 2018, https://www.ft.com/content/3f5ded00-bd7d-11e8-8274-55b72926558f

Brexit remains the right choice for Britain

On the 21st of February 2016 I publicly advocated for the UK electorate to vote leave in the UK’s referendum on continued membership of the European Union. Between that time and the night of the referendum, I campaigned constantly for the campaign to leave the European Union, with my final public plea published on the 21st of June 2016. On the 23rd of June 2016, 17.4 million UK nationals voted to leave the European Union; a majority of 52%.

Since that time friends and acquaintances have often asked me if I made a mistake. More importantly, many of those who listened to my views during the Brexit campaign, and who voted Leave subsequently, asked me if they have made a mistake. It is for those who listened to me and who followed my guidance that I say this clearly: Brexit remains the right choice for Britain.

Brexit myths:

I want to start by dispelling some Brexit myths that have built up since the referendum.

Firstly, I want to dispel you of the notion that the UK government is doing nothing, has developed no plans, no ideas or serious proposals for how to implement Brexit. The UK has issued extensive strategies, contingencies and proposals to work alongside the EU that cover atomic energy, a new EU trade deal, EU citizens’ rights, Northern Ireland, existing judicial proceedings, law & securityscience and innovation, Data protection for UK & EU citizens, advice for UK citizens living in the EU, advice for EU citizens living in the UKguidance on trucking, on aviation, and so on. The UK has also guaranteed UK organisations all funding they would have received from the EU until 2020 (when the EU budget was due to end anyway). When people read in the papers that the UK has done nothing and has no plan, you need to understand that this is a tactic not a description of reality.

It suits the EU negotiators to refuse to engage with the UK, to run down the clock and ignore proposals. This includes the use of technology on Northern Ireland’s border, which the EU’s own investigation showed was a feasible and practical solution. Smart and sensible ideas are being ignored by EU negotiators as part of the EU’s negotiating tactics. These tactics are brilliantly described by Yanis Varoufakis in his book on how the EU ignored extremely detailed, expertly modelled and internationally supported Greek proposals during their debt renegotiation with the EU in 2015.  In short, ignoring sensible suggestions to force an ultimatum is a tried and tested EU tactic, along with leaking and selectively quoting private conversations. This is normal and should be expected. Importantly, it should be understood that the EU is trying to create a narrative that the UK is unprepared, but this is only a cleverly fabricated narrative. It is not grounded in facts.

Secondly, I want to emphasise that the existential challenges at the heart of the European Union, namely its democratic deficit, its growing illiberal tendencies, and the failure of the EU principle of solidarity, remain unresolved. As the famous pro-European, Hungarian philosopher Ivan Krastev recently noted, the EU’s continued failure to resolve the bloc’s divisions on immigration is straining the solidarity of members and even their adherence to the EU’s Human Rights Act. The rejection of drowning refugees by Italy is one recent example of this, and Hungary’s recent anti-migrant act is another. Moreover, despite the best efforts of strongly pro-European individuals, such as Guy Verhofstadt and Emmanuel Macron, to warn of Europe’s need for reform, the only concession that has been granted to these voices has been the creation of a small EU budget (separate from the EU commission budget). However, even this proposal is less progressive than it seems, because of a German-imposed requirement for funds to be linked to acceptance of migrants, thus immediately reducing funding to countries in Eastern Europe and increasing Germany’s receipts of EU funds.

Thirdly, while it has been popular for commentators to accuse people who voted Brexit of being racist and suggesting that the country wishes to revert to a little England mentality, the facts do not support their narrative. While Austria, Hungary, Italy and Poland discuss plans for an “anti-migrant Axis”, recent polling data from June 2018, shows that UK public attitudes towards immigration in the UK were more positive than at any time since 2011, a stunning rebuke to the initial rise in hate crime that immediately followed Brexit[1].

Brexit migrants FT

Brexit migrants eurobarometer 1Brexit migrants eurobarometer 2

It is also important to dispel another Brexit myth that if the referendum were to be held again today the result would be different. The data proves otherwise. As of December 2017, polling from YouGov showed that 55% of the UK public thought that Brexit should happen, regardless of their original view on the referendum. Recent data all indicates a similar result. None of which is to say the current British government is doing a great job. It is plain for the British public to see that they are not.

Building a better Britain:

Rebuffing growing misinformation is vital, but the backbone of my belief in Brexit is distinct from these arguments. I believe in Brexit for the following reasons:

I believe Brexit remains the right choice for Britain because I believe it allows us to build a trade policy that is fairer to the British people, delivering better economic outcomes. While the US, Chinese and Indian economies boom, the UK is locked into a customs union with the slowest growing economic area on earth. As of 2017, 15 out of Britain’s top 25 trading export partners are from outside the EU, and 11 of those (including US, India, China, Australia, Japan and Canada) accounted for 36.4% of all UK exports. These trading relationships relied on the dreaded WTO rules. Amusingly, Canada has confirmed that the UK could have enhanced free trade access from the first day of Brexit. They will not be alone[2].

Brexit economies

I believe Brexit will also make Britain’s immigration policy fairer. For immigration it remains fundamentally unjust that a doctor, engineer or an experienced entrepreneur will find it harder to work in the UK if they come from the USA, Canada, Chile, Japan or Colombia than an 18-year-old from France, Estonia, Portugal or Austria. Moreover, despite having a free-movement area with the EU, data from the UN overwhelmingly shows that British citizens would rather live in Australia, Canada and the USA than any country in Europe[3]. UN data shows that more Brits have chosen to live in Australia than all of Western Europe combined.

UK immigrants

Brexit allows the UK to correct these imbalances and create an immigration system based on reciprocity that allows British citizens to live and work where they actually are trying to go, whilst building trade bridges with nations that are growing. Dynamic ideas to addressing these opportunities of new immigration systems and free trade deals include the potential of the UK joining regional free trade groupings such as NAFTA and the TPP, while others have also floated the idea of a new Australia, Canada, New Zealand UK free trade zone (CANZUK). I would suggest that the UK should explore new trade and visa options with dynamic regional markets such as the Pacific Alliance in Latin America too.

Lastly, I believe in Brexit because of the phenomenal role it has played in restoring British democracy. While the traditional major political parties in France, Germany, Italy, Austria, Greece, Spain and the Netherlands have almost all collapsed, or seen their share of the vote significantly cut, the British main parties have rebounded to their highest combined share of the vote in almost 30 years. It is not hard to see why. In the 2000’s Europe grew up with a political obsession for “middle-way” politics, a convenient euphemism for technocratic governance and offering voters no real choice. It was common to hear the refrain “they are all the same”, and why bother voting? The electorate didn’t see the point in voting, and UK voter turnout fell below 70% for the first time since the advent of universal franchise. It appears that if people are not offered a chance to vote for what matters to them, they turn to parties that will offer them that choice. Across Europe the radical left and fascist right-wing parties have surged. Many of them are now in government. Brexit has stopped all of this. The far-right is almost entirely annihilated in polling (with the only revival recently due to the risk of a soft Brexit), the Labour party is the largest political movement in Europe and the UK’s election turnout is at its highest in over 20 years.

Closing Comments:

Before I finish, I also want to address the recent news surrounding Brexit. It is clear that the Conservative cabinet is deeply divided by it, but reassuringly so is the nation and so are the Labour party. It can seem concerning to see bickering at a public level from the Cabinet, but the very fact that there are disagreements and strongly held views attests to the fact that the current UK government is reflecting a broader sway of stakeholder interests than it is credited with. The current UK white paper is a demonstration of this. While ensuring the UK leaves the Single Market and the Customs Union, it also ensures that the UK regulatory framework is aligned on goods with the EU so that businesses do not face disruption. Clearly this deal does not suit all parties, but this is the point of compromise.

The resignations of Boris Johnson and David Davis are less controversial than the press would like them to be. The fact that they were staggered suggests an attempt to avoid triggering a crisis of confidence and a leadership challenge, as has been affirmed by David Davis. Secondly, it leaves Theresa May free to pursue a plan she believes in without cabinet members who do not endorse that plan. The greater risk does not come from the resignations but rather any further attempts by naïve and reckless cabinet members like Phillip Hammond to pretend that the Conservatives can repeal Brexit and escape without being destroyed and permanently dividing the nation. As the FT recently put it, the Conservative party is the party of Brexit.

It is easy to become disheartened by Brexit when the headlines often seem full of gloom, but it is important to take a step back. For every well-timed fear story like the Airbus threat to leave the UK, there are stories like Boeing committing to further UK spending and Australia awarding BAE UK massive defence export contracts. For every threat of jobs leaving London, like the 5,000 threatened finance roles, there are new commitments by companies like Facebook to employ up to 800 new staff, with office space for 6,000. The news will always try to showcase a clickbait headline, but if you can, try and ignore the noise.

Lastly we should not be afraid of a “no-deal Brexit”. Such an event would cost the EU over £100 billion, creating a continent wide recession, with the most severe impact being felt in Ireland and Germany. Given the growing anger and division in Europe over the increased EU contributions required by the EU’s wealthier states (Germany’s contribution will increase 16%) and how the shortfall in funding should be addressed, combined with the on-going battles over asylum, immigration and law & order, the EU would be suicidal to refuse to offer concessions in the face of a ‘no deal’. The path has been challenging and we are not out of the woods yet, so one should steel one’s nerves and prepare to witness continued anti-Brexit campaigning right until the eleventh hour. Just remember – Brexit is the best choice for the future of Britain.

 

 

[1] For further great information and graphics on how the UK is considerably more tolerant towards immigration than the majority of EU members, check out the Eurobarometer scores from April 2018: https://ec.europa.eu/home-affairs/news/results-special-eurobarometer-integration-immigrants-european-union_en

[2] There has been a significant effort by the EU to scare Britons about the challenges of trading from outside the single market and relying on WTO rules. Lets put this in context: The EU’s average tariff rate for countries like the US, Canada, etc, was 2.3% on goods as of 2013 (spoiler: it has not increased since), while for cars the EU recently proposed reducing global car tariffs to zero. While many organisations have highlighted the importance of non-tariff barriers, i.e. different product rules & standards, it is worth noting that batteries (for electric vehicles), micro-chips for phone, computers and tablets, as well as basic raw materials, all enter the EU from non-EU members. In short it may increase some short term costs, but accessing a broader array of markets will make UK goods more competitive as further free trade deals are signed.

[3] To put this into context, as of 2017 the UN estimated that there were 3.8 million UK expats across the world. The largest EU locations for British nationals were Spain (308,872), Ireland (278,000 people), France (188,000), Germany (103,700) and Italy (72,000). Many of which are retired and not of working age. In the Anglosphere the largest locations were Australia (1,351,846), USA (748,206), Canada (624,411) and New Zealand (272,071).

Bread and Circuses – The Football World Cup

From the 14th June (tomorrow at the time of this writing) the world will witness its 21st World Cup tournament, this time hosted in Russia. Football is an odd game to have conquered the worlds hearts. A sport popularised by the sons of aristocrats running around the wet and cold fields of England’s leading 19th century public schools, is now actively played by over 270mn FIFA registered players globally while the World Cup is the World’s most watched event, with 3.5bn people reached in the 2014 tournament.

But while the talents of the worlds leading male football players will fill the papers for the next few weeks, it is also worth taking some time to consider the impact that the World Cup has on national politics.

The World Cup can exert a powerful affect on national moods, not only on the host nations but also on those who participate. In 2006 as Germany hosted the World Cup, the nation witnessed the first large scale public displays of German flags and German nationalism, or as one German friend remarked to me “It was the first time in my life I felt it was ok to be proud of being German”. By contrast spare a thought for Brazil, who after financing the World Cup and the Olympics, crashed out of the World Cup against Germany in a 7-1 in what the BBC called one of the “Great World Cup moments”. Not only did the tournament torpedo the reputation of Brazil, it also destroyed the popularity of the national government, and when the full details of the lavo jato or “Operation car wash” scandal first started to appear in 2014, it was a matter of time before the acting President Dilma Rouseff was impeached and the Workers Party (PD) removed from party. Incidentally, Argentina’s subsequent loss to Germany in the final also helped sour Argentine national mood and along with Brail the country removed President Cristina Fernández de Kirchner in 2015.

So, what is there to consider at this World Cup? Well firstly its hosts are not exactly in the international good books. Following large-scale arrests and investigations, it is widely believed that the Russian hosts bribed their way into securing the World Cup tournament this year.  If that wasn’t bad enough, the country remains under heavy international sanctions for its illegal annexation of Crimea, alongside its involvement in the deaths of Dutch nationals in Ukraine and its complicity in Assad’s war crimes in Syria. Given this backdrop, President Putin sees an opportunity to distract the world (and his citizens) with well-executed games. If Russia performs well, the visitors are happy and the matches are exciting, the country will be given a strong platform to re-engage with Europe on sanctions whilst also undermining domestic political opposition. However, a loss in the group stage, followed by further corruption details and stories about Russian football hooligans would further undermine both domestic and international support for Russia.

But Russia is not the only country looking to the World Cup for a reputation boost. Both Iran and Saudi Arabia would benefit from stronger than expected performances, and while the chances of any Middle Eastern Team winning the cup are reasonably low, an advance to the semi or quarter finals would still provide a large positive PR boost to these middle eastern nations.

While for some the World Cup is a chance to build a positive PR platform, for others it is a welcome distraction from challenging political issues at home. A strong Spanish performance may help to deflect attention from Catalonian politics and the current governments relative weaknesses, while Angela Merkel would also gain from a strong German performance to distract from political in-fighting between the CDU and CSU over immigration policy designed to see off the rise of the AfD. In England, a strong performance would surprise the nation and provided a much-needed distraction to Theresa May during a torid period of Brexit discussions. Given the negative publicity surrounding Poland’s current government and its policies on refugees, judicial reform, coal power plants and running battles with the EU Commission, a strong performance from the country would further boost nationalist sentiment and distract from the countries wider challenges. Lastly in France, the Macron factor could receive a badly need boost, following the weak responses from Germany to France’s new EU reform.

Then of course there is Latin America, the only other rival to Europe is its wide spread fanaticism to the sport and its quality of national teams across the continent. Brazil hungrily eye revenge in this World Cup, and a strong performance (especially a win) could be an immensely powerful psychological boost to a country suffering from a prolonged period of economic malaise. By contrast, Colombia sees the World Cup as a chance to build on its strong performance in 2014 and as a way for the country to continue showing off its transition from a near failed state in 2000, to a vibrant and dynamic society, recently approved to join the OECD and eager to encourage tourism and investment.

Across all of these countries and the host of others I haven’t mentioned, the biggest immediate impact of the World Cup is domestic retail spending. When Italy failed to qualify for the World Cup, Bloomberg estimated the cost at 1 billion euros. As each country advances, or crashes out, the countries bars, restaurants, shops and treasury departments will feel the impact. While this may only be small, a good-will spending mood going into the summer can be a powerful driver of economic momentum.

Lastly spare a thought for young Iceland. As a country of under 400,000 people it has the ability to truly upset the footballing world. Not only would a series of Icelandic victories likely lead to a record number of google searches for “where is Iceland” but more importantly it would drive home the question that many sports fans, players, investors and commentators have long asked: “Is football about money, or about the passion of the team and how they work together?”…….well maybe I am stretching a bit here, as the more likely question will probably be “how the hell did they win when we cant even qualify”? Nonetheless, the symbolism of an underdog succeeding is a powerful image in sport and a powerful tool for domestic identity building.

So while you enjoy the games during this World Cup, spare a thought for what the win or loss may mean for those competing. The consequences may be bigger than you realise.

Trump’s exit from the Presidency

Could the Trump presidency end with a faked illness and a presidential pardon? This is the question I have been asking myself recently and increasingly I am convinced that this is the most rational route I can see. So how would that actually look, why would the administration follow this route and how would it play out?

Let’s review where we are.

The current president clearly did not intend to win the election. While it was already widely suspected, the fact that Michael Wolff has audio recordings from the White House and staff confirming this is significant. Moreover, Trump is now at risk of having either his son or his son-in-law impeached by an ongoing FBI investigation.

But before we continue, here is a very brief recap for those who have no idea what is going on:

Since the Trump presidency began a series of scandals and rumours have swirled around whether Trump or his team received political and/or financial support from Russia. These have exploded as an investigation led by the Justice Department’s Special Counsel Robert Mueller have repeatedly detained and charged key members of the Trump team. Thus far three campaign officials have pleaded guilty to various misdemeanors and the question is whether they will reveal even more information on the senior members of Trump’s circle, in return for reduced sentences. If you’d like a far more detailed explanation, Vox and the NYT have two great pieces linked here.

The concern then is that Trump, already embroiled in scandals, now risks losing a very close family member to a story that is intimately tied to his own name and brand – the election of Trump as the President. But why cant he just pardon Jared Kushner or Donald Trump Jnr? Better yet, why not fire Mueller? The answer is the Republican party itself.

The Republican party leadership are distraught. They have held all three branches of government for a year, yet failed to repeal Obamacare and only managed an overhaul of the tax bill by ignoring every Democrat and out of internal desperation for a “win”. Even worse, the Republican President has called several African countries “shitholes” in a congressional meeting on immigration, openly admitted that he can do what he wants with women because he is famous and has defended White Supremacists. To add insult to injury he risks starting a war in North Korea and he has destroyed US credibility on trade. By weakening the WTO through failure to appoint key figures, ending both the TTIP and the TPP treaties, renegotiating NAFTA and imposing unilateral tariffs, Trump is managing to undermine the Republican brand on a core issue – trade and economic prosperity.

In short, Republican loyalty to the President is non-existent at the executive level. The only thing holding both Trump and the party together is the electoral base of radical republicans who first elected Trump in the US primaries. But while they may protect Trump from attacks from the establishment Republicans, that doesn’t mean they would attack the establishment if Trump voluntarily left the post.

This leads me to my current hypothesis: Trump wants to leave and save face in the process. Trump also wants the risk of criminal charges to be removed, without him having to make the move himself. Meanwhile the Republican party want a smooth transition of power from Trump to Pence, with an agreement that the radical wing that Trump/Bannon pander too, will support a more moderate Republican platform. In such a scenario, it is perfectly plausible that the administration will wait until inside news reaches them that criminal charges are being drawn up against the closest members of the Trump family. Then the pieces on the chess board move.

In the weeks before charges are brought, Trump will appear in public less frequently and news of medical treatments will be leaked to the press. In the final two weeks, Trump will officially be “treated” for a series of “undisclosed illnesses” and charges will be officially brought against Trump’s circle. Pence will strike a deal with the Republican leadership and the Trump family that he will pardon all involved parties, but for this to work the charges have to be issued. Trump’s inner circle, whether it is Trump Jnr or Jared, will have to take the fall and accept all responsibility for the actions.

With the investigation concluded and charges brought, Trump can now resign on ill health and Pence can pardon the family on the grounds of political inference by Mueller. Besmirching his name may not be accepted by many, but it will placate the Trump base and help them to save face as they leave office. Then we will have a Pence Presidency.

At any rate, this is just a thought. Let me know what you think.

The cynicism is unjustified – Hydrogen is the key to a clean transport future

The world’s largest free trade deal fundamentally re-shaped the future of Transportation – and no one noticed.

In December of 2017, the EU and Japan announced that they had agreed the terms of a vast international free trade deal. The deal, still subject to final approvals in the EU and from the Japanese diet, will create a combined economic free trade area of 600mn people worth 30% of GDP. But while the focus has been on the changes to agriculture, sustainability and regulatory alignment, a key provision has slipped almost unnoticed from the public eye. A regulatory drawbridge for hydrogen vehicles has been created.

In one of the most startling changes, barely noticed by the press, the EU have been allowed to sell hydrogen cars straight into the Japanese market, bypassing stringent legislation for Japanese specialist steel and labelling standards. In addition, the EU has agreed that “Furthermore, EU manufacturers that are not yet as far advanced in the development of this technology of the future can, thanks to the specific and much lighter conditions, import hydrogen fueled cars for testing and validation purposes and use the Japanese infrastructure of hydrogen filling stations to fine-tune their cars.”

Why does this matter? It matters because (arguably) the world’s most technologically advanced nation has bet big that the future of transportation will be Hydrogen and it is now luring all the world’s largest automakers to build out their R&D and manufacturing within Japan.

Hydrogen cars:

In 2020, Japan will host the Olympic games and the vehicles of those games will be hydrogen fueled. The aim is to put 40,000 hydrogen fuel cell vehicles (HFCVs) onto the roads by 2020, including over 160 charging spots. However global current sales of HFCVs are low, with only 1,600 sold in H1 of 2017. In part this is because the vehicle selection remains limited and the cheapest versions…are not that cheap. As a result, there are no shortage of critics. Elon Musk is famous for deriding the chances of hydrogen vehicles, a view widely shared amongst the lithium battery bulls.  However, with its ability to re-charge a car in under 5 minutes and its exceptional long range, the battle for vehicle dominance is far from over.

In only 5 years’ the global electric vehicle fleet has risen from ~50k cars to over 2mn worldwide, driven by government subsidies and falling costs as production increased. Analysts believe those same drivers could transform the hydrogen market too. In early 2017, Honda and GM announced targets for mass production of HFCVs by 2020, while Toyota, Honda, Hyundai, BMW and Daimler have committed $10.7 billion into research and development of hydrogen-based products over the next five years. There are now even a range of apps that can show you all the planned and current Hydrogen re-fueling points, like this one.

Granted, I am a confessed Hydrogen fan and have been so for a while. So in the interests of fairness, I also leave an attached rebuttal of the case for Hydrogen cars here, though it is a little dated. But regardless of whether Hydrogen will transform the light vehicle car market, there are plenty of other sectors where Hydrogen technology is likely to transform our transportation system.

De-carbonizing transport:

Depending on the source, transportation accounts for between 14% and 23% of global greenhouse gas emissions (GHGs). This sector is also growing rapidly, as aspiring middle class citizens seek to travel more and to own their own forms of transport. Ride-sharing, urbanization and automated driving all offer potential avenues in the longer term, however poor urban planning, under-educated regulators and significant cost challenges will ensure that these solutions are unable to meaningfully reduce emissions until 2040 if not later. Moreover, they only deal with the simplest solution of all, light duty vehicles.

Using IEA estimates from the Global Tracking framework, a joint World Bank and IEA publication, global renewable transport numbers remain a significant concern for efforts to de-carbonise the global energy system. According to the IEA, Electric vehicles must reach 160mn by 2030 to meet the 2 degrees target set at Paris and over 200mn to reach the below 2 degrees target. In other words, the world has to manufacture and sell at least 158mn EVs in 13 years globally, mostly fueled by clean electricity and with sufficient grid infrastructure to handle re-charging.

Achieving the Paris commitments for light duty electric vehicles alone should put pause to the idea that we can electrify shipping, aviation, rail and heavy freight with batteries as well meeting the Paris commitments for electric light duty vehicles. The only credible alternatives are hydrogen, LNG or CNG.

Compare and contrast: the new Tesla truck with the Nikola Two. The Tesla truck will have a maximum range of 300-500 miles and will require 30 minutes of full charge to add 400miles. It will also require the equivalent demand from the grid of 3,000 – 4,000 UK homes when it is charging. That is per truck…In contrast, the Nikola Two can cover 800 – 1,200 miles with a 15 minute re-fuel time. The bigger brother of the Nikola Two, the Nikola One, has similar statistics but has received $2.3bn in pre-orders, totaling over 8k. Nikola isn’t the only company in the field either. Toyota has its own project, called “Project portal”, while Kenworth is examining HFCV options as well.

Looking at the aviation space, Hydrogen fuel cell planes have already been developed and successfully tested, including the HY4 passenger craft. The plane already has a range of 1,500 kilometers and expansions for a 19 passenger plane are underway. By contrast, experts from WIRED estimated that electric batteries will take until 2045 to have a commercially viable battery plane available. Even in the smaller plane segment, the current record distance set for an EV plane is 300 miles in a two seater plane, largely modelled on a glider technology.

In freight, Alstrom and Hydrogenics already have tested Hydrogen on trains in Germany, while Ontario is looking at Hydrogen trains to replace the current rolling stock on the GO rail network. Aside from promoting local businesses, the trains are almost silent and emit none of the harmful particles associated with diesel or other fuel sources. There clearly will remain a role for electrification of urbanized rail, but even in a small landmass like the UK, the costs of electrifying entire train lines have forced planners to move towards mixed fuel and electrification trains. In this regard, Hydrogen is likely to compliment electrification for long distance commuter trains. The UK is already considering this option.

Then we have shipping. The maritime industry is one of the worst sources of pollution in coastal cities, with cities like Hong Kong calculating that 50% of all locally produced air pollution comes from the maritime industry. In Norway, parts of Canada and the USA, various attempts to introduce LNG bunkering have produced significant results in reducing maritime emissions, with Vice estimating 20% less CO2 emissions per ship, but hydrogen is likely to be the next major frontier. So far both Viking Cruises and Royal Caribbean have committed to procuring hydrogen powered ships, while Norway’s Fiskerstrand Holding AS is building a hydrogen ferry and the Port of San Francisco is mulling a $5mn investment in a Hydrogen fueling station. They are unlikely to be the last movers.

But perhaps the most surprising thing about Hydrogen now is its wider application in more niche services. For Amazon, hydrogen fuel cells have allowed the firm to revolutionize its warehousing forklifts, so much so that the company invested $70mn into a fuel cell company called Plug Power, while Walmart reacted with its own investment of $80mn in the same firm. Why? Well according the leading US body NREL, hydrogen fuel cell forklifts are at least 10% cheaper than alternatives over a 10 year investment. But the effect is not limited to forklifts. Amazon now uses Hydrogen powered drones in its warehouses to monitor inventory. With a flight time of two hours, compared to 30 minutes for a comparable electric powered drone, Pincs aerial drones offer savings of up to 5% of the total inventory stock.

Final comments:

On our current global trajectory there is almost zero chance of the world reaching its Paris climate commitments, let alone the wider level of agreement needed to reduce CO2 emissions below the two degrees limit by the middle of the century.

Our energy system is going through the most rapid transformation in its history. It is going to be messy, complicated and littered with failures. It is going to cost more than it may have done had we guessed everything right at the start, and for decades there will be debates around this subject. But one thing is clear. Without hydrogen in transportation, there is no clear evidence that we can save our planet.

In 2003 to 2004, the UK government overwhelmingly backed the idea that Hydrogen would be a key fuel of the future. Like most new ideas, the hype came early and failed to deliver. In product innovation this is often the case. The dot.com boom was preceded by the explosion of the internet almost a decade later, with the worlds largest companies all being tech stocks. Electric vehicles themselves were considered the car of the future….in the 1900’s!! Yet it took over 100 years to become the new focus of policymakers hopes for a clean transportation future.

Hydrogen has had a lot of bad press, some of its deserved. But if we are serious about climate change, investors need to drop the cynicism and engage with the technology.

So you work at the World Bank….what does it actually do?

The World Bank Group is one of the largest, oldest and best known international institutions today, yet few people can  tell you what it does. So what actually is it and why should non-policy members of the public care?

The World Bank is an agency headquartered in Washington DC, which was founded after World War Two. While it is frequently referred to as “The World Bank”, this also adds to the confusion around what the institution is and does. The “World Bank Group”, is a body of financial institutions whose job is to provide financial solutions and consulting services to the banks shareholders. It’s shareholders are sovereign nations who commit financial support to the bank in exchange for shares. The greater the financial commitment, the greater the shareholding and voting rights held.

It is not a “bank” in the classical sense, nor does it provide services to the “world”.

The World Bank was originally created as one entity, the International Bank for Reconstruction and Development (IBRD). This remains the core entity when people talk about “The World Bank”. When the IBRD was created, its aim was to help rebuild nations (largely European) who had been devastated by World War Two, whilst also providing financing for the worlds poorest countries to support economic development. To achieve these roles, the bank tried to solve a single issue for these two categories of nations: the lack of international finance available.

While most of the original financing was from the American government, the banks day-to-day lending is actually financed by institutional investors such as pension funds, insurance companies, endowments and central banks. The bank provides loans to its country members, by raising debt itself in the form of loan notes (aka bonds). As all the country members of the World Bank provide a guarantee to investors that any bond issued by the bank will always be repaid, the World Bank notes are consistently AAA rated (which indicates that default is theoretically close to 0%). This allows the bank to borrow money at the same rate as the US federal government.

The IBRD uses the money that it raises in financial markets to provide “concessionary loans” to the banks members. These loans are concessionary because they are at a lower interest rate than the country would be able to secure for itself in the global market (assuming it could even raise the money). But in order to access this much cheaper source of financing, the country which receives the financing must agree to a series of conditions about how the money can be used. In recent years, the World Bank has been criticized heavily for these “conditions” which it sets on borrowers, especially given that most countries that currently borrow from the Bank are seen as developing, post-colonial nations. But this has not always been so. In fact, one of the earliest and largest bank loans actually went to France, shortly followed by Belgium and other European nations who desperately needed US dollars in order to import food and basic goods from the USA after WWII. The Banks first ever loan went to Chile.

The second entity referred to as the “World Bank” is called IDA, the International Development Agency. Founded after the IBRD, the aim of IDA is to provide loans on an even more generous set of financing terms than the IBRD can. Understandably this makes IDA a very attractive option for impoverished governments and so its financing is restricted to only the world’s poorest countries.

As a further contrast between the work of IDA and the IBRD, the loans made by IDA can be considered “loss making”. This is because the interest paid is so low, and the duration of the bond is so long, that when counting for inflation the loan is effectively a grant (i.e. free money). The IBRD is totally different. The loans from the IBRD will all generate a profit for the Bank (i.e. the return exceeds the cost of the IBRD’s own borrowing, plus staffing costs for the project). Therefore, the IBRD provides a subsidy to IDA, so that all the money made by the bank is re-invested in providing either grants to the poorest nations in the world or more low-cost financing for other developing nations.

While the IBRD and IDA represent the core of what we call “The World Bank” today, there are three other entities that are also “World Bank Group” and which deserve a brief explanation.

The first is the International Finance Corporation (IFC). This entity provides direct investment into companies, not to governments. Its sole purpose is to promote the creation of a dynamic private sector inside developing world economies. It does this by issuing loans to companies in emerging markets, sometimes making direct equity investments in funds and even providing what is called “anchor financing” for private equity/venture capital funds, who solely invest in these markets.

The second is the Multilateral Investment Guarantee Agency (MIGA). MIGA’s job is not to make investments of any kind. Rather, its job is to provide guarantees to banks and investors who are looking at projects and businesses in developing markets. The most famous of MIGA’s products is its political risk insurance. This is where MIGA will guarantee that a company’s asset or investment, will not be taken (“appropriated”) once it has been made/brought to the developing country. As an example, if Rio Tinto builds a mine in the Democratic Republic of Congo for $1bn, MIGA will ensure that if the Congolese government nationalises the mine, Rio Tinto will get all of its investment back.

The last is the International Centre for Settlement of Investment. This body acts as a negotiation tool between developing countries and large multinationals, where there may be a disagreement over the implementation of a pre-agreed contract or a concern that either party is not acting in good faith.

While these descriptions are probably too long already, they provide only a snapshot of what the bank itself does.

In sum, the Banks various entities ensure that over $60bn a year is directly invested in developing countries. But that is only the Banks direct contribution. Given that the Bank usually co-invests with the private sector and host governments, the true figure is likely to be between $100-$200bn, depending on which assumptions one makes. All together Multilateral Development Banks, including the EBRD, IDB, ADB, AfRD and the World Bank, provide over $300bn of financial assistance to help countries develop.

Today global investment in emerging markets is roughly 1/3rd of what is is needed annually ($1trn funded against $3trn required in Asia alone). The World Bank clearly cannot do all of that on its own. But for all of its challenges and the valid criticisms raised, the bank is one of the most valuable assets for fighting poverty in the International system.

Hopefully you can now say you know a little more about it.