Aurelia Butler

Good morning. Our top story today is that EY has “paused” its plan to split in two amid fierce partner infighting over the fate of its tax experts.And keep reading to learn why oil executives are warning of higher prices for crude in the year ahead.For the day ahead, I’ll be watching: China inflation data: February consumer price index and producer price index inflation rate data will be released today. Japan revised GDP: Final figures on fourth-quarter gross domestic product will be published this morning. Ex-Goldman banker sentencing: Roger Ng, who was convicted on bribery and money laundering charges related to the looting of 1MDB, will be sentenced today in the US. Thank you for reading FirstFT. We’d love to hear from you at [email protected]’s top news1. The head of EY’s US business told partners on Wednesday that the deal to split the firm in two needed to be reworked, according to people familiar with the matter. The spin-off plan has been in the works since September. Here’s what is at the heart of the debate.Related read: PwC and KPMG are falling behind rivals EY and Deloitte in promoting women to run the most prestigious audits in corporate America, new data shows.2. Oil executives have warned of higher prices now that Opec is back “in charge”. Despite recent record profits, the heads of American shale producers told the FT that rising costs and investor pressure to return cash to shareholders would continue to hamper US supply growth.3. A bipartisan bill has paved the way for the US to ban Chinese apps that pose security threats, including the popular video-sharing app TikTok. Learn more about the proposed legislation.Big Read: Can TikTok convince the world it is not a tool for China?4. US defence secretary Lloyd Austin plans to cut short his trip to Israel as demonstrators prepare for a mass protest against government plans to overhaul the judiciary. The decision follows Israeli officials’ concerns that they would be unable to secure the route to Austin’s meeting with his counterpart Yoav Gallant.5. Switzerland’s biggest banks say rich Chinese clients have become increasingly worried about parking money in the country because of its tough approach to applying sanctions since Russia invaded Ukraine. “I have statistical evidence that literally hundreds of clients that were looking to open accounts are now not,” said one board director.The Big Read

Torrents of water have broken through the main road linking villages in Pakistan’s Dadu district, further isolating communities and restricting movement between areas devastated by last year’s floods © Asim Hafeez/FT

As it rebuilds from devastating floods, Pakistan will be a test case for an issue of growing global importance: how vulnerable countries, many of which have contributed little to global greenhouse gas emissions, recover from the havoc wreaked by increasingly frequent and extreme weather events — and how much polluting rich nations should help them.We’re also reading . . . Explainer: Beijing this week announced major policy reforms. Here’s what Xi Jinping’s tightened regulatory grip means for business.Tangled ties: Last month’s earthquake has exposed the UN’s links with the Syrian regime, including an aid agency that hired the daughter of the country’s spy chief.Indonesia IPOs: Nickel companies are driving a record year for public listings in Indonesia, which has ambitions to climb the ladder in the electric-car market.Chart of the dayChina’s once male-dominated workplace is rapidly embracing female leadership just as a growing proportion of women exit the job market. The contradiction underscores the precarious situation facing female professionals in the world’s second-largest economy.

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Take a break from the newsThe Nairobi Polo Club may not have the luxury brand sponsorships enjoyed by the likes of Florida’s Palm Beach or England’s Cowdray Park, but homegrown talents are leading a surge in popularity, driven by chair Raphael Nzomo’s efforts to make the sport more accessible and inclusive:Always when you read about polo, it talks about polo being the game of kings and princes and knights and I am none of that. I’m just a hardworking adrenaline freak who was intrigued by the sport and was not daunted

Michelle Morgan rides a horse during a polo tournament at the Nairobi Polo Club, Kenya © Eduardo Soteras Jalil/Financial Times

Additional contributions by Tee Zhuo and Amy Bell More

In a preface to Naked Lunch, William S Burroughs said the title refers to “a frozen moment when everyone sees what is on the end of every fork.” The equivalent for economists is an R-star epiphany. Here’s a good example from Joe Lupton and Dan Weitzenfeld of JPMorgan:A model to make Rube Goldberg proud. The [R*] empirical models, with varying degrees of added complexities, all yield a similar result. With each iteration, implausible results in one area are corrected only to generate new implausible results elsewhere. These complex structural economic models have such wide standard errors that one would be equally well served in using the crudest of simple autoregressive models for fitting the observed data.Call it what you like — the neutral interest rate, the natural real rate, the long-run equilibrium rate, the rate that would support the economy at maximum output while keeping inflation constant — R* doesn’t exist. There’s no such thing. That’s awkward for monetary policy committees that frame decisions around some measure of R*. The benchmarks they use rely on academic methods that are “uncertain at best and useless or misleading at worst,” JPMorgan says. And crap data gives them “little more than confirmations of existing priors.”It’s mostly a garbage in, garbage out problem:The R* models rely on their theoretical foundations for an empirical framework. However, with each addition of a new equation comes a new unknown. Ultimately, these simple models are asked to jointly triangulate not only a time series for R*, but also seek to identify potential growth, the output gap, and the neutral rate of unemployment. All of this is done using only a few actual economic inputs. Lupton and Weitzenfeld offer no solutions, only condemnation. R-star’s uselessness on both a conceptual and practical level, they say, “points to central banks feeling around the in dark”.JPMorgan’s full note is outside the client paywall and is well worth your time. Consider it a companion piece to a more R-star tolerant note from JPMorgan chief economist Bruce Kasman published just last month. Further reading:— When you wish upon R* — There’s no such thing as R* More

Today’s top storiesThe eurozone economy flatlined in the fourth quarter of last year, according to new figures that were revised down from an initial estimate of slight growth. European Central Bank policymakers are at loggerheads over the future of interest rates. Martin Wolf discusses the future of the EU in an era of economic crises, pandemics, deglobalisation and great power conflict.US Federal Reserve chief Jay Powell warned of a return to bigger rate rises if the economy continued to grow too quickly. Attention now turns to Friday’s non-farm payroll and unemployment data.TikTok laid out new measures to protect users’ data in Europe, as the Chinese-owned social media app attempts to address growing security concerns from governments around the world. A US Senate bill could pave the way for a ban on TikTok and other apps that pose security threats. Germany is reviewing the security risks posed by China’s 5G technologyFor up-to-the-minute news updates, visit our live blogGood evening.We reveal today that Volkswagen is pausing plans for a battery plant in eastern Europe and prioritising a facility in North America in the latest fallout from Joe Biden’s green tech incentives, which are tempting European companies across the Atlantic.Europe’s largest carmaker estimated it could receive €10bn of help for the facility. The news comes after its announcement last week of a new $2bn electric vehicle plant in South Carolina, following similar deals from Hyundai, Honda and Toyota to take advantage of the American subsidies. To benefit, vehicles have to be substantially made in the US and exclude materials from specific countries, notably China.VW said it was waiting to see how the EU responded to the US package: Brussels is set to unveil its Net-Zero Industry Act on March 14 as part of its wider Green Deal Industrial Plan, loosening rules on state aid and potential EU-level subsidies. In a draft seen by the Financial Times, the EU said production capacity in five key sectors — solar, wind, heat pumps, batteries and electrolysers — should be able to meet at least 40 per cent of the bloc’s requirements as part of its moves to reach net zero emissions by 2050. As our recent Big Read highlights, the Inflation Reduction Act, to give Biden’s package its official name, is aimed at turning the US into the world’s cleantech superpower. And while the IRA affects manufacturers in several sectors, EU executives are particularly worried about its impact on the autos industry: Europe is home to more than a quarter of global EV production, and 20 per cent of the supply chain, while the US has just 10 per cent of EV production and 7 per cent of battery production capacity.In the short term, however, the US and the rest of the world will still be reliant on China, which produces two-thirds of the world’s batteries for electric cars and accounts for 60 per cent of the world’s refining of lithium, an important battery component. Next week’s EU announcement cannot come too soon for member states that have accused the US of an aggressive push to attract their companies. For its part, the US has said it makes “no apologies” for prioritising American jobs.Despite the transatlantic trade tensions, there are hopes that the US and EU initiatives, in addition to new reporting and regulatory measures, could make 2023 a turning point in the battle against climate change.Read our special report: Road to Net ZeroNeed to know: UK and Europe economySwati Dhingra, one of the external members of the Bank of England’s Monetary Policy Committee, made the case for holding UK interest rates steady at 4 per cent.Columnist Helen Thomas examines whether there’s any truth to the assertion from the boss of games company Activision Blizzard that the UK was more Death Valley than Silicon Valley when it comes to tech start-ups.The FT editorial board said the UK had to slash barriers to regional development if it was to address its flagging international economic performance.Ukraine denied any involvement in last year’s explosions that damaged the Nord Stream gas pipelines connecting Russia and western Europe after press reports had suggested they were the work of “pro-Ukrainian sabotage groups”. German investigators said they had ordered the search of a ship in connection with the blasts.Need to know: Global economyChina announced overhauls of its ministries to take on the west in tech and tighten financial oversight. It also warned the US of potential conflict if Washington continued with its efforts to contain China. Chinese companies are choosing Switzerland over the US and UK as political tensions grow.Mexico’s peso is the top-performing major currency this year, benefiting from relatively high interest rates, tight fiscal policy and investment opportunities from its proximity to the US.South Africa’s economy shrank 1.3 per cent in the final quarter of last year after a battering from rolling electricity blackouts. The outages, which have since intensified, led president Cyril Ramaphosa to declare a state of disaster and appoint a new electricity minister to tackle the crisis.International donors, including the World Bank, have pledged $8bn to make Pakistan climate-resilient in the wake of devastating floods last year. Our Big Read discusses whether the recovery fund could be a test case for funding “loss and damage” in developing countries. Need to know: businessHere’s a cautionary tale if ever there was one: Adidas has had to slash its dividend after recording a fourth-quarter operating loss of €724mn, thanks partly to unsold piles of Kanye West “Yeezy” trainers.Executives at Switzerland’s biggest banks say rich Chinese clients have become much more worried about parking money in the country because of its tough approach to sanctions against Russia. “We were not just surprised but shocked that Switzerland abandoned its neutral status,” said one director. Oil industry executives warned of higher prices now that Opec was back “in charge”.A $5.5bn loan from private equity firms to buyout group Carlyle highlighted the growing power of private credit providers as tougher capital requirements for banks make it harder for them to fund risky takeovers. The World of WorkInternational Women’s Day provides an appropriate moment to note that US women typically earn 82 cents for every dollar earned by men — a gap that has changed little in 20 years. Progress in making workplaces more balanced between men and women has also stalled.Would trainers and T-shirts lure women back to the office? Why are tight skirts and high heels deemed more “professional” than clothes that are easy to work in? And what do parents need from the British government on childcare provision? Read more in our special report: Women in Business.“If you were trapped at work for days or weeks chained to a desk, there would be outrage, so why do we let it go on in vessels?” Commercial seafarers might be the workforce that people rely on the most but think about the least, writes columnist Sarah O’Connor. Some good newsAmid some of the bad press surrounding the use of artificial intelligence recently, some more encouraging news: AI could be helpful in detecting signs of Alzheimer’s disease in routine brain scans. More

Citigroup has warned clients about the risks of Russia weaponising its exports of materials such as aluminium, palladium and nuclear fuels, potentially leading to price rises for these critical commodities.None of these materials, widely used in industrial and energy production, has yet been subject to western sanctions or export restrictions by Russia since it began its full-scale invasion of Ukraine a year ago.Any move by Russia to restrict exports of such materials would send shockwaves through commodity markets, disrupting global supply chains and creating problems for manufacturers and automakers. The country accounts for about a quarter of world production for some metals.“Weaponising Russian metals exports may be around the corner,” said Max Layton, head of Emea commodities research at Citi. “This could well see prices of these commodities spike.”The warning marks a departure from Citi’s previous views on how the war might destabilise metals prices, which have typically been more conservative.Moscow has not indicated it plans to reduce metals exports, but it has already cut overseas energy supplies, which are a much larger source of revenue. Last year, Russia reduced its exports of gas to Europe, triggering an energy crisis, and last month it announced it was cutting domestic oil production by about 5 per cent. “Russia’s use of gas, and more recently talking about oil production cuts, has gone straight to the big-ticket items,” said Layton. “There’s a number of other commodities that are in between, that have kind of slipped past.”As the conflict continued, more commodities would get tangled up in it, said Layton. “You look around and say, what could be next?” Aluminium started getting drawn into the conflict two weeks ago when the US imposed a 200 per cent import tariff on Russian aluminium, citing the invasion of Ukraine and national security concerns. So far, no other western countries have followed suit. Many industry executives believe that the west has avoided imposing sanctions on Russian metals because they are critical for manufacturing and would be hard to replace.Russia produces about a quarter of the world’s palladium, which is used in catalytic converters in vehicles, and exports most of what it produces.It is also a leading aluminium exporter, supplying about 15 per cent of the world’s traded aluminium. In platinum, where Russia accounts for about 11 per cent of global refined production, output in the fourth quarter of last year fell 10 per cent, because of logistical challenges in getting the material from Russia to Finnish processing facilities. “The reality for platinum group metals, particularly with regards to the end use of the automotive industry, is that there aren’t enough alternatives to Russia in the market,” said Ed Sterck, director of research at the World Platinum Investment Council. “You’re going to have to hold your nose and close your eyes.”Some western companies have started to “self-sanction”, avoiding the use of Russian materials, which has created a premium for non-Russian alternatives in markets such as aluminium and nickel.The London Metal Exchange also reported in February that Russian metal was building up in its warehouses, with 41 per cent of primary aluminium stocks and 95 per cent of copper stocks being of Russian origin — a sign that some consumers are shunning the resources.Even more crucially, Russia is a significant exporter of nuclear fuels because of its uranium resources and large nuclear processing capacity. Concerns about possible western restrictions on Russian nuclear fuel have already sent processing prices up to record levels. At present, the EU and US are still importing nuclear fuels from Russia, even while they try to speed up a switch to alternative sources. More

Since the start of the year, the flow of stories highlighting Britain’s fading industrial prowess seems to have reached warp speed. The number of new cars made in the UK has sunk to its lowest level since 1956. Britishvolt, the country’s answer to Tesla, collapsed into administration. The struggling steel sector was the subject of a potential government bailout. Meanwhile, as the clean tech race between the US, the EU and China hots up, the lack of UK response remains conspicuous.The routine approach from British politicians to sectors in need of attention has been to lament current performance, promise funding and state the desire to become a “world leader”. From the 2017 industrial strategy of Theresa May’s premiership and Boris Johnson’s 2021 “plan for growth”, to current chancellor Jeremy Hunt’s long-term economic vision, numerous industries have been the subject of the Conservatives’ proclaimed world-beating goals: cryptocurrency, green energy and the future of transport to name a few.As a result, British industrial policy has come to resemble a confused mix of pledges to rebuild UK manufacturing and take a lead role in the full array of industries of the future. Ambition is important: countries need a broad industrial base as well as depth. But such a haphazard approach risks leaving the UK without any real economic identity.For one thing, a medium-sized economy such as the UK does not have the economic heft to compete on all fronts. The US, China and EU workforces, consumer markets, capital and global trade all dwarf Britain’s. Even if the country could find more public money to splurge on multiple sectors, it may be largely wasteful; businesses consider several factors beyond subsidies in deciding where to locate. And stretched finances mean a greater need for targeted support. Second, trying to be good at everything is hard and invites scepticism — neither politics nor government departments have the required bandwidth to keep up momentum on all fronts. Having a distinct economic identity would instead send a clearer signal to investors and trade partners on how Britain fits into the global economy. Britain would be better off in all senses by first working out what it wants to be good at. This does not mean having a centrally controlled industrial strategy. Downing Street has made clear, in any case, that Prime Minister Rishi Sunak is suspicious of such an approach. But it does mean thinking strategically.The UK should first identify the industries where it needs a foothold for national, energy and supply chain security purposes. Beyond that, “the key thing is to consider where actual or latent comparative advantage lies”, says John Van Reenen at the Programme on Innovation and Diffusion at the London School of Economics. Nurturing these strengths — through improved access to skills and finance and less red tape — can help stimulate more trade and investment and build the revenue and expertise to then broaden Britain’s capabilities.Hunt’s recognition of the need to enhance Britain’s fintech, advanced manufacturing, life sciences and creative industries expertise was a start. When it comes to green technologies, the country could focus on building up specialisms such as offshore wind, or carbon capture, usage and storage, where it has existing advantages — in part due to geography but also expertise in manufacturing components. Rather than trying to win the entire green transition, this could give the country a niche in the global clean tech supply chain. Growing Clean, a paper co-authored by Anna Valero at the LSE’s Centre for Economic Performance, highlights how regions beyond the South East are more proficient in these high-growth specialisms. Supporting them, she argues, can “contribute to growth that is more regionally balanced”. Britain also has the advantage of being a genuine leader in sectors that support industrial development and climate transition globally. Its professional and financial services and research-intensive universities are world class. All industries need finance, legal support and R&D to thrive. The UK’s importance as a financial hub has made it a prime spot for developing green finance solutions around the world, and its researchers are a draw for international collaborations and funding. It is important that competitiveness in these strengths does not slide.Focusing the scope of the UK’s world-leading ambitions is about taking pride in what Britain is good at and carving out its global role. Backing all growth sectors and industries is not the answer. A desire to be great at everything risks leaving the country great at [email protected] More