Aurelia Butler

The writer is Ukraine’s minister of finance In the aftermath of the cold war, world powers put in place systems of global governance. The goal was to protect liberal values, human rights and the world economy, and to extinguish the threat of nuclear annihilation. The unquestionable success of this new rules-based international order was its reach, bringing in Russia and post-Soviet Union states as well as other burgeoning economies such as China and India. But such a system only works when its members follow the rules. With its violent and unprovoked invasion of Ukraine, poisonous support of corruption and documented financing of terrorism, Vladimir Putin’s Russia makes a total mockery of the rules-based international order that gave us a unique period of peace and economic development. Yet, despite everything, Russia maintains a foothold in the global system it is doing everything it can to undermine. Russia sits on the UN Security Council and other UN bodies. The Security Council was created with the specific objective of preventing wars. How, then, can Russia remain a member after embarking on its war of aggression against Ukraine? We also have an international body to ensure global financial security — the Financial Action Task Force. Created by the G7, the FATF sets standards and promotes effective implementation of legal, regulatory and operational measures to limit three main risks: money laundering, financing of terrorism and of the proliferation of weapons of mass destruction. Today, FATF has 37 member states. These include Russia, despite evidence of the country failing to meet FATF standards on all three fronts. This month, FATF members will gather in Paris to consider further measures against Russia on a symbolic date — exactly one year since the invasion of Ukraine.Countless investigations have uncovered Russia’s complicity in money laundering, which has only increased following the introduction of wide-ranging sanctions since the full-scale invasion. Russia has also been found to have enabled or otherwise co-operated with various terrorist groups and blacklisted states, including the Wagner Group, the Taliban, Hizbollah, the Assad regime in Syria, North Korea and Iran.Iranian kamikaze drones were found to have been used to attack Ukrainian civilian targets, leading to further US sanctions in November 2022. Moreover, Russian individuals and entities were also placed under sanctions by the US in March 2022 for actions supporting the weapons of mass destruction and ballistic programmes of North Korea.These examples barely scratch the surface, however. Russia is also responsible for state-sponsored and criminal cyber threats to critical infrastructure. Its war against Ukraine is exacerbating the global energy crisis and drastically raising food costs, causing great harm across the world, especially in developing economies. In short, Russia is not simply undermining the global economic system. It is holding us all to ransom. More must be done, therefore.Ukraine calls on the FATF to expel Russia and blacklist it. This would arguably be the most effective tool for restricting terrorists’ access to the global economy, as it would force all states to apply enhanced due diligence to any transactions involving the financial system of a blacklisted jurisdiction. Sanctions are introduced by specific jurisdictions and are followed by their subjects. This leaves a big part of the global economy that has not introduced sanctions open to Russia.Blacklisting by the FATF would create universal controls and require enhanced due diligence. Any transaction with the Russian financial system would be reviewed and scrutinised. This would significantly increase the cost of doing business with Russia and effectively choke Putin’s ability to finance his illegal war of aggression. Just as important, it would help us to create a stronger, more resilient global financial system in the long term.

The EU, G7 and all other nations committed to a rules-based international order should urgently recognise the risks Russia poses to the integrity of the global financial system. They must also act to put Russia on their own “high-risk jurisdiction” lists and issue relevant market guidance. Russia has been allowed to undermine the system from the inside for too long. The international order can only survive if the rules are followed. We have powerful mechanisms available to enforce these rules. The time has come to use them. More

For decades, Saudi Arabia has attempted to launch its own car industry with nothing to show for it. It is now trying again — but this time with electric vehicles.The electric vehicle initiative is part of the kingdom’s ambitious diversification drive to wean itself off its reliance on oil income, which is its main revenue source as the world’s largest energy exporter.It intends to pour billions into the project to create an electric vehicle manufacturing hub, with the aim of producing 500,000 cars a year by 2030. The US-based Lucid Motors, in which Saudi Arabia acquired a majority stake costing roughly $2bn, intends to produce about a quarter of that target in the kingdom.Saudi Arabia hopes the transition to electric will also give the country a better chance of success as the petrol engine market is extremely difficult to break into because of the dominance of established carmakers in Europe, the US and Japan.The battery powered market offers a more level playing field than combustion, said one Saudi official, and would pit the kingdom against other big electric vehicle producers such as China, Germany and the US.In addition, Saudi can use its financial muscle to “buy into” the electric market, helped by its large surplus of petrodollars. “It’s a sector that’s already been developed,” added Monica Malik, chief economist at Abu Dhabi Commercial Bank. “They [the Saudis] can buy into it and invest in it rather than build something from scratch. It’s gaining traction in global usage, and it factors into the energy transition story as well.”There are some doubts over the country’s ability to compete against the likes of China with its strong electric vehicle manufacturing base, robust technology, high productivity and cheap labour costs.But still, electric vehicle manufacturing is planned as an important pillar of the kingdom’s diversification drive, which is being overseen by the sovereign wealth fund, the $600bn Public Investment Fund.The aim of the diversification drive is to expand the local labour force, teach workers new skills and create jobs in the private sector, while attracting foreign direct investment. The country’s broader economic plan includes the creation of the futuristic new city of Neom, a financial centre in Riyadh and tourist resorts. The Saudis will also continue their spending spree on sports and technology companies abroad. An electric-car charging point in Saudi Arabia © Rotana Hammad/AlamyElectric vehicle production is central to the initiative because the kingdom aims to take advantage of the industry’s expected expansion. Electric cars should make up about 60 per cent of vehicles sold annually by 2030, if net zero targets are to be reached by 2050, the International Energy Agency said. Key to the Saudi electric vehicle plan is the creation of Ceer, Arabic for drive or go, which the country hopes will produce 170,000 cars a year in partnership with Taiwan’s technology group Foxconn and BMW. The first cars are planned to go on sale in 2025 at the affordable end of the market. PIF has also acquired a majority stake in Lucid Motors, which plans to produce 150,000 cars a year in the kingdom in 2025, and signed contracts with Hyundai and Chinese electric vehicle group Enovate.Establishing an electric vehicle industry would substantially cut the kingdom’s import bill, said Tarek Fadlallah, the chief executive for Nomura Asset Management in the Middle East. “Transportation accounts for about 15 per cent of the Saudi import bill and is the single largest consumer of foreign currency. There is a huge incentive to substitute those imports with domestically produced cars.” In addition, the electric initiative fits with Saudi Arabia’s target of 30 per cent of all vehicles in Riyadh to be powered by batteries by 2030, while putting it among the world’s top five producers.However, there are headwinds, said Al Bedwell, director of Global Powertrain at LMC Automotive, as chip shortages and high mineral prices needed for batteries threaten development.He said recessionary forces across the world are likely to constrain the expansion of the electric vehicle sector. “By the end of this year, the industry is hoping they will build enough cars, but unfortunately at that point people may not have enough money to buy those cars.”He added: “The point at which you could produce an electric vehicle for the same cost as a combustion vehicle was thought to be around 2025, but it’s more likely now that it will be towards the end of the decade.”The electric car industry has also been hit by inflation and supply chain bottlenecks of minerals and components that could disrupt Saudi plans.With this in mind, PIF has launched a company to invest in mining abroad to secure its supply of lithium and other minerals used in batteries. At the same time, Australian battery manufacturer EV Metals is planning a lithium hydroxide plant in the kingdom.For its part, Lucid aims to start the assembly of vehicles in Saudi this year with cars completely built in the country in 2025.The Lucid and Ceer factories will be based in the King Abdullah Economic City, a Red Sea zone built to attract investment and boost the economy, which will act as a hub for the supply chain, according to the city’s chief executive Cyril Piaia.“There is a full value chain. The suppliers will be fully integrated. They will be part of the automotive hub. There will be a number of suppliers that will be established here,” he said.Faisal Sultan, Lucid’s managing director for Saudi Arabia, stressed the importance of the government taking the initiative in building a supply chain.“The supply chain is going to be a main thing we’re going to go after,” he said. “The supply chain doesn’t come typically for one OEM [manufacturer] . . . that’s why it’s a government driven initiative rather than OEM driven.” More

A trip to the supermarket in Poland now requires not only a full wallet but also a magnifying glass to check the fine print on the packaging. Parents tasked with wiping their children’s runny noses this winter have been caught out by packets containing not 10, but eight tissues. The health-conscious have found their half-kilo tubs of kefir cut to 420g. The famous “Bird’s milk” chocolate box sold by local confectioner Wedel now contains just 340g of the sweet stuff, down from 360g in December. With inflation at about 17 per cent — almost double the eurozone average — retailers and food producers in Poland are resorting to a practice as old as price pressures to hide the rise in costs from their customers. That practice is “shrinkflation”, a phenomenon that involves skimping on the amount — or quality — of produce sold to consumers, rather than raising the cost of the item itself. It is a technique that has been used by everyone from Roman emperors, who debased silver and gold coins with copper and other cheaper metals to finance their empire-building, to bakers in the Middle Ages, who tried to prevent bread riots by selling smaller loaves. In Poland, following a surge in producers’ energy costs triggered by Russia’s full-scale invasion of Ukraine, consumer goods companies have devised sneaky albeit legal ways to hide the fact they are forcing their consumers to pay the same for less. They are reshaping bottles and tubs, thinning down cleaning sponges and reducing the size of their bags of crisps. A box of Rooibos tea that used to contain 25 bags, left, is now sold in Poland with just 20 bags © Agata Wołoszyn-JaworskaPolish economist Rafał Mundry, who has been compiling a shrinkflation database for the past four years, described it as “the shadow side of inflation that many people unfortunately don’t notice or don’t even ever think about”. With inflation at a 25-year high, Mundry said packaging was being changed “on a scale I’ve never seen before”. As in many other countries, Poland’s statistics office calculates inflation by focusing on the cost of items based on their actual weight rather than the format in which they are sold. If a confectioner cuts the amount of chocolate in each of their bars, this will show up in the statistics. Yet those cuts may not be spotted by consumers doing their weekly shop. Katarzyna Bosacka, a food and consumer affairs pundit, is urging customers to spend more time reading not only the price tags but the labels as well. “I can only say one thing: everything is bigger in Texas, everything is getting smaller in stores in Poland,” she said. “It’s a question of habit,” said Mundry. “When we buy our cheese, we know perfectly well that it can be packaged in all sorts of sizes, so we actually look at whether it weighs half a kilo, 250g, 150g or 100g.”Consumer goods producers argue that they have little choice but to rely on customers’ reluctance not to check familiar items as their production costs have soared by 30 to 40 per cent on the back of higher inflation. Paweł Bajorek, regional director of UK consumer goods company Reckitt Benckiser, said: “You cannot just increase prices that much in one shot.” Among its flagship products on sale in Poland, Reckitt is now selling its Finish dishwasher detergent in batches of 46 tablets, down from 50. Bajorek also noted that repackaging had logistical challenges and limitations, as companies needed to change the certified bar code on each new packaging. “The bad message for consumers is that there will probably be more price increases,” Bajorek said, adding that these would be introduced gradually over the coming months. Comparisons of packaging on yoghurt pots and spaghetti packets by Polish consumers show that sizes have decreased © Agata Woloszyn/Katarzyna BosackaIn some cases, soaring production costs are also getting passed on to consumers by using cheaper ingredients — something that is even harder for both consumers and statisticians to track. Mundry has found more palm oil in his butter, less fluoride in his mouthwash and more glucose syrup being substituted for sugar in his confectionery. In almost every case, he said, the change had been so subtle that he had to compare new labels with older ones to identify it. He mostly shops at Biedronka, one of the biggest supermarket chains in Poland, but he has found similar issues in other stores. Katarzyna Grabarna, brand development manager at Biedronka, said that altering the weight or content of own-brand products was not “our focus when it comes to looking for savings”. Instead, she said, Biedronka was prioritising reducing the plastic in its packaging and improving bulk packaging and deliveries. Biedronka’s packaging alterations meant it reduced its use of plastic by 600 tonnes last year. Still, Mundry worries about the quality of what people now buy in inflation-hit Poland.“It’s very surprising to me how the ingredients in some products have recently been changed, unfortunately never for the better and sometimes for much worse in terms of our health,” he said. More

Americans are burning through the excess savings they amassed earlier in the coronavirus pandemic, fuelling concern among a growing number of companies about the outlook for consumer spending once the one-off boost to the economy ends.In this fourth-quarter earnings season several consumer-facing companies have hailed the resilience of an economy where wages are rising, unemployment remains at record lows and Americans are spending on experiences they missed early in the pandemic. Demand is booming for premium vodkas, customised Starbucks orders and Disney theme park tickets, executives report.Others, though, have warned of a new caution among shoppers. Lower-income customers in particular are cutting back on purchases from cat litter to mattresses as inflation keeps prices high and as they spend money they had saved thanks to stimulus packages and lower spending after Covid-19 hit.Estimates of these savings vary but Morgan Stanley analysts calculated last month that US households spent roughly 30 per cent of their $2.7tn in pandemic “excess savings” in 2022. This cushion had disappeared completely for many poorer consumers, they added.“In general, families at the lower end of the income spectrum don’t have any more excess savings and if anything they’re dipping into their savings,” said Gregory Daco, chief economist at EY-Parthenon. There is now a “K-shaped” pattern in consumer spending, he said.“The well-offs are the ones who still have the ability to spend relatively freely but even so they are doing so with more caution” given inflation and high interest rates, he said. “It’s the lower and medium end of the income spectrum that are persistently struggling in the face of these high prices.” That split is leading to mixed messages from executives, even as companies across sectors become more wary of predicting the outlook for the coming months.Citing how many Americans had used up their excess savings, Tyson Foods chief executive Donnie King told analysts this week that he expected its consumers to be under more pressure over the rest of this year. Mattel noted that higher-priced toys had been affected by “macroeconomic challenges”, with sales of its American Girl dolls down 16 per cent.At the same time, Hilton Worldwide chief executive Chris Nassetta highlighted the $1tn-plus of excess savings consumers were still sitting on as a boost to the hotel sector.“They are spending it, and they’re probably reading the papers and watching the news and getting more nervous,” he said, but hotel operators were benefiting from a parallel shift in spending from goods to experiences such as travel.“The confusion in some of these headlines speaks to the fact that the economy is moving at multiple speeds, depending on the sector of the economy,” said Michelle Meyer, North America chief economist at the Mastercard Economics Institute.“We’re in an environment where the economy is right-sizing and depending on the sector of the economy that’s going to feel different. For some sectors it’s going to be a nice acceleration, but for others it’s a contraction,” she said.Mastercard’s SpendingPulse tracker found that US retail sales excluding automotive were up 8.8 per cent year-over-year in January, but the headline number masked big differences between sectors. Sales of furniture and furnishings fell 1.2 per cent even as people’s travel budgets rose and restaurant spending soared by 24.2 per cent.With household balance sheets generally “in pretty solid shape”, consumers “have money but they’re nervous”, Hugh Johnston, chief financial officer of PepsiCo, told the Financial Times. They were avoiding large purchases, “but they do want an affordable treat”, he said.Several companies drew a distinction between wealthier and poorer customers, with Diageo hailing the growing market for premium spirits priced at $50 or more per bottle and Yum Brands highlighting growing interest in cheaper menu items such as Taco Bell’s $2 burritos.

“We’re seeing the high-end consumer continuing to hang in there [but] the low-end consumer has been where a lot of the deterioration has been,” Scott Thompson, CEO of mattress maker Tempur Sealy International, told analysts.Pet owners were trading down from premium to “value” litter, Church & Dwight told investors. “I don’t know if technically, we’re in a recession or not as judged by economists, but I can tell you our consumer sure feels that we’re in a recession,” said Barry Bruno, its chief marketing officer. As inflation pushed up the cost of everyday goods “that’s forcing them to make difficult decisions”.A University of Michigan survey confirmed on Friday that high prices were still weighing on consumers even as inflation moderated, keeping sentiment 22 per cent below the index’s historical average.Daniel Sullivan, chief financial officer of Edgewell, said the maker of razors and sun cream had seen no trading down but would not be surprised if pricing in its markets became more promotional. “We do see the data, particularly the recent spike in credit card usage, and that’s usually a pretty good indicator,” he noted. The more cautious consumer picture has played into a corporate reporting season when earnings are coming in on average just 1.6 per cent above expectations, according to Refinitiv I/B/E/S. Over the past 30 years large listed US companies have beaten forecasts by 4.1 per cent on average, making this “surprise factor” the weakest since the crisis-hit fourth quarter of 2008. More