Aurelia Butler

The Ifo institute said its business climate index fell to 94.7 in December from a revised 96.6 in November. A Reuters poll of analysts had pointed to a reading of 95.3.”The German economy isn’t getting any presents this year,” said Ifo President Clemens Fuest. In the manufacturing sector, the index rose in December, after falling five consecutive times, due to more optimism in the sector as order books grew substantially. However, companies’ assessments of the situation were somewhat worse.A report by Germany’s chemical association VCI on Thursday said that 35% of companies said they had to curtail production due to supply issues and 10% had to temporarily shut down.Fuest said that pessimism regarding the first half of 2022 also increased.The mood was somewhat reflected by Germany’s central bank, which said the economy would experience a setback in the final quarter of 2021 and the first quarter of 2022, but is set to pick up momentum again next spring.A purchasing manager survey on Thursday on the other hand saw business expectations brightened, buoyed by hopes that supply-chain problems and pandemic-related curbs on activity could fade over the coming year. More

The Bank of Japan has announced plans to scale back its emergency economic support programme, tapering its corporate debt purchases to pre-pandemic levels as it follows other big central banks in phasing out crisis-era policies. The BoJ made no changes to its ultra-loose monetary policy, however, as it monitors the impact of the new Omicron coronavirus variant. The monetary support, which was introduced in March 2020, included buying corporate bonds and commercial paper as well as offering cheap funding to financial institutions that extended loans to pandemic-hit small businesses.The central bank announced on Friday that it would wrap up its corporate bond and commercial paper purchases, which increased the balance of its holdings by ¥20tn ($176bn), by the March 2022 deadline as scheduled. The central bank said it would extend the loan scheme for smaller companies for six months to September. “We have unanimously decided to extend [the scheme] to help small and midsized companies,” said Haruhiko Kuroda, BoJ governor, at a press conference. He added that outlining the extension at an early stage would create provide a sense of security among companies and lenders. The decision to maintain support for small- and medium-sized businesses echoed the emphasis on the sector by the administration of Fumio Kishida, Japan’s prime minister, since October. The BoJ’s statement was in line with moves by other central banks this week to tighten monetary policy. The Bank of England on Thursday raised its benchmark interest rate in response to surging inflation, making the UK the first G7 economy to do so since the onset of the pandemic. The Federal Reserve also announced the planned end to its pandemic support of the US economy, doubling the rate at which it would taper its government bond purchases.After a two-day monetary policy meeting this week, the BoJ decided to hold its monetary levers in place, maintaining overnight interest rates at minus 0.1 per cent and those for 10-year yields at about 0 per cent, in line with expectations. Kuroda said that other central banks’ monetary policy decisions did not “immediately impact the BoJ’s policy stance”. The rise in the core consumer price index is hovering at about 0 per cent, and there is still a long way to go to achieve the central bank’s 2 per cent target, the governor said. The US, on the other hand, faces rising consumer inflation, which hit 6.8 per cent in November, its fastest increase in almost 40 years.

Friday’s policy decision left the BoJ among the world’s most dovish central banks, a position that Marcel Thieliant, senior Japan economist at Capital Economics, said would remain in place for the foreseeable future.Expectations of that have weighed heavily on the yen, holding the Japanese currency to less than ¥110 per US dollar since late September. The exchange rate barely moved on the BoJ’s announcement on Friday, holding at about ¥113.5 per dollar in the hour following the central bank’s statement. Foreign currency exchange analysts said that for much of 2021, forecasts of a widening disparity between Japanese and US interest rates had encouraged funds to play a short-yen trading strategy. Although some of those positions were unwound in recent weeks amid concerns over the spread of Omicron, the short bets were likely to be rebuilt in the coming days, currency traders said. More

The large central banks’ responses to surging inflation this week were marked by a divide between anglophone economies and the eurozone. The Bank of England, which surprised markets by holding rates last month, confounded investors again this time by raising them, despite the uncertainties posed by the Omicron coronavirus variant. The US Federal Reserve accelerated tapering of its bond-buying programme and changed its forecast for interest rates, with officials signalling they expected to raise rates three times next year.The European Central Bank’s decision, by contrast, was more balanced. It announced it would end its emergency quantitative easing programme as it had previously signalled, by March, but promised to increase its regular asset purchase programme to smooth the taper in the second and third quarters of next year. It also extended the period in which it plans to fully reinvest its asset holdings. The outcome is that the ECB’s balance sheet will continue to expand, albeit at a slowing pace, into the medium term. This divide makes sense. Price rises are broader in the anglophone countries. “Core” inflation, which strips out volatile food and energy prices, is much higher in the UK and US at 4 per cent and 4.9 per cent, against the eurozone’s 2.6 per cent. Pre-pandemic, there were signs the currency bloc was in a Japanese-style low inflation trap. It is too soon to say that it will have escaped it once inflationary factors disappear.It is striking, however, that no central bank really seems to have changed the (very similar) way they think the economy and inflation work. All three expect inflation to abate in the second half of next year. All cite the same pandemic and supply chain-related factors. In that sense, this week’s decisions should be welcomed as competent.The slight firming up of UK and US monetary policy should not therefore lead to expectations of a much greater overall amount or speed of tightening than was previously anticipated. These central banks will continue to calibrate policy very finely to how each one’s economy develops. If inflation slows down substantially next year — an optimistic assumption — they may stay put for a while. Conversely, the ECB has positioned itself to move to a tighter stance if inflation remains high.The flipside of this fine-tuning is that there was little adjustment for the arrival of Omicron. This is probably fair; the variant’s severity is not yet clear. Omicron might yet exacerbate inflationary pressures if it adds to supply chain problems but spending holds up. If things play out badly and demand drops sharply, the US and UK central banks may be forced to change tune, if not to reverse this week’s decisions. That would be the right thing to do, if not the most comfortable position to take.The week’s decisions illustrate, above all, how hard it is to formulate monetary policy when the outlook is both very uncertain and very volatile. Doing the best they can in going by the data can make central bankers look dithering or indecisive, or weak in the face of pressure. Sticking to one’s analysis can bring accusations of being blind to the obvious — as the Fed has found. Trying, like the Bank of England, to be flexible — if that means upsetting market expectations — leads to being called an “unreliable boyfriend”, though there are questions over how well the BoE had communicated the shifts in its thinking. It had scope to wait for clarity, but chose to raise from a record-low rate to what remains a very low level.On the whole, the three banks delivered well-reasoned decisions. It is their misfortune that they may look less competent if the pandemic takes another dramatic turn. More

Thirty years ago, Ismail Ahmed snuck from then war-ravaged Somaliland into neighbouring Djibouti, hidden on the back of a tipper truck. His brother, who was working in Saudi Arabia, sent him money to pay for a flight to London to take on a scholarship to study economics. “That’s when I really realised remittances were a key source of migrant money,” he says.Today, Ahmed is the founder and chair of the London-based Zepz, formerly WorldRemit Group: a cross-border digital payments service that has more than 11m users in 150 countries, and was valued at $5bn in an August fundraising.“We are one of the largest independent digital money transfer businesses globally,” he explains over tea in Hargeisa, his hometown and the capital of the self-declared state of Somaliland.“Our first corridor of remittances was from the United Kingdom to Somaliland — that’s how we started. Then, we went global and, today we are among the top in Colombia and the Philippines, for example.”

Ahmed established the company a decade ago. He funded it with around $100,000 in compensation that he received after blowing the whistle on corruption in a remittance programme while working for the UN in Nairobi. At that point, he was already researching more efficient ways to transfer money across borders after having to pay fees to high street banks to send cash back to Somaliland when he was studying in the UK.“Hargeisa was actually built with remittance money, so I grew up seeing remittances everywhere,” Ahmed explains — noting that Somalis used an honour-based underground money-transfer system called  hawala, which was then developed into a way to let expatriates send money back to Somaliland at close to zero cost.Somalis working in other countries — they are strongly represented in Djibouti, Ethiopia, and Kenya, for example — would hand their spare cash to traders there who were in need of money to buy stock. Those traders would, in turn, sell their goods in the country for which the Somalis’ money was destined, handing over the proceeds of their sales to a specific recipient. The close-knit and clan-based communities of Somalis provided enough trust that these transfers would be carried out in good faith.Remittances have also been sent to Somaliland via transfer shops and kiosks over the years.However, with the development of mobile money — which is booming in parts of Africa — the remittance market has entered a new phase. That was illustrated in August, when Zepz raised $292m in new financing from equity investors including Farallon Capital, as well as existing shareholders LeapFrog, TCV, and Accel. Zepz was adopted as the company name earlier this year, after WorldRemit snapped up the remittance app Sendwave, which is focused on African and Asian markets, for $500m. Fast-growing digital money transfer businesses have enabled migrants to send smaller emergency remittances that would not be possible at cash-based agent locations, “because of the minimum send amounts and higher minimum fees,” points out Ahmed.And they have proved crucial during the Covid-19 pandemic. “The phenomenal success of mobile money and digitisation, particularly in Africa, meant that, when physical locations were closed during lockdowns, people were often able to get their funds on their mobile money accounts or bank accounts,” he adds. In Somaliland, which has an economy worth $3.5bn, remittances rose to more than $1.3bn in 2020, up from $1.1bn in 2019, according to the central bank.

“We have a community culture that mutually supports each other, a support system,” says Saad Ali Shire, Somaliland’s finance minister. “People who have it give it to their relatives, who don’t have it, for that you need to move money. Wherever Somalis go, they need to send money back, and for sending money you need trustworthy remittance companies.”Shire has experience in the sector, having been managing director in the UK for Dahabshiil, the biggest Africa-based remittances provider. Dahabshiil once won an injunction against Barclays, after the British bank tried to shut its account, prompting a campaign led by Somalia-born British athlete Mo Farah.For Somaliland, remittances are a big part of the unrecognised country’s economy, enabling a small state to become a thriving private enterprise.“Our community trusts each other a lot, due to family connections, cultural connections, clan connections — and Dahabshiil respects this,” says Abdirashid Duale, chief executive of Dahabshiil.His father, Mohamed Duale, is the “founding father” of Somali remittances, having started Dahabshiil — meaning “goldsmith” — in 1970, in the town of Burao.In the early 1990s, however, the Duale family had to flee the Somali civil war, when “all of a sudden, planes dropped bombs left and right.” Walking with nomadic communities, they crossed into Ethiopia. They finally ended up in the UK, before coming back to Somaliland to boost their business.

Today, the business has a presence in 126 countries and interests spanning from banking to energy to telecoms — as well as e-Dahab, a mobile money service.“Remittances are critical for the Somali communities worldwide,” says Duale. “Business is in our DNA. People here are very innovative in doing business, making investments and sending money.”Dahabshiil handles a large proportion of Somalia’s remittances, says Duale, in addition to remittances from and to other parts of Africa.“People always think of money coming from Western countries which is vital, but they forget about regional transactions, people buying goods in different parts of Africa and remitting money between countries on the continent and the Middle East,” Duale adds. More

Traders dialled back their expectations on Thursday for how far the Federal Reserve would be able to lift interest rates, dismissing the US central bank’s own guidance as it tries to rein in inflation during the pandemic.Trading in futures markets, which offers insight into how investors are positioning for changes to Fed interest rate policy in the years ahead, showed that money managers expected the US central bank’s overnight rate to rise to just 1.27 per cent by the end of 2023. That was a full 0.11 percentage points below the 1.38 per cent rate implied on Wednesday, and compared to Fed policymaker’s projections for 1.6 per cent released on Thursday.Beyond 2023, trading in futures contracts for Sofr (the secured overnight financing rate) and eurodollars suggested the Fed would have trouble lifting rates any higher, in contrast to the views of a majority of Fed officials that interest rates would eventually climb to about 2.5 per cent. Implied rates on Sofr and eurodollar contracts between 2024 and 2026 topped out at about 1.42 per cent, down from 1.5 a day prior.The division between the markets and the Fed underlines the uncertainty investors have about the prospects for the US economy in the years ahead, as well as how aggressively the central bank will need to act to tame inflation that last month rose by its fastest pace since 1982.The Fed said on Wednesday it would more quickly remove pandemic-era stimulus and is ready to lift interest rates to combat inflation given the recovery in the labour market. Fed chair Jay Powell said that with “inflation as high as it is, we have to make policy in real time”.The so-called dot plot of interest rate predictions from individual Fed governors published on Wednesday showed three quarter-point rate rises in 2022 followed by another three in 2023. Investors, by contrast, are now betting that a faster tightening cycle in 2022 could lead to fewer rate rises in the years ahead. “The most logical conclusion is that the market just doesn’t believe the Fed will ever get past 1.5 per cent,” said Tom Graff, head of international fixed income at Brown Advisory. “With the Fed apparently ready to hike in early 2022, the market is determining that will result in fewer hikes total.” Although a tightening of monetary policy is expected to tamp down inflation, some investors worry it may begin to crimp economic growth, putting a cap on how high the Fed can raise rates. Traders and investors also warned that the rapid shifts prompted by the pandemic, including the quick spread of the Omicron coronavirus variant, could complicate the Fed’s plans.“We think the moves may be driven by market concerns over Covid,” Gennadiy Goldberg, US rates strategist at TD Securities, said about the moves in short-term funding markets.“There has been a significant increase in mentions of returns to offices being put on hold and holiday parties being cancelled, so investors may be concerned about the impact of Omicron on the economic recovery,” he added.If the Fed’s dot plot vision is realised, it would also put the US interest rate policy out of sync with some other big economies, most notably the EU. The European Central Bank said on Thursday it had ruled out the possibility of raising interest rates in 2022 despite higher inflation. “It is hard to reconcile three to four Fed rate increases versus none for the ECB,” said Andrew Brenner, head of international fixed income at NatAlliance Securities. More

Makhtar Diop was appointed this year as the first African head of the International Finance Corporation, the private-sector arm of the World Bank.A former finance minister of Senegal and previously vice-president for infrastructure at the bank, Diop is expected to accelerate the IFC’s push to invest in sustainable development and projects that support gender equality.

Although it is the commercial arm of the bank, the IFC has pivoted in recent years towards supporting projects in low-income countries and fragile states — many of them in Africa.Diop says he wants to catalyse investments in small businesses and to help fund the digital connectivity required by start-ups, including fintechs that can help promote financial inclusion.In an interview with the Financial Times, he laid out his plans for the IFC and his hopes for de-risking private-sector investment on the continent and reviving inclusive growth.The following excerpts have been edited for clarity and brevity.FT: How do you see the IFC’s role?MD: We are creating markets in lower-income emerging economies so that we are really able to reach a segment of the economy that has been underfunded, and be supportive from the private sector side. That’s the number one thing I would like to do more of.We are a leading institution on mobilisation — which means that, for each dollar that we put in from our IFC balance sheet, we are mobilising roughly one additional dollar.

I want to move this ratio up. And one way I would like to do it is to mobilise more money from institutional investors, which are sitting on a lot of liquidity with some placed in investments with low returns — like US Treasury bills.It’s not an easy task because, last year, we have seen a fall in foreign direct investment. So the appetite of the capital markets for emerging economies, because of the current crisis, has decreased. But, in spite of that, we have been investing.FT: How can you mobilise more money?MD: An example is the platform we’ve been creating for solar energy. We have a template where we are reducing the complexity of the project design, making it simpler for the investors, for the developers — and more predictable for the government.That allows us to mobilise more resources, because one of the obstacles that you have in emerging economies is the time it takes to prepare a project. So you can say, “OK, I understand how easy it is to invest in solar energy in Africa. I don’t have to reinvent the wheel.”FT: How has the investment environment changed in Africa?MD: I think this world, today, is very different from the world as it was 5 or 10 years ago. The profit motive is not sufficient now to mobilise the private sector.Everybody is saying it is good to make money, but it’s good to make money for good things, for good causes. So there is a social dimension to private-sector investment through impact investing.FT: Does the IFC have a strategy to steer investors towards these kinds of projects, particularly environmentally sustainable ones?MD: It’s not only a priority for us, it’s a reality for everybody. It’s obligatory. Greening a company in the UK or greening a company in France is one thing.Greening a company in the Central African Republic is another story. And that’s why the IFC is so special, because a lot of the other institutions we are talking about are not in those markets.

We are working on many fronts of the energy transition. We have been one of the leaders in terms of investing in clean energy in Africa.We haven’t been investing in coal, we haven’t been investing in oil. What we are discussing is something which is very much consistent with the Paris agreement, which is to say that, when we need to have some base load to run a grid, we are looking at the least polluting option — which in some cases might mean gas power.Trying to create economic opportunity without simultaneously addressing climate change is like trying to paddle a boat without an oar. It’s possible. But I don’t think that you go very far.FT: You’ve been investing in digital connectivity. Why is this so important?MD: We cannot have a recovery today without having an economy that is linked digitally — meaning service delivery, and health services like telemedicine.

© AFP via Getty Images

If, today, we don’t invest, we will not be able to develop our human capital. If we are saying that the next Bill Gates will come from Africa, we need to have connectivity.FT: Do you have other priorities?MD: We really need to do something on trade finance. We would like to have more trade within Africa. Geopolitics is going in such a way that it might become more complicated in coming years. So, developing the subregional value chain would be an important element of the resilience of African economies [in areas like vaccines and pharmaceutical production, which the IFC has supported].The ecosystem we have in Africa, means small firms don’t have access to financing. Banks are only giving short-term financing. Firms don’t have access to distribution networks so they have a lot of constraints. I’m trying to work with intermediaries [including fintechs], which allow us to reach out to smaller firms.  More

In theory, Turkish businessman Vahit Yilmaz should be benefiting from the weak lira: orders from abroad are flooding into Turkey’s $30bn textile and clothing industry after the lira’s crash slashed the cost of production in dollar terms.But there was only a 50-50 chance that his wholesale clothing business would survive the next 12 months, he said. The cost of fabric, thread and other inputs, all priced in dollars, has shot up, and domestic producers such as Yilmaz in Merter, Istanbul’s ready-to-wear wholesale district, are bracing themselves for a turbulent spring season. “Turkish textiles are all but free at this exchange rate,” said the 35-year-old. “Business was super when the dollar rose steadily. Now it’s dangerous.”Recep Tayyip Erdogan has presided over a 50 per cent slide in the currency since the start of the year after he ordered the central bank to slash interest rates repeatedly despite rising inflation. On Thursday, the central bank cut rates for the fourth month in a row. The lira fell a further 7 per cent on Friday to TL16.8. It has tumbled by a fifth this month alone after a 29 per cent fall in November. The Turkish president has argued that a cheaper currency will help the country of 83m people to enjoy booming exports, investments and job creation. But the president’s critics say he is submitting the country to a giant economic experiment. Durmus Yilmaz, a former central bank governor, said this month that he was turning Turkey into “a laboratory for crackpot ideas”. In recent months, as Erdogan launched another easing cycle, he has reportedly cited China’s economic transformation in the wake of 1978 reforms as evidence that his model would bear fruit. But Ali Akkemik, an expert on the economies of both China and Turkey at Japan’s Yamaguchi University, said that while it was true that Beijing had devalued its currency in the 1980s and 1990s, it had implemented a clear “industrial vision” that was crucial in its transformation into the world’s second-largest economy over the course of several decades. “Turkey doesn’t have any clearly defined industrial policy,” he warned. “We don’t know what industry they’re trying to promote.”A London-based banker with expertise on both economies who asked not to be named put it more bluntly. “It is economically crazy to think that a country can build an export-oriented economy simply on the back of a trashed currency,” he said. “If that were the case, Zimbabwe would be a tech superpower.”Erdogan’s determination to push ahead with rate cuts despite growing dismay from voters and the business community has fuelled speculation in Turkey that certain constituencies must be benefiting from the slide in the lira. But, said Atilla Yesilada, an analyst at the consultancy GlobalSource Partners, “this is not a policy that benefits any identifiable constituency, including his family . . . or his cronies”.

An Istanbul municipality bakery. Many ordinary Turks are struggling with the soaring cost of living © Chris McGrath/Getty

Some businesses are gaining from the slide in the currency. “Most of the companies listed on the Borsa Istanbul are benefiting from the weak lira,” said Selim Kunter, an equities analyst at the Istanbul-based Ak Yatirim. He pointed to publicly listed airlines, defence groups, carmakers and chemicals producers as companies that enjoy foreign currency-denominated revenues and Turkish lira-denominated staffing costs. The success of those sectors has helped fuel a boom in exports, powering economic growth that is expected to exceed more than 9 per cent this year. But it is likely to come at the cost of inflation of 30 per cent or more in the months ahead, hurting not only businesses that rely on imported energy and raw materials but also ordinary Turks already struggling with the soaring cost of living.“Erdogan is prioritising exporters over households,” said Jason Tuvey of the consultancy Capital Economics. “If you think about his support base, it doesn’t really make sense at all.”Many big exporters have also been critical of the currency volatility, which they say makes it difficult to price their products and plan ahead. Tusiad, a group representing large industrial companies that account for 85 per cent of Turkey’s foreign trade, excluding energy, has warned that what the business world needs most is stability. Musiad, a business association with close links to the ruling party, recently added its voice to the disquiet in a rare critique of the president’s approach. “A businessman needs to know what the exchange rate will be in two to three months’ time and how much it will rise,” Mahmut Asmali, the group’s president, told the Turkish business newspaper Dunya last week. “The exchange rate chart should not look like the chart of someone with high blood pressure.”

Despite booming house sales, the construction sector, which has close links to Erdogan and other ruling party officials, is also complaining. Figures from the industry, which represents about 5 per cent of the Turkish economy, have warned that the sector is being crushed by the high cost of raw materials and energy, both of which rose more than 90 per cent year on year in November. Erdogan simply “doesn’t have a game plan”, Yesilada said, pointing to the fact that Turkish authorities have spent several billion dollars defending the lira in recent weeks while simultaneously praising the virtues of a cheap currency. “We can discuss it for hours. None of it makes sense,” said Yesilada. “There isn’t any logic.”Yilmaz, the clothing producer, said the domestic sales that usually made up half of his business were already “dead”. He hoped that foreign sales will counterbalance the losses. But he predicted that half of his neighbours in Merter would be gone within six months, pushed out by rents that are set in dollars despite a ban on the practice. “Right now, I am optimistic we will weather this storm,” he said. “But I too could soon be gone.” More

Of the total package, some 3.2 trillion won would be allocated to provide 1 million won each to 3.2 million small business owners that experienced a decrease in sales.On Thursday, the prime minister said the country will reinstate stricter social distancing rules a month-and-a-half after easing them under a ‘living with COVID-19’ policy, as the number of new infections and serious cases spirals.Curbs will return from Saturday to Jan. 2, limiting gatherings to no more than four people – as long as they are fully vaccinated – and forcing restaurants, cafes and bars to close by 9 p.m. and movie theatres and internet cafes by 10 p.m.The Korea Disease Control and Prevention Agency (KDCA) reported 7,435 cases for Thursday, near the record daily count of 7,850 earlier this week.Friday’s stimulus package comes weeks after the parliament approved a record 607.7 trillion won budget for 2022 to support a swifter economic recovery and help those hit by the pandemic.($1 = 1,184.9700 won) More