Raphael Stevens

Ukraine suffered a brutal winter. Russia lobbed missiles at civilian and energy infrastructure, attempting to terrorise the population and cut off the green shoots of economic growth. It had some success. A sentiment indicator surveying Ukrainian firms hit a low in January. But as the country’s soldiers began their counter-offensive, so the economy pushed back. In April and May the sentiment indicator signalled economic expansion. Vacancies continue to rise, as businesses seek workers. Forecasts are increasingly rosy, too. Dragon Capital, an investment firm in Kyiv, expects gdp growth of 4.5% this year. There is nevertheless a long way to go: Ukraine’s economy shrank by more than a third at the start of the war. Agriculture has been hit hard by the bursting of the Kakhovka dam; many iron and steel facilities are destroyed or in Russian-occupied territory; foreign investors are understandably cautious; many workers are fighting or have fled the country. Thus policymakers, financiers and business types gathered in London on June 21st and 22nd for an annual conference. Their task was to work out how to support Ukraine’s recovery.The first order of business was the immediate reconstruction of the country, so that it can meet the basic needs of its people, especially next winter. Ukraine has asked for $14bn to cover this year, of which a chunk will go on grants to households to rebuild their homes and to firms to repair their businesses. So far, only a portion of these funds have been raised. Ukraine also needs cash for its long-term recovery. In March the eu, un, World Bank and Ukrainian government together put the cost at $411bn over the next decade, a figure reached before the destruction of the Kakhovka dam. The International Finance Corporation, an arm of the World Bank, thinks two-thirds of the money will need to come from public sources because of the difficulty of enticing private money. This would amount to an annual cost of 0.1% of the West’s gdp over the same period. In London, Ursula von der Leyen, head of the European Commission, proposed that the eu should provide 45% of the funding until 2027 in grants and loans. Next comes reform. Seasoned donor-country experts are impressed by what Ukraine has so far achieved under war conditions. The country has completed an imf programme and continued with changes to improve the transparency of property transactions and public procurement, meaning international donors can use the country’s lauded Prozorro online platform, which makes information public and digitally accessible. The country has also completed two out of seven judicial and anti-corruption reforms required to open formal accession negotiations with the eu. The integration of electricity markets between Ukraine and the eu shows the value of pushing ahead. Long-planned as part of a shift towards the West, the process sped up after Russia’s invasion. It involved technical adjustments and painful market reforms on Ukraine’s side to create a competitive, open wholesale market. “It was quite brave of eu politicians to realise the integration so quickly,” says Maxim Timchenko, boss of dtek, one of Ukraine’s biggest energy firms. The bravery has paid off. Ukraine and the eu are able to trade electricity, and investors can begin to tap Ukraine’s vast potential for green energy.The question now is whether such private money will actually arrive. Under war conditions, investors usually need some kind of guarantee from a public body to take the leap. One idea under consideration in London was for donors not only to provide war insurance or guarantees, but to help prop up a reinsurance market. If such guarantees can be arranged, the final step will be to take advantage of opportunities, which ought to be plentiful given the amount of aid pouring into Ukraine and the country’s economic potential. Some observers even think private investment could surpass the $411bn estimated to be required for Ukraine’s long-term reconstruction. Yet that is only if everything goes to plan. Ukrainian reformers will need to take inspiration from their countrymen’s bravery on the battlefield, as will foreign investors. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

Indian agriculture has a poor reputation, which is not unfair. About half the country’s workforce toils on the land. Their labour unfolds in the brutal heat and tends to be done by hand or in unsheltered, rudimentary vehicles. Seasonal financing often comes through informal channels, with lending at annual rates approaching 30%. Paralysing debts are not uncommon. Production efficiency is low; yields for corn, rice, wheat and other crops are a fraction of those in America, China and Europe. In Punjab, the country’s agricultural heartland, roadside signs forgo typical advertisements for cars, films and phones, and instead hawk foreign-language training, overseas education and expedited visas. What local farmers want is not a new gadget but a way out. Yet in some senses, rather than stagnating, Indian agriculture is flourishing. Working conditions may be grim, but record harvest follows record harvest—and famine is a thing of the past. Farming exports in the fiscal year ending in March were up by 9% on the previous 12 months, hitting $26bn and representing 7% of India’s outbound trade. During the global food scare that followed Russia’s invasion of Ukraine last year, India became a pivotal exporter of rice and wheat (it is the world’s second biggest producer of both), as well as other grains. In one of many such examples, it recently agreed to send 20m tonnes of wheat to the Taliban in Afghanistan, adding to 40m tonnes last year. India would be more important still to global agriculture were it not for the periodic export restraints and tax surcharges that the government imposes. Such restrictions are not the only official obstacles. Subsidies for fertilisers and pesticides have depleted soil fertility. Some countries occasionally ban imports from India out of concern about chemical residue. Minimum price supports have led to an emphasis on thirsty crops, such as rice, in regions where water is scarce, depleting aquifers. Restrictions on sales mean farms are often divided among children into smaller, less efficient plots. The average holding has shrunk from 5 acres in the late 1970s to 2.5 today. To maximise output on such tiny plots, wheat farmers throughout northern India burn the post-harvest stubble in order to shrink the time between reaping and sowing, producing a thick, toxic cloud over much of the land.However, Indian agriculture has begun a subtle evolution—in terms of policies, technology and finance—that is helping bypass the many official constraints. This is apparent in the economic data. A little more than a decade ago, agriculture and manufacturing produced similar amounts of gross value added, a measure that subtracts purchase costs from revenues to capture contributions to economic activity. The most recent numbers show that agriculture contributes a quarter more.hdfc Bank, India’s most important private financial institution, has increased agricultural lending from $1.2bn in 2015 to $7.5bn last year, charging somewhere in the region of a third to half the rates that are typically found in the informal market. And where hdfc goes, other private-sector banks follow. This lending boom is helping sharply reduce costs for farmers, and means they are less likely to fall foul of occasionally violent loan sharks.Supply chains are also increasingly innovative. In 2020, during a covid-19 lockdown, Anushka Neyol moved from Delhi, where she worked on startups including a baby spa, to her family farm, which sits near the Pakistani border. She began to experiment with types of wheat, as well as distribution through the internet, selling directly to bakeries and restaurants in big cities, bypassing a sclerotic government auction apparatus known as the mandi system. Clients include Subko, a coffee chain in Mumbai that boasts of uniquely sourced coffee, chocolate and wheat.Another approach can be seen in Nashik, a city 170km or so inland from Mumbai. In 2004 Vilas Shinde, a local resident, began exporting grapes from a small farm. Six years later he founded a co-operative, Sahyadri Farms. Co-operatives have a long and decidedly mixed record in India. They have been tried in a number of different forms, but usually dissolve in disagreement within a few years. Sahyadri’s success suggests at least that another outcome is possible. The co-operative now comprises around 21,000 farms, which mostly produce fruits and vegetables excluded from the official pricing and distribution system. It has the scale to justify the inspections and shipping required for international markets. Customers include Hindustan Unilever for tomatoes, Walmart for frozen fruits and a network of European grocers for grapes, reflecting a national trend towards such crops, which are more amenable to India’s hot weather and cheap labour. Surrounding Sahyadri is an embryonic Indian wine industry, which includes a winery named Sula Vineyards.Meanwhile, technology and market forces are seeping into the broader production processes. McKinsey, a consultancy, reckons that there are at least 1,000 Indian “agtech” companies, which have raised some $1.6bn. Through cheap smartphone apps, satellite data can now provide guidance on soil treatment, sowing and harvest dates, as well as when and how to employ fertilisers and pesticides. These changes attract plenty of attention and excite investors, blurring practical limitations. Visit a farmer whose inexpensive mobile phone has a cracked screen, limited memory and spotty connections, and it is evident that transformation will have to unfold gently. By the time it comes, some of the likely adopters will have read the writing on the billboards next to Punjabi roads and gone elsewhere. But change—halting, hidden, partial—is taking root. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

Around the world a boom in defence spending is under way. Roused from their complacency by Russia’s invasion of Ukraine and China’s designs on Taiwan, the 24 of 31 nato members that do not meet the club’s 2%-of-gdp defence-budget target have promised to make good. China’s own military spending grew by 4.2% in real terms last year. Globally, new defence commitments and forecast spending add up to over $200bn, a figure that could rise as high as $700bn under plausible assumptions.This represents an abrupt reversal of a decades-long decline. During the second world war the Allies devoted half of their gdp to fighting. In the 1960s, at the height of the cold war, governments typically spent 6% of gdp on defence. But after the Soviet Union collapsed, the world reaped a “peace dividend” from shrinking defence spending. Last year global defence spending was $2.2trn, or just above 2% of gdp—close to an all-time low. As spending starts to rise, there is a puzzle. Why is the coming bill not bigger still? Even if politicians honour recent pledges, the world will spend less on defence, relative to gdp, than in 1990. Part of the answer lies in the fact that defence spending escapes a problem plaguing many governments: that of cost disease. This issue was first outlined by William Baumol, an economist, in the 1960s. The malady applies in labour-intensive industries, such as health care and education, in which productivity grows only slowly because automation is difficult. As innovation boosts output and wages in, say, manufacturing, it becomes necessary to pay nurses and teachers more, to stop them quitting and heading for the nearest factory. As a result, industries suffering from cost disease must, over time, spend more in real terms in order merely to stand still. Baumol presciently worried about health-care spending swallowing up an ever-larger share of gdp.Armed forces benefit from the reverse phenomenon. Call this “Lockheed’s law”, after the giant American defence contractor. Cost disease bites in places where, in Baumol’s words, “the human touch is crucial”. Yet in America only one-third of total defence spending goes on paying salaries. Indeed, every country that is falling short of nato’s 2% target is closer to America’s spending on armed-forces personnel, as a share of gdp, than it is to Uncle Sam’s other armed-forces spending. This suggests that arming nato will be more about buying additional and superior equipment rather than going on a hiring spree.Although Russia and Ukraine have deployed enormous conscripted armies, Western countries that are rearming remain mostly committed to the idea that quality beats quantity. Better, the logic goes, to have a smaller army equipped with state-of-the-art artillery, tanks, planes and equipment than a bigger one with rusty kit. To the extent it seeks to compete in manpower with its adversaries, the West tries to do so through big alliances such as nato (ie, by spreading labour costs among countries, rather than turning a greater proportion of workers into soldiers). There is also plenty of scope for the automation of defence: machine learning is already replacing human satellite-imagery analysts, for instance. Those companies, like Lockheed, which make military gear have no productivity problem—quite the opposite. America’s statisticians produce price indices for kit, covering everything from missiles to ships. The calculations behind these indices are fiendishly complicated. They can answer the sort of question that a ten-year-old boy might ask. How much does it cost to blow up an enemy’s position? How much does it cost to travel at 1,000 miles an hour in a military jet? The data produced show that armed-forces capabilities have been getting relatively cheaper: quality-adjusted missile prices have fallen by about 30% since the 1970s. In cash terms, America spends about the same on military aircraft as it did in the mid-1980s. Even though the purchasing power of the dollar in the wider economy has fallen over that period, it will buy about the same amount of airpower. The result is that shrinking budgets can still buy awesome armies. Economic growth makes the effect even starker. As soldiers posted in the South China Sea are well aware, China has vastly more military might than it did three decades ago. Yet in 2021 it spent 1.7% of its gdp on defence, down from 2.5% in 1990.Under the gunLockheed’s law is not without limitations. Periods of sudden defence spending tend to cause shortages, which send prices soaring. Having armed Ukraine, nato now needs to replenish its stocks of weapons, but defence supply-lines are stretched. More profoundly, health and education spending make peoples’ lives better. Defence spending is usually about forestalling threats and repelling adversaries. To the extent that military outgoings must rise simply because the world has become more dangerous, they are an unwelcome extra cost. The peace dividend was no myth.Ultimately what matters in war is not the absolute level of a country’s defence capabilities, but its strength relative to that of enemies. If everyone is upgrading capabilities, then the result will be an arms race in which, for every innovation, there must be a countervailing rise in spending. The technological change that has enabled Russia to launch Iranian drones stuffed with explosives at civilians has raised the cost of defending Ukraine, for example. In a zero-sum battle, only technologies that the West alone has access to can really be thought of as helping to contain costs. A hot war between great powers would still send defence spending soaring to agonisingly high levels. Nevertheless, it will reassure Western politicians—many of whom are struggling to meet the needs of ageing populations, accelerate decarbonisation and deal with rising interest payments—that not More

One of the few detailed stimulus plans Beijing has announced this year extends tax breaks for electric car purchases, according to documents released Wednesday.
However, tax breaks don’t resolve the fundamental reason why people in China haven’t bought more electric cars: mileage concerns.
“Growth in EV sales can only be sustained if charging demand is met by accessible and affordable infrastructure, either through private charging in homes or at work, or publicly accessible charging stations,” according to the International Energy Agency.

Cadillac advertises for its electric car in Shanghai on May 23, 2023. A traffic police woman stands below.
Hugo Hu | Getty Images News | Getty Images

BEIJING — Subsidies for electric cars aren’t enough to boost growth in China’s slowing economy.
One of the few detailed stimulus plans Beijing has announced this year extends tax breaks for electric car purchases, according to documents released Wednesday.

The incentives – which were set to expire this year – will now run until the end of 2027.
Authorities expect additional consumer savings of 520 billion yuan ($72.43 billion) as a result.
However, tax breaks don’t resolve the fundamental reason why people in China haven’t bought more electric cars: mileage concerns.

Charging challenges

Charging the car battery is still “relatively troublesome,” said Craig Zeng, CFO of online car information and shopping site Autohome. That’s according to a CNBC translation of his Mandarin language remarks.
He was speaking about the electric car market in general.

The layout of China’s residential areas means there aren’t many private parking spaces and there’s a limit to how many chargers communities can install, he pointed out.

Most people live in apartment compounds in China’s cities, with some parking underground or in lots surrounding the apartment buildings. In the capital city of Beijing, having a designated parking spot —without a battery charger — can cost nearly $100 a month or more on top of the apartment rent.
In such an environment, “after many people buy a car, the problem of charging it will gradually become more apparent,” Zeng said, noting the problem will affect people’s future decisions about buying an electric car.

Read more about electric vehicles from CNBC Pro

During a press briefing Wednesday, Chinese officials noted the charging problems and called for faster installation of charging infrastructure in residential parking spaces – especially in new developments. That’s according to an official transcript of their remarks.
The officials pointed out the country has rapidly expanded its charging infrastructure over the last seven years, and that in central urban areas, charging stations offer the same coverage as gas stations.
However, China still has a long way to go.
More than 70% of total public fast chargers are located in just 10 provinces, the International Energy Agency said in its 2023 electric vehicle outlook report. That’s only about a third of the country.
Fast charging allows drivers to charge car batteries in less than an hour, but it still takes far longer than filling up a gas tank.
China still leads globally in the installation of public fast charging stations – almost 90% of the global growth in such chargers last year, the IEA said.
“Growth in EV sales can only be sustained if charging demand is met by accessible and affordable infrastructure, either through private charging in homes or at work, or publicly accessible charging stations,” the IEA report said.

Broader economic slowdown  

Spurring demand for electric cars also faces challenges from tepid consumer spending.
China’s retail sales grew more slowly than expected in May from a year ago.
Auto sales, one of the largest components of retail sales by value, maintained steady year-on-year growth – but fell by 8% from the prior month. Many brands have also cut prices this year to boost sales.
Recent meetings of the top executive body, the State Council, noted the economic challenges and called for further support, specifically for new energy vehicles. But the announcements and interest rate cuts have fallen short of market expectations for broader stimulus.
“Although Beijing may still introduce certain policy measures to stabilize growth in coming months, the disappointing State Council meeting suggests measures for stimulating the economy could be introduced in a gradual manner, as decision-making is now highly centralized with an emphasis on ‘security,'” Nomura analysts said in a report on Monday.

Growing market penetration

Analysts are still expecting growth for electric cars in China, the largest auto market in the world.
China typically lumps electric cars into a broader category called new energy vehicles, which includes battery-only and hybrid-powered cars.
Penetration of new energy vehicles in overall passenger car sales has reached about one-third of the market in recent months, according to figures from the China Passenger Car Association.
That’s well beyond the official target of at least 20% penetration by 2025.
Autohome’s Zeng said he expects new energy vehicle sales penetration to remain between 30% and 40% this year, and reach 50% in 2025.
Chinese authorities have supported the growth of the domestic new energy vehicle market over the last decade in a bid to become a global player in the auto industry.
On the consumer side, cities such as Beijing and Hangzhou have made it far easier for drivers to get a license plate for an electric car versus a traditional internal combustion engine vehicle. More

Ripple said it received in-principle approval of a Major Payment Institution Licence from the Monetary Authority of Singapore, the country’s central bank.
The license allows Ripple to offer regulated digital payment token products and services and expand customers’ use of XRP, a cryptocurrency it is closely associated with.
It comes as Ripple continues to spar with the Securities and Exchange Commission over a lawsuit.

Brad Garlinghouse, chief executive officer of Ripple, speaks during the CoinDesk 2022 Consensus Festival in Austin, Texas, US, on Saturday, June 11, 2022.
Jordan Vonderhaar | Bloomberg | Getty Images

Blockchain company Ripple said Thursday it received in-principle regulatory approval to operate in Singapore, in a rare moment of good news for the cryptocurrency industry globally as it faces tightening policy back home in the United States.
Ripple said that it was granted in-principle approval of a Major Payment Institution Licence from the Monetary Authority of Singapore, the country’s central bank.

The license will allow Ripple to offer regulated digital payment token products and services and expand the cross-border transfers of XRP, a cryptocurrency the company is closely associated with, among its customers, which are banks and financial institutions.
XRP was trading at around 50 cents late Wednesday evening.
Ripple, a San Francisco-based fintech company, is mostly known for XRP as well as an interbank messaging services based on blockchain, the distributed ledger technology that underpins many cryptocurrencies.
The company’s on-demand liquidity service uses XRP as a kind of “bridge” between currencies, which it says allows payment providers and banks to process cross-border transactions much faster than they would over legacy payment rails.
But Ripple also operates a blockchain-based international messaging system called RippleNet to facilitate massive transfers of funds between banks and other financial institutions, similar to the global interbank messaging system SWIFT.

The Securities and Exchange Commission charged Ripple, co-founder Christian Larsen and CEO Brad Garlinghouse with conducting an illegal securities offering that raised more than $1.3 billion through sales of XRP.
Ripple denies the SEC allegations, contending that XRP is a currency rather than a security that would be subject to strict rules.
Singapore is one of the largest currency corridors from which Ripple sends money across borders using XRP, the company said in a press release.

A majority of Ripple’s global on-demand liquidity transactions flow through Singapore, which serves as the company’s regional Asia-Pacific headquarters, Ripple said.
Ripple has doubled its headcount in Singapore over the past year across key functions including business development, compliance, and finance, and plans to continue increasing its presence there.
MAS, the Singaporean financial regulator, was not immediately available for comment when contacted by CNBC.
The central bank was previously in the news for blasting Three Arrows Capital, the disgraced crypto hedge fund that imploded after betting billions on failed stablecoin terraUSD, for providing misleading information concerning its relocation to the British Virgin Islands in 2021.
The Asian megacity has gained a reputation over the years for being a more financial technology and crypto-friendly jurisdiction, opening its doors to a number of major companies including domestic banking giant DBS, British fintech firm Revolut, and Singapore-based crypto exchange Crypto.com.
Garlinghouse is due to speak at the Point Zero Forum in Zurich, Switzerland, next Wednesday to “discuss the resurgence of innovation in digital assets through investment and thoughtful regulation,” the company said.
It comes on the heels of Ripple’s $250 million purchase of Metaco, a crypto custody services firm, to expand its reach in the Swiss market and diversify away from its home in the U.S. Recently, Ripple’s Garlinghouse said the firm will have spent more than $200 million in legal fees by the time its legal battle with the SEC is wrapped up. More

The price of bitcoin jumped above $30,000 following a series of recent applications from traditional financial firms. Investors are growing bullish about the prospects of BlackRock and other major institutional names getting involved in digital assets.
Last week, BlackRock submitted an application for a spot bitcoin ETF, which would track bitcoin’s underlying market price.

The value of bitcoin exceeded the threshold of $66,895 in October for the first time in history.
Chesnot | Getty Images

Bitcoin hit its highest level since April on Wednesday, as traders got excited about the prospects of a spot bitcoin ETF following a series of recent applications from companies including BlackRock.
The price of the flagship cryptocurrency touched a high of $30,749.45, its highest level since April 14, according to CoinMetrics. At 6:39 p.m. ET, the price was $29,988.46.

Investors are growing bullish about the prospects of BlackRock and other major institutional names getting involved in digital assets.
That’s despite all the bad news that’s been surrounding the crypto space of late, with the market still reeling from the scandal of FTX’s collapse and the ensuing regulatory fallout.
“The slate of spot bitcoin ETF application announcements by larger institutions has definitely brought back bullishness into the crypto markets,” Vijay Ayyar, head of international markets at CoinDCX, India’s largest crypto exchange, told CNBC.
“We also hit major support at $25K for BTC, and we’ve seen this move be driven more by pure spot buying rather than a short liquidation type move which is quite healthy,” Ayyar said.

“Market structure wise on BTC we broke a major downtrend that started in April this year and lasted around 2 months, hence most traders would be looking for us to test at least $32,000. Breaking that level opens up $36,000 and then $45,000 to 48,000.”

ETF announcements

Last Thursday, BlackRock filed an application for a spot bitcoin ETF, which would track bitcoin’s underlying market price. Crypto proponents say this would give investors exposure to bitcoin without them having to own the underlying asset.
Coinbase is listed as the bitcoin custodian for the proposed BlackRock ETF. BlackRock has an existing strategic partnership with Coinbase. The major U.S. crypto exchange has been undergoing a period of hardship lately, under huge regulatory pressure from the U.S. Securities and Exchange Commission.
Subsequent to BlackRock’s announcement, a litany of other asset management firms have filed their own applications for a bitcoin ETF, including WisdomTree and Valkyrie.
Elsewhere, investors are keeping a close watch on macroeconomic indicators for a sense of movement in the crypto market.
Previously, digital coins have been tied to moves in financial markets more broadly, with bitcoin often tracking the price of U.S. equity markets. So investors have been watching data on inflation and the health of the economy for a sense of where bitcoin may end up trading next.
“Overall, crypto has also been lagging the traditional equity markets, hence this is also kind of a catchup move in a sense,” Ayyar said.
Correction: An earlier version of this story misstated the timing of BlackRock’s filing for its spot bitcoin ETF.
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