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Borrowing by mobile phone gets some poor people into trouble

Thu, 11/15/2018 - 15:49

Mobile money’s too tight to mention

MOBILE MONEY, which offers the equivalent of a basic bank account to almost anyone with any sort of phone, has long been seen as a boon for financial inclusion. So recent evidence that it is leaving problems in its wake is causing dismay. Digital credit through mobile phones is leading in some places to overborrowing, hardship and—horror of horrors—even more financial exclusion.

The starkest evidence is in east Africa. Thanks to M-PESA, its largest mobile-money service, with over 20m users, Kenya has been a pioneer in both mobile money and mobile financial services, such as lending. Anecdotal evidence is mounting of abuses—most notoriously of young Kenyans borrowing to splurge on online betting sites. The number of Kenyans blacklisted by the country’s credit bureaus, and so unable to borrow, has risen to more than 500,000, up from 150,000 three years ago. The...

America’s trade relations with its allies are extremely fragile

Thu, 11/15/2018 - 15:49

AFTER A TRIP to France for the centenary of the end of the first world war, President Donald Trump quickly turned his Twitter feed over to trade-related tirades. On November 12th he opined that “Trade must be FREE and FAIR!” The next day he complained about French tariffs on American wine, concluding “Not fair, must change!” A day later came another reminder of the brittleness of transatlantic trade relations, when reports emerged that Mr Trump was meeting his officials to discuss an investigation launched in May into whether imported cars and car parts threaten America’s national security. If it concludes that they do, he can impose whatever trade restrictions he wants.

The idea that importing cars from close allies threatens America is barely plausible. In reality the investigation is intended to strong-arm trading partners into concessions. The tactic met with some early success. In July Jean-Claude Juncker, the president of the European Commission, and Mr Trump agreed to...

The economy of the Philippines wobbles

Thu, 11/15/2018 - 15:49

Marching rations

FOR DECADES economists wondered why the Philippines was doing so badly compared with its less gifted, more tigerish neighbours. In recent years, they have wondered how it was doing so well. The economy has grown briskly, without intolerable inflation or too much borrowing from abroad. And it has done so despite stagnant investment, lousy infrastructure and a narrow manufacturing base. Economists have long urged it to “walk on two legs”, expanding industry rather than placing all its weight on services. Instead it has kept hopping—but with impressive speed and balance.

Now, however, that balance is at risk. Inflation hit 6.7% in September, close to its highest rate in a decade and far above the central bank’s target of 2-4%. The current-account balance (which remained in surplus for 13 years in a row, thanks to strong remittances from emigrant cleaners, carers, nurses and the like)...

Stock exchanges find novel uses for blockchain

Thu, 11/15/2018 - 15:49

BLOCKCHAIN, THE technology underlying bitcoin and other cryptocurrencies, was designed with an ideological aim: to sidestep central authorities and governments. But many people have become intrigued by its practical uses, such as updating back-office processes. And few institutions have shown more interest in such applications than financial exchanges.

Although stock trades are often made in milliseconds by algorithms, completing them involves co-ordinating payment and delivery among a mess of databases and then reconciling the records. In big financial centres trades take two full days to settle. Some stock exchanges wonder whether blockchain’s distributed, tamper-proof ledgers and immutable and transparent transaction records could speed up and simplify the process.

Exchanges from America and Australia to Switzerland and Singapore are studying the concept. Australia’s stock exchange, the ASX, has moved furthest towards using blockchain to replace its main...

Marjorie Deane internship

Thu, 11/15/2018 - 15:49

Applications are invited for a Marjorie Deane internship in our New York bureau. The award is designed to provide work experience for a promising journalist or would-be journalist, who will spend three to six months at The Economist writing about economics, business and finance. Applicants are asked to write a covering letter and an article of no more than 500 words, suitable for publication in the Finance & economics section. Applications should be sent by December 14th to

A study measures the cost of lack of competition

Thu, 11/15/2018 - 15:49

What’s Italian for sticker shock?

THAT COMPETITION keeps prices down is well known. But it is hard to measure by just how much, because prices vary for all sorts of reasons, from differences in labour costs and rents to taxes. Rising to the challenge is a new paper in The Economic Journal by Giacomo Calzolari, Andrea Ichino, Francesco Manaresi and Viki Nellas, economists at the European University Institute, Bologna University and the Italian central bank. They looked at pharmacies and specifically at customers who may be particularly easy to rip off: new parents.

Using data for 2007 to 2010 covering about a fifth of pharmacies in Italy, the researchers measured the way in which prices of hygiene products for babies changed as the number of babies varied. They took advantage of a peculiar law from the 1960s, according to which municipalities with at most 7,500 people are allowed...

Should investors diversify away from America?

Thu, 11/15/2018 - 15:49

IN THE MID-1980S Carol Goland spent two years in the Andes. The subsistence farmers she studied in Cuyo Cuyo, in Peru, planted as many as 20 fields scattered around the mountain. They used up precious calories going back and forth between each field. Yet on closer inspection, this pattern had a logic to it. Crop yields varied widely from field to field, because of erratic microclimates. By spreading their bets the farmers reduced their risk of starvation.

The farmers knew the penalty for failing to diversify. That lesson ought to be heeded in investing, too. But it isn’t. Three-quarters of equity funds in America are held in shares listed there, according to Morningstar, a data-tracking firm. American stocks have beaten a broad index of other rich-world stocks in seven of the past ten years. Even so, it is a lot of eggs to have in one basket. Those who seek to diversify by buying a global index find they are still heavily exposed...

Superstar cities have a big advantage in attracting high-paying jobs

Thu, 11/15/2018 - 15:49

IN THE END, Amazon disappointed everyone. A year ago the e-commerce giant said it would open a second headquarters, and solicited bids from cities keen on the 50,000 new jobs and $5bn in investment it would bring. The gambit might have produced a fascinating experiment in urban development, and a departure from the concentration of top tech firms in a few favoured places. It did not. Though local governments wooed the firm with juicy incentives, no city nabbed the promised co-headquarters. On November 13th Amazon said it would split its new office between New York City and Arlington, a suburb of Washington, DC.

The decision to bring tens of thousands of high-paying jobs to two of America’s richest metropolitan areas is a notable example of a broader trend. Another came a few days earlier, when the Wall Street Journal reported that Google planned a dramatic increase in hiring in New York City. Politicians...

The oil price swings dramatically

Wed, 11/14/2018 - 14:39

THE OIL price was supposed to be soaring around now. With American sanctions against Iran taking effect earlier this month, exports from that country, the world’s fourth-largest producer of crude oil last year, were expected to shrink to close to zero. In anticipation the price of Brent crude, the international benchmark, went above $86 in early October, a four-year-high, and some warned of prices above $100 a barrel.

Instead, by November 8th oil had entered a bear market. The price of Brent crude stood at $66.53 on November 14th. West Texas Intermediate, the American oil benchmark, dropped for 12 straight trading sessions, until November 14th, when it at last ticked up (see chart). That was the longest uninterrupted decline in over three decades. American crude futures have plunged by 20% from their recent peak.


What China talks about when it talks about stimulus

Tue, 11/13/2018 - 14:53

THE CAREER of China’s biggest property tycoon can be divided into two stages. Xu Jiayin started slowly, focusing on Guangzhou, a southern city. Then came the global financial crisis and the government’s response, a giant economic stimulus, launched a decade ago this month. For Mr Xu it was a signal to become far bolder. His company, Evergrande, now has projects in 228 cities. Last year it completed enough floor space for 450,000 homes, up from 10,000 the year the stimulus began. It has bought a football club, built theme parks and entered the insurance business.

Yet expansion has come at a cost. Evergrande’s debt has soared to nearly $100bn. Short-sellers regularly target its stock. So far Mr Xu has defied the naysayers. But the market bears are taking another run at him. Evergrande’s stock is down by more than a third this year. Last month it struggled to sell new bonds, until Mr Xu bought $1bn worth with his own cash. As one of the richest people in China, a billionaire many times over, at least he...

The benefits gap between high and low earners is widening

Thu, 11/08/2018 - 10:18

“I SEE PATIENTS every day who are going to have babies because they work at Facebook,” says Peter Klatsky of Spring Fertility clinic in Silicon Valley. Tech giants now include egg-freezing and in vitro fertilisation in their employees’ health coverage. But even as high-earning Americans have the cost of making a baby covered by their companies, many low earners cannot get paid leave to look after theirs.

Since the end of the first world war, American workers have seen a steady rise in benefits. According to the Bureau of Economic Analysis, “supplements” to wages, which include most of today’s benefits but exclude performance bonuses, rose from 1.4% of total compensation in 1917 to 17.5% in 2000. Using a broader measure that includes performance bonuses as well as paid leave, overtime, health insurance and contributions to retirement plans, that share has risen further since: from 27% of compensation in 2000 to 32% now.

When growth in...

Investment platforms vie to capture a share of global remittances

Thu, 11/08/2018 - 10:18

IN 2016 AYO ADEWUNMI, a Nigerian-born agricultural trader living in London, bought a five-hectare farm in his homeland. It has produced little since. “I am not in the country, so I have to rely on third parties. It’s just not good enough,” he says.

Mr Adewunmi has since discovered another, potentially more satisfactory way to make such investments: through FarmCrowdy, a crowdfunding platform that lends to Nigerian farms and provides technical assistance to their owners. The two-year-old startup, which is considering expanding into Ghana, places high hopes in the African diaspora as a source of funds.

The case for such platforms goes beyond agriculture. Global remittances are expected to soar from $468bn in 2010 to $667bn in 2019. They are among the top two foreign-currency sources in several countries, including Kenya and the Philippines. Yet hardly any of the money is invested.

In part, this is because recipients use three-quarters of the money for...

A new commissioner at America’s main securities regulator causes a buzz

Thu, 11/08/2018 - 09:48

Not your regular regulator

FOR ALL the talk about deregulation under President Donald Trump, when it comes to the financial industry the word used by many is “tailoring”—meaning trimming the loose threads of tangled rules, rather than unpicking them. An exception is Hester Peirce, who in January became one of the five commissioners at the Securities and Exchange Commission (SEC), America’s most important financial regulator. Since her appointment she has given a series of speeches with a polite tone and blunt message about the downsides of government intervention.

Though she has yet to gain a large following, her words have not gone unremarked. Her “arrival at the SEC is genuinely exciting”, writes Steven Lofchie, a securities lawyer who runs a popular (within the small world of regulation) blog. It is probably the first time the word has been used in connection with the SEC in years.


The 1MDB saga reaches Goldman Sachs

Thu, 11/08/2018 - 09:48

IN 2010 GOLDMAN SACHS created a “business standards” committee to try to repair the reputational damage the financial crisis had done. Clients and transactions were to be screened for ethical shortcomings. Charges of money-laundering and bribery filed by federal prosecutors in a Brooklyn court on November 1st suggest that the investment bank had diagnosed a real problem, if not found the solution.

The allegations relate to work done by Goldman for 1Malaysia Development Berhad (1MDB), a sovereign-wealth fund set up in 2009, shortly after Najib Razak became Malaysia’s prime minister. Since 2015 investigators in various countries, including America, Singapore, Switzerland and latterly Malaysia itself, have been trying to trace the money it raised and channelled through a maze of financial institutions and shell companies. According to the filing in New York, funds were misappropriated to buy paintings, luxury properties and jewellery (including a necklace costing $27m), and to...

American farmers grapple with falling prices and sinking incomes

Thu, 11/08/2018 - 09:48

A CALM USUALLY descends on America’s farm belt in November. Combines have mostly finished churning across fields; trucks have hauled crops to grain elevators; and farmers retreat to their living rooms to rest. This year, at least by one measure, they should feel particularly content. Randy Sims, a hog-and-grain farmer in western Illinois, produced 75 bushels of soyabeans per acre, a third more than in the past. Indeed American soyabean production in 2018 is expected to reach 4.69bn bushels, a record. But it is unclear who will buy them.

America’s farmers are at the centre of President Donald Trump’s trade war. More than a fifth of agricultural exports face new tariffs. From January to September pork exports to Mexico and China fell by 31% and 36%, respectively. Sales of soyabeans, America’s biggest farm export, to China have plunged by 98% since January (see chart). “It’s a big concern,” says David Williams, who farms 3,800 acres...

Naughty investment banks win more IPO business

Thu, 11/08/2018 - 09:48

PUBLIC OPPROBRIUM ought to be something to avoid. It has laid low mighty men in Hollywood accused of sexual misdeeds and sporting heroes caught pumping drugs. But it is not bad for everyone: for some populist politicians it can be fuel to their supporters’ fire. And a new study* suggests that Wall Street’s sins have a surprising side-effect: press reports of bad behaviour by investment banks during and after the financial crisis were good for business.

Thomas Roulet, of Cambridge University’s Judge Business School, sifted all the editorial and opinion articles about the financial industry in the New York Times, Wall Street Journal and Washington Post published between 2006 and 2011. He built a list of 204 terms of reproach, signifying greed (eg, “avarice”), violence (“rapacity”), extreme risk-taking (“gambling”) or opacity (“manipulation”). He then searched...

Why house prices in global cities are falling

Thu, 11/08/2018 - 09:48

CENTRE POINT, a tower that looms over central London, was empty for so long in the 1970s that it lent its name to a homelessness charity. Recently it was converted from offices to flats. Half are yet to find buyers. So the developer has taken them off the market pending a clearing of the political fog over Britain. Its boss complained to Estates Gazette, a trade paper, of bids that were “detached from reality”. One-bedroom flats were on sale for £1.8m ($2.4m).

Even flats with less hefty price tags have been hard to shift lately. Property prices in London are falling. Sellers are waiting for better prices. It is tempting to put all the blame on Brexit, but that would ignore the broader picture. House prices in big global cities increasingly move together. What happens in London has a growing influence on what happens in New York, Toronto and Sydney—and vice versa. And trouble is brewing in some of these other markets, too.

Property used...

An Italian budget showdown underlines the need for euro-zone reform

Thu, 11/08/2018 - 09:18

THE FATE of the euro was always going to depend on Italy. With annual GDP of more than €1.6trn ($1.9trn), about 15% of euro-area output and debt of nearly €2.3trn, it poses a challenge to the single currency that Europe seems unable to manage but cannot avoid. Matters are now coming to a head, as Italy’s new coalition government instigates a showdown over the European Union’s fiscal rules. The disagreement might well become disastrous. But it is also an opportunity for the euro zone to begin building a better, more durable approach to fiscal policy.

Trouble began earlier this year when the populist Five Star movement, led by Luigi Di Maio, formed a government with the right-wing Northern League, led by Matteo Salvini. Both promised budget goodies: Mr Salvini a hefty tax cut and Mr Di Maio a basic minimum income. Such largesse may test the deficit limit of 3% set by the EU’s stability and growth pact. And it seems certain to break other fiscal rules set by the bloc: the government’s initial budget plan is...

How the big emerging economies climbed the World Bank business ranking

Thu, 11/01/2018 - 16:40

THE CENTRAL SPORTHOTEL in Davos usually plays host to skiers intent on picturesque descents. But during the World Economic Forum in January it celebrated an eye-catching ascent. One side wall was bedecked with a poster of Narendra Modi, India’s prime minister. Its caption boasted that India had climbed 30 places in the previous year’s World Bank ranking of the easiest places to do business.

China’s prime minister, Li Keqiang, lacks Mr Modi’s flair for self-promotion. But at the next gathering in Davos, he will have an even prouder boast. In the latest World Bank report, published on October 31st, China rose 32 places.

How did they do it? And how credible is their progress? In an ideal world, countries would rise in the World Bank ranking as a welcome by-product of reforms undertaken for their own sake. But India and China are among the 60-plus countries that have government units dedicated to moving upwards, almost as if it were an end in itself.

China’s comprises about 40 people; India’s perhaps 200, plus others working on state-level scorecards. Many teams visit the bank to learn precisely how the scores are calculated. India’s now thinks it could mark its own exam. It announced, long before the bank’s official assessment, the score it felt it “should” receive.

The rankings also loom large in Russia....

Watchdogs are worrying about a booming corporate-credit market

Thu, 11/01/2018 - 16:40

INVENTORS OF FINANCIAL terminology have little love for language. “Leveraged loans” are at first sight a tautology: in fact they are loans, usually arranged by banks among a syndicate of lenders, to highly indebted companies. “Collateralised loan obligations” (CLOS) are another mouthful. These are not abstract nouns but legal entities, run by asset managers, private-equity firms, hedge funds or others, that own more than half of American leveraged loans. CLO managers chop the loans into slices and sell the parts to match their investors’ appetites for risk.

However ugly its terms, both borrowers and investors have discovered beauty in the market for leveraged loans. Some financial watchdogs, with memories of the crisis of 2007-08 still fresh, fear that the loans will soon lose their looks. In recent days Janet Yellen, who headed the Federal Reserve until January, and Daniel Tarullo, the Fed’s chief bank supervisor after the crisis, have joined the chorus of concern.