Archive for November, 2009

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EBRD is open for business

Monday 30 November, 2009

The International Trade Association of Greater Chicago hosted a talk given by Varel Freeman of the European Bank for Reconstruction & Development (EBRD) @ the offices of Baker McKenzie. Here’s what he had to say:

The EBRD was formed to transition the economies of the former USSR into open market economies & now has offices in 30 countries in  central-eastern Europe to central Asia.  They offer debt & equity financing in the form of guarantees, shares, etc., (but no grants) to finance infrastructure/power projects (25-30%), agribusiness (10%) projects, & 1/3 is with other financial institutions.  They financed 5B Euros last year (30% equity), & are on track to finance 8B Euros this year.  The EBRD has 61 shareholders, including the US (10%), & European Investment Bank.  They are a risk-taking commercial partner who make business decisions, not political ones.  They don’t even deal with politically-connected people.  They don’t displace or compete with local banks, but 20% of their activity is with governments.

Q&A

  • The EBRD does do trade financing through commercial banks, but that fell off a cliff with the economic downturn.
  • EBRD headquarters are in London & English law applies for legal purposes, but can work with offshore holding companies.
  • The EBRD has mainly European clients, but wants more from the US.  They are seeking capital expansion because demand for financing is increasing.
  • The EBRD assures they will foreclose against the wishes of a shareholder if need be.  They will be hard-nosed & won’t roll over.  Their goal is to have an enforceable framework.
  • They do 150 background checks for 350 transactions each year to ferret out politically connected people.
  • They do provide financing to distressed industries, i.e. automobiles, but very carefully.  They financed a JV which is now profitable.  They are open to restructuring troubled loans.
  • Bank credit ratings are informal, supplemented by credit ratings.
  • The EBRD charges market rates for renewable energy projects & can lend in many currencies.
  • The EBRD doesn’t exist just to help Westerners.
  • There is some overlap with Export-Import Bank & OPIC-Overseas Private Investment Corp.

They don’t have any offices in the US, but you can contact them directly or through the US Dept. of Commerce.

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German Wind conference

Wednesday 25 November, 2009

I attended the Germany WindEnergy Business Conference & reception.  They are making all of the information that was presented available on their website, so click on to see all of the presentations & video.  I’ll summarize the Q&A so that you don’t have to watch all of the video just to get to those portions.

Wind Energy in Germany:

  • The current energy mix includes 15% renewables in Germany.
  • Small energy providers compete with the big guys by forming local cooperatives with only a few large banks involved.  Renewable energy is not driven by large utilities.
  • Competitive price determination results in ROI’s of 5-10%.
  • There are different tariffs for different energy sources which depend on the site & time frame.
  • Grid system operators pay for the grid’s expansion.
  • Power plant certification only takes weeks rather than months.
  • There are few service technicians & little special vocational training, so there are some turbine maintenance issues.  This is complicated by the fact that there are different work standards across Europe.
  • R&D focuses on bigger turbines which can work more hours each year.
  • Turbines are not permitted on buildings in Germany.
  • The key to reduce greenhouse gases by 40% by 2020 is changing consumption by using energy efficiency plus renewables.
  • Only Massachusetts & Vermont have feed-in tariffs & California is considering 1.

Wind Energy in the US

  • re: key success factors; Europe has better tolerances because they’ve been building their wind industry supply chain for 30 years; GE has 30 casting companies, but none in North America; consistent quality is a given; cash for growth is required; openness & localization help.
  • Germany’s feed-in tariff differentiates itself from the US
  • States are giving grants to support R&D & manufacturing
  • US wind projects are bigger than most others so banking relationships & the size of the projects are key.  It’s easier to sell small projects directly to utilities, but there are extremely large & small projects.  There actually should be small-, medium-, & large-sized wind projects.
  • New technologies should bring greater transmission quality to eliminate 7-8% leakages.  Larger, lighter, cleaner, more reliable turbines, with better diagnostics & aesthetics will come.

 

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us international trade court speech

Tuesday 24 November, 2009

I caught The 8th Annual Dominick DiCarlo United States Court of International Trade Lecture featuring The Honorable Timothy C. Stanceu, United States Court of International Trade  LITIGATION OF TRADE-RELATED DISPUTES IN CHALLENGING ECONOMIC TIMES: A JUDGE’S PERSPECTIVE at John Marshall Law School.  The annual DiCarlo Lecture is named for Judge Dominick L. DiCarlo, who served on the US Court of International Trade from 1984-1999 and was chief judge from 1991-1996.  Here are the main points I pulled out:

This court has local jurisdiction-US law applies.  It provides predictability, transparency, & expedience.  Its founding offered resolution through consultation, which led to rules-based litigation.  Tariff classifications are now harmonized.  We have a sound system, but it’s not perfect.  We can get meaningful judicial review which is not always available elsewhere.  It requires equal access, independent judiciary, standards of review, & meaningful remedy (court with power).  The US fulfills all of these.  Anyone can access the court.  Article 3 assures independence & remedy.  The deNovo standard addresses standards.  The court can still be improved like so:

  • speed-goal is 90 day resolution
  • access for small litigants-need to try to keep costs down
  • broad/varied jurisdiction-ex. workers displaced by trade
  • they listen intently to the bar & bar association
  • citizen-citizen cases in addition to government cases

Q&A

the Michelin tire decision (ref section 421) & China’s ascension to GATT/WTO addresses trade protectionism

deNovo standards on questions of law addresses standards of review re:  Title 7 & the Chevron case.  The principle is agencies fill the gaps.  The court takes 1 of 2 steps

  1. dismiss (rarely happens)
  2. if 2 conflict, defer to agencies with a checklist

judges can sit on other courts, i.e. 2nd circuit court of appeals.

 

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how’s your cultural intelligence?

Friday 20 November, 2009

Big Frontier hosted this event Leading with Cultural intelligence featuring David Livermore, a specialist in this area.  Here’s his presentation Livermore Big Frontier Ldg CQ Test your CG here & check out his video here.  Here are the highlights:  He defines cultural intelligence as the capability to function effectively across cultural, ethnic, & organizational cultures.  It can be likened to emotional intelligence, recognizing that you can’t know everything about all cultures.  CI’s strengths are it fits in any context, it’s not 1 size fits all/accepts individual personalities, & recognizes that assumptions & stereotypes go both ways.  There are a number of important reasons to increase CI:

  • better decision-making, especially in consumer & customer-focused activities
  • more employee satisfaction/ less burnout
  • higher performance
  • greater profitability
  • 70% of international ventures fail, at least partly due to cultural differences
  • foreigners are coming here

To develop CI:

  1. define the drive/motivation
  2. define knowledge to be learned
  3. develop a strategic plan
  4. implement an action plan for adoption

To enhance CI:

  1. make a commitment to reading, immersion, become more aware
  2. create diverse teams
  3. hire trainers/consultants in these areas
  4. use CI in hiring/promoting employees
  5. weave CI values into the organization

Mobium conducted a survey which found that 83% of North American & 93% of foreigners felt the US has a foreign policy problem.  Further, 20% of foreigners are moving away from American brands, 30% of them because of foreign policy issues.

Q&A

  • there is constant demand for CI consulting in Asia, India, & China
  • this is becoming required training for federal employees
  • although “people are still people,” starting with what we all have in common helps, but the difference in levels of humility varies across countries.
  • Lula was in Kopnhagen for the whole week campaigning for Rio in the 2016 Olympics-Obama was there for less than a day.  What does that say?

My take:  I wholeheartedly endorse all this stuff.  My only criticism is that this doesn’t go far enough.  Americans are encultured to be insular & parochial.  In school, English & state history are required.  We  need to encourage the study of foreign languages & world history.  We need to emulate big cities in small countries like Amsterdam, Kopnhagen, Hong Kong, & Singapore.  In these places, they must learn about the rest of the world because their home markets are small.  Residents learn foreign languages from a very young age, & are able to travel to foreign countries that are close by, creating opportunities to learn about other cultures.  The biggest problem in the US is everybody recognizes it’s a problem, but no one is willing to spend any money to solve it.  Until we adopt a more open educational system & culture, we’ll always remain a close-minded society.

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the wall’s fall

Wednesday 18 November, 2009

The Chicago Council on Global Affairs hosted this event THE LEGACY OF 1989 which was a trip for me.  I lived in Germany for 2 years up until a year before the Berlin Wall fell, so this topic was near & dear to my heart.  Here’s what they had to say:

Archie Brown:  Gorbachev let Central Europe follow the Sinatra doctrine & “do it its own way” which led to change.  350,000 Soviet troops stayed in their barracks on 9 Nov.  Had they been roused, history would be very different.

J.D. Bindenagel:  Gorbachev gave a speech in December, 1988 which spelled out glasnost & perestroika, which presaged future events.  The biggest question was “Would the Soviets intervene?”  At a diplomatic reception the night the wall fell, no 1 had a clue what would happen that night.  Egon Krenz changed the travel laws on 6 Nov. which contributed greatly to the change.  No one could understand a particular DDR (Deutsche Demokratische Republik-German Democratic Republic) statement.  Tom Brokaw posed the question, “Is the Berlin Wall open?”  The answer came back, “Yes,” but visas were still needed, which were supposed to have been started to be administered on 10 Nov.  Then the question became, “Would guards defend the checkpoint?”  That night the checkpoint was simply overwhelmed.

Kori Schake:  She did not report that the DDR would change when working in security for the US government.  To provide a frame of reference, Helmut Kohl was in a race against the clock to unify Germany.  He positioned it as better for the USSR, while being a good deal for Germany in a short period of time.  He was dismissive of central European fears, but approached the Russians differently.  There were 3 policy issues:

  1. James Baker made it a prerequisite for a reunified Germany  to be a NATO member-the Germans would trade anything to unify
  2. a European Union-wide centric strategy was necessary to prevent fears of creating an overbearing Germany again
  3. exchanging west German Deutschmarks on a 1-to-1 basis for east German Reichsmarks “assured parity” in a statement of political equality.

Q&A

Boris Yeltsin wasted many opportunities post-reunification.

The Germans are still timid in some foreign relations.

Vladimir Putin was in the DDR embassy the night the wall fell & described it as the worst night of his life.  He was prepared to call in the troops.  Kohl was pushing because DDR citizens were marching in Hungary & elsewhere.  Actual unification talks didn’t begin until the following February, but change was so fast it was like watching video on fast-forward.  The choice was simply between funding a bankrupt DDR or go counter to glasnost & perestroika.

Margaret Thatcher was actually opposed to German reunification because she was suspicious of the Germans.

The panelists differed on the role economics played in the upheaval.  Bindenagel said it was critical in driving people to leave because they saw no future.  Keeping currencies on par kept the Ossies in the East.  Schake cited the deeply corrupt & repressive regime as bigger reasons than economics for the change.  Brown thought lack of freedom was the most important motivator for change.

My take:  Given my history in Germany, I freely admit I’m biased in placing these events in historical context.  The Poles claim their strikes for Solidarity in the early 198o’s set the table for these changes, but they were so far removed, they’re not as significant.  You could argue the ratchet effect on Russia was even bigger, but that didn’t happen as dramatically.  On a longer time horizon, I don’t think there’s any question the Soviet economic system was breaking down, so change was inevitable.  But the singular event of the wall falling created the impetus for the whole system to come down.  Regardless of how you see it, these events 9 November, 1989 changed the world for the better, & it was the long reviled Germans who initiated it.  Hats off to them.

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finance & manufacturing in Brazil

Monday 16 November, 2009

The Chicago Council on Global Affairs hosted this breakfast presentation Brazil’s Moment in the Spotlight? Here’s a summary of what Paulo Vieira da Cunha said:

strengths

  1. Brazil emerged from the crisis with its banking system intact & entrenched as an institution.
  2. a historical break in policy-making occurred in 1999 when a new” holy trinity” was established:  stable exchange rates, fiscal responsibility, inflation targeting.
  3. a decade of fiscal adjustment led to Brazil becoming a net creditor of foreign exchange
  4. it shed its external sin, so now can take on more external debt
  5. a stronger central bank leads to stronger financial institutions
  6. policy can be counter-cyclical-i.e. an enlarged safety net can reduce reserve requirements

negative aspects

  • Brazil is a large insulated closed economy
  • it’s difficult to increase productivity & reduce competition
  • it still has an overblown public sector-42% of GDP, (& spending is up 14% this year) making it more comparable to economies in Europe rather than in the Americas
  • the “holy trinity” was accomplished on the back of 10% higher taxes over a decade from 26%>36%

Now Brazil’s economy is recovering rapidly with increases in consumption, exports, currency appreciation.  The yield curve is steep, so there is worry about inflation kicking up in the 2nd or 3rd quarter.  Elections are coming in 2010.  There is still a need for fiscal adjustments.  The Lula legacy is:

  • the expansion of the safety net to include the new middle class
  • the transition to an economy with a large state
  • Brazil is becoming more like Europe, but doesn’t have the same efficiency yet.

Luis Mateus noted:

There have been big changes in Brazil since the 1990’s.  The middle class has emerged to fuel consumption & demand.  Automation has increased productivity & cut into the informal economy.  There are still many challenges:

  • high & complex taxes (differs by state)
  • becoming a high cost country-ex. raw materials & electricity
  • labor laws make it costly to right-size in Brazil
  • bureaucracy bogs things down.

Q&A

  • Exports are growing to the US & EU, but with different composition
  • Brazil is now the world’s largest exporter of food
  • Lula has been a surprise on monetary policy, although there has been no progress in making the central bank an independent entity.
  • There is a need for better energy infrastructure-green laws exist, but enforcement is lax.
  • It’s tough to find qualified people in Brazil.  The quality of schooling is poor.  The system can’t differentiate between good & bad universities, so they spend a lot, but get back very little.
  • Physical security can still be a problem, but isn’t as bad as in Mexico City
  • Brazil is open for foreign direct investment with no foreign exchange restrictions, but there is still lots of protectionism.  Import duties are high on steel making it uncompetitive.  This is bad for the long-term because none of the inefficiencies are taken out.  Import subsistution distorts production structure.
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invest in bosnia herzegovina?

Thursday 12 November, 2009

The American SouthEast Europe Chamber of Commerce hosted this event  INVESTMENT OPPORTUNITIES IN BOSNIA AND HERZEGOVINA’S DEVELOPING SECTORS, which featured a presentation by Consul General Eldin Kajevic, (here’s his presentation  Invest in BiH) & a presentation by John Freeborn of Freeborn Development Group which was basically a commercial for opportunities they uncovered in Bosnia-Herzegovina.  To learn more about the potential of investing in this part of the world, check out the Foreign Investment Promotion Agency of BH. Little known fact:  BH is a land of beautiful bridges.  For ex., there is an Eifel Bridge (like the tower) in Sarajevo.  Some were destroyed in the 1990’s.  They are on the path to membership in the European Union & will submit their candidacy in 2010.  They’ve signed the Adriatic Charter, will join NATO, & are already a member of the Security Council of the United Nations.  Bosnia is 1/3 the size of the state of Illinois & there are 300,000 Bosnians in the US.  IT opportunities are very political because the government controls the networks & they are heavily regulated.  Labor costs vary by region & industry, but $4-5,000/year is average & the minimum salary is 160 Euros/month.  The GDP/per capita is 3600 Euros per person.  Skilled labor earns $3-7/hour.