The Economist

Subscribe to The Economist feed The Economist
Finance and economics
Updated: 1 hour 42 min ago

Illicit financial flows are hard to stop

Thu, 01/31/2019 - 15:43

WHEN FOREIGN aid enters developing countries, it is welcomed with handshakes and ribbon-cutting. Private money, by contrast, is sometimes smuggled across borders or siphoned into offshore bank accounts. Everyone agrees that such “illicit financial flows” are a problem. A report published on January 28th by Global Financial Integrity (GFI), a campaign group, estimates that illicit flows to and from developing countries are worth more than a fifth of their total trade with the rich world.

Governments have pledged to plug the leaks, including as part of the UN’s Sustainable Development Goals. If only they could reach agreement on what they are talking about. A few rich countries, notably America, complain that illicit flows are not properly defined. Statisticians are still puzzling over how they can be accurately measured.

Obviously, gun-running and drug-trafficking should count; in 2011 the UN estimated that financial flows linked to transnational organised crime were worth 1.5% of global GDP. Bribes, and the proceeds of unregistered trade in legal goods, such as cigarettes, probably should, too. But broader definitions also fold in tax avoidance, which may not be illegal. The result is hopelessly vague, diverting attention from dirty money to smear legitimate businesses, argues Maya Forstater of the Centre for Global...

Value investing is long on virtue but has been short on reward

Thu, 01/31/2019 - 15:43

IN A COMEDY sketch from the 1980s, Rowan Atkinson plays the devil as a cross between a package-holiday guide and a louche English bureaucrat. Dressed in a smoking jacket, he welcomes the damned to Hell and, consulting his clipboard, sorts them into groups. Lawyers? Join the thieves and murderers over there. The French? Come down here with the Germans. Atheists? You must be feeling pretty silly. And finally, Christians? I’m sorry, your faith was an error.

Even if they are not confronted by hard evidence, everyone is occasionally troubled by the thought that their beliefs are misplaced. A bad run of stockmarket returns is such a test of faith. Investors who favour “value” stocks—those with a low price relative to the book value of a firm’s assets—have had to wrestle more than most with doubt. If you buy value, and are patient, your reward should be superior returns. But for much of the past decade, value has seemed a...

An overbanked region sees some welcome consolidation

Thu, 01/31/2019 - 15:43

WHEN YOU have 60 banks in a country of just 9.5m people, there is much to be said for merging three at a time. On January 29th Abu Dhabi Commercial Bank (ADCB), the third-biggest bank by assets in the United Arab Emirates (UAE), agreed to buy eighth-ranked Union National Bank in an all-share deal. The enlarged ADCB will then swallow Al Hilal Bank, a smaller, Islamic bank. All three are controlled by Abu Dhabi’s government, which will own 60.2% of the new entity.

The deal is the latest of several tie-ups, actual or mooted, among banks in the Gulf. On January 24th Kuwait Finance House, that country’s second-biggest bank, announced “tentative” agreement on takeover terms with Ahli United Bank, of Bahrain. Saudi British Bank and Alawwal Bank are joining forces to form Saudi Arabia’s third-largest lender. The kingdom’s number one, National Commercial Bank, is talking to Riyad Bank, the current number four. And in 2017...

Italy’s slump reflects trouble both at home and abroad

Thu, 01/31/2019 - 11:03

ITALY BOASTS no glittering economic record. GDP growth has trailed the euro-area average every year since 1999. Despite a decent showing in 2016-17, the economy has yet to regain fully the output lost during the global crisis a decade ago and a domestic banking scare a few years later.

Now even its modest recovery seems to have gone into reverse. Figures published on January 31st showed that Italy slipped into recession in the second half of 2018. The economy shrank by 0.2% in the final quarter of 2018, its second consecutive contraction (see chart). The causes are both domestic and external. They seem likely to depress the economy this year, too, and to worsen an already fraught fiscal position.

The euro zone—notably Germany—has lost momentum as global trade has slowed. Italy has not been immune. Exports rose by nearly 6% in 2017, but Loredana Federico of UniCredit, a bank, reckons they probably grew by just 1% last year. Giada Giani...

A new initiative aims to modernise global trading rules

Wed, 01/30/2019 - 18:46

“SATISFACTION GUARANTEED!” promises the seller of “The Law and Policy of the World Trade Organisation” (WTO). The magic of e-commerce means that the doorstopper can be exported from America to Tajikistan for a cool $35.95 (plus shipping). A new initiative on digital trade at the WTO strives to add to the laws and policies described within its pages. But far from increasing general satisfaction, this plan is controversial.

At first glance, it is hard to see why. On January 25th representatives of 76 WTO members gathered at the annual shindig in Davos announced plans to negotiate new rules covering “trade-related aspects of electronic commerce”. Compared with the trade talks between America and China that restarted this week in Washington, this venture seems positively collegial. It makes sense: trade rules were written when cloud computing was the stuff of science fiction. What better way to demonstrate the value of the WTO, just as President Donald Trump is busy undermining it?

But a closer look reveals conflict. Though the 76 members account for 90% of global trade, they are a minority of WTO members. Many developing countries claim that tighter e-commerce rules would tie national regulators’ hands and that the issue is a distraction from others they care about more, such as limiting rich countries’ agricultural...

Pages