MONDAY 13 NOVEMBER 2023 USA $2.50 Canada C$3.

00

Serbia is a poor fit for EU expansion plans Inside Russia’s web of microchip smugglers
TONY BARBER, PAGE 17 BIG READ, PAGE 15

Fire power Iceland declares emergency as

Washington volcanic activity signals imminent eruption
Briefing
i Big four US banks profit
from age of higher rates

warns Israel
The four biggest lenders grabbed
almost half of all banking profits
in the third quarter, with earnings
at JPMorgan Chase, Wells Fargo,
Bank of America and Citigroup up

not to attack
23 per cent as they exploited their
advantage in the era of higher-for-
longer interest rates.— PAGE 6

i Catalan deal sparks anger

Gaza hospitals
Tens of thousands of protesters
have taken to the streets across
Spain to condemn Pedro Sánchez
over the acting prime minister’s
plan to offer an amnesty to
Catalan separatists.— PAGE 2

3 Concerns patients will be harmed i Alarm on China data laws

3 Clashes escalate on Lebanon border
GUY CHAZAN — JERUSALEM
HEBA SALEH — CAIRO
COLBY SMITH — WASHINGTON
The US has warned Israel not to fire on
hospitals in Gaza and endanger the lives
of patients as fighting raged yesterday
between Israeli troops and Hamas mili-
tants close to the besieged enclave’s larg-
est medical facilities.
Jake Sullivan, national security adv-
iser, told CBS News that the US “does not
want to see firefights in hospitals where
innocent people — patients receiving
medical care — are caught in the cross-
fire”. His remarks reflect rising interna-
tional alarm over the dire conditions in
Gaza’s hospitals, where thousands of
people have sought refuge from Israel’s
bombardment of the coastal enclave.
Hamas said some of the facilities had
been attacked by Israeli forces and
warned of a catastrophic shortage of
essential medical supplies and other
staples. It said two newborns died in al-
Shifa hospital after fuel to power the
hospital generators ran out. Another
hospital in Gaza City, al-Quds, was
forced to close because it no longer had
enough fuel and power, the Palestinian
Red Crescent announced yesterday.
Over the past 36 days, the World
Health Organization has recorded at
least 137 attacks on healthcare units in
Gaza, with 521 deaths and 686 injuries.
The battles in Gaza City are the latest
stage in a ground offensive that Israel
launched more than two weeks ago to
topple Hamas and end the armed
group’s 16-year rule in Gaza.
The war was triggered by Hamas’s
devastating rampage through southern
Israel on October 7 in which its militants
killed more than 1,200 people, mostly
civilians, and took about 240 hostages.
Since then, more than 11,000 Gaza
residents have been killed in Israel’s
bombardment of the strip, according to
Palestinian health officials.
The regional directors of three UN
agencies, including the WHO and the
children’s fund, said: “The world cannot
stand silent while hospitals, which
should be safe havens, are transformed
into scenes of death, devastation and
despair.”
Israel blamed Hamas for civilian cas-
ualties. Speaking to CNN, prime minis-
ter Benjamin Netanyahu said its mili-
tants were preventing people from leav-
ing the war zone, “sometimes at gun-
point”, and had fired on the safe
corridor that Israel had created to allow
Palestinians to move to southern Gaza.
“The Israeli army is doing an exem-
plary job trying to minimise civilian cas-
ualties and maximise terrorist casual-
ties,” he said.
The war has heightened tensions
across the region. Yesterday clashes
across Israel’s northern border with
Lebanon intensified as Hizbollah, the
Iran-backed militant group, fired mis-
siles at an Israeli village, wounding sev-
eral people, according to Israeli officials.
Seven Israeli soldiers were also
wounded in cross-border mortar fire,
the Israel Defense Forces said. Israel
responded with artillery strikes. Drones
were shot down overnight, the IDF said,
adding that it struck a “militant cell”
that tried to launch anti-tank missiles.
US funding fight & campus splits page 2
Wounds of 1948 exodus opened page 3
Iceland declared a state of emergency
yesterday after earthquakes and
cracks in roads around the south-
western town of Grindavík, pictured,
raised the risk that a volcanic eruption
would damage residential areas for the
first time in 50 years.
Iceland has evacuated all 4,000 resi-
dents of Grindavík after a 15km-long
magma tunnel was detected close to
Fagradalsfjall volcano, increasing the
likelihood of an imminent eruption.
The government convened an emer-
gency cabinet meeting yesterday as
thousands of earthquakes were
recorded in the area. The activity has
rocked the Reykjanes peninsula —
home to Iceland’s international airport
and the Blue Lagoon tourist site, which
has been closed since Thursday.
The mid-Atlantic island of 390,000
people is well used to volcanic erup-
tions, with several occurring close to
Grindavík in recent years.
The eruption of Eldfell destroyed
several hundred homes on the island of
Reuters
Heimaey in 1973, though there were no
fatalities.
The 2010 explosion at Eyjafjalla-
jökull closed much of European air-
space for almost a week after plumes of
ash spread south. Volcanologists said
there was a lower risk of a big ash cloud
from this volcano but that one was pos-
sible if eruptions occurred at sea.
Experts said an eruption could hap-
pen at any time, and the seismic activ-
ity made it likely but not guaranteed in
the coming days. Richard Milne
Beijing’s amended anti-espionage
and data laws threaten to spur
decoupling with Europe by
making it difficult for companies
to invest, according to a European
business lobby group.— PAGE 4
i Wendel hunts PE deals
The French private equity group is
seeking more acquisitions in the
industry after taking a controlling
stake in UK-based buyout firm IK
Partners, its chief executive
Laurent Mignon has said.— PAGE 8
i Darfur fans Sudan fears
The UN has sounded the alarm on
a “catastrophic” humanitarian
crisis in Sudan as paramilitary
troops move closer to capturing all
of the Darfur region, leaving a trail
of atrocities in their wake.— PAGE 4
i Lender stocks fall behind
US bank stocks have fallen to an
all-time low compared with the
blue-chip S&P 500 index, as
demand for big-name technology
stocks and March’s banking crisis
fallout deter investors.— PAGE 6
i Bright hopes for Pandora
The Danish jewellery chain’s chief
executive Alexander Lacik is
growing more optimistic for the
Christmas season, bucking the
trend of a sales slowdown among
luxury goods groups.— PAGE 8
........................................................................
i Crossword and Lex
The Lex column, Business Life
and the FT crossword can be
found inside today.— PAGE 9

Investors use AI to listen for the truth

Party is over for Benko as
Signa’s debt woes mount
Austrian property giant Signa has
assets worth up to $27bn, including
the Chrysler building in New York and
Selfridges department store in
London. The fact that Signa’s investors
include some of the wealthiest families
in Europe is a testament to founder
René Benko’s skills as a salesman and
networker, but higher interest rates
and a property downturn have led to
an emergency restructuring and the
boardroom ousting of Benko.
Investors sour on Signa i PAGE 7
behind executives’ soothing words
NICHOLAS MEGAW — NEW YORK
Some of the world’s largest investors
are exploring the idea that audio
recordings could provide tips on execu-
tives’ true emotions.
Many funds use algorithms to trawl
through transcripts of earnings calls and
company presentations to glean signals
from executives’ choice of words — a
field known as natural language
processing, or NLP. Now they are seek-
ing to find further messages in the way
those words are spoken.
“The idea is that audio captures more
than just what is in text,” said Mike
Chen, head of alternative alpha research
at asset manager Robeco. “Even if you
have a sophisticated semantic machine,
it only captures semantics.”
Robeco, one of the largest quants and
manager of over $80bn in algorithmi-
cally driven funds, began using audio
signals picked up through artificial
intelligence earlier this year. Chen said it
had added to returns and that he
expected more investors to follow suit.
In another example, Speech Craft
Analytics, which uses AI to analyse
audio recordings, looked at the per-
formance of Francis deSouza, chief
executive of gene sequencing company
Illumina, on an earnings call. Illumina
had undertaken a contentious $8bn
takeover of a cancer screening business.
Each time he was asked about it, there
were shifts in his speech rate, pitch and
volume, Speech Craft Analytics found.
The combination “betrays signs of
anxiety and tension specifically when
addressing this sensitive issue”, accord-
ing to David Pope, Speech Craft Analyt-
ics chief data scientist.
The use of audio represents a new step
in the game of cat and mouse between
fund managers and executives. Multiple
research papers have found that presen-
tations have become more positive since
the emergence of NLP, as companies
adjusted their language to game the
algorithms.
“We found tremendous value from
transcripts,” said Yin Luo, head of quan-
titative research at Wolfe Research.
“The problem that has created for us
and many others is that overall senti-
ment is becoming more and more posi-
tive . . . [because] company manage-
ment knows their messages are being
analysed.”
A paper co-written by Luo this year
found that combining traditional NLP
with audio analysis was an effective way
to differentiate between companies as
their filings become increasingly
standardised.

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2 ★ FINANCIAL TIMES Monday 13 November 2023

INTERNATIONAL

US budget Political clash

Congress in funding fight over foreign aid
Biden support for Israel
and Ukraine in jeopardy
as shutdown looms
ALEX ROGERS AND JAMES POLITI
WASHINGTON
The US Congress is far from a deal to
avoid a looming government shutdown
and pass President Joe Biden’s $106bn
request for security aid to Ukraine and
Israel, as another budgetary stand-off in
Washington’s threatens to undercut the
White House’s foreign policy goals.
With less than a week to go before a
Friday deadline to pass a spending bill
or close down federal offices and opera-
tions, Republicans and Democrats have
no clear path to a compromise, amid
deep divisions on international aid,
funding for border security and the
direction of fiscal policy.
The prospect of a shutdown with no
aid approved for Ukraine and Israel
threatens to overshadow the Asia-Pa-
cific Economic Cooperation summit
Biden is hosting in San Francisco from
tomorrow, including his planned meet-
ing with China’s President Xi Jinping.
The Pentagon warned last week that it
was being forced to “meter out” its sup-
port for Kyiv, after 95 per cent of its
funds for Ukraine had been exhausted.
“We’re going to continue to roll out
packages, they just are getting smaller,”
Sabrina Singh, the defence depart-
ment’s deputy press secretary, said. “So
we really implore Congress to pass the
supplemental request that the president
Academic freedom. Political discussion
sent up so that we can continue to meet
Ukraine’s battlefield needs.”
The stand-off over the federal budget
also poses the first leadership test for
new Republican House Speaker Mike
‘We implore Congress to
pass the request so that we
can continue to meet
Ukraine’s battlefield needs’
Johnson, who was elected last month
after far-right dissidents ousted Kevin
McCarthy from the post for striking a
deal with Democrats to avoid the last
shutdown threat, just six weeks ago.
Given the gap between Biden’s
requests for Ukraine and Israel and
what Republicans are prepared to pass,
lawmakers have been discussing
whether they can pass a new stop-gap
funding measure to give more time for
negotiations until mid-December.
But it is unclear whether such a so-
called “continuing resolution” has
enough support across both chambers
of Congress.
Republicans have grown increasingly
wary of further aid to Ukraine and are
pushing for policies to prevent the flow
of migrants coming over the US-Mexico
border in exchange for their support.
There is broader bipartisan support in
Congress to pass additional aid for
Israel, but even so, House Republicans
have tied it to an unrelated measure gut-
ting the Internal Revenue Service’s abil-
ity to audit wealthy Americans and big
Protests grow
across Spain
business, which makes it unpalatable to
Democrats.
over Catalan
Some Democrats are also resisting
unconditional aid to Israel. Chris Van
separatist
Hollen of Maryland and other Demo-
cratic senators wrote to the administra-
tion this week, asking to “ensure that
amnesty plan
any US-provided equipment is used in a
manner consistent with US law”. BARNEY JOPSON — MADRID
With a shutdown looming on Novem-
ber 17, Johnson unveiled a proposal on
Tens of thousands of protesters took to
the streets across Spain yesterday to
Saturday that would close different
condemn Pedro Sánchez as anger
parts of the government by different
mounts over the acting prime minis-
deadlines in order to increase pressure
ter’s plan to offer an amnesty to Cata-
for a deal. The idea has baffled even
lan separatists in order to stay in
Republican allies and the new speaker,
power.
who is a little-known ally of former
president Donald Trump from north- The conservative opposition convened
western Louisiana, is facing criticism for protests in 53 cities as Sánchez prepares
wasting precious time. to grant clemency to people involved in
an unlawful 2017 push for Catalan inde-
pendence, a deal that will deliver him
the parliamentary votes he needs for
another term.
Addressing protesters thronging cen-
tral Madrid, Alberto Núñez Feijóo,

Middle East conflict stirs division on US campuses
Universities pressed to define
boundaries on speech and
foster more reasoned debate
ANDREW JACK — NEW YORK
Top academics from some of America’s
leading universities will meet next week
to explore ways to defuse the tensions
that have shaken campuses and
alarmed donors following Hamas’s
attack on Israel.
Registrations for Brandeis Univer-
sity’s two-day Presidential Initiative to
Counter Antisemitism in Higher Educa-
tion, originally planned as a niche event
for Boston colleges, have surged since
the attack on October 7. Nearly 100 offi-
cials are now expected from institutions
including Harvard, Yale, Columbia and
the University of Pennsylvania.
“The general atmosphere on cam-
puses is very tense,” said Ron Liebowitz,
the president of Brandeis, which was
founded 75 years ago in Massachusetts
by American Jews as a nonsectarian uni-
versity. “We are a microcosm of the
larger society in which we sit. There’s a
polarisation that we haven’t seen during
our lifetimes where you cannot say
things. We’re trying to address that.”
Universities across the US have
become a focal point for opposing view-
points, with escalating statements from
leaders, including at Harvard and the
University of Pennsylvania, over hate
speech. The statements come against a
backdrop of reports of threats and vio-
lence against both Jewish and Muslim
students. Among a rash of incidents,
police are investigating threats against a
kosher student canteen at Cornell and
an allegedly race-related hit-and-run
incident that injured an Arab Muslim
student at Stanford.
Students at Brown University were
arrested last Wednesday after staging a
sit-in calling for the institution to divest
its endowment from Israel.
Universities have been attacked by
students, faculty and donors for failing
to define boundaries between free and
hate speech. Critics say they have been
slow to respond to incidents of anti-
semitism, Islamophobia and “doxxing”,
or publicly identifying students alleged
to be antisemitic.
Several donors have threatened to
withdraw funding. More than two dozen
Peace plea: law firms have warned that they will not
students at hire graduates who endorse
Indiana antisemitism, with some rescinding job
University offers.
protest against Susannah Heschel, a professor of Jew-
the Israeli ish Studies at Dartmouth who streamed
ground assault discussions with experts with differing
on Gaza — Jeremy views and backgrounds to students
Hogan/SOPA Images/
LightRocket/Getty Images
across the university within days of
October 7, said: “I just don’t understand
why more colleges don’t do what we do.
Too many colleagues are saying their
presidents are sitting back and not
doing anything.”
“It’s very important we model how we
speak to each other with respect and
calm. It’s not searching for blame. We’re
seeking to understand. We are trying to
get everyone to come together to be uni-
fied as an academic community.”
On and around Columbia’s New York
campus this week, “kidnapped” posters
profiling the more than 220 hostages
taken by Hamas from Israel have been
ripped down or slashed. A number have
been reposted, reinforced with tape.
At a demonstration on the steps of the
university’s Low Memorial Library on
Thursday, a Palestinian student who
gave his name as Ahmed said Columbia
had failed to investigate cases of Islamo-
phobia. “It took 10 days to get permis-
sion for this event, but every day a few
hundred people are dying in Gaza,” he
claimed.
At a smaller counterdemonstration,
Shaqed Tzabbar, a Jewish student at
Barnard, Columbia’s partner college for
women, said: “We’re supposed to be
thinking critically and embracing dif-
ference, but people don’t even want to
hear each other. I don’t have a solution.”
A senior Columbia academic, describ-
ing arguments and phrases used by
some students said: “The ignorance
among these most elite kids shows how
much we have failed as an educational
institution.”
Columbia on Friday suspended
the university chapter of Students for
Justice in Palestine for what it said was
an “unauthorised” demonstration, a
week after Brandeis withdrew the char-
ter of its local branch, which Liebowitz
said had “spewed fairly vile speech”
nationally. The action means it will not
‘The be able to receive university funding,
reserve space on campus or use the uni-
ignorance versity’s name.
among PEN America, the free-speech cam-
paign group, last week issued guidance
these most on tackling antisemitism on campus,
elite kids calling criminal referrals “appropriate”
in the case of “true threats, harass-
shows how ment and any other conduct that vio-
much we lates the law”. It said it was preparing
separate advice on Islamophobia.
have failed Suzanne Nossel, chief executive, said:
as an “We have to try to ensure the rules are
enforced equally for everyone. I don’t
educational think in recent years we’ve seen the
institution’ campus so divided. It’s an imperative to
keep it open. It’s a place where students
need to be ready for some rough and
tumble, give and take, which won’t
always feel affirming or comforting.”
She added: “Faculty should be model-
ling how, in an intellectual environ-
ment, people with deeply divergent
groups can reason together and learn
something,” Nossel said. “That’s a skill-
set we want students to have as they
move into the workplace, and a founda-
tion of citizenship in a diverse society.”
leader of the opposition People’s party,
accused Sánchez of buying the premier-
ship with the “judicial impunity” of his
Catalan allies. “We will not shut up until
there are elections,” Núñez Feijóo said.
Facing banners carrying insults
including “Sánchez traitor”, Isabel Díaz
Ayuso, the conservative head of the
Madrid region, said the prime minister
had decided “he will not lose power,
whatever the cost for Spain”.
The anger on the streets is heighten-
ing concern about more serious out-
breaks of public disorder this week,
when the proposed amnesty law is likely
to be published. Sánchez’s Socialist
party then has until November 27 to call
a parliamentary vote to make him
prime minister for another four years.
In a speech on Saturday, Sánchez
accused the PP of “bear hugging” the
ultra-right as it fired the amnesty con-
troversy and “advancing towards the
abyss”.
Santiago Abascal, leader of the hard-
right Vox party, called the amnesty deal
a “coup d’état” and said there should be
“no restraint” in the response to it. “No
calm or tolerance in the face of the
coup,” he told demonstrators in Madrid.
“Total and permanent mobilisation.”
For the 10th consecutive day, crowds
massed outside Socialist headquarters
in Madrid, where a hardcore group of
protesters throwing flares and bottles
have clashed with police.
The central government said that
80,000 people gathered in Madrid yes-
terday, with 40,000 in Seville, 30,000 in
both Málaga and Granada, and more
than 20,000 in Valencia. The PP esti-
mated larger numbers, including
500,000 in Madrid.
Following an inconclusive July gen-
eral election, the Socialist pact with sep-
aratists, including the hardline Together
for Catalonia party, will enable Sánchez
to reach the 176-seat majority he needs
in Spain’s Congress of Deputies.
Sánchez says the deal will defuse long-
running tensions over Catalonia and
shift the conflict over the region’s status
back into the realm of politics and away
from the judiciary. But before the elec-
tion Sánchez had said an amnesty would
be “unacceptable”.
An amnesty law will end the prosecu-
tion, prison terms or other penalties fac-
ing hundreds of pro-independence lead-
ers and supporters who backed a Cata-
lan bid to break away from Spain six
years ago. Their charges range from
public order offences to the misuse of
public funds. Polling has suggested
more than two-thirds of Spaniards are
opposed to an amnesty.

Sanctions

Curbs on Russian LNG likely to shake global energy market

MAKE A WISE SHOTARO TANI seeking to “toxify the project in its LNG project, bolstering the Kremlin’s joint venture between Mitsui & Co, the
INVESTMENT AND IAN JOHNSTON — LONDON
JAMES POLITI — WASHINGTON
entirety” and would put “pressure on ambition of becoming a leading trading house, and government-backed
any non-US companies planning to pur- exporter in the field. At full production, Jogmec, each holding 10 per cent stakes.
Subscribe today at The US is directly targeting Russia’s chase the flows from Arctic LNG 2”. it would account for a fifth of Russia’s The investors in Arctic LNG 2 are able
ft.com/subscribetoday ability to export liquefied natural gas While the US and its allies have target of producing 100mn tonnes of to take gas from the project according to
for the first time, in a move that could imposed sanctions on Russian energy LNG annually by 2030, more than three their shareholding. For Total and its
cause disruptions in global energy mar- projects in the past in response to the times the volume it exports now. partners in the joint venture, that would
kets that Washington has so far been war in Ukraine, seeking to starve them The project was expected to start mean about 2mn tons when the project
FINANCIAL TIMES Good Friday, Independence Day, Thanksgiving, the keen to avoid. of financing and equipment, this is the shipping LNG to the international mar- is at full production. But under the sanc-
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Monday 13 November 2023
Gaza war opens
old wounds for
Palestinians who
fled to Lebanon
Conflict in coastal enclave brings back
traumatic memories of 1948 exodus
RAYA JALABI — BEIRUT
If he closes his eyes, Daoud Mohammad
Naser can still hear the wind whistling
through the olive trees that sheltered
him during his flight from mandate-era
Palestine 75 years ago.
Just six years old during the 1948
Arab-Israeli war — which led to the
mass displacement and dispossession of
some 700,000 Palestinians, according
to the UN — Naser watched as his neigh-
bours desperately streamed out of their
homes with just the clothes on their
backs, to the sound of approaching gun-
fire from Jewish militias.
“We walked until our feet bled, sleep-
ing in olive groves along the way, scav-
enging for food and drinking dirty water
until we reached southern Lebanon,” 81-
year-old Naser recalls.
Those painful memories have been
brought back over the past five weeks by
the sight of Israel’s ferocious bombard-
ment of Gaza and forced displacement
of hundreds of thousands of people
there, in an offensive launched after a
devastating attack on Israel by militants
based in the strip.
This week, around 50,000 people
joined the exodus from the north of the
besieged enclave to the south, many of
them walking in Naser’s footsteps of 75
years ago. “They are all walking towards
an unknown fate, just like we did,”
Naser said. “This is like the Nakba, all
over again.”
The founding of the Jewish state in
1948 is remembered by Palestinians as
the Nakba, which means “catastrophe”
in Arabic — the moment that more than
half the population lost their homes and
land, as well as their way of life. It is an
indelible trauma for generations of
stateless Palestinians, their collective
‘The Israelis want to raze
Gaza to the ground and
take it from us and then we
will have nothing left’
memories melded into one big gaping
wound.
The UN estimates that about 5mn Pal-
estinian refugees are scattered around
the Middle East today, including survi-
vors of the march from Palestine and
several generations of their descend-
ants. About 5mn more live in the occu-
pied territories.
Some Palestinians gained citizenship
in host countries such as Jordan, which
gave them equal rights. But most of the
estimated 250,000 in Lebanon, like
Naser, have remained stateless, with
nearly half of them constrained to 12
overcrowded refugee camps across the
tiny Mediterranean country, where they
often endure dire poverty.
Palestinians are not allowed to own
property, or to work in many profes-
sions, and their access to state-provided
services is extremely limited. Fears of
disturbing the country’s delicate sectar-
ian balance have made negotiations
over their status largely taboo.
“This was all supposed to be tempo-
rary,” Naser said of the constraints that
steadily eroded his hopes for a more dig-
nified life. “We never thought we would
be here for 75 years.”
Naser spoke to the Financial Times
from the Active Aging House in Shatila,
a centre that tends to the needs of the
community’s seniors — some of whom
live alone, their relatives either abroad
or killed in the many bouts of violence
that have peppered their lives in exile.
The camp is a narrow warren of crum-
bling alleyways and tangled electrical
cables, its grey concrete walls inter-
spersed with murals in the colours of the
Palestinian flag.
Since the start of the war between
Hamas and Israel on October 7, news
broadcasts have rung out from every
★ FINANCIAL TIMES 3
INTERNATIONAL
‘We walked
until our
feet bled,
sleeping in
olive groves
along
the way,
scavenging
for food and
drinking
dirty water’
home in this labyrinthine corner of
southern Beirut. Camp residents have Walk into exile:
watched in horror as the death toll in Palestinians on
Gaza, currently at more than 11,000, the road from
continues to rise. Jerusalem to
“Their pain is our pain,” said Sobhiye Lebanon in 1948
Rasheed Odeh, 80, her eyes fixed on al Below: Daoud
Jazeera’s live broadcast from the Gaza Mohammad
Strip. She waits anxiously each day to Naser, who was
hear news of her relatives there. among those
For Palestinians, the bombardment forced to flee
and siege of Gaza has been another pain- 75 years ago
Jim Pringle/AP;
ful chapter in an endless series since Raya Jalabi/FT
1948. The latest conflict has been espe-
cially distressing for those in Lebanon, a
country whose own recent history is
marred by war, political chaos and now
a desperate economic crisis.
Palestinian militants were heavily
involved in Lebanon’s 1975-90 civil war
and are often blamed for starting it.
Fighters used Lebanon as a launch pad
for attacks on Israel throughout the war,
prompting the expulsion of their politi-
cal leadership in the 1980s.
The Shatila camp itself was the site of
a notorious massacre in 1982 when Leb-
anese Christian militias — backed by the
Israeli army, which had recently
invaded Lebanon — slaughtered hun-
dreds of residents as well as those in
neighbouring Sabra over three days in
retaliation for attacks by Palestinian
militants. In 1983, Israel’s own Kahan
Commission of Inquiry found that while
Lebanese militiamen were directly
responsible for the massacre, Israel also
bore “indirect responsibility”.
Odeh said: “We have never known a
day of peace since 1948 . . . dispos-
sessed and slaughtered by either [Israe-
lis] or their allies in Lebanon.”
Odeh’s childhood home, like many
others, was erased from the map many
years ago. Her village was given a
Hebrew name and a new identity. That
is why watching the bombardment of
Gaza is particularly painful.
“It is another type of erasure,” said 25-
year-old Salman Lutfi, another resident
of Shatila, “another attempt to erase
Palestine. The Israelis want to raze Gaza
to the ground and take it from us and
then we Palestinians will have nothing
left.”
Calls by Israeli officials, including
Prime Minister Benjamin Netanyahu,
during the war for Gazans to “leave”
have raised suspicions that Israel wants
to push them into neighbouring Egypt
indefinitely, extinguishing all hopes of a
future Palestinian state. This is one rea-
son why some Gazans have refused to
leave their homes since the start of hos-
tilities.
UN officials, Palestinian leaders and
human rights experts have all sounded
the alarm. “There is a grave danger that
what we are witnessing may be a repeat
of the 1948 Nakba,” said Francesca Alba-
nese, UN special rapporteur on human
rights in the occupied Palestinian terri-
tories, as the mass movement of people
began. Some 1.7mn Palestinians in Gaza,
or 70 per cent of its residents, are regis-
tered as refugees following past dis-
placements.
“I was born on May 25, 1948, during
the Nakba,” Suleiman Rabi’ al-Rubai’e
said, adding, “the first Nakba. Now we
are living the second Nakba.”
The 75-year-old’s family and neigh-
bours carried him out of his house
“against my will” on the morning of
October 7, fearing Israeli bombs would
fall on their neighbourhood. Israeli
shelling flattened his home soon after,
forcing him to seek shelter at a UN-run
school with his family.
Every morning since, he has returned
to the site of his home, to make tea amid
the rubble and stare at the scorched
olive trees he had planted years ago.
“I will not leave my land no matter
what happens,” he said. “I will not allow
us to be displaced again, even if they kill
me and all of my family.”
Additional reporting by Mai Khaled
4 ★ FINANCIAL TIMES Monday 13 November 2023

INTERNATIONAL

Foreign investment Africa

EU business body warns China on spy laws
Amended measures
threaten to hasten
decoupling, Beijing told
JOE LEAHY — BEIJING
China’s amended anti-espionage and
data laws threaten to spur decoupling
with Europe by making it difficult for
foreign companies to invest, according
to a European business lobby group.
The remarks from BusinessEurope,
which represents commercial lobby
groups from across the EU, come after
China sought to allay growing concerns
over the foreign investment environ-
ment last week with a memo ordering
local authorities to cease discriminatory
practices. Luisa Santos, deputy director-
general of BusinessEurope, warned that
new laws restricting data flows out of
China, coupled with severe punish-
ments for those charged under
amended anti-espionage legislation,
were concerning foreign investors.
“If people are afraid you could be
going to jail in China” by sharing data
with Europe, then “you have to make
some very difficult choices and this
could effectively lead to the decoupling
that we all want to avoid,” Santos said.
Foreign chambers of commerce have
complained that new Chinese laws on
cross-border data flows are too vague,
making it hard for multinationals to
Construction. Downturn
conduct normal business and research
activities in conjunction with their
international operations.
The EU Chamber of Commerce in
China recently issued a report detailing
1,058 recommendations to Chinese
authorities about the data laws and
other practices it says provide unequal
treatment for foreign companies.
“The main objective is to show we still
care . . . China is together with the US
our major trading partner,” Santos said.
“The relationship is facing a lot of chal-
lenges.” Regulations in Europe requir-
ing greater due diligence on issues such
as forced labour meant companies
needed to strengthen supply chain com-
pliance and traceability.
But China has been cracking down on
due diligence companies, detaining
local employees of Mintz, the US group,
and investigating others, such as CapVi-
sion, the expert network. Santos said if
companies struggled with supply chain
traceability requirements, “or if that
information is not accurate or positive
then there’s a very high risk of disen-
gagement from the Chinese market”.
Increasingly, companies would adopt
an “in China for the Chinese market”
strategy, separating their local opera-
tions from overseas networks. She said
other concerns included China’s stance
on the Ukraine war, its insistence on
retaining developing nation status in the
WTO, which entitles it to preferential
Hemeti forces’
push to take
treatment, and slow visa issuance.
In a memo issued last week, China’s
all of Darfur
commerce ministry ordered a
“clean-up” of regulations that discrimi-
escalates
nated against foreign investors. These
included measures such as making
companies undergo a longer process to
Sudan crisis
apply for permits, not allowing foreign
brands to benefit from subsidies, and ANDRES SCHIPANI — NAIROBI
barring them from local government
The UN has sounded the alarm over a
tendering and procurement.
“catastrophic” humanitarian situation
The European chamber said it “looks
in Sudan as paramilitary troops move
forward to the release of a timeline and
closer to capturing all of the western
more specific implementation guide-
region of Darfur, leaving a trail of atroc-
lines”. Julian Fisher, head of the British
ities in their wake.
chamber, said the announcement would
“help install confidence in the Chinese In recent weeks, the paramilitary Rapid
market among our members”. Support Forces of General Mohamed
Hamdan Dagalo, better known as
Hemeti, have seized Nyala, Sudan’s sec-
ond-largest city, and most of the five
federal states comprising Darfur. Fierce
battles are raging in El Fasher, North
Darfur’s capital. The RSF has been bat-

German housebuilders hit by ‘perfect storm’
Key industry suffers crisis of
confidence amid surging cost
of materials and rising rates
ALEXANDER VLADKOV — FRANKFURT
VALENTINA ROMEI — LONDON
Wolfgang Schubert-Raab recalls a time
when his firm could not build homes
quickly enough. “Back in 2021, before
we’d even poured the first cubic metre of
concrete, we’d already had offers on
more than half the complex,” said the
managing director of the Raab construc-
tion company.
Two years later, the market for single-
family dwellings is in what Schubert-
Raab describes as a state of “complete
collapse”.
Across Germany, homebuilders are
facing such a sharp reversal in their for-
tunes that the downturn in residential
construction is threatening to have
broader repercussions across Europe’s
largest economy. Many have declared
themselves insolvent, damping chan-
cellor Olaf Scholz’s target of building
400,000 new homes a year to tackle a
housing affordability crisis in several of
the country’s largest cities.
Last week, the federal government
combined with state legislatures to
intervene, unveiling a package of meas-
ures aimed at speeding up housebuild-
ing by cutting red tape. Industry repre-
sentatives view the response as a step in
the right direction, but are concerned
that the measures are not strong enough
and the rollout will be far too slow.
Tim-Oliver Müller, managing direc-
tor of the German Construction Federa-
tion, said: “Based on past experience, we
don’t believe that it will be implemented
quickly. The federal structures are far
too complex for that.”
After a decade-long boom fuelled by
strong demand, cheap credit and low
costs for raw materials, German build-
ers are now facing what Gereon Frauen-
rath, managing director of construction
company Frauenrath Group, describes
as a “perfect storm”.
Raw materials are now more than 40
per cent more expensive than before the
pandemic — the biggest surge in Europe.
The credit-intensive sector must also
grapple with 10 straight interest rate
rises by the European Central Bank.
While the country still has a shortfall of
suitable homes, especially in the major
cities, the higher cost of borrowing is
pricing out many prospective buyers.
The result has been a devastating loss
Apartment of confidence that has led to the coun-
building in try’s residential property market being
Hamburg: among the worst performers in Europe.
higher materials House prices were down 10 per cent
costs have hit year on year in the second quarter, while
residential the number of building permits issued
construction has sunk far more quickly than in the
orders — Maria Feck/ region as a whole. In October, 22.2 per
Bloomberg
cent of companies reported cancelled
projects.
Construction output rose by more
than 16 per cent between the first quar-
ter of 2015 and the start of 2022. As
demand soared on the back of low rates
and relatively lax lending standards,
house prices rose by 66 per cent, accord-
ing to the EU’s statistics office Eurostat.
Now the troubles of the sector, which
made up more than 5 per cent of gross
domestic product in 2021, are contrib-
uting to an outlook that has seen Ger-
many fall to the bottom of the IMF rank-
ings of leading economies. Companies
whose fortunes are tied to residential
construction are also feeling the strain.
Sabine Brockschnieder, managing
director of the Baumann Group, which
has built German bathrooms and kitch-
ens for more than a century, says times
have rarely been tougher. “Smaller
companies will face serious difficulties
with the drop in sales and increased
costs,” she said, adding that orders had
fallen 15 per cent from a year ago.
Rising costs and weakened demand
are expected to force Baumann to cut
some of its 1,200 workers and put others
on a furlough scheme.
“Unfortunately, we will be forced to
part with the temporary workers we
employ, because we expect next year to
be even worse,” said Brockschnieder.
The industry believes the govern-
ment should intervene to correct what
many housebuilders see as a market
failure. They argue that, unlike the pre-
vious downturns of the 1990s or early
2000s, residents of large cities such as
Berlin, Munich, Hamburg, Cologne and
Frankfurt still face a shortage of afforda-
ble homes.
“The current conditions; — much
higher construction costs and an
increase of interest rates, are scaring off
investors and builders,” said Jörg Heges-
tweiler, chief executive of BKL Baukran
tling the Sudanese Armed Forces for
control of the country since fighting
broke out in mid-April.
The RSF has intensified its focus on
Darfur, an ethnically divided region and
Hemeti’s historic power base, where
Germany is driving the decline in EU house bouts of violence have continued since a
prices war that started in 2003. With a cease-
Indices rebased fire continuing to be elusive in peace
180
talks mediated by Saudi Arabia and the
Poland US, the RSF’s recent gains have height-
ened fears of the country splitting into
160 Germany
two competing areas.
Spain
EU “It’s a catastrophic situation, which is
140 just getting worse,” said Toby Harward,
France deputy humanitarian co-ordinator for
120 Darfur for the UN’s refugee agency
Italy UNHCR. He said the number of people
100 in need of humanitarian assistance in
Sudan had topped 25mn — more than
80 half the country’s population.
2015 16 17 18 19 20 21 22 23 Urging an “immediate cessation” of
attacks in El Fasher, US secretary of
Prices for raw materials have surged faster state Antony Blinken last week con-
in Germany than the rest of Europe demned “reported abuses by the RSF
Indices rebased, 2015=100 and allied forces in connection with
their assault on Nyala, including civilian
160 deaths, arbitrary arrests, detention of
Germany medical personnel and looting of health
140 facilities”.
Since fighting erupted between forces
loyal to de facto president and army
120 chief General Abdel Fattah al-Burhan
EU
and Hemeti, more than 10,400 fatali-
ties, mainly in Khartoum and Darfur,
100 have been recorded by the Armed Con-
flict Location and Event Data Project.
80 Sudanese health workers believe the toll
to be much higher.
2010 15 20 23
Hemeti, originally from North Darfur,
Source: Eurostat
was commander of a Janjaweed brigade
that terrorised the area while fighting
‘Smaller Logistik, which sells and rents cranes to rebels who rose up against the govern-
the construction sector. ment of former strongman Omar al-Ba-
companies In September, the industry agreed a shir two decades ago.
will face 14-point action plan with the federal The violence in Sudan has aggravated
government that included a mix of tax Darfur’s deep-rooted divisions — espe-
serious benefits, attractive subsidy pro- cially between Arab Rizeigat and Afri-
difficulties grammes, the lowering of energy-saving can Masalit ethnic groups — a situation
standards and simplification of plan- that UN officials said had parallels with
with the ning and approval procedures. the outbreak of inter-ethnic bloodshed
drop in Building minister Klara Geywitz said in 2003. “Twenty years ago the world
the package of measures unveiled last was shocked by the terrible atrocities in
sales and week would speed up the sector’s Darfur. We fear a similar dynamic might
increased revival by lowering bureaucratic and be developing,” said UNHCR head
legal hurdles for builders. Filippo Grandi on Friday.
costs’ Felix Pakleppa, managing director of Last week, following the takeover of
ZDB, an association representing 35,000 an SAF military base in El Geneina in
construction companies, said the pack- West Darfur, the UN said “Arab militias
age of measures offered a “glimmer of allied with the RSF” killed civilians in
hope” but more was needed. the town’s Ardamata district, adding
Schubert-Raab, who is also president that fighters targeted the Masalit com-
of the ZDB, said businesses still lacked munity. Grandi said that “more than
certainty. “Our industry is not a grey- 800 people have been reportedly killed
hound track — it takes between two to by armed groups in Ardamata”.
three years for a property to go from the The RSF now controls most of Darfur,
planning stage to being ready for occu- a region almost the size of France, and
pancy,” he said. “People wanting to most of Khartoum, although the SAF
build need security. Without it, nobody holds critical bases and sites in the capi-
will invest.” tal, humanitarian officials say.

Asia

South Korea’s space programme ambitions rise after Washington lifts restrictions
CHRISTIAN DAVIES — SEOUL
South Korea and the US pledged to
expand their defence alliance into orbit
at their inaugural joint space forum
last week, seeking to deepen co-opera-
tion in response to emerging threats
from adversaries including North
Korea and China.
Seoul and Washington agreed to bolster
their partnership in areas spanning
defence, commerce and civil space
exploration. It comes as South Korea
has raised its ambitions for independent
launch and surveillance capacities amid
an intensifying Asian space race.
“Space is becoming increasingly mili-
tarised and weaponised . . . turning [it]
into a giant geopolitical chessboard,”
Park Jin, South Korean foreign minister,
told the forum last Monday.
Seoul has made significant progress in
space. An uncrewed South Korean lunar
orbiter is examining the Moon’s surface
for future landing sites, and last year
Seoul launched a satellite on a domesti-
cally developed rocket, a feat achieved
by just six other countries — Russia, the
US, France, China, Japan and India,
which in August was the first country to
land a probe on the Moon’s south pole.
Yoon Suk Yeol, South Korea’s presi-
dent, has declared ambitions to land a
spacecraft on the Moon by 2032 and on
Mars by 2045. Seoul aims to have 130
satellites in space by 2030, a six-fold
increase on today’s number.
Last week, Seoul announced it
planned to launch a military spy satel-
lite, its first, by the end of the month.
“For a country that has had a modest
history in space, South Korea is poised
to take a tremendous leap,” said Sam
Wilson, senior policy analyst at the Aer-
ospace Corporation, a research body.
Despite their close security ties, the
US has historically hampered South
Korea’s space ambitions. In 1979, Wash-
ington insisted on guidelines to limit
Seoul’s ability to test missiles and rock-
ets and restricted its shared missile
technology for fear of helping Seoul to
develop its own nuclear weapons.
That forced Seoul to turn to Moscow
as its principal partner in space in the
2000s. Russia and South Korea devel-
oped the Naro-1 launch vehicle, which
reached low Earth orbit in 2013.
But Washington lifted its restrictions
progressively between 2017 and 2021,
paving the way for Seoul to deploy a sat-
ellite from its own Nuri rocket last year.
South Korea cancelled a series of satel-
lite launch contracts with Russia after
western sanctions were imposed on
Moscow after it invaded Ukraine.
Seoul and Washington’s burgeoning
space alliance is part of a wider US-led
effort in the region to expand and
deepen defence ties to curb China’s
growing assertiveness. The US and
Japan this year announced their secu-
rity treaty would extend into space, with
Washington’s protection covering Japa-
nese satellites against Russian and Chi-
nese missiles and laser weapons.
Seoul has also recognised the impor-
tance of satellite communications, said
Brigadier General Kim Hong-chul of
South Korea’s Joint Forces Military Uni-
versity, citing the example of the war in
Ukraine. “Space is now recognised as an
essential element in theatre military
operations.”
Pyongyang, which in August failed to
launch a spy satellite into orbit for the
second time, has reacted angrily to
space co-operation between Washing-
ton and Seoul. State media in October
accused the US of using “space militari-
sation” as a means to attack North
Korea and secure “world supremacy”.
Yang Uk, a weapons expert at the
Lift-off: televised coverage of the
launch of South Korea’s Nuri rocket
Asan Institute of Policy Studies in Seoul,
said the increasing sophistication of
North Korea’s missile programme
meant South Korea should not rely on
US and Japanese space-based tracking
and warning systems.
“Our allies first have to analyse the
information and then take a decision as
to whether to share it with us,” said
Yang. “To deal with the North Korean
nuclear threat, we need our own eyes in
the air.”
Wilson of the Aerospace Corporation
said South Korea’s planned equivalent
of the US-operated Global Positioning
System satellite network, known as
KPS, could complement US surveillance
capabilities. “An interoperable KPS-GPS
capability, with South Korea hosting
GPS military payloads on KPS satellites,
would offer heightened precision over
North Korea and swaths of Russia and
China,” said Wilson.
The KPS network would also allow
South Korean companies to exploit
opportunities in the space economy,
which US investment bank Morgan
Stanley has estimated will grow from
$350bn in 2022 to more than $1tn by
2040. “Satellite imagery, which is cur-
rently mostly used for military pur-
poses, is increasingly being applied to
various private industries such as city
management, ports and agriculture,”
said Seo Dong-chun, chief financial
officer of Contec, a South Korean com-
pany offering ground station and satel-
lite imagery services.
About 300 private South Korean com-
panies, ranging from start-ups develop-
ing composite materials to rocket
engine manufacturers Hanwha Aero-
space and Korea Aerospace Industries,
were involved in the development of the
country’s space launch capability. The
government has set up a series of public-
private partnerships to transfer knowl-
edge and expertise to the private sector.
“After the US started to give funding
to private companies like SpaceX and
Blue Origin, it became clear the private
sector could be active in space research
and development,” said Seo. “We need
to catch up fast.”
Additional reporting by Kang Buseong
and Song Jung-a in Seoul
Monday 13 November 2023 ★ FINANCIAL TIMES 5
6 ★
Baby steps From accountants to cooks, America is struggling to fill job vacancies. Is subsidised childcare the answer? y LEX, PAGE 9
Top four US
banks scoop
lion’s share of
sector profits
3 Biggest groups cash in on higher rates
3 Third-quarter earnings increase 23%
STEPHEN GANDEL — NEW YORK
The four biggest US lenders grabbed
almost half of all banking profits in the
third quarter, highlighting their growing
advantage in the new era of higher-for-
longer interest rates.
Earnings at JPMorgan Chase, Bank of
America, Wells Fargo and Citigroup
were up 23 per cent, according to Bank-
RegData, which collates quarterly
reports from lenders to the Federal
Deposit Insurance Corporation.
Of the nation’s almost 4,400 banks,
the big four made 45 per cent of the
industry’s overall profits in the third
quarter. That was up from 35 per cent a
‘The net interest margins
of the smaller banks have
been hit much harder
than the big banks’
year ago and well above the 10-year
average of 39 per cent.
By contrast profits at all other institu-
tions dropped by an average 19 per cent
in the quarter, their largest fall since the
early months of the coronavirus pan-
demic.
“The biggest banks have not had that
much deposit pressure,” said Alexander
Yokum, who follows regional banks for
CFRA. “You see the net interest margins
of the smaller banks have been hit much
harder than the big banks.”
Overall, banking industry profits fell
5 per cent in the third quarter. They
were dragged down by losses on lending
and bond market investments as well as
a 260 per cent increase in interest costs
— mainly what banks have to pay depos-
itors to stop them from seeking a better
deal somewhere else, according to
FINANCIAL TIMES
Out of favour Focus on tech stocks helps push
lenders’ benchmark to low against S&P 500
BankRegData. “Not a horrible quarter,
but profits are going to continue to be
strained,” said Christopher Whalen, a
veteran bank analyst and head of Wha- US banks fall out of favour
len Global Advisors, of the industry- Banks’ performance relative to S&P 500
wide picture.
The fall in profits compared with a
10 per cent increase in profits in the sec-
ond quarter and was the first drop in
the industry’s overall earnings in six
quarters.
Nonetheless, while profits were down
for the whole industry, the bottom lines
at the four largest US banks, the only
lenders in the nation with more than
$1tn in assets each, as a group were up
23 per cent, compared with the same
1990 2000
period a year ago.
Yokum said small banks were more Source: LSEG
exposed to commercial real estate, and
offices in particular, one of the biggest JENNIFER HUGHES — NEW YORK
areas of concern for lending. So they had
to reserve more as a percentage of their
US bank stocks have fallen to an all-
time low compared with the blue-
loans for potential losses.
chip S&P 500 index, as demand for
But the biggest reason for the divide is
big-name technology stocks and the
the fact that the big banks, perhaps
fallout from the banking crisis in
because of technological advantages or
March deter investors.
perceived safety due to their size, have
not had to pay up as much to keep The relative performance of the S&P
depositors. 500 banks index compared with the
The big four were paying less than broader benchmark is at its weakest
2 per cent a year on accounts that paid since the bank-specific measure
interest in the third quarter. That com- began in 1989.
pared with nearly 3 per cent average for This year the industry impact of the
regional banks. failure of Silicon Valley Bank and of
In addition, more than 40 per cent of other smaller lenders has more than
the deposit accounts at the nation’s four offset any upside from higher interest
largest banks pay no interest at all. That rates. It shows also how banks have
compares with 30 per cent for the indus- failed to recover ground that was lost
try overall. after the 2008 financial crisis when
“I would say it’s infuriating, but I am a waves of new regulation hit returns
bank analyst, not a consumer advo- already squeezed by super-loose
cate,” said Yokum. “For whatever rea- monetary policy.
son, people have not moved their Lenders are now also facing further
money from the big banks, and so they regulations under the so-called Basel
just haven’t had to pay up.” III capital rules, which JPMorgan boss
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publications. “Lithium-ion batteries were not
developed for recycling. The packs in
A copy of the terms and conditions of insertion EV cars are a nightmare,” said Wojciech
of advertisements in FT publications can be
obtained from
Mrozik, an expert on battery recycling
+44 (0)20 7873 3000, or viewed at at Newcastle University. “They are not
www.FT.com/advertising unified and have foams and glue, which
require huge manual labour to sepa-
rate.” Water-based binders were “the
future”, he said, adding that they were
“less environmentally aggressive” than
their chemical counterparts and
required “less aggressive methods to
recover the metals”.
Global investment in battery-related
S&P 500 banks index
10
Jamie Dimon in September warned
risked making bank stocks uninvesta-
ble. “Do [regulators] want banks
ever to be investable again?” Dimon
said of the proposed rules at an indus-
try conference. “I wouldn’t be a big
buyer of banks . . . I’d be no better
than equal weight.”
So far this year, the S&P banks
index is down about 12 per cent, while
the benchmark S&P 500 has risen
more than 13 per cent. An index of
regional back stocks has lost almost a
quarter of its value.
Rising interest rates are usually
helpful to banks, allowing them to
increase profits by widening the mar-
gin between what they charge for
loans and their own borrowing costs.
But the speed of the rate rises since
early last year has so far done more
damage to the bonds held on their bal-
ance sheets than any benefit from
higher lending income.
Bank of America strategists said
any upturn in the bank index’s rela-
Automobiles. Green investment
start-ups this year — which reached
$9.2bn by September, according to
Crunchbase data — is set to exceed the
preceding two years, defying a broader
downturn in tech investment.
Battery-related start-ups collectively
raised $7.8bn in 2022, down from $12bn
in 2021.
Most lithium-ion batteries use toxic
chemicals to bind the metals to elec-
trodes. The typical recycling method
involves smelting discarded batteries or
dissolving them in harsh chemicals to
remove the binder and recover metals
such as cobalt, nickel and copper as a
metal alloy.
Under the process developed by Hong
Kong’s GRST, which is backed by the
founder of Taiwanese chipmaker
Realtek Semiconductor and Hong Kong
garment behemoth TAL Apparel, the
used batteries can be dissolved in water
to obtain the so-called black mass of val-
uable metals that make up the cathodes
and anodes.
GRST, a winner of this year’s Earth-
shot prize for innovations to tackle cli-
mate challenges, hopes to raise $50mn
Spencer Platt/Getty Images
1.4
1.2
S&P 500
1.0
0.8
0.6
0.4
0.2
20 23
tive performance could signal a
broader shift in investor thinking.
“Banks finance roughly 35-40 per
cent of the US economy [but they] are
seeing their valuations trade at a very
steep discount relative to the broad
equity market, which is the most con-
centrated it has been since the inter-
net bubble,” said Elyas Galou, strate-
gist at BofA.
The bank predicts a long-term shift
in investors’ preference, from their
current appetite for technology and
growth stocks to a new focus on value
investing and greater interest in
banks, energy stocks and commodi-
ties. “Because we believe this is an
inflationary cycle driven by profound
secular shifts in society, we think the
next move in markets will see a transi-
tion,” he added. “Banks will benefit
post the next recession.”
Using a precursor to the S&P banks
index, BofA calculated banks’ relative
underperformance was the worst
since that measure began in 1941.
in the next two years to increase produc-
tion at the battery plant it co-owns in
Zhejiang province. In the long term,
GRST hopes to lease its water-based
binder and recycling technology to
other battery makers.
Past attempts to commercialise
water-based binders have failed
because of poor battery performance.
“In the past water-based solvents have
not been as stable as chemical solvents,”
said GRST co-founder Justin Hung.
Studies have shown that water-based
binders can cause corrosion, but Hung
said GRST had overcome this problem.
Its batteries perform well in terms of
energy density, safety and durability
compared with chemical-based coun-
terparts, according to its own customer
tests.
OnTo Technology, a recycling start-up
in Oregon, has started commercial tests
of a water-based binder developed by
scientists at Lawrence Berkeley
National Laboratory. BASF invested in
water-based binder production at two of
its factories in China this year.
Experts said low recycling rates — less
Recovery: a
worker cleans a
mix of lithium,
nickel, cobalt, and
graphite, off plates
at the Li-Cycle
lithium-ion
battery recycling
plant in Ontario,
Canada — Christinne
Muschi/Bloomberg
Monday 13 November 2023
VC market
disrupted as
investors buy
out start-ups
IVAN LEVINGSTON — LONDON
GEORGE HAMMOND — SAN FRANCISCO
Investors are raising money to buy out
start-ups that have been shunned by
venture capitalists, taking advantage of
economic headwinds to acquire prom-
ising companies at a discount.
In the years running up to 2022, VCs
took minority stakes in new businesses
with growth potential even if they
lacked a quick path to profitability.
Steep rises in interest rates over the
past year have changed that, hammer-
ing private valuations, forcing VCs to
pull back and leaving a swath of start-
ups at risk of collapse.
New investment groups are raising
tens of millions of dollars in funding
with the intention of acquiring majority
ownership and operational control of
start-ups in order to turn the businesses
around.
While still in an early phase, the trend
is a further sign of the difficulty many
companies face as traditional venture
investment chills. In one example,
investors Oren Peleg and Eyal Malinger
started UK-based Resurge Growth Part-
ners this year with the aim of raising
€120mn to buy start-ups.
The pair say they have spotted
a gap in the market and plan to make
average investments ranging from
€10mn to €30mn.
Resurge Growth will acquire start-ups
with the goal of providing a turnaround,
either because a previous valuation was
too high and did not reflect the new
market reality, or because operational
changes are required.
Other investors, such as Matthew Bra-
dley, are also leaving venture capital to
pursue start-up takeovers. Bradley, for-
merly chief investment officer at Lon-
don-listed VC firm Forward Partners,
launched Tikto Capital last year in order
to buy up start-ups.
Venture capitalists have dramatically
scaled back their activity this year,
investing just $73bn across the world in
the third quarter. That is down from
$106bn during the same period last
year, according to market researcher
PitchBook.
At the same time, the number of ven-
ture-backed start-ups that sell to pri-
vate equity groups has grown to 24 per
cent of total exits over the past couple of
years, tripling as a proportion of such
deals since 2006-10, according to data
from the European tech corporate
finance advisory Clipperton.
than 5 per cent of used lithium-ion bat-
teries are recycled in the US — were a
result of lack of investment and regula-
tion. Most lithium-ion batteries are sent
to waste management facilities or land-
fill. “Recycling hasn’t been a top priority
for the industry so far. The existing tech-
nology for recycling lithium-ion batter-
ies is not operational at scale,” said
Sarah Montgomery, co-founder and
chief executive of Infyos, a battery sup-
ply chain technology company.
But the tide was beginning to shift, she
said, pointing to regulatory changes
spearheaded by the EU.
In July, the European Council adopted
the “battery passport”, which will intro-
duce a mandatory minimum level of
recycled materials for EV and industrial
batteries by 2031.
The changes come as demand for bat-
teries is rising in line with increasing use
of electric vehicles. McKinsey analysts
forecast that the value of the entire lithi-
um-ion battery supply chain will
increase annually by 30 per cent from
2022 to reach more than $400bn by the
end of the decade.
Analysts said companies such as
GRST could benefit from alarm in west-
ern capitals about China’s dominance in
the EV supply chain. More than three-
quarters of the world’s lithium-ion bat-
teries come from China, primarily made
by CATL and BYD.
“Europe in particular is heavily
dependent on China. There is a strong
push to become more self-sufficient by
building a circular supply chain, going
from relying on raw materials dug up
from the ground to reusing spent batter-
ies,” said Montgomery. “There is a tide
of regulation coming in that will incen-
tivise the recycling industry to develop.”
Monday 13 November 2023
Investors turn
sour on Signa as
property group
races to rebuild
ECB concerned over banks’ exposure
to debts of Austrian business empire
SAM JONES — BERLIN
For months, rumours around the finan-
cial health of Austrian property giant
Signa had been swirling. So its founder,
René Benko, did one of the things he did
best: he threw a party.
Champagne flowed under the Christ-
mas lights at the ultra-luxurious hotel
Interalpen in Telfs, high above Inns-
bruck, the capital of Tyrol in western
Austria where Signa is based, and the
billionaire’s birthplace.
Boney M, the disco sensation known
for 1970s hits such as “Daddy Cool” and
“Rasputin”, regaled a crowd of Signa
employees. And a defiant Benko gave a
speech. People present said the entre-
preneur sought to project an image of
strength that promised an even more
lucrative future than the past had deliv-
ered for his sprawling property empire.
But in the end the rumours caught up
with Benko — a charismatic business-
man who made his first billion before
the age of 40. Last week, nearly a year on
from that party, Signa, one of Europe’s
highest-profile luxury property devel-
opers, with assets worth as much as
$27bn, announced it was urgently
restructuring. In the process, Benko was
forced out of the boardroom by his
minority co-investors.
Signa is not a household name but
many of its assets are: the Chrysler
building in New York, London depart-
ment store Selfridges, its Berlin equiva-
lent KaDeWe, and many other high-
value developments in some of the most
expensive real estate in the world.
Quite what the scale of Signa’s debts
are remains unclear. They run into the
Austrian banks are
particularly exposed,
chiefly Raiffeisen, the
country’s largest lender
billions, according to two people famil-
iar with the company’s balance sheet.
According to one Signa document
seen by the Financial Times, Signa
Holding — the central hub of the corpo-
rate network — was due to pay back
€1.3bn in borrowing this year alone.
The company’s ownership structure
is complex: many Signa debts, including
hundreds of millions lent by European
banks on a scale that has concerned the
European Central Bank, are collateral-
ised directly against individual proper-
ties, according to two Signa lenders.
Others are not.
Benko’s foundation is still the major-
ity owner through a network of trusts
and holding companies in Austria,
Liechtenstein and offshore, according to
Signa. But it has become clear in recent
months that some of his co-investors
have grown unhappy with the way he
was running the business.
The fact that Signa’s investors include
some of the wealthiest families in
Europe is a testament to Benko’s skills as
a salesman and networker — and to the
years in which the group was an irresist-
ible moneymaking machine.
The shareholder book reads like a
Who’s Who of European capitalism:
among them are France’s Peugeot fam-
ily, Tetrapak’s Rausings, logistics mag-
nate Klaus-Michael Kühne, Roland
Berger, founder of the eponymous inter-
national management consultancy,
Swiss chocolate group Lindt &
Sprüngli’s chair Ernst Tanner, Austrian
industrialist Hans Peter Haselsteiner,
and pet food tycoon Torsten Toeller.
Even the heirs of Austrian Formula 1
racing legend Niki Lauda own shares.
The man brought in to mediate
between their needs, and to hold, for
now, Benko’s voting rights while trying
to shore up Signa’s finances, is the Ger-
★ FINANCIAL TIMES 7
INTERNATIONAL
man restructuring expert Arndt Gei-
witz. His last big project was helping to
restructure and save Lufthansa in 2020.
On Friday, Geiwitz, 54, announced
the appointment of Ralf Schmitz as
“chief restructuring officer” for the
group. “The aim is to draw up a plan for
the main steps of the restructuring by
the end of November and present it to
the shareholders,” Geiwitz said.
Signa declined to comment. Benko
could not be reached for comment.
Geiwitz said he believed the quality of
Signa’s underlying assets was sound. But Sign of the times: the Vienna office of Signa Holding, the property group at which founder René Benko, below, has stood down as chair — Christian Bruna/EPA/Shutterstock
he might not avoid financial pain: the
executive must either raise fresh capital
or sell assets in a commercial real estate
market strained by higher interest rates
and undiminishing office vacancies.
Then there is the problem of large
unfinished projects, such as the
Elbtower in Hamburg and the Lamarr
luxury department store development
in Vienna, both of which were launched
before the property downturn.
Geiwitz’s more immediate issue, how-
ever, could be a €200mn private bond
issued by Signa that is due for repay-
ment at the end of this month.
Financial regulators are racing to
determine the extent of the possible
financial damage and who would be
hurt. The ECB last year started asking
European banks to report their expo-
sures to Signa, and has since stepped up
its surveillance, according to the Frank-
furt institution’s officials. In August, the
ECB told lenders to begin setting aside
provisions for possible losses.
Austrian banks are particularly
exposed, chiefly Raiffeisen, the coun-
try’s largest lender, according to finan-
cial regulators. The Vienna-based
lender has sought to reassure its busi-
ness partners over its exposure to the
property group. Much of its lending is
secured against properties it says over-
collateralise its exposure.
The Thai Central Group, which co-
owns some of the most valuable proper-
ties in the Signa stable, such as the Brit-
ish department store Selfridges, may
emerge as a possible buyer. Signa may
be willing to accept a lowball offer in
order to bail it out, one person close to
the company said.
In his native Austria, Benko’s troubles
are being picked over with glee by some.
The 46-year-old billionaire has long
been a fixture of the society scene in
Vienna, cultivating celebrities and poli-
ticians. Officials close to the former
chancellor Sebastian Kurz jokingly
called Benko “Mr 64 Metres”, in refer-
ence to the yacht in the Adriatic they
sometimes found themselves invited
aboard.
One high-profile annual event was his
Törggelen — a traditional November-
time festival celebration from Tyrol that
Benko imported to Vienna and turned
into a sumptuous society fixture.
But Benko’s prominence has also
made him a target. While no charges
have been brought, he is being investi-
gated as part of a sprawling Austrian
probe into government corruption.
Signa’s Innsbruck headquarters were
raided by Austrian police last October.
Public anger has also mounted over
Benko’s business tactics. Two major
European retail chains he bought, Ger-
many’s Galeria Karstadt Kaufhof and
Austria’s Kika/Leiner, were placed into
bankruptcy in the past year.
In 2018, Benko bought a quarter of
Austria’s biggest newspaper, the tabloid
Kronen Zeitung — and made clear he
wanted more control. That put him into
conflict with the majority owner — the
Dichand family, of which Christoph
Dichand is also the paper’s editor.
It was the Krone, as it is known, that
was the first to reveal Benko was gone
from the empire he built. “This is the
death knell,” it declared.
8 ★ FINANCIAL TIMES Monday 13 November 2023

COMPANIES & MARKETS

Financials Retail

Wendel seeks further private equity deals
French buyout firm upbeat
on sector’s prospects after
taking control of UK peer
SARAH WHITE AND ADRIENNE KLASA
PARIS
French private equity group Wendel is
seeking more acquisitions in the indus-
try after taking a controlling stake last
month in UK-based buyout firm IK Part-
ners, its chief executive has said.
Laurent Mignon, who joined in early
2023 after a long run in banking includ-
ing as chair of Natixis parent BPCE, said
higher interest rates, harder fundraising
conditions for private equity groups and
looming successions at some companies
were opening the way for deals.
In March, Wendel announced a €2bn
pot for buyouts and other investments
over a two-year horizon. The family-
backed firm, which has €9.6bn in gross
assets under management, is scouring
the market for targets as it branches
into managing money for outside inves-
tors for the first time with the IK Part-
ners deal, and could consider partner-
ing with other investment managers.
“We have capacity to keep doing
investments and we’re looking at other
opportunities,” Mignon said. Wendel
has roughly €1bn of acquisition funds
Market questions. Week ahead
left after also buying a controlling stake
in engineering consultancy Scalian this
year, and pledging to invest in up to 10
per cent of IK’s future funds.
Other big private equity groups have
also been looking at rivals, with CVC
taking a stake in Dutch infrastructure
investor DIF Capital Partners in Sep-
tember. The likes of EQT have also pre-
dicted a wave of deals as the industry
faces a reckoning after a prolonged
period of low interest rates came to an
abrupt end.
Borrowing has become more expen-
sive and higher rates have hit the valua-
tions of private equity portfolios, caus-
ing the flow of deals to evaporate. But
the tougher conditions have also made
some investment managers more will-
ing to strike partnerships or welcome
new owners as they seek capital, and
had allowed Wendel to expand into
managing funds for third parties; a
move it had considered in the past but
never seen through, Mignon pointed
out.
“This is a moment of consolidation,
which is something quite healthy,”
Mignon added. “If I thought we were
past the [private equity] golden age and
it’s over — I don’t, on the contrary
. . . but there’s been a form of exuber-
ance and now the market is stabilising
and consolidating.”
Wendel started 318 years ago as a
steelmaker before reinventing itself in
the past 40 years. It has long been a
“permanent capital” group, investing its
own money in acquisitions, including in
certifications group Bureau Veritas and
Acams, a group focused on detecting
money laundering.
In the deal struck with IK Partners’
chief executive Christopher Masek,
Wendel will spend €383mn on a 51 per
cent stake and buy out the remaining 49
per cent in a staggered fashion between
2029 and 2032.
Masek has committed to stay on for
six years at the group, which specialises
in mid-market acquisitions.
Pandora
confident its
charms will
bring growth
RICHARD MILNE
NORDIC AND BALTIC CORRESPONDENT
Danish jewellery chain Pandora is
increasingly optimistic ahead of the
key Christmas season, bucking the
trend of a sales slowdown among lux-
ury goods groups.
Pandora, which markets itself as selling
“accessible luxury” and is at the lower
end of such retailers with high-street
stores and cheaper items on sale, will
end this year “in a growth position,” said
chief executive Alexander Lacik.
He said: “We’re coming into the most
important time of the year with strong
momentum . . . When people have less

Analysts forecast significant easing of US inflation
Will US inflation signal a need
for further rate rises?
Investors will be picking through US
prices data this week for signs that the
Federal Reserve is on track to bring
inflation back to its long-term target.
Last week chair Jay Powell warned
that the central bank still had “a long
way to go” in its battle to curb rising
prices and bring inflation down to a rate
of 2 per cent. The latest Bureau of Labor
Statistics data on consumer prices, due
tomorrow, is expected to show that
headline inflation cooled to a rate of 3.3
per cent in the year to October, accord-
ing to economists polled by Bloomberg.
That would mark a significant easing
from a headline rate of 3.7 per cent in
September.
Analysts at Bank of America expect
the easing of the headline rate to be
driven primarily by a drop in gas prices.
Core inflation, which strips out volatile
food and energy prices, is expected to
have eased to 0.1 per cent month on
month, compared with 0.4 per cent in
September.
Any signs that inflation is more per-
sistent than expected could derail a
widely held view that the Fed has fin-
ished its rate rising campaign.
After the Fed’s latest policy meeting
Powell said it would proceed “carefully”
with future interest rate decisions,
which the market took as a sign that it
may have finished lifting rates. But he
later warned against the risk of being
“misled” by good data on prices.
Swaps markets are pricing a 90 per
cent probability that the Fed will keep
rates on hold at its next meeting, with
the first cut almost fully priced in for
June next year. Mary McDougall
Will UK inflation fall below 5 per cent?
The UK inflation rate is expected to
drop sharply on Wednesday but inves-
tors will be looking very closely for
firmer signals that price pressures are
still easing.
The data offers insight into the out-
look for the UK economy after mixed
messages from Bank of England officials
on the outlook for interest rates.
Economists polled by Reuters expect
the headline annual rate will fall to 4.9
per cent after it held steady at a rate of
6.7 per cent last month. The drop will
largely reflect a reduction in the energy
price cap set by regulators.
But investors will be looking beyond
the headline rate to core inflation,
Treading which strips out volatile food and
carefully: the US energy prices.
Federal Reserve Economists expect core inflation to
has warned that ease to a rate of 5.8 per cent from 6.1 per
there is a long cent last month. Investors will be partic-
way to go in the ularly looking for a slowdown in serv-
inflation battle ices inflation, which is closely moni-
and is tipped to tored by the central bank.
keep rates on “We expect to see evidence that
hold for now underlying services CPI is slowing, and
Graeme Sloan/Bloomberg
more rapidly than the MPC anticipates,”
Samuel Tombs, at Pantheon Macroeco-
nomics, said.
“We expect next week’s CPI report to
endorse the recent decline in markets’
interest rate expectations.”
Swaps markets are now betting that
the BoE has finished raising interest
rates and are pricing in close to three
interest rate cuts next year, up from just
one cut as recently as September.
Last week BoE chief economist Huw
Pill said market expectations for rate
cuts next summer were “not unreasona-
ble” but governor Andrew Bailey fol-
lowed up by saying it was “far too early”
to start talking about when rates could
be cut.
Traders will pore over labour market
data tomorrow for signs of higher inter-
est rates impacting on jobs. Economists
polled by Reuters expect the unemploy-
ment rate to nudge up from 4.2 per cent
to 4.3 per cent and rises in average earn-
ings excluding bonuses to remain at an
annual rate of 7.8 per cent.
Mary McDougall
Will Chinese consumer demand
bounce back?
Chinese consumer demand has
remained consistently weak this year
even though Beijing has loosened the
strict curbs on its citizens put in place to
combat Covid-19. Retail sales figures,
released on Wednesday, will be closely
watched for insights into the country’s
tepid recovery.
October economic data was inconclu-
sive. Imports expanded for the first time
since February, indicating strengthen-
ing domestic demand, but exports
Swaps declined for a sixth consecutive month.
Weaker than expected manufacturing
markets are data may also dim confidence, while
betting that plunging pork prices and a slip back into
deflation suggest there is more work to
the Bank of be done to revitalise consumers’ spirits
England and stimulate spending.
Analysts polled by Bloomberg expect
has finished retail sales to have grown 7 per cent in
raising October compared with a year earlier,
the fastest expansion since May. But the
rates and figures six months ago were also skewed
are pricing by comparisons with spring 2022 when
China was under another intense Cov-
in close to id-19 lockdown.
three rate Analysts at Bank of America said that
October’s deflation figures, when con-
cuts next sumer prices declined 0.2 per cent year
year on year, “underscore fragile consump-
tion and investment demand”.
Underscoring the fragility of China’s
economy has been weakening exports
and manufacturing data. Analysts at
Nomura argue that the indicators mean
it is “too early to call the bottom”.
William Langley
money, you see a softening at the high
end . . . We are still an accessible gift.”
A three-year boom in luxury goods
spurred by the pandemic has come to an
end in recent months as sales growth
has slowed as customers reduce spend-
ing.
“Pandora is the only company in our
coverage with growth accelerating quar-
ter on quarter,” luxury goods analysts at
Citi said after the Danish group pub-
lished third-quarter results earlier this
month.
The jeweller, which has launched lab-
produced diamonds to compete with
pricier luxury brands as well as its nor-
mal offering of bracelets and charms,
increased its full-year sales guidance at
the same time from 2-5 per cent organic
growth to 5-6 per cent.
That implied that its organic sales
‘When people have less
money, you see a softening
at the high end . . . We are
still an accessible gift’
growth in the fourth quarter, which
includes the crucial Christmas trading
period, would be 7 per cent, ahead of the
consensus analysts’ forecast of 5.5 per
cent, according to Citi.
Pandora is one of the world’s largest
jewellers by volumes sold. Lacik said he
expected the jewellery market globally
this year to be “negative to slack, at
best”, meaning the industry as a whole
would see no growth.
In the third quarter, Pandora was
helped by an increase in spending by
“domestic tourists,” he added, as people
stayed at home or travelled in their own
country and used some of their savings
to buy jewellery.
He added that the upgraded guidance
for the full year showed Pandora’s opti-
mism about Christmas.
“We have very strong brand momen-
tum. There’s only two directions on a
brand; you’re either growing or declin-
ing,” he added.
Pandora has invested in endorse-
ments from celebrities such as Pamela
Anderson, which has led to a big rise in
searches on Google and TikTok, Lacik
added, increasing its brand visibility as
sales have grown in the US and Europe.
“It’s not one silver bullet. All cylinders
are firing,” Lacik went on to say.
Shares in Pandora, which rose 10 per
cent after the company’s most recent
results, have increased by two-thirds in
the past year but even so, are still just
below their pandemic peak of Novem-
ber 2021.

Oil & gas. Marketing

Shell courts gamers and influencers to boost image among the young
Green campaigners criticise
fossil fuel producers’ spending
on social media channels
IAN JOHNSTON AND KENZA BRYAN
LONDON
Shell is hiring staff to promote online
games, sponsoring influencers to race
cars on branded virtual courses and
backing athletes to inspire “the next
generation” on Instagram, as the oil and
gas major tries to polish its brand among
a younger generation of consumers.
“I am fuelled by the ocean,” Sage
Erickson, a twice US open surfing cham-
pion, tells her 310,000 Instagram fol-
lowers in a Shell-sponsored video
posted last month in which she dis-
cusses her career and desire to “instil in
the next generation” values such as per-
sonal fulfilment and community spirit.
The campaign is one of several recent
initiatives by fossil fuel companies on
platforms popular among young people.
Climate campaigners want regulators to
crack down on this type of advertising in
the same way they have for tobacco and
alcohol companies.
Erickson, who has also promoted
ocean sustainability on her social media
channels, does not mention Shell or its
products in the video. Neither she nor
other influencers in Shell’s “Perform-
ance Unbound” campaign responded to
requests for comment.
Shell recently advertised for a “head
of digital amplification platforms” to
oversee its social media channels and
“integrate gaming and immersive expe-
riences” into its strategies, partnering
with Meta, YouTube, X, TikTok and
LinkedIn. The Financial Times reported
last year that Shell was hiring a manager
for its TikTok channel, a platform used
predominantly by young people.
In a campaign this summer called
Ultimate Road Trips, Shell worked with
gamers to create customised online
racecourses — complete with Shell pet-
rol stations — within the video game
Fortnite. It then sponsored influencers
to upload videos of themselves playing
the game to the streaming platform
Twitch. Instagram advertisements have
also promoted a Shell mobile driving
game, which is available on the Apple
AppStore.
Young people are more likely than
any other group to say climate change is
an emergency, according to a 2021 UN
study, while Pew Research polling shows
66 per cent of Generation Z Americans,
born after 1996, oppose new offshore oil
and gas drilling — more than any other
group.
“They’re targeting young people
because they want to build positive
associations among a group of people
that otherwise want nothing to do with
them,” said Duncan Meisel, director of
Clean Creatives, which calls on advertis-
ers and PR companies to cut ties with
fossil fuel companies.
Shell said its global advertising and
marketing campaigns “use a range of
channels and initiatives to explain what
Shell is doing throughout the world in
both traditional fuels and renewable
technologies as the energy transition
progresses”, adding that any marketing
of its fuels and lubricants “is obviously
targeted at people of driving age”.
The gaming initiatives focus on fossil
fuel products such as petrol and motor
oil, not renewable power.
Businesses can advertise oil products
to those below driving age as fossil fuels
are not covered by legal-age restrictions
of the kind that exist for alcohol, gam-
bling and e-cigarettes in the UK.
Companies do not publish numbers
on their ad spending but some data pro-
viders estimate that Shell is the highest
spender on digital advertising among
fossil fuel companies they have tracked.
COMvergence, a media spending ana-
lyst, estimates Shell will spend $270mn
on global media in 2023, with digital
media making up 58 per cent of this. BP
is projected to spend $219mn, 58 per
cent of which is also digital, followed by
Surfer Sage Erickson appeared in an
Instagram video sponsored by Shell
ExxonMobil on $96mn. Sensor Tower,
which tracks digital advertising in the
US, estimates that Shell has spent a
combined $3.8mn on TikTok and
Twitch this year, earning more than
348mn impressions (the number of
times its ads loaded on users’ pages),
according to analysis by research group
Media Matters.
TikTok did not respond to requests
for comment and does not share user
demographics.
More than 70 per cent of viewers on
Twitch, on which Shell has spent just
under $700,000 this year according to
Sensor Tower, are aged 18 to 35 but it did
not comment on how many are under
driving age.
The Advertising Standards Authority,
the UK’s advertising watchdog, has
banned recent ads from Shell, Spanish
energy group Repsol and Malaysia’s Pet-
ronas for not providing enough context
about the impact of their business as a
whole when making sustainability
claims. The US and EU are also strength-
ening their stance on so-called green-
washing.
Since the start of the year, Shell’s new
chief executive, Wael Sawan, has out-
lined plans to maintain oil output,
expand the gas business and trim parts
of its low-carbon portfolio, while insist-
ing that it remains committed to becom-
ing a “multi-energy” company and cut-
ting emissions.
Under UK consumer protection law
underpinning the competition watch-
dog’s Green Claims Code, companies
should take care not to exploit consum-
ers who may be vulnerable because of
their age or credulity.
Some want stricter controls. “Exploit-
ing youth culture to advertise fossil fuels
is a cynical tactic . . . to engage young
people in the destruction of their own
future,” said Veronica Wignall, co-direc-
tor at the campaign group Adfree Cities,
who called for a blanket ban on advertis-
ing by polluting companies.
Geraint Lloyd-Taylor, a partner in the
advertising and marketing team at Lon-
don-based law firm Lewis Silkin, said
the advertising did not appear to pose
any specific legal risks.
“The point of balance is hugely rele-
vant, as everybody accepts you can’t
just turn off fossil fuels,” he said.
“All these companies have net zero
2050 plans, so I don’t know what prob-
lem it would solve to ban them from
promoting themselves.”
Monday 13 November 2023 ★ FINANCIAL TIMES 9

Rutherford Hall
‘Freedom means fighting for airlines’
right to price gouge passengers’
Z WORK & CAREERS

The fraught
politics of
the office
{ US childcare:
baby steps }
whipround US has fallen behind when it Rising cost of childcare is
comes to women in the workforce outpacing US inflation
Women aged between 25 and 54 (%) 12-month % change (seasonally
adjusted)
2000 2021 10
88 Sweden
87 Switzerland Inflation
86
85 Netherlands 8
84 Canada
83 Germany
81 Belgium 6
79
78
77
76 4
75 US
73
71 2
Childcare

Pilita Clark 66 2021 2022 2023

0

Business Life Source: OECD Source: US Bureau of Labor Statistics

ot that long ago, the office
whipround was a fairly
straightforward affair.
On hearing that a
colleague was going to give
birth, wed or leave, someone would
buy a card and set off around the
building armed with an envelope to
collect money for a gift.
When I say “someone”, I mean a
woman. I cannot remember ever seeing
a man carry out this thankless,
non-promotable task, but well done
to any who did.
Either way, with card signed and
cash collected, a gift would be bought
and handed over in a way that left most
onlookers in the dark about the exact
size of the collection pot — and
occasionally the present.
That was then, as I was reminded
the other day when a friend told me,
gogg
gglle-e
e-eyyed, that more than £550 had
been collected in her midsized office to
bid farewell to a senior manager
shifting to a new job in another city.
“He’s not even leaving the company!”
she said. “And he’s already earning
more than most of us who chipped in.”
How did she know more than £550
had been collected?
Because it said so on the online
platform that had been used to gather
the money as people wrote digital
goodbye messages.
Welcome to the new and not
always pleasant politics of the office
whipround.
The process has been transformed by
the likes of Collection Pot, Giftround
and Thankbox — online platforms that
have become an office fixture since
remote working in the pandemic made
in-person collecting a nightmare.
“The popularity of a service like ours
just increased massively,” says Ellie
Andreou, co-o-ffounder of London-based
site Viing, which was set up in 2015.
It counts staff at banks, universities,
accountants and media groups among
its customers, as well as one Premier
League football club office. And
Andreou confirmed that users tended
to collect “significantly more” than
when they had to faff around catching
colleagues at their desks and hoping
“ Everything about
the process is more
visible, from the amount
collected to what is said in
a digital farewell card ”
each had enough change to hand.
Even so, it sounds as if my friend’s
colleague who received more than
£550 was lucky.
The average Viing collection raised
about £100, Andreou said, adding one
user was “astounded” to collect £200
instead of the £10 that used to be
typically collected in an envelope.
Andreou had not heard of junior staff
resenting the amount of money going
to senior workers. But she did point out
that senior people typically had more
connections in an organisation, so the
potential donation pool was bigg ggeer.
That makes sense. And it’s true there
is nothing new about the resentment.
Back in 2010, an indignant worker
wrote in an online forum for car lovers
that when he worked at a firm that
tried to organise a collection for a man
moving abroad, “I told them to xxxx
off ”, adding: “Guy went to New Zealand
and was nearly doubling his salary.”
But the new online whipround is still
more fraught because unless organisers
choose otherwise, everything about the
process is so much more visible, from
the total amount of money collected to
what is said in a digital farewell card.
This raises the risk of jealousy (“why
did she get so much more money than
Kenneth Andersson
me?”) and insecurity (“did I give
enough for my boss’s baby shower? r?””)
and other disagreeable developments.
Contributions are sometimes
optional if you sign the digital card, and
sometimes they’re not, which can lead
to confusion. Even when individual
contribution sizes are hidden, it is
possible to guess at who has given what
by monitoring the live collection pot
balance as people leave their messages.
That may be another reason online
collections are higher than physical
ones, although it is sometimes possible
to hide the live balance as well.
In at least one organisation I know of,
the size of contributions has led to talk
of setting limits, above which the rest
goes to charity. At another, the digital
platforms are largely used only to sign
a card. No money changes hands.
Ultimately, it is no use hoping for
a return to the past. The simplicity of
collecting digitally means it is here to
stay, and that does have one big upside.
As Viing’s Andreou told me, digital
whiprounds are so easy now that they
are increasingly being organised by
men. “That’s quite interesting in itself,
I think,” she says. I very much agree.
pilita.clark@ft.com
From accountants and cooks to
teachers and truck drivers, America is
struggling to find enough staff to fill job
vacancies. The unemployment rate, at
3.9 per cent, hovers near 50-year lows.
Shipping and logistic giant UPS is
going one step further than rivals to
win over workers. Last year, it started
offering emergency childcare services
at one site in northern California. It now
plans to expand the programme to
other facilities in the US.
Other employers — and policymakers
— should take note. The dearth of
decent, affordable childcare has long
been identified as a leading factor
driving women from the workforce.
Federal data shows labour force
participation among women aged 25 to
54 has recovered from the coronavirus
pandemic to hit an all-time high. But
that is misleading.
When considering the level of
increase since 2000, labour force
participation among women has barely
budged. This compares with big gains
in other OECD countries.
In a 2022 report, Moody’s estimated
that the US economy could receive a
$1tn boost over the next 10 years if
female participation in the market grew
to levels seen in other developed
economies.
Winning them back will require better
access to affordable childcare. Treasury
secretary Janet Yellen has called the
sector a “textbook example of a broken
market”.
Low pay makes it difficult for
childcare employers to recruit and
retain staff. The median pay for a
childcare worker is just $13.71 an hour,
or about $28,500 a year, according to
the Department of Labor.
Childcare centres say they cannot
afford to pay more because parents
cannot afford it. Already, half of parents
spend more than 20 per cent of their
household income on childcare.
During the pandemic the Biden
administration provided $24bn to help
the childcare industry stay afloat. That
money ran out at the end of September.
Congress is considering a request for
$16bn in new funding.
Subsidised childcare plays badly with
political conservatives. But there is a
good business case for it. Some $122bn
of economic output is lost every year
because childcare costs are
unaffordable for prospective workers.
At UPS, employee turnover at the
facility where it offers emergency
childcare has dropped from 31 per cent
to 4 per cent. Big things can come from
helping little ones.

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10 ★ FINANCIAL TIMES Monday 13 November 2023

MARKET DATA

WORLD MARKETS AT A GLANCE FT.COM/MARKETSDATA

Change during previous day’s trading (%)
S&P 500 Nasdaq Composite Dow Jones Ind FTSE 100 FTSE Eurofirst 300 Nikkei Hang Seng FTSE All World $ $ per € $ per £ ¥ per $ £ per € Oil Brent $ Sep Gold $

-1.28% -0.95% -0.24% -1.76% -0.466% -0.732% -0.10%

No change
0.67% 1.08% 0.41% 0.348% 0.344% 1.07%
Stock Market movements over last 30 days, with the FTSE All-World in the same currency as a comparison
AMERICAS EUROPE ASIA
Oct 11 - - Index All World Oct 11 - Nov 10 Index All World Oct 11 - Nov 10 Index All World Oct 11 - Nov 10 Index All World Oct 11 - Nov 10 Index All World Oct 11 - Nov 10 Index All World

S&P 500 New York S&P/TSX COMP Toronto FTSE 100 London Xetra Dax Frankfurt Nikkei 225 Tokyo Kospi Seoul
4,349.61 4,376.62 19,599.23 7,644.78 15,425.03
19,500.24 15,185.54 32,568.11 2,479.82
31,936.51 2,409.66
7,360.55

Day 0.67% Month 0.41% Year 10.61% Day -0.02% Month 0.38% Year -2.08% Day -1.28% Month -3.53% Year 0.86% Day -0.77% Month 0.60% Year NaN% Day -0.24% Month 5.07% Year 17.50% Day -0.72% Month 0.04% Year -0.61%

Nasdaq Composite New York IPC Mexico City FTSE Eurofirst 300 Europe Ibex 35 Madrid Hang Seng Hong Kong FTSE Straits Times Singapore
13,667.95 9,371.70 18,238.21 3,218.69
13,574.22 51,066.11 1,801.48 9,336.00
50,344.74 1,755.62 3,106.68
17,203.26
Day 1.08% Month 0.77% Year 22.97% Day -0.06% Month 1.49% Year 0.01% Day -0.95% Month -2.13% Year 5.74% Day -0.36% Month 2.41% Year 16.56% Day -1.76% Month -1.94% Year 5.26% Day -0.91% Month -1.90% Year -1.87%

Dow Jones Industrial New York Bovespa São Paulo CAC 40 Paris FTSE MIB Milan Shanghai Composite Shanghai BSE Sensex Mumbai
120,138.99 7,104.53 3,107.90
34,030.28 7,045.25 28,493.35 28,504.43
33,631.14 116,736.95 3,038.97 66,473.05
64,904.68

Day 0.41% Month 0.86% Year 0.93% Day 1.24% Month 3.23% Year 9.78% Day -0.96% Month 0.34% Year 9.56% Day -0.49% Month 2.97% Year 19.87% Day -0.47% Month -1.87% Year -0.83% Day 0.11% Month -0.80% Year 6.47%

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12 ★ FINANCIAL TIMES Monday 13 November 2023

WORK & CAREERS

Freedom means

Messages from the archive of Rutherford
Hall, critical communications strategist
fighting for WhatsApp to Stephen: You know I
stand up for your right to price gouge
your passengers.
Before I get to the lobbying effort,
can I suggggeest a couple of things? Since
‘
discourtesy or remember that your who do not pay any extra charges, by
sector is meant to be civil aviation. packing light and not paying for a seat
Best, Rutherford. Find me on Strava . . . choice or priority boarding. In effect
you are boosting consumer choice by

airlines’ right don’t like working with BasalAir. We

agreed the low cost airlines are your
clients. They don’t pay enough and are
to price gouge massively demanding — which I guess
at least keeps them on brand. Also they
passengers are bastards. They once charged me a
fortune to reprint a boarding pass and
some absurd sum for having the
temerity to have a suitcase. I’m totally
with ministers on efforts to crack down
on these hidden extra costs.
WhatsApp to Stephen: OK but you
no one likes being hit with extra
unexpected charges, even if we are
slowly being socialised to these
practices, have you considered the
potential benefits of being the only “no
hidden charges” airline?
Second, on the assumption you have
considered and rejected this, is there
anything you can do in the messaging
that makes it more obvious up front
what the low price you are advertising
excludes? If regulators push ahead with
this, it seems likely this is the absolute
From Rutherford@Monkwellstrategy.com
To BrianB@BasalAir.com
allowing passengers to set their own
priorities. The message is — you may
Thank you. I accept your apology. not like us — but our sales show our
I do think you have an interesting
communications strategy in embracing
The advertised fee passengers like the deal.
Third, this is not drip pricing since
the negative headlines that draw
attention to the ultra-low base price.
will get you to your
destination at no
the advertised fee will get you a seat
on the plane and to your destination,
You can do a lot with this. Have you at no extra cost — as long as you don’t
thought about dribbling out news stories
extra cost — as long mind wearing a week’s worth of
such as how, to keep prices as low as as you don’t mind clothes and not carrying more than
possible, you are considering charging carrying no more a change of underpants. We could
people to go to the toilet? Making them also turn this on the bigg
ggeer airlines
pay for a life jacket? Or priority than a change of that are using your techniques as a

owe me.
-------------------
Rutherford@Monkwellstrategy.com
BrianB@BasalAir.com
Brian, my colleague Stephen asked me
to reach out re your concerns about
new consumer regulations. I apologise
for the delay in getting in touch but I
had to board our priority clients first.
So you are worried about new
regulations that might limit or ban
“drip pricing”, where you advertise a
flight at a very low price but add in
Rutherford Hall extra costs for things like baggage
allowances, priority boarding, seat
Critical Comms selection and so on. I’m delighted to
help. Freedom means we must all
minimum they will demand. Getting
ahead of that may strengthen the
broader case.
Best, Rutherford
Find me on Strava, KoM Sydenham
Hill, PR London to Brighton 3h 17m
--------------------
From Rutherford@Monkwellstrategy.com
To BrianB@BasalAir.com
Brian, I’m glad Stephen “warned you
about my sense of humour” and I’m all
for banter, but there’s no call for that
rudeness. Your monthly retainer only
guarantees you a basic level of
incivility. If you wish to continue
drawing on my advice you will either
need to upgrade to premium
evacuation in case of an emergency
landing? Regulation is clearly a live issue
given the new consumer legislation in
the King’s Speech. I see three key
arguments. First, that denying you these
incremental charges will lead to higher
prices for everyone since you will have
to raise prices to cover lost revenue —
can you come up with a faintly plausible
figure we can give out? Alas, like the
safety demonstrations, no one will pay
attention but we need to go through the
motions.
Second, and most important — this is
an issue of consumer choice since
people can go elsewhere and also
because there are plenty of customers
’
underpants shakedown. I know one that also
makes you pay to choose your seat
unless you want to sit between two
sumo wrestlers.
Choice and price. These are good
arguments for a consumer regulator
and could also resonate with the
government. Finally have you thought
about using a , or a to address the
really serious ?
Best, Rutherford. Find me on Strava . . .
PS: Apologies for the missing words. I
forgot to mention, you have to pay
extra for some nouns. But we are the
best value communications strategists
in the business.

Career changes
Work Watch

Whitehall looks to turbocharge

Why office recycling bins
make us monsters

recruitment from the private sector

one survey laboratory
workers estimated they
recycled two-thirds of
their rubbish at home, but
only one-third at work (or
when on holiday).
Henry Man
a ce Facilities teams try to
simplify things,
streamlining the number
ost of the time I know my of bins and pinning up
colleagues are smart, posters with clear
dedicated, collaborative instructions. Disposable
people. Then occasionally I coffee cups look like they
Attr
trac
acti
ting
ng exterernanall staf
afff catch a glimpse inside the
office recycling bins and I
should be recycled, but
most are a mix of plastic
to Br
Brit
itai
ainn’s ci
civi
vill se
serrvi
vice
ce is think: who are these and paper,r which is hard to
part
pa rt of the pl
plan
an to boost monsters?
Why would anyone
separate. Mostly, y they
should go in the main
gover
ernm
nmen entt pr
proodu
ductctiivi
vitty, throw a half-eaten apple in waste bin. Tissues look like
writ
wr es Luc
ites ucy
cy Fi
Fish
sherer the paper recycling? Who
thinks a coffee cup counts
they should go in the
paper bin, but the paper
as food waste? What must fibres have been recycled
de cade ago Cat Little was their homes look like? so often they can’t be
contemplating the track to Anecdotal evidence recycled again.
becoming partner at suggests professional It would be easier to sort
accountancy firm PwC people are terrible at basic these products out before
when another idea took recycling in the office. Or they get to consumers.
hold. It began with a question posed by a to put it kindly: they aren’t England banned plastic
senior official at the Ministry of Justice, quite good enough. If you straws and coffee stirrers
with whom Little, a government and put just, say,
y two banana in 2020, and this month
public sector specialist, had worked on a skins in a paper recycling banned plastic cutlery and
project as a consultant. “It’s all very well bin, the whole sack may polystyrene cups. Many
you providing all of these professional, well be deemed canteens have eliminated
lovely reports,” the mandarin said, “but contaminated — and all disposable cups. “In an
wouldn’t you like to actually do some- incinerated. In recycling, as absolute utopia, nothing
thing about it?” in crypto, a few bad apples would be single use and
Aware of the limitations of being “on spoil the whole barrel. there wouldn’t be any
the outside looking in”, Little resolved to So why can all these packaging, full stop,” says
accept the challenge and joined the civil intelligent office workers Herriott. “But that’s not
service. “Candidly, I thought I’d give it a not follow instructions? A going to be possible.”
go,” she said. “I wasn’t entirely sure senior colleague confesses Futcher says that, on
whether I’d be any good at it. And here I to me that he only recently average, offices have gone
am, 10 years later.” Here she is: head of learnt to wash out baked from about 10 per cent of
the government finance function across Cat Little, who said this summer that the need for more day work that forms the core of senior senior civil servants, warned that beans tins at home. their waste two decades
the civil service overseeing 10,000 staff, oversees 10,000 h i g h ly s k i l l e d m a n a g e r s t o i m p rove Whitehall roles should be a draw to out- uncompetitive pay was the “single big- Another member of staff ago, to about 45 per cent
and second permanent secretary at the staff across the public services had been “dangerously siders, even though Whitehall’s reputa- gest impediment” to Whitehall recruit- says apologetically: “I do today. When I found the
Treasury, roles that make her one of the civil service, overlooked” by ministers for 20 years. t i o n f o r c u m b e r s o m e b u re a u c r a c y ing from the private sector. “If ministers try quite hard, but I get man responsible for the
most senior officials in Whitehall. said she had As inflation erodes state spending could be a potential deterrent. “We get genuinely want to attract and retain the confused by coffee cups.” FT’s recycling, he brought
L i t t l e i s f a r f ro m t h e o n ly h i g h ly been ‘really power, and government departments to see some of the most novel, conten- best talent, then they need a credible The act of recycling is me surprising news: it is
skilled manager recruited to Whitehall surprised by the come under pressure to deliver their tious, difficult, challenging projects and plan to address the glaring pay dispari- sufficiently annoying that relatively good at it. At last
from industry in recent years. Gareth exceptional priorities within budgets, tapping into programmes in the world,” he said. ties with the private sector,” he said. UK prime minister Rishi count, we recycled 82 per
Rhys Williams, a four-time private sec- talent and private sector experience is a way to fur- T h e p a r t o f W h i t e h a l l S m a l lwo o d Rhys Williams has brought the expe- Sunak chose to base his cent of our waste.
tor chief executive, joined in 2016 to quality of ther professionalise Whitehall. There oversees has attracted “people from pri- rience he gained working as chief execu- recent political relaunch Companies have a
transform the government’s commer- leadership’ a re a l s o h o p e s A I a n d o t h e r d i g i t a l vate banking, from the legal profession, tive at two private equity firms and two partly on a vow to scrap financial incentive to
cial activities, and Nick Smallwood was when she joined advancements can drive efficiency. HR profession, as well as project and public companies to his current role “proposals for households promote recycling. The
brought on board in 2019 to improve the Anna Gordon/FT T h i s i s o n e re a s o n t h a t , d e s p i t e a programme delivery people, people overseeing about 6,000 people working to have seven bins” FT’s waste collector
oversight of big projects, following a freeze on the overall civil service head- who’ve run railway schemes [and] in procurement across government. In (although such proposals charges four times more
career spanning almost four decades at count and a plan to reduce its size by operated docks . . . they’ve come with the las
lastt aud
audite itedd year
ear,
r, the com
commer
mercia ciall did not seem to exist and for each kilo of general
Shell. Last autumn, Fiona Ryland was 60,000 jobs in the longer run, depart- deep expertise, basically,” he said. “function” he runs delivered more than promising to scrap them waste than for a kilo of
a p p o i n t e d t o s t re a m l i n e h u m a n ments are still allowed to recruit — and He added that outsiders could bring £225mn in efficiencies. “That frees has not reversed his dire separate food waste. But
resources in Whitehall, having previ- hav
haave been tol told d to pri
priori
oritis
tisee — out
outsid
sidee “new energy and new ideas to what’s an money up for departments to spend on poll ratings). individual office workers
o u s ly l e d H R a n d c o m m u n i c a t i o n s staff and those with digital experience. essential service to the public” and that o t h e r t h i n g s t h e y t h i n k a re u s e f u l , But there are do not get paid for putting
teams at the food service company With that in mind, Quin is on a mis- since joining the civil service, he had whether that’s more ammunition, more psychological reasons why a Coke can in the right bin.
Compass. sion to overhaul the recruitment proc- nurses, more drugs, more schools.” it is particularly annoying Environmental experts
T h i s t re n d o f d r a f t i n g i n i n d u s t r y esses that have proven an obstacle to ‘We get to see some of the While the government’s emphasis is in the office. We might do point out that recycling is
executives to the highest echelons of hiring externally. Last year he ope pen ned on bolstering external recruitment, offi- something time- less important than other
government administration is one Jer- up almost all senior Whitehall roles to most novel, contentious, cials are at pains to knock down “lazy” consuming at home simply sustainability measures.
emy Quin, minister for the Cabinet
Office, now wants to turbocharge. Min-
exte
xterna
rnall can
candid didate
atess. Now he is det
mined to stamp out “gobbledegook” jar-
deter-er- difficult and challenging stereotypes about internal Whitehall
staff. Little admitted she “probably had
because we believe it’s the
right thing to do. But we’re
Because the recycling
process involves waste
isters are concerned the system lacks gon in job adverts to ensure people out- projects in the world’ a preconception a lot of people in the less likely to do that at and energy, y it is less
speed and nimbleness, issues brought to side government “understand what the private sector have” about the “quality work, where we’re used to effective than using less
the fore in the Covid-19 inquiry. This p o s t s w o u l d i nvo lve , w h a t t h e t a s k s of people” in the public sector but said being paid for our efforts. stuff (but more effective
summer Quin told the Financial Times would be”. Quin is also tackling the been impres
been esssed with the “ope
pen
nness to she had been “really surprised by the This is why no one waters than not recycling). It may
he was determined to “tap into the tal- length of time recruitment takes in gov- learn and do things differently”. He said exceptional talent and quality of leader- the office pot plant or puts even be counter-
ent” of the private sector, particularly in ernment, which is often “80 days plus”. his motivation for taking the job after a ship”. Rhys Williams agreed: “This place their cup in the office productive. In his book
areas where the public sector is facing The vetting required for successful can- career at Shell, where latterly he had is full of seriously clever people.” dishwasher. “A“ t home, W steland, journalist
Wa
skills shortages, such as artificial intelli- didates, which can add “weeks” of delay, managed global engineering projects, On the day Rhys Williams met the FT, there’s more time, there’s Oliver Franklin-Wallis cites
gence, data science and technology. The is another process he aims to expedite. was to “give something back to the pub- he said 1,000 officials across Whitehall more space,” says Simon a study in the Journal of
government also wants to address the These measures will go some way, he lic sector” and noted it was “absolutely had signed up to a negotiating master- Futcher of the waste Consumer Psychology, y
issue of people leaving the civil service hopes, to improving the number of sen- not money”. “Everyone will tell you if class, while more than 50,000 had company Veolia UK. which found participants
to join the private sector by bolstering ior civil service-grade roles filled by pri- you come into the civil service in a sen- received training through a government Another aspect is used twice as much paper
retention and making it easier for them vate sector applicants, which at present ior role, the salaries will not compete commercial college. “We are becoming control. At home, we set in an office task when a
to return later in their career. stands at about one in five. Little agreed with the private sector.” Smallwood much more consistent, much better the rules. “Yo
Y u’ve got that recycling bin was present
Recruiting more external staff to the Whitehall needed to better explain what earned just under £200,000 last year, trained,” he said. He is also optimistic ownership of your bin,” than if one wasn’t. In other
c i v i l s e r v i c e , w h i c h e m p l oy s a b o u t it did, which is one reason she is launch- while Little received about £165,000 about Quin’s plan to accelerate hiring says Adam Herriott of the words, a belief in recycling
488,000 people across Britain, is one ing a campaign to demystify senior gov- and Rhys Williams almost from outside the civil service, given Waste and Resources may make us carefree.
pillar of the government’s strategy to ernment finance jobs, telling external £255,000. They are among only 1,600 about 800 industry professionals have Action Programme, a There may be one
tackle the public sector’s productivity applicants “what do we actually do, senior officials who earned more than already been recruited into the 1,500- charity. Yo
Y u also get the upside to realising how
problem, a significant constraint on the why does it matter, how do you apply £100,000 in 2022. All three could earn odd commercial roles in central govern- blame when it goes wrong. bad recycling is in the
UK’s e c on om ic g row th. It i s a lso a your professional skills to the world of multiples of these sums in equivalent ment under his watch. “We don’t shout At work, “the recycling office: we might produce
ripo
posste to warnings issued by authori- government”. private sector roles. about it”, he said, but “it is possible to gods won’t know it was less waste in the first
ties such as Ann Francke, CEO of the S m a l l w o o d , t h e g o v e r n m e n t ’s Dave Penman, general secretary of recruit really good people from the pri- me”, says a colleague. In place.
Chartered Management Institute, who projects chief, stressed that the day-to- the FDA trade union that represents vate sector into government”.
Monday 13 November 2023
Asia’s richest banker
shook up an economy
dominated by dynasties
when he launched his own
business. By Chloe Cornish
I
f not for a cricket ball to the skull,
Uday Kotak might never have
become one of modern India’s most
successful finance entrepreneurs.
The speeding projectile that hit
him during a match at business school
in Mumbai four decades ago sent the
then 20-year-old student off the univer-
sity field and into brain surgery. Roam-
ing the warehouses of his family’s com-
modities business in the months he
spent recovering, Kotak realised he
had no interest in becoming another
trader lost in the ranks of his enormous
clan. He wanted his own identity, as a
financier.
At the age of 24 he broke away to start
a tiny operation offering bill discounting
— although he did rely on his family for
initial capital, and a small office. He
grew the business into Kotak Mahindra
Bank, India’s third-largest private sec-
tor lender, with a market value of about
$44bn. In the process Kotak became
Asia’s wealthiest banker — he has a 26
per cent stake in the bank, which Forbes
values at more than $13bn — and
changed the shape of Indian banking.
In September Kotak quit, a few
months before hitting the time limit
imposed on executives by the Indian
banking regulator in 2021. It was a
moment investors had been dreading.
Critics and insiders worry the finance
group has become too reliant on its
founder, a sentiment reflected in the
recent share price underperformance.
“The market is concerned that if [Kotak
is] not in the driving seat, how will the
bank continue to deliver the perform-
ance it has been known for,” said
Hemindra Hazari, an analyst.
“The bank is really at a crossroads
right now,” added Kotak Mahindra
Bank board member Uday Shankar,
“because [it] has not existed a day with-
out the leadership of Uday Kotak.”
Kotak, who will continue as a “com-
mitted significant shareholder” and
board member, said he believed the
‘I think it requires
humility to say “I do
not understand it,
therefore I will not do it”’
financial services group, which last
month appointed former head of Bar-
clays UK, Ashok Vaswani, as chief exec-
utive, would thrive without him: “An
institution is more important than an
individual. I believe the institution has
strength, it has people, it has the culture
and ability to really build from here.
And I see a huge opportunity as the
Indian finance sector grows.”
In an economy dominated by busi-
ness dynasties, Kotak’s decision to start
his own business was striking.
In India, “it’s always been rich fami-
lies, industrial families who built newer
and newer businesses on the back of
existing businesses which were throw-
ing cash flows,” said Srini Sriniwasan,
who has worked under Kotak for 30
years and now leads Kotak’s alternate
assets business.
Sriniwasan said Kotak took “every
opportunity in financial services that
opened up” — expanding into new busi-
nesses as regulations loosened, from car
financing to asset management.
Employing professionals differentiated
Kotak from his peers.
“Here was an entrepreneur who built
it all from scratch, and all of it with pro-
fessional managers,” added Sriniwasan.
There is no trading floor swagger
about Kotak, who comes across as more
maths teacher than master of the uni-
verse, a finance stereotype he says he
wants his bankers to reject.
“I was quite struck by how simple,
unpompous and transparent the man
was,” recalled Shankar. Kotak “has no
ego”, added Sriniwasan.
Kotak, who secured one of India’s
newly available bank licenses in the
early 2000s, credits his success with
making the best of new opportunities.
His career has mirrored the rapid
growth and reform of private sector
finance in India, following decades of
state-owned bank dominance.
“I genuinely believe Kotak [the
group] is a product of financial sector
reform between 1985 and 2023,” he said
in an interview at the new family office
Leadership. Uday Kotak, Kotak Mahindra Bank
‘It is better to be stupid
now than sorry later’
Uday Kotak’s career has mirrored the rapid growth and reform of private sector finance in India, following decades of state-owned bank dominance — Kanishka Sonthalia/FT
that will form his next project. “I have
been the biggest beneficiary.”
Unlike Indian billionaires who have
drawn criticism for ostentation, Kotak
does not own a private jet “and I do not
propose to”. His personal hero is
Mahatma Gandhi, the austere pioneer
of non-violent protest pivotal to India’s
independence from Britain. His profes-
sional hero is JPMorgan’s long-term boss
Jamie Dimon.
Kotak was born in 1959 into a Mumbai
household of 63 people, with one
kitchen between them. The cricket-mad
teenager stayed in India’s banking capi-
tal for university and business school.
When he started his lending business,
one of his early clients — Anand Mahin-
dra, then chief financial officer of a rep-
utable family-owned steel business —
spotted potential. The industrialist was
so impressed by Kotak’s pitch that “I
told him in the office itself . . . we would
love to partner with you”.
Kotak accepted Mahindra’s offer dur-
ing his own wedding reception at Mum-
bai’s Willingdon Club, offering the busi-
nessman a stake in the company he had
incorporated just six days earlier. “The
joke was that [Kotak] took time out
even from his wedding to talk business,”
said Mahindra.
The deal brought Kotak one element
his business had been missing — a
reputed surname. “Nobody knew who
Kotak was in those days,” said Mahin-
dra. They rechristened the business
Kotak Mahindra Finance.
Kotak used international partner-
ships to expand his nascent institution.
“Indian markets were still very early
stage,” said Kotak, “and we wanted
to learn.”
Hank Paulson, who, as a Goldman
Sachs banker in 1995 signed a joint ven-
ture with Kotak, remembers the Indian
financier as a “hard working, 24/7
man”, and “a very tough negotiator”
who was “unwilling to cede control”.
Kotak also built a reputation for being
cautious about taking financial risk,
although he baulks at that characterisa-
tion. “When we take the risk, we want
the returns,” he said. “The principle at
Kotak we’ve followed over the last [40]
years is if you do not understand some-
Kotak’s business partner Anand
Mahindra with his wife, Anuradha
★ FINANCIAL TIMES 13
WORK & CAREERS
thing, do not do it. Very often finance
professionals will give you very complex
structures. I think it requires humility
to say ‘I do not understand it, therefore I
will not do it’. It is better to be stupid
now than sorry later.”
However, Kotak regrets some hesita-
tion. Five years after Kotak Mahindra
became a bank in 2003, Wall Street
plunged the world into financial crisis.
Thinking India would become engulfed
in the turmoil, Kotak stopped expand-
ing the bank’s branch network.
“One of the mistakes I made is I read
the international media too much,”
he said. “I became a little cau-
tious . . . That’s the time I should have
gone faster”.
Kotak revved up again in 2014, merg-
ing with ING Vysya Bank, in which
European bank ING had been the larg-
est shareholder: “It was the largest pri-
vate sector banking acquisition in
India . . . that gave us scale.”
Another transformative moment
came in 2016, when India’s prime minis-
‘One of the mistakes
I made is I read the
international media
too much’
ter Narendra Modi upended the bank-
ing sector by abruptly withdrawing bil-
lions of dollars in currency in a bid to
fight corruption. Kotak called it “a crazy
moment”.
Less than six months later, Kotak
Mahindra launched a digital banking
service called 811 — Modi’s “demoneti-
sation” happened on November 8. The
bank appointed Kotak’s son, Jay, who
had graduated from business school a
few years earlier, as co-head of the fast-
growing digital business.
Some critics believe his son’s promo-
tion undermined Kotak’s stated policy
of fair promotion. The idea that Kotak
pursues meritocracy is “nonsense”,
sniffed one banker.
Kotak says he recuses himself on all
matters relating to Jay’s career, and
denies envisaging his son becoming
chief executive: “It is up to him on mer-
its and professional capability to figure
out how his career goes . . . This is not
the traditional way in which most
Indian corporates have their succession,
but I believe that for building an institu-
tion, this is a more sustainable way.”
Kotak is not planning any gradual
wind-down into retirement. His new
family office is a “plain piece of paper”,
he said. He is also preoccupied with cli-
mate change and has proposed a levy on
business worldwide to fund losses
inherent in the energy transition.
Kotak “has exceeded everyone’s
expectations”, said Paulson, who went
on to be Goldman CEO and US Treasury
secretary, “except maybe his own”.
14 ★ FINANCIAL TIMES Monday 13 November 2023

ARTS

Allan Clayton
in the title role
Chaotic realm of
of Handel’s
‘Jephtha’
Marc Brenner
fairies and Morris men
Nunn and Trevitt have shuffled
DA NCE and dealt 10 of Ellcock’s 12 chapter
headings — Ritual, Water, Rebellion,
BalletBoyz: England on Fire etc — between their eight dance-
Sadler’s Wells, London makers. The results are mixed.
aaeee Russell Maliphant has been writ-
ing for the BalletBoyz since 2001
Louise Levene and in Enclosures he serves up one
of his meticulously cantilevered
Browsing the National Theatre’s couplings to a score by Cassie
bookshop last summer, Michael Kinoshi. Lucy Bennett’s Water has
Nunn and William Trevitt, joint three men turn puppeteer, en-
artistic directors of BalletBoyz, abling Stamouli to bodysurf invisi-
spotted England on Fire. Stephen ble waves to Mukul’s electronic
Ellcock’s book, billed as a “visual soundscape of gulls and breakers.
journey through Albion’s psychic The most enjoyable sequence is
landscape”, is a magpie collection Edd Arnold’s The Way, featuring
of classic images — Blake, Samuel three dancers dressed as Olde Eng-
Palmer, Arthur Rackham, John lish mummers in shaggy onesies.
Martin — intermixed with 21st- The flopsy trio tumble bonelessly
century paintings and photo-
graphs. Its imagery became a
touchstone for an ambitious dance
project using six composers,
eight choreographers and 13 danc-
ers. The result premiered at a
packed Sadler’s Wells. Intermit-
tently beguiling, the chaotic 75-
minute piece suffered from too
many voices with not nearly
enough to say.

Biblical epic becomes a wild party

O P ERA
Jephtha
Royal Opera House, London
aaaee
Richard Fairman
It is a good thing the Royal Opera did not
choose to present an updated staging of
Handel’s Jephtha. In the current political
climate, a production that shows the
Israelites going to war against an enemy
that is threatening to “crush the race of
Israel” might seem too close to the bone.
As Handel never intended his orato-
rios to be staged at all, that is just one
part of the challenge. The Royal Opera is
committed to presenting a Handel work
each year and, after last season’s Theod-
ora, the oratorios, with their strong,
clear narratives, are evidently going to
have a place alongside the operas.
For Jephtha, director Oliver Mears has
chosen a setting far from the biblical
lands of the Middle East. In place of cru-
sading Israelites and evil Ammonites,
he gives us a century-crossing clash of
Puritans on one side and Georgian
revellers on the other, in which the
partygoers of the Baroque era are
having such a raucous, fun time that the
audience is likely to be rooting for them.
As soon becomes clear, the produc-
tion’s laudable message is that extrem-
ism leads inevitably to a tragic outcome.
Jephtha himself, a tub-thumping evan-
gelist who lectures the Puritans from a
pulpit, is finally turned on by his people
and condemned to solitary suffering.
Unfortunately, there is a disconnect
between all this and the unquestioning,
religious morality of Jephtha’s text and
music. Why does Hamor return from
war singing a radiantly happy aria
when he apparently has a serious case
of PTSD? Why does Iphis tell us she is
content with her lot as an eternal virgin,
only to throw off her nun’s habit and
rush away in the countertenor’s arms?
All the force of this production,
and indeed the strength of the work,
is invested in Jephtha himself, a
man racked by mental agony and one
of Handel’s most compelling portray-
als. After his highly charged Peter
Grimes last year, Allan Clayton must
almost have cast himself in the role.
He sings impressively well, encompass-
ing early music agility and a deal of
heroic power, and his ability to bring
the character intensely alive provides
the essential fulcrum on which every-
thing else depends.
He is fervently supported by Alice
Coote as his mother Storgè, though her
aggressive use of chest voice has become
a problem. Cameron Shahbazi makes a
sweet-voiced Hamor, but sweetness is in
shorter supply from Jennifer France’s
sharp-edged soprano in the role of his
beloved Iphis. Brindley Sherratt, so
imposing in Wagner, sounded out of
sorts as Zebul. Young Ivo Clark did well
as the first of the cast’s two treble angels.
The static images of oratorio are
treated to some striking stage pictures
courtesy of designer Simon Lima Holds-
worth, with the romp in the Georgian
camp coming straight out of Hogarth.
The period Baroque style is more of a
problem for a standard opera orchestra,
despite well-judged compromises on
the part of conductor Laurence Cum-
mings, and the much-enlarged chorus
was constantly, and irritatingly, a frac-
tion out with the pit.
In the end, it is a toss-up whether this
staging brings us any closer to Handel
than a concert performance by a crack
period ensemble, however much the
questions it poses need to be asked.
The woolly narrative thread
tells of an outsider — the impres-
sive Artemis Stamouli — washed
up, Tempest-style, on the shores of
an alien land whose quirks, rituals
and prejudices she must somehow
accommodate. Nunn and Trevitt
wanted to lay bare England’s
shortcomings while celebrating its
creative potential, but the former
impulse definitely predominates.
Mat Osman’s spoken text informs
us that “England is a hothouse
flower and all the glass is
cracked . . . England is a shallow
grave marked by dead flowers in a
jar” (the omnipresence of a large,
crudely painted flag of St George is
a bit of a giveaway).
The isle is peopled by figures
from English myth and folklore —
druids, fairies, Morris men, corn
dollies — portrayed by the quick-
changing cast. Katherine Watt’s
punky, bloodstained wardrobe of
doublets, tutus and frayed denim
is garnished by a dressing-up box
of capes, animal masks, antlers
and wings. The nine-piece orches-
tra is joined at various points by
Gag Salon, a four-man post-punk
band whose twangling instru-
ments are wheeled squeakily for-
ward on their own mini platform
to put a little heat under things.
Edd Arnold’s ‘The Way’
or take flight in arcing jetés en tour-
nant, the shreds and patches of
their costumes flaring around
them in tatty aftertraces.
Rebellion by contemporary
dance duo Thick & Tight is pref-
aced by a trippy, high-speed slide-
show of vintage news images: Neil
Kinnock stumbling into the surf;
John Prescott thumping a dis-
senter; Boris Johnson on a zip wire;
Jacob Rees-Mogg reclining;
Theresa May dancing (for want of
a better word). The chorus form a
kick-line before staging a parody
coronation (former English
National Ballet soloist Oxana
Panchenko, criminally wasted as
the bloodstained monarch).
For Shelley Maxwell’s finale,
Arcadia, the cast are convulsed by
galumphing jumps and sulky
kicks before encircling our hero-
ine — now fully assimilated? hard
to know; hard to care — who spins
in their midst as the curtain falls.
sadlerswells.com

To November 24, roh.org.uk BalletBoyz in ‘England on Fire’ — Thomas Bradshaw

New chapter in Noah’s career arc

In the 10-minute introduction to the
PODCASTS first (and so far only) episode, Noah
says the show will feature “the
Fiona conversations I’ve been having, just
Sturges with other people able to listen in . . . A
great conversation about anything that
matters has you walking away saying
Noah’s first guest is Dwayne Johnson,
the wrestler-turned-Hollywood star
with whom Noah agrees on absolutely
everything. Here, his version of a “great
conversation” is an hour-long festival of
fawning and flannel. “You have come to
embody so much of the goodness that

P
odcasts are increasingly the
place where exhausted late-
night TV hosts go to reboot
their careers. Conan O’Brien
was an early adopter with
Conan O’Brien Needs a Friend, based on
the conceit that he had no friends
beyond those on his payroll. This
September brought the launch of the
limited series Strike Force Five, featuring
John Oliver, Seth Meyers, Stephen
Colbert and Jimmys Fallon and Kimmel.
Meanwhile, James Corden, formerly of
The Late Late Show, has announced that
he will launch a podcast next year. But
before then, we have South African
comic and late-night TV stalwart Trevor
Noah’s new audio outing, his first job
following his seven-year stint as host of
The Daily Show.
What Now? with Trevor Noah is — but of
course — an interview series, because
clearly we don’t have enough podcasts
in which celebrities interview their
famous friends. The title alludes both to
Noah’s post-Daily Show career
crossroads and, more generally, to the
parlous state of the world.
‘Huh, I may not have changed my mind,
but that gave me something to think
about.’” He goes on to explain how
dispirited he feels at today’s discourse
and how people, rather than politely
disagreeing, see any difference of
opinion as a battle to be fought.
So how will his podcast remedy this?
Thus far, it’s impossible to say since
Dwayne Johnson, left, is the first
guest on Trevor Noah’s new podcast
people want in their world,” Noah tells
him at one point. At another: “I admire
how you think, I admire how you move
through the world” and “I love the way
your face lights up when you talk about
your daughters . . . I think you have in
many major ways changed the way
people perceive what it means to be a
dad.” Granted, we do learn that
Johnson hasn’t ruled out running for
office, that his childhood was difficult
(he was thrown out by his mother at 13)
and that he has had depression. But
these are stories that have already been
told elsewhere.
It is one of the advantages of celebrity-
led podcasts that the hosts can bring in
big-name interviewees. But it’s also a
blight because the ensuing
conversations quickly descend into
chummy love-ins. You can see why
podcasting is attractive to Noah after
years in late-night TV: the hours are
better, the format more flexible and
there’s no live audience to contend with.
But if he keeps up this simpering style of
interviewing, he’ll be lucky to have an
audience at all.
open.spotify.com
Monday 13 November 2023
A rare look inside a covert procurement operation to get strategically important microchips subject to
strict export controls out of Europe and into the hands of a state defence manufacturer.
s their yacht bobbed on the
Me d i t e r r a n e a n i n Ju ly
2021, Marc Rocchi snapped
a pic ture of a slightly
d o u g h y Ru s s i a n m a n i n
bagggy swimming trunks, dozing with his
head propped against the helm.
T h e Fre n c h b u s i n e s s m a n wo u l d
later say that he only knew the Russian
by his first name, Maxim. But he knew
the purchases Maxim had been making
f o r ye a r s h a d b e e n e s s e n t i a l t o t h e
survival of Ommic, a French microchip
m a n u f a c t u re r o f w h i c h R o c c h i w a s
director-general.
Desperate to keep the flow of chips
m ov i n g , j u s t a f e w m o n t h s e a r l i e r
Rocchi had flown to Greece to hand-
deliver Maxim a shipment of 230 micro-
chips — €45,000 worth. Maxim had, at
one point, offered Rocchi “cash and
women”. But Rocchi said he declined —
he needed Maxim’s business to keep
Ommic afloat.
Ro c c h i a lw ays k n e w h i s b u s i n e s s
p a r t n e r w a s b u y i n g m i c ro c h i p s o n
behalf of a Russian state enterprise, and
that Maxim used a network of interme-
diaries to get them out of France and
into Russia.
And he also knew Maxim was work-
i n g o n b e h a l f o f I s t o k , w h i c h Ro c c h i
described as a state research body. Istok
is in fact a state-owned technology com-
p a n y t h a t m a ke s e l e c t ro n i c w a r f a re
systems for the Russian military.
Today, Ommic has closed and Rocchi
is awaiting trial in France, having been
indicted in March. He is charged with
sending secrets to a foreign power that
c o u l d h a r m t h e n a t i o n a l i n t e re s t ,
exporting dual-use goods to Russia, and
submitting false documents.
According to sources familiar with
the investigation, Rocchi has previously
argued to police that the goods and
i n f o r m a t i o n s e n t by O m m i c we re
not subject to controls, disputed that
sensitive information was eve verr sent
abroad and said that other people were
responsible for any false documents.
He has declined to comment to the
Financial Times.
T h e p h o t o g r a p h w a s a r a re s l i p i n
what appears to be a decades-long
Russian intelligence operation.
The man pict ctuured, Maxim Ermakov,
has been placed under sanctions by the
U S a n d U K g ove r n m e n t s i n t h e p a s t
fortnight as part of a crackdown on the
networks that Moscow’s intelligence
services use to procure advanced west-
ern technology for President Vladimir
‘Russian intelligence
plays a huge role in
getting this technology.
They always have. This is
what the Russians do’
P u t i n’s w a r m a c h i n e . H e d i d n o t
respond to a request to comment.
This rare account of the activities of
such a network illustrates how difficult
it is for western governments to tackle
Russian state smugg gglling operations, and
prevent western technology from being
used by Russian industry and the mili-
tary. Specialist microchips, such as the
high-performance gallium nitride and
gallium arsenide-integrated circuit
b o a r d s m a d e b y O m m i c , a re v i t a l t o
Russian defence manufacturers.
Conscious that its own manufacturing
capacity has lagged behind the west and
Asia’s ever since the first chips were
invvent
in enteed in the lat latee 19
1950s
50s,, Rus ussia
sia has
i n s t e a d t u r n e d t o a c q u i r i n g f o re i g n
components.
And with regulations prohibiting the
export of much “dual-use” technology —
parts that have civilian and military
applications — Moscow’s strategy has
“usually meant smuggling”, according
to Chris Miller, a professor at Tufts Uni-
versity’s Fletcher School.
After Putin invaded Ukraine last year,
t h e p re v a l e n c e o f d ro n e s a n d o t h e r
surveillance eq equ uipment on the battle-
field has made electronic warfare ever
more essential.
And as the west redoubles its efforts
to keep key components out of Russia’s
h a n d s, p e o p l e s u c h a s E r m a k o v a r e
looking for ways to stay a step ahead.
Ermakov’s role is one that has tradi-
tionally been taken by Russian intelli-
gence service officers — a legacy of the
way that Soviet spies built networks to
circumvent export controls.
His multi-faceted network has had
presences in Ireland, France, Dubai,
Germany, Singapore, China, Turkey,
Greece and Serbia, with some parts of it
d a t i n g b a c k t o t h e 1 9 9 0 s. W h e n t h e
network had suspicions about the safety
of one route, they switched to others.
“As we can see from DoJ indictments
targeting Russian networks, the Rus-
sians understand the export controls
and the regulations — they know what’s
legal, they know what’s not legal,” says
Thomas Krueger, former director of
strategic trade and non-proliferation at
By Chris Cook and Max Seddon
Maxim
Ermakov
allegedly
helped Russia
source
technology
from the west
FT montage
The Russian buyers’ network
the US National Security Council. “They
a re ve r y g o o d a t u s i n g d i s t r i b u t i o n
networks to set up front companies.”
And even though the Ermakov net-
work has been identified, it is still active
today and is still buying equipment to
support Russia’s war in Ukraine. “Rus-
sian intelligence plays a huge role in
getting this sort of technology. They
always have,” Krueger adds. “This is
what the Russians do.”
Where the chips fall
In the late 1980s, the first shoots of capi-
talism were blossoming in the Soviet
Union. Among the western business-
men who flocked to Moscow was Denis
Sugrue, an Irishman who ran a com-
pany making electronic test equipment.
Through his brother Eoin, who had
introduced him to some Russians he
had met at a Moscow exhibition, Sugrue
visited in 1989 and toured a state-run
microelectronics facility. Over bottles of
vodka, he hashed out a deal to develop
products together.
But working in elect ctrronics manufac-
turing was complicated. “Working with
Soviet components was trying and even-
tually we gave up and used only western
parts,” he later wrote, in a self-published
memoir. “One problem was simply
getting the components.”
S u g r u e , w h o d i d n o t re s p o n d t o
a request for comment, started renting a
flat in Moscow in 1992 and he and his
brother grew their business, Amideon
Systems.
The cold war was over, but certain
items remained under strict controls in
the we st and could not b e fre ely
s e n t i n t o Ru s s i a . S u g r u e l e a r n t t h a t
f i r s t- h a n d i n 2 0 0 5 , w h e n t h e F B I
arrested him at Los Angeles airport on
suspicion of procuring technology for
testing radio frequencies for the Russian
government.
Within a few months, however, the
case fell apart and Sugrue was released
after paying a fine for a customs label-
ling violation. His work “was not a ‘Rus-
sian intelligence operation’, merely the
l aw f u l wo r k o f a . . . t i n y I r i s h c o m -
pany”, Sugrue lamented in his memoir,
The R Ruussians Are CCooming. “The FBI had
copious quantities of ‘egg on its face’.”
The memoir ends by ruefully noting
that “there has never been an official
Eoin Sugrue, left, and his brother
Denis, in Limerick in 1983 — Alamy
★ FINANCIAL TIMES
FT BIG READ. INVESTIGATIONS
apology from the US government . . . ffoor
alleging that I was a Russian spy”.
Sugrue’s book was not widely read.
Only a few readers listed its Russian
translation on Bookmate, a reading app
popular in Russia. The only one who
finished it was a reader using the handle
“Monar4”: Maxim Ermakov.
At t h e t i m e o f h i s a r re s t i n 2 0 0 5,
Sugrue was almost certainly already on
Ermakov’s radar. That same year, his
b ro t h e r E o i n h a d c o - a u t h o re d a n
academic paper with Ermakov about
“recent developments in lightning test
standards for aircraft and avionics”. The
two men served together on the com-
m i t t e e o f a n i n d u s t r y sy m p o s i u m i n
2007, 2008 and 2009.
It is unclear when their business rela-
tionsh
tio nshipip bega
egan.n. But by 201 20133, cus
custtoms
records show Ermakov and the Sugrues
were in business together for Istok, the
Russian defence manufacturer.
Set up in 1943 to develop radar com-
ponents for the Soviet army, Istok is part
of Rostec, Russia’s sprawling defence
industry conglomerate, and run under
the direction of military officials.
Leaked Russian databases show that
Alexander Vyalov, Istok’s head of logis-
t i c s a n d p ro c u re m e n t , d e c l a re d i n
official forms that he had worked for a
military technology institution of the
Russian defence ministry.
Ermakov’s role is less clear. He has no
public link to Istok. His work history
shows him moving from one small com-
pany to another, building a network of
contacts in the field of electronics.
But a leaked Russian police database
re ve a l s t h a t , d u r i n g t h e p a n d e m i c ,
Ermakov told the police that he worked
at Istok. Paperwork from inside Istok,
seen
se en by the FT FT,
T, also sho
showsws Erm
Ermak akoov’
v’ss
key contact at the company was Vyalov.
According to sources with knowledge
o f t h e Fre n c h p ro b e , i nve s t i g a t o r s
seemed especially interested in Rocchi’s
knowledge of Ermakov’s actual job and
his understanding of the SVR, Russia’s
foreign intelligence agency. Rocchi
claimed ignorance.
N e i t h e r t h e K re m l i n n o r t h e S V R
responded to requests for comment.
A hole in the budget
When Istok started a run of orders for
Ommic amplifier chips in 2013, the
French company was in a poor state,
according to former staff.
A judge would later note that the com-
pany, with 95 employees and revenues
of about €15mn a year, had hefty run-
ning costs and costly premises.
Ommic had a longstanding relation-
ship with Istok, going back as far as
2004
200 4. The chi chipma
pmak ker ha
had d pr
preevio
viousl
uslyy
o b t a i n e d l i c e n c e s t o a l l ow t e c h n i c a l
collaboration. Having them buy a signif-
icant number ooff chips w waas a potential
godsend for Ommic.
But it would quickly become a prob-
lem: in 2014, Putin annexed Crimea
from Ukraine. In response, the US and
EU ramp e d up sanc tions and exp ort
controls designed to limit Russia’s
defence industry. So the invasion blew
“a hole in the budget” at Ommic, one
employee says.
Ommic could not afford to lose its
Russian clients. Its core business was
lossmaking, but the sales to Istok were
profitable, driving Rocchi in deeper
with the Russians even as rules tight-
ened around dual-use exports.
mic
I s t o k w a s a l s o s t i l l ke e n f o r t h e
micrrochi chips
ps mad
madee by the Frenc ench h com-
pany. In early 2015, it signed a contract
with a seemingly independent company
calle
cal led d Fl
Flyy Bri
Bridge
dge to sesecurcuree the flow
flow of
chips from Ommic.
Fly Bridge then approached Amideon
Systems, the company founded by the
Sugrue brothers, who bought the chips
a n d s h i p p e d t h e m t o Ru s s i a v i a a n
Amideon subsidiary in the UAE.
By 2018, the Amideon companies had
shipped $4.6mn of Ommic chips to
Fly Bridge. Rocchi would later explain
to investigators: “Istok paid Fly Bridge,
which in turn paid Amideon, which in
turn settled the invoice to Ommic.”
The w whhole pprrocess w waas aannE Errmakov
operation. He was the chief executive of
Fly Bridge before he moved on in 2014,
i n t h e p ro c e s s s e ve r i n g a n y o b v i o u s
paperwork links between him and the
network.
But Fly Bridge’s co-owner and even-
tual sole owner was Anna Luzhanskaya.
She has previously used another sur-
name, “Ermakova”, which suggests she
is a relative of Ermakov. She did not
respond to a request for comment.
The company, furthermore, seems to
exist solely to perform tasks for Istok.
Russian public records show it has won
23 tenders, all for work involving Istok.
And it sourced all of its imports from
Amideon Systems.
An effect of using these extra compa-
nies to move the chips was to disguise
the ultimate buyer of the goods and
m a ke i t h a r d e r f o r w e s t e r n g ove r n -
ments to track them.
Rocchi, however, was always fully
aware of who he was dealing with. In
2 0 1 5, h e w ro t e a l e t t e r t o I s t o k t h a t
reveals that he has had a clear relation-
ship with Ermakov — not Amideon Sys-
tems, the company that appeared on the
invoices. In it, he referred to Fly Bridge
as “our official partner in Moscow”.
Customs records show Ommic chips
passin
pas singg frfrom
om Franrancece to Russ ussia
ia via the
Irish company for the last time in 2018.
B u t R o c c h i t o l d i nve s t i g a t o r s t h a t
Amideon continued to be involved until
2 0 2 1 . T h e d i s a p p e a r a n c e f ro m t h e
re c o r d s w a s s i m p ly t h e re s u l t o f t h e
increasing complexity of the operation.
French customs authorities eventu-
a l ly b e c a m e s u s p i c i o u s o f O m m i c :
in January 2021, a package was
intercepted. According to Ommic’s
paperwork and the documents shipp–
e d w i t h t h e i t e m s, t h e m i c r o c h i p s
w e re n o t h i g h - e n d a n d d i d n o t m e e t
the cr iteria for b eing considere d a
dual-use good.
After testing , howe owevver, the French
authorities concluded that the company
w a s d o w n p l a y i n g t h e c h i p s’ t r u e
capabilities. These items — intended to
be sent to Russia via China — were of
much higher sp e cification than the
c o m p a n y w a s c l a i m i n g . Eve n a f t e r
investigators were closing in, customs
officers intercepted similar consign-
ments being sent to Russia via Italy.
These were to fulfil orders ostensibly
from Amideon, Rocchi later said. The
Marc Rocchi in China in 2018 — YouTube
subterfuge and falsification had been
organised by his friend Maxim.
Ommic itself is now shut. In March
2023, the French government seized the
companies’ shares and oversaw the sale
of its key assets to Macom, an American
chipmaker. This part of Ermakov’s
n e t wo r k h a s c e a s e d o p e r a t i n g ; t h e
Amideon companies have also ceased
‘It’s a whack-a-mole game
for western intelligence
services. Whenever one
network is shut down,
a new one gets set up’
trading. But Ermakov seems to have
pulled off quite a coup.
Sources with knowledge of the French
investigation say that police believe that
more than 13,500 chips were sent to
Russia using falsified customs docu-
m e n t s i n 2 0 2 1 a l o n e . T h e Fre n c h
authorities found invoices for a total of
34,000 chips, worth €4.5mn.
European countries often struggle to
enforce Russian sanctions violations
and export controls compared with the
v i g o ro u s p o l i c i n g d o n e by t h e U S,
according to current and former west-
ern security officials.
Though the EU’s list of pro roh
hibite d
dual-use items applies across the bloc,
member states are individually respon-
sible for policing violations — creating
27 potential gaps for Russian intelli-
gence to exploit.
Some are disinclined to do so because
of the large trading relationship many of
the bloc’s members had with Russia
before the Ukraine invasion.
“Member states aren’t necessarily
15
comfortable using export controls as a
punitive measure because it’s the one
policy tool that backfires on their indus-
tries
es.. You’re basically res
esttricting your
own companies from making money,”
Krueger says.
Others simply lack the resources to
keep up, he adds. “The US shows up with
this huge army that takes up half the
room at one end of the table. And then
you have one or two people from the
other country — you start saying, who’s
doing all the enforcing? And they have
two or three other people,” he says. “You
just don’t have the same capacity.”
Wrestling a hydra
After the invasion of Ukraine last year,
western countries dramatically ramped
up sanctions against Russia’s defence
industry — meaning operations such as
Ermak
Erm akoov’ v’ss fac
facee gr
great
eater
er scr
scruti
utiny ny ththan
an
ever before.
At the same time, Russia’s defence
industry needs high-tech components
such as Ommic’s microchips more than
ever. So Istok is using fresh branches of
the Ermakov network to source
s u p p l i e s t h a t wo u l d b e u s e f u l f o r t h e
war effort.
Since the invasion, Istok has imported
$8.5mn of materials via a subsidiary of
Fly Bridge. This company, Citi, has been
importing specialist equipment used for
the dust and static-free environment
required for high-e -en
nd electronics work.
Mosst of this equipment is listed as
Mo
havin
haavingg been mad madee in Ser
Serbia
bia by a lo loccal
company co-owned by Fly Bridge. But
some has been declared as having been
brought into Serbia from Germany, and
then on to Russia.
The problem for sanctions enforce-
ment is that fighting a buying network is
like wrestling a hydra. Network archi-
tec
ectts like Ermakov can use dispo possable
companies. By the time networks are
identified, their parts can be dismantled
and new fronts established.
Enforcers also cannot act be beffore the
smuggling network has acted. By the
time the buyers have done enough to be
spotted, the smugglers have already
successfully moved goods.
“It’s always b een something of a
whack-a-mole game for western intelli-
gence services,” Miller says. “Whenever
one network is shut down, you have to
presume a new one gets set up. So the
quesesttion is how much tec ech
hnology — at
what scale, at what sp e e d — can new
networks bring into Russia?”
The sanctions impo possed on Ermakov
will make his task more difficult; travel
will now be harder and he will need to
find new mechanisms for moving goods.
Banks, insurers and transit companies
now know his name.
This may be a significant disruption,
but the wider network has been getting
better at evasion. It is more likely to go
deeper underground than give up on its
essential role of smuggling technology
for the Russian war machine.
16 ★ FINANCIAL TIMES Monday 13 November 2023

The FT View
Pakistan’s expulsion order deepens the Afghan crisis
Islamabad needs to reverse
course, but the west has
responsibility too
The Pakistani government’s decision
last month to deport undocumented
Afghans back to their homeland deep-
ens a humanitarian crisis many thought
could not get any worse. Tens of thou-
sands have already fled from Pakistan,
where they have sought refuge from
war, famine and persecution for dec-
ades. Families are being uprooted, and
are crossing back into Taliban-ruled
Afghanistan without food, water or
shelter. The impending arrival of
thousands more means Afghanistan’s
fortunes are about to slide even further.
Islamabad’s “Illegal Foreigners Repa-
triation Plan” gave undocumented
Afghan migrants a month, until Novem-
ber 1, to leave. Over 200,000 have left,
and multiples more could follow. Paki-
ft.com/opinion stan is estimated to have 4.4mn Afghan
migrants and refugees, and over a third
are undocumented, according to the
authorities. Afghans have been seeking
refuge in Pakistan since the 1979 Soviet
invasion. About 600,000 have left
Afghanistan since 2021 alone, when the
Islamist Taliban romped back to power.
Pakistan insists it is only targeting
undocumented individuals. But it is not
that simple. Afghans have been in
Pakistan for generations. Many of the
deported were born and raised there
too, and have no ties back to their
original home country. Delays in regis-
tration processes mean arrivals have
not been able to obtain the appropriate
records. There are also reports of regis-
tered refugees and others with legal
documents being pressured too. Human
Rights Watch has noted instances of
detentions, beatings and extortion.
The return of hundreds of thousands
of Afghans exacerbates one of the
world’s worst humanitarian tragedies.
Afghanistan’s economy has been dire
since the Taliban’s return. Joblessness
is rife, and draconian restrictions on
women’s lives stifles its prospects fur-
ther. Three-quarters of its population
depends on aid, more than 3mn are dis-
placed and powerful earthquakes last
month killed at least 1,000 people.
Camps set up to hold returning Afghans
are poorly equipped, and some worry
the expulsion could send them to their
deaths. Taliban promises of an amnesty
for returning opponents lack credibility.
Pakistan faces its own problems. Its
economy is in a slump and its politics
are in chaos, after former prime minis-
ter Imran Khan was jailed this year. The
caretaker government, heavily influ-
enced by the military, considers the
order necessary for national security.
This year hundreds of Pakistanis have
been killed in terrorist attacks, which
officials say are linked to Afghan insur-
gencies and the Taliban. But the order
overwhelmingly punishes those seeking
refuge. It is also a clear attempt to scape-
goat Afghans for the country’s economic
crisis before elections next year.
Forcing Islamabad should reverse its decree.
thousands Expediting documentation procedures
and official settlement programmes are
into the
a more sensible approach. The west can-
Taliban-ruled not hide from its responsibilities, and
fragile state is culpability, either. It is not doing enough
a humanitarian to help take in Afghans, nor is it provid-
disaster in ing ample support to countries that are.
the making Pakistan has a long record of hosting ref-
ugees. The UN-led Regional Refugee
Response Plan has only a small fraction
of the $600mn it needs to support
Afghans in neighbouring host coun-
tries. Efforts to help Pakistan tighten its
border security are also important.
Islamabad’s policy is not only cruel, it
also makes little sense when Pakistan’s
security is inextricably tied to stability
in Afghanistan. Forcing thousands into
the Taliban-ruled fragile state is a
humanitarian disaster in the making.
That is a tragedy for the displaced and
destitute Afghans. It also comes with
long-term implications for security
across the region. That will be in neither
Pakistan’s nor the west’s interests.

Opinion Technology
Letters
Email: letters.editor@ft.com
Include daytime telephone number and full address
Corrections: corrections@ft.com

Free speech cannot

If you are not satisfied with the FT’s response to your complaint, you can appeal
to the FT Editorial Complaints Commissioner: complaints.commissioner@ft.com

flourish online Labour statistics were devised for an age of closed economies
Your leader rightly questioned
Ben Hickey
inefficiencies in Britain’s labour
statistics (FT View, November 3).
However, the problems begin at the
conceptual level. The article refers to
“measures to tackle Britain’s rise in
worker inactivity”. To any sensible
layman who suggests that more people
are doing nothing or no work of any
kind. That is incorrect.
If a woman, for instance, ceases to
clean somebody’s house because she
has to do more work caring for a sick
relative, this is recorded as an increase
in “inactivity”, even if she works more
hours than before. Calling it inactivity
is an insult to the English language and
does not help in policy formulation.
Why should it be regarded as a
problem to be “tackled”? And as it
happens, the measured “inactivity
rate” is well below what it is in some
other big countries.
Separate data collected by the Office
for National Statistics for its satellite
accounts shows that the value of
unpaid care work comes to well over a
quarter of national income — quite a
contribution from all that inactivity.
There are other reasons for saying
that our standard labour force data are
unfit for purpose. One reality is that in
today’s globalised labour market they
do not measure the UK’s real labour
force. Phone up a public or private
service company and you are likely to
talk to someone in Bengaluru or Goa.
Consider cloud labour, with millions of
tasks contracted online to people doing
them in the Philippines or elsewhere.
They are not counted in the UK’s
labour force. It is the migration of
labour without the migration of
workers. We have no idea of the
potential labour supply to Britain! So
the measured unemployment rate is a
misleading indicator.
Just as the notion of gross domestic
product was devised in the 1930s as a
supposed measure of what resources
could be mobilised for war — and was
the reason women doing care work was
not part of the measure — our labour
statistics were also devised for an
industrial age of closed economies and
are therefore not fit for purpose in
today’s world.
Guy Standing
Professorial Research Associate, Soas,
University of London, London WC1, UK

Without the right infrastructure in
Jemima place, the much-vaunted “market-
place of ideas” does not help us reach
Kelly truth and common ground, but
instead becomes an amplifier of
America’s cattle ranchers Bank of Japan should be It’s an issue when quantum
will need a just transition targeting positive rates does room temperature AI
In Susannah Savage’s article “Record It was very interesting to read Regarding John Thornhill’s article “The
US beef prices prove mixed blessing
for ranchers” (Report, November 9),
Mohamed El-Erian’s column “Big
central banks need to use their
promise and peril of generative AI”
(Opinion, September 29), and the

T
here has been much talk
about the importance of
free speech in recent
weeks — and for under-
standable reasons: having
the freedom to speak out without fear
of punishment or censorship is tested
in times of crisis. But in a world in
which much of our discourse takes
place online, can free speech still
do the work it used to? What if, by
seeing it as some kind of end in itself,
its defenders actually miss what
makes it so valuable?
Perhaps the loudest proponent of
freedom of speech these days is Elon
Musk, who — despite not always stick-
ing to the principle on his own plat-
form — calls himself a “free speech
absolutist”. But his understanding of
its importance is limited.
“The whole point of free speech is
that, frankly, even people you hate,
say things that you hate,” Musk told
Joe Rogan, during his fourth appear-
Our discourse is not
taking place in cafés, it is
happening on the outrage
machine of social media
ance on the latter’s podcast, a special
Halloween episode. “Because if people
you hate can say things that you hate,
that means they can’t stop you from
saying things you want to say — which
is very, very important.”
Simply being able to say the things
you want to say with impunity is not,
actually, “the whole point of free
speech”. The whole point of free
speech is to allow us humans, limited
creatures who will never be able
entirely to grasp or have full access to
the truth, to at least move in its direc-
tion. By giving a voice to the voiceless,
and by allowing unpopular and even
deeply offensive views to be aired, we
might muddle our way through to
some kind of shared understanding.
But we have to want to reach that
shared understanding for free speech
to be effective, otherwise we risk not
moving towards the truth but ever
further away from it. Free speech is
not some kind of passive structure
from which truth and goodness auto-
matically flow, but rather a kind of
energy. And like any form of energy, it
needs to be harnessed correctly in
order for it to be useful. Think of it like
steam — crucial in powering the first
trains that opened up the world to
commerce and ideas, but less helpful
when it’s scalding your face after you
take the lid off the kettle too quickly.
meaningless noise. Amid this cacoph-
ony, the very principle of freedom of
expression can be exploited — as, for
instance, Donald Trump’s lawyers
have done when wheeling it out as a
defence of his spreading false claims of
voter fraud in the 2020 election. They
have argued that the indictment of the
former US president was “an attack on
free speech and political advocacy”.
As former UK Supreme Court
justice Jonathan Sumption wrote on
Friday, our approach to free speech is
“still largely moulded by attitudes
born in the Enlightenment”. But we
cannot simply take 18th-century
arguments and hope they can be
applied in the same way today. Our
discourse is not taking place in coffee
houses — if it were, it might allow us to
see the humanity in others and to
better understand their perspectives.
Instead, it is largely taking place on
the outrage machine of social media,
where the algorithms and incentives
are built in such a way as to encourage
us to behave — and treat others — as
two-dimensional avatars rather than
real human beings.
Another vociferous defender of free
speech is the columnist and director of
the Free Speech Union, Toby Young,
with whom I took part in an event
debating the subject last week. Young
argued in favour of “counterspeech” —
the idea that the proper response to
hate speech, misinformation and
disinformation is simply more and
better speech.
Young quoted former US Supreme
Court associate justice Louis Brandeis,
who set this out in a case in 1927. “If
there be time”, Brandeis said, “to
expose through discussion the false-
hoods and fallacies, to avert the evil
by the processes of education, the
remedy to be applied is more speech,
not enforced silence.” While this rem-
edy might have worked a century ago,
though, a fleeting glance at X shows
that in the online age, unfettered
speech cannot automatically lead us
to truth and progress and justice.
But while it might be easy to
blame Musk alone for the mess the
platform is now in, the truth is that
many had been dubbing Twitter a
“hellsite” long before he took it over.
With or without him, it was never
going to be a “digital town square”:
that is a contradiction in terms.
If we really want free speech to
help bring us closer to the truth, as it
should, we are going to need to find
forums other than performative
280-character soundbites in which to
discuss our ideas. Musk’s X continues
to die a slow and tedious death. Maybe
we should be grateful.
jemima.kelly@ft.com
she reports the claims that this is the
worst dry spell for the western US in
1,200 years.
Unfortunately, droughts of this type
are now alarmingly common due to
climate change, with devastating
impacts for ranchers and farmers.
Today it’s hard, if not impossible,
to raise millions of cattle for meat
with record low rainfall and rivers
running dry. And regardless of its
environmental and ethical impacts, the
cattle industry will not be able to
continue with the status quo — simply
due to the constraints of climate
change.
As the environmental constraints on
meat production continue to rise, the
urgency of a transition to sustainable
plant proteins could not be clearer.
Plant-based proteins use a fraction of
the water, land and carbon budget
compared with beef.
A recent report we did at Madre
Brava, a science-based advocacy
organisation working to reduce the
role of meat in our food system, shows
a 30 per cent reduction in beef
consumption alone within key global
markets would save 10 cubic
kilometres of water — that is half of the
annual discharge of the Colorado river.
If the water savings alone are not
enough to compel a protein transition,
perhaps the impact on millions of
ranchers and farmers is. As producers
are squeezed even tighter with the
rising cost of feed and water, their
livelihoods are put at risk.
The need for “just transitions” for
farmers and ranchers could not be
more evident. Big opportunities
exist to bring these communities into
plant-based protein supply chains,
whether that’s to produce other
sources of protein or to use their land
as carbon sinks.
The experience in other sectors,
which have begun decarbonising and
adapting, tells us that a planned and
guided transition is always better than
an ad hoc, unmanaged process.
Sarah Lake
Executive Director and Co-founder
Madre Brava, Denver, CO, US
Bankman-Fried and the
Benthamite moral code
If we are to believe Caroline Ellison,
Sam Bankman-Fried’s ex-girlfriend and
one-time office colleague at Alameda
Research, his moneymaking was
motivated by a belief in utilitarianism
(“Ex-Alameda chief Ellison steps out of
Bankman-Fried’s shadow as star
witness”, Report, October 14).
Bankman-Fried, Ellison tells the
court, thought that “the only moral
rule that mattered was doing whatever
would maximise utility” — meaning
A cowgirl herds Texas Longhorns into
their pens at Fort Worth Stockyards
“the greatest good for the greatest
number of people”. “He believed that
the ways that people tried to justify
rules like ‘don’t lie’ and ‘don’t steal’
within utilitarianism didn’t work,” you
quote her as saying.
Bankman-Fried’s downfall is a good
illustration of why Jeremy Bentham,
John Stuart Mill and the other great
utilitarians have advised against the
use of the theory to guide all one’s
actions, all of the time.
Rather, one should act on those
moral principles that one has been
taught and that stand up to reflection
(such as not to lie or steal), and be a
great deal more generous than most
people are.
Roger Crisp
Professor of Moral Philosophy, Faculty of
Philosophy, University of Oxford, UK
Your correspondent is
walking the wrong moors
Roger Dunshea complains that the
moors he walked in the 1970s held
“cackling grouse and trilling curlew”
while now they “are bereft of wild life
apart from the artificial release of
reared birds to be shot” (“Industrial-
scale game shooting needs rethinking”,
Letters, October 28).
He’s obviously walking the wrong
moors. If he went to a moor run for
shooting he would find grouse — which
are unique to the UK, wholly wild and
cannot be reared and released — and
four times as many curlew as on
unkeepered moors.
He’d also find the highest population
of hen harriers for more than a century
and densities of lapwing and golden
plover five times higher than moors
that are not shot.
The truth is that the predator control
and land management associated with
shooting benefits conservation.
Christopher Graffius
Director of Communications,
The British Association for Shooting and
Conservation, Wrexham, North Wales, UK
timeouts wisely” (Markets Insight,
November 7).
As he points out, in Japan the overly
protracted “yield curve control” policy
adopted by the Bank of Japan has
distorted the financial system as well as
the real economy.
Three of the world’s four central
banks — the US Federal Reserve, the
European Central Bank and the Bank
of England — have experienced sharp
inflation reflecting the end of the
Covid-19 pandemic and the geopolitical
risks, and as of now, policy rates are
considered to have almost reached the
upper limits.
On the other hand, Japan has been
unable to exit monetary easing policies
and the BoJ states that this is due to
the fact that there is an absence of
a “virtuous cycle between wages
and prices”.
The Japanese economy is belatedly
turning from a deflationary trend that
has lasted for more than two decades to
an inflationary one, and I personally
believe that monetary policy should be
implemented with an eye to raising
interest rates within a reasonably short
timeframe in order to return the
economy to a normal state where
interest rates can be generated.
On a further note, looking around
the world, it was not expected that
interest rate levels would rise to the
5 per cent range in today’s major
economies, which until just two years
ago were managing their economies in
a low and stable manner with a 2 per
cent price target.
I look forward to your further
indepth analysis and research on why
interest rates differ from country to
country and region to region, despite
the close interrelationships in trade
transactions in today’s global economy.
Kiminori Yamaguchi
Tokyo, Japan
What I dislike about
PowerPoint presentations
Tim Harford makes a powerful point
(“How PowerPoint became the
headline act”, Opinion, FT Magazine,
September 23).
As Harford remarks, PowerPoint, of
itself, is useful until it is used as a
convenient escape channel to avoid
creating an emotional connection with
an audience.
What I personally dislike most about
such contactless presentations is when
the presenter loads up a large slide
deck, overly stuffed with tiny font text,
and clicks through monotonously while
saying something completely different
to what is on the slides.
Eithne Kennedy
Chief Executive, Isle Of Us
Singapore
follow-up column “It is time to get
serious about the dangers of quantum
computing” (Opinion, October 27), I
liken the current state of artificial
intelligence to a situation where a
human is continually tethered to a
many kilogramme, megawatt power
supply which is driving its brain.
The AI algorithms our political
leaders are now agonising over are
intrinsically bound to, and defined by,
the current silicon substrates that
enable them to operate.
AI requires computer processing that
incurs insane amounts of entropy,
which can be loosely stated as heat.
Current computers are irreversible in
their operation. And irreversible
processes create entropy. Computers
are thus slaves to burning through
the bits.
The more AI processing required,
the more power is needed, the more
energy wasted as heat. Naturally, we
are told by the likes of Google, Meta,
Microsoft et al that using AI to help
solve the planet’s warming crisis is a
wonderful idea.
Quantum computer systems on the
other hand can rewind an AI process to
its original state.
The process can be reversible.
Reversibility can minimise the entropy
effects and the need for massive
amounts of power for the quantum
computer to operate. Nature knows
this reversible scheme well.
Nanoscale biological systems rely on
reversible chemical reactions. It’s the
reason our brains don’t burn to a
cinder in their skull buckets. Or why a
chicken developing in its egg-encased
embryo doesn’t hatch cooked, sunny
side up.
When quantum systems start doing
AI at room temperature, that is when
to start worrying.
Franco Vitaliano
President & Chief Executive
ExQor Technologies, Boston, MA, US
A welcome break from
the usual commentary
John Thornhill’s column on the
engineering challenges of building a
quantum computer (“It is time to get
serious about the dangers of quantum
computing”, Opinion, October 27)
represented a welcome break from the
usual commentary on this subject
which invariably warns in apocalyptic
tones that quantum computers will be
able to break existing encryption.
What such warnings fail to take
account of is that in future quantum
computers will be available to those
encrypting information as well as to
those seeking to break that encryption.
Martin Allen
London N1, UK
Monday 13 November 2023
Controlling debt is just a means — it is not a government’s end
britain
Martin
Wolf
W
hat should fiscal policy
target? A debate has
recently emerged over
the merits of focusing
on debt and deficits, as
now, or a broader measure of public
sector net worth, which includes assets
and liabilities. So, which is superior? It
depends on the question.
In its latest Green Budget, the Insti-
tute for Fiscal Studies examines these
alternatives and concludes “the benefits
of moving to balance sheet targeting
would likely be insufficient to justify the
potential costs involved”. Making this
the sole target of fiscal policy might be
foolish. But so is focusing solely on debt
sustainability. Government is a complex
activity. Simple targets are dangerous.
A necessary condition for successful
Small packages
bring the US
big problems
BUSINESS
Rana
Foroohar
T
his week’s Apec summit in
San Francisco, which
includes 21 nations in the
Pacific region, including the
US and China, will cover
any number of predictable topics, from
trade relations to currency and debt
issues. It will also cover an unexpected
one: fentanyl. The highly addictive
narcotic is responsible for some 70,000
drug-related deaths in the US. But it
has also become an unexpected
window into global supply chains and
how they work — or don’t — in an era of
deglobalisation.
Over the past few weeks, business
leaders and politicians have been talk-
ing about how fentanyl is making its
way into the US, and other countries
such as Mexico, via small shipments of
goods in amounts less than $800 that
aren’t subject to the usual trade and
customs barriers. These small interna-
tional package shipments (whether of
drugs, forced labour-made apparel, or
any other banned substance) are
extremely unlikely to be checked by
customs and border authorities because
they are exempt from the usual rules
under “de minimis” loopholes.
Unfortunately, say some industry
The COP28 climate talks face a giant communication challenge
Vinod
Thomas
T
he UN COP28 climate talks
in Dubai, which begin at the
end of November, will take
place amid a confluence of
geopolitical, health and
economic emergencies. The UN’s great-
est strength lies in its access to the enor-
mous quantity of scientific knowledge
on global warming that is out there. But
to shift public opinion and generate
political will for climate action amid
competing priorities, communication of
that science needs traction.
COP28 will rightly stress the commit-
ments countries need to make to decar-
bonise economies and slow global
warming. However, the summit should
also launch a global campaign to inform
the public and rally political support,
particularly among big emitters. After
all, political backing was vital for the US,
the EU and other high-income countries
government is to avoid a fiscal crisis. For
this reason, it makes sense to assess sus-
tainability. Yet even here it is essential to
look beyond debt and deficits. Assets
matter, too. It is vital to know what they
are, not least because better manage-
ment could improve government
income, either directly or via higher tax
revenues. This is one of the points made
in a forthcoming book, Public Net Worth
— Accounting, Government and Democ-
racy, by Ian Ball and several co-authors.
As the IFS itself admits, a focus on def-
icits and debt can lead to bad decisions.
In the UK it led, for example, to selling
off the student loan book, merely to
lower reported debt, even though the
value of the loan book to the govern-
ment was higher than to private buyers.
It led to the mistaken decision to slash
public investment after the financial
crisis, despite exceptionally low long-
term interest rates. It justified the pri-
vate finance initiative, which replaced
visible debt service obligations with
invisible (and costlier) future spending.
Some argue that the focus on net debt
and deficits forces the government to
concentrate on something vital. But too
leaders in the US, these loopholes that
are intended to allow Americans to buy,
say, a rug made in Asia and have it
shipped to the US without extra taxes or
red tape, have become a route for drug
mules and those wishing to smuggle
counterfeit goods. Ecommerce has
radically increased the number of small
international shipments, which are
made via Chinese fast fashion websites
but also on any number of US-owned or
other global ecommerce sites.
Even without concerns about crimi-
nal exploitation, the fact that the “de
minimis” loophole allows parcels to
bypass tariff and trade restrictions is
under the spotlight in America. Roughly
half of all such shipments are of apparel
and the US textile industry, which has
been hard hit by the rise of Chinese fast
fashion companies like Shein and Temu,
is raising loud objections.
Kim Glas, president of the National
Council of Textile Organizations,
recently testified in front of the House
subcommittee about the “explosion in
ecommerce shipments [which] has cre-
ated a superhighway of orders through
this gaping loophole, allowing nearly
3mn packages a day to come into the US
duty-free and largely uninspected,
effectively handing a free trade agree-
ment to China and the rest of the world”.
She has a point. Customs data shows
the US received more than a billion indi-
vidual packages claiming de minimis
preferences in the fiscal year ending in
September 2023 — twice the 2019 level.
During that time, Chinese ecommerce
providers have been expanding by leaps
to mobilise rescue and stimulus pack-
ages after the global financial crisis. And
high-income countries raised more than
$20tn to fight Covid-19.
It is not that most people deny the cli-
mate is changing, but views are split on
its cause and the costs countries should
bear to fight it. Developing countries are
lukewarm over energy security fears.
Several leaders of developed countries,
responding to worries over decarboni-
sation costs, are backtracking. The UK
reversed its decision to pause new oil
drilling platforms in the North Sea. And
in New York state, utility regulators
rejected inflation adjustment for
renewable power, and the governor
vetoed offshore wind projects connect-
ing to the power grid on Long Island.
Even more reason, then, for COP28 to
generate a groundswell of public opin-
ion for urgent steps. With public back-
ing, financing and technology will fol-
low, whether from governments, as in
the financial crises, or from businesses
and society, as in the digital revolution.
First, scientific knowledge at COP’s
disposal must be mobilised to help
people connect the dots when climate
★ FINANCIAL TIMES
Opinion
often it has just found costlier ways
around its own rules. When it cannot do
that, it changes them: according to the
Institute for Government, the UK has
had nine sets of fiscal rules and 26 spe-
cific rules since 1997. This is a joke.
Yet there is a far bigger point, which
the IFS ignores. Yes, the government
needs to survive financially. I agree.
But that is just a means. It is not a
We focus only on whether a
state is on a path to default.
Our ambitions must surely
be greater than that
government’s end. That is to govern well
and so help create a more prosperous
society. In order to do this, it has to pay
close attention to its own balance sheet
as well as that of the country.
Government is a steward. As Oxford’s
Sir Dieter Helm argues in his new book
Legacy, it should protect and develop
a country’s natural capital, along–
side its physical and human capital.
and bounds in the US. Shein’s monthly
active users in America doubled to more
than 30mn in the third quarter of 2023
relative to 2021. Nearly all these orders
fall under the de minimis level, and
studies have shown that at least some of
the shipments contain Xinjiang cotton,
which is restricted under the Uyghur
Forced Labor Prevention Act (the plat-
forms themselves deny wrongdoing).
But even as US manufacturers
complain, other American companies,
particularly big tech platforms, are
getting rich by doing business with these
Chinese apparel retailers. Shein and
Temu have been blitzing the US market-
place with digital advertising to com-
pete with Amazon and other American
ecommerce retailers. That translates
into big business for Silicon Valley
Exemptions mean these
shipments are extremely
unlikely to face customs
and border checks
disasters strike. It has not helped com-
munication that, unlike the direct link
between smoking and lung cancer,
climate change involves complex cau-
sality: from greenhouse gases to higher
temperatures and more precipitation,
and to the extreme wildfires and floods
that have dominated the news in the
Americas and everywhere. People must,
in real time, attribute the damage to fos-
sil fuels, and not just poor disaster man-
Action will follow if — and
only if — people see their
prosperity is endangered
by global warming
agement — be it the failure this year of
sirens before the fires in Hawaii or evac-
uation during the floods in South Korea.
This year is on course to be the hottest
on record and has breached the dreaded
1.5C global warming threshold several
times. The Earth faces 16 climatic tip-
ping points. In such a context, COP28’s
communication campaign should make
Underinvesting, as both the state and
the UK as a whole have been doing for
far too long, is terrible stewardship.
To do its job properly, the government
— the country’s most complex, largest
and most enduring organisation —
needs at the very least the information a
private company would possess and
publish about its own financial position.
In 2021, for example (according to the
IMF), the UK public sector’s net worth
was minus 96 per cent of gross domestic
product. In the G7, only Italy’s was
worse. Surprisingly, Japan’s latest figure
(for 2020) was far better, at only minus
16 per cent. The IFS suggests, rightly,
that such figures can mislead. But so can
a narrow focus on debt and deficits
alone. We should be discussing public
sector net worth and the national
balance sheet, along with debt sustaina-
bility. If we did this, we would necessar-
ily discuss many, though not all, of the
important political choices. Moreover,
we would be doing so quite naturally, as
we would be trying to measure reality.
The invention of modern accounting
is among the most important advances
in human history. Without it, today’s
companies. The research firm Moff–
ettNathanson has estimated that about
a third of Meta’s revenue growth in the
nine months to September came from
Shein and Temu. They are also increas-
ingly active in Google ad auctions.
This brings home an uncomfortable
truth for regulators, and for the Biden
administration. While many US-based
businesses are in favour of new laws and
tariffs that penalise Chinese companies
for doing business in America, there are
plenty of US-based multinationals,
particularly in finance and technology,
that would love nothing more than to go
back to business as usual.
Such companies have increased their
lobbying efforts in Washington in recent
weeks around the issue of de minimis
rules. Chinese firms are spending
more on DC lobbying as well. Shein has
reportedly shelled out more than
$1mn on it since 2022, and is hiring
western executives to help it navigate
criticism, including from a US China
Economic and Security Review Com-
mission report criticising the platforms’
business practices.
it crystal clear how growth and poverty
reduction depend on cutting emis-
sions. For example, the US economy
could cease to grow in coming decades
because of mortality and loss in labour
productivity due to climate change if
emissions continue unabated. Or when
a third of Pakistan is submerged by
floods, as in 2022, causing $30bn (or 9
per cent of gross domestic product) in
asset losses, it is not climate action that
impoverishes; it is climate inaction.
Second, to improve the political
appeal for a response, the climate dan-
ger must be seen to be here and now, just
like Russia’s war on Ukraine. Accord-
ingly, COP targets need to be more about
2030 than 2050 and beyond. With glo-
bal warming overshooting scientific
projections, the bar for emission cuts
has been rising with mostly “highly
insufficient” steps taken by the big pol-
luters. At COP28, world leaders need to
make a binding commitment to a 50 per
cent cut in carbon emissions by 2030,
not the softer goal of 45 per cent.
To this end, it would help to put front
and centre the top 20 countries that
account for four-fifths of all emissions,
complex economies would be impossi-
ble. Its application to national income
has immeasurably improved our under-
standing of economies, too. But we
persistently refuse to focus on what
such accounts tell us about our govern-
ments. We concentrate instead only
on the question of whether it is on a path
to default. Our ambitions must surely
be greater than that. Moreover, even
if one focuses only on sustainability,
non-debt liabilities — such as public
sector pensions — cannot be ignored.
These, too, must be included.
In the foreword to Public Net Worth,
I argue that “if something is to count, it
must first be counted”. Moreover, “it is
always far better to be roughly right
than to be precisely wrong. Ignoring
reality because it is hard to take every-
thing into account, is a big mistake.”
Instead of trusting simple rules that
embarrassed governments then change,
we must confront reality. Governments
do need to survive. But they must
also do their job. Without using fuller
accounts, they will fail.
martin.wolf@ft.com
Matt Kenyon
While all this plays out, one thing has
become clear — the US Customs and
Border Protection agency, which has
responsibility for making sure that
laws are not broken in incoming
shipments, isn’t yet up to the task. Last
year, according to Glas, the CBP seized
and inspected only a fifth of a percent-
age point of the $184bn worth of apparel
imports to the US. In September,
a bipartisan group of senators wrote to
President Joe Biden urging him to use
executive powers to increase enforce-
ment and ultimately to end de minimis
exceptions for ecommerce shipments of
textiles and apparel.
Such a move would bring the US more
in line with the EU, which has proposed
a new digital customs system and the
abolition of de minimis exemptions. If
you are trying to limit distribution of
fentanyl, apparel manufactured with
forced labour or counterfeit European
handbags, closing de minimis loopholes
— whatever the ecommerce ramifica-
tions — seems a necessary step.
rana.foroohar@ft.com
starting with China, the US and
India. The approach of negotiating tar-
gets among almost 200 nations has had
negligible results. Although China, the
US, and India have expanded solar and
wind capacity, they have also increased
fossil fuel use — which is what matters to
the atmosphere. The big emitters need
to stop new coal, oil and gas projects.
The signal sent by the chair of COP28,
the United Arab Emirates, in approving
a gas pipeline in July, is alarming.
Geopolitical turmoil makes focusing
on climate harder. But with the planet’s
vital signs heading the wrong way,
climate mitigation through decarboni-
sation needs to be prioritised, as all else
depends on it. Action will follow, even in
the face of competing priorities, if — but
only if — people see that their prosperity
and wellbeing is endangered by global
warming. If COP28 can launch a world-
wide campaign to get public backing for
the resources needed to avert catastro-
phe, then the Dubai meeting will have
made meaningful headway.
The writer is a former senior vice-president
at the World Bank
17
Serbia makes a
poor fit for EU
enlargement
plans
EUROPE
Tony
Barber
N
o country has joined the EU
since Croatia in 2013. But to
judge from the recommen-
dations last Wednesday of
the European Commission,
there is genuinely new momentum
behind the once-stalled project of EU
enlargement. Brussels proposes open-
ing entry talks with Ukraine, Moldova
and Bosnia and Herzegovina, and mak-
ing Georgia a membership candidate —
a rung lower on the ladder.
Some carefully chosen words qualify
the initiative. All potential members —
including six Balkan states but most
likely not Turkey — are reminded that
they must implement the political, eco-
nomic and administrative reforms
needed to make them fit for admission.
But the general message is clear: EU
enlargement is desirable, and even nec-
essary, because of the dangers confront-
ing Europe after Russia’s full-scale inva-
sion of Ukraine in February 2022.
Take a look at the individual country
reports in the commission’s survey,
however, and the picture is more ambig-
uous. No aspirant member is close to
meeting all the entry criteria on democ-
racy, the rule of law and economic
standards. A glaring example is Serbia,
the largest candidate in the Balkans in
terms of population and territory.
Serbia, we are told, is doing too little to
settle its differences with Kosovo, the
Albanian-majority state that declared
independence from Belgrade in 2008. Its
foreign policy is insufficiently aligned
with the EU, in particular due to its ties to
Belgrade’s goals may be
utterly incompatible with
being a member, but the
trouble does not stop there
Russia. Serbia has made limited progress
in tackling corruption and organised
crime. Media independence is weak.
In truth, the commission would have
been justified in using even stronger
language. The Kosovo dispute is a formi-
dable obstacle to Serbia’s EU entry. But
no less serious is the question of
whether President Aleksandar Vučić
and his Serbian Progressive party are
sincere about wanting to join the 27-na-
tion bloc. A more realistic reading of
Serbia’s policies suggests that the ruling
elite’s chief objective is simply to stay in
power, by restricting political opposi-
tion and controlling the judiciary, secu-
rity apparatus, public sector and media
in ways that defy the EU’s basic values.
A second aim is to preserve a measure of
independence for Serbia by cultivating
relations with Russia and China.
Where have these policies led? In July,
the US announced sanctions on Ale-
ksandar Vulin, the head of Serbia’s state
security agency and a Vučić ally, for
alleged involvement in international
organised crime, narcotics operations,
ties with Russia and “promoting ethno-
nationalist narratives that fuel instabil-
ity in Serbia and the region”.
This accusation against Vulin, who
resigned this month, refers to the emer-
gence under Vučić’s rule of the concept
of a “srpski svet”, or Serbian world — a
notion that recalls President Vladimir
Putin’s promotion of a “russky mir”, or
Russian world. Moscow and Belgrade
claim the right and duty to “protect”
ethnic Russians and Serbs who live out-
side the mother country.
In Ukraine, this serves as Putin’s
excuse for the annexation of lands he
deems part of the “Russian world”. For
Serbia, it implies that not only Kosovo
but Montenegro and Republika Srpska,
the Serb-inhabited part of Bosnia and
Herzegovina, ought to be part of a
Greater Serbian political sphere.
Such goals are utterly incompatible
with EU membership, but the problem
does not stop there. Vučić this month
dissolved parliament and called snap
elections for December with the aim of
prolonging his party’s rule. The vote is
certain to be no fairer than the April
2022 elections which independent mon-
itors said favoured the incumbents.
Brussels deserves credit for pushing
ahead with EU enlargement plans. But
in Serbia the process is at a standstill
and losing credibility — casting doubt on
whether these plans will solve the prob-
lem of democratic backsliding and
regional instability in the Balkans.
tony.barber@ft.com
18 ★ Monday 13 November 2023*