Reading newspaper in English ( P.15 )

Putting its stampiPAGE 19 Royal Mail goes online in a bid to lick Amazon Briefing The prime minister faces the threat of a leadershipchallenge following the EU referendum after BrexitTor

Prices are latest for edition Data provided by Morningstar

ADAM THOMSON — PARIS

When Moët Hennessy unveils its latesttop-end wine to its leading interna-tional clients next month, it will not beinviting guests to Bordeaux or even toBurgundy Instead, they will arrive atthe French embassy in China

Ao Yun, as the powerful red is called, isgrown, produced and bottled in Adong,

an area perched 2,600m above sea level

on the edge of the Tibetan plateau in one

of the remotest places on Earth

MH — part of French luxury erate LVMH and owner of brandsincluding Dom Pérignon, Krug and Châ-teau d’Yquem — is targeting the globalcrowd as much as the Chinese marketwith the wine, priced at €300 a bottle

conglom-“We are starting to see wine collectorsaround the world wanting to have iconicwines produced in China,” Jean-

Guillaume Prats, president of MH’sestates and wines division, told the FT

Mr Prats said Moet will begin ing Ao Yun — the name means “sacredcloud” — to connoisseurs and collectors

market-in Europe from next month, and market-inChina from October

Production at the vineyard, in thesouth-west province of Yunnan, close tothe Tibetan border, is a tiny 24,000 bot-tles but Mr Prats said the plan was toreach 50,000 within the next five years

The exotic location was picked for its matic conditions, rare in China, of notbeing too wet or too cold

cli-Critics have applauded the Ao Yun

2013, the first vintage — a fact that helpsexplain the retail price As Mr Prats said:

“We certainly would never have priced

it at that level if we were not confident or

if the critics around the world had notsaid that it was an exceptional wine.”

But the price tag is also a reflection ofthe challenging logistics, which make AoYun MH’s most expensive wine to pro-duce It employs 150 Tibetan farmers totend to the grapes on 320 terraced plotsthat until recently were more used toyaks, tomatoes and even the odd mari-juana plant than to cabernet sauvignonand cabernet franc

Several producers have alreadystarted to grow grapes in the area, whereMoet has leased 30 hectares of an availa-ble 300 considered apt for vines But theParis-based producer is the only non-Chinese investor It is also the only onethat has taken the decision to producedry red wine on site, a four and a half-hour journey over unpaved roads fromDiqing Shangri-La, the nearest airport

“The logistics of vinifying on the spot

is a real nightmare,” Mr Prats said with asmile “It’s an extraordinary venture.”

Moët tempts global connoisseurs with

€300 wine made on Tibetan plateau

2 2

Royal Mail has made a string of

investments in small ecommerce and

technology companies, from a mobile

fashion app to a start-up selling

software in China, in a bid to break into

the digital world Its move is, in effect,

the reverse of the strategy of Amazon,

which has become a big rival for

delivery services Analysts say Royal

Mail’s drive is aimed at offering more

products and services linked to the

sale and dispatch of online orders

Putting its stampiPAGE 19

Royal Mail goes online

in a bid to lick Amazon

Briefing

The prime minister faces the threat of a leadershipchallenge following the EU referendum after BrexitTories turned their sights on him in highly personaland apparently orchestrated attacks.— PAGE 2

The net debts of the 15 biggest North American andEuropean oil groups have surged by a third over thepast year, to $383bn, increasing their vulnerability

to another fall in crude prices.— PAGE 15

The EU is set to issue the biggest cartelfine in its history, punishing Europe’slargest truckmakers over chargesthat they fixed prices and delayedthe introduction of new emissiontechnologies.— PAGE 5

Estate agents have started to suggest that the houseprice boom in England may be over after inquiries

to estate agents, mortgage approvals and surveyors’expectations of price rises declined.— PAGE 2

French authorities are considering a probe intoFifa’s decision to award the 2022 World Cup toQatar, amid allegations that senior French figuresmay have put pressure on the organisation.— PAGE 4

Heliex Power, a start-up in East Kilbride, has saidthat its system for capturing industrial waste energyputs it ahead of the competition and will herald a

“second golden age for Scottish steam”.— PAGE 3

A detergent ad in which a woman puts an Africansuitor into a washing machine to see him emerge as

a Chinese man in a sparkling white T-shirt has beendenounced for its casual racism.— PAGE 6

Datawatch

© THE FINANCIAL TIMES LTD 2016

Printed in London, Liverpool, Glasgow, Dublin,

Frankfurt, Brussels, Milan, Madrid, New York,

Chicago, San Francisco, Washington DC, Orlando,

Tokyo, Hong Kong, Singapore, Seoul, Dubai

a recent decline

US employment in energy-related activities

Source: IRENA

2015 (’000)

EthanolSolar energyOil and gasextractionWindCoal miningBiodieselproduction

Productivity puzzle

EDWARD LUCE and FT VIEW, PAGES 8 & 9

Stupid robots

AI will not challenge humans any

Missing minority

We should lure over-fifties back to

WORLD BUSINESS NEWSPAPER

ARASH MASSOUDI, CHRIS NEWLANDS

AND OLIVER RALPH

Jacob Rothschild’s investment trust has

approached its rival Alliance Trust

about a takeover to create a publicly

listed company with a market value of

more than £5bn

RIT Capital Partners, the 55-year-old

investment trust chaired by Lord

Roth-schild, made an informal approach in

recent weeks and remains interested in

a tie-up, according to people briefed on

the matter

A takeover of Dundee-based Alliance,

one of the UK’s oldest and biggest trusts,

would end years of speculation over the

future of the company, which has been

beset by battles with activist investors

It would also combine two of the UK’s

best-known investment trusts, a type of

publicly listed closed-end fund thatdates back almost 150 years and allowsinvestors to avoid double taxation

Alliance Trust, which had a marketvalue of £2.6bn at the end of last week,declined to comment RIT Capital,worth £2.5bn, did not immediatelyrespond to a request for comment

RIT Capital disclosed a stake of lessthan 3 per cent in Alliance Trust lastyear, according to UK regulatory filings

A separate, large shareholder in ance Trust said: “The move makessense The board would now be muchmore receptive to offers given its new-found independence.”

Alli-It was too early to say what an RITtakeover would mean for AllianceTrust’s base in Dundee Alliance Trusthas overhauled its leadership after

agreeing last year to appoint two of thethree independent directors nominated

by Elliott Advisors, the US activistinvestor

Elliott, which now holds 16 per cent ofthe company’s shares, campaigned pub-licly for months about the company’spoor performance and corporate gov-ernance before reaching the compro-mise last April

Alliance Trust spent £3m on a push todefend itself against Elliott, which itsleadership argued would “threaten thevery existence of the company” Sincethen, Alliance Trust has ousted Kather-ine Garrett-Cox, its chief executive, andKarin Forseke, chairman, and brought

in industry veteran Robert Smith aschairman to help lead a turnround

In March, the company reported that

its performance was improving, withthe total return for the trust reaching5.4 per cent last year, outperforming akey industry benchmark

Alliance Trust’s discount to net assetvalue also narrowed to 8.1 per cent com-pared to 12.4 per cent a year earlier Itreported that total assets under man-agement rose to around £5bn

RIT, which is 18 per cent-owned byLord Rothschild, invests mostly in listedcompanies but also has a range of otherstakes including private companies andbonds

Last year it increased its net assetvalue per share by 8.1 per cent, beatingAlliance Trust

At Friday’s close, RIT’s shares traded

at a 3 per cent premium to their netasset value

Rothschild trust targets Alliance

to create listed group worth £5bn

18%

Size of Jacob Rothschild’s holding in RIT Capital Partners

5.4%

Alliance’s total return last year beat an industry benchmark

Iraqi forces

step up

attacks on Isis

A member of the Iraqi security forces

fires artillery during clashes with

Islamic State militants near Fallujah,

west of Baghdad yesterday

Fighting flared as Iraqi efforts

esca-lated to dislodge Isis from strongholds in

Fallujah and around Mosul, in

north-western Iraq The Iraqi army, backed by

elite special forces, Shia militias and

US-led coalition air power, was positioned

around Fallujah, which was captured by

Isis in January 2014

The US-led coalition is also helping

Kurdish forces mount a new offensive

against villages east of Mosul The

Kurd-ish Regional Security Council said

around 5,500 Peshmerga troops had

taken part in a dawn attack in the area

yesterday

Alaa Al-Marjani/Reuters

2 ★ FINANCIAL TIMES Monday 30 May 2016

Press Association

NATIONAL

FINANCIAL TIMES

Number One Southwark Bridge, London SE1 9HL

Published by: The Financial Times Limited,

Number One Southwark Bridge,

London SE1 9 HL, United Kingdom.

Tel: 020 7873 3000; Fax: 020 7407 5700

Editor: Lionel Barber

Subscriptions and Customer service:

St Clements Press (1988) Ltd, London, Newsprinters

(Knowsley) Limited, Merseyside, Newsprinters

(Eurocentral) Glasgow, and Smurfit Kappa News

Press Ld, Kells, Ireland

©Copyright The Financial Times Limited 2016 All

rights reserved Reproduction of the contents of this

newspaper in any manner is not permitted without the publisher’s prior consent.

‘Financial Times’ and ‘FT’ are registered trade marks

of The Financial Times Limited.

The Financial Times adheres to a self-regulation regime under the FT Editorial Code of Practice:

www.ft.com/editorialcode

Reprints

Are available of any FT article with your company logo or contact details inserted if required (minimum order 100 copies).

One-off copyright licences for reproduction of FT articles are also available.

For both services phone 020 7873 4816, or alternatively, email syndication@ft.com

FT Cityline

For real time share prices call 0905 817 1690 or go to http://www.ft.com/servicetools/ftmobile/cityline Calls cost 75p/min.

Newspapers support recycling

The recycled paper content of UK newspapers in

2014 was 78.5%

GONZALO VIÑA AND GEORGE PARKER

David Cameron is facing the threat of a

leadership challenge following the EU

referendum after the Brexit camp

turned its sights on the prime minister

with highly personal attacks

Bearing the hallmarks of an

orches-trated campaign, Eurosceptic Tories

piled pressure on Mr Cameron,

includ-ing a direct threat to oust him

immedi-ately after the vote

The ratcheting up is also a sign they

are seeking to tighten their grip on the

party in case of a defeat on June 23 by

toppling the prime minister and

replac-ing him with a more Eurosceptic leader

The gravest warning for Mr Cameron

came from MP for North West shire Andrew Bridgen, a prominentTory backbencher

Leicester-He told the BBC yesterday that morethan 50 MPs were ready to move againstthe prime minister because he is at

“odds with half of our parliamentaryparty and probably 70 per cent of ourmembers and activist base”

Other senior Tories have said vately that it is likely that Euroscepticswill be able to round up the required sig-natures to mount a challenge

pri-Nadine Dorries, the Mid Bedfordshire

MP and ardent critic of Mr Cameron,said she had already written to GrahamBrady, chairman of the backbench 1922committee, which normally receivessignatures for a leadership challenge

Ms Dorries said Remain would need

to win the vote by 60-40 for Mr eron to survive Anything less and MrCameron would be “toast within days”

Cam-The warning came as Boris Johnsonand Michael Gove, the Brexit camp’smost senior figures, launched a personalattack on the prime minister over hisfailure to control immigration

They said his failure to bring down netmigration below 100,000 a year, a mani-

festo pledge made at the last election,was “corrosive of public trust” because

it could not be delivered

“This promise is plainly not ble as long as the UK is a member of theEU,” both men said in a letter to theprime minister

achieva-In a separate intervention, Priti Patel,

the employment minister, suggested MrCameron and George Osborne, thechancellor, were “too rich” and led livesthat were “insulated” from the pres-sures immigration put on low-incomeBritons

The personal attacks and the greateremphasis on immigration comes asRemain claims that those campaigning

to leave the EU are losing the economicargument, as institutions from theTreasury to the IMF warn Brexit woulddeal a blow to growth

Former prime minister Tony Blairsaid yesterday that the Leave campaign-ers’ focus on immigration was becausethey “have lost comprehensively thedebate on the economy”

With campaigning entering its lastfew weeks, the Brexit camp is struggling

to make a breakthrough in the polls

The FT Poll Tracker has 46 per cent ofvoters backing continued membership

of the EU and 41 per cent wanting toleave An aide to the prime minister said

Mr Cameron would focus on winningthe vote despite the threats against hisleadership and dismissed the idea of animmediate reshuffle to replace Euro-sceptic cabinet members with moremoderate MPs

Any shake-up of the ministerial team

“probably will be” later, the aide added

The attacks also come despite a ise by Mr Cameron on Friday to end per-sonal attacks on Conservative col-leagues for fear the party was descend-ing further into civil war

prom-He, in effect, admitted that some ofthe personal criticism of pro-LeaveTories, including Boris Johnson, hadgone too far

“I’m only ever going to make ments from now on,” he said, promising

argu-to stay out of personal criticism of nents

oppo-Conservative infighting

Brexit Tories turn sights on Cameron

Eurosceptic members

make direct threat to oust

PM straight after the vote

JUDITH EVANS

Signs of faltering demand in the housingmarket are prompting estate agents andanalysts to suggest England’s houseprice boom may be ending

Paul Smith, chief executive of theHaart agency, which has more than 100branches, said: “We believe the nationhas now neared the limit in terms ofprice rises.”

Inquiries declined in April at theirsecond-highest rate since 2008, accord-ing to the Royal Institution of CharteredSurveyors — a trend that Mike Prew, anequity analyst at the investment bankJefferies, said “signals this slowdowncould morph into a period of sustainedhouse price deflation”

Drops in this Rics measure arestrongly correlated with price fallsabout a year later, Mr Prew added “Thebalance of surveyors expecting higherhouse prices 12 months ahead has also

collapsed, suggesting something morethan just short-term factors.”

Mortgage approvals across the try dropped 8.6 per cent in April, farsteeper than analysts had expected

coun-This was partly down to the aftermath

of a demand surge in March as let investors rushed to beat a new stampduty surcharge, while caution over theJune referendum on EU membershipalso played a role, Rics said

buy-to-But broader factors are also at work,including slowing economic growth andprice rises that have stretched afforda-bility to breaking point for many in Lon-don and the south-east, where houseprice inflation has been most extreme

“There are plenty of headwinds facingLondon irrespective of the referendumvote It’s down to affordability At somepoint you have to run out of buyers,”

said Richard Donnell, director ofresearch at Hometrack, an analysiscompany

Average prices in the capital rose 54per cent between the start of 2012 andMarch this year, according to the LandRegistry, contributing to a nationwiderise of 20 per cent In London, prices

stand at 9.2 times average earnings,according to Nationwide

Mr Donnell said price growth hadslowed this year in all but two Londonboroughs, while the number of homeschanging hands declined 7 per centacross the capital last year This came astransaction levels and prices fell in themost expensive districts

Henry Pryor, a buying agent, said hewas aware of homes remaining on the

market for three to four weeks without asingle viewing “How do you persuadepeople to buy something today that theythink will be cheaper tomorrow?” hesaid

Lucian Cook, director of residentialresearch at estate agency Savills, said:

“We are clearly hitting some ity ceilings in London.” But the timingand speed of a rise in interest rates

affordabil-would be a key factor in the direction ofthe broader market, he added

Mr Cook is sceptical the market is setfor a big downturn, however If the UKdoes not vote to leave the EU, he said, “it

is difficult to see what the catalyst would

be for a significant correction in thehousing market”

Robin Hardy of Shore Capital said themarket was also plagued by “mortgagezombies”, defined as “growing numbers

of potential movers struggling with alack of equity due to the various types ofassistance buyers received whenthey entered the market

“Parental gifts, help-to-buy or othershared equity loans and long-datedmortgages all hamper the creation ofequity We see growing numbers of

‘mortgage zombies’ primarily fromthose who were first-time buyers at anytime in the last five to seven years.”But analysts have yet to downgradetheir house price forecasts, with manywaiting until after the referendum toreassess the market Savills predictedlate last year that prices in “main-stream” UK markets would rise 5 percent this year and 17 per cent by 2020

Evidence grows of an end to the house price boom

England’s Marland Yarde celebrates a

try by the prostrate Ben Youngs

during yesterday’s rugby union

match against Wales at Twickenham

England scored five tries to Wales’s

one during their 27-13 victory

Wales started well with an early try

by Rob Evans, but succumbed to

scores by the home side’s Luther

Burrell, Jack Clifford, Anthony

Watson, Yarde and Youngs

England fly-half George Ford

missed six out of seven kicks at goal

England now travel to Australia for

a Test series against the World Cup

runner-up, while Wales take on the

world champion All Blacks on a tour

of New Zealand The opening Tests of

both tours are on June 11

Red Rose day

England beat

Wales in Test

VANESSA HOULDER

From tax dodgers to the “tampon tax”,

Britain has lost control over some of its

revenue-raising powers, according to

campaigners wanting to quit the EU

Critics say the union makes taxing

mul-tinationals “extraordinarily difficult”

Even though Brussels has recently

unveiled an “ambitious” programme for

ensuring fair taxation, past rulings by

Europe’s highest court have made it

harder to stop multinationals from

using EU tax havens

The judges’ interpretation of the 1957

Treaty of Rome has also broken down

tax barriers between member states

and forced the Treasury to refund taxes

deemed to have been illegally levied

Future payouts could be as high as

£10bn, although pro-Brexit

campaign-ers have acknowledged that leaving the

EU would not necessary stop them

It is no surprise that taxation has tured in the Brexit debate: it is often atthe heart of arguments over nationalsovereignty But the arguments arerarely clear-cut For example, the Euro-sceptics see the “tampon tax” — valueadded tax on sanitary products — as asymbol of Brussels’ tyranny But the EU

fea-is fleshing out proposals to give memberstates greater freedom to set VAT rates

The free movement of capital isanother example Richard North, apolitical analyst involved in the LeaveAlliance network that supports Brexit,says it has deprived Britain “of a consid-erable element of tax sovereignty”

But he acknowledges there arebigger forces at work and says removing

EU restraints will simply expose

another level of global constraints

Philip Baker, a tax barrister who ports remaining in the EU, says compet-itive pressures would have forced Brit-ain to make changes to its corporate taxrules even without the EU’s influence

sup-“Companies taking challenges to theEuropean Court of Justice have driven alot of changes to tax law but taxcompetition would probably havedriven us down the same road.”

In principle, the UK could do more toattract inward investment from outside

the EU, which is using its state aid rules

to tackle harmful tax competition But itwould still be affected by the G20 crack-down on avoidance by multinationals

Daniel Gutmann, a partner at theinternational law firm CMS and a pro-fessor of tax law at the Sorbonne LawSchool, said the impact of Brexit waslikely to be most evident in value addedtax Import VAT would be imposedwhen goods were traded between the

EU and the UK Even though therewould be a mechanism for refund ofVAT, “cash flow could be a major consid-eration”

Cross-border transactions might facehigher taxes under Brexit, as EU subsid-iaries could no longer rely on directivesthat eliminate withholding taxes Yet

in a curious twist, the 1992 Maastrichttreaty — reviled by Eurosceptics —

would go some way to protect the UK if

it moved outside the bloc It requires EUcountries to extend free movement ofcapital to third countries, as well asother member states

It is even possible that Brexit mighthave a bigger impact on EU tax policiesthan on Britain The European Commis-sion wants to press ahead with harmoni-sation of corporation taxation; the UK isits most vocal opponent Allen & Overy,

an international law firm, says “the loss

of a large and influential member statethat is opposed to it could be decisive”

VANESSA HOULDER

Sadiq Khan, London’s new mayor, hasproposed giving its residents the firstoption on new homes, as he warnedagainst allowing the city to be “theworld’s capital for money laundering”

Mr Khan said developers of new ties might have to “market them for thefirst six months in London” to secureplanning permission, in an interview on

proper-ITV’s Peston on Sunday programme.

He said: “We shouldn’t be rassed for saying ‘first dibs for London-ers’ We should not be embarrassedabout saying ‘our homes are homes’, notgold bricks for investors in the MiddleEast and Asia.”

embar-Asked whether it was the end of the

‘oligarch property boom’, he said: “Ihave got nothing against luxury proper-ties being built in London What wecan’t have is London being the world’scapital for money laundering.”

This month David Cameron, theprime minister, announced a crack-down on purchases involving “anony-mous shell companies using plundered

or laundered cash”, saying that thenames of all property owners would bepublicly registered

Mr Khan last week appointed JamesMurray, an Islington councillor knownfor his strict enforcement of affordablehousing targets in the north Londonborough, as housing chief

City Hall said details were still to beworked out, but Mr Khan insisted hewould be able to act

“We could have, for example, a tion for permission to build homes thatyou must market them for the first sixmonths in London.”

condi-A City Hall spokesperson added: “Themayor intends to work closely withpartners to build more genuinelyaffordable homes for Londoners andput right the appalling housing mess leftbehind by his predecessor.”

Boris Johnson, the previous mayor,had also expressed frustration over for-eign investment In 2014, he said: “Iwant [homes] marketed first and soldfirst to the people of this country, not to

‘oligarchs from the Planet Zog’.” In thesame year he launched a ‘concordat’,committing to give Londoners firstoption on new homes in the capital.Some property experts say interferingwith foreign investment could backfire.Adam Challis, head of residentialresearch at JLL, a professional servicesfirm, said domestic demand was notstrong enough to drive off-plan sales

He said restricting overseas investorswould destroy the viability of mostschemes, and would cut the level ofaffordable housing delivery “We shouldremember that Ken Livingstone [aformer mayor] had this aim and nevergot close to implementing it.”

Brexit campaigners have also tioned whether plans to give Londonersfirst option would be enforceable giventhe ‘free movement of capital’ rules inthe EU treaties

ques-Vote Leave said its research showedthe rules hindered a crackdown on off-shore people and companies buyingproperty in the UK

The general principle of free ment of capital among EU countries —

move-as well move-as between them and non-EUcountries — includes the rights of citi-zens to purchase property

Additional reporting by Gonzalo Vina

Housing

Khan warns against new home ‘money laundering’

Europe debate

Leave camp questions sovereignty of revenue-raising powers

Campaigners say free capital movement strips

UK of a ‘considerable element of tax sovereignty’

Economy at a glance

The FT’s one-stop overview of key economic data, including GDP, inflation and employment ft.com/economic-dashboard

Fall in mortgage approvals across the country far steeper than analysts expected

8.6%

Decrease in mortgage approvals across England in April

9.2Cost of London houses as a multiple of average earnings

An aide to the prime minister said

he would focus on winning the Brexit vote despite the threats against him

MAKE A SMART INVESTMENT

Subscribe to the FT today at ft.com/subscription

Monday 30 May 2016 ★ FINANCIAL TIMES 3

NATIONAL

PILITA CLARK

ENVIRONMENT CORRESPONDENT

Few topics seem to have been ignored in

an increasingly frenzied EU referendum

debate that has covered everything

from Hitler to house prices

But as the June 23 vote nears, anxiety

is growing among some companies and

many green groups about the relatively

scant attention being paid to how a

Brexit might affect the environment

and UK energy industries

Neither Leave nor Remain campaign

leaders have focused heavily on the

ref-erendum’s implications for EU rules

that shape the UK’s approach to product

standards, air pollution, climate

change, wildlife protection and energy

use

“It’s a major oversight,” says Nick

Molho, executive director of the

Alders-gate Group, a sustainable business body

representing companies operating in

the UK with a combined annual global

turnover of more than £400bn

“It’s alienating part of the electorate,

especially young people who are very

interested in the environment,” he said

The future of common product

stand-ards are a particular concern for

export-ers selling to the single market, he

added, as well as EU energy and climate

targets that have been “a real driver for

low carbon goods”, such as ultra low

emissions vehicles

One of the Aldersgate Group’s largest

members is Siemens, the German

industrial conglomerate

It sent a shudder through the

renewa-ble energy sector with an April warning

that a Brexit “could make the UK a less

attractive place to do business and may

become a factor when Siemens is

con-sidering future investment here”

The company makes hundreds of the

turbines used in the UK’s huge offshore

wind farms and has agreed to spend

£160m on Yorkshire production

facili-ties

The UK attained a record 25 per cent

of its electricity from renewable

genera-tors last year, partly because of its own

2008 Climate Change Act, one of the

most far-reaching in the EU

But growth was also driven by EU

tar-gets obliging the UK to draw 15 per cent

of its energy from renewables by 2020

More EU renewables targets are

planned for 2030, but some analysts

believe that a Brexit would embolden

critics eager to dilute environmental

laws they say are pushing up energy

prices and making companies

uncom-petitive

Lord Deben, Conservative peer and

chairman of the Committee on Climate

Change — the independent body that

advises the government on meeting its

environmental targets — says the UK

would have much less clout outside the

EU, raising pressure on businesses and

making them less willing to accept

envi-ronmental restrictions

Competition arguments would “reallyhave force” if the UK was trying to com-pete on its own with the EU and the US,

he says

The broader energy industry alsofaces challenges if the UK leaves the EU,according to a report that was releasedlast week by the Chatham House policyinstitute

The UK was a net exporter of energy

at the turn of the century, but the end ofdomestic coal mining and depletion ofNorth Sea oil and gas reserves means itnow relies on imports for 45 per cent ofits consumption, the study says

“As a growing share of the UK’s tricity is exchanged with EU partners, itwould be neither possible nor desirable

elec-to ‘unplug’ the UK from Europe’s energynetworks,” the report said

“Overall, the option of remaining in

the EU provides the highest levels of tainty for continued energy invest-ment.”

cer-Many environmental figures, while, say that EU directives relating tobathing water, wildlife protection andair quality helped the UK shed its repu-tation as the “dirty man of Europe” andare still needed to keep the countryclean

mean-Not everyone agrees Michael ich, founder of the Bloomberg NewEnergy Finance research group, says it is

Liebre-“complete and utter tosh” to suggest the

UK would slide back to its old pollutingways if it left the EU

The “dieselgate” scandal and the mon fisheries policy show the EU’s envi-ronmental record is not nearly as good

com-as some claim, he says, and there arewider concerns about green technolo-gies

“The environmental community isnearly unanimous that Brexit would be

a disaster for the environment,” Mr breich told the FT “But they are missingthe vital role of innovation We won’tpull our weight developing solutions toclimate change if we’re stuck in a declin-ist, low-innovation, protectionist-inclined bloc.”

Lie-Such arguments carry little weightwith the bulk of green campaigners,however, who have resorted to organis-

ing conferences, roundtables and ies to highlight environmental issuesthey say have been sorely missing in theBrexit debate

stud-Sir Edward Davey, the former LiberalDemocrat energy secretary, told a con-ference in May that more large conser-vation groups needed to “get off thefence” and start making the EU Remaincase

The National Trust and the WorldWildlife Fund are staying neutral on adecision they say is for the British peo-ple, though David Nussbaum, WWFchief executive, says the lack of discus-sion about the environment has been

“hugely frustrating”

There are some signs that politiciansare finally heeding the message Labourleader Jeremy Corbyn made a rareappearance with his predecessor, EdMiliband, last week at a North Lincoln-shire solar farm to warn that Britain’smembership of the EU was vital in thefight against climate change

There is clearly a long way to go

Mary Creagh, a Labour MP, told thesame conference Sir Edward attendedthat she had been alarmed to hear partysupporters say they planned to vote forBrexit, because they mistakenlythought Labour must be opposing aConservative prime minister’s push toremain

Environmental issues left behind as

EU referendum rhetoric intensifies

Campaigners and companies decry lack of debate around Europe’s green rules and the implications of a Brexit

BY JANE CROFT

The head of the Law Society haswarned that reforms to state-subsi-dised legal aid mean there are certainparts of the country where people arefinding it difficult to access advice onspecific issues such as housing

Catherine Dixon, chief executive of theprofessional body that represents solici-tors in England and Wales, said somefirms had stopped doing legal aid work

in certain areas of law, saying they couldnot afford to work for the low fees thegovernment now paid

She gave the example of housingadvice, which has 139 legal aid areas In

39 of these, there is only one providerwhile in at least two areas there is noprovider at all Shropshire and Suffolkhave no legal aid providers of housingadvice, the Law Society said

“If you want housing advice in thoseareas, there’s no one available to givethat through legal aid,” she said “In theareas where there’s only one provider,for example Cornwall, obviously you’regoing to struggle.”

TheLawSocietyopposedcutsmadebythe coalition government in 2013 to save

£350m a year from the £2bn legal aid budget The cuts removed eligibility forlegal aid in certain areas of law such asdivorce and family law, although someareas such as housing law remainedwithin its scope The Ministry of Justicesaid at the time that the UK spent moreonlegalaidthananyotherEUnation

“What it means is that about 600,000fewer people per annum are entitled tocivil legal aid, and there’s been a reduc-tion in the civil legal aid budget of about

£350m per annum,” said Ms Dixon.The Law Society has said that somelaw firms decided not to rebid for legalaid contracts in the last round of awards

in 2013 because of the low rates payable.The small number of firms doing legalaid work in certain areas of the lawmeant there could also be conflicts ofinterest, the Law Society said “Ifthat firm is advising maybe your part-ner you could end up in a situationwhere you can’t get advice,” said

Ms Dixon

Some firms, she added, particularlythose dealing with criminal legal aid,were shutting or consolidating to sur-vive “If you look at what a junior solici-tor would get through undertaking legalaid work, it’s less than you’d be paid as anurse or teacher,” she said

The cuts to legal aid have led to a rise

in “litigants in person” she said —because people bringing cases could notafford advice and had to representthemselves This placed additionalstrain on judges, who had to helpuntrained people navigate the courtssystem Dealing with the impact of legalaid cuts on the society’s members hasbeen a key issue during Ms Dixon’s firstyear as chief executive “There are notwo ways about it; it places a greaterburden on the system,” she said

State-funded advice

Law Society head warns on effects of legal aid reforms

The LondonArray, located inthe ThamesEstuary, is theworld’s biggestoffshore windfarm MichaelLiebreich,Bloomberg NewEnergy Financeresearch groupfounder, below,says the UK willnot slide back toits old pollutingways if it leavesthe EU

Simon Dawson/Bloomberg

Poll of polls

What you need

to know with 23 days until the referendum ft.com/brexit

MURE DICKIE — EAST KILBRIDE

It has been a long time since Scotland

was known as a leader in steam

technol-ogy, but a start-up in East Kilbride

reck-ons that should be about to change

Buoyed by strong sales and a round of

investment that included BP and the

Scottish government, Heliex Power says

its system for capturing industrial waste

energy heralds a “second golden age for

Scottish steam”

“The numbers that we were coming

up with in market analysis were so large,

in value and in quantity, that I had some

difficulty believing them,” says Dan

Wright, company founder and chief

technology officer

Heliex’s exuberance reflects growing

international interest in new

technolo-gies aimed at tapping sources of power

previously considered too technically

difficult or too small to be commercially

exploitable

The trend is powered by engineering

innovation and global pressure to raise

energy efficiency and reduce

green-house gas emissions

In Heliex’s case, a new approach

developed at London’s City University is

used to tap the energy in relatively

low-temperature “wet” steam, a common

byproduct of many industrial processes

While turbine generators can

effi-ciently generate electricity from

high-temperature “dry” steam, they copebadly with pressure fluctuations associ-ated with wet steam and suffer seriouserosion from the water droplets it con-tains

Heliex uses instead a much morerobust screw expander, a pair of rotatingscrews that transform the energy in thewet steam into movement that can drive

a standard power generator or othermachine

The company is not alone in seeking

to use screw expanders to tap wet steampower China’s Kaishan Technologiesmarkets a system it says can generate 30per cent more power than a small tur-bine Langson Energy of the US in Aprilinstalled a 250kW “steam machine” at

an ethanol plant in South Dakota ButHeliex says it is well ahead of its compe-tition The company has installed 38machines in the UK and overseas Reve-nues jumped to £2.7m in the year toMarch from £900,000 in 2014/15 andChris Armitage, chief executive, says heexpects them to double again this yearand next

It recently raised £2.2m from existingshareholder BP Ventures, an arm of theinternational energy major, and a pri-vate equity fund owned by Irish utilityESB

Combined with a matching £2minvestment from the state-owned Scot-tish Investment Bank, the round took to

£16.4m the investment in the company,

based in an East Kilbride technologypark south of Glasgow, once the site ofthe UK’s National Engineering Labora-tory

The laboratory was where widelyused “steam tables” for calculation ofpressure, heat and volume were devel-oped nearly half a century ago, itself anecho of the 18th and 19th century inno-vation of Scottish steam pioneers such

as James Watt

Mr Wright says the new investmentwill help Heliex market its system,shipped as a self-contained blue steelbox that can be plugged into existingsteam and electricity systems In somecases it can take the place of existingequipment needed to reduce steampressure for industrial processes, whilehelping to meet a factory’s electricityneeds or feed power back to the grid

A Heliex machine is already ming away happily at the Royal Alexan-dra Hospital in Paisley, west of Glasgow,where steam from a new biomass boiler

hum-is used to generate 108kW of electricitybefore being fed into a district heatingsystem

Chris O’Reilly, a consultant involved

in installing the system, says includingthe Heliex unit required a higher pres-sure boiler than originally planned, butthat the change should pay for itself inthree to five years

The paperwork needed to securerenewable energy subsidies was moreonerous than the “reasonably straight-forward” inclusion of the Heliex genera-tor, suggests Mr O’Reilly “There’s a lot

of forms to fill in,” he says

Steam power gets its second chance with Scottish start-up

Screw steamexpanderIndustrial process

Graphic: Paul McCallum Source: Heliex Power

Pressure

How it works

The screw expander hastwo rotating screws that transform energy from wet steam into powerthat can drive standard generators or feed power back into the grid

VANESSA HOULDER

Nearly two-thirds of FTSE 100 nies disclose information about theirapproach to taxation, up from underhalf two years ago

compa-The trend is a sign of the growing sure to become more transparent abouttax, following a backlash against aggres-sive planning

pres-The analysis by PwC, the professionalservices firm, showed that 64 compa-nies made disclosures in their latestaccounts, up from 49 two years earlier

Companies are volunteering tion in response to public pressure, aswell as preparing for new laws mandat-ing more transparency The UK is intro-ducing rules forcing companies to dis-close their tax strategy, while Brusselshas proposed making them publishwhere they earn profits and pay taxes inEurope

informa-Regulators are also making demandsfor more transparency PwC said it had

“already seen early signs of companieschanging their disclosures of tax num-bers” in light of a review by the FinancialReporting Council, the corporate gov-ernance regulator

Investors have begun to put pressure

on companies to become more parent about their tax payments In areport published last year, PRI, an inter-national network of fund managers pur-suing sustainable investment strategies,said the opacity around companies’ taxaffairs meant investors knew little

trans-about the risks associated with them.Andrew Packman, a partner at PwC,said approaches varied with companies’circumstances Some — banks andextractive companies — were alreadyrequired to publish details of tax pay-ments, while others had been targeted

by campaigners and wanted to provide amore detailed explanation of their posi-tion

Some companies wanted to make closures because their boards sup-ported transparency while thoseputting little information in the publicdomain were often foreign-based multi-nationals with limited UK activity.But the tax line remains difficult tointerpret Just 18 FTSE 100 companies

dis-— up from 14 last year dis-— provide anexplanation of the difference betweenthe tax charge in the accounts and thecash tax actually paid by the group.The push by Brussels to make some ofthis data public is opposed by Germanyand some other countries, which say itwould put commercially sensitivedetails into the public domain But MrPackman said the “general assumption”was that the data would become public

in the medium term because of theweight of opinion in the European Par-liament

PwC reviewed the annual reports,company websites and corporateresponsibility statements for financialyears ending between January andDecember 2015, for all companies listed

in the FTSE 100 at March 31 2016

Public pressure

Tax planning backlash forces more groups into transparency

Using the byproduct of many

industrial processes drives

source of renewable energy

25%

Share of UK electricity that came from renewables in 2015

15%

EU target for the

UK share of energy from renewables

by 2020

The Heliex technology

4 ★ FINANCIAL TIMES Monday 30 May 2016

ANNE-SYLVAINE CHASSANY — PARIS

French authorities are considering

launching an inquiry into Fifa’s decision

to award the 2022 World Cup to Qatar,

amid allegations that senior figures in

France may have exerted pressure on

football’s world governing body

Eliane Houlette, France’s financial

prosecutor, said such an inquiry would

investigate the role played by Michel

Platini, former president of Uefa,

Euro-pean football’s governing body She

declined to comment on allegations

about the role of the government andthe former president Nicolas Sarkozy

“We have some pieces of informationthat push us to [open an investigation],”

she told Europe 1 radio station day “If there is an investigation, MichelPlatini’s role will certainly be an essen-tial part, but the investigation will notcentre on him.”

yester-The comments come amid allegations

of corruption and collusion in tion with Fifa’s decision in 2010 to selectQatar as host of the 2022 tournament

connec-The FBI in the US is already ing how Qatar was awarded the event aspart of an investigation into corruption

A separate French investigationwould come at a bad time for MrSarkozy, who is expected to announcehis candidacy for the centre-right presi-dential nomination in the next fewweeks The former president is back atthe helm of the Republican party afterbeing defeated by Socialist leaderFrançois Hollande in 2012

The claims are part of many tions swirling around Fifa In March,French financial prosecutors searchedthe French football federation in rela-tion to a SFr2m payment Mr Blatterallegedly made to Mr Platini

allega-While Mr Blatter and Mr Platini saythe payment, made in February 2011,was back pay for work Mr Platini car-ried out for Fifa between 1998 and 2002,there was no contract and no record ofthe payment in Fifa’s accounts

Ms Houlette is also investigating picious payments worth about $2m to acompany linked to Papa Massata Diack,the son of Lamine Diack, former chief ofthe International Association of Athlet-ics Federations, over alleged connec-tions to Japan’s successful bid to host the

sus-2020 Olympic Games The younger MrDiack previously told The Guardian, the

UK newspaper, that he did not wish tocomment on the investigation as he was

“part of the legal process”

“The governance of those big tional sports organisations is opaqueand autocratic,” Ms Houlette said

interna-Ms Houlette is also investigatingGoogle and McDonald’s over suspectedtax fraud Last week, nearly 100 officersraided Google’s Paris offices as part of

“Opération Tulipe” — the code name forthe investigation looking into suspicionsthat the US technology group may owethe French state back taxes worth asmuch as €1.6bn They came out with

“several teraoctets” of documents, MsHoulette said

SIMON KUPER — THE HAGUE

It is a traditional Dutch scene: morning

commuters cycle through the

Binnen-hof, the ancient courtyard where the

Dutch parliament sits MPs in blue suits

and brown brogues trudge through the

spring drizzle In the corner tower is the

prime minister’s office The placid

Bin-nenhof has been the country’s seat of

power for centuries

But now the established political

order has been weakened by voters

angry at The Hague and Brussels alike

The nativist anti-European PVV

party led by Geert Wilders is topping

opinion polls ahead of parliamentary

elections next March After the UK

votes on June 23 on whether to remain a

member of the EU, the Netherlands

could lead the next assault on the bloc

Many politicians say that if Britain

decides to leave, Dutch Europhobe

activists could force referendums each

time the bloc agrees new treaties or

imposes changes on the country’s laws

The Netherlands was one of the six

founders of the European Economic

Community in 1957 Today 64 per cent

of people in the small trading nation still

favour staying in the EU, according to a

poll by Ipsos this month

“Most people know how the sandwich

is buttered and that they benefit from

the EU,” says Anne Mulder, Europe

spokesman for the centre-right VVD

But, as in the UK, there is now a strong

national anti-federalist consensus that

runs from far left through the centre to

far right Mr Mulder sums up moderate

Dutch Euroscepticism: “We believe in

the EU, but we don’t believe in the

believers in the EU.”

Harry van Bommel, MP for the leftist

Socialistische Partij, adds: “Federalism

has become a dirty word when applied

to Europe.”

Dutch voters began turning

Euroscep-tic when euro notes and coins were

introduced in 2002, he says More

recently, bailouts for Greece, the

migrant crisis and the perceived

break-ing of European fiscal rules by southern

states have heightened anger

Jeroen Dijsselbloem, the Dutch

finance minister and head of the

Eurogroup of finance ministers,

says many Dutch people are disquieted

by a “borderless EU” — a union that hasgrown without setting the limits ofeither its territory or its powers

He points to the phrase “ever closerunion” in the preamble to the EEC’sfounding treaty “The Netherlands isnot very inclined to centralism,” he says

After a law last year allowed citizens

to petition for referendums on new laws

or treaties, Eurosceptics immediatelyforced a vote on the EU’s associationpact with Ukraine In April votersrejected it, on turnout of just 32 percent Dutch referendums are merelyadvisory to governments But many inThe Hague see the Ukraine episode as aharbinger of more such votes

Mr Wilders says that if Brexit pens, he will “immediately” propose areferendum on Dutch exit from the EU

hap-Sitting in his office in front of a trait of Winston Churchill, Britain’s war-time leader, he tells the FT: “When, afterBrexit, it turns out that the lights don’t

por-go out and war doesn’t come, that could

be an enormous stimulus not just for theNetherlands but for several countries to

think of leaving.” He sees Switzerland —small, flexible and making its own tradedeals outside the EU — as a model for theNetherlands

But under current legislation thecountry only permits referendums onnew initiatives, not on previously estab-lished issues such as membership itself

Thierry Baudet, a leader of the endum movement, says the Dutchcould hold votes on topics such as theeuro or open borders He argues that ifthey voted “Nee” on a fundamentalEuropean issue, “then you’d get that inother countries too and you would have

refer-a domino effect Threfer-at would be nice.”

Few Dutch people imagine their try as an independent global actor theway many Leave campaigners see apost-Brexit Britain “Our global empire

coun-is a little further behind us than in theUK,” Mr Dijsselbloem says “Co-opera-tion lies deep in our thinking.”

Still, a Brexit would shake the lands “Very strong trade, investmentand financial links with the UK” make itthe European nation most exposed toBrexit, say consultants Global Counsel

Nether-Many Dutch politicians worry that ifthe Eurosceptic UK left the EU, federal-ists would try to give Brussels morepowers Halbe Zijlstra, the VVD’s parlia-mentary leader, notes that Britain is thebiggest country in a free-market, anti-federalist camp that also includes theNetherlands, Denmark and Sweden

He laments: “If the British leave, we’llhave lost an important partner and pro-tectionist spirits will get a louder voice.”

Like others in The Hague, he warns thatDenmark might follow the UK to theexit He calls the EU “a house of cards”

The Dutch are also Berlin’s allies, but

Mr Zijlstra warns: “[They] are very eralist on Europe and we are not.”

fed-But other than Mr Wilders’ PVV, thebig Dutch parties see their country’sfuture inside the EU Most simply wishfor a more limited and effective Europe

“The EU must deliver,” says MrMulder — especially on opening up theinternal market and controlling Euro-pean borders Most Dutch feel nostalgianot for their lost empire, but for themodest trade-oriented EEC that theyjoined in 1957

RALPH ATKINS — ZÜRICH

Switzerland will lobby top Europeanleaders attending this week’s opening

of the world’s longest rail tunnel forfaster progress on reworking the coun-try’s relations with the EU

Renegotiation has been held up by ain’s referendum on membership of thebloc The Gotthard Base Tunnel cere-mony on Wednesday would be a “goodopportunity” to discuss the challengesfacing Swiss-EU relations, Didier Bur-khalter, the Swiss foreign minister, toldthe Financial Times Those expected toattend include Angela Merkel, Ger-many’s chancellor, President FrançoisHollande of France and Matteo Renzi,Italy’s prime minister

Brit-The 57km rail tunnel, which costSFr12bn ($12bn) to build, will cut trav-elling times across the Swiss Alps and will become part of one of Europe’s mostheavily used transport corridors, con-necting the ports of Rotterdam in north-ern Europe and Genoa in the south.The opening was a chance “to showthat we’re working in good faith and con-tributingtoEurope’scohesion”,saidMaxStern, co-founder of Foraus, the Swissforeign policy forum “That’s importantbecause we have not been very positiveinthisregardinrecentyears.”

Swiss voters rejected EU membership

in 1992 Instead Switzerland negotiated

a web of bilateral agreements with thebloc and has aligned many of its lawswith those of its neighbours

However, the contracts have beenunder threat since the electorate voted

in a referendum two years ago for tas on immigration from EU countries —which would violate the EU’s cherishedfree movement of people The govern-ment hopes a compromise deal could bestruck, for instance by agreeing an

quo-“emergency brake” that would let zerland impose controls on immigra-tion in exceptional circumstances.But because Brussels does not want tomake life easier for countries outsidethe EU, talks with Bern have been put onice until after the UK referendum vote

Swit-on June 23

The delay may have weakened zerland’s negotiating hand as its immi-gration referendum result has to beimplemented by February next year —three years after the vote was held —including parliamentary approvals.Following the UK vote, there would be

Swit-a “rSwit-ace Swit-agSwit-ainst time” to reSwit-ach Swit-a deSwit-al,Johann Schneider-Ammann, Swisspresident, told the NZZ newspaper lastweek A detailed agreement wasunlikely before the summer holidays,but he hoped that “we can sketch outtogether the main points” by then.Any threat to the bilateral contractswith the EU would alarm Swiss busi-nesses, which rely on the free flow ofgoods and labour But fears about immi-gration have risen as Europe has strug-gled to cope with refugees fleeing wars

in countries such as Syria

The Eurosceptic Swiss People’s partywon the largest share of the vote in lastOctober’s parliamentary elections.Reconciling Switzerland’s conflictingobjectives may not be possible, analystswarn “So the only solution will beanother referendum in which the Swisschose between keeping the bilateralsbut getting less on immigration or hav-ing immigration quotas but losing thebilaterals,” said Mr Stern

Immigration fears

Swiss seek

to rework relationship with EU

Football World Cup

Move follows allegations

that senior figures may

have put pressure on Fifa

Politics Brexit effects

Netherlands faces referendum shockwave

Anti-federalism is rising and

activists will want to capitalise

if Britain votes to leave the EU

INTERNATIONAL

The Hague:

many DutchMPs worry that

if the UK leavesthe EU,

federalists willtry to giveBrussels morepowers; PVVparty leaderGeert Wilders,below

‘When, after Brexit,

it turns out that the lights don’t

go out and war doesn’t come, that could be an enormous stimulus’

of Italians who have seen their ment age drift higher But some in Romefear it will provoke the ire of Brusselsamid concern over Italy’s publicfinances

retire-The prime minister’s plan, whichwould allow pensions to be paid up tothree years early, is aimed at increasinggenerational turnover in Italy’s labourmarket and tackling stubbornly highyouth unemployment

Mr Renzi floated the idea during a liveTwitter discussion this month and said

he would aim to include the measure innext year’s budget, due to be presented

in October

The plan, whose details have yet to befinalised, will be welcomed by Italianbusinesses eager to replace older, disen-chanted staff with younger, keeneremployees

But for pensioners, the proposal,which would allow retirement at 63.7instead of 66.7, comes with a condition

To avoid weighing on Italy’s publicfinances, a penalty of between 1 and 4per cent would be imposed on earlyretirement cheques, say Italian officials

This would either be paid by als, or in circumstances such as disabil-ity, by the government, or by companieswhose employees took early retirementbecause of a restructuring

individu-The prospect of a penalty has drawnopposition from Italian trade unions

“These are very low pensions already, so

a penalty would hurt a lot; it would be apunishment,” said Massimo Gibelli, aspokesman for the CGIL, Italy’s largesttrade union “People don’t retirebecause it’s a privilege, but because theycan’t handle work any more.”

The scheme could also spark concern

in Brussels Although the penalty isexpected to make it budget-neutral inthe long run, it would involve highershort-term outlays to cover the cost ofworkers drawing pensions earlier thanoriginally planned These could be asmuch as €1.6bn in the first year and up

to about €6bn in 2021, according to ures from INPS, the national pensionsadministrator

fig-But some in Rome fear the EU might

see this as an unwinding of reformspassed by Mario Monti’s technocraticgovernment at the height of the euro-zone crisis in 2011, when Rome wasunder pressure to rein in public spend-ing The former Italian prime minister’schanges to pensions, which lifted theretirement age, were widely welcomed

by international institutions as

strengthening Italy’s welfare system

But observers suggest the overridinggoal for Mr Renzi, who took office inearly 2014 with a mission to revitalisethe country after years of economicstagnation and recession, is to find a way

of tackling youth unemployment, whichfell to 36.7 per cent in March butremains well above the EU average of21.2 per cent

Tito Boeri, an economist who headsINPS, supports the plan “It relies onincentives instead of rigid constraints

and introduces freedom of choice,” hesaid

Stefano Scarpetta, director foremployment, labour and social affairs

at the OECD in Paris, said acrossadvanced economies there was “no evi-dence” that early retirement generatedmore jobs for young people in the longterm

Meanwhile, Mr Renzi’s team is sidering creative ways of financing theplan to eliminate any impact on Italy’sbudget and allay Brussels’ concerns.One emerging idea is paying with bankloans so the government would avoidputting in money up front But that hasdrawn scepticism from trade unionsand some opposition politicians

con-On the streets of central Rome, ever, the idea of flexible retirement wasgenerally supported

how-“Personally, I would retire I can’twait Even if I’d probably losemoney,” said Sabrina, a 55-year-old highschool teacher

Claudio, a 53-year-old taxi driver, wasnot so sure: “I have to know how muchmoney I’m going to lose If it’s too muchI’ll work three extra years Otherwise,what am I going to eat afterwards?”

Youth unemployment

Italian leader’s early pension proposal draws mixed reaction

Mario Renzi is trying to address the nation’s jobless youth figure, which stood at 36.7 per cent in March

Subscribe to FT Weekend today

Read beyond the expected

FT Weekend brings art and culture to life through intelligent

and thought-provoking writing Our editors bring the best of

the world to you – from news and interviews, to extensive

coverage of property, gardens, books, style, travel and arts

Together with the award-winning How to Spend It magazine,

there is something to delight all readers.

Subscribe now and save 23% at

ft.com/weekendsub

Monday 30 May 2016 ★ FINANCIAL TIMES 5

CHRISTIAN OLIVER — BRUSSELS

PETER CAMPBELL — LONDON

The EU is set to issue the biggest cartel

fine in its history, punishing Europe’s

largest truckmakers over charges that

they fixed prices and delayed the

intro-duction of new emission technologies

Margrethe Vestager, EU competition

commissioner, issued the original

charge sheet against DAF, Daimler,

Iveco, Scania, MAN and Volvo/Renault

in 2014 Four of those have now set aside

provisions amounting to $2.6bn

People close to the discussions on

penalties say they are expecting the fine

this year, possibly within weeks, unless

there is a reversal by the European

Com-mission

The expected fine easily outstrips the

EU’s previous record of €1.4bn for a

tel-evision and computer monitor tubes

cartel in 2012, and dwarfs those

imposed over euro and yen interest rate

derivative cartels Ms Vestager has

com-pared the action against the

truckmak-ers to her antitrust showdowns with

Google, the US search group, and

Gazprom, Russia’s gas export monopoly

Her probe focuses on the behaviour of

the six companies between 1997 and

2011, according to documents seen by

the Financial Times The charges

describe several ways in which the

man-ufacturers allegedly colluded on price

Most sensitively after the Volkswagen

scandal, the companies are also accused

of agreeing the “timing and price

increase levels for the introduction of

new emission technologies”

Ms Vestager has stressed that Europe

has 600,000 hauliers and argues that

any price collusion among truckmakers

would have put up prices of everything

from food to furniture

The companies said they were erating with the investigation, althoughone added it might appeal against anynegative decision In preparation for abig financial hit, DAF has put aside

co-op-$945m; Iveco $500m, Daimler €600m($672m) and Volvo SKr3.7bn ($444m)

As the whistleblower, MAN, which isowned by Volkswagen Group, wouldordinarily escape a fine

Only Scania, which is also owned by

VW, has not put aside any money

“Scania remains unable to estimate theimpact the investigation will have,” thecompany said “It cannot be ruled outthat the commission will impose fines

on Scania,” it added

Between them, the six have near totalcontrol of the market The commission’sinspectors raided their offices in Janu-ary 2011 Lawyers warned that the pro-visions made by the companies did notmean the commission would not pushfor a higher sum Under EU rules, thecompanies may face a fine of up to 10per cent of global turnover In the case of

the brands involved, that could amount

truck-to be part of a cartel; some hauliers areconsidering whether to pursue fol-low-up damages

“We will be waiting with very keeninterest to see what the commissionsays,” said Jack Semple, director of pol-icy at the Road Haulage Association “If

we see record damages then there will

be consequences for that.”

The commission declined to ment on the case, beyond saying it was a

com-“priority”

EU parliamentarians and mental campaigners have long had sus-picions about truckmakers For 20years, lorries seemed strangely impervi-

environ-Truckmakers set for record EU fine

Cartel penalty could hit €10.7bn after investigation into price-fixing and emission technology delays

Source: Transport & Environment

% of road transport emissions

20122030

0102030405060

ous to market forces that were supposed

to make them more fuel efficient andcut emissions Some clues to the mys-tery emerged in 2014, when Brusselslevelled the formal cartel charges

But the cartel investigation is only onestrand of a broader pattern of allegedcollusive behaviour by truckmakersand governments that lobby for them

Environmental campaigners allegethe truck industry has strongly resistedattempts to improve fuel consumptionand slash emissions of carbon dioxide

Emissions from lorries are a subject ofintense concern because they produceabout 25 per cent of the CO2from roadtransport, while representing fewerthan 5 per cent of vehicles on the roads

Despite new, greener technologies,the commission reported in 2014 that heavy vehicles’ fuel efficiency had stag-nated since the mid-1990s and esti-mated their CO2emissions increased 36per cent between 1990 and 2010

The industry says its performance on

CO2emissions should be rated over alonger timeframe, noting big improve-ments since the mid-1960s Lorry man-ufacturers also say they have sliced NOxemissions since the introduction of theso-called Euro 6 standards in 2014

ACEA, the European AutomobileManufacturers’ Association, saidEurope’s trucks represented only 5 percent of greenhouse gas emissions whiletransporting 75 per cent of all land-based freight “Since 1965, the fuel con-sumption of European trucks — andwith that CO2emissions — has comedown by 60 per cent,” the ACEA said

“At the same time, truckmakers havedelivered enormous advances in airquality Pollutant emissions have beenslashed to near-zero levels, down 98 percent since 1990.”

STEFAN WAGSTYL — BERLIN

Bustani Radwan and Tim Gehringer

might seem to have little in common

One is a 22-year-old Syrian refugee

seeking sanctuary from Aleppo’s

bomb-ing and Aegean perils The other is a

25-year-old German engineering student

from rural Schleswig-Holstein But both

are involved in an increasingly tough

competition: the race for a flat in

Ham-burg, one of Germany’s most expensive

cities

They meet for the first time at the

viewing of a 40-square-metre flat in

Iversstrasse, in a remote northern

sub-urb Mr Radwan is a beginner: he has

only looked at seven flats He soon

learns how tough things are from Mr

Gehringer, who has seen nearly 50

“There are always a lot of people,”

says the German “I have been searchingfor four months I have to maketime to study, read and look for flats.”

With the arrival of more than 1m lum-seekers in Germany last year, thechallenge is about to get harder Mr Rad-wan is among the first of the newcomers

asy-to venture out of the nanced reception homes and hostelsand look in the open market

government-fi-While some migrants will leave andothers may be turned away (such asnorth Africans, who rarely win asylum),more than 60 per cent are securing per-mission to stay in Germany Many willseek homes in big cities with largerimmigrant communities and betterjob prospects than smaller towns, espe-cially those in ex-communist easternGermany

But big cities are also drawing youngGermans escaping the provinces for ametropolitan life Even as the country’sageing population of 80m has, as awhole, declined, the top five cities havegrown 10 per cent since 2000, or 60,000people annually, driving up rents

“I would not call it a crisis,” saysGunther Adler, state secretary in the

housing ministry “But housing needsare growing in specific big cities and inuniversity towns because the life-style is becoming more attractive.”

Most refugees face disadvantages asthey usually speak little or any Germanand know nothing of the complex rulesgoverning rented accommodation

Local authorities have refrained frombuilding special immigrant blocks toavoid ghettos Refugees seeking socialhousing compete with locals

Few newly arrived migrants can fendfor themselves like Mr Radwan They

rely instead on local officials and ties, such as Hamburg-based Wohn-brücke Koordinierungsstelle Wohn-brücke worker Alina Thiem says thecharity assists those with good pros-pects of remaining in Germany

chari-She says that, alongside charities andvolunteers, the authorities should putmore effort into assisting refugees

“Integration is not only a cultural but astructural challenge There needs to benew jobs like district refugee co-ordina-tors — perhaps people who themselveshave a migrant background.”

With refugees adding to housingdemand, builders are boosting con-struction: new home numbers haverisen from 159,000 in 2009 to 270,000last year But the government wants350,000 annually

A record 603,000 homes were built in

1995 in a post-reunification boom, butthe industry is losing skilled craftspeo-ple through retirement and a shortage

of young German recruits The DBI, theconstruction industry association, saysrefugees help fill the gap, but only whenthey learn German and qualify

This year the government has bled funds to the 16 regions, boostinghousing investment to €1bn, with a fur-ther rise to €1.5bn planned for 2017

dou-In Hamburg the public homebuildingprogramme is being expanded from6,000 flats a year to 10,000, with a one-off plan for 4,800 refugee homes Dor-othee Stapelfeldt, the city’s housingchief, says: “We expect more competi-tion for social housing, so we have thisspecial programme to head off possibletensions.”

One issue is existing residents’ ance to new projects, especially social

resist-housing in wealthier districts MsStapelfeldt says: “People show goodwill

in general, but then they say ‘not in mybackyard’.”

Now Angela Merkel is consideringgoing further Under German law, mostasylum seekers are distributed acrossthe country and risk losing welfare ben-efits if they move The plan is to extendthis rule to include those granted asy-lum, limiting their movements for up tothree years It has been called authori-tarian, but ministers say it will ease inte-gration pressures, not least in housing.Officials point to a precedent in the1990s, when Germany received a wave

of migrants from the ex-Soviet bloc.Studies show it worked, with most stay-ing put, even in eastern Germany.Whether it will succeed again isunclear Today’s migrants often have abetter grasp of their options Mr Rad-wan is among them “I want to stay inHamburg,” he says “I want to studypharmacy here.” But first he must find aplace to live So must Mr Gehringer Nei-ther got the flat in Iversstrasse

This is the first in an FT series on how migrants are settling in Germany

Germans and newcomers jostle for space as housing shortage grows

is produced by lorries36%

Estimated increase

in CO 2 emissions from heavy vehicles between 1990 and 2010

François Hollande and Angela

Merkel sought to assert their faith in

the EU and the Franco-German

friendship yesterday, as they marked

the centenary of the battle of Verdun

The president and the chancellor

started a day of commemorations by

laying a wreath at the German

military cemetery at Consenvoye,

just north of the French town, and

paying their respects to the 300,000

soldiers who died in 1916 in the

longest battle of the first world war

“What we have to do with the

chancellor, it’s not reconciliation, it’s

already done, it’s to say together what

we want to do at this particular time

for Europe,” Mr Hollande said Ms

Merkel said Europe needed to draw

from its history: “Only those who

know the past can draw lessons from

it so we can shape a good future.”

There was “no doubt” Europe was

facing difficult tasks, but it had also

“done and succeeded in many

things”, Ms Merkel said, praising

postwar Franco-German

co-operation “We have become

friends” Anne-Sylvaine Chassany

and Germany

recall Verdun

Sean Gallup/Getty Images

I f you are a politician in Brasília these days, be careful

of friends or associates who sidle up to you askingleading questions

This is what Romero Jucá, Brazil’s former planningminister, discovered after he met Sérgio Machado, thehead of a Petrobras subsidiary, for a private chat in March.The conversation predated the impeachment of PresidentDilma Rousseff this month, which was led by Mr Jucá andhis Brazilian Democratic Movement party, or PMDB

In a transcript of the exchange released by the per Folha de S.Paulo, the pair seemed to conclude that thebest way to gain some protection from a corruptioninquiry into state-owned Petrobras was to impeach MsRousseff of the Workers’ party, or PT, and install MichelTemer, her vice-president, also of the PMDB, in her place

newspa-Mr Jucá later found out his interlocutor was wiretappinghim, and other politicians, reportedly as part of a plea bar-gain Mr Machado had made with federal investigators forleniency in exchange for helping them gather evidence.Indeed, as the Petrobras investigation has expanded, sotoo has the fear factor in Brasília Certain members of Bra-zil’s 600-member congress are accused of collaboratingwith company officials and contractors to extract bribes.But while the investigation has changed the rules of thegame for Brazilian politics, the players in congress remainlargely the same This raises the question of whether thecountry’s biggest corruption inquiry will be enough toalter a political culture in which graft provides the greasethat allows the machine to run

Certainly, the investigation is claiming more scalps thanany before in the country

While acknowledging theexistence of the conversa-tion with Mr Machado,

Mr Jucá denied anywrongdoing and claimedhis comments were takenout of context But MrTemer, who is president

in an interim capacity,oversaw the stepping-down of Mr Jucá from the cabinetlest his presence undermine the fragile legitimacy of anadministration that owes its power to the impeachment of

One of the first reforms has already been carried out bythe Supreme Court, which has banned corporate dona-tions But without accompanying changes, this will onlyleave parties starved of funding and perhaps even morevulnerable to corruption

Another might be to introduce district representation.Under Brazil’s proportional system, voters elect candi-dates and parties with little connection to any geographicregion This means near-zero individual accountability.Another reform might be to end Brazil’s system of coali-tions, in which groups of parties form blocs during electiontime to gain rights to free television advertising time allot-ted according to their overall representation in congress.These alliances sustain congress’s plethora of small partiesthat might otherwise have to merge with larger ones if theydid not receive this support Many of these have no pol-icy platform other than rent-seeking Some border on theabsurd, such as the Brazilian Women’s party, whose onlymember of congress is a man

Some argue that political reforms will count for littlewithout a fundamental change in Brazilian culture to per-suade voters not to keep re-electing tainted politicians.But even without political reform, the Petrobras inquiry

is a sign of a growing insistence in Brazilian society for more public probity on the part of its politicians Whileexisting crooked players will take time to weed out, thehope is the next generation will embrace the new rules ofthe game In the meantime, Brazilian politicians will have

as much to fear from their friends as from their enemies

joseph.leahy@ft.com

GLOBAL INSIGHT SÃO PAULO

Joe Leahy

Petrobras inquiry highlights thirst for deep reform in Brazil

Will the country’s biggest corruption investigation be enough to alter the political culture?

6 ★ FINANCIAL TIMES Monday 30 May 2016

BARNEY JOPSON — WASHINGTON

PILITA CLARK — LONDON

Donald Trump is sowing doubt over the

Paris climate change pact as his hostility

towards the deal and the growing

swag-ger of his campaign focus attention on

how he could undermine it as president

The Republican candidate last week

vowed to “cancel” the painstakingly

negotiated agreement, a threat experts

said was unrealistic But his comments

put a spotlight on its slow ratification

and weak spots in President Barack

Obama’s climate legacy

While Mr Trump could not

single-handedly scrap the agreement — which

Washington and Beijing rallied more

than 190 countries to join — he could

withdraw the US, the second-largest

greenhouse gas emitter after China, or

block the action needed to cut emissions

to the levels promised by Mr Obama

The Paris accord, hailed as a turning

point in more than 20 years of efforts to

combat climate change, requires

coun-tries to set out plans to help keep global

warming “well below 2C” from

pre-industrial times The Obama

adminis-tration has vowed to cut US greenhouse

gas emissions by 26-28 per cent from

2005 levels by 2025

But if Mr Trump used the presidency

to cast doubt on the need for climate

action, he could weaken the resolve of

other leaders sceptical about the deal

Attacks on the Paris agreement could

occur at three different levels under a

Trump presidency

Withdrawal from the pact

No single country can “cancel” the deal

because it would require each of the

nearly 200 nations that negotiated it to

agree to its abandonment Once the

agreement is in force it is also

impossi-ble for a country to withdraw overnight

“Even if Donald Trump becomes

president he cannot pull the US out of

the Paris accord quickly because there is

a four-year withdrawal period written

into the agreement,” said Michael

Jacobs, a UN climate negotiations expert

at the Institute for Public Policy

a new president is sworn in next January

— a possibility that could leave MrTrump with an easier get-out if he wins

The Paris accord cannot take effectuntil it is formally ratified or joined by

55 countries accounting for 55 per cent

of global emissions So far, only 17 tries representing 0.04 per cent of emis-sions have ratified it China and the UShave said they plan to join this year butthey account for only about 40 per cent

coun-of emissions Even under the most

opti-Paris accord Election threat

Trump throws Obama climate legacy into doubt

Slow sign-up leaves emissions

deal vulnerable to veto by

Republican presidency

INTERNATIONAL

AMY KAZMIN — NEW DELHI

To many international investors, theReserve Bank of India governorRaghuram Rajan is a near-hero: themarket-savvy central banker whotamed India’s inflation, restored itsmacroeconomic stability and is driving

a banking system clean-up

But admiration is not universal ManyIndian businessmen are frustrated thatinterest rates have not fallen faster.Some tycoons are unhappy with grow-ing pressure to repay their overlever-aged companies’ debts to ailing statebanks, despite tough economic times.Now, with Mr Rajan’s first term end-ing in September, an influential politi-cian from prime minister NarendraModi’s Bharatiya Janata party haslaunched a scathing attack, accusing theRBI governor of a “wilful and apparentlydeliberate attempt to wreck theIndian economy”

In a letter last week to Mr Modi, ramanian Swamy, a 77-year-old Har-vard-educated economist, complainsabout high interest rates and evenclaims Mr Rajan is “mentally not fullyIndian”, since he has a green card thatallows him to live and work in the US.The criticism, by a prominent law-maker to whom the BJP gave a parlia-mentary seat only last month, has wor-ried investors already anxious that MrRajan might be replaced by someonemore pliant — and less voluble

Sub-So far neither Mr Modi nor his istration has given any hint of their lean-ings, with officials saying the RBI leader-ship will be announced in August

admin-“It does give palpitations to tors,” Rajeev Malik, senior economist atCLSA, said “Raghu stands out as thesingle most potent policymaker, whohas enthused foreign investors in terms

inves-of macro-stability and encouraged theirconfidence in Indian policymaking.”

He added that “Raghu would leavevery big shoes to fill”

A former chief economist of the national Monetary Fund and University

Inter-of Chicago business school prInter-ofessor, MrRajan took the reins of the RBI in Sep-tember 2013, when the rupee was plum-meting and inflation was at double-digitlevels Since then he has waged a deter-mined battle against India’s spirallingprices, persuading New Delhi to adopt aformal inflation-targeting frameworkfor its once ad hoc monetary policy.Inflation, nearly 11 per cent in 2013, fell

to 5.8 per cent last year — heavily helped

by plunging oil prices

“He has been able to break the back ofinflation, for which he should be givenfull credit,” says Surjit Bhalla of Observ-atory Group, a New York-based eco-nomics consultancy “It was a superbappointment and it remains a superbappointment I don’t think they can domuch better.”

But the straight-talking Mr Rajan —who presciently warned of troublebefore the 2008 global finance crisis —has ruffled feathers in New Delhi Lastyear he called for tolerance of diverse opinions, arguing that India’s prosperitydepended on its intellectual freedom.His words were interpreted as thinlyveiled criticism of BJP hardliners, whohave been accused of fostering intoler-ance of minorities and demanding uni-versal adherence to Hindu orthodoxy

Mr Rajan raised hackles in New Delhiagain more recently while in Washing-ton for the IMF and World Bank springmeetings Asked by a reporter aboutIndia’s reputation as a “bright spot” inthe gloomy global economy, he cited theproverb, “in the land of the blind, theone-eyed man is king”

His words upset India’s tive administration But Mr Rajanrefused to apologise — except to theblind — and clarified that he was not

image-sensi-“denigrating” India but merely sising that the country still had much to

empha-do to unleash its full potential, andshould not “get carried away by our cur-rent superiority in growth”

In demanding Mr Rajan’s removal, MrSwamy accused the governor of “pub-licly disparaging the BJP govern-ment” and displaying “reckless disre-gard” for India’s national security, bysending “confidential and sensitivefinancial information” on his University

of Chicago email address

Despite the resentment of the nor among some in the BJP, Mr Modiand Mr Rajan appear to have commoninterests Both want to end crony capi-talism and are committed to broadeningaccess to financial services

gover-Monetary reform

Attack on Rajan stokes talk of change

at India’s central bank

LEO LEWIS — TOKYO

Some 45 per cent of Japan’s households

now include one person aged 65 years

or more, government figures show,

underlining how swiftly the country is

moving towards a costly demographic

inflection point

The quickening advance towards a

crossover point that will change the

country’s economic landscape and the

companies serving it, comes with a

shrinking dependency ratio By 2060,

there will be 1.3 Japanese of working age

(15-64) for every person over 65,

according to a government white paper

on ageing

Japan is at the forefront of a rich world

trend in which fewer workers support

more seniors Germany, for example,

faces a dependency ratio of 1.5-1.6 by

2060, according to its Federal Statistical

Office, as fertility rates decline and

peo-ple live longer But the near absence of

immigration makes Japan’s case more

stark

The combined pressures of fewer

workers and the ballooning demands of

elderly care pose a further threat to thegrowth stimulus policies championed

by Shinzo Abe, the prime minister, who

is aiming to put 1.17m more people intothe workforce by 2020

Demographics are already frustratingthis ambition About 100,000 people ayear quit their jobs to care for an elderly

or sick relative, according to

govern-ment data The figure is set to expanddramatically as the 1946-47 baby boom-ers cohort moves into the ranks of theelderly

But for millions, the would-be ents of their care are already close athand Of Japan’s 50.1m households, 44.7per cent include at least one person overthe age of 65

recipi-Most are homes with one elderly ple, but the fastest-growing group ishouseholds with one elderly inhabitantand an unmarried child This group hasdoubled as a proportion of the totalsince 1980

cou-Charles Horioka, a professor at theAsian Growth Research Institute, said:

“We are seeing a very dramatic change

in the composition of the Japanese ily and its living arrangements Theprime minister may want to reduce thenumber forced to quit their jobs to carefor the elderly in this very tight labourmarket, but that is much easier saidthan done It’s a serious problem.”

fam-The white paper also tracks a rapidrise in the number of people requiringlong-term care, with a Cabinet Officesurvey suggesting that fewer than 45 percent of people approaching retirementare confident of funding care costs fromtheir pension and other income Thesame survey, however, found that 76 percent of over-65s were either “not wor-ried” or “not much worried” about theircurrent economic situation

The government survey also chartswhat it describes as a “remarkable”

increase in the number of elderly peopleliving alone, whose proportion of theoverall population of over-65s doubledbetween 1980 and 2010

The household composition data alsonotes a continuing surge in the number

of Japanese working beyond traditionalretirement age

Ageing populations

Bleak future for Japan as close to half its households include a relative over 65

Ageing Japan Proportion of total population (%)

FT graphic: Alan Smith Source: US Census Bureau

05

10 0 5 10

0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-8485+

1984

0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-8485+

2014

0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-8485+

2024

Age

05

10 0 5 10 10 5 0 0 5 10

appeals court dealt the president a blow

by ruling the administration could nolonger enforce compliance deadlines forthe power plant initiative

The appeals court will hear oral ments over the Clean Power Plan onSeptember 27 But the case’s significance

argu-is likely to push it to the Supreme Court,which means a final ruling on the planwill not come until the next president is

in office He or she could also end up ing the top court’s current vacant seat

fill-If Mr Trump were in charge he couldintervene by asking the court for a “vol-untary remand”, sending it back to reg-ulators who he could tell to render ittoothless, said a veteran Washingtonenvironmental lawyer

More radically, the president couldget it thrown out by telling judges thegovernment had done a 180-degree turnand now agreed with its opponents

“That rarely happens even with achange of administration, but it’s notunprecedented,” said the lawyer

Executive (in)action

Even if the courts upheld Mr Obama’splan to cut emissions from powerplants, a President Trump could choose

to disrupt it With a co-operative gress he could cut funding for the Envi-ronmental Protection Agency, the regu-lator in charge, or promote legislation toslow the initiative’s implementation

Con-Or “he could signal to the states thattheir plans for meeting the Clean PowerPlan goals would not be reviewed rigor-ously”, said Rhea Suh, president of theNatural Resources Defense Council, anenvironmental group

The power plant initiative is vitalbecause it tackles the US’s biggest singlesource of greenhouse gases, accountingfor 40 per cent of the total But MrTrump could also delay moves to stopmethane leaks, curb vehicle emissionsand promote energy efficiency

“Some of those things would be lenged in court, but even if theywere in some legal limbo he would effec-tively really halt our progress,” said MsSuh “The actual slowing down of thingsmay in fact be a reversal in itself.”

chal-Christiana Figueres, the UN’s top mate official, said the next presidentwould need to examine the US’s eco-nomic interests and argued that shifting

cli-to a low-carbon system made sense forthe economy and society

mistic scenarios, the agreement maynot start until 2018

The US courts

The fate of US climate policies is notsolely in the hands of the president Thecentrepiece of Mr Obama’s Paris pledges

— an initiative to cut carbon emissionsfrom the power sector — is hanging inthe balance as its legality is weighed bythe courts

Mr Obama was unable to curb sions via legislation in Congress and hasresorted to using regulations, which arevulnerable to lawsuits from states andenergy companies that dislike them

emis-In February a District of Columbia

Donald Trumpspeaks at a rally

in San Diego lastweek TheRepublicancandidate hasvowed to cancelthe Paris climatechange deal

Chris Carlson/ AP

The governor was accused

of a ‘wilful and apparently deliberate attempt to wreck the economy’

40% Percentage of greenhouse gases

in the US produced

by power stations55

Number of countries needed for the Paris accord

to take effect

LUCY HORNBY — BEIJING

AND AGENCIES

A Chinese detergent maker has

apolo-gised and withdrawn an advertisement

that went viral worldwide for all the

wrong reasons

Shanghai Leishang Cosmetics’ advert

for Qiaobi detergent featured a young

Chinese woman popping a

paint-splat-tered African suitor into a washing

machine The machine whirrs away

and, to her delight, he emerges as a

Chi-nese man in a sparkling white T-shirt

Picked up by social media and the

international press, the commercial

was denounced for its casual racism

In a statement over the weekend,Leishang said it took responsibility forthe advert’s content, saying it stronglyshunned and condemned racial dis-crimination, although it blamed foreignmedia for amplifying the furore over thecommercial, which first appeared onChinese social media in March

“We express our apology for the harmcaused to the African people because ofthe spread of the ad and the over-ampli-fication by the media,” it said “We sin-cerely hope the public and the mediawill not over-read it.”

A company employee known only as

Mr Wang had previously told The GlobalTimes, a Chinese newspaper, that thecritics were “too sensitive”, and the issue

of racial discrimination never came upduring the production of the video

The unwelcome publicity mines China’s portrayal of itself as abenevolent partner for Africa, the Car-ibbean and the Middle East, free of theexploitative and racist legacy of theEuropean colonial powers

under-President Xi Jinping has relaunched adiplomatic initiative that recalls China’srole as a beacon for unaligned countriesduring the Cold War Resurrecting thisreading of China as an advocate forpoorer countries and an alternative tothe US comes after a decade of unprece-dented outbound investment inresources and infrastructure

In the 1950s and 1960s, Chinese mats led by former premier Zhou Enlaiprided themselves on their ties to post-colonial states in Africa and the MiddleEast In the same era, Jim Crow laws inthe US barred dark-skinned diplomats

diplo-from hotels and golf courses, tarnishingWashington’s efforts to woo newly inde-pendent states away from allying withthe Soviet Union

Leishang’s advert was also criticised

on Chinese social media after it came tothe world’s attention It was aired inChina for several months without com-ment, before being picked up by expa-triates living in China

Its music and sequences closelyresemble an Italian detergent commer-cial broadcast about nine years ago, butwhich has a different twist In the Italianversion, a put-upon women doing thelaundry late at night stuffs her gawkyItalian boyfriend into the washingmachine and is delighted when a mus-cular black man emerges “Coloured isBetter” reads the tagline for Coloreriadetergent

China

Soap maker apologises after racism outcry

Leishang sorry for ‘harm

caused’ as detergent

advert provokes fury

The Africansuitor emergesfrom a washingmachine as aChinese man in

a sparklingwhite T-shirt

‘We express our apology for the harm caused to the African people because of the spread of the ad and the over- amplification

by the media’

Monday 30 May 2016 ★ FINANCIAL TIMES 7

Billionaire Anil Ambani is betting that defence will save Reliance, his indebted company He has an ally

in Narendra Modi, the prime minister, who plans to pour billions into modernising the military.

By Henny Sender

J ust over a year ago, Indian

entrepreneur Nikhil Gandhi

was forced to sell a controlling

stake in his heavily indebted

Pipavav shipyard in the state

of Gujarat Some of the biggest

conglom-erates in India lined up to buy the shares

in Pipavav, which builds warships for

the Indian navy Among the companies

jostling for control were Anand

Mahin-dra’s Mahindra & Mahindra, the Munjal

family and Anil Ambani’s Reliance

group

Both the Munjals and Mahindra

expected to win the coveted stake

Indeed, Mr Gandhi had even signed a

preliminary agreement with the

Munjals But to the amazement of the

other bidders, the prize went to Mr

Ambani, whose Reliance group is one of

the 10 most indebted companies in

India, according to Credit Suisse

Mr Ambani had never even seen the

shipyard until after he had acquired the

stake, according to both Mr Ambani and

Mr Gandhi But Mr Gandhi expressed

confidence that his new partner, with

his political and business connections,

would help the shipyard thrive as India

seeks to expand its naval capabilities

“India must develop blue water

capacity,” says Mr Gandhi “The pie is

very big now,” he adds, referring to the

expectation that Narendra Modi, the

prime minister, will raise military

budg-ets significantly in coming years

Mr Ambani’s acquisition of the stake,

worth about $300m, is thought to have

been the largest ever sale in the Indian

defence industry

Becoming the biggest shareholder of

Pipavav, now renamed Reliance

Defence and Engineering, was crucial to

Mr Ambani’s ambition to transform his

company from an indebted owner of

everything from cement factories to

tel-ecoms into one of the leading private

defence groups in India

Mr Ambani is betting that defence

will save Reliance Since winning the

Pipavav stake, Mr Ambani has travelled

the globe, forming relations and

secur-ing contracts with defence suppliers in

Russia, France and Israel to rapidly

expand his defence holdings He has

applied for licences to produce

equip-ment including submarines, satellites

and helicopters

At the end of last year, Mr Ambani

signed an agreement with a Russian

company to manufacture, refit and

upgrade several warships for the navy at

Pipavav, another one to refit

subma-rines and a third to make helicopters for

the Indian military

But there are many who doubt that

the 56-year-old Mr Ambani, known

more as a dealmaker than a builder of

businesses, can pull it off

“Defence is the ultimate big boy’s

game,” says one banker “You need deep

pockets and technical expertise to meet

very exacting specifications.”

Some bankers in Mumbai say that Mr

Ambani was at his best many years ago

when he served as chief financial officer

of Reliance Industries, the heart of the

conglomerate his father built, before he

and his powerful elder brother Mukesh

broke off relations with each other That

break was at least partly because doing

deals and then swiftly moving on to the

next thing suited the younger brother’s

personality

To do the heavy lifting of executing on

deals was far less interesting Today, Mr

Ambani is worth $3.3bn, according to

Forbes, but most of that is inherited

rather than money he has earned,

scep-tics say

Others say he is more of a celebrity

than an entrepreneur or a businessman

Part of that image stems from the fact

that Mr Ambani is married to a former

movie star While he is selling some of

his media and entertainment assets, he

still loves the glamour of Bollywood

‘A big positive’

Whatever his critics say, there is

agree-ment that Mr Ambani has a competitive

advantage when it comes to the defence

industry: a close relationship to Mr

Modi He was also one of the first to heed

the prime minister’s call to support

“Make in India”, a crucial part of his

eco-nomic policy

Indeed, Mr Gandhi chose to sell his

shipyard to Mr Ambani in part because

the sale had Mr Modi’s blessing, he says

Yet precisely because he is aware of

his reputation, Mr Ambani is

deter-mined to succeed and prove the

naysay-ers wrong, his supportnaysay-ers claim A

mar-athon runner, Mr Ambani is capable of

great focus when he is engaged

India “If they can get it right, it would be

a big positive for the country.”

Today, India spends more onimported arms than any other country

“Growth in the Indian military budget isexpected to outpace that of all othermajor defence spenders over the nextfive years,” says Craig Caffrey, principalanalyst at IHS Jane’s

Ninety per cent of it $40bn-$50bnmilitary budget, the fourth-largest inthe world, goes to foreign manufactur-ers, mostly Russia The only things Indiaspends more on are energy and capitalequipment

“Previously, India imported almosteverything,” Mr Ambani adds “Weweren’t even making our own bullet-proof vests.”

Adding value

Today, Mr Modi is encouraging foreignmanufacturers to do more with Indianpartners Soon after becoming primeminister in 2014, he lifted the 26 percent ceiling on the size of foreigners’

stakes in defence joint ventures to 49per cent

At the same time, the defence try requires that for every order worth aminimum of $62m, any foreign contrac-tor has to produce 30 per cent of thevalue locally to reduce imports and

minis-build a more solid industrial base “Ithas been one of the prime minister’sbest moves,” says Deepak Parekh,founder of HDFC, a financial servicesgroup “Today every defence maker inthe world is looking to invest in India Atthe same time, this will facilitate crea-tion of jobs and save foreign exchangefor the country.”

Moreover, in the past, any crumbsthat did not go to overseas groups went

to India’s inefficient public sectorgroups But since May last year, Mr Modihas encouraged private sector compa-nies to participate, making the sectormore attractive to foreign suppliersthan if they had to work only with gov-ernment-owned entities

“Even before he became prime ter, Mr Modi reached out to all theindustrialists and urged them to look atdefence,” says a close associate of MrAmbani’s “He said he wanted more to

minis-be made in India and that the public tor can’t do it.”

sec-At the end of March, the governmentintroduced defence procurement rulesthat give priority to “indigenouslydesigned, developed and manufac-tured” products “Self-reliance is amajor cornerstone on which the mili-tary capability of any nation must rest,”

the government said

Companies including Adani, BharatForge, Mahindra and various arms ofTata Group are heeding the call andforming relations with defence groupsfrom Britain, France and Israel to Russiaand the US

“Make in India has become the secondcareer option for retired defence per-sonnel,” Outlook, a weekly news maga-zine, said recently, referring to the cor-porate competition to recruit suchfigures More than a dozen three-starmilitary commanders have joined thePipavav shipyard, the magazine said.Perhaps the single biggest spender inthe coming years will be the Indiannavy, the seventh-largest by number ofships, as it gears up to meet the growinglocal Chinese presence In July, the latestIndian naval indigenisation plan wasannounced as part of the government’seffort to cut its dependence on foreignsuppliers That scheme calls for involv-ing private sector Indian companies tohelp reduce imports

Regional spending spree

All this explains the importance ofPipavav, which is one of two major func-

tioning private sector shipyards and thelargest dry dock for warships in thecountry

There are several public sector yards but the backlog of orders is so longthat their output is constrained.Even while he has been building thedefence business, Mr Ambani has beenraising as much as $8.5bn as he sells hisinfrastructure assets to halve his debt,according to market analysts, in one ofthe more dramatic deleveraging ofIndia’s indebted conglomerates

ship-He has exited the cement business byselling to Birla Corporation, anotherIndian conglomerate The telecomstowers went to a North American com-pany, while a big stake in Mumbai’s elec-tricity business went to Public SectorPension Investment Board, a largeCanadian pension plan Still on theblock are toll roads and power plants

He plans to be debt-free by early nextyear

The effort to use defence as the lyst for growth in India comes as it isreeling from yet another procurementscandal

cata-The latest one concerns an order fromAgustaWestland for helicopters toreplace the ageing fleet that transportsthe prime minister and other govern-ment leaders

“Most new acquisitions become dals,” says Shekhar Gupta, a politicalcolumnist

scan-“Many are then terminated, leavingour forces with a fraction of the neededinventory, and short of spares andammunition Nobody is caught andpunished,” he adds

Other Asian nations are also stepping

up their defence spending The region isexpected to spend $520bn on defence

by 2020, according to IHS Jane’s, withChina accounting for 40 per cent of thetotal

Whether India’s focus on defence canhelp transform Mr Ambani’s businessdepends in large part on his ability torun the businesses he has been assem-bling over the past year

“He needs to demonstrate skill atmanufacturing and fiscal prudence,”says the head of a foreign bank in Mum-bai “It is a big ask.”

Anil Ambani walks behind NarendraModi, prime minister, at the launch

of ‘a Digital India’ project in NewDelhi last year— Saurabh Das/AP Photo

“This is one area where we would notlike to be number one,” NarendraModi, India’s prime minister, told anarms industry conference last year, anunusual remark from a leader who hassought national advancement onvarious global rankings

The area in question was armsimports, on which India has beenthe world’s biggest spender for thepast decade, according to theStockholm International PeaceResearch Institute

For Mr Modi, this is a missedopportunity to develop the domestic

manufacturing sector and he haspromised that future expenditure willshow “a clear preference for equipmentmanufactured in India”

Soon after Mr Modi took office, Tata,India’s biggest conglomerate, identifiedarms as one of its top-five growth targetsfor the next decade

Other major groups to see potentialopportunity are Mahindra & Mahindra, inarmoured vehicles and helicopters;

Larsen & Toubro, which is strong insubmarine construction; and BharatForge, which in February outlined hopes

of using Indian military contracts tobecome one of the world’s top-threeartillery gun producers

Big-ticket deals have been slow incoming but New Delhi says it is working

to tackle the slowness, opacity and

corruption associated withgovernment purchases

Under recent proposals, thegovernment will nominate a fewprivate companies that could leadmajor defence projects

That plan has prompted criticismthat it will unfairly benefit majorgroups, pushing smaller companiesinto the margins

This focus could also spell leanertimes for state-owned companiessuch as Hindustan Aeronautics,previously the preferred domesticsuppliers for Indian militaryprocurement, which were dismissed

as “two or three decades behind”

western groups in a leaked 2010 cable

by the then US ambassador to India

“For cost, quality and price the ernment has to outsource more to theprivate sector,” he says “You are dealingwith one customer, the central govern-ment There is no regulatory uncer-tainty You are creating jobs You arecontributing to Modi’s Make in Indiaand Skill India programmes And thereturn on equity is superior.”

gov-Even better for a cash-strapped pany like Reliance, defence does notrequire massive spending upfront That

com-is because most of the heavy capitalcommitment comes from the govern-ment, which provides financialadvances to contractors

As he builds his defence operations,

Mr Ambani is responding to incentivesthat come directly from the prime min-ister’s office in New Delhi At the centre

of Mr Modi’s Make in India campaign is

a desire to reduce India’s dependence onimported military equipment

“Defence is one of the few areas whereMake in India can happen,” says SanjayBhandarkar, head of Rothschild in

Asian defence spending

Source: SIPRI

Real change 2005 to 2015 (%)

0 50 100 150

ChinaIndonesiaVietnam

S KoreaIndiaPhilippinesJapan

‘Defence is the ultimate big boy’s game You need deep pockets and technical expertise to meet very exacting specifications’

‘Every defence maker is

looking to invest in India.

This will facilitate creation

of jobs and save foreign

exchange for the country’

Defensive

mode

Global reach Since the shipyard deal

Anil Ambani has formed relations withsuppliers in Russia, France and Israel

Make in India Building up the country’s

defence industry is seen as a strategicpriority in New Delhi

Reliance pivot Ambani is focusing on

the sector as it is seen as having clearregulation and a good return on equity

$300mCostofReliancegroup’sacquisitionofalarge stakeintheheavilyindebtedPipavavshipyard inGujaratstate

49%

CeilingintroducedbyNarendraModionforeign ownershipofdefencejointventures,upfrom26 percent

$520bnForecastannualdefencespendinginAsiaby 2020,withChinaaccountingfor40percentof thetotal

8 ★ † FINANCIAL TIMES Monday 30 May 2016

Letters

MONDAY 30 MAY 2016

Email: letters.editor@ft.com or Fax: +44 (0) 20 7979 7790

Include daytime telephone number and full address

of the Soviet Union wanted to admit

He wished fervently to see him asone come to power to end the “chaos”

of the erratic rule of Boris Yeltsin, whogained supreme power by his ruthlesspulling down of both Mr Gorbachevand the Soviet Union in 1991 Thispower, in the unravelling economyand society of the post-Soviet years,was unequal to the task of establishingeither order or the rule of law, themore so after Yeltsin, a man of talentand courage, fell prey to depressionand drink

The view of Mr Putin as the latestRussian bear unsheathing its claws togouge out more territory in the west isthe default opinion in Europe andAmerica In Mr Gorbachev it is moreinteresting since the reference points

of his world view are neither westernnor the prevailing Putin-influencedRussian take They come out of hisbrave, doomed effort to turn theSoviet Union from failing communistsuperpower into the eastern extremity

of Europe, which he called — weshould ever be so lucky — our

“Common European Home”

Instead, he has had to witness thenarrowing of his generous vision intothe aggressive meanness of Mr Putin,for whom Russia is at once theRsuffering victim of neo-imperialistaggression and the Slavic phoenix

empowered to redress the wrongs ofthe past two decades and restoreempire lost

Mr Gorbachev began with highhopes of the former KGB Lieutenant-Colonel Putin: “He was doing his best

to develop policies in the interests ofRussian citizens and to overcome theinertia of the Yeltsin years.”

Doubts creep in from abroad: a talk

in the mid-2000s with the Frenchprime minister, who expresses theview that Mr Putin would need to beauthoritarian to carry through hisprogramme Mr Gorbachev dissents —but when, after the bloody siege of aschool in the North Caucasus byChechen terrorists in 2004, Mr Putinseizes the chance to abolish electionsfor regional governors and non-partycandidates for the Russian parliament,the doubts become more overt

By the end of Mr Putin’s first twoterms, Mr Gorbachev sees him as onewith no interest in democracy After

an interregnum with DmitryMedvedev as a virtual presidentialpuppet, Mr Putin returns MrGorbachev at this point views him asone prepared to have elections rigged,whose position and wealth make itperilous to renounce power and whose

“arrogant falsification” of the results

of the ballots for the Duma and thepresidency and his suppression ofnon-governmental organisations seen

to be carrying out the orders of foreignmasters, seal the conviction that this is

a new form of tyranny

Mr Putin’s version of tyranny is inmany ways less oppressive than the

Soviet version; in some ways, as in itsaggressively mendacious propaganda,

it is worse

It is, like Mr Gorbachev, a garrulousbook (I once managed to ask him fourquestions in a two-hour interview) It

is padded out with reproductions ofhis and others’ articles, expressions ofsupport from grateful Russians andreports of his talks with otherstatesmen He describes at length thecreation of his Social Democraticparty, which has achieved little; and

he dwells on the activities of theGorbachev Foundation, which hasachieved less

But beyond that — approaching his90s, sometimes ailing, alwaysmourning Raisa, his wife — he hasproduced a reflection full of an earnestdesire that former enemies

understand each other and findffcommon ground in a febrile world.This is a reminder of how vast hisachievement was in allowing in thelight of freedom Where NelsonMandela, his contemporary, was greatbeyond the whites’ deserts in building

a post-apartheid nation, MrGorbachev was great beyond thedeserts of the Soviet Union (andperhaps even of the west, which couldbarely understand or trust him) inproposing a way for the despotic world

to aspire to democratic governance,freely organised civil society and rule

of law That he failed, he keenlyknows Our best hope is that his ideas,

in time, succeed

The writer is an FT contributing editor

Gorbachev, a Russian prophet without honour

Book review

By John Lloyd

The New Russia

By Mikhail Gorbachev (Polity Press)

The decision by the largest party in

Tunisia’s parliament to scrap its

Islam-ist label and prioritise political goals

over proselytising, is a reassuring

reminder of the country’s unique

suc-cess in preserving democratic gains

made in the wake of the Arab uprisings

Endorsed last week at a Nahda party

congress, the rebranding is an isolated

occurrence unlikely to have immediate

influence on Islamist movements

beyond Tunisia’s borders The

evolu-tion of the country’s politics

nonethe-less provides a welcome counterpoint

to the tyranny and extremism that has

swept the Arab world since 2011

The changes to the Nahda party

point towards a way of reconciling

ardent religious adherence with

demo-cratic norms within a pluralistic

envi-ronment Their decision to rebrand as

Muslim Democrats — informed by

Islamic values without giving these

ascendancy over all else — echoes the

pragmatic origins of Turkey’s Justice

and Development party (AKP) before

its lurch to authoritarianism

In the early part of the past decade,

the AKP greatly broadened its appeal

beyond what Turkish Islamist parties

had previously enjoyed by accepting

the secular nature of the state and

renouncing ambitions to impose

Islamic law

The Nahda party has ditched the

Islamist label in part to distance itself

from jihadist groups who wear the

same badge Among other substantive

changes, the party has prohibited its

leaders from serving religious

organi-sations at the same time, and eased

restrictions to its membership criteria

These measures may not entirely

reflect a separation of mosque and

party They do however imply a

recog-nition that Islamism is neither an

effec-tive ideology for governing nor for

sus-taining power Like the AKP before it,

Nahda hopes that the softening of its

religious aspirations will enable it togather support beyond its traditionallyconservative constituency

The enlightened self-interestreflected in this approach stands inmarked contrast to that taken byEgypt’s Muslim Brotherhood Instead

of seeking to govern with legitimacyafter being elected into office in theaftermath of the overthrow of HosniMubarak, the Brotherhood sought tocolonise Egypt’s institutions to theexclusion of everyone else The move-ment has been officially banned sinceits ouster in 2013 and the ferociousbacklash against it continues

Unlike their Tunisian peers, whosebattles with secular rivals at one pointcame close to derailing the nascentdemocracy, the Brotherhood has hadlittle chance to absorb the lessons ofdefeat Driven underground, the move-ment stands divided between youngermembers advocating more violentresistance to the military-backed gov-ernment and elders who have alwaysfavoured a quieter approach towardsbuilding support Neither faction hassought to soften their religious dogma

That Nahda is choosing compromiseover confrontation is partly because inTunisia political freedom is protectedand strategies developed in the past tosurvive dictatorship are no longer nec-essary That is an example for therepressive Arab states that have fre-quently driven Islamists towards moreviolent manifestations of their ideology

by attempting to crush them

Freed from the distraction of suchbattles, it is to be hoped that all the par-ties in Tunisia’s governing coalition canfocus on the urgent task of tackling eco-nomic stagnation, unemployment andother fuel for terrorists In this the solesurviving democracy to have emergedfrom the uprisings of five years agodeserves more support from the out-side world than it has received to date

Nahda has shown the way to compromise by scrapping Islamism

Taking the party out of

the mosque in Tunisia

There can be few problems that are so

important and yet command so little

consensus about their source and

solu-tion as the general slide in productivity

growth across the world’s economies

The Conference Board, a research

organisation, said last week that labour

productivity as measured by output

per hour was likely to fall in the US for

the first time in more than three

dec-ades America is not alone; across the

developed world and, more recently,

the emerging markets, productivity

has been slowing for a decade or more

The implications are stark A weak

expansion in productivity will only put

more downward pressure on real wage

growth, which has already been

anae-mic in many advanced economies To

the extent that stagnant real wages feed

economic populism, it will endanger

political stability and a respect for

lib-eral values even in established

democ-racies It will also threaten the solvency

of pension schemes, which rely on

future tax revenues and profits

Yet while most economists concur

that slowing productivity is one of the

most serious problems in their field

today, there is little agreement on the

cause and still less on the right

response Only one thing seems

obvi-ous: the productivity slowdown has hit

such disparate economies that a single

global solution is unlikely to have much

effect Policymakers must experiment

and be eclectic in their response

Sometimes, there is a common

inter-national problem that has a clear

solu-tion, even if it has to be applied

coun-try-by-country Inflation in many

countries was out of control in the late

1970s and early 1980s; it needed tighter

monetary policy to drive it out of the

system Advanced economies exited

the early 1990s recession with large

structural deficits; judicious efforts to

reduce those deficits were appropriate

But weak productivity is not one of

those For example, the theory thatregulations are stifling innovationseems odd given that the slowdown hasaffected relatively liberalised econo-mies like the US as well as more regu-lated economies in Europe and theemerging markets A wholesale toss-ing-out of protections for workers andrules on health and safety seemsunlikely to jump-start global growth

It is possible, though, to look at theweakness of each economy, or typethereof, and come up with particularsolutions In mature economies withweak investment, such as the US, UK orGermany, very low long-term interestrates justify increased public spending

on infrastructure both to boostdemand directly and productive capac-ity In some advanced economies, such

as Italy, where there is less scope to go

on a borrowing spree, obvious gains are

to be made in microeconomic ments such as reforming the scleroticjudiciary, an important part of PrimeMinister Matteo Renzi’s plans

improve-And in many emerging markets,there are gains to be made from moretraditional deregulatory reform,together with switching money fromwasteful subsidies on fuel or othergoods to education and training

The productivity slowdown is farfrom being a clear-cut problem withobvious solutions Indeed, some sug-gest the real picture is better than offi-cial data show, because they under-record gross domestic product in serv-ice-based economies where output isharder to measure

Yet there are problems in individualcountries, or groups of them, that seemclear enough to make suggestionsabout changes in policy The inability

of modern economies to generate morefrom the same labour supply may not

be a fast-moving crisis but it is a lem that needs urgent and sustainedattention

prob-Slowing output per hour is worrying but little understood

The puzzle that baffles

the world’s economies

Relentless pro-Remain arguments are exhausting

Sir, I find myself exhausted by therelentless one-sidedness of the FT onthe EU referendum This hasculminated with your editorial, “VoteLeave is damaging Britain’s politicalculture” (May 26)

Do you live in a completely paralleluniverse? I have many friends on bothsides of this debate The damage to thepolitical culture of this country iscoming from the barrage of bullyinghalf-truths from the prime ministerand his supporters These have beenclearly corrected elsewhere — but it isthis that has provoked furiousreactions from those who feel any truthhas been jettisoned to defend a highlyquestionable institution and caused thedamage to Britain’s political culture

You, ladies and gentlemen, arecomplicit in it

Presumably the indicators would notinclude being a Privy counsellor, adistinguished fellow of All SoulsCollege, Oxford, a Conservative MP forthree decades, regular guest on BBCRadio 4 discussion panels andcontributor of a column on investment

in the FT, or else he himself might beprone to such woefully misguidedviews? As Philip Stephens correctlynotes in “The myth of Brussels (mis)rule” (Comment, May 27), the Leavershave no grasp of irony

Tom Brown

Director, New Europeans London SW5, UK

Morally unsound reasoning on referendum

Sir, Given the amount of research beingpublished daily that highlights thestartling consequences for us all if wevote to leave the EU (May 29), onewonders why we were ever offered areferendum at all

Surely a morally sound and fiscallyresponsible government would notwaste public money even

contemplating such an enterprise if italready knew these facts?

The only conclusion I can draw isthat either way the government ismorally unsound What conclusionshould I draw about their facts?

Bob Klee

Braintree, Essex, UK

‘No fraternisation’ policies

at work are gaining ground

Sir, Reading Mr Romberg’s letter,

“Distinguishing between sex andsexism at work” (May 25), compels me

to respond How he believes that work

is a proper forum for sexual interaction

is beyond me If advances are mutuallyacceptable between parties it creates

an unprofessional atmosphere ofpotential jealousy and a situation rifefor sexual politics If the advances arerejected, you have created an awkwardand uncomfortable situation for bothparties — again, unprofessional

People may be people, but there is areason that “No Fraternisation”

policies are increasingly common inthe workplace An employee/employer,

or student/teacher has the right toexpect a working/learning space aspractically free of all the sexual forcesand games in play as possible

Adult behaviour, as opposed to rated behaviour, goes a long waytowards creating a mutually respectfulworking and learning environment Ifthe parties concerned find the situationuntenable, then one or both of themcan find employment elsewhere

Though, for the expected positiveoutcome it should not matter if themoney instead — as in the presentcases — is spent on newcomers, themigrants Today we are witnesses tohow money printed, borrowed fromabroad or taken from money reservedfor use abroad (foreign aid) is spent tofeed, lodge and provide migrants with adecent standard of living

This comes very close to the originalmeaning of helicopter money and hasindeed been shown to boost grossdomestic product, increase inflationand lower unemployment in theindigenous population Sweden, withits high per-capita arrival of migrants

in the European context, is a goodexample

Hence, when the humanitarianaspects are put at the forefront and thecosts of the monetary policy

experiment become an issue for adistant future, the European CentralBank should consider the use ofhelicopter money as part of a solution

to the deadlock among member statesregarding the migration issue

Professor Lars Oxelheim

Chairman, Swedish Network for European Studies in Economics and Business, Lund University,

This change has of course beenimplemented without adversecomment for those in the public sector

If promises made on behalf of thenation are disregarded, why expectmore from a private sector company?

Dr Judith Dawson

Northampton, Northants, UK

How to tackle the distortion of liabilities

Sir, David Fogarty gives a good analysis

of the causes of pensions deficits(Letters, May 26), the principle ofwhich is the effect of quantitativeeasing His solutions would work butwould have to be introduced scheme

by scheme

Given that the distortion of interestrates by QE is increasing pensionscheme liabilities, Denmark produced

a solution It now allows pensionschemes to discount liabilities at 4 percent per annum regardless of the yield

on the assets that match the pensionliabilities The argument is that theliabilities are very long-term and thelong-term yield on a portfolio ofpension scheme assets will be no lessthan 4 per cent Instantly pensiondeficits are reduced or removed Thiswould not only help BHS and TataSteel’s liabilities but also many otherpension schemes

A likely consequence is that financedirectors saving cash to pay into thepension fund would have cash toinvest QE might even then helpinvestment and a better outlook forgrowth in the economy

Of course, the actuarial profession, ofwhich I am a member but not apensions actuary, would have to sit ontheir hands till interest rates rose Theymight even come round to supportingRos Altmann’s wish for greaterinvestment in shares in pension funds

In that 70 years we have had twomajor wars, in Korea and Vietnam TheVietnam war, in particular, pointlesslycaused the deaths of more than 1mpeople I would not describe this askeeping the peace The US positionseems to be that it is the judge andenforcer of international agreementsanywhere in the world

Mr Trump believes that Asia would

be better off if its security was left toAsians I think he has a point

Nick Patterson

Cambridge, MA, US

Sir, As a long-time reader and admirer

of your newspaper, I was surprised anddisappointed to read “Trade pacts:

Latin America’s new faultline” (EMSquared, FT.com May 24)

Besides being based on the highlyquestionable argument of a “new split”

in Latin America, supposedly broughtabout by the opposition betweenMercosur and the Pacific Allianceintegration mechanisms, the articledisregards objective differences andoverlooks relevant circumstances anddata in comparing the two blocks

Mercosur has welcomed theestablishment of the Pacific Alliance,has trade agreements with its threeSouth American members (Chile,Colombia and Peru), which will lead to

a free trade zone by 2019, and isnegotiating with Mexico the widening

of tariff reduction agreements The twomechanisms hold regular meetings toadvance their co-operation They sharethe goal of enhancing their role in theglobal trade markets and consider thatever growing co-ordination betweenthem, at many levels, can be achievedand should be pursued There is nodivide, only convergence based onshared goals

While comparing the performance ofthe two integration processes

(Mercosur, established 25 years ago,and the Pacific Alliance, established in2011), the article overlooks thedifferent stages of their evolution It isonly natural that the intensification of

trade flows should have a faster pace inthe initial years of any such

arrangement That is exactly whathappened to Mercosur Also, oneshould consider that the two mainpartners in Mercosur have beenaffected by the worst macroeconomicdownturns in their recent history

Weak growth in the short run tends toslow down trade exchanges

The authors mistake structuralpatterns for dynamic vectors of theagreements Mexico and Chile, forinstance, had a higher export/grossdomestic product rate than Mercosurcountries even before the PacificAlliance had been set up

It is not the best approach to try toinfer long term trends in foreign direct

investment from a rather small sample(three years) In fact, what the datareally show is that Mercosur has alarger FDI/GDP ratio than the PacificAlliance On top of that, to talk about a

“rivalry” between Argentina and Brazil

in 2016 is laughable In fact, the twolargest countries in South Americahave built a strong strategicpartnership which is at the very core ofMercosur

Also, contrary to what the articlesuggests, I am fully convinced of theimportance of Mercosur, and I amready to work with our partners with aview to its strengthening

José Serra

Minister of Foreign Affairs, The Federative Republic of Brazil

South American trade is built on strong strategic alliances

Obama at Hiroshima: would Trumpweaken the US pivot to Asia?

Monday 30 May 2016 ★ FINANCIAL TIMES 9

A t the start of the year, the

EU was paralysed by the

prospect of three

simulta-neous, potentially

destruc-tive threats: Grexit, Brexit

and the refugee crisis Since then, one

has receded but not disappeared; one

remains undecided; and another is in

danger of blowing up

The receding crisis is Greece The

agreement last week removed the risk

of a Greek exit from the eurozone in the

immediate future The deal

characteris-tically leaves a number of open ends,

which is troubling but not necessarily

disastrous

In a significant concession the

Inter-national Monetary Fund accepted that

an agreement on debt relief for Athens is

postponed for another two years This

suits Wolfgang Schäuble, German

gration and erecting trade barrierswould subtract from US growth Like-wise, it is hard to think of a bigger waste

of resources than another ing tax cut for the highest earners Yethis popularity is clearly fuelled by eco-nomic frustration

budget-bust-One or two of Mr Trump’s ideas, such

as investing heavily in US ture, would be helpful Indeed, at a timelike this, it is all but a given — and a rarepoint of agreement with Hillary Clinton

infrastruc-Research shows that part of US nomic growth is created in small num-bers of hyper-connected urban hubs,such as Los Angeles and the corridorbetween Boston and New York Stepsthat would better link America’s urbanboomlands to the large economic back-waters around them would help spreadgrowth more widely Such projectswould take time to bear fruit Yet it isworth sticking to that “hunger games”

eco-image for a moment

Imagine that the US takes much thesame course in the next 10 years as it hasover the past decade That would mean

a further corrosion of US infrastructure,continued relative decline in the quality

of public education and atrophyingmiddle workforce skills It would alsohasten the breakaway of urban Amer-ica’s most gilded enclaves, furtherenriching the educated elites It couldpossibly trigger a breakdown in demo-cratic order If you think Mr Trump’srise is ominous, picture America afteranother decade like the past one

Which brings me to the remedy: a versal basic income UBI has severalplus points It draws support from allparts of the ideological spectrum: liber-tarian and socialist alike It wouldreplace today’s messy overlap of bene-fits and do away with the humiliation ofproving your eligibility to federalbureaucrats Most important of all,however, it would buy a measure ofsocial peace Today’s stagnation may betemporary or lasting We have no way oftelling Common sense dictates we mustact as though it is here to stay

uni-edward.luce@ft.com

iPhones chain us to our employers evenwhen we are at leisure We may thus beexaggerating productivity growth byundercounting how much we work

The latter certainly fits with the rience of most of the US labour force It

expe-is no coincidence that since 2004 amajority of Americans began to tell poll-sters they expected their children to beworse off — the same year in which theinternet-fuelled productivity leaps ofthe 1990s started to vanish Most Amer-icans have suffered from indifferent ordeclining wages in the past 15 years or

so A college graduate’s starting salarytoday is in real terms well below where itwas in 2000 For the first time the nextgeneration of US workers will be lesseducated than the previous, according

to the OECD, which means worse isprobably yet to come Last week’s USproductivity report bears that out

It is also possible we are on the cusp of

a renaissance — we just don’t yet see it

The economist, Robert Solow, quipped:

“You can see the computer age where but in the productivity statistics.”

every-That was in 1987 A few years later thecomputer age showed up in big num-bers By the same token, we may be onthe cusp of reaping the benefit of artifi-cial intelligence, personalised medicine

or take your pick This may better fit ourown fevered imaginations Or it could be

a chimera

Until then, the US and most of thewest are stuck with a deepening produc-tivity crisis The slowdown has onemanifest effect and a seductive remedy

The first, an embittered backlashagainst business as usual, is alreadyupon us Witness Donald Trump’sascent Most of his proposed cures formiddle America’s anguish are worsethan the disease Shutting down immi-

L ook around you From your

drone home delivery to that

oncoming driverless car,

change seems to be

accelerat-ing Warren Buffett, the great

investor, promises that our children’s

generation will be the “luckiest crop in

history”

Everywhere the world is speeding up

— except, that is, in the productivity

numbers This year, for the first time in

more than 30 years, US productivity

growth will almost certainly turn

nega-tive following a decade of slowdown Yet

our Fitbits seem to be telling us

other-wise Which should we trust: the

eco-nomic statistics or our own lying eyes?

A lot hinges on the answer

Productiv-ity is the ultimate test of our abilProductiv-ity to

create wealth In the short term you can

boost growth by working longer hours,

for example, or importing more people

Or you could lift the retirement age

After a while these options lose steam

Unless we become smarter at how we

work, growth will start to exhaust itself

too

Other measures bear out the

pessi-mists At just over 2 per cent, US trend

growth is barely half the level it was a

generation ago As Paul Krugman put it:

“Productivity isn’t everything, but in

the long run it is almost everything.”

It is possible we are simply

mismeas-uring things Some economists believe

the statistics fail to capture the utility of

setting up a Facebook profile, for

exam-ple, or downloading free information

from Wikipedia The gig economy has

yet to be properly valued Yet this

argu-ment cuts both ways Productivity is

cal-culated by dividing the value of what we

produce by how many hours we work —

data provided by employers But recent

studies — and common sense — say our

delays in the recall procedure but notenough to provoke the masses or themilitary into outright overthrow — theregime is playing a dangerous game Amajority of Venezuelans want MrMaduro to leave office and popularunrest shows no sign of abating Thestage is set for unprecedented socialupheaval

Cognisant of this Henrique Capriles,former opposition presidential candi-date, told the military: “The hour oftruth is coming, to decide whether youare with the constitution or withMaduro.”

Mr Capriles will doubtless find pathetic ears in the opaque Venezuelanarmed forces, although many have asmuch cause to fear the end of revolu-tionary impunity as do the bureaucrats

sym-The Lamentable Tragedie of Venezuela,now in its final act, runs long and seemsincreasingly likely to end in violence

The writer teaches Latin American ness at the Kellogg School of Management

busi-dence Venezuela is no exception, and the opposition has begun a recall proce-dure, gathering many times therequired number of signatures

Yet, in contrast with Brazil, zuela’s institutions lack the independ-ence and the incentives for such consti-tutional processes to work their course

Vene-In a manner reminiscent of a realityshow, the constitution dictates thatshould the president hold on until Janu-ary 10 next year he can in effect appointhis successor rather than holding a snapelection that he would surely lose

Since an opposition governmentwould investigate and prosecute thegraft of the revolutionary era, Chavismobureaucrats and judges are working inlockstep to stymie the process until thatdate, as much to protect their ownimpunity as Mr Maduro

If they are successful, the party might

be able to buy itself a two-year stay ofexecution by sacrificing the figurehead

Yet in walking a fine line — provokingsufficient destabilisation to justify

people, a Venezuelan retirement maynot be an option

The trip shows how isolated the lutionary heir to Chávez has become

revo-With the suspension of Dilma Roussefffrom the Brazilian presidency, MrMaduro has lost his last powerfulregional ally Gone are the days whenevery leading South American country

bar Colombia was leftwing and populist

That Mr Maduro, like Ms Rousseff,will not finish his six-year term looksincontrovertible A regional propensityfor economic boom-bust cycles andpopular uprisings means most Latinconstitutions include escape valves thatfunction as de facto votes of no confi-

tional Monetary Fund predicts an 8 percent economic contraction for 2016; theinflation rate is the fastest in the world;

electricity and running water are ries Food and medicine are scarce

luxu-Anaemic oil prices and a heavy debtload leave scant foreign exchange for theimport sector Mr Maduro is loath toreverse unsustainable fiscal and mone-tary policies he inherited from his men-tor — or to accept help from outside Itbecomes harder to tell if he is merelyclinging to power at any cost or activelyscuttling his country

Having declared a state of emergency,

Mr Maduro has been visiting islandneighbours this week Ostensibly seek-ing to raise cash, he will also be hoping toshore up friendly votes in case theOrganization of American States tries totake action against his repression athome While abroad he would do well tomonitor property prices: given the bil-lions of petrodollars that have disap-peared during his time in office, and theworsening conditions suffered by his

O h, that men should put an

enemy in their mouths to

steal away their brains

Nicolás Maduro’s stint as

president of Venezuela has

had Shakespearean overtones from the

start Ascending to power in 2013 he

claimed to have conferred with the

ghost of Hugo Chávez, insisting the

can-cer that killed his predecessor — whom

he calls “father” — was a case of CIA

murder most foul

Our revolutionary Hamlet is now a

tropical Macbeth Reviled by his

sub-jects, increasingly isolated, he paces the

presidential stage declaiming defiant

soliloquies against offstage enemies

While he plays dramatically for time,

the country is collapsing The

Interna-finance minister, because his partyopposes debt relief But the deal alsorequires him and other Europeanfinance ministers to come clean beforethe end of this year on what debt reliefmeasures they intend to propose Thenumbers will have to add up — anunheard of event in eurozone crisis res-olution politics There is enormouspressure on eurozone officials to deliver

a set of figures that the IMF can accept

The European finance ministers havealso conceded that Greece’s grossfinancing needs should not exceed 15per cent of economic output The GFN isthe IMF’s preferred metric It is themoney a country needs to fund interestrates and debt repayment The accept-ance of a GFN ceiling is a big step for-ward as it is the mechanism that forcesdebt relief The problem with this latestaccord is that the creditors might notkeep their word The irony is that theBundestag could approve Greek debtrelief today but may no longer be able to

do so after the federal election next year

The Alternative für Deutschland, apopulist anti-immigrant and anti-europarty, and the liberal Free Democrats,are both in favour of Greece leaving the

bloc Neither party holds a seat in theBundestag but both are expected nextyear to meet the threshold require-ments for representation Add them tothe sceptics among the governing Chris-tian Democrats and there may be nomajority for debt relief Mr Schäuble’scommitment this week to debt relief in

2018 is simply not credible

The second of the potential shocks isBrexit Opinion polls suggest that the

chances of the Remain campaign haveimproved though it is not in the bag yet

— a lot can happen before the June 23vote The European Commission’sattacks on Boris Johnson, the formermayor of London and Brexit cam-paigner, or the suggestions that the EUwould penalise the UK should it vote toleave are not helpful This stuff playsinto the hands of the Leave campaign

While the prospects for Britain in the

EU may look marginally brighter than amonth ago, Angela Merkel’s refugeedeal with President Recep TayyipErdogan of Turkey is going in the oppo-site direction At first it looked asthough the German chancellor wouldextricate herself from the mess of hermigration policy by co-opting Ankarainto a refugee swap agreement The dealforesees that Turkey sends one legal ref-ugee to the EU for each illegal migrantTurkish patrol boats pick up in theAegean Sea The main tangible effect isnot the swap but the signal that it sends

to the refugees Fewer have since chosenthe sea routes Mr Erdogan last weekthreatened not to ratify the agreement

He rejects the EU’s demand to modifyhis country’s antiterrorism laws, whichallow him to persecute political dissi-dents, including journalists

The EU’s promise to allow Turks free travel to the borderless Schengenzone is officially conditional on the pro-tection of civil rights in Turkey MrErdogan now insists that the EU liberal-ises the visa regime unconditionally orelse he will repudiate the refugee deal

visa-The EU cannot accept this — though

watch out for a fudge Mr Erdogan tainly gives the impression he needs thedeal less than Ms Merkel She visitedhim last week, and diplomaticallyavoided meeting Kurdish MPs, whoseimmunity had just been lifted by theTurkish parliament, or local journalists,who face criminal charges merely fordoing their job

cer-If the deal collapses and Ankararelaxes the patrols, the refugee crisiswill flare up again More important, thedeal violates European values It canonly work if the EU turns a blind eye toTurkish human rights violations Of allthe arguments for leaving the EU, thisone has some substance: in its negotia-tions with Turkey the EU has lost the moral high ground

By the end of the year, we may findthat the EU narrowly escaped all three

Officials will congratulate each other

But soon after, they will realise that theGreek debt crisis remains unresolved,that Britain’s new rules of engagementwith the EU are hideously difficult, andthat the only winner of the deal withTurkey is Ms Merkel, as always

munchau@eurointelligence.com

The mystery of weak productivity

Everywhere the world is speeding up — except, that

is, in the productivity numbers.

In its negotiations with Turkey over the refugee crisis Europe has lost the moral high ground

Venezuela sets the stage for a chaotic and tragic exit

P erhaps it is a clever ploy to

engage the attention of the 54per cent of British studentspolled who were cluelessabout when the EU referen-dum is taking place But even if so, Mat-thew Healy, singer with chart-topping

UK band The 1975, is having none of it

He has accused the Electoral sion of ripping off his group’s artwork inits campaign to persuade Britons to vote

Commis-on June 23 The commissiCommis-on, whichoversees all UK elections, has devised astriking series of images to appear onbillboards, television and leaflets show-ing a pink neon sign reading “The 2016

EU referendum voting guide” in a ety of unusual locations

vari-It denies the charge and claims theneon-sign idea was first used in the Scot-tish referendum last year, which is true.But the imagery also looks uncannilysimilar to the promotional photos for

The 1975’s verbosely titled album, I Like

It When You Sleep, for You Are So Beautiful Yet So Unaware of It Suspicions were

heightened by the revelation that thecommission’s video advertising the leaf-let was filmed by the director who madeone of The 1975’s videos

Healy responded in the oured fashion of the aggrieved rock star

time-hon-“How do you sue the Government??” hetweeted to his 610,000 followers As theElectoral Commission has nothing to dowith the government, the question waswrong But it was also illuminating.Musicians have hypersensitive anten-nae for allegations of imitation

Copying is rife in pop With hundreds

of thousands of songs released each year

— there were almost 80,000 new albums

in the US alone in 2011 — it grows hardernot to echo at some level a previouspiece of music The 1975’s work is full ofsuch echoes, mostly generic in feel,alluding to the sound of 1980s pop Butthey can sometimes be more exact.Their track “Love Me” seems veryclearly related to David Bowie’s “Fame”

Copyright laws are meant to guish between tribute and plagiarism.That has grown harder, however Lastyear’s US court decision awarding theestate of soul singer Marvin Gaye $7.4m(reduced to $5.3m) in a copyrightinfringement case against Robin Thickeand Pharrell Williams, makers of theworldwide 2013 hit, “Blurred Lines”,narrowed the degree of similarity per-mitted between one song and another

distin-Caveat imitator is the rule in pop.

Copying is rife in politics, too cians routinely pilfer ideas from theiropponents, as with George Osborne, UKchancellor of the exchequer, rebrandingthe UK minimum wage, first introduced

Politi-by a Labour government, as a NationalLiving Wage Bernie Sanders, the Demo-cratic presidential candidate, jokedabout a campaign advert that hethought was his own only to discover itwas actually his rival, Hillary Clinton,parroting him However infuriating themimicry, politicians have to suck it up.Policies are not copyrightable

Stricter conditions apply to elections.Since the 1990s, when a rash of “LiteralDemocrats” and “Labor” candidatesinfested ballot papers, UK parties havehad to be registered with the ElectoralCommission However, as anyone willknow who has faced a choice betweenthe Socialist Alliance and Socialist Alter-native parties in the voting booth, scopefor confusion remains

The spat between The 1975 and theElectoral Commission reveals a clash ofcultures Like the students unaware ofthe EU referendum date, frontmanHealy displays a woeful lack of politicalliteracy “You can’t imbue my identity

as an artist with something as divisive asThe @eureferendum,” he tweeted,apparently blind to the irony that hisgroup shares its name with the yearwhen UK held a referendum on contin-ued membership of the European Eco-nomic Community

Meanwhile the Electoral sion, which should be above such things,appears to have fallen prey to the politi-cal class’s habit of copyism In popmusic, unlike in politics, imitation is notflattery — it is actionable

Commis-The writer is the FT’s pop critic

Flattery is the sincerest form of irritation in both pop and politics

OPINION

Ludovic Hunter-Tilney

However infuriating the mimicry, politicians

— unlike music stars — have to suck it up

It is the Aegean where the real threat lies

10 ★ FINANCIAL TIMES Monday 30 May 2016

S teve Hill was an assistant

bank manager for NatWest in

the UK, when he was told by

his employer that he would

need to have a degree to

become a branch manager

With only a few qualifications from

school, NatWest sponsored his studies,

taking his career from a local branch to

the City of London

Two Open University degrees later

and a third soon to be completed, Mr

Hill now works as the university’s

direc-tor of external engagement, liaising with

businesses and running efforts to

expand overseas

At least that is the case by day At

night, he continues his university

stud-ies He is working on a module that he

hopes will help him complete a degree

in philosophy, politics and economics

He has studied almost 20 Open

Univer-sity courses and countless Moocs

(mas-sive open online courses)

“I started studying with the OU in

1993 and I am still studying today,” says

Mr Hill “I’m studying the Naked Soldier

[dilemma] So, if someone is wearing a

uniform in war I can shoot that

individ-ual But if I look through my rifle sights

and I see a combatant not in uniform,

they have the gun at the side of the tin

bath and they’re having a bath in the

field, can I shoot them?”

Asked what day-to-day application

such ethical reasoning might have at the

university’s modernist campus in

Mil-ton Keynes, 55 miles north of London,

he replies: “I just think it makes you

think about a complex situation and

look at it in different ways And I’ve run

out of business leadership courses to

study.”

It is just as well that Mr Hill is such a

passionate believer in the product

because a large part of his job is to turn

round the university’s fortunes The

organisation has been the victim of a

squeeze that began in 2011 as a series of

changes in how universities are funded

While the shift towards charging dents £9,000 a year for tuition has been

stu-a boon for most universities, it hstu-as hitthe Open University hard Mr Hill saysthat it has lost many of those over 40who were studying as a hobby

As student numbers declined to174,000 last year from more than250,000 in 2011, income fell to £404m

in 2014 from £471m in 2011, and onlystarted to recover last year to reach

£422m

The university was founded in 1969 toprovide “degree-level learning to peoplewho had not had the opportunity toattend traditional campus universities”

While it has continued to operateunder the same open admissions policy

— 40 per cent of students have no more

than one A-level and a fifth live in ain’s most deprived areas — Mr Hill hasbeen charged with making it more rele-vant to the needs of businesses and withinternational expansion

Brit-The result is that revenues from boththose sources account for about 10per cent of the university’s annual turn-over and will continue to showdouble-digit growth in the years ahead,

he predicts “The revenue that we erate from our corporate employer rela-tionships is much more important to ustoday than it was in 2010.”

gen-If working directly with employers totailor courses to their needs has been alifesaver for the Open University, it isthe possibilities for overseas expansionthat look set to secure its future The

need for quality higher education isstaggering For instance, with 26mhigher education places in India, thecountry needs another 14m, according

to a British Council report In China, thehigher education sector has tripled insize since 1997

“The world cannot build enough versities,” says Mr Hill, arguing that ashift to online and distance learningmust follow

uni-The Open University has studentsregistered from 142 countries and islooking to expand relations with largemultinationals to sponsor employees

A third area of growth from overseas

is coming from partnerships with versities that want to develop onlineteaching One example is the Arab OpenUniversity, which operates from severalcapitals in the Middle East, and which

uni-has turned to the British institution todevelop its curriculum and give access

to millions of women previouslyexcluded from higher education.For all the strengths of the Open Uni-versity and British education, Mr Hillsays that the UK can learn much fromabroad He cites the concept of “learn-ing banks” or life-long learningaccounts pioneered by the Open Univer-sity in Shanghai for more than 800,000students

“Some of the systems I’ve seen inChina have just completely blown mymind,” he says “I’m looking at creditsthat an individual has accumulated over

30 years and it’s all there in one place.How interesting would that be as anemployer, if you could then see some-one’s dedication and focus to their ownself-development?”

Having studied an Open Universitycourse for most of his adult life, Mr Hill

is confident that his personal learningbank will continue to grow regardless ofwhat the future holds

“I’ve studied with the OU for 23 years.It’s a bit addictive actually, but I do it tounwind.”

A change of direction to align more with business

A passionate Open

University advocate seeks

to turn the institution’s

fortunes round, reports

Gonzalo Viña

Life-long learner: Steve Hill, the director of external engagement, is overseeing the university’s expansion abroad— John Robertson

About 2,400 employers sponsor OpenUniversity students and 86 of theFTSE 100 have staff on itsprogrammes Such relationships createsector-specific courses, such as theone generated by a partnershipbetween the university, the NationalHealth Service and consultancy HayGroup to tailor the curriculum forhealth service professionals

Steve Hill says they “contextualised

it for a clinical environment” TheNHS puts more than 3,000 staff

through the programme each year

Similarly, BT and IBM have putmembers of their leadership teamsthrough the tailored MBA

programmes, where they can work ingroups and “can then have a moreopen discussion about issues thatrelate to that employer”

With the Football League Trust, theuniversity created an undergraduatecourse in business management insport and football

Younger students are not easilyenticed by management courses but

“as you put a football wrapper around

it, it becomes much more interesting”,

Mr Hill says

Business programmes

Courses offer sector focus

‘Revenue from corporate employer relationships is much more important to

us today than in 2010’

BUSINESS EDUCATION

Monday 30 May 2016 ★ FINANCIAL TIMES 11

BUSINESS EDUCATION

JONATHAN MOULES

Staff misconduct is generally viewed, atbest, as a predicament to be managedand, at worst, a catastrophe that dam-ages morale across an organisation.Brian Gunia, assistant professor at JohnsHopkins Carey Business School in Balti-more, finds however that such “devi-ance”, or improper behaviour in theworkplace, might paradoxically provebeneficial to general productivity

He co-authored the paper with SunYoung Kim of Iéseg School of Manage-ment in France

Previous studies have focused on theimpact on those committing the mis-conduct This misses what most organi-sations would be presumably more con-cerned about — the effect on staff as awhole, according to Prof Gunia

Instead, he looked at the behaviour ofthe majority of “non-deviant” peopleworking for an organisation where therehad been a case of misconduct

From three separate studies in the USwith about 200 participants, theresearch team found that misbehaviour

by a few pushes other colleagues to workharder in order to alleviate their owndiscomfort with working for an organi-sation whose image they feel has beentarnished

“The silver lining of organisationaldeviance may be the efforts of the unin-volved,” Prof Gunia says

Although encouraging misconductwould be “patently unwise”, the authorsnote that deviance does happen withunfortunate frequency

The problem might be that bosses toooften do not know how to respond, orreact in ways that exacerbate the issue.The tendency of managers to blame afew “bad apples” when misconductoccurs is an error, the researchers argue,

as this stops responsibility beingassigned to the organisation’s structureand leadership

Email new study findings to researchroundup@ft.com

Research round-up

The silver lining of deviance

added “Fortunately it was all BS.” That

is to say “before social” media

Keep it simple

Orlaith Carmody is a former journalistwho started a business helping execu-tives communicate better

Coaching people in how to deliverpublic speeches is a key part of herwork

The best speeches are those given innormal language by those who have

taken time to understand their ence and put them first, she says

audi-“Less is more Give me a couple ofmessages I can really understand andremember, rather than lots of complexideas that I can’t possibly absorb.”

audiences, who might believe that thetop flight of business leaders have beenblessed with a greater degree of luckthan the rest of us

The University of Southern nia’s Marshall School of Business invitedPete Carroll, the former coach of theUSC Trojans, the college’s Americanfootball team, to address the MBAgraduates

Califor-The 64-year-old is not only theNational Football League’s oldest serv-ing head coach, he is one of three man-agers in the history of the sport to havewon a Super Bowl and a college footballnational championship

Rather than talk about his manyachievements, however, Mr Carrollmentioned the 27 years he spent “strug-gling” as a coach before taking the role

at USC

During that time he had 12 differentjobs, four of which were unpaid and fivefrom which he was fired, Mr Carroll toldhis audience at Marshall

“The media were on my butt,” he

Graduation season is one point in the

year when the power of a strong alumni

network provides a helping hand to

those running business schools rather

than their students

During the past month, hundreds of

thousands of MBA and masters degree

students will have attended these

for-mal ceremonies to collect their scrolls

from the school dean

The guest speaker offers a moment of

relief between the rigmarole of dressing

up in graduation gowns and what is

usu-ally a long official ceremony It is up to

the business school to find the right

per-son to take to the podium

For those institutions at the top of the

FT rankings tables, this task is made

easier by the number of A-List senior

figures from business, politics and sport

that have attended classes on their

cam-puses over the years

Stanford Graduate School of Business,

for instance, this year booked former

student Mary Barra, chairman and chief

executive of General Motors, the world’s

first female head of a global carmaker

Her links with Stanford GSB go back

to 1988 when she received a GM

fellow-ship to study at its Silicon Valley

cam-pus, completing her MBA in 1990

Upstate at the University of California

Berkeley’s Haas School of Business,

Car-rie Dolan, chief financial officer at

peer-to-peer loans start-up Lending Club,

gave the graduation address

Ms Dolan, a two-time Haas graduate,

completed her bachelors degree in

finance and accounting in 1987 and then

worked as an accountant at Chevron,

the US energy group She returned to

study for an MBA that she finished in

1997

Overcoming adversity

The Wharton School at the University of

Pennsylvania has also been able to call

upon a former alumna, Ruth Porat, who

received her MBA from the school in

1987

She is chief financial officer at

Alpha-bet, the company created as the parent

group for online search company

Tales of failure win over graduate ceremonies

A guest speaker adds a

light touch to the day,

writes Jonathan Moules

One of the worst things a businessschool graduation ceremony speakercan do is talk about his or her own quali-fications, according to Ms Carmody

“If you try to use the opportunity of agraduation speech to ram this down thethroats of your audience, your speechwill die on its feet,” she says

Ms Carmody claims that one of thebest speeches she heard was delivered

by Brian MacCraith, the president of heralma mater, Dublin City University,shortly after he was appointed to therole in July 2010

“With extraordinary humour, awareness and openness, he shared hisvision for the university using reallyclear imagery and simple language,” sherecalls

self-“He spoke of his love for his wife andfamily and the support they have givenhim throughout his career and left us allvery impressed, moved and completely

of the view that the university was insafe hands

“What more can a speaker do?”

Speech from a Congressman

Matt Salmon tells MBAs why

no corporate success can compensate for failure at

home: ft.com/mba-blog

One of the worst things for

an address would be to talk only about your own personal achievements

Google Ms Porat used her speech for thecurrent crop of Wharton graduates toexplain that behind every successfulcareer there are likely to be several badexperiences both inside and outside ofyour work life

In her case this included being nosed and overcoming breast cancer

diag-“Whether it is starting a business orstarting a family, don’t put it off,” MsPorat told her audience “The worst thatwill happen is that it will not work out.”

What to say in a graduation speech is

no doubt a challenge Judging from aselection of the addresses given thisyear, sharing the pain of failure seems apopular choice

Presumably this is a way to win over

Mary Barra: CEO of General Motors

Pete Carroll: NFL head coach

Ruth Porat: CFO of Alphabet (Google)

Bloomberg and Getty Images

12 ★ FINANCIAL TIMES Monday 30 May 2016

’

The other day I gave a talk to a group ofinvestment bankers I did what Ialways do when I’m in front of abusiness audience: scan the crowd andtry to work out how many men thereare to every woman If they are youngCity of London lawyers, the numbersare usually roughly even, while forsenior bankers and financial advisers itcan be as bad as one to 20

On this particular afternoon the ratiowas a bit better than usual — about 1:4

— but as I looked around it occurred to

me that I was counting the wrongthing The tiniest minority was notwomen It was not even people fromethnic minorities, this being a globalconference It was the over-fifties

In about 200 bankers I could see onlyone person who seemed to be my age —and that was the chief executive As Iwalked back through the City, I stared

at the people going home: a sea ofcommuters in their twenties, thirtiesand forties Only occasionally did I spot

a contemporary, sidling past with headdown I briefly got excited when I sawtwo people who looked about 60, but

on closer inspection their brightlycoloured anoraks and the suitcasesthey were wheeling revealed them to

be tourists

The disappearance offiftysomethings from offices in London

may not be new, but I have been slow

to notice it That’s probably because it

is still possible to be over 55 and ajournalist on the Financial Timeswithout feeling too outlandish It ishard to feel too exposed when thefinest and most valuable columnist onthe FT has a good 10 years on you

The same is not true in other parts ofour business Last week there was a firealarm in the office and I looked at thehuman snake of colleagues from thecommercial departments shufflingdown the stairs Number of people myage: zero

Possibly it is just a case of thepolicemen getting younger, but I don’tthink so A couple of fellow journalists

in their fifties assure me that they arethe oldest people on their commutertrains from St Albans and Muswell Hillarriving in the City every morning

A friend who is about to turn 50 in alarge consumer products company iskeeping quiet about his age and hopingthat no one notices him When hejoined 20 years ago there were plenty

of people in their late fifties, often with

a PA of the same age or older Nowthere are no more PAs of any age andthe managers mostly slope off in theirlate forties, having been handed a fatcheque to do so

The few who hang on in mainstream

corporate jobs fall into two tiny camps:

the highest flyers, who are either achief executive or hoping to becomeone; and the lowest flyers, who havesucceeded in making themselvesinvisible and avoided all rounds ofredundancy

This elimination of the vast rump offiftysomethings from London’s officespaces is at odds with what is supposed

to be happening, which is that peopleare working longer, not just to a normalretirement age but beyond In the past

10 years or so, the stats show, thenumber of people in the UK workingbeyond 64 years of age has doubled

If investment bankers, lawyers andaccountants are an exception, that isneither puzzling nor worrying By theirlate forties they have earned so muchmoney to have no need for more, andafter 25 years of working all hours indysfunctional environments they havegenerally had enough They are lessvictims of ageism than a product ofhow the system works They have donethe hard graft and can now do

something more pleasant with theirtime — either nothing at all, or a bit ofconsultancy, or be born again as aphotographer or landscape gardener

But for the next slice down it isutterly baffling Where are all thefiftysomethings who used to do

standard corporate jobs in humanresources, or marketing, or events?Who employs them? Did they receivegenerous enough redundancypayments — and have enough money

in property — to get by earning a bitextra here and there?

Whatever they are up to, thepattern must be about to go intoreverse, for reasons we all know:pensions are worse, health is better If

we live to 100 and have to work until

we are 75 to support ourselves, bigcompanies will have to start taking usback Fifty- and sixtysomethings willcling to their office jobs for dear life or,

if they lose one, will go searching foranother — possibly on a lower wage —

so that employers will have to stopthinking of ageist excuses not to hirethem

HR departments of large employerswill soon laugh at the fuss they havemade about the non-problem of how tokeep spoilt millennials happy

Motivating fiftysomethings who havealready tired of the nonsense ofcorporate life but still have to slog onfor another 15 years? That is going to bethe hardest management task yetinvented

lucy.kellaway@ft.com Twitter: @lucykellaway

HR departments will soon laugh at the fuss they made over keeping spoilt millennials happy

launched his first

busi-ness in 1977, he

accept-ed only gold in

ex-change for the yeast he

processed in a small room in

war-ravaged southern Vietnam

Nearly 40 years later, Mr Tran’s Tan

Hiep Phat Beverage Group, one of the

largest private enterprises in the

coun-try, deals mainly in legal tender —

although he suggests mischievously that

gold might still be buried at his home in

Ho Chi Minh City, formerly Saigon

His elbows resting on a hotel poolside

table on a spring day in Hong Kong’s

Central district, the bottled-tea and soft

drink magnate recites decades’ worth of

anecdotes, tracing the story of how the

business has expanded A dozen or so

plastic bottles of sweetened herbal teas

and energy drinks are lined up on the

table

Mr Tran drinks 10 bottles of the stuff a

day, his daughter Tran Uyen Phuong

insists, gesturing admiringly at the

63-year-old man beside her She has

tagged along to help translate but she is

also a shareholder in the privately held

family-controlled company

In a plain black suit that accentuates

his thick, black moustache, he nods at

his daughter’s comment That same

round face stares out from the logo

stamped on THP’s tea drinks

The company, which started as a beer

maker more than 20 years ago, has

become Vietnam’s largest private

bev-erage producer, with about 5,000

employees nationwide It is subordinate

in market share only to multinational

soft drink companies such as Coca-Cola

According to analysts’ estimates, it

holds 20 to 30 per cent of the beverage

market In 2011, its market share in

products such as herbal tea, energy

drinks and soy milk was about 24 per

cent, according to the latest data from

Nielsen

THP is celebrated in the country of

about 90m people It hosts an annual

New Year’s party in Ho Chi Minh,

attended by thousands of revellers and

which is broadcast on national

televi-sion YouTube videos show the

patri-arch, known locally as “Dr Thanh”,

sing-ing karaoke-style alongside pop stars

and rock bands

In 2008, THP sponsored the only

Vietnamese climbing team to scale

Everest Photos from the team’s blog

show climbers in the national colours of

red and yellow, holding a flag with a logo

reading “number 1”, THP’s most

popu-lar sports drink As a marketing

cam-paign, the climb to the top of the world’s

highest peak counts as one of the

coun-try’s most extravagant

Survival and success for Mr Tran’s

free-market enterprise in one of the

world’s last socialist strongholds has

come after decades of toil

Following his mother’s death in a car

crash in 1962, Mr Tran, aged nine, was

sent to an orphanage in the south

Viet-namese highlands For six years he

endured a strict regime, at one point

being caged overnight with pigs as

pun-ishment for a scuffle with another boy

“No food, no clothes and they put me in

a pig’s cage,” he says, sounding

thought-ful and detached “I learnt that I must

fight if I want to survive.” Fighting forsurvival, Mr Tran says, was a theme thatdrove his businesses, in one form oranother, for decades

In 1977, two years after Saigon wascaptured by the Vietcong, Mr Tranjoined a ragtag industry of single-roomyeast makers, operating in an economy

on the brink of collapse

With heavy sanctions levied on thecountry by the US in 1975, manufactur-ers were cut off from much of the inter-national supply of equipment and rawmaterials Mr Tran recalls how he dis-covered nylon hammocks left behind by

US troops, which he used as sieves tocatch the silty yeast

The rudimentary innovation helpedthe fledgling business scale up and edgeout competition While hyperinflationwiped out many other yeast producers,

Mr Than was buying every hammock hecould find and expanding operations

“With 300 per cent inflation, if youearn 300 per cent per year, that is thebreak-even point,” he says, noting thatthe economic conditions required him

to trade exclusively in gold “We madelots and lots of money In one day I[could] earn 3oz of gold At that time,one house was just 1oz so I could buythree houses a day.”

By the time Mr Than launched THP in

a small shop in 1994, he had ridden thebooms and busts of several industries

Yeast prices collapsed in 1979, forcing

him into sugar production After morethan a decade of processing sugar cane,government competition crushed hissmall city factory with larger, low-costmills in the countryside

THP, on the other hand, was carriedaloft by a wind of change in Vietnam’splanned economy Just two years earlier,

in 1992, the government had allowedprivate enterprise By 1995, US Presi-dent Bill Clinton had lifted sanctions onthe country, opening it to mainstreaminternational trade for the first time in

20 years

A gradual improvement in the tion of private property has allowedcompanies such as THP to reinvestearnings into long-term projects Onlyduring the past three years has MrTran had the confidence to invest hun-dreds of millions of dollars in three newfactories

protec-“Many businessmen in Vietnam wereworried that the government wouldtake their property Now we believe theyprotect our assets.”

Waiting for the right time to invest orshift between businesses has been atrademark of Mr Tran’s strategy THPstarted as a beer producer but marginswere later hit by a beer tax Mr Thanmoved to a business producing carbon

dioxide and fructose syrup, which laterhelped him develop sports and energydrinks It was not until 2009 that THPlaunched herbal tea, now its best-selling product, just as the climate forinvestment in Vietnam became stable

The 40-hectare factories cost $100mapiece, he says He also claims that aninvestment bank and a multinationalcompany looking to invest in the groupvalued THP at $2.5bn in 2011, although

he declines to name either That wouldput the company easily among thecountry’s most powerful commercialforces

Expansion can also bring greaterscrutiny, which is not always welcome

Last year Vietnamese media reportedthat a fly and other impurities had beenfound in some THP products Thereports were followed by denials fromTHP but it was seen to struggle to dealwith the aftermath of the issue Thecompany says that customers had tried

to blackmail it by putting foreign objects

in bottles

Competition from abroad could be abigger worry for the country’s privatesector Mr Tran says Vietnam will needmore large, market-driven companiesfollowing the Trans-Pacific Partnership,

or TPP, a far-reaching trade agreementbetween the US and 11 other countries

The agreement, awaiting ratification, isset to open Vietnam to competitionfrom foreign companies that have hadonly limited access

At the same time, the government hasestimated that the TPP could increasetotal exports from Vietnam by $68bn by

2025 There will be pressure on nies to become more competitive

compa-“We will compete directly with theforeign companies,” Mr Tran says of thetrade agreement “If private companiesare very weak, how will they survive?”

After decades of fighting to survive inone of the most difficult environmentsfor private enterprise, the challengespresented by the TPP are ones he hasprepared for all his life

1981: Starts a sugar processing operation;

expands into fructose seven years later.

1994: Founds THP Group as a beer maker 2001: Sells first energy drink.

2008: Launches herbal tea line

Interests Music, audio engineering and

equipment design, karate, boxing

Monday interview Tran Qui Thanh, chief executive, THP

Thirsty work

The business strategy of

Vietnam’s leading maker

of herbal teas and sports

drinks is to keep fighting,

writes Don Weinland

BUSINESS LIFE

Making a successful career

as an interim manager whoworks in temporary, fixed-term contracts can provide awell-paid, varied and moreflexible way of working

As work changes, more of

us should expect to have astage of our career where

we take on work for specificperiods of time, especially aswork is increasingly set upfor tasks not jobs, saysProfessor Lynda Gratton ofLondon Business School

Kirsty Holt has been aninterim manager sinceleaving Barclays Bank 14years ago She works mostly

in financial servicesoverseeing changemanagement programmes,ranging from two weeks to ayear or more Her roles areHR-focused She says youmust be able to integratewell and quickly into anorganisation

“Don’t make enemies,” shesays “One of the goodthings [about] being acontractor is that you don’tget involved in officepolitics You can say it how itis.” But this involves tact anddiplomacy

Being a self-starter helps,

as does having the discipline

to work extremely hard

“Clients are paying you quite

a lot and expect you todeliver.” Her advice is toinvest time upfront whentaking on a project The firstthing to do is to agree withyour client what yourobjectives are, what youneed to deliver and anyother expectations

The second is to get toknow the organisation andthe people you will beworking with quickly PaulKincell has worked as aninterim manager for 18 years

in sales, marketing andbusiness development, and

he relies on companies such

as Odgers Interim for work

“It’s part of my processand gives me clarity.”

Taking the time to build astrong relationship with aninterim managementrecruitment firm pays off,because it will be more likely

to send you into the rightrole, as will maintaining agood network of contactsfor future work

Prof Gratton says building

a diverse network ofcontacts is critical to fillingyour pipeline of work “Youdon’t get jobs from friends,but friends of friends.”

“You need to think aboutthe next job before you’vegot the next job,” says MsHolt She advises acceptingcontracts only where youfeel you can make acontribution “I’m quiteselective,” she says You alsoneed to be firm in saying no

to offers when you haveplanned to take a breakbetween contracts

Mr Kincell’s tips forsuccess include being willingfor others to gain the creditfor your work “It gains buy-

in from your team and peers,and the client benefits nomatter what.” Also, alwayskeep an eye out for quickwins for a client that mightdeliver savings or increasedprofitability sooner thanpromised

The advantage of a career

in interim management ishaving breaks on your CVwithout it looking as if youhave been job-hopping, ProfGratton adds “Interimmanagement will be evermore appropriate andbeneficial.”

workingsmarter@ft.com

Working smarter

Make a career of interim roles

as the way we work changes

EMMA DE VITA

Sarah O’Connor wrote last week that millennials are not the flighty freedom- seekers that some believe;

instead, lack of job security

is not only potentially psychologically scarring but it denies access to loans, phone contracts or even a room to rent.

Readers responded online:

There is academic researchshowing persistentlower averageincomes over along period forcohorts whograduate duringrecession For methe long-run effect

on family formation isinteresting: prior toachieving the stability ofowning a home, few of mygeneration will want to have

children Many of my cohortare putting off marriage.And I anticipate many willstop at having one child

ChangeMyWorldView

What’s scarring is coming ofage during war (ourgrandparents) or a constantstate of internationalpolitical and military tension(our parents) I thinkmillennials in the developedworld (and I’mincluding myself)need to get overthis sense ofmartyrdom andacknowledgehow lucky we are

to have come of age

in a postwar era (bar rise

of terrorism) Having to rentrather than being able tobuy a flat is not ideal but

hardly scarring LB01

Feedback

A taste forinnovation:

Tran Qui Thanhused nylonhammocks leftbehind by UStroops when1970s sanctionscut off supplies

of equipment

Morgen Ommer

THP is the uncontested leader amongprivate-sector beverage businesses inVietnam, says Raphael Mok, Asiaanalyst at BMI Research He does,however, note how THP struggled todeal effectively with last year’s foodsafety scare The episode has not gonedown well among beverage consumers,particularly the young and

well-informed Mr Mok says: “Suchallegations could adversely affect thegroup’s standing in the industry, as well

as its growth outlook.”

The analyst

‘

Second opinion

Monday 30 May 2016 ★ FINANCIAL TIMES 13

ARTS

TODAY’S TELEVISION

Despite the seasonal title, Russell T

Davies’s much vaunted pansexual

adaptation of A Midsummer Night’s

Dream (BBC1 8.30pm) visually

resembles a West End Christmas

shop-window display Davies has

perorated so much about introducing a

youthful public to the real — ie not

sexually clear-cut — world that he’s

forgotten he might as well forgo such

other irrelevancies as blank verse,

fairies and magic A crackingly vulgar

soundtrack blasts away incessantly;

subplots include a fascistic Duke who

staggers off to die leaving his captive

bride Hippolyta (constant resentful

glares soon grow unintentionally funny)

to plant a lesbian smacker on a

liberating Titania — and inevitably the

mortal lovers’ sexual mix-up includes

moments of man-on-man attraction

None of which would matter if itdidn’t evoke the predictability of asuperannuated enfant terrible

Matthew Tennyson (Lysander) and KateKennedy (Helena) are promisinglyspirited Nonso Anozie’s Oberonprovides the most beautifully spoken —and expressive — language of theevening The credits include “Specialeffects real sex” Whatever they mean,they’re kidding

In Catch Me If You Can (BBC4 10pm)

Leonardo DiCaprio plays a real-lifePuck, Frank Abnagale Jr, a confidencetrickster who girdled the Earth invarious guises, from doctor to lawyer

to pilot, without benefit of anymagic flower-juice, just help fromSteven Spielberg, Tom Hanks andChristopher Walken

Martin Hoyle

John Hannah as Theseus in

‘A Midsummer Night’s Dream’

Stamina:

Thom Yorke

of Radiohead

at theRoundhouse

Below right:

Rory Kinnear

in ‘TheThreepennyOpera’

Matthew Baker/Getty Richard H Smith

Ludovic Hunter-Tilney

In the darkness a recording rang out of

Nina Simone saying “I’ll tell you what

freedom is for me No fear.” It was an

interesting choice of quote for a band

whose work is fuelled by feelings of

fear-fulness and anxiety Take those away

and Radiohead would cease to exist, or

would exist in a radically different form,

possibly involving tambourines and lots

of smiling

The first track showed how far they

are from reaching that unwelcome kind

of freedom It was “Burn the Witch”, a

gripping exercise in mounting dread

played on a stage lit in infernal red light

“This is a low-level panic attack,” Thom

Yorke intoned as Jonny Greenwood

sawed at his electric guitar with a bow,

an abbreviated stand-in for the

orches-tral strings on the recorded version

Two drummers, Philip Selway

supple-mented by Portishead’s touring

sticks-man Clive Deamer, took up the slack

with a pounding groove

This was the first of five tracks played

consecutively from Radiohead’s new

album A Moon Shaped Pool

“Daydream-ing” was beautifully suspended between

Greenwood’s minimalist piano and

Yorke’s saddened voice “Decks Dark”

featured bereft lines about being “in

your darkest hour”, comforted midway

through by warm interplay between

Colin Greenwood’s bass and Ed O’Brien’s

guitar “Desert Island Disk” and

“Ful Stop” respectively drew on the

opposing 1970s traditions of folk-rock

and krautrock

Yorke’s depressive lyrics were lifted

by the richness of the music In proof of

their artistic stamina, the last of the

great 1990s alt-rock bands proceeded to

range through their back catalogue

“Talk Show Host”, a 1995 B-side, was

given an almost hip-hop-like beat by thetwo drummers amid psychedelic wah-wah guitar from Greenwood During

“My Iron Lung”, the ectomorph ist attacked his strings with the violentintensity of a Giacometti figure starting

guitar-a chguitar-ainsguitar-aw It wguitar-as spellbinding to seehim back in axe-maestro mode

Yorke was in fine voice, his high croonspiralling through the songs The band’sshift towards electronic music was rep-resented by standouts from the transi-

tional album Kid A, “Idioteque” and

“Everything in Its Right Place” Theband’s developing ability to fuse rockdynamics with elaborate electronic tex-tures was traced through tracks such as

“Myxomatosis” and “Morning Mr pie” It was not without stumbles —

Mag-“Nude” restarted after a mistake fromGreenwood — but the fallibility, amidsuch a high level of musicianship, addedthe humanising touch that Yorke’sunintelligible stage banter could not

They finished with new song “PresentTense”, its title an affirmation of being inthe moment, followed by old track “Youand Whose Army?”, in which Yorke, atthe piano, adopted the guise of a NinaSimone-style torch singer Then came

“Paranoid Android” from their

master-piece OK Computer, climaxing in

Green-wood’s brilliantly convulsive guitarsolos The unforced passage betweenpast and present suggested Radioheadhave found their own version ofSimone’s freedom We need not fear anend to them yet

This second concert in the nia Orchestra’s “Stravinsky: Myths andRituals” season focused on very Russianworks that premiered in the 1920s Allthree were intended for the stage and abonus was that they came with theatri-cal presentation They added up to aninteresting but unsatisfactory evening

Philharmo-The short and snappy Renard, based

on Russian children’s songs, is littlemore than a pantomime Stravinskyimagined it performed by clowns, danc-ers and acrobats The Philharmoniagave us the first two and the result wascolourful, lively and a lot better thanjust hearing the music

Unfortunately, the Royal Festival Hallwas several sizes too big for it The sing-

ers sounded too distant and little Renard

C L A S S I C A L M U S I C

Stravinsky: Myths and Rituals

Royal Festival Hall, London

aaaee

seemed overawed by its surroundings

The same could be said of the comic

one-act opera Mavra Soprano Natalia

Pavlova and tenor Ilya Selivanov jected strongly over the instrumentalensemble, but the other pair of singers

pro-were largely lost Like Renard, Mavra is

inconsequential (“I liked it all, then

‘poop’ it ends too quickly,” was one earlyverdict) The Philharmonia provided asimple staging in 1920s costumes, but allthe fun came from razor-sharp playingunder Esa-Pekka Salonen

Last of the three was the one

master-piece Les noces is often seen at the ballet

but there was no dancing here Instead,the lights were lowered and the chorusfiled in like priests with candles — anodd idea, when the Russian weddingdepicted is a raucous affair Four first-rate pianists (Pierre-Laurent Aimard,Tamara Stefanovich, Nenad Lecicand Lorenzo Soules) were on hand

The soloists from the MariinskyTheatre and Philharmonia Voiceswere well drilled A couple ofyears ago Thomas Adès con-ducted an all-Russian knees-up,where one could imagine thevodka flowing Salonen’sperformance was brilliant,pristine,just atouchsober

southbankcentre.co.uk

Haunting:

Jenny König

as ClaireHaber

Stephen Cummiskey

Sarah Hemming

Well, this is Katie Mitchell at her very

best In this stunning, sombre piece of

theatre, the director works with her

reg-ular collaborators 59 Productions,

inter-lacing theatre and live video to tell the

neglected story of Clara Immerwahr

and her granddaughter: two unsung

casualties of chemical warfare

Immerwahr was a chemist married to

Fritz Haber, the German scientist who

worked on the creation of chlorine gas in

the first world war She committed

sui-cide, shooting herself on the night

Haber hosted a party to celebrate the

deployment of the gas at Ypres

Three decades later, her

granddaugh-ter Claire Haber (hauntingly played by

Jenny König), who was working in

Chi-cago on an antidote to the chemical

weapon phosgene, would also take her

own life, apparently in despair at the

fact that her work had been halted (the

focus was shifting to atomic weapons)

The piece (produced by the Berlin

Schaubühne, performed in English and

German with surtitles) explores these

two stories in short episodes, switching

back and forth and linking them further

by including a nurse whose sweetheartwas gassed at Ypres

Duncan Macmillan’s script skilfullyuses words by writers such as Mary Bor-den, Virginia Woolf and Simone deBeauvoir to voice the thoughts of thesewomen and the powerlessness they feel

in the face of war

It is desolate and brilliantly executed

A life-sized train carriage dominates thestage, with other locations — a garden, alaboratory, a public toilet — all just visi-ble in the recesses behind As the castact out the scenes we peer into the trainand the various rooms, piecing togethertheir stories, while above the stage theiractions are relayed live on a screen,looking every bit like a period film

The double perspective — the fact that

we can see camera operators runningabout and observe how tricks are doneeven as we watch the results — doesn’tdetract from the intensity: if anything, itincreases it There’s a calmness andsolicitude about it, and a forensic qual-ity that seems to honour the women

Even when we see Ruth Marie Kröger,playing Clara, shift so that she can tum-ble on to something soft, it takes nothingaway from the moment she fires the gun

— in fact it emphasises the effort it takes

to make that protest

As the train rattles on, empty, at theend, it is clear this is as much about thepresent as the past: an overwhelmingpiece about the hideousness of war

Penny Dreadful, that is saying something.

However, this is as it should be BertoltBrecht was less interested in writingcharacters we could identify with than

in writing familiar situations And hewas notoriously concerned to have uskeep our distance and to analyse andevaluate the arguments in his dramas.Director Rufus Norris’s revival hitsalmost exactly the right note in thisregard Too often white-faced, leeringfigures almost fling Brecht at us; here,

we are limited to enthusiastic use ofkohl, self-parodic use of signage onstage(Jenny Diver tempted by a tin labelled

“Drugs”; Macheath reading a paper headline “Mack does bad things”)and a delight in cynical delivery A simi-lar relish is evident in Simon Stephens’new translation of the play: he may havebeen waiting to be this mordant.Other prominent players includeNick Holder, Haydn Gwynne and Rosa-lie Craig as the Peachum family: Craig asMacheath’s wife and Holder as herfather, a competing godfather JamieBeddard plays the most astute ofMacheath’s lieutenants, largely from awheelchair, every expletive ringingthrough the Olivier Each of the cast of

news-20, with doubling of roles and a strongensemble approach, gets their turn inthe spotlight

The production isn’t flawless: some ofthe actors are not note-perfect onKurt Weill’s classic score, and thedistancing effect can seem like adefect, however much you tell your-self it was Brecht’s intention Butwe’re not here to watch an amiabledivertissement It may be mostfamous as a critique of the WeimarRepublic, but this version of Geor-gian London (adapted from John

Gay’s The Beggar’s Opera) still works

as a salient indictment of century society

21st-To October 1, nationaltheatre.org.uk

T H E AT R E

The Threepenny Opera

National Theatre (Olivier), London

aaaae

ARTS VIDEO

‘Springsteen, 66, is a muscular advert for a life of exercise He gripped the microphone with bulging biceps, vocal cords straining in his neck like hawsers

as The E Street Band performed their big chord changes ’

Ludovic Hunter-Tilney discusses Bruce Springsteen with Griselda

Murray Brown at ft.com/springsteen

14 ★ Monday 30 May 2016

MONDAY PRIZE CROSSWORD

No 15,253 Set by FALCON

7 2 7 $ / 5 ( & 7 , ) , ( '

& , 2 ( + ' & ( + 8 1 ' 5 ( ' 6 5 ( & $ / /

ACROSS

1 Sets off and reaches, in the

morning, centre of Cinque Port (5,1,4)

6 Copied notice about gym (4)

9 Millais painting of fruit ready

to be eaten (6,4)

10 Go round most of French city

(4)

12 Achievement demonstrating

skill of expert oarsman (12)

15 Hints about bodyguards (9)

17 Carnivore later let loose (5)

18 Racecourse out of step, so

modernising (5)

19 Spurns county on occasions

(5,4)

20 Ray, pupil staying at a school,

is one who has fun riding on wheels? (12)

24 Boundary taken back by a

1 Club’s male champion (4)

2 Hold the fort? (4)

3 This may be used to identify

eg Neighbours tune (6,6)

4 What movement of timer may

be worth (5)

5 Is over par, surprisingly –

electronic cigarette required (9)

7 Correspondence with leader of

party prior to moving on (10)

8 US lawyer staggering – judge

inside gets black tea (10)

11 Eventually storing weapons

some distance away (2,4,6)

13 Grass-covered ground?

Environmentalists’ department (10)

14 Envoys, English, fail to see

sign (10)

16 Outgoing type, former scout,

entering IOM races (9)

21 Jar I smashed containing last

A prize of The Good Word Guide by Martin Manser and How to

Sound Clever by Hubert van den Bergh will be awarded for the

first correct solution opened Solutions by Wednesday June 8,

marked Monday Prize Crossword 15,253 on the envelope, to the

Financial Times, 1 Southwark Bridge, London SE1 9HL Solution

15

16

17 9

20

17 20 19 21 20

30

Explore more sports data analysis and visualisation in our series

at ft.com/baseline

There’s a tech experiment that I long to

do It’s to set up fake online personas for

a Hitler-worshipper and a Stalin fan,

then wait to see what merchandise the

likes of Facebook and Amazon’s robotic

helpers serve up for their delight

I actually quite appreciate web

companies’ suggestions, based on my

browsing history, for stuff I might like

It’s like having a friendly idiot savant

scanning the horizon, with a slightly too

binary version of my preferences, but

nonetheless often hitting the spot

I am interested in how these robots

work, although I demur at their being

called smart Surely stupid, able and

willing is more apt and preferable?

Genuinely smart software would be

terrifying

Yet technologists have promised that

2020 to 2030 will herald The

Singularity, the time when computers

become smarter than humans

So when the chance came up to meet

Ralf Herbrich, Amazon’s Berlin-based

head of machine learning, I was excited

to hear from one of the world’s most

qualified people whether superhuman,

conscious computers are a likelihood —

and a mortal danger to humanity as

Stephen Hawking, Bill Gates and Elon

Musk among others say

Amazon doesn’t use only machine

learning to help us buy more stuff It

offers the intelligence developed by Mr

Herbrich’s team to users of its Web

Services, the part of the empire that,

white-labelled, runs many big websites

including this one — and that Jeff Bezos

expects soon to be bigger than Amazon’s

retail estate

Those who disapprove of Amazon

may be amused to know that, but for a

twist of history, Mr Herbrich would

likely now be working for the Stasi A

rebellious, computer-obsessed teenager

in East Germany, he was shunted into a

factory electrician job at 16

He says the pressure to help out the

secret police with the skills he learnt on

a broken Sinclair ZX81 sent by a relative

in the west may ultimately have been

irresistible — had the wall not come

down six weeks into his apprenticeship

Since then, he has become a research

fellow at Cambridge and worked in

machine learning for Microsoft andFacebook

Conveniently, on the office tour, I saw

a real-life machine learning issue Anautomatic translation from German-language Amazon to English hadchanged a USB cable into a “USB rope”

“There is always a need for humanintervention,” Mr Herbrich observed

He has no desire or expectation forbots to take over the world A phrase heused was “the sliver of achievability”

“The Singularity? It didn’t happen,”

he said and went on to explain that itwon’t be happening, either

“People are really good at seeing,tasting, smelling, hearing Machines arenot good at that We’re just getting to thepoint where algorithms can recognisestill images of cats and mice But thebrain does it much better.”

To my surprise, Mr Herbrich agreedcomputers are really glorified addingmachines “Yes, and the brain is a verycoarse information processing machine

“Computers can emulate intelligentbehaviour We’re seeing a lot of that andit’s impressive that when we put it in thecloud, we’re able to perform highlycomplex tasks

“But all that’s happening is that theycombine patterns Machines learn the

hard way They can’t replicatecreativity; recombining higher-levelabstractions and imagining futuresbased on very little information orexample They can’t have a hunch, likeeven scientists do The algorithmswe’re studying today are crudeapproximations because they don’t rely

on the same principles as the brain.”

So what about the idea ofsuperhuman computers taking on a life

of their own? “No A computer is a tooland only humans can build computers

People write programs A computercan’t write a program There will be noself-propelling computer.”

By happy coincidence, or perhapsOxford University Press has beenmonitoring my search history, I gothome to find the publisher had sent a

book on artificial intelligence, AI by

Professor Margaret Boden

I expected this to be another taking over manifesto Instead, it is anelegant demolition of the notion of thesuperhuman computer “Near-apocalyptic visions of AI’s future areillusory,” Prof Boden concludes

bots-are-Again, how refreshing It seems the(sensible) humans are fighting back

At the time of writing, Kohli’s 2016total lies second in the all-time calen-dar-year rankings, behind the 1,665hit last year by Chris Gayle, Kohli’steammate at Indian Premier Leagueteam Royal Challengers Bangalore

But the way in which each hasachieved the feat sheds light on theirmarkedly different approaches

While the West Indian Gayle builthis record-setting run over 36matches at a rate of 46 runs perinnings, Kohli has soared to his cur-rent mark at a rate of 57 per innings

Rather than demonstrating anaggressive or carefree approach,Kohli’s figures owe more to his con-sistency In 2015 Gayle reached 50runs on 36 per cent of occasions, butalso lost his wicket for fewer than 10runs 14 per cent of the time

This year, Kohli has been rocksteady In just 11 per cent of hisappearances at the crease has hebeen dismissed for fewer than 10 and

he has scored a half-century in 63 percent of his innings

The question now is whether weare seeing a changing of the guard.Gayle has four of the top five all-time-best calendar-year performances,but has been in and out of form in

2016, failing to reach double figures

in 61 per cent of his innings

The Baseline

Kohli’s 2016 may be the best yet in Twenty20

Source: FT analysis Graphic by John Burn-Murdoch / @jburnmurdoch

In just 27 matches for his country India and IPL side Royal Challengers Bangalore, Virat Kohli has hit 1,545 runs He lies second only to RCB teammate Chris Gayle – whose total last year tops the record list — but Kohli has scored at a much faster rate

05001,000

1,500Cumulative runs in a calendar year

Monday 30 May 2016 ★ 15

Companies

Accrol 19

Aldi 19

Alibaba 17,19 Allergan 16

Alliance Trust 1

Alphabet 11

Amazon 19

Anglo American Platinum 16

Apple 17

Asda 19

Aston Martin 16

Audi 24

Bharti Airtel 17

Blue Earth Diagnostics 18

Bolloré Group 24

BuzzFeed 19

Corus 16

DAF 5

DHL 19

Daimler 5

Deutsche Post 19

EE 19

Elliott Advisors 1

Ericsson 19

Flipkart 17

GE Healthcare 18

Gazprom 5

General Motors 11

Google 5,11 HSBC 19

Halfords 24

Hermès 24

Hindustan Aeronautics 7

Honda 18

Hoogovens 16

Huawei 17

Impala Platinum 16

International Monetary Fund 9

Intex 17

Iveco 5

James Halstead 19

Johnson Matthey 24

Karbonn 17

Kimberly-Clark 19

La Poste 19

Lending Club 11

Lenovo 17

Lidl 19

Lloyds 19

Lonmin 16

Mahindra & Mahindra 7

Micromax 17

Mitsubishi Motors 18

Mizuho Financial Group 17

Mylan 16

Nissan 18

Olympus 18

Petrobras 5

Pfizer 16

Porsche 24

RBS 19

RIT Capital Partners 1

Reliance Industries 17

Royal Bank of Scotland 19

Royal Mail 19

Samsung Electronics 17

Scania 5

Sequoia Capital 17

Sibanye Gold 16

Singapore Post 19

Snapchat 19

Sofidel 19

SoftBank 17

Suzuki Motor 18

Syncona 18

Takata 18

Tata 16

Telford Homes 24

Tesco 19

Teva 16

Tmall 19

Toa 18

Toshiba 18

Tredz 24

Twitter 19

Vimto 19

Vodafone 19

Volkswagen 5,16,24 Volvo 5

Wellcome 18

Wheelies 24

Wm Morrison 19

Woodford Investment Management 18 Xiaomi 17

Sectors Automobiles 16,18,24 Banks 17,19 Financials 6,18 Media 19

Personal & Household Goods 18

Pharmaceuticals 16

Retail & Consumer 18

Technology 17,17,18,19 Telecoms 17,19 Transport 5

People Allis, Jonathan 18

Begum, Mahroof 19

Bolloré, Vincent 24

Cheung, Peter 19

Cook, Tim 17

Crossley, Steve 19

Dumas, Axel 24

Farrar, Jeremy 18

Froneman, Neal 16

Griffith, Chris 16

Herbrich, Ralf 14

Horta-Osório, António 19

Hussain, Jawid 19

Khan, Imran 19

Matsuo, Masaomi 18

McEwan, Ross 19

Murphy, Martin 18

Palmer , Andy 16

Reichman, Marek 16

Sato, Yasuhiro 17

Saunders, Brent 16

Taneja, Vineet 17

Willis, Alexandra 19

Companies / Sectors / People

Good innings Apple espouses cricket in

its drive to dominate India— SIMON MUNDY, PAGE 17

Doom loop The UK should look to the

Dutch for pension advice— JONATHAN FORD, PAGE 16

OLIVER RALPH

INSURANCE CORRESPONDENT The UK’s life assurance industry has wiped almost £6bn off its annual cost base thanks to an overhaul to the rules for paying commissions to financial advisers introduced three years ago According to Cazalet Consulting research, the changes, known as the retail distribution review, helped to push annual expenses down from £11bn

in 2012 to £5.4bn in 2014

The RDR, which came into force in

2013, banned product providers such as life assurers from paying commissions

on most product sales to independent financial advisers Instead, customers have to agree fees with advisers upfront The latest figures show that the reforms, designed to improve transpar-ency of advisory fees for customers, have had a radical impact on both the advisers and the investment companies whose products they recommend One of the biggest effects has been a drop in commissions paid by life assur-ers Commission paid by the industry for new policies fell from £2.8bn in 2012

to £692m in 2014, according to Cazalet’s Life & Platforms report

“The paying of that commission was lunacy — they were paying commission for business that would never make a profit,” said Ned Cazalet, head of Cazalet Consulting He argued that the scale of commissions paid, together with the risk that advisers would move their cli-ents’ money around every few years, meant that many products were unprof-itable for the industry

Mr Cazalet said the changes had “had

a profound impact on the sort of assets advisers are recommending to clients” Sales of unit-linked bonds, a type of investment product, almost halved from £6.8bn in 2012 to £3.9bn in 2014, according to the report

The big winners from the changes have been so-called investment plat-forms that allow customers to hold sev-eral different types of investment prod-uct on the same system

According to Mr Cazalet, many advis-ers have switched from a “taxi driver” model, in which they were paid for each product sold, to a model that allows them to earn recurring income from keeping client assets on platforms

Life assurers cut expenses

by £6bn after rule change

ED CROOKS — NEW YORK

The net debts of the biggest Western oil

companies have surged by a third over

the past year, increasing their

vulnera-bility to another fall in crude prices

The aggregate net debt of the 15

larg-est North American and European oil

groups rose to $383bn at the end of

March, up $97bn from 12 months ago,

according to company reports

com-piled by Bloomberg

Oil companies’ revenues have

slumped as a result of the crash in crude

prices that began in the summer of

2014 Although they have cut capital and operating costs sharply, most have still had to borrow to finance their investments and dividend payments

The debt surge was particularly sharp in the first quarter, when oil dropped to a low of $27 per barrel

Although interest rates are near record lows and oil prices have since recovered, ending last week at about

$49, the increased indebtedness of the industry means it will face greater diffi-culties should oil prices slip back again

That would be likely to mean more job losses and investment cuts, as well

as possible dividend cuts and more defensive mergers and acquisitions

Part of the increase in oil debt over the past year is accounted for by the

$19bn cash component of Royal Dutch Shell’s acquisition of BG Group But all the large companies have reported sharp increases in their borrowings

ExxonMobil’s net debts rose to

$38.3bn at the end of March from

$27.6bn a year earlier, while BP’s rose to

$30.6bn from $24.6bn

The rising debts and lowered expec-tations for future oil prices have prompted many credit rating agencies

to downgrade oil companies, with Exxon last month losing its triple-A grade from Standard & Poor’s

Although the rebound in oil prices is improving companies’ cash flows, and they are continuing to bear down on costs, they are still under financial strain with crude at present levels

Jason Bloom, director of commodity research at Invesco PowerShares, said:

“Prices at these levels are a big problem,

not just for the smaller exploration and production companies, but also for the majors.”

Most of the largest US and European oil companies have committed to main-taining their payouts, limiting their ability to invest in future production

Energy economist Philip Verleger said: “The big companies that have been investing in high-cost projects like Kashagan [in Kazakhstan] or the deep waters off Brazil are going to be forced

to cut back investments to pay back their debts and cover their dividends.”

Oil companies’ debt soars to $383bn

EMIKO TERAZONO — LONDON

BENEDICT MANDER — BUENOS AIRES

The Chilean salmon industry is set to be

snared by rising insurance premiums after

toxic tides from a severe algae bloom

devas-tated fish farms in parts of the country

Premiums are expected to rise 50-60 per

cent, according to Dagfinn Ulriksen, head of

aquaculture at Aon Norway, which brokers

the bulk of insurance for global fish farmers

Losses covered by insurance are expected

to be about $100m, the highest on record,

said Mr Ulriksen On top of that, uninsured

losses could reach another $100m, according

to marine insurance executives

The jump in insurance costs comes as

salmon companies in Chile, the world’s

sec-ond-largest producer of the fish, are already

struggling with an expected 20-25 per cent

drop in production this year

Some 25m fish were killed as a result of the

algae bloom, which started in Chilean waters

at the start of the year

Prices have surged for Chilean salmon,

ris-ing more than two-thirds since the start of

the year to $5.83 a pound, according to

Chile’s SalmonEx, which provides price data

The decline in Chilean output coincides

with a drop in production by market leader

Norway due to disease Norwegian salmon

prices also hit a record this year, and are

trading at NKr65 ($7.80) a kilogramme

“We are not yet over with high prices,” said Gorjan Nikolik, analyst at Rabobank “The second half of the year is when we’re really going to feel the impact.”

Many producers in Chile were insured but some eschewed cover due to the already high premiums Marine Harvest, the Norwegian company that is the leading producer in Chile, said it had been covered But local group AquaChile said it was not insured

While some aquaculture insurers will increase the premium, “at worst, it could

lead to the withdrawal of capital by some insurers”, warned Tom Rutter, chief execu-tive at Sunderland Marine, which has not recorded losses among its clients located in the unaffected parts of Chile

The prospect of fewer insurers covering aquaculture worries global fish officials

“For the aquaculture industry to grow and reach its potential, more insurance solutions have to come to market,” said Audun Lem, fish specialist at the UN Food and Agricul-ture Organization

The algae bloom is believed to have been caused by rising sea temperatures due to the

El Niño weather phenomenon But a second

“red tide” bloom has hit local fishermen, who allege that the dumping of dead salmon into the sea exacerbated the problem

The prosecutor investigating alleged dumping has said it could constitute a crimi-nal act, which could carry a jail sentence

Santiago has offered fishermen a financial settlement and set up a scientific committee

to analyse the causes of the toxic tides

Insurance costs

poised to leap

for Chile’s

salmon farms

25m fish were killed

by the algae bloom, which started in Chilean waters

-18.0%

Global salmon supply

% change 2015-2016

2016 production estimates (’000 tonnes)

UK

3.0%

UK

171

Chile

Chile

485

Norway

Norway

-2.1%

1,209

Canada

Canada

-0.2%

132

FT graphic Photo Dreamstime Sources: Rabobank;

SalmonEx

Global

Global

-5.3%

2,179

Chilean salmon prices

Wholesale price, dollars per pound

3.0 3.5 4.0 4.5 5.0 5.5

Chilean salmon production

Estimates Tonnes (’000)

100 200 300 400 500 600

2000 02 04 06 08 10 12 14 16

A government-led transparency drive

has accelerated a record surge of

accounting and data fraud scandals

across corporate Japan The number of

cases hit an all-time high of 58 in the

2015-16 fiscal year, sometimes shining

a light on practices dating back years

AnalysisiPAGE 18

Investors spooked by

Japanese scandals

CLAIRE JONES — FRANKFURT ANDRES SCHIPANI — BOGOTÁ

Lufthansa has cancelled the only route between Germany and Venezuela, underlining the worsening conditions and growing isolation of the South American country

The German airline has been flying from its main hub in Frankfurt to Vene-zuela’s capital Caracas three times a week But in an email sent to its Vene-zuelan customers on Saturday night, European time, the company said it would cancel the route from June 17

Several other carriers have halted or reduced their Venezuelan operations, including Air Canada, American Air-lines and Alitalia, in large part because

of the socialist government’s tight cur-rency controls, which left them with bil-lions in unpaid bills

A near-empty tarmac at the airport serving Caracas is an increasingly com-mon sight in a country ravaged by a social, political and economic crisis The International Monetary Fund forecasts the economy will shrink 8 per cent this year, and 4.5 per cent in 2017 Inflation is galloping and is forecast to exceed 1,642 per cent next year

Venezuela is also struggling with food shortages, looting in parts of the coun-try, and power and water rationing The fall in the price of oil, its main export, has also hit it hard

Demand on the Lufthansa route has fallen over the past few years as fewer

business travellers visit the country

“The decision is about the economic weakness in the country,” the carrier said “Like other foreign companies, we have had problems with transfers of money outside Venezuela and also with transfers into US dollars.”

Airlines have had difficulties in repat-riating money received from Venezue-lan customers in local Bolívar currency due to exchange controls, prompting some to only accept US dollars

Airlines trade group Iata said Vene-zuela was withholding $3.8bn from air-lines generated from ticket sales in the country In February, Brazil’s Gol sus-pended its São Paulo to Caracas service, leaving the nation increasingly isolated

Daniel Lansberg-Rodriguez page 9

Venezuela faces increasing isolation as Lufthansa closes down Caracas route

16 ★ FINANCIAL TIMES Monday 30 May 2016

COMPANIES

H ow to break the pension fund doom loop? The

British government has been criticised fortrying to salvage something from the collapse

of Tata’s UK steel business by suggesting theIndian group might rewrite some of the pen-sion promises that contributed to its predicament In par-ticular, it has suggested letting the group “uprate” mem-bers’ benefits using a less generous measure of inflation.That would diminish the deficit by cutting the presentvalue of the future retirement incomes the scheme has topay

It is easy to see why the idea, floated by the business retary Sajid Javid, has been greeted with such voluble sus-picion It goes against a central tenet of pension provision

sec-— that employee benefits, once conferred, should not beamended without consent

Mr Javid has tried to draw the sting by saying the planwould be a one-off, applying only to Tata But here’s thething: the proposal, while flawed, contains the germ ofsomething sensible Rather than confine the principle topiecemeal interventions, the government should take itfurther Repurposed, it could help put the country’s over-stretched pensions system in a better place

Pension promises may be contracts just as other cial claims are contracts Pensions expert John Ralfe likensthe discomfort businesses feel about past undertakings tothe feeling a finance director has about a bond he issuedbefore interest rates drop You can’t just annul the claimbecause it’s painful, he observes: “If you want to amend it,then there’s a mechanism you have to go through which iscalled insolvency.”

finan-Well, maybe That’s tainly the purist view Butforcing companies to standbehind promises they can-not afford does not seemvery productive Indeed, itcan contribute to theirdemise, creating a “doomloop” that sucks up capitalthat could otherwise have been invested to secure thesponsoring business for the longer term

cer-Tata offers a good example of this in action Its Europeansteel business comprises two units that it bought with theold Corus group in 2007: one in the UK and the other inHolland (formerly Hoogovens) Both have large pensionfunds Pensions analyst Nick Dunbar has looked at theimpact of national regulations on the funding levels in thetwo schemes since the purchase

In Britain, where benefits cannot be changed other thanthrough members’ consent or bankruptcy, the Tatascheme bumped along permanently in deficit, despitelarge sums being injected under regulatory duress to try toclose the gap Hoogovens, meanwhile, was an entirely dif-ferent story There, the fund may have faced the samechallenges as its British counterpart: rising life expectancyand falling interest rates But although Tata never paid inmore than its normal contributions as an employer, thescheme’s funding ratio never fell below 100 per cent.The difference between the two lies in a Dutch lawpassed a decade ago This

allows schemes to suspendinflation-linked increases tomembers when the value oftheir assets drops below 112per cent of their liabilities

This has not been withoutcost for the Hoogovens’

scheme members Since

2007, they have lost out on six years of inflation increases But compare that with thefate awaiting their UK counterparts Even under Mr Javid’sscheme they would face significant cuts in benefits.Meanwhile, freed from permanent pension deficits,Hoogovens has received more investment than its UKopposite number, meaning it produces higher qualityproducts that are less vulnerable to Chinese competition

So when it came to Tata deciding which plant to keep andwhich to cut loose, it was a pretty easy choice

Pensions are about trust, and when employees forgo ary on the basis of promises, they are entitled to knowthose undertakings will not be debased wilfully But pen-sions also depend on the continuing viability of sponsoringbusinesses The Dutch approach may not be perfect butoffers an objective mechanism by which the two might bebalanced — offering temporary relief when funds areunder pressure without giving companies licence to dis-miss obligations

sal-Of course, you could just stick to the sanctity of contractsand do nothing But the difficulty of the conversation withmembers can mean discussions about cutting benefits areleft too late, leaving the price to be paid in business failure,lost jobs and heavily written down pensions With ever more schemes failing, that is a daunting prospect

jonathan.ford@ft.com

INSIDE BUSINESS

ON MONDAY

Jonathan Ford

Tata scheme could put UK’s strained pensions system in a better place

Pensions depend

on the continuing viability of

sponsoring businesses

PETER CAMPBELL

MOTOR INDUSTRY CORRESPONDENT

The most expensive road car in British

history is twice oversubscribed weeks

before it will be unveiled by Aston

Mar-tin, after a series of secret showings to

wealthy customers in Monaco over the

weekend

The “hypercar”, developed by Aston

and the Red Bull racing team, will be as

fast as a Formula 1 vehicle and will cost

£2.5m The group will make about 100

cars initially and has already received

expressions of firm interest from doublethat number on the back of its showings

at the weekend The project has beencodenamed 001, after the marque’slinks with the James Bond franchise

Aston has already agreed to re-enterFormula 1 racing after a 55-year absencethrough its Red Bull partnership, andthe latest car comes as the companyseeks to put itself on a surer financialfooting

In spite of its iconic status amongenthusiasts, and a high public profile onthe back of the James Bond franchise,

the group last turned a profit in 2010and is embarking on a £200m expan-sion of its production facilities

Aston initially offered its hypercar toexisting customers who bought either a

£1.2m 177 model or a £1.5m Vulcan,according to company figures briefed onits sales plans It also invited other high-profile customers visiting Monaco forthe Formula 1 at the weekend to view itslatest design in a secret location

Some of Aston’s most senior directors,including chief executive Andy Palmerand chief designer Marek Reichman,

were in Monaco for the showings, it isunderstood The group will formallybegin collecting deposits — which will be

at least £250,000 up front — nextmonth, and the first handmade modelswill roll off the line at its Gaydon head-quarters in late 2018

The unconventional sales process,which saw the car arrive in Monaco late

at night and be delivered to its secretshowroom in an unmarked truck, ispart of the company’s ambition to pititself against Ferrari in the super-luxuryend of the car market, appealing to bil-lionaires and collectors

Aston is also embarking on a gramme to renew the entire line-up ofits popular models

pro-It has unveiled the DB11, a £140,000replacement for the DB9, and will alsobegin making a crossover, the DBX, at

its new factory in South Wales The pany has promised to introduce at leasttwo more cars before the end of the dec-ade It is also re-entering Formula 1 as away of promoting its brand in emergingmarkets

com-Eighty per cent of its cars, all made in the UK, are exported, althoughthe company has previously said it hassignificant room to grow in emergingmarkets “Formula 1 offers the ultimateglobal stage to build wider awareness ofthe Aston Martin brand,” Mr Palmersaid at the time

hand-Automobiles

Aston Martin ‘hypercar’ already twice oversubscribed after secret showings to wealthy clients

DAVID CROW AND

JAMES FONTANELLA-KHAN — NEW YORK

Teva, the world’s largest maker of

copy-cat medicines, is racing to complete its

$41bn acquisition of a rival generic

drugmaker, but some shareholders and

healthcare bankers argue the Israeli

company is paying too much

When Teva struck the cash and stock

deal to buy Allergan’s generics business

last July, investors cheered it as a neat

solution The Israeli drugmaker, facing

patent expiry on its top-selling drug,

was seen as needing a deal to plug an

impending gap in its sales, and the

com-pany spent last year in hostile pursuit of

Mylan, another generics company

A friendly deal with Allergan, whichwants to exit generics to focus onbranded medicines, seemed ideal YetTeva struck its agreement with Allerganduring different times: a political outcryover drug pricing has since led to fears of

a crackdown on costs, wiping billionsfrom the value of pharmaceuticalsstocks Teva’s own stock has fallen aquarter since it announced the deal

Generic competitors such as Endohave warned that the price of copycatmedicines is under significant pressure,

as buyers demand a better deal and pitgroups with factories in the US, Europeand Israel against Indian competitorswith much lower manufacturing costs

Two large shareholders told theFinancial Times they believed Teva hadspent too much on Allergan’s genericunit “Teva massively overpaid in theneighbourhood of 25 per cent,” said one

“The question is not whether it’s the

right deal, or a good deal — but whetherthey paid the right price.”

A third investor said they believedTeva was doubling down on genericdrugs at exactly the wrong moment, andshould have used its cash to push fur-ther into branded medicines that facedless competition

“Some people believed it wasn’t thebest deal, that simple generics are notthe right way to go because of Indiancompetition,” said one mergers andacquisitions lawyer

“They should have concentrated onsophisticated generics, where theymight have an advantage,” the personadded, referring to medicines that arehard to make or delivered by injectionrather than an oral pill

Few people expect Teva to withdraw,however The company recentlyinsisted it was committed to the acquisi-tion, while Brent Saunders, Allergan

chief executive, has said he expected thedeal to complete next month

The transaction has been delayed bythe US Federal Trade Commission,which is examining whether the pur-chase would harm competition in themarket for generic drugs Analystsexpect Teva to dispose of some products

to secure clearance

Supporters of the deal say it will giveTeva clout when negotiating with phar-macies and drug wholesalers, and thatcost-cutting will generate higher profits

They point out that Teva paid roughly 15times earnings for Allergan’s genericsunit, in line with other deals struck atthe time

“Hindsight is 20/20,” said Ronny Gal,analyst at Bernstein “Soon after theydid the deal the entire stock market col-lapsed, but comparing it at this point it’shard to argue that they wouldn’t havegot it for a better price.”

Pharmaceuticals

Teva in dash to complete Allergan deal

Critics say that price of

generics unit is too high in

market under pressure

ALLAN SECCOMBE

Sibanye Gold, South Africa’s largest gold

miner, is planning to buy more

plati-num assets as it seeks to turn itself into

one of the world’s top three producers of

the precious metal used in jewellery and

diesel car engines

The Johannesburg-listed company,

which was spun out of South Africa’s

Gold Fields in 2013, is also looking to

buy another large gold mine in Africa

this year

In a strategy questioned by some

ana-lysts, and in an unusual step for a gold

miner, Sibanye decided in 2014 to

diver-sify into platinum

During the commodities decline, the

company has been buying platinum

assets that other mining companies no

longer want

Last year Sibanye agreed to purchase

Anglo American’s lossmaking South

African platinum operations at

Rusten-burg for an upfront payment of R1.5bn

It also completed a deal in April to

pur-chase Aquarius, a smaller South African

platinum miner, for $294m

These two transactions should turn

Sibanye into the world’s fifth-largest

miner of platinum group metals

But Neal Froneman, chief executive,

said the company planned to make a

third platinum acquisition before the

end of the year, partly to secure greater

influence in the marketing of the

pre-cious metal for jewellery and

invest-ment purposes

“Being number five in the platinum

industry is just not enough,” he said in

an interview with the Financial Times

“You definitely need to be at least

number three to have significant

influ-ence We want a voice at the table,

other-wise we can’t set and develop our own

strategy.”

South Africa is the world’s biggest

producer of platinum, but the industry

has been dogged in recent years by

labour unrest, falling prices and rising

production costs

The three largest producers — Anglo

American Platinum, Impala Platinum

and Lonmin — were hit by a five-month

strike in 2014

Platinum prices plunged to an

eight-year low in January, reflecting factors

including China’s economic slowdown

and the negative impact that this is ing on the jewellery market

hav-Prices have rebounded about 20 percent since then, but there are concernsthat the Volkswagen emissions scandalcould erode industrial demand for plati-num because it is used in catalytic con-verters for diesel-powered cars

Like other gold miners, Sibanye ispopular with investors Its shares haverisen about 100 per cent this year afterthe gold price spiked and the company’sperformance benefited from a weakerrand

Sibanye’s move into platinum is likely

to face significant scrutiny The pany is aiming to improve its platinumassets by stripping out costs, but thiscould prove difficult at the Rustenburgmines because they are labour-inten-sive shafts located deep underground

com-Anglo, by contrast, is focusing on lower platinum deposits, where much ofthe mining can be done with machines

shal-The Rustenburg mines are close tothose that were operated by Aquarius,and Sibanye is seeking to reduce costs

by removing duplication, flatteningmanagement structures and replacingcontractors with its own employees

Sibanye has judged it to be a good time

to acquire platinum assets because modity prices have been low and somemining companies are eager to offload

com-their holdings to reduce large debtloads

Mr Froneman said it was “very, verytough” for platinum groups, adding: “Noone is really making money in the plati-num industry There is still a lot of pain

in the sector It’s beneficial for us tomake our next move and I’m confidentabout another transaction.”

The target of Sibanye’s next platinumdeal could be assets owned by Lonmin

or Impala, both of which have smelters

Buying platinum smelters would ble Sibanye to produce finished metaland sell it directly to customers, therebyincreasing the company’s influence overthe promotion of the metal for jewelleryand investment purposes

ena-Under the Aquarius and Rustenbergdeals, Sibanye will confine its role toproducing platinum concentrate fromits mines, which will be passed to AngloAmerican Platinum for processing

One analyst, who declined to benamed, expressed doubts that platinumproducers with smelting facilities would

be willing to consider selling thoseassets because there were signs of animproving market

Another analyst, who also declined to

be identified, said size alone was notenough to be an influential player in theplatinum market and it was moreimportant to be a low-cost producer

South Africa gold miner pins hopes on platinum

Sibanye wants acquisitions to

help it become a top-three

producer of the precious metal

Dark times: South Africa’s platinum industry has been dogged in recent years by falling prices and rising production costs— Siphiwe Sibeko/Reuters

‘The question

is not whether it’s the right deal — but whether they paid the right price’

The platinum industry must acceptthat prices will be lower for longer,according to Anglo American

The platinum price fell to $806 perounce in January, its lowest level sincethe financial crisis It has rebounded toalmost $1,000, but is a long way fromits post-crisis high of $1,780 in 2011

The recent rise in platinum prices ispartly linked to the increasing value ofgold Both precious metals have been

in demand since the start of this yeardue to turbulence in financial markets

The industry has been battling asupply glut for years, but Chris Griffith,chief executive of Anglo AmericanPlatinum, a subsidiary of the mininggroup, said the market was “tighter”

“It feels like we are bottoming outand we are turning,” he added “We’vebeen bouncing around the bottom for

a while now But I don’t think we mustimmediately translate that into pricesincreasing The industry has to livewith lower prices for longer.”

Capital expenditure by South Africanplatinum producers to develop newmines and extend existing ones hasfallen over the past decade “It’s notlikely in the next five to 10 years that

we will see huge oversupply again,”

said Mr Griffith Allan Seccombe

Digging deep

Industry

‘has to live with lower prices for longer’

‘No one is really making

money in the platinum

industry There is still a

lot of pain in the sector’

Neal Froneman, Sibanye Gold

The plan bumped along in deficit, despite large sums being injected

Aston Martin plans

to re-enter Formula 1 racing after a 55-year absence via its Red Bull partnership

Monday 30 May 2016 ★ FINANCIAL TIMES 17

LEO LEWIS — TOKYO

Mizuho Financial Group is building a

pot of money for global acquisitions of

financial technology companies as

Japan’s second-biggest bank attempts

to leapfrog its local rivals after years of

industry torpor

Despite its strong position in consumer

technology, Japan has lagged behind its

global peers in harnessing the so-called

“fintech” wave of digital disruption in

banking

The country’s lenders, felled by the

bursting of the bubble in the 1990s, have

long lost their appetite for risk and

con-tinue to struggle as negative interest

rates erode profits

In an interview with the FinancialTimes, Mizuho’s president YasuhiroSato described plans to build the nextgeneration of consumer lending onsmartphone services and using “bigdata” analysis to manage credit risk

Further down the line targets includepeer-to-peer lending and investment

“robo-advisers”, he said

Mizuho is targeting US acquisitions inthe fields of artificial intelligence andbig data processing “We currently haveseveral targets some of the deals will

be done this year,” said Mr Sato

The bank’s advantages, he said,include its ability to move fast and aclose working relationship with Soft-Bank, the tech and telecoms group,

which has provided access to fintechplayers

Although Mizuho has not disclosedthe size of its fintech fund, it is expected

to be about $50m-$100m and to expandsignificantly later this year

Mr Sato said fintech-led consumerlending business could now allowMizuho to target younger customerswith less risk as big data generated bet-ter credit scoring techniques

“The smartphone-using generationdoesn’t have much money yet, and as abank they don’t represent a lot of profit

But if you don’t have to open a physicalbranch network to do consumer lendingfor these people, you can make moneyfrom them,” said Mr Sato

Banks

Mizuho plans next phase of consumer lending

COMPANIES

SIMON MUNDY — MUMBAI

As the Gujarat Lions cruised to an easy

win over the Kolkata Knight Riders, Tim

Cook stood on the edge of the pitch

expressing his newfound love for Indian

cricket

“I’m totally hooked It’s so exciting

here,” Apple’s chief executive said,

mid-way through his first visit to the country

last month

Mr Cook’s cricket outing may have

been a publicity stunt, but he has reason

to seek a better understanding of Indian

culture The country has become a

con-spicuous source of growth for Apple,

which said iPhone sales there increased

56 per cent in the first quarter, even as

they fell globally for the first time

In fact, world smartphone sales as a

whole suffered their first fall in the same

period, according to research by

Cana-lys — but India’s market again stood out,

notching up an overall 12 per cent

increase as millions of people made the

switch from basic feature phones

Mr Cook’s visit has put the spotlight

on what is “the most important country

in the smartphone market”, according

to a Morgan Stanley report last month,

which predicted that by next year sales

in India would be second only to China,

and with a higher growth rate

But in some respects India is

more challenging than any other major

market on which Apple has set its sights

Competition is heating up, with a

growing crowd of Chinese participants

including Lenovo, Xiaomi and Huawei

taking on the established leaders —

South Korea’s Samsung Electronics

and entrenched local brands such as

Micromax

Per capita income of $1,617 last year,

compared with China’s $7,990, means

the iPhone is beyond the means of the

vast majority of Indians Analysts put its

national market share at no more than 2

per cent

“People in rural towns are buying

fea-ture phones at Rs500-Rs1,500

($7-$22),” says Navkendar Singh,

ana-lyst at IDC, who estimates that

smart-phones account for fewer than half of

overall mobile phone sales in India

despite rapid growth “We don’t expect

them to make a big jump and start

spending a lot of money on telecoms.”

About half of Apple’s handset sales in

India in the first quarter were of the

almost-four-year-old iPhone 5s

The company has been seeking to

broaden its appeal to cost-conscious

consumers by selling used phones, but

the Indian government ruled against

that plan this month after complaints

that it would cannibalise domestic

phone manufacturing

Mr Cook’s meeting with Narendra

Modi, prime minister, gave him a

chance to lobby for concessions that

would strengthen Apple’s position in

this race

Anshul Gupta, an analyst at Gartner,

says Apple’s eagerness to distribute

low-cost iPhones is logical even if it could

weigh on margins in the short term

“What matters is the installed base

[using Apple’s operating

sys-tem] Some of those will later be

upgrading to the high end,” he says

However, more than 90 per cent of

phone users in India use prepaid SIM

cards instead of long-term contracts,

which prevents operators from offering

the kind of subsidies that have boosted

sales of higher-cost handsets elsewhere

Mr Cook argues that opportunities

offered by fast 4G networks will boost

iPhone sales Market leader Bharti

Air-tel launched the first national 4G

net-work last August, which should be

fol-lowed later this year by Reliance Jio — a

$16bn telecoms project from RelianceIndustries, India’s second-biggest listedcompany

“Knowing Reliance, I won’t be prised if they pick up a few hundredthousand iPhones and subsidise themfor the marketing impact,” says JayantKolla, co-founder of Convergence Cata-lyst, a telecoms consultancy

sur-Apple’s growth in India has comelargely at the expense of Samsung

According to CyberMedia Research,Apple’s share of sales in the premiumsmartphone segment — with pricesabove Rs30,000 — rose to 44 per centlast year, only 2 percentage pointsbehind the South Korean group

But Samsung remains the clear leader

in India’s overall market, havingstemmed sharp falls in share with itssuccessful Galaxy J range With featuresseemingly aimed at Indian consumers —including a special mode for motorbikeusers that attracted interest in theworld’s biggest two-wheeler market —that series also brought improveddesign at a lower cost than previousmodels

Samsung has refused to be part of thewidespread discounting of smartphones

on ecommerce sites such as Flipkart

“Samsung is one of the few that has served price discipline,” Mr Singh says

pre-In contrast, China smartphone ers such as Lenovo, Xiaomi and Huaweipiggybacked on the distribution infra-structure of ecommerce sites as a low-

mak-risk way to enter the India market

Xiaomi, for example, targeted India forone of its first forays beyond China, andhas launched its phones in the countrythrough promotional events with Flip-kart, after each of which the companieshave announced that the early stockwas sold out in less than 15 seconds

Now entrenched as major pants — their share doubled in the year

partici-to March partici-to reach nearly one-quarter,says IDC — the Chinese groups are seek-ing to cement their position by investing

in a physical presence, including heavybranding in third-party retail stores

The surge of Chinese imports is putting

to the test India’s hopes of developing globally competitive smartphonebrands, which still account for aboutfour in 10 phones sold

Local champion Micromax remainedthe second-biggest producer by volume

in the first quarter with 17 per cent ket share, according to Canalys, but thatfigure has been declining

mar-Having lost its chief executive inMarch, Micromax is bullishly targetingforeign expansion, particularly informer Soviet countries But it has notdone enough to differentiate itself fromother Android-based phonemakers,says Mr Kolla He notes that it and otherIndian companies such as Karbonn andIntex are still largely reliant on Chinesecontractors and suppliers, even as theyshift production to India in response tohigher import duties and rising wages inChina

Mr Kolla warns that the opportunity

to profit from rapid smartphone tion in India will not last for ever — forlocal brands or international competi-tors “This growth won’t continuebeyond 2018,” he says “The rest of themarket is flat, and India will get there in

adop-a couple of yeadop-ars.”

A year ago, Micromax was in talkswith Chinese ecommerce groupAlibaba, which was poised to invest

$700m in the Indian smartphonemaker in exchange for a 20 percent stake

Micromax was riding high, havingovertaken Samsung as leader in theIndian smartphone market, thoughthat finding by market researchgroup Canalys was disputed by theSouth Korean group

The capital infusion from Alibabawas supposed to improve designand services that would set thecompany apart from competitors.But the deal fell through, andMicromax’s fortunes have sincereversed, with steady falls inmarket share over the past year.Founded in 2000 as a softwarebusiness, Micromax started makingmobile phones in 2008 and soonbecame the leader of a crop ofIndian handset brands, attractinginvestment from venture capitalfirm Sequoia Capital

Micromax has focused on themid-to-low end of the market,exploiting Indian consumers’

perception of local brands’ superiorquality to Chinese imports, even as

it kept costs down by using Chinesecontractors and product designs.More recently it has made efforts

to climb the value chain andexpand abroad: it has set up itsown design team in China, and hasinvested in fitness and music-focused start-ups as part of a drive

to add unique software features toits handsets

But this push upmarket hasstalled as Indian consumers havedefected to Chinese brands, largely

at the expense of Micromax,prompting the exit in March ofVineet Taneja as chief executive

Micromax magic fades

Push upmarket stalls

as consumers defect

Apple aims to build a big innings in India

US group will face a

test from established

Call waiting

India’s mobile market is dominated

by domestic brand feature phones

FT graphic Sources: Thomson Reuters Datastream; company; IDC

Q1 2016

Chinese Global name Indian

Others

020406080100

Q1 2016

Feature

Smartphone

Smartphone sales growth in India is outperforming wider market

050100150

Classified Business Advertising

UK: +44 20 7873 4000 | Email: acs.emea@ft.com

18 ★ FINANCIAL TIMES Monday 30 May 2016

COMPANIES

CLIVE COOKSON — SCIENCE EDITOR

Syncona, the £250m long-term

health-care investment fund set up in 2012 by

Wellcome Trust, Britain’s biggest

char-ity, has achieved its first product

licence

Blue Earth Diagnostics, in which

Syn-cona invested £30m, has won approval

from the US Food and Drug

Administra-tion for its injected imaging agent called

Axumin This shows up places in the

body where prostate cancer has

recurred after treatment

“Axumin’s approval is a milestone forus,” said Martin Murphy, Syncona chiefexecutive “Our aim as an ‘evergreen’

fund is to create successful standalonecompanies that can take their productsall the way to market We are different

to most investors who only want toinvest for part of the product develop-ment cycle and then aim to get theirmoney out.”

In the case of Axumin, FDA approvalcame just two years after the formation

of Blue Earth Diagnostics as a spinoutfrom GE Healthcare

The agency gave it a fast-track ity review as a product that satisfied asignificant unmet medical need: pin-pointing exactly where cancer hasrecurred in men with high PSA (pros-

prior-tate specific antigen) levels in bloodtests

Syncona has invested so far in eightcompanies, Mr Murphy said, both on itsown and alongside other providers oflong-term capital such as WoodfordInvestment Management

Several start-ups are in gene and celltherapy, where the development cycle ismuch longer than in diagnostics andproducts might take 10 years to come tomarket

Some result from Wellcome Trustresearch and others, like Blue Earth,have origins elsewhere

Jeremy Farrar, Wellcome director,said the aim in setting up Syncona was

to promote the trust’s charitable pose of accelerating the progress of

pur-developments from lab to market andeventually to plough profits back into itsresearch programmes

Although Syncona represents only asmall fraction of Wellcome’s £18bninvestment portfolio, it is an importantsymbol of the trust’s long-term think-ing, he added

Axumin consists of an amino acid,which is taken up by growing cancercells but not by healthy tissues, linked toradioactive fluorine atom that shows upwhen a patient undergoes a PET (posi-tron emission tomography) scan

“Most cases of prostate cancer can betreated successfully but about a third ofmen suffer a recurrence which can bevery hard to find with conventionalimaging,” said Jonathan Allis, Blue

Earth chief executive “We scan patientsfor 20 to 30 minutes and get a picturethat shows hotspots where cancer hasrecurred.”

Radioactive fluorine has a short life — just 110 minutes — so it cannot bedistributed from a manufacturing site

half-“We expect to make it in about 20 opharmaceutical sites across the US,”said Mr Allis He declined to give an esti-mate of likely sales revenue, thougharound 60,000 patients a year wouldbenefit from the product

radi-Blue Earth, which is based in Oxford,expects to begin selling Axumin in the

US later this year and follow up withEuropean approval The company planslater to apply the same technology totrack recurrence of other cancers

Pharmaceuticals

Syncona £30m investment pays off with first licence

Diagnostics partner wins

US FDA approval for

cancer imaging agent

KANA INAGAKI AND LEO LEWIS — TOKYO

From carmakers and electronics groups

to housebuilders and the layers of the

nation’s roads and runways, a

govern-ment-led transparency drive has

accel-erated a record surge of accounting and

data fraud scandals across corporate

Japan

In the five years since a $1.7bn

accounting scandal was uncovered at

Olympus, the number of improper

accounting cases exposed each year in

Japan has nearly doubled It hit an

all-time high of 58 cases in the 2015-16 fiscal

year, according to Tokyo Shoko

Research, which provides data on

cor-porate failures

In many cases, the revelations have

shone a light on malpractice and

subter-fuge dating back years — the legacy of

management terrified of failure but left

fighting decades of economic

stagna-tion, squeezed costs and a shrinking

domestic market But the new flood of

confessions, though welcomed by

pro-ponents of better corporate governance

standards, has also produced darker

questions and the fear that there may be

far worse news yet to emerge

“I think it has become clear that the

flow of scandals is far from over, and so

naturally you have investors that are

increasingly concerned about that,”

says Michael Newman, head of

corpo-rate advisory at Custom Products

Research They “will be very eager to

work out where the next problem is

going to arise”

The problem is that “investors are not

getting a lot of help setting their minds

at ease because the level of forensic

analysis on the sellside in Japan is low”

He adds that he has research for

cli-ents showing how average ages of

Japa-nese boardrooms can help predict the

likelihood of corporate scandal

The recent scandals have exposed

yawning gaps in the corporate

govern-ance reforms introduced exactly a year

ago under the Abenomics programme

“There is not a single scandal where

the company did not have any risk

man-agement structure,” says Haruhiko

Higuchi, a professor at National PoliceAcademy who has written a book onmechanisms behind corporate scandals

in Japan “Companies can appear tohave governance in place, but it’s alsoeasy to fake governance.”

The rise in revelations is also theresult of increased scrutiny from inves-tors, regulators and companies them-selves in the wake of Mr Abe’s reforms,says Tokyo Shoko Research managerKunio Hashimoto

“There is an increasing awarenessthat a single scandal can shake the com-pany to its roots,” Mr Hashimoto says

That sense of alarm, combined withgrowing public pressure, has encour-aged Japanese executives — albeit reluc-tantly — to accept outside supervisionthrough the instalment of externaldirectors and an auditing committee

The fear is also driving large companies

to extend their checks into subsidiariesand business partners

Nicholas Benes, a corporate ance expert and head of The BoardDirector Training Institute of Japan,says: “There has been a sense in the cor-porate community that they have to dothings differently That has now pene-trated the general public, and the buzz

govern-in society is creatgovern-ing expectations thatCEOs can really feel.”

The exposure of corporate duct has taken various forms

miscon-In November, Takata, the car partsmanufacturer at the centre of an airbagsafety crisis, acknowledged misrepre-senting inflator data in response to anallegation by Honda, its biggest client

At Toshiba, anonymous tips to Japan’ssecurities watchdog revealed a $1.3bnaccounting scandal last year

Mitsubishi Motors last month ted that it had overstated fuel economydata on its vehicles after the discrep-ancy was pointed out by its partnerNissan

admit-A wider regulatory probe has also laidbare violations in fuel economy testing

by Suzuki Motor

The latest target of Japanese tory scrutiny is Toa, a construction com-pany that has admitted overstatingquake-resistance data for runway rein-forcement projects at Haneda and sev-eral other airports

regula-In many of these cases, companyexecutives have blamed an insular “sal-aryman” culture where employees havefelt unable to push back against overlyaggressive targets imposed by theirbosses

Loyalty to the company and fear offailure have led employees to try toplease the management, even if that hasmeant violating the law

“There was a culture that would notpermit failure,” says Masaomi Matsuo,Toa’s president

The flow of scandals is likely to bolster

Mr Abe’s corporate governance paign, but experts question whether theproposed monitoring systems arestrong enough to police corporate mis-behaviour

cam-Mitsubishi Motors, for example, hadfour external directors, but three ofthem were affiliated with the Mitsubishigroup Toshiba had an audit committeecomprising primarily external direc-tors, but it lacked full independencebecause it was headed by the company’sformer chief financial officer

Despite the greater prevalence ofexternal directors, many Japanese busi-nesses still resist giving the power ofnominating their chief executives anddeciding remuneration of top managers

to outsiders

“It’s easy-going for Japanese CEOs,since they don’t get kicked out by share-holders,” Mr Higuchi says

String of scandals puts Japanese investors on edge

Revelations on Takata, Toa

and Mitsubishi Motors raise

fears that worse is to come

MitsubishiMotorsadmitted lastmonth that ithad overstatedfuel economydata on itsvehicles— Tomohiro Ohsumi/Bloomberg

March 2015: Toyo Tire & Rubber admits

falsifying performance data forearthquake-resistant rubber productsthat were used in 55 buildings in Japan

The affected number was later expanded

to 154 buildings

September 2015: Toshiba admits

inflating net profits by $1.3bnover a seven-year period

November 2015: Asahi

Kasei ConstructionMaterials reveals that itfalsified data on howdeep foundation pileshad been sunk intobedrock in

360 building projects

November 2015: Airbag maker

Takata admits that it misrepresentedinflator data in response to an allegation

by its biggest client Honda

April 2016: Mitsubishi Motors admits

overstating fuel economy data on four

types of mini-cars sold in Japan by up to

15 per cent It later admits that its fueleconomy testing methods had not beencompliant with Japanese standards since1991

May 2016: South Korean authorities

accuse Nissan of manipulatingemissions tests for itsQashqai sport utilityvehicle Nissan deniesthe allegation

May 2016: Suzuki

Motor reveals that itsfuel economy testingmethods had notcomplied with domesticstandards for all 16 of itsmodels sold in Japan

May 2016: Toa, a construction

company, admits falsifying resistant data for runway reinforcementprojects at Haneda airport, pictured, andseveral other airports in Japan

quake-Named and shamed:

the groups

in the spotlight

‘Companies can appear

to have governance in

place, but it’s also easy

to fake governance’

HENRY FOY — WARSAW

Retailers operating in Poland are

cut-ting expansion plans and squeezing

assets ahead of a tax that could tip

some into unprofitability

Poland’s retail market, led by foreign

companies such as Jerónimo

Mar-tins, Carrefour and Auchan, will pay

about €360m more a year from July

The tax of up to 1.4 per cent of sales

revenue is designed to target larger,

for-eign-owned retailers as part of a push by

the rightwing government to promote

domestic businesses and remove

“privi-leges” for overseas investors while

fund-ing its expanded programme of social

handouts

“Nobody wants to operate more

stores any more,” said the chief

execu-tive of one of the country’s largest

for-eign-owned supermarket chains “Due

to the tax it is all about making existing

stores more efficient and increasingsales density.”

Analysts and company executiveswarn that, with the industry’s averageprofit margin of about 2-3 per cent, therise could push some retailers into lossunless they cut their operations orcosts

Moody’s, the rating agency, said inFebruary that the tax could wipe out theoperating profit of Tesco and Carre-four’s Polish operations Analysts sayretailers will be forced to pass onincreased costs to consumers and sup-pliers to avoid losses

“Across the board, regardless of theirformat, nationality and size, retailers inPoland work with paper-thin margins,”

said Krzysztof Badowski, head of sumer goods and retail for central andeastern Europe at PwC, the professionalservices company

con-“So, take away 1 per cent, 1.5 per cent,

and they will need to find the moneysomewhere else.”

Jerónimo Martins of Portugal isPoland’s largest retailer through its low-cost Biedronka brand, which controlsabout 14 per cent of the market with2,700 outlets Its Polish revenue of32.5bn zlotys ($8.2bn) accounted for a

third of the company’s total turnoverlast year Asked how many stores itplanned to open this year, the group said

it would “continue the development ofour chain, but bearing in mind the cur-rent economic situation we [have]

decided to focus on raising the ness of the stores already in operation”

effective-Britain’s Tesco and France’s Auchaneach hold about 5 per cent of the mar-ket Poland had the fastest rate of eco-nomic growth in the EU over the pastdecade, making it a popular destinationfor property, banking, retail and health-care businesses

The tax, which follows a levy imposed

on bank assets this year, echoes moves

by Hungary’s rightwing governmentsince 2010, which drew criticism fromthe European Commission for unfairtreatment of larger retailers

Warsaw decided to exempt chised retail chains from the levy andset a tax-free allowance to €3.8m inmonthly revenue to help small storesand family-owned chains, which make

fran-up 40 per cent of the retail market

But larger chains may seek to exploitthis loophole by paring back expansionplans for their company-owned stores,and instead look to establish franchise

operations by signing up small pendent retailers under their brand.Beata Szydło, the prime minister,said: “The hypermarket tax will givesmall commercial enterprises in Poland

inde-a fighting chinde-ance to compete on themarket.”

The tax was a “tool, which, if usedright, can give them a chance to com-pete and stay afloat on the market”.Zabka, a retail chain owned by MidEuropa Partners, a private equity house,

is Poland’s largest convenience storebrand but will pay no tax With morethan 2,600 stores, Zabka operates under

an agency format where the mothercompany does not own outlets, whichfunction as separate legal entities

“Retailers are definitely slowing downtheir expansion plans here,” said MrBadowski “They might look at attempt-ing to change their approach towards afranchise or agency concept.”

Retail

Levy aimed at helping local Polish companies forces foreign groups to cut expansion plans

Timeline

‘We are different to investors who only want to invest for part of the product development cycle’

Martin Murphy

Carrefour is among the groups set to be hit by the tax— John Guillemin/Bloomberg News

Wellcome headJeremy Farrarsaid Syncona was

an importantsymbol of thetrust’s thinking

Monday 30 May 2016 ★ † FINANCIAL TIMES 19

COMPANIES

T he possibility of Brexit may have bunged up

the pipeline of new issues but Accrol, a maker

of toilet roll and tissues from Blackburn,intends to buck the trend It plans to list onLondon’s junior market on June 10 and is seek-ing a valuation of about £120m

Private equity owner NorthEdge Capital reckons thatwhatever happens after the referendum on June 23, it willnot affect the nation’s most traditional habits Accrol’sbusiness is entirely domestic, so it does not need to worryabout access to the single market

The company’s success is a reflection of the rise in count retailers It provides own label brands to most ofthe retail chains and has about 35 per cent of the discountmarket

dis-Floating on Aim will not just provide a partial exit forNorthEdge but also the founding family Each control46.25 per cent of Accrol NorthEdge paid £21m for its slice

in July 2014, structured as a loan note There is about

£20m of debt, which will not be cleared by the flotationproceeds

The aim is to raise £60m from selling half the company

— giving NorthEdge investors a nice £9m payday in justtwo years

Accrol was founded byhusband and wife Jawid Hus-sain and Mahroof Begum in

1993 Mr Hussain was maderedundant by AssociatedDairies (which later becameAsda) and used some of theredundancy money to foundthe business

His son Majid is chief utive and several others work in the company Theyhave recruited Steve Crossley, who has worked for foodbusinesses Unigate and Northern Foods, as the new chiefexecutive

exec-The company has a 35 per cent share of the discount sue market and 7 per cent of the overall tissue market inthe UK, which is worth about £1.6bn

tis-The discount market is growing at 10 per cent a year.Accrol has posted seven years of continuous financialgrowth since the 2008 recession and reported revenues of

£101m for the year to April 30 2015

Pre-tax profit was £5.8m, against £7.6m the year before.However, that included a £4.5m hit from writing off a loan

to Phoenix Court, a separate company controlled by theHussains that owns the company’s offices and factory, aspart of the payment to the family for its stake

They will remain the property owners Operating profitwas £10.8m, up from £8.2m

Accrol is not a household name Its big competitorsinclude Kimberly-Clark, owner of the Kleenex and Andrexbrands, and Sofidel, the Italian maker of Nouvelle About

71 per cent of Accrol’s ucts are private label, so itcould be vulnerable to aprice squeeze by retailers

prod-But Peter Cheung, man, argues that not having

chair-a brchair-and is chair-an chair-advchair-antchair-age Inthe year to March 2016 pri-vate label sales were upalmost 6 per cent, he said

Andrex sales fell by value as it was forced into price cuts

“Brands rely on product differentiation That’s hard to do.The private label is as good, if not better, than the brand,”

he added

Accrol itself has invested £18m over four years in newequipment to improve quality and capacity It now hascontracts with Tesco, Asda and Wm Morrison, three of thebig four supermarkets, as well as Aldi and Lidl

That should mean that it does not suffer even if ers start trading up from discounters as the economygrows and people have more money in their pockets

custom-It is not a stock for those looking to make a fast buck,although it promises a dividend yield of 6 per cent Mr Che-ung is clear that it will soon require a second factory tokeep up with demand — the 350,000 sq ft site in Blackburnturns out 17m units a week

At seven times earnings before interest and nasties, it isnot cheap either However, it could join those solid Aimperformers such as James Halstead, the Manchester floor-ing maker, and Vimto, the soft drinks company

Even if it struggles as the fifth biggest company in a ket dominated by multinationals, it should be an attrac-tive takeover target

mar-andy.bounds@ft.com

SMALL TALK

Andy Bounds

Toilet roll maker bucks trend as Brexit risk

blocks listings pipeline

Accrol’s business

is domestic, so it does not need to worry about the single market

DANIEL THOMAS

TELECOMS CORRESPONDENTVodafone is working with Swedish tele-coms equipment maker Ericsson onrolling out a new design for a mobilemast that packs into the size of a brief-case to boost coverage in urban areas

The design has the same capacity andfunctionality of a larger cellular site but

is packaged into a small flexible box thatuses less power and costs less to install

Vodafone lags behind rival EE in ing out faster mobile speed using 4Gnetworks, and has attracted considera-ble criticism over its customer services

roll-As a result, Vodafone is spendingabout £2bn on improving its networkand services across the UK It aims totake 4G services to 86 per cent of the UK

population Vodafone and Ericssonhave installed the first mobile mast site

in Southwark, London, and will test itsperformance in the next month beforerolling out the system across the city

A typical mobile site in London costs

£100,000-£150,000 to build, ing on the location and height of sur-rounding buildings Engineers will beable to carry the equipment to a rooftopand install the unit without the need forcostly installation equipment, such as acrane, speeding up the process ofextending Vodafone’s 4G network

depend-Vodafone has called on the ment to help mobile operators accesssites to build and improve cell towers

govern-Groups are aiming to meet state targets

of having at least voice call coverage for

90 per cent of the UK

Mobile operators are often frustrated

by the high rents charged by ers The government is consulting onproposals that would make it easier andcheaper for mobile groups to gain access

landown-to sites for masts

The mini base stations being trialled

by Vodafone are equipped with 4Gmobile technology to give a faster andmore reliable mobile connection Thesystem is about half the size and weight

of a standard radio unit, but offers threetimes the capacity for mobile calls.Vodafone and Ericsson are also work-ing on a way to combine mobile spec-trum bands to provide higher speeds.Download speeds of up to 240Mb wereachieved in recent trials, with test sitesexpected to deliver download speeds of

up to 700Mb in future

Telecoms

Vodafone to introduce mini masts in 4G push

HANNAH KUCHLER — SAN FRANCISCO

Snapchat is growing rapidly in the UK

with almost 10m Brits using the photo

messaging app every day, from

salivat-ing over strawberries at Wimbledon to

watching Labour leader Jeremy Corbyn

eating a takeaway

UK user numbers disclosed for the first

time show that nearly one in three

smartphone owners in the country log

on to the app each month to send

disap-pearing photos to friends and get a

behind-the-scenes look at events

The Los Angeles-based company,

which announced a $1.8bn fundraising

last week, is expanding internationally,

having opened its first foreign office in

London late last year, poaching staff

from BuzzFeed and Twitter

Imran Khan, Snapchat’s chief strategyofficer, said the company had appealacross the world “It all starts with acamera The open camera is an invite topeople to create content, and everybodylikes to take pictures and talk to a realfriend,” he said

Snapchat believes it is more personalthan other social networks, where peo-ple often preen to present a perfect pub-lic face to the world

He added that despite the app’s larity with teenagers, 70 per cent ofSnapchat users in the UK were over 18

popu-Snapchat is catching up with Twitter,which had 13.2m UK users last year, but

is still much smaller than Facebook,with 32.3m Brits on the platform in

2015, according to data from researchfirm eMarketer

Advertisers in the UK from Burberry

to KFC had already begun to ment with the app, Mr Khan said

experi-Snapchat has signed a three-year dealwith the All England Lawn Tennis andCroquet Club to create stories aboutWimbledon and sell adverts

Alexandra Willis, who manages ital strategy at Wimbledon, said it wasadopting Snapchat as a way to reachyounger audiences

dig-“Wimbledon’s core values are it is avery traditional brand It is not thekind of thing that naturally appeals to ayounger demographic,” she said

Tennis players were building theirown stories on the platform, Ms Willissaid “Serena Williams is absolutely pro-lific, she has a huge Snapchat followingand is making her own stories daily.”

Media

Snapchat an enduring hit with its British users

EMMA DUNKLEY

Royal Bank of Scotland is cutting at least

450 more jobs, taking the total roles

axed at the state-backed lender in the

past few months to more than 2,600 as it

shrinks to focus on UK retail and

com-mercial banking

About 200 roles have been cut from

the bank’s services team across the

country, which support a number of

divisions A total of 43 positions will be

moved offshore to India, as a way to

rec-reate similar jobs at a lower cost

RBS, which is 73 per cent owned by

government, is also removing about 250roles from its retail bank support team,including operations and customerservice jobs

More losses are expected to beannounced in the coming weeks,according to people familiar with thesituation

Last month, the bank said it wouldclose 32 branches and cut 600 jobs, asfootfall continues to decline and morecustomers turn to mobile banking

Rival state-backed lender Lloydsannounced in April that it would close

21 branches and cut more than 600 jobs

as part of a broader three-year ture announced by chief executiveAntónio Horta-Osório in 2014

restruc-RBS’s role reductions came after thebank reported its eighth successive net

annual loss in February, taking totallosses to more than £50bn since thefinancial crisis

Ross McEwan, chief executive of RBS,warned in February that a further

£800m of cost savings would be made in2016

This year RBS axed 450 positions inthe investment banking division,mainly from its back and middle office,

as the unit continues to shrink

The bank also slashed 550 adviserjobs, 400 positions from business bank-ing and 200 from its commercial bank-ing division

At the same time a number of roleshave been established overseas in Indiaand Poland, amounting to more than

300 in the past few months

The UK’s largest banks are

increas-ingly pushing roles offshore A total of1,255 positions have been moved off-shore over the past three months,according to figures from Unite, theunion, with many roles established inIndia, China and Poland

In an attempt to reduce costs, HSBC iscutting 840 IT jobs in the UK and isplanning to establish similar IT jobs inIndia, China and Poland by the end ofMarch 2017

RBS said: “As RBS becomes a smallerUK-focused bank, we are restructuringour support services to better align withthe business we are becoming Thesechanges, unfortunately, mean some joblosses We understand how difficult this

is for our staff and will be offering asmuch support as we can, including rede-ployment to other roles where possible.”

Banks

RBS to axe another 450 jobs in services

Cuts come as company

focuses on UK retail and

commercial banking

A total

of 1,255 positions at the UK’s largest banks have been moved offshore over the past three months, says Unite union

MICHAEL POOLER

Gone are the days when Royal Mail

sim-ply collected the post, sorted it and put it

through letter boxes

The UK’s dominant postal operator is

breaking into the digital world with a

string of investments in small

ecom-merce and technology companies

The FTSE 100 group has made several

acquisitions since the start of last year,

from a mobile fashion app to a start-up

selling software in China

While the deals are modest, they

illus-trate how Royal Mail, privatised in 2013,

is sowing seeds in areas that it hopes will

provide future revenue growth

Robin Byde, analyst at Cantor

Fitzger-ald, said: “They’re buying innovative

software and expertise

“It all speaks to the issue of declining

core mail but is also a response to

grow-ing ecommerce flows They’re

position-ing themselves in the plumbposition-ing space

for the global supply chain.”

With the number of letters sent in

decline due to the rise of electronic

com-munications, postal companies that

once enjoyed a monopoly over mail

must find new activities Many are

mus-cling in on internet retail

Companies such as Deutsche Post

DHL, La Poste of France and Singapore

Post have bought companies active in

connected areas such as website

devel-opment, digital marketing and parcel

collection points

Such moves are, in effect, the reverse

of Amazon’s strategy Long dominant in

online retail and associated ecommerce

services, the US tech group is siphoning

business from parcel carriers by

build-ing an in-house delivery network for

goods bought on its website

Amazon has compounded the stiff

competition Royal Mail faces in parcels

Although the UK’s £9bn market is

expanding rapidly as shoppers migrate

online, smaller competitors are pouring

resources into new warehouses,

vehi-cles and automated sorting technology

Greater parcel volumes failed to offset

fewer letters for Royal Mail last year, as

it posted a one-third drop in full-year

pre-tax profit to £267m this month

Analysts say Royal Mail’s recent

investments are aimed at offering moreproducts and services linked to the saleand dispatch of online orders

“They’re trying to bolt on other bilities that people who send parcelsmight also want, so it makes it easier forthem to be a one-stop shop,” says FrankProud, of consultancy Apex Insight

capa-One example is NetDespatch, whichenables mail carriers to provide web-based services such as tracking andlabelling to clients Retailers can use it toautomate bookings into their chosencarrier, for example

Another is StoreFeeder, which builtRoyal Mail’s consumer and small busi-ness shipping tool, Click and Drop Thisallows eBay sellers to buy and printpostage labels without manually input-ting each buyer’s address

Alex Paterson, analyst at Investec,says that increasing cross-border orexpress deliveries could enable RoyalMail to drive up yields — meaninghigher revenue per unit “They want todevelop areas around [parcels] whichwill enable them to increase the level ofvalue-add they provide and the volumesthey attract,” he says

Royal Mail has gained greater

expo-sure to internet retail sales In July itacquired a stake in Mallzee, a personal-ised shopping app that aggregates itemsfrom more than 100 fashion retailers

The Chinese consumer market fitsinto the group’s ambitions Through tie-ups with Alibaba, British brands such asBrompton, the fold-up bike-maker, aresold through a Royal Mail online “storefront” on the Chinese ecommercegroup’s Tmall marketplace Chinesegoods are shipped in the other direction

Royal Mail also bought a stake in ket Engine, which provides softwareallowing businesses to manage online

Mar-“shop fronts” translated into local guages However, its foray into ecom-merce may take time to deliver RoyalMail did not disclose a value for thedeals and has not made any revenueforecasts for the ventures

lan-Mr Byde of Cantor Fitzgerald mates the new additions could contrib-ute about £100m in sales in two years,against current turnover of £9.3bn

esti-“The revenue from these acquisitions

is going to be fairly marginal for sometime It’s about how they can apply thattechnology to their existing businessesand customer base,” he adds

Royal Mail puts its stamp on ecommerce world

Postal group embarks on

buying spree, aiming to deliver

growth in a competitive field

An employeesorts deliveries

at Royal Mail’sMount PleasantMail Centre inLondon

— Carl Court/Getty Images

Feb 2015 StoreFeeder, a UK provider

of seller integration software thatplugs into eBay for vendors

July 2015 Mallzee, a personalshopping app for clothing developed

in the UK

Sept 2015 Market Engine Global, anAustralian start-up that helpsbusinesses manage online

“shopfronts”

Dec 2015 Ecourier, a same-daydelivery company that operates inLondon

Dec 2015 NetDespatch, whichprovides a shipping, parcel datamanagement and labelling platform

March 2016 Intersoft, a provider ofdelivery management software forinternational parcel shipments

Companies in which postal operator has invested

Timeline

‘It’s about how they can

apply that technology to

their existing businesses’

chairman, argues that not having

a brand is

an advantage

20 ★ FINANCIAL TIMES Monday 30 May 2016