Month: September 2011

A safer future

Posted on by Ben Debski

SSG Entre continues to grow and is now well on its way to becoming an industry standard. At the current time, Sweden’s pulp and paper mills require their contractors to have completed the SSG Entre basic training course and to be equipped with an ‘Entre’ passport. In addition, the concept has spread to a large number of other industrial sites in the steel, mining, chemicals, energy, engineering and sawmill industries.

“Over 70,000 contractors have been approved since the start in late 2006. Many more industries are also in the pipeline. Large swathes of Swedish industry now take part in the collaboration. At the same time, discussions are underway about new partnerships with Norwegian, Finnish and European process industries,” states Jonas Berggren, CEO of the SSG Standard Solutions Group.

Fewer near misses
The background to this massive focus on an industry-specific interactive safety training course is that contractors have previously been over-represented in accident statistics. Traditional safety training has proven time-consuming, costly and ineffective. Contractors have been forced to go through similar briefings at several different mills before every large-scale maintenance session, which has unfortunately created low motivation and a poor focus.

At the same time, the industry usually pays for the contractors to attend these safety briefings. A lot of time has also been spent on keeping the information up to date, and on checking that the information has really reached everyone concerned.

Making sustainability a standard
SSG is owned by the seven biggest forestry industries in Sweden, but the company’s services are also used by other process industries. SSG is working to develop common standards within the industry as a means of achieving greater availability, operational reliability, personal safety and also, increased sustainability. SSG has so far drawn up more than 450 technical standards.

“Whatever the area in which we produce a standard, the key is to achieve energy efficiencies and use as few resources as possible in production,” explains Berggren. “Our owners and customers have amassed enormous experience in making investments. Our task at SSG is to refine that knowledge and transfer it into standards that can be used to support procurement, planning and design.”

Saving the environment and money
SSG has also built up a web-based product database that holds around 600,000 articles with unique article numbers, descriptions and classifications. The SSG product database is a strategic resource for uniform product data within the company, the group and the industry as a whole.

Maintaining order in the article structure is crucial, helping companies signed up to the SSG product database to reduce tied-up capital, lower purchasing costs, increase plant availability and cut administration. The article description is the same for all linked units and allows cooperation with other units, both within and outside your own company. Today, the concept is used in much of the Swedish forest industry, in an increasing part of the Swedish steel industry and in the energy sector.

Lifecycle economy
SSG’s standards have made it easier for the industry to put pressure on suppliers. Those who want a chance in the procurement process need to meet the requirements set: “And here it is important to stress how significant the concepts of sustainability and lifecycle economy are. Whatever the area in which we produce a standard, the emphasis is on meeting a need, but naturally with an eye on creating energy efficiencies and using as few resources as possible in the production process. In addition, the number of stock items can be reduced,” says Berggren.

Environment passport for employees
The SSG Environment Passport is an interactive, web-based environmental training course aimed at all industrial personnel. The purpose of the course is, at a low cost, to give all employees a basic level of environmental knowledge as well as an insight into the environmental effects of the plant’s activities.

The Environment Passport comprises three different modules – the landscape, the forest and, if required, the mill, which is an industry-specific module. Having all the modules activated increases the scope to raise employees’ awareness of and expertise in the impact of their operations on the wider environment.

Time and patience

Posted on by scott

Global FDI, a key component of the world’s economic growth engine in good times, is slow to recover from the financial crisis. GDP growth has been back in positive territory for a while, world trade has returned to its pre-crisis levels, and the income that firms earn on their foreign investments is close to 2007 highs, but FDI flows still remain some 15 percent below their pre-crisis average and nearly 40 percent below their 2007 peak, according to the recent UNCTAD 2011 World Investment Report.

This is serious: the global thirst for private productive investment increases as public investment runs out of steam in one country after another. It is all the more serious as the investment drought is neither caused by a lack of funds nor by a lack of opportunity for multinational firms to invest. Could an improved and reenergised investment policy regime make a difference?

The reluctance of multinational firms to invest is not due to a lack of capital. Companies across the developed world are sitting on record amounts. US firms are holding an estimated $1.3trn in cash, EU and Japanese firms are holding even more, at around $2trn each. The increase of these cash holdings in the last two years has been astronomical: Federal Reserve data indicates that cash holdings by (non-bank) US companies rocketed after a steep drop in 2008 to almost twice the pre-crisis levels in 2010. These are untapped funds that could be gainfully employed to stimulate the global economy, create jobs and finance development.

Opposite directions
However, as reported in WIR11, many governments are sending mixed signals to investors. On the one hand, there are moves to liberalise investment regimes and promote foreign investment in response to intensified competition for FDI.

On the other, governments are increasingly regulating and restricting FDI in the context of industrial policies or motivated by less well-defined notions of national economic security. The two opposing policy directions can even be witnessed simultaneously in the same country.

Today’s dichotomy in national investment policymaking contrasts with the more clear-cut trends of previous decades. The 1950s to 1980s focused on regulation, the 1990s to early 2000s focused on liberalisation. In the last two years, out of a total of some 200 national investment policy measures identified by UNCTAD, a little under 70 percent supported liberalisation and promotion of foreign investment, against a 30 percent share of more regulatory/restrictive measures, the highest level since 1992. Such restrictive measures range from tighter implementation of entry requirements to more stringent application of national regulations, expropriation measures and nationalisations (some in connection with bailouts).

Meanwhile, the international investment regime is equally confusing. There are more than 6,000 international investment agreements (IIAs) today at the bilateral, sub-regional, regional, inter-regional and sectoral levels. The investment regime is multi-layered, multi-faceted and highly atomised. On average, three investment treaties are signed a week over the past few years. With thousands of treaties, numerous ongoing negotiations and multiple dispute-settlement mechanisms, the regime has become too large for states to handle, too complicated for firms to take advantage of, and too complex for stakeholders at large to monitor. At the same time, the regime is still too limited to cover the whole investment universe. In fact, according to UNCTAD estimates, some 80 percent of bilateral investment relationships accounting for 30 percent of global FDI stocks are not covered by any form of post-establishment protection. In terms of substance, common modalities of firms’ international operations, such as contract manufacturing, franchising or licensing are not accounted for, and many other substantive gaps remain.

Repairing the damage
Paradoxically, while almost all countries are actively engaged in IIAs, hardly any are satisfied with the regime. First, it is full of gaps, overlaps and inconsistencies between investment agreements, including among those signed by the same countries. The regime’s investor-state dispute settlement mechanism has also raised serious concerns with stakeholders. Second, the regime lacks clear obligations on the part of investors; it is weak in the development dimension and often unduly limits policy space for developing-country governments. Third, there are hardly any mechanisms for coordination between the IIA regime and other parts of the global economic governance system. The ‘interconnect’ between investment policies and other policies such as trade, finance, competition or environmental (eg: climate change) policies, is missing.

The world has a multilateral trade system (WTO) and a multilateral monetary system (IMF), however flawed, but no equivalent for international investment policymaking.

If undertaken in an inclusive and transparent manner, multilateral consensus building on investment methods can help to:
– Consolidate the myriad of international investment treaties to address systemic gaps and inconsistencies, and coordinate international investment policymaking – such coordination would also allay long-standing fears of a ‘race to the bottom’ of regulatory standards and a ‘race to the top’ of incentives and handouts.
Integrate the development dimension, maintaining proper balance between regulation and liberalisation in investment policies and ensuring sufficient policy space for developing countries to pursue development strategies or industrial policies.
– Establish a set of multilaterally agreed principles for sustainable investment (investment that makes a positive contribution to development and is socially and environmentally responsible) to guide investment policy making at national and international levels.

So far, discussions on the future of global economic governance lack an investment angle and the international community appears reluctant to pursue it – the failed attempts of the past to come to a multilateral agreement on investment are still a powerful deterrent. However, effective global coordination on international investment policies is desirable – if not indispensable – to encourage a new investment boom and to harness investment for future development in needed areas.

EU wins backing for tariffs on Chinese products

Posted on by scott

The European Union is set to launch extensive trade barriers on bicycles and ceramic tiles from China, which are the latest defensive measures designed to protect EU producers.

Plans by the EU Commission to launch five-year punitive import duties worth up to 69.7 percent on the bloc’s €275m imports of Chinese bathroom, kitchen and paving tiles received majority backing from trade diplomats from EU states, diplomats said. The duties aim to counteract what the EU says is illegal Chinese export pricing that hurts the profit margins of EU producers. They must come into effect by the middle of this summer.

Chinese bicycle and bicycle part exporters also face an extension until 2016 of existing anti-dumping duties worth up to 48.5 percent, after a Commission plan won approval from a majority of EU states. The duty extension, which begun in October, is likely to ruffle feathers in China, particularly since an extension had originally been planned to last only three years until 2014.

EU-Chinese trade relations have recently been strained by a World Trade Organisation ruling that gives China fresh power to challenge EU tariffs on goods Europe says are being dumped on its market. A separate WTO ruling against Chinese export curbs is likely to be appealed by Beijing.

European bicycle producers based largely in Germany and Italy made the case that their business was under sufficient threat from unfair Chinese competition to warrant a five-year extension.China exported nearly 700,000 bicycles and had total bicycle-related exports to the EU worth €430m in 2009.

South Korea fines Apple over data

Posted on by scott

Apple’s South Korean unit has been fined 3m Won ($2,855) by the country’s communications regulator after the iPhone and iPad maker collected location data from users without proper authorisation.

The fine, though small, marks the first time Apple has been punished by a regulator over the controversial location data collection which has sparked criticism in the US and elsewhere.

The revelation back in April that Apple’s iPhones collected location data and stored it for up to a year – even when location software was supposedly turned off – has prompted renewed scrutiny of the nexus between location and privacy. Apple has since issued a patch to fix the problem.

Some 27,800 South Korean iPhone and iPad users are planning to launch a class action suit against Apple over the matter, while two separate US groups have sued Apple, alleging that certain software applications were passing personal information to third-party advertisers without consent.The Korea Communications Commission (KCC) ordered corrective measures on the South Korean operations of Apple and Google, saying it has found loopholes in systems supposed to protect location information. It ordered the technology giants to encrypt location data stored in smartphones.

Apple Korea could have had its business suspended or been fined three percent of its location information revenue for failing to encrypt location data, or been fined up to 10 million Won for collecting data without permission of its users, the KCC said.

Google, a fierce competitor of Apple has also faced a whole host of criticism over the recent reports that its Android-based phones track the location of users. However, Google said that location-sharing on its Android mobile platform was strictly opt-in. “We are currently reviewing the KCC’s decision,” Google Korea said in a statement. “We have been cooperating closely with the KCC to answer their questions, and look forward to continuing to working with them again in the future.”

Back in June, Apple paid a Korean lawyer one million won ($942) in a court ruling regarding its location data collection, the first payout from the US tech giant over the assortment of complaints.

New rules urged on hybrid animal-human experiments

Posted on by scott

Scientific experiments that insert human genes or cells into animals need new rules to ensure they are ethically acceptable and do not lead to the creation of “monsters”, say a group of leading British researchers.

Researcher’s around the world are constantly pushing boundaries. Chinese scientists have already introduced human stem cells into goat foetuses and US researchers have studied the idea of creating a mouse with human brain cells – though they have not actually done so.

Such research needs special oversight, according to a report from Britain’s Academy of Medical Sciences on the use of animals containing human material.

Using animals with limited humanised traits is not new. Genetically engineered mice containing human DNA are already a mainstay of research into new drugs for aggressive diseases like cancer.

But Martin Bobrow, a professor of medical genetics at the University of Cambridge, who led the Academy’s working group, said there were three areas of particular concern. “Where people begin to worry is when you get to the brain, to the germ [reproductive] cells, and to the sort of central features that help us recognise what is a person, like skin texture, facial shape and speech,” he told reporters.

His report recommends that government should put in place a national expert body, working within the existing system for regulating animal research, to oversee such sensitive areas. British ministers said they welcomed the report and would consider its recommendations carefully.

Chaos management

Posted on by Ben Debski

In the years leading up to the financial crisis, commodity markets were seen as the poor cousin of the stock market. Since markets were fragmented, prices were more or less stable and profits were considered to be little for commodity traders as compared to the windfalls that stock markets promised.

Speculators flooded the commodity markets after the 2008 financial crisis, for profit taking, leading to explosion in transaction volume and price volatility. Crude Palm Oil prices reached a high of $1,350 (RM 4,312) per metric ton in March 2008 before plummeting to as low as $437 (RM 1,390) in October that same year. With the increasing imbalance between growing demand and limited supply, commodity markets have become highly unpredictable, where fortunes can be made or lost in a single day. Commodity traders need solutions to give them visibility on their exposures, be able to simulate worse case scenarios and take corrective actions.

Trading companies in Asia have also witnessed the huge losses due to lack of trading controls, wrong decisions and ignoring operational risks. The industry has seen China Aviation Oil lose $555m due to lax controls and Mitsui Oil lost more than $50m as a result of a risk manager falsifying trading accounts to hide trading losses. Operational risk management, if not managed properly, has the potential of inflicting huge losses and creating non-compliance problems for the management. The need of the industry is automation of the trade life cycle with pre-defined limits and controls.

In the aftermath of the 2008 financial crisis which saw oil prices crashing, many buyers opted to default on their contractual obligations. This left many sellers high and dry with huge floating inventories for which there were no buyers and piling demurrage charges. This can be managed with good counterparty risk and exposure management.

Where companies once managed their trades either manually (through mountains of paperwork) or through in-house developed solutions addressing bits and pieces of their requirements, top management is beginning to realise the value in adopting trading and risk management solutions providing integrated platforms for trade lifecycle, supply chain and risk management. In its recent Global CTRM ‘Market Sizing Study’, CommodityPoint estimated over $290m was spent on CTRM software in 2010 and that is forecast to increase to $321m in 2011, representing a healthy growth rate of approximately 11 percent.

Moreover, taking into account associated services and peripheral software sales; the broader CTRM software market is in excess of $2bn globally annually.

Risky business
There are many types of risks faced by companies dealing with commodities – counterparty risks, market risks, material risks and operational risks. CTRM software, such as JustCommodity’s award winning ContraXcentral, helps in minimising risks by automating business processes and enforcing controls. The system incorporates several functions such as trade lifecycle management, supply chain management, and risk management, all of which work towards improving operational efficiency, mitigating risk and administering better cash flows.

CTRM systems enables controls like trading limits, credit limits, price limits and others to pro-actively alert management of any potential pitfalls. Trading strategies can be defined and enforced to maximize profit with minimum risks.

CTRM software takes care of operational risk through its efficient online system processes. These processes reduce and, in many cases, eliminate human error by ensuring that all data has a single entry point and is stored in a central repository. Operational risk is also reduced by automating the recording of loading, receipt and delivery timings for physical goods. In addition to reducing human error, systems also provide the added benefit of simplifying audit compliance, report collation and report generation – both notoriously tedious time consuming activities.

Driving commodity markets
Innovation is an important aspect in every software businesses’ growth especially in a market as volatile as commodities. It is just as important for firms to provide a solution in response to current problems as it is to constantly modify and predict solutions which can solve predicaments in the future.

Keen foresight in technology development is essential for survival and vendors who keep abreast of new and potential market developments will flourish. There is a very strong need for CTRM software, not just to manage volatility in the market, but also in the day to day operations of any trading company.

Asia is set to grow at a rapid pace in the coming years as investment funds move out from fragile Western economies and, while most CTRM providers are located in the West, one vendor stands out as a potential giant in the Asian market. Already in its tenth year of operation, JustCommodity is optimally positioned to service these markets. The company strongly advocates innovation in its software development and already boasts a stellar clientele including several on the Forbes Global 2000 list. In this highly volatile environment, it falls upon vendors, such as JustCommodity, to provide the tools necessary for traders and managers to make sense of the chaos.

Ready and edible

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When the first GM products surfaced in the early 90s, the issue sparked huge debate and resulted in a frenzied backlash among press and public. Deemed “Frankenstein” food, critics warned that playing with nature would have dire consequences, putting both human health and the environment in danger. Giving rise to the fear, the scares have been many, but few have been validated. One highly publicised fright was the story claiming that falling birth rates in the US was directly related to the introduction of GM foods in 1996. According to a historical review of US birth rates, it emerged that the statistics curve showed much more dramatic drops than the one seen in 1996.

Among the doom mongering, there are some valid concerns. The risk that GM food can cause allergic reaction in humans is a worrying possibility, since genes used in the technology might derive from a food that causes allergies in some people. By transferring the gene into another organism, the host could inherent the allergen as a trait. Another » possibility is that a new allergen could be produced when genes are mixed across different species. To avoid sparking allergic reactions, GM food is now routinely inspected for toxicity that can cause allergies.

Production, starvation, balance
Other concerns associated with the debate are that GM crops may pose a threat to biodiversity, as other organisms in the ecosystem could be harmed. By making one form of pest extinct in order to protect crops, an animal could be stripped of its food source. Also, GM crops could prove toxic to certain organisms in the environment, which might lead to the organism’s extinction or its numbers being reduced. Some GM foods are modified using bacteria and viruses – which some believe, can potentially give rise to new diseases.

On the commercial side of the spectrum, small traditional farmers are inevitably set to lose out, while multinational biotech companies will potentially reap the huge rewards. Though none of these concerns can ever be fully validated, they linger in the minds of critics and form the basis of the negative opinions that prevail in some countries. Not helping matters, the US and China have been known to be responsible for incidents in which GM plants have showed up in the wrong food chains of nations where GM produce has not yet been commercialised.

Up until now, world food production has kept a steady pace with population growth. Thanks to an increase in agricultural land, more food is available per person today compared to the 1960s. Another reason for increased availability of food is that a great deal more pesticides and fertilisers are used.

Combined, these aspects could be a reason to harness the prospect of introducing GM crops on a wider scale as the technology could help to preserve forests and biodiversity, as well as reduce nitrate pollution and soil degradation. Fertiliser production alone is responsible for the mining of large amounts of phosphates, meaning that reserves are dwindling dramatically. It’s estimated that phosphate storage will be completely exhausted in 100 years, if the production of pesticides continues.

Indeed, the agenda of the original GM movement was to produce food crops immune or resistant to herbicides or pests. But one of the biggest arguments in favour of the development of GM foods is that it’ll potentially provide a solution for world starvation. Before long, the world’s population will reach such a staggering number that it’ll be too enormous to feed itself. A benefit of GM foods relates to quantity. GM crops have the capacity to solve many countries’ food scarcity and malnutrition issues.

Countries that would benefit from the introduction of GM crops in particular include India – a subcontinent which holds nearly half the world’s starving people. The introduction of GM crops would not only help solve the starvation problem, it would also help to give India’s GDP a boost, and open new market avenues.

GM crops can also reduce the cost and environmental impact of farming as pesticides will be made redundant. Measures are also being taken to make them grow better in harsh environments where droughts and other forms of harsh natural conditions have been known to have devastated harvests. These advances will help provide sufficient yields and quality despite seasons ridden with bad weather.

In terms of cost, GM crops are also more economical, although the initial cost of the seeds is higher than the standard variety. The fact that costs are reduced due to limited use of pesticides is one bank∞friendly aspect, but cost can also be kept down due to the fact that less manpower is needed to tend to the stock.

A tomato a day
Nutritionally, GM foods are far superior to their natural counterpart. Improved food quality is at the heart of the development of GM foods. A soybean, for example, can be engineered to stay fresher for longer, and thereby extend its sell-by-date. GM foods can be manipulated to hold a high content of a specific nutrient. This is particularly helpful when looking to feed the hungry in areas in which the diet is short of that particular nutrient. Akin to a one-a-day vitamin pill, food groups usually associated with a limited set of vitamins will widen their appeal to potentially contain an impressive spectrum of nutrients. In the future, a GM pork chop may provide a whole plethora of nutrients adding to those usually associated with the meat. The so-called “golden rice” is one example of a food type that has been engineered to offer greater nutritional values. In this case, Vitamin A is the magic ingredient.

Countries leading the way 
Some countries welcome the advancement of GM foods more so than others. In Europe, scepticism remains high, and the UK takes a particularly suspicious stance. But sensational protests have taken place all over the world.

One notable upheaval is the protest that saw Indian environmentalists dressed up as aubergines, protesting against the introduction of GM versions of the purple-hued, bulbous vegetable. Another famous case involved British protestors dressed in radioactive suits and furiously trampling down trials GM crops. The ardent means of objection seen in the UK haven’t been called ‘luddite-esque’ for nothing.

Before the protest took place, Britain was at the forefront of GM technology, both in terms of science and also in » developing procedures to meet environmental and medical safety of the crops. However, the protest campaign was ultimately successful, and brought further development and commercial production to a standstill. Prince Charles, who himself is involved in eco farming, has become something of a mouthpiece for the war on GM food and his voice is heard not only in the UK but across the world.

Meanwhile India, is not holding back when it comes to GM advances, despite zealous resistance from parts of the public. The country has been at the forefront of the movement since the very beginning is the US. With American commercial production legal and commonplace, products don’t have to be labelled. Key product categories include herbicide-tolerant soybeans and insect-resistant corn. The major companies operating on the US market are Monsanto and DuPont – both have passed rigid tests to meet standards in relation to health and environment.

All possibilities
Not surprisingly, China is making enormous progress in the GM stakes. The country has acquired a dominant position in the business of developing and selling genetically modified seed. This is very much an advance employed out of necessity, since the country faces the impossible task of feeding every fifth person on the planet making do with less than one-tenth of the world’s farmland. To ease the imbalance and strain to feed its people, the Chinese government has injected hundreds of millions of dollars into GM crop research and development. The focus is to cultivate plants with added benefits such as resistance to pest and weed so as to ensure healthy and rapid growth of the crops. Ultimately, the move will help farmers yield more food and commodities at a lower cost. Something that is particularly important since much of China’s farmland is being eradicated due to development and drought. China has already started producing papaya, tomato and bell peppers to complement crops of rice, wheat, maize and soybean. The introduction of livestock will soon follow.

China’s advance in the GM stakes indicates that a shift in the market is taking place. During the start-up decade when GM crops entered the arena, most activity was confined to the US. The new era of GM crop may well be dominated by Asia. This is not necessarily good news and might see the controversy that surrounds GM food deepen. Whereas trust is fairly high in the US’s GM production, which owes to its implementation of strict regulations, the same level of scrutiny hasn’t been applied to Chinese crops. Given the rate at which China and its GM production are growing, there are fears that it’ll be difficult to ensure that quality control will keep the same strict rules as those carried out in the US. The concerns that arose over the illegally distributed Bt63 rice contamination only served to plant yet another seed of worry in the suspicious minds of GM sceptics. The infamous GE rice has recently been made illegal in China; as it has not yet been approved as safe in tests for either human consumption or the environment.

Almost anything is possible when dabbling in the science of GM food. Meddling with animals in order to come up with the multi∞nutritional food of the future appears particularly sinister to some, much more so when engineering plants and crops. Culinary curiosities like beef infused with fish oil is only one food category being researched at present.

An innovation introduced to the world in 2004 by Harvard University, the researchers have shown that it is possible to create mammals that secrete the Omega-3 constituent of fish oil in their muscles. Using mice as guinea pigs the study has shown that the meat would combine the benefits of an iron rich food, while at the same time offer the omega 3 quotient recommended by nutritionists. To choose between a salmon filet or srloin steak might not be so tricky, or even necessary, in the future.

In a similar vein, an unconfirmed newspaper report claimed that Japanese scientists had determined that they’d come up with a way to genetically engineer pigs to develop “spinach genes”. Allegedly, the pigs possess a gene called FAD2, which converts saturated fat into an unsaturated fat called linoleic acid. Spider silk has been grown from genetically modified cells for the first time. This could pave the way for the manufacture of super-strong, light and biodegradable materials, according to the Canadian-based company, Nexia, who are behind the study.

Endless potential

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The environment is in the spotlight. There are serious concerns addressed by the international community and its numerous institutions about the importance of coordinating global efforts to protect the planet from current environmental damages caused by the massive industrial and technological revolution in both rich and developing countries.

These efforts were the centre of discussions in the UN, most recently the Climate Change Summit, who wanted to send a clear and strong message to the world about the negative impacts of damaging the natural ecosystem to the planet and human well-being.

According to UNEP and REN21 report, global investments in renewables topped non-renewables in 2009. Investments in core clean energy (new renewables, biofuels and energy efficiency) reached hundreds of billions of dollars as clean energy investments showed resilience in recession.

In most developing countries and the Middle East in particular, sustainability is a key element in economic and social growth and for future generations to live and to exist in. Many countries in the region have realised the importance of achieving sustainable development and started to deal with climate change and environmental issues far more seriously. Aggressive steps have been taken towards economic diversification and exploring alternative sources of energy.

Eastern promise
Qatar National Vision 2030 clearly highlighted the country’s concern towards environment development and the need for increasing public awareness on environmental conservation and protection.

An important member of the Qatar National Vision 2030 was quoted as saying: “The environmental pillar will be increasingly important as Qatar is forced to deal with local environmental issues, such as the impact of diminishing water and hydrocarbon resources, the effects of pollution and environmental degradation, as well as international environmental issues such as the potential impact of global warming on water levels in Qatar and thereby on coastal urban development. Assessing the severity of risks and dealing with anticipated changes will require mobilising our capacities and coordinating efforts to tackle problems that arise”.

Qatar is aware of the enormous potential that lies in the sources of clean and renewable energy, particularly the solar energy that is abundantly available in our climate. The Government has encouraged the existing industries, educational establishments and scientific research centers to develop renewable energy technologies that would contribute to improving efficiency and performance suitable for local conditions.

Qatar is looking forward to a more intensive international effort in sharing information and expertise in the development of solar and other renewable energies, and urges developed countries to provide modern technologies in this area and contribute to implementing and financing renewable energy projects around the world.

The country is pleased to be part of many practical efforts that aiming to achieve QNV 2030 by organising an international exhibition and conference in Qatar (ecoQ 2011) to showcase some of the latest technologies and products in environment protection and renewable energy, as well as to discuss environmental issues and challenges from regional and local perspective.

Changing perceptions
EcoQ is an international annual exhibition and conference taking place in Qatar from the 16-18 October 2011 at the Doha International Exhibition Centre. The 10,000 sqm expo will showcase technologies, products on environment protection and sustainable energy covering various related sectors. In addition, a high profile conference is organised in parallel to the Expo to discuss environmental issues from regional perspective.

Some of the supporters of this year’s event include: the Ministry of the Environment, The Environment Research Centre, the Qatar Chamber of Commerce & Industry, the German Delegation for Trade & Commerce AHK and the Friends of the Environment Centre.

The conference will cover a plethora of different environmental sectors. Just some the sectors include: Solar energy, sustainable cities, air pollution treatment, eco-friendly transportation, bio-fuel, marine protection and reservation, anti-pollution and noise technologies and water and sewage treatment.

United vision
Qatar’s future vision towards achieving sustainability is encapsulated in the following objectives: 
– Introducing the latest technologies and products in environment protection and sustainable energy to the business sector in Qatar.

– Highlighting efforts and initiatives adopted by Qatari organisations, companies and institutions to achieve Qatar future vision on sustainable development and protecting the environment.

– To share knowledge and network with leading global organisations, companies, institutions and research centres.

– Build and increase public knowledge and awareness on environmental issues especially among youngsters and teenagers to create the concept of a ‘environmentally-cultured’ society. 

The right place and time
The conference and exhibition provides an excellent opportunity and a unique platform for global business leaders and investors in the environmental, renewable energy and sustainability sectors to meet with local and regional government officials, business representatives, trade associations, institutional stakeholders, academics, NGOs and other parties interested in reaching out to the rapidly growing markets of products and technologies designed to protect the environment.

EcoQ covers an array of sectors from the small energy-saving light bulb to major industrial waste-management technologies. It is comprehensive and it is focused.

Qatar’s winning bid to host the World Cup in 2022 for the first time in the Middle East has generated positive global attention to the state and its vision to set a leading example in organising this massive sporting event with minimum impact on the environment. Qatar 2022 will be the first carbon-neutral World Cup, utilising sustainable technologies and high-end cooling systems for its twelve state-of-the-art stadiums, fan zones and training grounds.

The event is a live-on-ground source of information on environment protection technologies and renewable energy resources. It will have interactive events featuring business ethics and corporate social responsibility towards the environment. Furthermore, it will support efforts to increase and foster public awareness on environmental topics and sustainable development.

Up and running

Posted on by Ben Debski

The global economy is a moving feast with the crisis events of a few years ago testing even the most robust of companies. Cast your mind back to the industrial revolution and consider coal – a fossil fuel. Since that time coal has been one of the foundations of growing economies. In today’s uncertain economic times, Australian energy company Linc Energy has now diversified its approach to delivering achievable energy solutions wherever there is coal, oil and gas around the globe.

Coal, oil and gas are critical sources of energy to harness in order to fuel economies. The task in today’s economy is how to balance these traditional resources with the advent of our now carbon conscious era. In the past 12 months Linc Energy has moved into new territory and has established an oil and gas division to focus on the acquisition of oil assets in the US. Oil projects in North America place the company in a unique position. They allow us a clear path to immediate revenue creation where current oil production exists and provide us with a platform to increase oil production rates from near-depleted oil wells by applying Enhanced Oil Recovery (EOR) technology.

The company is doing all of this on top of a strong foundation of coal resources. If you think about what is at the core of Linc Energy and what drives the business strategy, it is that it is a company focussed on creating value from existing fossil fuels by transforming them for tomorrow’s energy needs, and with today’s environmental consciousness in mind.

The entrance into oil and gas
Linc Energy sees acquiring global oil and gas assets as a vital component of a value-creating business strategy. The company has plans to acquire enough oil producing assets to meet 100,000 barrels of oil production per day. With this oil and gas acquisition strategy and the traditional oil production activities these acquisitions bring, we will also look to apply EOR methods to sweep stranded oil from existing oil reservoirs. This will allow us to increase the amount of recoverable oil from a conventional oil field by 10 to 20 per cent to generate considerably higher cash flows for all of our energy projects.

Over the past few months Linc Energy has been aggressively expanding its presence into North America by purchasing a number of oil and gas assets. We recently announced the acquisition of a controlling interest in over 19,000 acres of oil tenure located in Alaska’s National Petroleum Reserve. Known as the ‘Umiat’ oil field, it is currently projected to have in excess of 50,000 barrels of oil per day at peak production, providing us with the potential to access about one billion barrels of Alaskan (API 37) light sweet crude.

An acquisition of this size is totally unprecedented in Linc Energy’s history and gets the company significantly closer to reaching our long term goal of one billion barrels of oil reserves, meaning an oil production rate of more than 100,000 barrels per day. This acquisition has definitely given us significant exposure in the North American region, and our entrance into the region has even been recognised by the Alaskan Governor Sean Parnell.

The energy potential in this area is simply staggering and virtually impossible to replicate in any other part of the world. The Umiat oil field will now become Linc Energy’s Alaskan operational base from which to increase oil and natural gas exploration and development activities in the foothills of the North Slope region.

Earlier this year Linc Energy also purchased oil fields in the heart of America’s energy hub – the Powder River Basin in the state of Wyoming. Here we acquired three oil fields currently producing about 190 barrels of oil per day. The key upside to this purchase is the application of EOR for even higher oil production rates.

In our home country of Australia, Linc Energy is exploring for traditional oil and gas opportunities in the state of South Australia. In the Arckaringa Basin we are progressing a program of 10 oil exploration wells, as well as a significant 2D seismic program. It is programs such as these that showcase our entrepreneurial spirit and drive to create new energy regions.

How EOR fits with UCG
In terms of coal assets and proven clean coal technology, Linc Energy has already proven it is the leader in Underground Coal Gasification (UCG) for the production of clean power and clean fuel. We have a strong portfolio of traditional and UCG-suitable coal assets in both the United States and Australia, and have established the world’s only UCG and Gas to Liquids (GTL) facility in Queensland, Australia to produce clean gas for cleaner energy solutions. Earlier this year, and to prove our case, we drove across Australia on synthetic diesel produced from our technologies.

As the world’s leading UCG player, Linc Energy has taken a century old technology and advanced it for today’s energy climate. UCG converts low value coal, where it lies in the coal seam, into a clean gas for cleaner power and fuel. It is Linc Energy’s ability to unlock this coal to create valuable energy products that differentiates us from other traditional energy companies. What is more exciting is that we produce energy solutions that, when used, carry lower greenhouse gas emissions compared with traditional power and fuel.

In Australia we have been operating UCG gasifiers at our demonstration facility in Queensland since 1999. Our fifth UCG gasifier is currently under construction and this will then operate in tandem with the gasifier that has been operating for the past 18 months. A few years ago we constructed the GTL Fischer-Tropsch process facility which takes produced UCG synthesis gas and transforms it into synthetic crude to be refined into very valuable diesel and jet fuel. Linc Energy also owns the world’s only commercial UCG operation, Yerostigaz, located in » Uzbekistan, which has now produced commercial UCG synthesis gas for power generation for 50 years.

You might wonder then what using deep, low value coal has to do with oil assets and EOR technology to produce greater rates of oil production? In basic terms, the primary waste product from UCG is carbon dioxide, which is ideal when used in the EOR process to sweep stranded, remaining oil from near depleted oil wells. With the company’s accelerated presence in the United States and leading capabilities in UCG, it makes perfect sense for us to use waste carbon dioxide from UCG for EOR.

In a commercial sense, using carbon dioxide from the UCG process ensures that nothing is wasted. Just as UCG unlocks the energy trapped in deep coal, too deep to mine, carbon dioxide can be inserted into depleting oil reservoirs to harvest the remaining oil. The EOR process can draw an additional 10 to 20 percent of the original amount of oil already taken from a well.

From an environmental point of view EOR is a form of carbon capture and storage. By their very nature, oil fields trap fluids, like oil, in the subsurface. The oil migrates from the source to a place where it can no longer move. This is known as a geologic trap. It is this same ‘trapping’ tendency that makes old oil wells the perfect place to inject carbon dioxide – quite simply, when it is put there, it stays there.

As a diversified energy company, Linc Energy is certainly doing its part to be as productive and environmentally conscious as possible. Any carbon dioxide that we can sequester to generate more energy to help supply traditional global needs is a positive step.

Showcasing UCG to GTL made diesel
For countries with little oil and a lot of coal, UCG offers a world of ‘energy’ opportunity. Earlier this year I personally drove across Australia, from our UCG to GTL  demonstration facility in Chinchilla in Queensland, all the way to Perth in Western Australia – a distance of over 6,000 kilometres. This world-first achievement grabbed the attention of local, state and federal politicians in Australia, not to mention global print, broadcast and electronic media outlets and the wider public. It not only gave Linc Energy great exposure as a company extending its thinking and processes for new energy solutions, it provided a greater awareness of the benefits of combined UCG and GTL technologies and the opportunities they present.

Governments around the world need to recognise that combined UCG and GTL technologies can and will make a difference to economies and communities by providing cheaper, cleaner alternative energy solutions, while also creating energy security within domestic borders. Our approach to diesel fuel production unlocks stranded coal resources, transforming them into valuable and much-needed products that can make countries energy self-sufficient.

A lot of blood, sweat and tears have gone into making Linc Energy the entrepreneurial and highly driven company that it is today. We have clawed our way through a global financial crisis, and today we extend across four continents. We now have new business divisions and skills in oil and gas, yet continue to harness energy from deep underground coal for new forms of energy. The Linc Energy journey is only just beginning, and I for one can’t wait to see where it takes us in the next 10 years.

Peter Bond is chief executive officer at Linc Energy
www.lincenergy.com
Invest using the codes ASX:LNC or OTCQX: LNCGY.

All that glitters

Posted on by Ben Debski

In a rundown patch of Detroit, enclosed by a cyclone fence and barbed wire, stands an unremarkable warehouse that investment bank Goldman Sachs has transformed into a money-making machine. The derelict neighbourhood off Michigan Avenue is a sharp contrast to Goldman’s bustling skyscraper headquarters near Wall Street, but the two operations share one important element: management by the bank’s savvy financial professionals.

A string of warehouses in Detroit, most of them operated by Goldman, has stockpiled more than a million tonnes of the industrial metal aluminium, about a quarter of global reported inventories. Simply storing all that metal generates tens of millions of dollars in rental revenues for Goldman every year. There’s just one problem: much less aluminium is leaving the depots than arriving, creating a supply pinch for manufacturers of everything from soft drink cans to aircraft. The resulting spike in prices has sparked a clash between companies forced to pay more for their aluminium and wait months for it to be delivered, Goldman, which is keen to keep its cash machines humming.

Furthermore, the London Metal Exchange (LME), the world’s benchmark industrial metals market, has been accused by critics of lax oversight. Analysts question why London’s metals market allows big financial players like Goldman to own the warehouses which store huge quantities of metal even as they trade the commodity. Robin Bhar, a veteran metals analyst at Credit Agricole in London says the conflict of interest is so acute he wants US and European anti-trust regulators to weigh in.

“I think it makes a mockery of the market. It’s a shame,” Bhar said. “This is an anti-competitive situation. It puts (some) companies at an advantage, and clearly the rest of the market at a disadvantage. It’s a real, genuine concern. And I think the regulators have to look at it.” Goldman Sachs said its warehouse subsidiary Metro International Trade Services has done nothing illegal, and abides by the LME’s warehousing rules. “Producers have chosen to store metal in Detroit with Metro,” a Goldman spokeswoman said. “We follow the LME requirements in terms of storing and releasing metals from our warehouses.”

The London Metal Exchange defends its rules. “There is a perception that consumers have not been able to get to their metal when the reality is that it is big banks, financing companies and warehouses that are not able to get to their huge tonnages of metal fast enough,” said LME business development manager Chris Evans.    

Business model
Goldman’s warehouse business relies on a lucrative opportunity enabled by the LME regulations. Those rules allow warehouses to release only a fraction of their inventories per day, much less than the metal that is regularly taken in for storage. In the year to June 30 Metro warehouses in Detroit took in 364,175 tonnes of aluminium and delivered out 171,350 tonnes. That represented 42 percent of inventory arrivals globally and 26 percent of the metal delivered out, according to the LME.

The metal that sits in the warehouse generates lucrative rental income. Little wonder that so many want in. Metro was acquired by Goldman in February 2010, while commodities trading firm Trafigura nabbed UK-based NEMS in March 2010, and Swiss-based group Glencore International acquired the metals warehousing unit of Italy’s Pacorini last September. Henry Bath, a warehousing firm and founding member of the London Metal Exchange in 1877, has been owned for about 40 years by traders or banks including Metallgesellschaft in the 1980s and failed US energy trader Enron at the turn of the century. It now comes under the umbrella of JP Morgan, which bought the metals trading business of RBS Sempra Commodities in July last year.

Despite its rental income, Goldman’s warehouse strategy apparently hasn’t been enough to snap a slumping performance in commodity trading, with the company reporting a “significant” drop in revenues from a year ago in its latest quarter, the sixth time in the past 10 quarters that it has failed to expand.
The long delays in metal delivery have buyers fuming. Some consumers are waiting up to a year to receive the aluminium they need for production and that has resulted in the perverse situation of higher prices at a time when the world is awash in the metal.

Consumers fume
“It’s driving up costs for the consumers in North America and it’s not being driven up because there is a true shortage in the market. It’s because of an issue of accessing metal … in Detroit warehouses,” said Nick Madden, chief procurement officer for Atlanta-based Novelis, which is owned by India’s Hindalco Industries Ltd and is the world’s biggest maker of rolled aluminium products. Novelis buys aluminium directly from producers but is still hit by the higher prices. Madden estimates that the US benchmark physical aluminium price is $20 to $40 a tonne higher because of the backlog at the Detroit warehouses.

The physical price is currently around $2,800 per tonne. That premium is forcing US businesses to fork out millions of dollars more for the six million tonnes of aluminium they use annually. It has also had a knock-on impact on the global market, which is forecast to consume about 45m tonnes of the lightweight, durable metal this year. Also pushing aluminium costs higher are bank financing deals, which are estimated to have locked up about 70 percent of the 4.4m tonnes of the metal sitting in LME-registered warehouses around the world. LME inventories hit an all-time record above 4.7m tonnes back in May.

In a typical deal, a bank buys aluminium from a producer, agrees to sell it at some future point at a profit, and strikes a warehouse deal to store it cheaply for an extended time period. The combination of the financing deals and the metal trapped in Detroit depots, means only a fraction of the inventories are available to the market. Premiums for physical aluminium – the amount paid above the LME’s cash contract currently trading at $2,620 a tonne – in the US Midwest hit a record high of $210 a tonne in May, up about 50 percent from late last year.

In Europe, the premium is at records above $200 a tonne, double the levels seen in January 2010. The ripple effect »  into Asia has seen the premium paid in Japan increase six percent to $120 a tonne in the third quarter from the previous quarter, the first rise in nearly six quarters.

Rent collection
You won’t hear banks like Goldman complaining. Rental income continues to pour in at the 19 Detroit area warehouses run by Metro. From the outside, depots in the Detroit suburb of Mt Clemens appear to be deserted. But neighbours say the place is a whirl of activity in the early hours of the morning when metal is usually delivered for storage.

The LME says the current maximum rent, set by warehouse operators, is 41 US cents per day per tonne. At that rate, Goldman’s warehouse operation in Detroit – said to be holding more than 1.1m tonnes – could be generating as much as $451,000 per day or about $165m a year in revenue.

An exact figure cannot be calculated because many clients negotiate lower rental rates and Goldman declined to detail its income from its warehouse business. But when Swiss-based trading company Glencore listed earlier this year it revealed that its metals warehousing unit generated $31m in profit on $220m in gross revenue in 2010.

A long history
Caught between consumers and warehouse operators is the 134-year old LME, one of the world’s last exchanges with open-outcry trading. Sessions take place in a trading ring with red padded seats while visitors can watch from a gallery. Traders juggle multiple telephones and use archaic hand signals to fill orders from consumers, producers and hedge funds.

The ring is a perhaps more civilised version of the tumultuous trading pits made famous in Chicago. Each of six major industrial metals including copper and nickel are traded for five minute bursts in the morning and afternoon. Only 12 firms have access to the ring, arranged in fixed positions in a circle, with many others involved via the ring dealers and on the LME’s electronic trading system.

Longer sessions in the late morning and afternoon allow trading of all metals simultaneously and are known as “the kerb” from the days when dealers continued to trade on the kerb, or sidewalk, after leaving the exchange.

The LME certifies and regulates the Detroit sheds as part of a global network of more than 640 warehouses. The network is meant to even out swings in volatile metals markets. During recessions, surplus metal can be stored until economies recover and demand picks up, when the metal can be released. But that function is now being undermined by the backlog in Detroit. LME rules stipulate that warehouses must deliver a certain amount of metal each day. However the rules apply not to each warehouse but to each city that a company has warehouses in. At the moment, a warehouse operator needs to deliver just 1,500 tonnes a day per city, whether it owns one warehouse there or dozens.

That means each of Metro’s Detroit warehouses need to release only 79 tonnes of aluminium a day. At that rate, it would take two years to clear the stocks held by Goldman’s Detroit warehouses. The backlog sparked outrage last year, prompting the LME to task London-based consultancy Europe Economics to look into its rules. Europe Economics recommended the exchange raise its minimum delivery rates and this July the exchange announced a new regime for operators with stocks of over 900,000 tonnes in one city. From April 2012 the minimum delivery rate will double to 3,000 tonnes a day.  
 
Critics dismiss the move as too small to have any real effect, especially because of the delay until it comes in. “The move is too little and too late to have a material effect in the near-term on an already very tight physical market, particularly in the US,” said Morgan Stanley analysts.

A senior executive at a metals brokerage told reporters: “the recommendations won’t change anything. The problem will still be there six, nine months down the line. If Detroit has 1.1m tonnes at the moment, what’s to say it won’t have 2m tonnes next year,” he said.

Moving the metal
One obvious solution would be to impose minimum delivery requirements per warehouse or per square metre of warehouse space rather than per city. It’s not as if the warehouses can’t cope with delivering more stock: large operations can shift much more than 3,000 tonnes a day, warehousing sources say. An experienced forklift driver takes about 20 minutes to load one 20-tonne truck with aluminium in the US. That means one warehouse in Detroit with two forklifts and an eight-hour working day could move out as much as 1,920 tonnes of metal every day.

“If you take Detroit in particular, those warehouses historically extracted metal at a faster rate … the infrastructure is there,” a senior analyst in the metals industry told reporters. Madden at Novelis said: “I don’t know the specific details of every warehouse but our view is that they seem to be able to absorb metal coming in at almost an infinite rate and so we feel there’s a lot more they can do on the output side to push up the (load out) rates.” The LME could also crack down in the same way it did in 1998 when it banned Metro from taking any more copper into its Long Beach and Los Angeles warehouses. Then the complaints were said to have come from copper consumers worried that 80 percent of total copper stocks in LME-approved warehouses were held in California. The exchange argues that any change right now might disrupt the market.

“Changes to the delivery out rate have required careful consideration because it will impact the cost structure for those holding metal, and were those costs to rise sharply it could affect the way that metal is stored and traded,” said the LME’s Evans. The exchange could also rule that a warehouse cannot charge rent once aluminium has been purchased, no matter how long it takes to ship it. But a change like that would hit the LME itself as it receives about one percent of the rental income earned by the warehouses it approves.

Legal fears
Nobody at the LME will say whether the Europe Economics study (estimated to be more than 40 companies) advised more radical measures, arguing that such information is “proprietary”. In any case, say metal markets sources, LME officials may be hesitant to make bigger changes because they fear legal action from the likes of Goldman, which could argue that Metro’s business model has been based on existing LME warehouse rules.

The LME declined to comment on possible legal challenges, but its chief executive Martin Abbott said at a recent briefing that the warehouse delays were not causing market and price distortions. “No, I don’t believe it is,” Abbott said, when asked if the situation was causing distortions in the market. Abbott said the exchange had received no official complaints from consumers about bottlenecks at warehouses. The LME also dismisses concerns about banks trading metal and owning the warehouses where it is stored.

While a British parliamentary committee recently raised the issue, Britain’s Office of Fair Trading declined to open a probe. The U.S Commodity Futures Trading Commission, which regulates the futures and options markets, said it would not comment. Britain’s Financial Services Authority, which regulates exchanges where commodity futures are traded but not warehouses that store physical material, declined to comment.

What next?
The lack of real change has some in the industry questioning the very structure of the LME, which, unlike its publicly owned US-based rival commodities exchanges, is owned by many of the financial institutions that trade there. “The belief is that they are focused on serving their shareholders; most of them being the banks …We see our clients and contacts trying to avoid the LME as much as possible now,” said Jorge Vazquez, managing director of the Aluminum Intelligence Unit at HARBOR Commodity Research.

That concern is growing. Critics of the exchange point to a potential problem with zinc supply though New Orleans, where inventories now account for 61 percent of total LME-registered stocks. Most of the warehouses in New Orleans are owned by Goldman and Glencore.

Metal industry sources believe regulators should take a closer look at the possible conflict of interest that arises when trading houses also own the warehouses. “If the whole thrust of regulation and regulatory reform is increased transparency and open and above board operations, letting banks own warehouses seems to run entirely counter to that,” said Frances Hudson, global thematic strategist at Standard Life Investments.

The LME says it enforces a strong separation between warehouses and the trading arms of their owners. Just recently it proposed that companies which own warehouses should engage an independent third-party to verify the robustness of Chinese walls.

“We enforce it through regular audits of warehouses,” said the LME’s Evans. “If people say Chinese walls are leaking then they should bring us evidence and we’ll investigate thoroughly.”

About the LME
Established for over 130 years, the London Metal Exchange is the world’s premier non-ferrous metals market.

The Exchange tries to provide a ‘transparent’ forum for all its trading activity. This allows the industry to ‘discover’ the price of materials months and years ahead of time.

The LME is an infamously liquid market and achieves incredible turnover every year. In 2010 it made a total of $11.6trn and an estimated average business day total of $46bn. Around 95 percent of business came from overseas.

The LME is a principal-to-principal market meaning the only organisations able to trade on it are its member firms. However, the list of criteria to become a member is relatively complex.

Contagious markets

Posted on by scott

Escaping news of threatened and actual downgrades in the credit ratings of countries, debates over sovereign debt, and alarms over governmental deficits is nearly impossible in today’s world. Governments worldwide are in the midst of a level of crisis expected perhaps during a world war but certainly not during times of relative peace. Thanks to intense media coverage, we are all too familiar with the proposed causes, symptoms, and effects of the recent recession and its contributions to the crippling of governments.

Experts and pundits in all fields have offered their opinions on what caused the recession. Some of the primary thoughts are that a series of gross imbalances in commodity and housing prices, trade and governmental budgetary deficits, national and personal debt, among other factors combined to push the developed world into a recession.

This recession pushed governments, which had been either living well beyond their means or were already close to the financial brink, into the abyss. The changing fortunes of many of the world’s national governments, also known as ‘sovereigns,’ were not lost upon the credit ratings agencies. A number of countries’ sovereign credit ratings were lowered during this past recession, signaling that the perceived ability of those countries to service their national debt and other obligations was decreasing. Certain countries, such as Greece, came so close to defaulting on their obligations that significant “bailouts” were required on a national level. Austerity measures were also hurriedly enacted by many countries to quickly address their fiscal problems.

Chain reaction
We recently completed a study focused on the theory that the health of a sovereign has a direct effect on the health of the companies within its borders as an approach to test for fiscal codependence. The thought behind this premise was that governmental measures that may be necessary to be enacted to address gaping budget deficits and projected funding shortfalls including: tax increases, decreases in the quality or quantity of services, and reduced governmental benefits and welfare.

To test this idea, we reviewed the sovereign credit ratings changes from 2000–2010. A change in this rating signals an increase or decrease in the perceived ability of that government to meet its obligations, which is a measure of its fiscal health and stability. The approach we employed to test if a change in sovereign fiscal health has an effect on the health of businesses was to equate business performance with equity returns. Specifically, we compared market-adjusted equity returns over a short period around the date of the governmental credit rating change with the returns of a global equity index. We found that sovereign credit ratings downgrades and upgrades had a statistically significant association with sovereign market-adjusted equity returns.

This ultimately demonstrates that stock markets directly react to the health of the national government and that there is, at least, an implied effect from the sovereign’s fiscal condition upon its domestic businesses. While some may believe this is just common sense, past studies in this area have conflicted with each other on this point. However, for a host of debatable reasons, the testing of our recent sample provides evidence that people are aware of how governments not only have a strong effect on our pay and personal finances but also upon our employers.