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emeafinance Magazine: Dec / Jan 2008

CEE in crisis - Crippled and Embattled Economies

The global financial crisis has shifted eastward, and the economies of central and eastern Europe are being ravaged by it. The question now is whether western banks with big CEE businesses will maintain them, or cut their losses. If they choose the latter, we may see a resurgence of xenophobic nationalism in eastern Europe. Julian Evans reports.

In 1931, the global economic depression hit central Europe, and claimed as one of its victims Creditanstalt, the biggest bank in Austria, which collapsed under the burden of its loan exposure to central Europe. The bank collapse provoked an economic crisis in Austria, which helped lead to the rise of nationalism, and ultimately to World War II.

Crisis? What crisis?

While many financial institutions are turning to the state for support in difficult times, Actis, the privatised private equity company, is less and less reliant on state money, and is raising record amounts of private capital. Julian Evans meets its senior partner, Paul Fletcher.
The phrase ‘sitting pretty’ is not one you get to use much during the credit crunch, but if ever there was a person to whom it could be applied, it is Paul Fletcher.

Is the credit crunch good for emerging market private equity?

Four of the top professionals in emerging markets private equity recently held a lively debate at PEI’s emerging markets forum in London, on the proposition ‘This house believes the western credit crisis is good for emerging markets private equity’.

The participants would like to make it clear that the views expressed were purely in the spirit of the debate, and not necessarily their or their organisation’s actual view.

Libya through the looking glass

Libya remains a puzzle. It has been in the headlines a lot recently, but it is no easier to assess, whether you are a potential investor or a potential exporter. Oliver Miles, former British ambassador to Libya, reports back from his recent visit to the country.

A telephone call from President Bush to Colonel Qadhafi in mid-November and a visit in the same week by his son Saif al-Islam to Condoleezza Rice in Washington seemed to complete the international rehabilitation of Libya.

Russia: heading for the exit

The Russian stock market has lost more than any market this year. Now the real economy is being affected too.

Even the mighty Russia has been hit by the global financial crisis. In fact, despite the government’s US$400bn in reserves, and the economy’s 6% growth this year, the Russian RTS has been hit worse than almost any market in the world, and has fallen by 75% year-to-date.

EBRD: renewed purpose, or out-of-date philosophy?

The EBRD has been given new relevance by the economic crisis in eastern Europe. But is its free market philosophy out of date?

In May 2008, at the EBRD’s annual conference in Kiev, the conference chatter was all about the potential unwinding of the bank. Australia’s government had told its press it was considering cashing out from the bank in 2010, and other governments, such as the US, were also questioning the continued presence of the EBRD in central Europe.

Meltdown in Ukraine

With breathtaking speed, Ukraine has gone from being one of Europe’s fastest-growing economies to a basket case. Is the US$16bn IMF bail-out enough to save it? Geoffrey Smith reports from Kiev.

Ukraine has come down to earth with an almighty bang – a textbook ‘hard landing’ that could be studied for years to come in universities and business schools as to how emerging market economies crash.

‘There’s a difference between a slowdown and a recession’

Jan Krzysztof Bielecki, former prime minister of Poland and the CEO of its second biggest bank, Bank Pekao, tells emeafinance his country is weathering the financial crisis relatively well.

The Baltic express runs out of steam

The Baltic economic miracle has turned out to be an illusion, reports Eva-Luise Schwarz.

On November 3, Ilmars Rimsevics, governor of the Bank of Latvia, met with anxious investors in an emergency conference in London, and assured them that Latvia was not going the way of Iceland.

Belarus’ hard man turns to IMF for help

Belarus’ Soviet-style government is struggling to cope with the credit crunch, and is trying to make friends with the west, including seeking a US$2bn emergency loan from the IMF. But negotiations with the fund are not proving easy.

In the 1990s, while the rest of eastern Europe underwent the agonies of liberalisation and privatisation, Belarus dug in its heels and refused to change.

Safety first

The CEE real estate market is being pummeled by the global financial crisis, but the outlook is not entirely gloomy, as Geoffrey Smith discovers.

It’s a sure sign that things are bad when Russian businesses, generally more used to browbeating journalists, start begging them for help.

Petrodollars ignite Angola’s financial markets

The exponential growth shown by Angola’s financial sector in the post-civil war years is set to attain fresh heights, writes Kevin Godier

Angola, once one of the poorest countries in Africa, had the fastest-growing economy in the continent in 2007. Its economy has grown by an average of 10.6% annually for the past five years.

Welcome to extremistan

Nassim Nicholas Taleb has over 20 years’ experience as a quant analyst and options trader at UBS, Credit Suisse, BNP Paribas and elsewhere. He is now advisor to Universa Investments, a hedge fund that is up 115% in the last two years.
He is also a world-famous philosopher, and author of the best-selling book, Black Swan: The Impact of the Highly Improbable, which among other achievements predicted the collapse of Fannie Mae. A Black Swan event is an event deemed highly improbable (like the probability of a swan being black), which can still occur and have an enormous impact on a system or market. This is a talk he gave at the Hedge Funds World Conference in Zurich in December.

Who’s going to bail out the IMF?

The IMF had its busiest month ever in November, lending a record US$41bn. But who will bail it out if it runs out of cash?

In January 2008, the IMF’s managing director, Dominique Strauss-Kahn, sent out a confidential document to the fund’s 2,400 full-time staff, telling them to get ready for the axe.
The memo said the staff should prepare for the “trauma” of sizeable downsizing, with around a sixth of the staff to be fired, and the staff budget of the fund to be reduced by US$100mn. “This is not a good time for staff”, the memo read. “Their expectation of a full career at the fund in exchange for their unflinching dedication and loyalty is in question.”

Middle East banks weather the storm

The Middle East has been less severely affected by the global financial crisis because of many governments’ enormous reserves of petro-dollars. But banking systems have still been hit. Some banks have coped better than others.

For most of 2008, bankers in the Middle East were looking on the troubles of their western peers with a mixture of wonder and schadenfreude. The credit crunch still seemed a mainly western affair, that could actually strengthen the relative position of Middle East banks and lead to their international expansion.

Hedge funds face redemption song

Hedge funds had their worst year ever in 2008, and the market could halve in size by the end of Q1 2009. But some funds will emerge stronger from the carnage writes Donald Twain.

Bob Marley put it best: ‘Redemption song…is all I ever sing.’ And it’s increasingly all hedge fund managers ever hear, as investors pulled out around US$86bn in October and November, and the total assets of the industry shrank by an estimated 30% during the quarter.

Rivals snapping at the LSE’s heels

Stock exchanges all over the world are facing system breakdowns due to intense volatility and record volumes of trading. Will any of them emerge from the crisis in a competitive position? Liz Salecka reports.

Increased stock market volatility, growing competition from new players, and the need to harness the latest technological advances are fuelling major changes in the stock exchange trading landscape.

Faced with both business and technological challenges, stock exchanges are grappling to become winners in an industry that continues to anticipate further consolidation as incumbent and new players jostle for market position.

Keeping faith in power

Financing for Africa’s power sector has chiefly been characterised by delays, but transactions banked over the past year have heightened hopes for a growing deal flow, writes Kevin Godier.

A more upbeat mood about the prospects for Africa’s power sector has been evident over the past year, bringing new hope that the reliable, long-term power supply that the continent needs to push forward will fall into place over the next decade.