1 31 July, 2016

businessweekme.com

p44

Algeria............DZD 215 Egypt..................EGP 10 Jordan....................JOD 2 Lebanon..............LBP 4000 Oman...................OMR 1 Saudi Arabia.........SAR 10 UAE.................AED 10
Bahrain.......................BHD 1 Iraq........... IQD 3200 Kuwait.............KWD 0.75 Libya........................LYD 3.5 Qatar.................QR 10 Syria............................SYP 200 Yemen..................YER 600
OPENING THE DOOR
TO A WORLD OF
OPPORTUNITIES.
At HSBC, our unique global network in over 60 countries,
where 90% of the worlds trade and capital flows originate,
provides you with immediate access to a world of
opportunities wherever your international business takes you.

So when entering a new market, you will not do so alone,

our in-depth knowledge of your business will go with you.
Our local experts on-the-ground will help you set up working
relationships with new partners quickly, easily and confidently.

Smoother global expansion. One of the benefits of partnering

with a bank that has both the expertise and in-depth
understanding of your business, to support your
ambitions globally.

Find out more at

www.business.hsbc.ae/network

Issued by HSBC Bank Middle East Limited U.A.E Branch, P.O.Box 66, Dubai, U.A.E, regulated by the Central Bank of the U.A.E for the purposes of this promotion and lead regulated by the
Dubai Financial Services Authority. CRN 160471. Copyright HSBC Bank Middle East Limited 2016 ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a retrieval
system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of HSBC Bank Middle East Limited.
 1

You learn what not to do from

every experienceor you try to. I
learned what not to do from this
experience. Im moving forward
p44

It wont recover from He will be more paranoid Its going to be

this. The new rate is so he is likely to go
a fees feast
seriously uneconomic; hard with his purges, and in
for investment
ILLUSTRATION BY SJC

therefore it will die in a the process hurt a

few years lot of people banks
p16 p22 p34
 Cover
Trail

1 15 August, 2016
How the cover gets made

We have a cover story about a court

case in Canada. It involves a former
Opening Remarks The probably unknowable but all-important natural interest rate 8 Iranian banker who fled Iran after the
bank he was chairman of was caught
up in a massive fraud and
Global Economics embezzlement scandal, his son and an
Iranian-Canadian property developer.
Migrant Chinese workers find you can go home again 10 They went into business together to
build a condo and now accusations are
India courts Iran, Russia, and other petro states to satisfy its growing thirst for oil 12 flying left, right and centre.

Solar? Wind? In Poland, coal is still king 14

Sounds juicy. Id read that. Im thinking
we should just outline the story on the
Companies/Industries cover and Ill illustrate around it.

Is this the beginning of the end for the superjumbo? 16 Go for it.

Return of oil contango shows the price recovery to be a bumpy ride 18 Sketchy

Iran draws up a $12 billion plan for green investment 18

Saudi Arabia sets a course for more tankers; A big debt is restructured 19

Politics/Policy
Chaos plays into Erdogans hands after a career shaped by coups 22

Old Middle East foes unite over gas deals and fighting militants 23
Less sketchy
Stalled US fighter sales to Gulf allies prompt House scrutiny 25

2
Technology
Live video puts Facebook back in the news business 28

Shell enlists gravitational waves in its search for oil 30

Drugmakers see a growing market in vaccines for expectant moms 30

Colour sketchy
Innovation: The best thing since fresh bread 32

Markets/Finance
Saudi Arabia tops Wall Streets agenda as global dealmaking slows 34

Iran explores a return to global bond markets after 14-year break 35

Turkey unrest deals a new blow as banks struggle with bad debt 36

Defined: Ever wonder why so many hot unicorns have green shoes? 37

Features
Developing Feud Iranian businessmen take to the Candian courts over a property deal 44
1 31 July, 2016
businessweekme.com

Baltimore Chop Under Armours plan to redo its supply chain, remake a city, and upend Nike 48

Great Scot! Post-Brexit, Nicola Sturgeon revives the fight for Scottish independence 54
COVER ILLUSTRATION AND COVER TRAIL BY SJC

Etc.
Zak Pashak is peddling his Detroit-assembled bicycles to get the Motor City going again 59

Retail: Some brands are shunning fast fashion, setting themselves apart with clothes that lastand last and last 62
p44

What I Wear to Work: Director and choreographer Mia Michaels wears glasses with swagger 63
Algeria............DZD 215 Egypt..................EGP 10 Jordan....................JOD 2 Lebanon..............LBP 4000 Oman...................OMR 1 Saudi Arabia.........SAR 10 UAE.................AED 10
Bahrain.......................BHD 1 Iraq........... IQD 3200 Kuwait.............KWD 0.75 Libya........................LYD 3.5 Qatar.................QR 10 Syria............................SYP 200 Yemen..................YER 600

How Did I Get Here? Jonathan Mildenhall, Airbnbs marketing chief, wants to build a more trusting world 64 Sketched!
WELCOME TO OUR WORLD

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 ADVERTISEMENT

How HSBC supports

the expansion of
MENA businesses
Diversification and overseas expansion is now top of mind for
many organizations in the Middle East. HSBC is using its regional expertise
and unrivaled global network to help support trading activity.

A
lthough the IMF has
lowered growth expec-
tations for Gulf states
in 2016 to just 1.8
percent, down from
3.3 percent last year,
their roles as increas-
ingly diversified trade
hubs between East
and West ensure that the overall outlook
remains positive.
Low oil prices have impacted govern-
ment receivables of Middle East and North
African oil exporters; Gulf states lost $390
billion in revenue in 2015 due to falling
prices, according to IMF estimates.
Oil export revenues have been hit by
crude oil falling from $115 a barrel in the
middle of 2014 to below $30 at the start of
the year, confirmed the IMF.
This economic shift has affected the
ability of governments to drive change in
their various countries, concedes Kwabena
Ayirebi, Regional Head of Global Trade and
Receivables Finance at HSBC Middle East.
However, reductions in oil prices have also
been a catalyst for deep-rooted, sustainable
change throughout the region.
Governments are now looking for alter-
native sources of financing, particularly for
the infrastructure developments that have
been going on over the past few years,
says Ayirebi.
Across the region, governments are
phasing out subsidies and planning the
introduction of new taxes, measures
designed to increase productivity and boost
state revenues.
For HSBCfounded in 1865 in Hong
Kong in order to facilitate trade between
East and Westthe drive by MENA com-
panies to grow internationally is a chance
for the bank to demonstrate its expertise in
international trade.

Exports from the MENA region grew sig-
nificantly between 20042014, according
to figures from U.N. trade body UNCTAD.
Exports have notably increased to emerging
markets, which accounted for 59 percent of
MENAs outbound trade in 2014, up from a
third of total exports a decade earlier.
Strong trading links have been forged
throughout the Asia-Pacific region, where
burgeoning demand for crude oil has seen
Vietnam, Indonesia and China become
increasingly important buyers of MENA
products and services. Further expansion
into Africa is also being pursued by many
companies.
A.F. Merchant, Executive Director at
Sharjah, UAE-based food producer Allana
International Ltd. (IFFCO), is among those
looking to expand their diversified portfolio.
Merchant, a client of HSBC in the Middle
East, has his sights on increasing opera-
tions in Africawhere there is rising pur-
chasing power, and a taste for convenience
among the populationwhile production
overheads remain relatively low.
Weve been working with HSBC since
1987, and its been a true relationship that
continues to grow, says Merchant. We
currently work with HSBC in 11 coun-
tries, and they already have a presence in
the countries we want to be in, too. They
have provided all types of services for us,
including investment banking, M&A activ-
ity, advisory services, corporate banking,
syndications and cash management.
MENA intra-regional trade is also play-
ing a larger role in helping economies in the
region grow. Ayirebi believes that planned
infrastructure developments, such as the
recently announced bridge between Saudi
Arabia and Egypt, and the 1,350-mile
(2,170-kilometer) GCC rail network, will
help boost intra-MENA trading relations.
Overall, we expect intra-MENA, intra-
We expect intra-MENA,
intraregional activity
to become a much
stronger component of
trade activity
Kwabena Ayirebi
Regional Head of Global Trade and Receivables
Finance at HSBC Middle East
regional activity to become a much stronger
component of trade activity for these
countries, as opposed to where it is now,
says Ayirebi.
This year, HSBC is celebrating its
70th anniversary in the Middle East. The
international bank is proud of its regional
expertise, and its history of helping to
support transformation in the region. Going
forward, this symbiotic relationship is only
set to grow stronger.
We see ourselves as very much part
and parcel of the economies here, says
Ayirebi. And we see ourselves as continu-
ing to support these economies through the
whole transformation that weve witnessed
over the past few decades.
Find out more at
globalconnections.hsbc.com
 Index
People/Companies

22
Erdogan emerges Novavax 30
from coup attempt
stronger Oil & Natural Gas Corp. 12
Oil India 12

PQRS
Pfizer 30
Polska Grupa Gornicza 14
Qantas Airways 16
Recep Tayyip Erdogan 22, 36
Ripley Ballou 32
Rodney Frelinghuysen 25
Rosneft 12
Royal Dutch Shell 30
Sagamore Development 51
Sam Mizrahi 45
Saudi Aramco 19, 34
Saudi Stock Exchange 34

28
Mark
Zuckerberg

Schwinn 60
Sean Connery 56
Sekerbank 36
Shinola 60
ABC Bader Alamoudi
Bahri
34
19
Esther George
Fabrice Bregier
8
16
Ian Taylor
Indian Oil
18
12
Marion Gruber
Mark Aplin
32
35
Siemens Wind Power
Singapore Airlines
19
16
Abdel-Fattah El-Sisi 23 Balmuda 32 Facebook 28 Innoseis 30 Mark Beker 30 Standard Chartered 19
6 Abdullah Gul 23 Bank Melli Iran 46 Fahad Al Saif 34 Iran Khodro 19 Mehmet Simsek 36 Stride Rite 37
Adidas 50 Barack Obama 25 Fethullah Gulen 22, 37 Mia Michaels 63 Stuart Gulliver 34
Air France
Airbnb
17
64
Benjamin Netanyahu
Bharat Petroleum
24
12
Foxconn Technology 10
JKL Michael Klein
Mizuho Securities
35
18
Susan Rice 25

Akbar Komijani
Alex Salmond
35
55
Blagica Bottigliero
BNP Paribas
29
19
Jack Reed
Jamal Al Kishi
25
34
TUV
Alibaba 37 Bob Corker 25 Janet Yellen 8, 9 Tamim Jabr 35
All Nippon Airways 17 Bob Yawger 18 Jean-Marc Ayrault 24 Tawfik Okasha 24
Boeing 17, 25, 36 Jeremy Corbyn 54 Theresa May 54
Boris Johnson 54 Johannes van den Brand 30 Tim Clark 17
British Airways 17 John Kerry 25 Tim Kaine 25
Cannondale 61 John McCain 25 Tom Geddes 52
Chris Coons
Chris Cox
25
29 35
Jonathan Mildenhall
JPMorgan Chase
64
34
34
HSBC
Tony Blair
Trafigura Group
24, 56
18
Citigroup 34 Ali Tayebnia Kevin Haley 53 Twitter 29
Colm Kelleher 35 Kevin Plank 50 Under Armour 48
Khalid Al-Falih 19 ModSquad 29 Verus Partners 35
16 DEF Khashayar Khavari 45 Mohamed Kamal 24 Vestas Wind Systems 19
Airbus Group
Dan Gilbert 52
GHI Krzysztof Tchorzewski
LG
14
19
Mohammad Al Tuwaijri 34
Mohammad Hassan
Vincent Reinhart
Vitol Group
8
18
David Cameron 54 Gail India 14 Line 37 Habibollahzadeh 19
Amin Nasser
Anadarko Petroleum
19
14
Deputy Crown Prince
Mohammed bin Salman 35
Gen Terao
GlaxoSmithKline
32
30
Lockheed Martin 25 Morgan Stanley
Mostafa Pour Mohammadi 47
35
WXYZ
Ander Crenshaw
Andrew Elliott
25
35
Detroit Bikes
Deutsche Bank
60
34
Goldman Sachs
Gordon Brown
18
56
MNO Narendra Modi 12
National Commercial Bank 35
Warner Bros.
Xi Jinping
29
11
Apicorp 19 Dharmendra Pradhan 12 Gregory Glenn 32 Maciej Bukowski 14 Nicola Sturgeon 54 Yair Golan 24
Ash Carter 25 DuPont 50 Hamid Chitchian 18 Mahmoud Reza Khavari 45 Nigel Farage 54 Yapi ve Kredi Bankasi 36
Atanu Chakraborty 14 Emirates 16, 19 Hassan Rouhani 35 Marco Rubio 25 Nike 50 Zak Pashak 60

25
US Congress fights
over Gulf jets
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 Opening
Remarks
The
Search
For the Financial markets are remarkably strong
Elusive
in a world riled by terror attacks, a coup
attempt in Turkey, murders of police
officers in the US, and Britains historic
vote to leave the European Union. The
Natural
S&P 500 set a record on 20 July for the
sixth time in eight sessions. Are investors
ignoring how the real world will affect
their investments? Or do they know
Interest something the rest of us dont?
Actually, markets do share a bit of the
worlds sour mood. Bullish sentiment is
Rate
below average despite the big rise in stock
and bond prices, according to the weekly
8 survey from the American Association of
Individual Investors. People are buying
stocks because they have to put their
By Peter Coy money to work somewhereand the
main alternative, the bond market, seems
to offer even lower future returns. Bonds
accounting for more than one-third of
the value of Bloombergs developed-
economy sovereign-bond index are yield-
ing less than zero.
Whats more, bond yields are low in
large part because marketsand, cru-
cially, central bankshave downgraded
their forecasts for long-term economic
growth. So what appears to be optimism
in the financial markets is actually pes-
simism in disguise. Which is kind of
depressing all by itself.
On 26 and 27 July, the rate-setting
Federal Open Market Committee of the
Federal Reserve met in Washington. One
question sure to have been discussed
behind closed doors is whether the lofty
heights of the stock and bond markets
can be traced to a mistake by the Fed.
The Fed aims to set short-term interest
rates in relation to the natural ratethe
The concept guides
central bankers Upside-Down World
like Janet Yellen, but Sovereign debt of
the rate cant be developed nations US
directly observed Debt with a negative yield $8.8t
All of the USs debt has a positive yield
one that would produce full employment
without excess inflation. Some critics say
the Fed has kept rates too low, thereby
lifting stocks but at the risk of generat-
ing dangerous asset bubbles and setting
the stage for above-target inflation. In
this vision of the mysterious properties
of interest rates, the Fed is like a medi-
eval alchemist, trying to transmute the
lead of pessimism and slow growth into
the gold of capital gains on Wall Street.
Low rates have their place, but if you
push that lever too hard you can break
the markets, says Vincent Reinhart,
a former top Fed staffer whos chief
economist of Standish Mellon Asset
Management. Ben Hunt, the chief risk
officer of Salient Partners, an asset man-
agement firm, told Bloomberg TV in June
that the worlds central banks have too
much power over markets. We think
that you should try to insulate yourself
as much as you can from the casino that
central bankers are running, he said.
Esther George, whose opinion
matters even more because she par-
ticipates in FOMC debates as president
of the Federal Reserve Bank of Kansas
City, said in a 14 July speech in Oklahoma
City that too-low rates can give rise to
imbalances or misallocation of capital
that, over the longer term, can affect PHOTO ILLUSTRATION BY 731; PHOTO: GETTY IMAGES
growth and can cost jobs. Hers wont
be the only voice raised, if transcripts
of past meetings of the rate-setting com-
mittee are any indication. The alternate
view inside the Fed is that a premature
increase is the greater danger. Id be
quite worried that they were cutting
us off from getting out of the muck by
raising rates now, says Kenneth West, an
 economist at the University of Wisconsin
who specialises in monetary policy.
The natural rate of interest is a guide
for monetary navigators. By keying off
the natural rate, a central bank is essen-
tially trying to mimic the ideal condi-
tions of an economy, Jeffery Amato, an
economist at the Bank for International
Settlements in Switzerland, wrote in a
working paper in 2005. If it could be
located with certainty, monetary policy
would be simple. The problem: The rate
is invisible and not directly measurable.
Unlike the indexes for adjustable-rate
mortgages, there is no Bloomberg func-
tion that describes the natural rate of
interest, and there are no derivatives
based on its value.
Swedish economist Knut Wicksell
advanced the concept of the natural rate
in 1898. He said prices will be stable when
long-term interest rates are set equal to
the long-term rate of return on a nations
capital stock, such as land, buildings, and
machinery. His logic was that if interest
rates were kept below the potential rate
of return, investors would have a power-
ful incentive to exploit that gap by bor-
rowing and investing every krona they
could get their hands onand to keep
doing so until the economy ran out of
workers and inflation heated up.
High inflation, then, is a clue that
interest rates are below their natural
level. High unemployment is the
DATA COMPILED BY BLOOMBERG
opposite, a sign that interest rates are
above what nature intends and choking
off growth. Such clues are the only way
to infer the natural rate. The natural
rate is an abstraction; like faith, it is seen
by its works, the Welsh-born American
Japan
$7.3t
Almost 80 per cent of Japans sovereign
debt has a negative yield
economist John Williams wrote in 1931.
His metaphor, drawn from Protestant
theology, appears in new research by
another John Williams (no relation),
whos the president of the Federal
Reserve Bank of San Francisco. He and
Thomas Laubach, an economist on the
staff of the Fed in Washington, have done
some of the most careful estimates of the
natural rate. They say its fallen sharply
by their estimate, it declined from about
5 per cent in the 1960s to below 3 per
cent in the early 2000s. It then crashed
along with the economy around 2008.
Rather than recovering since, they esti-
mate, its continued to drift lower, to
below half a per cent by the end of 2015.
(All of these numbers strip out the effect
of inflation.)
When Fed Chair Janet Yellen wants
to explain why the Fed is keeping rates
so low, she cites the natural rate. At the
press conference following the FOMCs
June meeting, she said the neutral inter-
est ratewhich is essentially synony-
mous with the natural rateis quite
depressed by historical standards. She
added: I think all of us are involved in
a process of constantly reevaluating
where is that neutral rate going.
Why the natural rate has fallen is a
whole separate question. Laubach and
Williams argue that slower projected eco-
nomic growth is the biggest factor. West,
who commented on their work at a con-
ference earlier this year in Sofia, Bulgaria,
puts more weight on an increase in the
appetite for savings, a flight by investors
to safe assets, falling inflation, and declin-
ing private and public investment.
What should monetary policymakers
UK France
$1.7t $1.5t
do if they dont know the natural rate and
therefore cant be sure if rates are too
high or too low? Avoid sudden moves,
advises Kim Schoenholtz, director of the
Center for Global Economy and Business
at New York Universitys Stern School of
Business. When youre driving on a cliff
road on a foggy night, you go slow, and
thats what theyve been doing, he says.
Schoenholtz says that means avoiding
precautionary rate changes and moving
only when theres clear evidence that
rates are too high or low. And then,
when the evidence is clear, moving a
bit more rapidlymaking perhaps half- 9
percentage-point moves at each FOMC
meeting rather than the quarter-point
moves the markets are accustomed to.
It would also help if fiscal authori-
ties pitched in. Keynesians favour tax
cuts or spending increases to stimulate
demand for goods and services. Others,
who worry about adding to government
indebtedness, emphasise structural
changes that could boost growth, such as
opening markets to competition. Either
way, the point is that central banks in
the major economies are overburdened
when all thats being done is monetary
policy, says Reinhart, the Standish
Mellon chief economist.
Natural rate theory has its critics.
Reinhart says it has an unjustified air
of scientific accuracy that treats market
participants like white mice in an experi-
ment. Wicksell himself wrote in 1906 that
the term was somewhat too vague and
abstract. Then again, there are no sure
things. In a world as chaotic as this one
has been lately, central bankers will cling
to whatever thin reed they can find. <BW>
Italy Germany Other
$1.5t $1.1t $1.6t
Spain Netherlands
$0.8t $0.4t
 Global I will definitely not
let my future child
become a left-

Economics behind child. I will

find a job near
wherever they go to
school.
1 15 August, 2016
Pan Guofen

Chinas Factory Worke

10

Migrants from the interior return to set up businesses

The flood of rural labour has slowed to a trickle and may dry up altogether
The vast neighbourhood outside making everything from electronics
Foxconn Technologys Guanlan components to wall panelling. Now
plant in Shenzhen is eerily quiet on a 36, he returned a year ago. Factory
PHOTOGRAPHS BY GRAINNE QUINLAN FOR BLOOMBERG BUSINESSWEEK

recent Sunday afternoon, normally a jobs on the coast were drying up, and
day off when the factory workers visit he sensed opportunity in his home
bustling shops to buy bamboo mats, village. A push to develop interior
electric fans, flip-flops, and shampoo. China had brought high-speed rail
Many of the migrants who moved and expressways to Guizhou, helping
to Shenzhen and other Chinese spur economic growth. When Mo saw
factory towns to work have pulled locals running a fish farm near the
up stakes to go back home for good. factory where he worked in Guangxi
One destination is Binghuacun province, I decided I wanted to
(population 968) in the interior start one, too, he says. I knew that
province of Guizhou, more than the water was so much cleaner and
670 kilometres away. better here in Guizhougood for
Mo Wangqing left Binghuacun raising fish. Now that hes launched
at 18 to toil in the coastal factories, his fish farm, he plans to open a
 India courts petro
states as oil demand
soars at home 12

Polands never-ending
coal boom 14

restaurant in Binghuacun featuring

his mountain-farmed fish. He expects
tourists to flock to this out-of-the-way
place surrounded by steep mountains
and rushing rivers.
Before, we relied on planting rice,
corn, and peppers and remittances
from our young people who went out
to find work, says Mo Bochun, a village
official sitting in the local party service
Vacation resort centre under a huge poster portray-
under construction ing Marx, Engels, Lenin, Stalin, Mao,
in southern and Deng Xiaoping, set above images
Guizhou province
of President Xi Jinping and his two pre-
decessors, Jiang Zemin and Hu Jintao.
Now our migrants are coming back

ers Head Home

with new skills, such as a knowledge of
computers, he says.
Last year the number of migrants
from the countryside edged up
0.4 per cent, to a total of 169 million,
according to the National Bureau of
Statistics. In 2016 the total could fall,
says Tom Miller, an analyst for the
Beijing-based consulting firm Gavekal 11
Dragonomics. Many of the migrants
simply go to nearby cities and town-
ships to live and work. The flood of
rural labour has slowed to a trickle
and may dry up altogether, Miller
says. The statistics bureau doesnt
track returning migrants, but Guizhou
does: Last year 1.2 million returned to
the province, up from 520,000 in 2011.
Under a policy colourfully called
Returning Geese Revitalise Guizhou,
provincial officials are offering return-
ees free entrepreneurial training, tax
waivers for businesses they start, and
low-interest loans. Tourism is a priority.
Starting in the 1980s, Chinas country-
side grew through reliance on manufac-
turing and processing, says Sun Zhe,
chairman of GoHome, a travel website
that helps urbanites enjoy Guizhous
traditional country life. Now we think
that the service economy and tourism
should lift rural China.
Being a migrant is not fun, says
Being a migrant is Shi Wenjian. You cant ever earn that
not fun. You cant
ever earn that much
much money, and you are far away
money, and you are from your family. Shi worked in a
far away from your cloth-dyeing factory in Zhejiang prov-
family.
Shi Wenjian
ince before moving back to Guizhou
two years ago to live with his wife,
5-year-old son, and 7-year-old daugh-
ter. Now he raises free-range
 Global Economics
chickens at Qianlafang Ecological
Agriculture Development, an organic
farm and tourist resort in Luodian
County, only 70 kilometres from his
hometown, where his parents still live.
My mother and father are too old, so I
returned to take care of them, he says.
I can easily go to see them.
Theres a growing national aware-
ness of the social costs of migration.
I have experienced how lonely it is
to grow up lacking in parental love,
says Pan Guofen, 23, who manages
e-commerce orders for the organic
vegetables, fruit, and meat produced
at Qianlafang. While Pans parents
worked in a factory in Huizhou, in
Guangdong province, she was raised
by her grandmother before going to
a government boarding school. I
will definitely not let my future child
become a left-behind child, she says.
I will find a job near wherever they
go to school.
A survey released by the Chinese
Academy of Social Sciences in April
found that one-half of rural Chinese
arent interested in moving to the
12 cities, citing their age, the need to
take care of parents and children, and
unfamiliarity with urban life. Two-
thirds of those planning to migrate
said they intend to return to their vil-
lages. My plan is to save more money,
then in the next couple of years, move
back home and start my own busi-
ness, maybe a clothing shop, says
Zhang Chi, 25, who works in a toy
factory in Dongguan, which is also in
Guangdong province, and is from a
village outside the city of Xian, in the
northwest. When I was very little,
there was a big gap between here and
my hometown, but not anymore. Now
life is good back there.
Chinas State Council, the coun-
trys chief administrative authority,
has issued guidelines to encourage
migrant workers, along with college
students and demobilised soldiers,
to start businesses in their home-
towns. Measures include simplify-
ing company registration, cutting
income and sales taxes, and setting
up special investment zones for
returnees businesses.
Not everything is likely to go
smoothly in this vast reordering of
SHUTTERSTOCK
the population. After years of living
in cities, returnees dont have the
social networks necessary to succeed
in business, says Yang Meng, a
30-year-old migrant from Yibin,
Sichuan, working in Shenzhen. I
am already poor, and for people
like me who try to start a busi-
ness in the countryside, the
risk is we fail and end up even
poorer, he says. The coun-
tryside can accommodate only
some of us. Not all the workers
can go home and expect to find a job.
Dexter Roberts, with Jasmine Zhao
The bottom line Chinas national and provincial
authorities are encouraging migrant labourers to
return home from the big coastal cities.
Energy
India Is Cutting Oil Deals
Worldwide
Narendra Modi is courting Iran,
Russia, and other petro states
India cant afford not to focus on
energy security
In May, shortly before he spoke to
Congress in Washington, Indian Prime
Minister Narendra Modi travelled to
Tehran to sign a deal with the leaders
of Iran and Afghanistan to develop a
port on the Gulf of Oman, with India
providing $500 million in financing.
Iran has prioritised expanding rela-
tions with those states that stood by
its side when it was under sanctions,
Tehran-based political analyst Mostafa
Khoshcheshm said on Iranian state tele-
vision in May. India, though pressured
to buy less oil from Iran, stayed close to
the country during the sanctions. The
port deal strengthens ties between Iran
and India, which accounted for almost
a third of Irans oil exports in March.
The prime minister is looking
north, too. Indias largest oil company,
state-owned Oil & Natural Gas
Corporation. (ONGC), completed
a $1.3 billion purchase of 15 per
cent of Vankor, one of the biggest
Russian oil fields to go into produc-
tion in the past 25 years. Three other
companiesOil India, Indian Oil,
and Bharat Petroleums Bharat
PetroResourceson 17 June agreed to
buy 23.9 per cent of Vankor. The rest
is owned by Russias top oil company,
Entrepreneurs who
have capped their
wells in Alberta or
North Dakota will
be looking at this state-controlled Rosneft.
kind of story with a The Indians arent fin-
greater amount of ished. Indian companies
interest. Atanu
Chakraborty, head are considering buying
of Indias Directoratea stake in Rosneft itself,
General of Dharmendra Pradhan, the
Hydrocarbons
countrys oil minister, told
reporters in New Delhi on
23 June. With Indian invest-
ment in Russian oil proj-
ects reaching up to $6 billion, strong
bilateral relations will ensure Indias
energy security for a long term, he
said. By taking stakes in overseas proj-
ects, India also ensures local compa-
nies benefit from the money spent on
imported oil and gas.
For Modi, securing a reliable supply
of oil and gas is a foreign policy
priority, says Ashok Sharma, an
international-relations fellow at the
University of Melbournes Australia
India Institute. India cant afford not
to focus on energy security. The pre-
vious government had similar goals,
but Modi has made them a higher pri-
ority, says Dhruva Jaishankar, a foreign
policy fellow at Brookings India, a New
Delhi-based affiliate of the Brookings
Institution. You have seen the govern-
ment be very aggressive, he says.
Demand for oil is growing faster in
India than anywhere else. It jumped
400,000 barrels a day in the first
quarter, to 4.4 million barrels, account-
ing for almost 30 per cent of the
increase in worldwide consumption,
the International Energy Agency said
in May. Driving that thirst is Indias
growing car market: Domestic vehicle
sales rose 5.6 per cent in the year ended
in March, to more than 20 million,
helping propel a 14.5 per cent increase
in petrol purchases. The IEA expects
the country to account for 25 per cent of
global demand from 2013 to 2040.
India imports more than three-
fourths of its oil and about 40 per cent
of its gas, putting pressure on the rupee
and the trade deficit. By 2022, Modi
wants to reduce import dependence by
10 per cent, so hes offering attractive
terms to foreign companies to
drill off India. Entrepreneurs
who have capped their wells
in Alberta or North Dakota
will be looking at this kind
of story with a greater
amount of inter-
est, says Atanu
Chakraborty,
 Global Economics
head of Indias oil-regulating
Directorate General of Hydrocarbons.
Even so, the country still needs imports.
India just doesnt seem to be blessed,
or cursed, with large deposits of oil and
gas, says Brookings Indias Jaishankar.
Modi has hunted for deals in Saudi
Arabia, the United Arab Emirates,
and Qatar. Energy security was on the
agenda when he visited Mozambique
on 7 July. Indian companies includ-
ing ONGC, Oil India, and Bharat
Petroleum own 30 per cent of a gas field
off of Mozambique. Lead developer
Anadarko Petroleum, a Texas-based
exploration company, says the field
has the potential to make Mozambique
the worlds third-largest exporter of
natural gas. Indian companies have
already spent as much as $6 billion on
it. State-owned gas distributor Gail
India in April became the first Asian
company to buy shale gas from the US.
By 2018, India will be importing about
6 million metric tonnes of US liquefied
natural gas annually. Bruce Einhorn
and Debjit Chakraborty, with Golnar
Motevalli
14
The bottom line With more Indians buying cars,
the country is expected to account for 25 per cent
of global oil demand from 2013 to 2040.
Energy
As Europe Drops Coal,
Poland Embraces It
The countrys carbon addiction is
rooted in politics
Very few people are willing
to give up any benefits
The World Health Organisation esti-
mates that two-thirds of the European
Unions 50 most-polluted cities are in
Poland, largely in the mining region
of Upper Silesia, where the smell
of burning coal lingers in the air.
Undaunted, Polands government is
doubling down on coal. Building more
efficient coal power plants will get us
better results in cutting CO2 emissions
than building renewable energy sources
like wind or solar, says Energy Minister
Krzysztof Tchorzewski, a member of
the Law and Justice party, which swept
to power in October with union backing
A bulldozer works
atop a heap of coal
at a mine in
southern Poland
after it pledged to preserve mining jobs.
Even as other European countries
shun coal, Poland is still addicted,
getting almost 90 per cent of its elec-
tricity from it. That has more to do with
politics and fear of job losses than with
the inability to generate power from
other sources. Successive governments
have sought to restructure the mines
snaking beneath the lush Silesian coun-
tryside, but those efforts have been
thwarted by unions intent on preserv-
ing the countrys 100,000 mining jobs.
Before the Law and Justice party gov-
erned, Polish companies built plenty
of wind turbines. In May, parliament
passed a bill requiring that wind tur-
bines be located farther away from
homes, a rule that developers say effec-
tively kills new projects.
With the governments encourage-
ment, the three biggest publicly traded
utilities agreed to spend as much as
1.5 billion zloty ($387 million) on a stake
in a restructured mining company
called Polska Grupa Gornicza. Five
banks and a state company will get PGG
bonds in place of loan payments.
PGGs business plan assumes that
coal prices will rise for the next couple
of years. PGG has little chance of
becoming profitable, says Maciej
Bukowski, president of Warsaw think
tank WiseEuropa and co-author of a
study of the industry. He says that even
if coal prices increase, PGG will need
more capital by 2020. And if prices
remain stagnant and PGG doesnt
restructure further, it could face bank-
ruptcy within two years. Shutting down
money-losing mines and cutting jobs is
the only long-term solution, he says.
Some miners see that their way of life
cant last forever. Michal Piotrowski,
from the Silesian city of Zabrze, says
he quit retailing in 2012 and became
a miner to earn more for his family.
Hes disillusioned with what he calls
a give-it-away culture: administra-
tive staff who get the same free meals as
miners underground; free heating coal
for retired miners; an annual bonus of
two months salary. Its slowly chang-
ing, he says. But very few people are
willing to give up any benefits.
Although the miners recently agreed
to suspend part of their benefits for
two years, unions say job cuts are unac-
ceptable. Jaroslaw Grzesik, head of the
mining division of the Solidarity union,
praises the governments decision to
promote coal over renewables, which,
he claims, are being pushed by richer
countries able to afford such projects.
Were not a country where the sun
shines and wind blows all year, he
says. Were a country rich in coal, and
we should care about our economy and
our citizens. Ladka Bauerova and
Maciej Martewicz
KACPER PEMPEL/REUTERS
The bottom line Coal miners are a powerful force
in Polish politics, and they have preserved jobs
as a result.
global-economics
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 1 15 August,
May, 2016
2016
16
With orders drying up, Airbuss flagship A380 superjumbo is becoming an expensive failure
A cut in production could be the beginning of the end
After last months Farnborough
International Airshow in the UK, the
worlds biggest passenger plane looks
like its set to go down in aviation
history as having never truly taken off.
Airbus Group announced at the show
a drastic cut in production of its flag-
ship A380 superjumbo, acknowledg-
ing that demand has fallen far short
of original projections and raising
the prospect of the model being pre-
maturely axed. The build rate for
the double-decker will be slashed by
more than half to one plane a month
by 2018, Airbus revealed on 12 July.
Contrasting with the success of the
rest of the Airbus line, the company
delivered the surprise damper just
hours after pulling in several massive
orders for its popular A320-type sin-
gle-aisle jet at Farnborough.
Facing an almost inevitable demise
just a decade into commercial oper-
ation, the A380 never met Airbuss
aspirations, and the company has
long since given up on recouping
its 25 billion euros ($28 billion) in
Running Out
of Runway
development costs. Demand evapo-
rated in recent years with the intro-
duction of more nimble twin-engine
jets, leaving Dubai-based Emirates as
the only carrier to fully embrace the
giant aircraft. Having once predicted
that airlines would buy 1,200 super-
size-planes over two decades, Airbus
has had to settle for a far more modest
reality. It has delivered only 193 A380s
with 126 orders left to fill, though
some of them are unlikely ever to
materialise, and says the planned rate
cut will put future output in line with
the current order intake.
Even with Airbus seeking to reduce
programme costs to allow the A380
to remain viable at lower production
levels, the severity of the planned
rate cut suggests the programme is
on the brink of a terminal decline.
While a break-even rate of 27 deliv-
eries achieved in 2015 should be cut
to 20 next year, thats still eight more
than Airbus is counting on from 2018,
putting the plane in a perilous posi-
tion regardless of jetliner unit chief
Fabrice Bregiers declaration that the
A380 is here to stay.
It wont recover from this, says
Richard Aboulafia, an aviation consul-
tant at Teal Group in Fairfax, Virginia.
The new rate is seriously uneconomic;
therefore it will die in a few years.
Airbus shares fell as much as 3 per
cent following the announcement,
seeing the stock record a 17 per cent
fall for the year that left the company
valued at 40 billion euros ($44 billion).
Popular with travellers because of
its wide open spaces, even when filled
with the regulation 550 seats, the A380
has been less of a hit with the worlds
airlines. While Emirates has ordered
more than 140 of the planes and has
around 80 in service, only two other
operators, Singapore Airlines and
Australias Qantas Airways, have
bought 20 aircraft or more. Emirates
said in an e-mailed statement that
its 2018 A380 deliveries will not be
impacted by Airbuss production
slowdown, while offering no comment
on the repercussions of the decision.

It wont recover
from this. The new
rate is seriously The model is by far
uneconomic;
therefore it will Airbuss most expensive,
die in a few years.commanding a list price of
Richard $432.6 million, though cus-
Aboulafia, an
aviation consultant tomers typically get steep
at Teal Group in discounts. There are so far
Fairfax, Virginia no second-hand A380s in the
market, making the planes
resale value hard for operators and
leasing companies to predict.
New contracts have been few and far
between in recent years, with the A380
escaping an order blank for 2015 only
when a deal for three planes announced
by Japans All Nippon Airways earlier
this year was backdated. Irans outline
purchase of 12 A380s, revealed in
January, lifted the gloom briefly, before
the government in Tehran said it may
not translate into orders for five years,
and only then if the country decides it
really needs the planes.
With no hint of further contracts
and the A380 wowing crowds rather
than fleet managers at last months
Farnborough show south of London,
The biggest long-haul airline, which 2016 looks particularly grim, says
has built its business model largely Hans Weber, president of San Diego-
around the A380, had been press- based consultancy Tecop International,
ing for a revamped version in order to adding that he, too, views the rate cut
safeguard superjumbo operations for as the beginning of the end.
a decade or more. At the heart of the A380s failure is
Even large global carriers such as a bet taken by Airbus on the direction
British Airways and Air France of global aviation, with the company
operate the A380 in small batches, arguing when pitching the model
deploying it as a flagship aircraft to that global megacities, increas-
be used on a handful of high-pro- ingly crowded hubs and Asian eco-
file routes and for photo opportu- nomic expansion would spur demand
nities, rather than the mass-transit for legions of superjumbos across the
workhorse that Airbus had intended planet. Its a theme the company reit-
it to be. To most airlines, the dou- erated in its 12 July release, saying the
ble-decker remains an exotic addi- double-decker provided the one and
tion at best, rather than the backbone only solution for sustainable growth
of a long-dis- at congested
tance fleet. airports.
Not a single Boeing
US carrier saw things
has bought differently,
the A380, and suggesting
Japanese air- globalisation
lines, leading would demand
clients for higher fre-
older levia- quencies on
thans like the trunk routes
Boeing 747, combined with
have taken a multiplicity
just a handful. of new services
Emirates is the only airline to have
embraced the A380
Iran looks to boost
its green energy
infrastructure 18
An oversupplied Briefs: Saudi Arabias
market widens the oil tanker ambitions;
contango 18 Dubais road ahead 19
linking smaller citiesall best served
by mid-sized wide-bodies. Its response
was to build the 787 Dreamliner and
update the best-selling 777 range. Its
own 747-8, the latest iteration of its once
popular jumbo jet, has encountered a
reception from buyers even more luke-
warm than the A380s.
Airbus itself seems slowly to have
been coming round to Boeings view.
Until recently, it was pressing air-
lines to endorse an engine-upgrade
plan aimed at breathing new life into
the programme. While Emirates was
keen on the proposal, other takers
failed to materialise and Airbus said
in March the so-
Struggling to Get called New Engine
Off the Ground Option might not
At the current rate of Zcome until the
A380 sales, Airbus mid-2020s. The
is extremely unlikely
to meet its initial Gulf carriers pres-
projections ident, Tim Clark,
added in June that
1,200 A380s Airbus hed all but given 17
predicted industry would
buy in first 20 years of up on the upgrade
production and was more
193 A380s delivered by concerned that
2016, nine years after its the A380 should
first commercial flight
survive in some
126 A380 orders Airbus
has left to fill form as Airbus
$128b A380 develop- focused on its
ment costs own smaller A350
wide-body.
In detailing the production cuts,
Airbus sought to indicate that all was
not lost for the A380, and that the
plane would effectively be kept on life
support until aviation markets expand
in line with the companys more opti-
mistic forecasts. Workers would be
assigned to other, more promising pro-
grammes, it said.
Bregier, though, has himself
acknowledged that the A380 may have
PHOTO ILLUSTRATION BY LA CHINA M, IMAGES: SHUTTERSTOCK (3)
been premature, with air traffic yet to
reach a level that makes it the obvious
choice. And should that time ever
come, the giant double-decker will
most likely have aged to a point where
it will look like an outdated idea, over-
looked by customers in favour of a
new generation of jets. Christopher
Jasper and Andrea Rothman
The bottom line Airbus Group looks likely to
make a huge loss on its investment in the A380 as
orders for the superjumbo stall.
 Companies/Industries
Oil
A Crude Contango
Upsets the Rhythm
Oils one-year price suggests the
recent rally is over
Contango means you have an
oversupplied market
On the surface, the recovery of the
global oil market is firmly in place, sig-
nalling an end to two years of oversup-
ply and collapsing prices. However, one
key indicator is warning of turbulence
ahead. Crudes rally stalled near $50 a
barrel in the past month and the one-
year price contangowhere near-term
deliveries are cheaper than those a year
aheadhas almost doubled. Thats a
signal that demand from refiners could
be weakening. When the same thing
happened last summer, a fragile oil
rebound gave way to a renewed rout.
The market is in the process of rebal-
18 ancing, but the overhang has not been
wiped out yet, says Amrita Sen, chief
oil analyst at consultants Energy Aspects
in London. This will undoubtedly be
messy, with the market moving too far
in one direction before correcting.
From Saudi Arabia to the International
Energy Agency, the biggest names in the
oil industry agree that that the pressure
of low prices is finally whittling away a
global production surplus. Thats not to
say the world is on a steady trajectory to
tighter supplies and higher prices. From
one quarter to the next, the market will
swing from surplus to deficit due to sea-
sonal trends in supply and demand,
according to estimates from Goldman
Sachs Group.
The current widening of the contango
reflects subdued seasonal demand and
concerns over the economic impact
of the UKs vote to leave the European
Union. Contango means you have
an oversupplied market, says Bob
Yawger, director of the futures division
at Mizuho Securities USA in New York.
The global numbers, outside of US
production, point to an oversupplied
situation worldwide.
Brent futures for September, the first
active month on the ICE Futures Europe
exchange settled at $46.25 on 11 July,
$5.64 less than contracts for September
2017, the widest gap since March and
almost double the level a month before.
When the contango expanded about
40 per cent in June 2015, a price recov-
ery that had taken shape in the first half
of the year sputtered out and futures
plunged again, reaching a 12-year low
six months later. The contango shrank
in the first half of this year due to halts
to output caused by pipeline attacks in
Nigeria and wildfires in Canada, Michael
Cohen, an analyst at Barclays, says. As
those disruptions ease and the demand
outlook worsens following the UKs so-
called Brexit vote, the markets focus
has turned back to brimming inventory
levels, Cohen says.
Even after they fell for eight of the
nine weeks through 12 July, crude
stockpiles in the US still totalled 524
million barrels, more than 100 million
barrels above the five-year average.
We have a lot of oil in the system and
it will take us considerable time to
work that off, Ian
Brent Crude Taylor, chief exec-
Future Prices utive officer of
$60 Vitol Group, the
Sept 17
biggest indepen-
dent oil trader,
$50 says. I cannot see
the market really
Sept 16 roaring ahead.
$40 A widening con-
April July
tango can be good
news for oil traders.
It allows them to buy crude cheaply,
store it in tanks and lock in profit for
later sales using derivatives contracts.
Firms such as Vitol and Trafigura
Group thrived last year as Brents one-
year contango reached more than $12
a barrel. The current spread isnt wide
enough to make stockpiling crude on
ocean-going tankers profitable, Vitols
Taylor says. Any use of ships for storage
now is probably out of necessity amid
unloading delays at some ports, he says.
Despite the renewed contango, ana-
lysts agree the markets longer-term
return to equilibrium remains intact.
Demand and supply will essentially
$12b
be aligned in 2017, ending three years
of overproduction, according to the
Paris-based IEA, an adviser to industri-
alised nations.
Theres still scope for volatility in
the IEA forecasts. A small shortage in
the third quarter will be followed by
a surplus in the fourth, with a further
period of excess in the first half of 2017,
succeeded by a small accumulation
of stockpiles in the second. We dont
think the bottom will fall out of the
market, but we do worry things will
not tighten up that much more, says
Jan Stuart, global energy economist at
Credit Suisse Securities in New York.
Rebalance, yes, but in a messy sort of
way. Grant Smith
The bottom line Oils rally since January appears
to be at an end as the difference between near-
term and one-year ahead prices widens.
Energy
After the Oil Rush, the
Green Push
Iran plans for utility-scale
renewable-energy projects
All the investment will be done
by the private sector
As Irans oil and gas industry returns to
near full-capacity following the lifting
of international nuclear sanctions in
January, its clean energy sector is just
getting started. The government is plan-
ning its first tender for utility-scale
renewable-energy projects by year end
as it begins a green power build out that
could draw $12 billion of investment
by the time its complete. The nation
wants to install 5 gigawatts of renewable
energy in the next five years and an
additional 2.5 gigawatts by 2030, Irans
energy minister Hamid Chitchian says.
The Arabian Gulf nation, re-opened
to investors following last years nuclear
deal, has been courted by international
green power investors at the same time
it boosts oil production for export.
Were not going to use the money from
oil in that sector at all, Chitchian says.
All the investment will be done by
the private sector, including local and
foreign companies.
At least 150 trade delegations from
around the globe have visited Tehran
since economic sanctions were
dropped. While businesses and diplo-
mats have clamoured to tap the market
of 78 million people, deals have been
slow to materialise as banks and finan-
cial institutions exert caution to ensure
the nuclear accord sticks. Western
powers accused Iran of seeking nuclear
weapons, a charge Iran always denied.
Targetted investment by
Iran for its green power
build out
 Companies/Industries

Tehrans government is seeking com-

merce with countries and companies
offering the best financial terms rather
than prioritising political and histori-
Briefs By Rahul Odedra

cal ties. The energy ministry is already

in talks with some of the worlds largest
renewable-energy players including
Vestas Wind Systems and Siemens
Saudi Fleet Goes Large
Wind Power, Chitchian says. Vestas
chief sales officer, Juan Aratuce, said
in June that Iran could be an impor-
A venture between Arab Petroleum In- $1.1b
tant new market for wind energy. vestment Corporation, known as Apicorp, and
Automaker Iran Khodro is negotiating
with South Koreas LG to jointly develop
National Shipping Company of Saudi Arabia will
electric vehicles. create the worlds largest fleet of oil tankers Dubai expects to
Foreign direct investment dried up
during the sanctions but it is already
and support the kingdoms plan to boost crude solicit bids within
seven months for road
starting to flow, says Mohammad exports, Saudi Energy Minister Khalid Al-Falih projects worth as much
as 4 billion dirhams
Hassan Habibollahzadeh, Irans charge
daffaires in UK. Many companies have
said. Apicorp, a multilateral energy-finance lend- ($1.1 billion) as part of a
bigger drive to upgrade
signed agreements during the last few er, and the Saudi shipping company, known as the citys transport links.
months. Electricity is considered to
be one of the most important sectors.
Bahri, formed a $1.5 billion investment fund to add 15 very
Most of Irans power plants are over 40 large crude carriers to the shippers planned fleet of 46
years old and need to be reno-
vated and repowered, he says. EgyptAir, seeking to such vessels. The deal will sup-
overcome slumping
The government is planning to tourist numbers and port Saudi Arabias efforts to en-
invest a total of $50 billion in its the impact of a fatal
sure a secure supply of oil to its
electricity system in the next
seven years.
an order for nine $864m
jetliner crash, revealed
customers worldwide, Al-Falih
19
Boeing single-aisle jets
The energy ministry has set
12 separate feed-in tariffs for
and said it plans to buy
more planes to aid its said. H
recovery.
renewables, depending on the has signed
type of technology and the size of the
power plant. That system will be kept
a deal with a majority of its creditor banks to restructure
for projects under 100 megawatts. The about $6 billion of debt, taking the Saudi conglomerate one
new tender system will be used for facil-
ities with higher generation capacities.
step closer to ending a seven-year impasse over the Middle
Iran will tender 1 gigawatt of wind and Easts biggest default. The agreement with a five-member
as many as 3 gigawatts of solar, likely
in several stages, Chitchian says. It is
committee representing about 80 banks, which include BNP
also seeking to build biomass and geo- Paribas and Standard Chartered, formally commits Algosaibi
thermal plants and swap natural gas for
electricity with Armenia.
and the lenders to support the implementation of the agreed
Iran may also add solar to its system settlement terms, the Saudi Arabian company said. CEO
of energy swaps, which before sanctions
were lifted allowed the country to trade
Qatar Airways has agreed to buy a Wisdom

crude for refined products. Under a so- 49 per cent stake in Meridiana Fly marking
called solar for service programme,
developers and landowners would split
the Gulf carriers third investment abroad
cash flows generated from power sales. to expand its global reach. Qatar Air signed
Iran currently supplies 80 per cent of
its power from natural gas and wants to
an agreement with Alisarda, a holding com- We are not worried
the number of our
raise that figure to 90 per cent by the end pany of the Aga Khan that owns Meridiana, customers in Asia is
of next year. Anna Hirtenstein growing, and different
for a transaction expected to be completed customers see big
The bottom line Iran is beginning to develop its value in doing business
green energy infrastructure, which it hopes will in early October, subject to certain condi- with Saudi Aramco.
attract up to $12 billion of investment. Saudi Aramco CEO
tions, the carrier said, without specifying Amin Nasser plays
down the impact of
the value or other terms. low oil prices
AFP

companies-and-industries
SPECIAL ADVERTISING SECTION
TECHNOLOGY AND INNOVATION
ARE THE FUTURE OF THE OIL AND
GAS INDUSTRY
By Dietmar Siersdorfer
T
he effects of the low price of oil have been felt
across the world and, of course, none more
so than here in the Middle East. The issue has
become the focus of governments, analysts,
media, and the energy sector alike. It is not the first time
oil prices have taken a hit. They have always been vola-
tile, but this has increased during the past decade.
That said, regardless of the price peaking above
$140 in 2008 and falling below $20 this year, long term
average global energy consumption has grown steadily
between one and two per cent annually. At the same time
new oilfields are being developed and the output of exist-
ing fields is increasing with the injection of gas.
Of course, the lower price of oil presents a challenge
to the industry but also an opportunity that companies
need to grasp. Well-run oil and gas companies that are
strong today are likely to emerge even stronger after
prices rebound. During a slump companies have every
reason to focus on cost-effective production. This means
bringing in new technologies and improving processes.
The greater emphasis on technology and efficiency
comes at a time when oil is increasingly having to be ex-
tracted from hard-to-reach deposits that are deep under-
ground or offshore. We have reached a point in the in-
dustrys history where we have exploited the majority of
easy oil that could be produced cheaply from onshore
or surface sources.
Going forward oil will increasingly have to be extracted
from deposits that are deep underground or offshore, while
gas will be transported from remote locations via pipelines
or as liquefied natural gas by LNG tankers; a much trickier
task for production engineers.
 While it is becoming harder to produce oil and gas,
there is also good news: neither has to be more expen-
sive, as long as production methods are being continu-
ously improved. In the past, technological innovations
and more efficient processes have made production
cost-effective under increasingly challenging conditions.
Additionally, a number of key trends are emerging in
the oil and gas sector that will define the cost and method
of production. In the future, existing fields will operate
longer and their yield will be increased by injecting water
or gas, such as CO2, which boost the pressure of the
reserve. Unconventional extraction methods such as the
hydraulic fracturing of stone formations containing oil or
gas (fracking) is likely to spread beyond the U.S.
The production of heavy oil from oil sands will
become more environmentally friendly and less ener-
gy-intensive. The global market for liquefied natural gas
(LNG) will continue to grow strongly. As a result, gas that
is being flared, and thus wasted, today can be used and
marketed in the future. And one day, the vision of auto-
mated oil fields at the bottom of the sea, working main-
tenance-free over decades at depths of several thousand
meters, may be realised.
At the same time, alternatives to oil and gas are be-
coming increasingly viable. Electric cars may become
more commonplace in the future. And renewable energy
sources such as wind and solar power are becoming more
economical and could partially crowd out fossil fuels.
None of the above trends equate to oil and gas being
more expensive. If production methods are being contin-
uously improved, then the costs can be balanced. Oil and
gas companies with good long-term strategies will under-
stand the importance of cost-effective production and
more often than not, this requires the evolution of technol-
ogies and improving processes.
Production cost reductions have to be a priority not
just as an imminent need of the industry but also as
a long-term trend that ties in with the evolving energy
landscape outlined above.
So, where does technology fit into this equation? Beyond
legacy systems and technology, an important Siemens
focus is the automation and digitalisation of a range of in-
dustries that in turn will help to keep the oil and gas indus-
try efficient and cost effective.
Siemens is heavily invested in both areas and we expect
to help keep the oil and gas sector in the Middle East com-
petitive in the decades ahead. For example, we optimise
the entire value-added chain from production to transmis-
sion to refining of hydrocarbons through the digitalisation
and automation of processes that provide data, allowing
for analytics based on software tools that can improve de-
cision making, reducing costs and increasing the life-cycle
of oil and gas companies equipment.
We also predict that there will be more automated
equipment at all stages of the oil and gas value chain in
the future. There is a wide range of automation products
available for different oil and gas applications; from con-
trollers and networking systems to analytics and instru-
mentation. Automated equipment produces a constant
stream of datameasurement data that can be mined,
aggregated into big data and transformed into smart data
through intelligent analysis. And smart data helps us un-
derstand production processes better.
Visualisation software from Siemens is already making
it possible for users to immerse themselves in a virtual 3D
model of a drilling platform. In-depth virtual training ses-
sions enable technicians to prepare themselves for mainte-
nance assignments. This is already saving customers real
money. For instance, the crew of an offshore oil processing
platform in Africa was able to begin its training on a virtual A2
model while its future workplace was still under construc-
tion. Virtual training sessions reduced the time needed for
training sessions on board, and as a result the oil platform
entered service two months earlier than planned.
Another opportunity to reduce costs opens up when me-
chanical and electrical drives become smaller and lighter
in response to the scarcity of space on oil platforms and
pipeline stations. Aeroderivative turbines such as those
that Siemens recently took over from Rolls-Royce Energy
are a good example.
For oil and gas companies who have the courage to in-
novate and try new ways to produce and use resources, the
future holds much. And at the same time that alternatives
to oil and gas are becoming increasingly viable, efficiency
and efficacy will be pivotal in ensuring the vast supplies of
oil remain competitive with renewables. Renewable energy
sources are becoming more economical and could partial-
ly crowd out fossil fuels; here in the UAE, Abu Dhabi aims
for seven per cent of its energy to come from renewable
sources by 2020, while Dubai too has similar targets of five
per cent by 2030.
With less easy oil available and interesting alternatives
becoming more viable, the way forward is clear: oil and gas
companies need to reduce their production costs. Some
are leading the way by introducing more automation to oil
fields and using data analysis in smarter ways. In the future
we envision, more valves will be opened and closed by ma-
chines than by people. And more often than not, it will be
machines, not humans, that decide when to open or close
the valves. Flying workers to offshore oil platforms in heli-
copters may one day be the exception rather than the rule.
Dietmar Siersdorfer is the CEO of Siemens Middle East
Politics/
Policy
1 15 August, 2016

Another
The political career of Turkish President
Recep Tayyip Erdoan has been shaped
by military coups, real or imagined, for
more than four decades. Last months

Coup, A
attempt is likely to prove the most con-
sequential, and potentially empowering,
of them all. Whatever goals the rebels

Stronger
had, they may have ended up securing
Erdoans position at a time of multiply-
ing challenges to his popularity: self-pro-
claimed Islamic State terror attacks, a

Erdogan
war with militant Kurds, a failing foreign
policy and weakened economic growth.
When the coup attempt was at its
height on the night of 15 July, some
of Erdoans most ardent supporters
heeded his call to take to the streets,
facing down the guns and tanks of the
soldiers. There was no such public
show of support for the rebels, even
from those in despair over Erdoans
increasingly authoritarian rule. As a
result, the officers will have encouraged
Erdoan, 62, to intensify his drive to
change Turkeys political system from a
parliamentary to a presidential democ-
racy, accelerating the concentration
of power in his vast new presidential
palace. Erdogan will use the sympathy
the coup creates for him to his advan-
tage, says Henri Barkey, director of
Middle East studies at the Wilson Center
in Washington.
But he warned, too, that there were
risks for Erdoan and Turkey: The coup
was also a sign of deep unhappiness
within the military, and if the president
presses too hard with purges against
his perceived enemies, it could prove a
pyrrhic victory. He will be more par-
anoid so he is likely to go hard with his
purges, and in the process hurt a lot
of people, says Barkey. Nobody will
come out of this well.
Last months effort to seize power,
which Erdoan blamed on a former
ally turned enemy, US-based preacher
Fethullah Gulen, wouldnt be the first
coup to create political oppor-
tunities for him. The son of a
domineering Istanbul ferry
captain, Erdoan entered pol-
itics in the 1970s. At the time, the
Turkeys president has made the most of military power grabs 50-year old Turkish Republic had
just endured a second coup by
Nobody will come out of this well the military and was in a state of
near anarchy. Ultra-nationalists,

communists and,
to a lesser extent,
Islamists fought in
the streets, leaving
an estimated 5,000
dead. Erdoan
joined the Islamists.
Two of his friends
were killed in the
violenceone by
a bomb, another
shothe recalled in
a 2011 interview.
At the same time, he had a job at
Istanbuls transport authority, but
after a third military coup, in 1980, he
had to resign. The new boss, an army
colonel, ordered men to shave off their
beards, considered signs of religiosity
and Erdoan refused. The new regime
also banned the Islamist political group
to which he belonged, the National
Salvation Party.
The army, with its secularist agenda,
was a natural enemy to Erdoan. But
the coup and repression that followed
also contributed to a shift for him and
his fellow Islamists, who began to
temper their religious radicalism to
survive politically. They embraced elec-
toral politics; by 1994, Erdoan was
elected mayor of Istanbul, the countrys
largest city and commercial heart.
Erdoans term as mayor was inter-
rupted by a further intervention
from the armed forcesthe so-called
post-modern coup of 1997, in which
military commanders listed their com-
plaints about the Islamist-led coali-
tion government in a memorandum,
forcing it to resign. In the purge that
followed, Erdoan was jailedfor
reading out a poem that compared
minarets with bayonets.
Erdoans four-month incarceration
only boosted his political appeal. He
was inundated with fan mail and gifts
while in prison, according to an aide at
the time, Huseyin Besli. He cut a CD of
,
his poetry readings. After his release,
9 000+
Erdoan co-founded the Justice and
Development Party, or AK Party, which
explicitly accepted the secular nature of
the Turkish state, helping it win a wider
following. By 2002, it was in power.
From the moment Erdoan took
charge, however, he appeared fearful
Turkish military personnel arrested in the week
after the failed coup attempt
of falling victim to
yet another coup,
perhaps under-
standably given
the history. Those
fears came to a
head in 2007, when
the AK Party put
forward then-
Foreign Minister
Abdullah Gul to
run as president.
The army objected, describing itself
as the absolute defender of secular-
ism, in a move reminiscent of previ-
ous coups by memorandum. This time,
the army fell short.
Facing down huge secularist demon-
strations, Erdoan called snap elections
at which the AK Party increased its par-
liamentary majority. The new legislature
elected Gul as president, and Erdoan
emerged even stronger, the militarys
weakening grip having been exposed.
Immediately, prosecutors tar-
geted the top brass. One case alleged
that the armed forces had planned
a coup against the AK Party govern-
ment early in its term. The alleged
plot, codenamed Sledgehammer, was
a fantasythe key evidence had been
fabricatedand in 2014 the convictions
were eventually thrown out. Many offi-
cers were released, but the phony coup
cases had already served their purpose.
Swathes of the military were decap-
itated, clearing the way for less mili-
tantly secularist generals.
When the Fethullah Gulen movement,
Erdoans allies against the army, turned
against him in 2013, he again alleged a
coup attempt. In response to charges of
corruption against his government and
family, Erdoan mobilised a purge of the
judiciary, police and other institutions,
to remove Gulen supporters he accused
of instigating the graft probe.
Since Erdoan blamed Gulen for last
months failed coup attempt, which
according to the government left at
least 265 people dead, another crack-
down on the groups supporters has
begun. More than 2,800 military per-
sonnel were arrested during raids on
the day following the coup attempt and
a similar number of judges and prose-
cutors were removed from their posts.
Fighting talk in the US
Congress about Gulf
jet orders 25
Erdogan announced on 20 July that
the government was imposing a three-
month state of emergency. By then the
number of arreststhe vast majority of
them from the militaryhad risen to
over 9,000, while around 50,000 aca-
demics, journalists, police and judges
had been fired or suspended. Gulen and
his group denied involvement and con-
demned the coup, while Erdoans gov-
ernment began to pressure the US for
his extradition. Appeals from foreign
governments and civil-rights groups for
Erdoan to soften the countrys sweep-
ing anti-terrorism laws, ease restrictions
on media and return greater indepen-
dence to the judiciary are also likely to
receive increasingly short shrift.
None of this will be welcome news
for investors, even if the much greater
turmoil that would have followed a suc-
cessful coup would have been worse,
said Tim Ash, a strategist at Nomura
International in London, in a research
note on 16 July. The immediate after- 23
math of the failed coup attempt saw
4.6 per cent fall off the value of the lira,
the steepest decline since 2008. What
I find remarkable in all this, is that this
group of military personnel, Gulenist
or not, actually thought that they could
succeed, Ash said. Instead, they may
have made Turkeys strongman stron-
ger still. Marc Champion
The bottom line A failed coup attempt has provided
Turkeys president with an opportunity to take
strong action against his political opponents.
International Relations
Egypt and Israel Find
PHOTO ILLUSTRATION BY LA CHINA M, IMAGES: SHUTTERSTOCK (3); AFP (1)
Common Cause
Old foes cooperate on gas deals
and fighting militants
Its not about love, its not about
common values
When Egyptian President Abdel-Fattah
El-Sisi turned a standard speech on
electricity supplies into an unexpected
appeal for peace between Israel and the
Palestinians, one man who wasnt

Politics/Policy
surprised was Israeli Prime Minister
Benjamin Netanyahu. The televised
address in May capped months of back-
stage diplomacy by a group including
former British premier Tony Blair. With
Netanyahu wary of a separate French-led
proposal that could impose a solution
to the Palestinian conflict, almost every
step was coordinated with his veteran
negotiator, Yitzhak Molcho, according to
people familiar with the secret talks.
Nearly four decades after their peace
accord changed the face of the Middle
East, Israel and Egypt are slowly turning
a cool relationship into an alliance.
They have tightened security coopera-
tion to unprecedented levels and have
been laying the legal groundwork for a
multi-billion dollar energy contract, as
gas discoveries in the Mediterranean
and the persistent threat from Islamist
militants shift the political dynam-
ics across the region. In this time of
turmoil and instability all around the
Middle East, its very important for rea-
sonable countries to keep some kind of
cooperation, Israeli Energy Minister
Yuval Steinitz says in an interview in his
24 office in Jerusalem.
In the latest sign of the warming rela-
tions, Egypts Foreign Minister Sameh
Shoukry visited Israel on 10 July to
discuss efforts to renew stalled Israeli-
Palestinian peacemaking, the first public
visit by an Egyptian foreign minister in
nine years. Blair met Netanyahu on 11
July to follow up on the Shoukry visit and
help lay the groundwork for a summit
with El-Sisi, according to an Israeli offi-
cial who spoke on condition of anonym-
ity because of the diplomatic sensitivity.
My visit to Israel today is a continu-
ation of Egypts longstanding sense of
Egyptian Foreign
Minister Sameh
Shoukry and Israeli
Prime Minister
Benjamin
Netanyahu
There is definitely a
high level of
cooperation that
could be
unprecedented,
responsibility towards peace especially in the field runs deep in Egypt. The govern-
for itself and all the peoples of combating ment in Cairo and civil society
terrorism. Egypt will
of the region, particularly the handle this issue in a groups typically have sought
Palestinian-Israeli peoples, rational way, based to keep dealings with Israelis
Shoukry said, standing beside on national interest. to a minimum, and official
Mohamed Kamal,
Netanyahu at a press confer- political science contact is frequently kept secret.
ence. Netanyahu said it illus- professor at Cairo Tawfik Okasha, a lawmaker, was
trates the change that has University attacked with a shoe in February
taken place in Israeli-Egyptian by a colleague then expelled
ties, including President El-Sisis impor- from parliament for meeting with Israels
tant call to advance peacemaking, with ambassador to Cairo.
the Palestinians as well as Arab states. Dozens of militant attacks by an affil-
Arrangements are being made for iate of the self-proclaimed Islamic State
Netanyahu to travel to Egypt by the end on Egyptian security personnel have
of the year for a meeting with El-Sisi, allowed El-Sisi to pull closer to the
Channel 2 television said, without Jewish state. Israel, also targeted by mil-
saying where it got the information. The itants operating in Egypts Sinai penin-
aim would be to promote the Saudi- sula and the Hamas-ruled Gaza Strip, has
initiated regional approach to broker- let him boost military operations along
ing an Arab-Israeli peace and preempt their shared border beyond what the
the French proposal for resolving the 1979 treaty permits. There is definitely
Israeli-Palestinian conflict, which the a high level of cooperation that could be
Israeli leader opposes, Channel 2 said. unprecedented, especially in the field
In his speech at a new power plant in of combating terrorism, says Mohamed
Assiut, 400 kilometres south of Cairo, Kamal, a former lawmaker and a politi-
El-Sisi said he saw a great chance for a cal science professor at Cairo University.
better future, between Israel and the Egypt will handle this issue in a rational
Palestinians. An ensuing statement by way, based on national interest.
Netanyahu championing Egypts involve- El-Sisi has acted with a fervour his
ment was coordinated, the people famil- predecessors lacked against armed
iar with the talks said, speaking on groups and weapons moving between
condition of anonymity. French Foreign Sinai and Gaza, destroying and flood-
Minister Jean-Marc Ayrault said it was ing hundreds of cross-border tunnels.
complementary to his countrys effort. Israel has responded to El-Sisi with
Returning as a key power broker in the financial gestures and, according to the
region would help burnish Egypts inter- Israeli militarys deputy chief of staff,
national image as it struggles to revive increased intelligence-sharing. The
its economy. Potential rewards would level of cooperation is something weve
mitigate any increased risk of attack never experienced before, Major-
by militants because of closer ties to General Yair Golan says. Its not about
Israel. The affinity between El-Sisi, 61, love, its not about common values.
and Netanyahu, 66, is also remarkable I wouldnt describe it as the relation-
given that antipathy toward Israel still ship we have with the United States of
America, but I think its a good start-
ing point. A former senior Israel official
says his country has conducted numer-
ous drone attacks on militants in Sinai
in recent years with Egypts blessing.
He spoke on condition of anonymity to
discuss confidential military activity.
Israels closeness to El-Sisi precedes
his presidency. When he was defence
minister, Israel lobbied the US to release
military aid to Cairo suspended over
Egypts deadly crackdown on Islamists.
They argued it was needed to address
security threats in Sinai, the former
senior Israeli official says.
Potential gas deals would take coop-
eration to another level. Israeli sup-
plies would ease Egypts energy crunch
AFP

until it can develop its own field, the
largest in the Mediterranean. After
Israel and Turkey ended a six-year rift
in June and said they would start talks
on energy supplies, Netanyahu publicly
sent a message of reassurance to El-Sisi.
Israels Leviathan field can supply
Egypt, and that is something we are
working to advance, as well as Turkey,
he said at a news conference in Rome
in June. Idle Egyptian liquefaction
plants could be reactivated to convert
the Israeli gas for export to Europe and
other international markets. Israel may
forgive as much as half of a $1.7 billion
fine international arbiters ordered
Egypt to pay it for an earlier, broken gas
contract, two people familiar with the
matter said in May.
For Egypt, theres more at stake than
energy supplies: assuming a leading
role in peace talks is an opportunity
after criticism that longtime Egyptian
leader Hosni Mubarak had allowed
Egypts influence to wane, and El-Sisi
had expected his words to resonate.
Ill talk on a subject that could be
totally unexpected and it is not a simple
one, he said. I hope everybody listen-
ing to me in Egypt, the Arab region, the
Palestinians and the Israelis, will pay
attention. David Wainer, Jonathan
Ferziger and Ahmed Feteha
The bottom line Egypt and Israel are pursuing
closer ties to cooperate on energy policy and
counter-terrorism.
Defence
Frustrated Gulf Flyers
Get Some US Wingmen
House lawmakers slam delayed
deliveries of fighter jets to allies
In some cases their requests
wait for years
Three Gulf nations waiting on long-
overdue deliveries of US fighter planes
might not have to wait much longer,
thanks to influential members of
Congress pushing their case. The three
House lawmakers in charge of spend-
ing legislation for national security
agencies requested a briefing by 14
July on why the White House hasnt
approved the sale of as many as 81
fighter aircraft to three key Arabian
Gulf allies. Inexplicably, at the same
time we have asked our partners in the
region to assume greater roles in the
fight against the self-proclaimed Islamic
State their requests for US equipment
languish, the lawmakers said in a 6 July
letter to Secretary of State John Kerry,
Defence Secretary Ash Carter and
National Security Adviser Susan Rice
that was obtained by Bloomberg News.
The first and biggest of the unfulfilled
requests dates back to 2013. The stalled
aircraft sales could be valued at as much
as $12 billionand $20 billion if spare
parts, logistical support and muni-
tions are included, according to Richard
Aboulafia, an aerospace analyst for the
Teal Group in Fairfax, Virginia.
President Barack Obama, Kerry and
Carter have promised to strengthen
the defences of Gulf allies unhappy
that he forged the nuclear deal that
eased sanctions against Iran. But the
administration also has its differences
with the Sunni-ruled nations.
Qatar submitted a letter of request in
July 2013 for as many as 36 F-15s made
by Boeing. Kuwait submitted a letter in
April 2015 for 28 of the companys F/A-
18s. Bahrain made a more recent request
for 17 F-16s built by Lockheed Martin.
In some cases their requests wait for
years, a situation thats unacceptable
and must be rectified immediately,
wrote Republican Representatives
Rodney Frelinghuysen of New Jersey,
Ander Crenshaw of Florida and Kay
Granger of Texas, where the F-16 is
built. The trio highlighted the prospec-
tive sales to Qatar, Kuwait and Bahrain
as the most prominent example of the
administration continuing to take an
exorbitant amount of time to process
prior to notifying Congress.
The lawmakers lead the House
appropriations subcommittees
that approve funds for the Defence
Department, National Security Council
and State Department. Grangers
panel is completing action on the
State Departments fiscal 2017 budget
request with a provision that would
require quarterly reports for a year on
all pending overseas arms sales with a
description of what steps remain to be
completed before the sale can be sent
to Congress for approval. The letter
follows a similar one sent 1 April by
John McCain, chairman of the Senate
Armed Services Committee, Jack Reed,
Politics/Policy
the panels top Democrat, and Claire
McCaskill from Missouri, where Boeing
builds F/A-18s and F-15s. The lawmakers
were joined by Senate Foreign Relations
Committee Chairman Bob Corker.
In June, Boeing orchestrated a lob-
bying campaign of letter-writing to
the White House from members of
aerospace unions and associations
in Missouri, Michigan and Colorado
and from the Illinois Chamber of
Commerce. In a 23 June letter, the
Illinois chamber said 36 companies
support the F/A-18 and F-15 programmes
and directly and indirectly employ
approximately 1,600 people while con-
tributing $97 million to Illinoiss $13.4
billion defence economy.
Underscoring the sensitivities in
approving such sales, a group of sen-
ators, including
Chris Coons of
Delaware, Marco
$12b-$20b Rubio of Florida
and Tim Kaine
of Virginia, last
month wrote to
Estimated value of Kerry that they
stalled aircraft sales if
spare parts, logistical
were deeply 25
support and munitions alarmed by the
are included Bahrain govern-
ments crackdown
on dissent. A State Department offi-
cial who declined to be identified said
that as a matter of policy the depart-
ment doesnt publicly comment on
proposed defence sales or transfers
until Congress has been formally noti-
fied. The official said that in accor-
dance with the Arms Export Control
Act and the US Conventional Arms
Transfer Policy, its not unusualand
is in fact quite appropriatefor trans-
fers of major US weapons systems
to any partner nation to require sig-
nificant interagency consideration
and consultation.
Another administration official said
that by statute agencies also must
determine that the sale or export of
major defence equipment to countries
in the Middle East wouldnt adversely
affect the promised qualitative mili-
tary edge that the US guarantees to
Israel. Tony Capaccio
The bottom lineThe White House is coming under
pressure from Congress to sign-off on the delivery
of fighter jets to Qatar, Kuwait and Bahrain.
politics-and-policy
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 1 15 August, 2016

Until recently, the big news in the

world of news was that Facebook

Facebook was retreating from journalism. After

an unexpected dip in the personal
sharing that is its core business, plus
a mini-scandal involving allegations

Gave 1.65 Billion of political bias in how it displayed

content from conservative websites,
Facebook said it was updating its algo-
rithm to prioritise wedding announce-

Users a ments and baby photos over postings

by media companies. Friends and
family come first, the company said
in a 29 June blog post.

Streaming
And when Chief Executive Officer
Mark Zuckerberg announced the
Facebook Live video function, he
presented it as a platform for lifes

Service
small trials and triumphs. You can
feel like youre really there with your
friends, he said on 6 April, when the
service launched. Among the videos
he praised: a young mans haircut
as it happened, a woman skiing
28 downhill with her kids, and a zoo
camera trained on some baby birds.
Everyone is tuned in, watching these
cute bald eagles, wondering whats
going to happen, he said, with a wide
grin. Its kind of a new thing.
The sentiment suddenly feels
quaint. On 6 July, during what should
have been a routine traffic stop, a
police officer in suburban Minneapolis

Then This fired multiple shots at Philando

Castile, a 32-year-old black man.
Seconds later, as he slumped, bloody
and gasping for air next to her in the

Happened car, Diamond Reynolds, his girlfriend,

Live video is creating a news site out of the platform
opened the Facebook app on her
smartphone and pressed the Go Live
button. She narrated calmly, panning
from the gun pointed in her direc-
tion to her dying companion, and
even kept the broadcast going as she
was thrown to the ground, cuffed, and
taken into custody. Its OK, Mommy,
her 4-year-old daughter could be
heard saying in the back seat. Im
right here with you.
The next day, Facebook was used
by witnesses in Dallas to broadcast
live footage of the attack that left five
police officers dead and seven others
wounded at a Black Lives Matter
YOUTUBE (5)

AI isnt going to solve what happened in Minnesota protest organised in response to the
shootings of Castile and Alton Sterling

Facebook is in a
position of power.
At some point
in Baton Rouge, Louisiana. In data streaming, helped
[it] will be asked to
the aftermath of the violence, shut down a live Reynoldss stream from
Facebook Live was inescap- feed to make the passenger seat of a car
sure something
able, as public figures took to go viral almost instantly.
doesnt go viral.
the platform to process in real Jonathan Zittrain, Live-streaming at such a
time what had happened. If you Harvard University speed and on such a scale
are a normal white American, raises legal and ethical
the truth is you dont under- questions. At least five
stand being black in America, and people this year have been shot
you instinctively underestimate the while broadcasting with Facebook
level of discrimination and the level Live. One, a man in Chicago, was
of additional risk, Newt Gingrich killed. Another man, an apparent
told CNN commentator Van Jones in a sympathiser with the self-proclaimed
Facebook Live interview. Islamic State in Paris, streamed
Broadcasting video in real time on threats after he allegedly mur-
smartphones isnt new. Twitters dered a French police commander
Periscope made headlines last year and his partner. In Milwaukee, two
when it enabled users to stream 14-year-olds and a 15-year-old filmed
parties from the South by Southwest themselves being physically inti-
festival in Austin and unauthorised mate. (Facebook deleted the Paris
coverage of the Oscars. But none and Milwaukee videos; the Chicago
of the companies that have rolled murder film is still available.)
out live video have Facebooks scale Videos are routed through a con-
or technological know-how. With tent-moderation system thats still
1.65 billion usersmore than half of a work in progress. If any widely
whom log in every dayfootage can viewed live-stream or footage is
quickly command an enormous audi- flagged as inappropriate by a single
ence. And live videos are archived, Facebook user, its sent to one of
adding even more viewers. Reynoldss four content-moderating call-cen-
video of Castiles death drew more tre-like operations, in Menlo Park,
than 5 million views on Facebook Austin, Dublin, and Hyderabad, India.
within a day of the incident and was Moderators are instructed to inter-
rebroadcast on several news channels. rupt any live-stream that violates
The push for live video accelerated Facebooks community standards,
in February at an all-hands meeting which include bans on threats, self-
at Facebooks campus in Menlo Park, harm, dangerous organisations,
California, when Zuckerberg said the bullying, criminal activity, regu-
format would be central to the com- lated goods, nudity, hate speech, and
panys future. The new feature rep- glorified violence. The gatekeepers
resents a technical challenge, taxing weigh the public-interest value of a
cell phone networks and Facebooks given video against these standards.
own serverseven Zuckerbergs Facebook is in a position of power,
own videos have cut out at times. says Jonathan Zittrain, the director of
Converting the video right away to Harvards Berkman Klein Center for the
work on hundreds of different devices Internet and Society. At some point
at once is anything but simple. When Facebook will be asked to shut down
a user goes live, Facebook must a live feed to make sure something
ensure it can process the footage,
regardless of the source, and trans-
mit it instantly. The infrastructure
for live-streaming is hard, Chief
Product Officer Chris Cox said in a
2015 interview. Its something weve Reynoldss video of the
been working on for a long time.
Facebooks custom-manufactured
shooting drew more
servers, set up around the world than 5 million views on
to handle any sudden demand for Facebook within a day
Mums may soon get
their childrens shots
for them 30
Innovation: Its not the
Defying gravity to heat with this toaster,
test for oil 30 its the humidity 32
doesnt go viral, he says. The company
needs to be upfront about the deci-
sions its making and the pressures
under which its making them. The
events of the past week have sparked
more discussion at Facebook about the
companys role in such situations.
Facebook has said it hopes to use
artificial intelligence to help make
such split-second judgments, but the
technology is a long way off. You can
have filters for certain words, but AI
isnt going to solve what happened in
Minnesota, says Blagica Bottigliero,
a vice president at ModSquad, which
uses a network of 10,000 contrac-
tors worldwide to moderate online
content for the NFL and Warner
Bros., among others. You need the
judgment of someone looking at the
content and bringing in context, and
even in those situations they can get it
wrong, Bottigliero says.
The aftermath of the Reynolds
video is a case in point in the difficulty 29
of curating newsworthy but violent
content. Early on 7 July, Facebook
took down the video without expla-
nation, then restored it an hour later
with an apology and a disclaimer
noting its explicit content. This led
to news reports citing anonymous
sources who claimed the police had
deleted the video while Reynolds was
in custody. Facebook spokeswoman
Andrea Saul sticks with the com-
panys statement on the issue, that it
was a technical glitch. A company
statement described the incident as
one of the most sensitive situations,
saying: Weve learned a lot over the
past few months and will continue to
make improvements to this experi-
ence wherever we can.
The same day, Zuckerberg addressed
the shooting in a Facebook wall post.
The images weve seen this week are
graphic and heartbreaking, he wrote.
I hope we never have to see another
video like Diamonds. In all likelihood,
more such video will come, however,
and Facebook will again be a news site,
whether it wants to be or not. Sarah
Frier and Max Chafkin
The bottom line Facebook has yet to figure
out how to moderate the potentially explosive
content its 1.65 billion users could live-stream.
 Technology
Energy
Listening for Oil,
With Einsteins Help
Shell is testing sensors built to
help detect gravitational waves
Its like, all of a sudden,
somebody turns on the music
Albert Einstein suggested a century
ago that large-scale cosmic vio-
lencetwo black holes colliding,
for examplemight send gravita-
tional ripples through the universe
like a stone disturbing the surface of
a pond. In September physicists in
the US conclusively detected gravita-
tional waves for the first time, again
proving Einstein right. While its a safe
assumption he wasnt thinking about
how building a wave observatory
might lead to finding oil and gas, two
physicists in Amsterdam have started
a company betting they can.
30 Innoseiss prototype seismic
sensor, not much bigger than a fist,
looks like a box with a golf tee stick-
ing out of it. Royal Dutch Shell,
which is testing Innoseiss sensors,
hopes the lightweight, wireless tech-
nology can replace its standard sur-
veying equipment. Each of Shells
$100 million seismic explorations
requires about 100,000 5-kilogram
sensors, strung together with 9,600
kilometres of cable. Innoseiss model,
which is stomped into the ground
every few metres, would in theory let
the oil company deploy 1 million 450-
gram sensors, covering much more
ground, for the same price.
Innoseiss path was obvious only in
retrospect. Johannes van den Brand,
an astrophysicist at the Dutch National
Institute for Subatomic Physics, joined
the hunt for gravitational waves in 2006,
attracted by the scientific and engineer-
ing challenge. In 2009 he persuaded
Mark Beker, a half-Dutch New
Zealander with a masters in applied
physics, to pursue a PhD in seismicity
and gravitational-wave detec-
tion. To Beker, the research
was a chance to make what
seems like science fiction no
longer science fiction.
Detecting how
gravitational waves warp 3D space
is tricky. The ripples are tiny.
Instruments must be sensitive to
0.000000000000000001 metre, or
about one ten-thousandth the width
of a proton. And the earth, with its
constant rattle and hum, is a terrible
place to look for the waves.
To detect ripples, gravitational-wave
observatories isolate their instru-
ments from the earths interference.
To subtract out low-grade seismic
activity, or Newtonian noise, the
facilities measure the ground outside
and adjust accordingly.
Beker spent his first year of PhD
research on a seismic-listening tour
of Europe, working on a way to
account for Newtonian noise. He
recorded whats shaking, literally. In
Germany he measured the ground
near a factory. You could tell from the
seismic signal when people started,
when they took a lunch break, and
when theyd go home, he says.
He and Van den Brand went looking
for lightweight seismic sensors and
wound up designing some themselves.
In 2012 their research caught the
attention of Wim Walk, a physicist who
manages Shells seismic oil-hunting
technology. The company needed to
investigate earthquakes near facilities
around the Dutch town of Groningen,
where natural gas extraction has been
linked to seismic activity. Walk sug-
gested that Innoseis refine its sensors:
They had to be small, cheap, and tough
enough to survive extreme tempera-
tures, or the occasional truck wheel.
The company is still testing Innoseiss
equipment. The prototype combines
an analogue instrument that measures
ground movement with a software
system that dramatically shrinks power
demand (and thus weight and cost) by
switching on gear only when it needs to
time-stamp fresh data.
For scientists, Einsteins gravitational
waves offer a way to learn things about
the nature of the universe, Beker says.
Until now, astronomy was like watch-
ing a symphony play without sound,
he says. Its like, all of a sudden, some-
body turns on the music. You get to
understand so much more. You get to
see so much more. Including, perhaps,
a lot more oil. Eric Roston
The bottom line Innoseiss sensors may be able
to increase the range of Shells $100 million oil
exploration projects tenfold.
Biotech
Vaccine Makers Target
Pregnant Women
Shots could become routine for
expectant mothers
There is new and growing
evidence of unmet medical need
Vaccine makers are hoping to tap
an emerging market: babies in their
mothers wombs. While research-
ers have long known that maternal
inoculations could potentially save lives,
theyve held back in part because of
concerns about risk to the foetus. It
took me a while to figure out what the
problem was, says Carol Baker of Baylor
College of Medicine. The problem was
the word pregnancy.
Companies including Novavax,
GlaxoSmithKline, and Pfizer see big
business in baby-protecting vaccines
for expectant mothers. The companies
are working on inoculations against
group B strep and respiratory syncytial
virus (RSV), which infects newborns
lungs and breathing passages. The
infections pose a serious enough threat
to their health that shots could become
a routine part of pregnancy. Moncef
Slaoui, the retiring chairman of Glaxos
vaccines division, has said the market
could ultimately be as big as the one for
paediatric vaccines.
The industry began looking more
closely at the idea of injecting pre-
natal vaccines after the 2009 swine
flu pandemic, when public-health
authorities urged widespread immun-
isation of pregnant women, and
after whooping cough outbreaks in
2010 and 2011, which saw upticks in
tetanus-diphtheria-pertussis shots for
expectant mothers. Those episodes
demonstrated that vaccines could be
used safely on pregnant women and
that they controlled the infections
spread, says Anne Schuchat, princi-
pal deputy director of the Centers for
Disease Control and Prevention. We
really had a sea change in the US in
terms of pregnant women getting the
COURTESY INNOSEIS
flu vaccine, she says. Drugmakers
have also been spurred by new and
growing evidence of unmet medical
need as well as scientific advances,
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 Technology

says Ripley Ballou, head of Glaxos

Innovation vaccine research and development

centre in Rockville, Maryland.
Along with safety concerns, the
lack of a clear path to regulatory

Balmuda Toaster approval has discouraged pharma-

Form and function
The Balmuda toaster oven uses steam and
carefully calibrated heat cycles to turn
store-bought bread into something that
smells, feels, and tastes like its just popped
out of a bakers oven.
Background Terao, a
high school dropout
32 who spent a decade
fronting Japanese
rock band the Beach
Fighters, started
Balmuda in 2003,
building aluminum
laptop stands.
Price The toaster
costs 24,000 yen
($230) and is
available in Japan in
stores and online.
Next Steps
Consumers are embracing gadgets that do one thing well, says Hiromi
Yamaguchi, an analyst at researcher Euromonitor International. Mark Oda, an
app marketer in Tokyo who was among Balmudas first buyers, says hell never
ceutical companies from develop-
ing maternal vaccines. The US Food
Innovator Gen Terao
and Drug Administration has never
Age 42
approved a vaccine specifically for
Founder and president
safeguarding foetuses. Marion Gruber,
of Tokyo-area appliance the director of the FDAs Office of
maker Balmuda, which has Vaccines Research and Review, says
50 employees
the agency is open to discussing alter-
native trial designs and alternative
Origin In 2014, endpoints for such treatments.
Balmuda began
work on a toaster
Even so, it will be a long time before
after a rainy-day 1. any vaccines reach patients. Glaxo
barbecue taught is developing vaccines for RSV and
Terao that humidity
could help keep
group B strep. The company will
toasted bread moist. begin testing the RSV vaccine in preg-
nant women this year; its modifying a
group B strep inoculation it acquired
through a deal with rival drugmaker
Steam With an included
cup, users pour 5 cubic
Novartis in 2015. Glaxo will likely have
centimetres of water in an to carry out large-scale trials to prove
opening at the top of the the vaccines are effective. Ballou says
35-by-33-by-20-cemtimetre
toaster. A tiny amount of
it could take five to nine years before
steam traps moisture in bread data for either vaccine are submitted to
as its gradually warmed, the FDA for approval. Pfizer is studying
before the toaster finishes it
off with a dose of high heat.
its own versions of both vaccines but
hasnt started testing in humans.
The bacteria that cause group B strep
live in the birth canal and infect a baby
as its delivered. Women in the US are
often screened for it and treated with
antibiotics if necessary. The infection
is much more common in poor parts of
the world, such as sub-Saharan Africa.
Novartis Vaccines, whose assets are
now part of Glaxo, is among the com-
panies that have run trials of shots for
expectant mothers in African countries.
The FDAs Gruber says the agency will
2. accept data from such studies, though
Cycles Unlike conventional
manufacturers will have to show the
Sales Since the ovens, Balmudas toaster results would apply in the US.
toasters June 2015 uses thermostats to Data from Novavaxs trial of its RSV
maintain precise, scorch-
debut, Balmuda has
free warming cycles, which
vaccine in pregnant women could be
sold about 10,000
per month. Theres a users can customise based available as early as 2018. People were
three-month wait. on the type of bread. looking at us with interest in the topic
six years ago, says Gregory Glenn, pres-
ident for R&D at the company. Today
theres a huge amount of affirmation,
support, and optimism. Cynthia
Koons and Ketaki Gokhale
AKIO KON/BLOOMBERG (4)

be able to go back to cheaper toasters. Balmuda recently expanded sales of

The bottom line Vaccine makers are looking more
the toaster oven to South Korea but says its not planning to move into the US closely at developing inoculations for pregnant
or Europe anytime soon. Some are available through resellers on Amazon. women that could save infants lives.
com and elsewhere. Reed Stevenson
 Markets/
Finance
1 15 August, 2016
Investment Banks Have a
Brand New Best Friend
Saudi Arabia provides some much-needed business amid a global slump in the industry
Its going to be a fees feast for investment banks
When news broke in January that Saudi
Arabia was considering an initial public
offering of its state-owned oil company,
the first reaction on Wall Street was
shock. Then calls began pouring into
Dubaithe Middle Easts financial hub
from senior bankers in London and
New York.
Investment banks around the world
are clamouring to join what prom-
ises to be a bonanza, and not just the
IPO of Saudi Arabian Oil Company,
or Aramco, which could be valued at
34 upward of $2 trillion. The kingdom is
planning to sell hun-
dreds of
state assets
to bolster
its finances
and reduce its
dependence
on oil. That
includes
as much as $15 billion of bonds. Saudi
Arabia looks even more promising with
investment banking in a global slump
and Britains vote to exit the European
Union set to deter deal-making for
months to come. Saudi Arabia is close
to the top, if not at the top, of the agenda
for banks, says Christopher Wheeler,
a London-based analyst with Atlantic
Equities in London. Where else is there
at the moment?
Fees paid to banks in the kingdom
jumped by almost a third to about $100
million in the first five months of the
year, according to New York-based
research firm Freeman. While thats a
fraction of what investment banks gen-
erate in the US and Europe, the work of
diversifying the kingdoms economy is
just getting started. International banks
elbowing for position are adding staff,
dispatching top executives to Riyadh
and promoting Saudis to senior roles.
Among the biggest banks,
HSBC Holdings and
JPMorgan Chase appear
to have a head start.
HSBC is working on
the privatisation
of the Saudi Stock Exchange and the
potential breakup of Saudi Electricity
Company, people with knowledge of
the matter have said. Stuart Gulliver,
chief executive officer of the London-
based bank, travels to the kingdom reg-
ularly to meet decision makers, said
a person familiar with his visits who
asked not to be identified. Two HSBC
bankers recently jumped to govern-
ment roles. Mohammad Al Tuwaijri,
CEO for the Middle East, was appointed
deputy economy and planning minister
in May. Fahad Al Saif, general manager
of global banking and markets at HSBCs
Saudi British Bank, is starting a debt
management office that will be respon-
sible for the kingdoms first interna-
tional bond sale.
HSBC and JPMorgan, along with
Citigroup, were picked at the end of
June to arrange that offering, people
with knowledge of the matter said.
Officials at the three firms declined
to comment on their Saudi opera-
tions. JPMorgan advised the Saudi
Public Investment Fund on its $3.5
billion investment in Uber
Technologies in June. It
also has an advisory role
on Aramco, people famil- PHOTOGRAPH ILLUSTRATION BY LA CHINA M. IMAGES: AFP (6), SHUTTERSTOCK (1)
iar with the matter said in
April. The largest US bank
set out at the beginning
of the year to increase its
Saudi staff of 65 by about
10 per cent, said Bader
Alamoudi, CEO of its local
investment-banking unit, in
a January interview.
Deutsche Bank, which has
about 80 people in the country,
named Jamal Al Kishi, a Saudi
national, as CEO for the Middle East
and Africa earlier this year. We
view Saudi as a core growth market

with huge potential for global invest-
ment banks, says Tamim Jabr, Deutsche
Banks head of corporate and invest-
ment-banking coverage in Saudi Arabia.
Morgan Stanley President Colm
Kelleher, who travelled to Riyadh in May,
told Saudi Arabias al-Eqtisadiah news-
paper that his visit was to reaffirm the
banks commitment to the Saudi market
at a time when the countrys future is
being shaped. An official at the New
York-based firm declined to comment.
The big banks are vying not just with
each other, but also with smaller firms.
Verus Partners, a London-based advi-
sory boutique co-founded by former
Citigroup bankers Mark Aplin and
Andrew Elliott, helped Saudi Arabia
secure its first loan in 15 years in April,
when the government raised $10 billion
from banks.
Michael Klein, another ex-Citigroup
investment banker, is advising Aramco
on its IPO, people with knowledge of the
matter said in April. Kleins firm is pro-
viding strategic advice to the govern-
ment, while JPMorgan is working on
preparations for the IPO and may be
among the banks that underwrite the
offering, the people said.
To reduce the importance of oil,
Deputy Crown Prince Mohammed
bin Salman wants to build the coun-
trys sovereign wealth fund into the
worlds largest, and increase the propor-
tion of its foreign investments to half,
from 5 per cent. Its going to be a fees
feast for investment banks, says John
Sfakianakis, the Jeddah-based head of
economic research at the Gulf Research
Centre, a think tank. No one else in the
Middle East, and maybe even emerging
markets globally, is embarking on such
deep reforms. The Aramco IPO alone
would generate at least $50 million in
banking fees, according to an estimate
from Freeman.
The kingdom provides a bright spot
in an otherwise dismal landscape for
investment banks, whose earnings are
under pressure from record-low inter-
est rates and escalating capital require-
ments. UK voters surprise decision to
AFP; DATA: FREEMAN
withdraw from the EU heralds even
harder times for securities firms as com-
panies that hire banks to advise on take-
overs and raise money face years of
uncertainty while Britain negotiates
new international ties.
Bankers typically earn less on deals
in Saudi Arabia than on similarly sized
transactions elsewhere. On the IPO of
National Commercial Bank, bankers,
lawyers and accountants split 25 million
Saudi riyals ($6.65 million), or about 0.1
per cent of the deals size. That com-
pares with an average of 2.7 per cent
for banks underwriting IPOs in Europe,
the Middle East and Africa in 2014, data
compiled by Bloomberg show.
The countrys rigid interpretation of
Sunni Islam, including a strict segrega-
tion of men and women in public and
a ban on alcohol,
can be off-put-
$100 million
ting to expatri-
ates and make it
harder to put qual-
ified bankers on
the ground. Still,
Fees paid to the opportunities
investment banks
operating in Saudi
are too attractive to
Arabia in the first five pass up. Banks are
months of 2016 seeing a big wallet
to go after and they
wont want to miss out, says Wheeler.
With oil unlikely to return to historical
highs, there will be a consistent stream
of business coming out of Saudi Arabia
for years to come. Stefania Bianchi
and Matthew Martin
The bottom line Investment banks are stepping
up operations in Saudi Arabia as the countrys
proposed economic reforms offer a fees bonanza.
Sovereign Debt
Iran Mulls Joining the
Big Gulf Bond Craze
The country hasnt tapped global
debt markets since 2002
Right now, the groundwork for
issuing bondsexists
Iran could soon be joining its Gulf
neighbours in leaning on the global
bond market. The Islamic Republic
is exploring a return to international
debt markets for the first time since
A coup attempt is not
what Turkeys banks
needed 36
IPO underwriters can
make lots of green
with a greenshoe 37
2002, a senior government official says,
as the country seeks to finance an eco-
nomic recovery a year after a historic
nuclear deal that offered it a route
out of isolation. Economy Minister Ali
Tayebnia, whose ministry is at the fore-
front of securing Irans access to the
global financial system, says that he
expects his country to secure a credit
rating in the near future, a step that
could help attract bond investors.
Iranian officials are negotiating with
all the rating agencies, he says.
Ten months before his first term
ends, Iranian President Hassan
Rouhani is seeking to turn his land-
mark diplomatic success into tangible
economic benefits for Irans 80 million
people. His bid to lure billions of
dollars in foreign investment needed
to rebuild infrastructure has been hin-
dered by the concern of global banks
they might fall foul of US Treasury
sanctions not lifted under the July
2015 accord. Tehran has also heavily 35
criticised moves by Republican law-
makers in Washington to roll back
the deal. In the area of banking rela-
tions, especially big banks, we are still
faced with some problems, Tayebnia
says. However, some of these prob-
lems, gradually and over time, will
be resolved.
Iran agreed to dismantle key parts
of its atomic programme under the July
2015 deal in return for the removal of
most sanctions. The agreement averted
a possible military confrontation by
eliminating Irans capacity to develop
nuclear warheads, weapons the Islamic
Republic denied seeking. For many
investors, it also meant the possibil-
ity of opening up one of the worlds last
major untapped frontier markets.
Iran last issued international
debt in July 2002, according to the
International Monetary Fund. Officials
from Fitch Ratings visited the country
in June to make an initial assessment
of the economy, Akbar Komijani, a
deputy central bank governor, said in
an interview on 30 June. The company
said in March it was in discussions with
the Islamic Republic but declined to
elaborate. Fitch withdrew its B+ sov-
ereign rating, the fourth-highest junk
grade, for Iran in 2008 following the
 Markets/Finance
Its natural that
maturity and full repayment of
its last sovereign Eurobond that
year. Moodys withdrew its B2
rating on Iran in 2002, according
to data compiled by Bloomberg.
Right now, the groundwork for
issuing bonds and various Iranian
debt securities in international
markets exists, Tayebnia says. He
didnt elaborate on the potential size
and timing of the possible sale.
The OPEC member would join other
major oil producers that have rushed
to the bond market in an effort to
repair public finances battered by the
plunge in crude prices. Abu Dhabi, the
capital of the United Arab Emirates,
raised $5 billion in April, shortly before
Qatar tapped investors for almost
double that amount. Saudi Arabia,
Irans main political rival in the region,
has hired banks to help arrange its first
international bond sale, according to
people familiar with the matter.
Yet as Iran weighs its options,
authorities are already pursuing other
avenues to finance multiple projects
crucial to create jobs and fuel eco-
36 nomic growth. The economy min-
ister says about $45 billion worth of
financing agreements with various
countries have been reached since
the nuclear deal was implemented in
January, though he says it could take
up to several months to get to the
implementation stage. Its natural
that when a car that has stalled and
wants to start moving, at first it will
come under more strain and will need
a higher driving force, after that it will
move with more ease, he says.
Tayebnia is a key member of
Rouhanis administration that inherited
an economy struggling with a dearth
of investments and a currency crisis
that triggered hyper-inflation. He pre-
dicts gross domestic product will grow
by 5 per cent in the 12 months to March
2017, up from 4.5 per cent previously
forecast by Iranian officials. Inflation
Bonding Over Debt
If Iran decides to tap international markets for funding, it will
be following in the footsteps of some of its Gulf neighbours
$5b $9b $10b $9.9b
Raised by Raised by Qatar
Abu Dhabi
April May
when a car that has
stalled and wants to has eased to single-dig-
its for the first time in a
start moving, at first
it will come under
more strain and will
quarter century, deliver-
ing on a Rouhani pledge
need a higher
driving force, after to lower borrowing costs
that it will move
with more ease.
that have stymied growth.
Iranian Economy Banks have cut interest
Minister Ali Tayebniarates on deposits to 15 per
cent from 18 per cent.
Non-performing loans have
also dropped to around 10 per cent
of total loans from 14 per cent when
Rouhani came into office in 2013, the
minister says.
We are seeing the positive
effects of sanctions removal on the
economy, he says. He suggests that,
just as the application of sanctions
on Iran took time, a full economic
recovery will also be gradual. As an
example, in relation to the export and
production of oil, we are currently
not facing any particular limits. In
some areas we still havent managed
to fully benefit from the outcome of
sanctions removal. Oil exports have
jumped this year to a level near the
nations pre-sanctions peak.
Irans opponents in the US Congress
accuse Iran of using the funds to
sponsor terrorist groups, and want
to impose new trade curbs. Among
their targets is a $17.6 billion deal with
plane maker Boeing for 109 aircraft.
That would be the biggest business
transaction between the two coun-
tries since the 1979 Islamic Revolution
and the US hostage crisis. Tayebnia
dismissed the moves, saying Iran has
strengthened anti-money launder-
ing and counter-terrorism financing
laws. We are not really that sensitive
about this deal, he says. Its not as
important to us as it is perhaps for the
Americans. There are other compa-
nies in the world that can provide for
our needs. Golnar Motevalli
The bottom line Iran looks likely to join its Gulf
neighbours in tapping international bond markets
to raise funds to fuel its economic recovery.
Reported minimum Maximum Kuwait
amount Saudi Arabia hopes to raise
wants to raise
September (at the earliest) September
Banking
Turkeys Banks Cant
Catch a Break
A coup attempt adds to their bad
debt and tourism woes
Funding for Turkish banks could
become more expensive
Turkeys failed coup is dealing yet
another blow to the nations banks,
which are already under pressure
from rising bad debts and a slump in
tourism. Istanbul-based lenders Yapi
ve Kredi Bankasi and Sekerbank can-
celled about $800 million of debt sales
last month after the attempt to unseat
President Recep Tayyip Erdoan and
the ensuing political unrest spooked
investors. Neither bank forecast when it
may return to the credit markets, with
Sekerbank saying it would contact fixed-
income investors in due course.
The renewed tension in Turkey, which
imposed a three-month state of emer-
gency on 20 July, is hampering access to
the funding banks need to cover their
short-term debt, while a slumping lira is
increasing the risks of lending in foreign
currency. The political instability has
made a difficult year worse for banks as
they contend with a 33 per cent surge in
bad loans and soaring bankruptcy filings.
Funding for Turkish banks could
become more expensive, or even more
difficult to access, given their large
dependence on market funds and their
exposure to the foreign-exchange market
in a context where the local currency
could be under pressure, Moodys
Investors Service said in a report on 19
July, after placing Turkey under review
for a possible downgrade to junk. The
nations lenders owe $120 billion to insti-
tutions abroad, according to the Bank of
International Settlements.
Deputy Prime Minister Mehmet
Simsek said on NTV television that
where was no need to worry about the
economy, investments and markets after
the state of emergency was imposed.
The country wont have a problem
rolling over its external debt, he said.
ILLUSTRATION BY 731
The currency dropped to a record low
on 20 July as the government widened its
post-coup purge of the countrys institu-
tions, the central bank lowered interest
 Markets/Finance

rates and Standard & Poors cut Turkey

to BB from BB+, with a negative outlook.
Turkeys banking index fell as much as 4
per cent in Istanbul on 21 July, while the
Defined By Alex Barinka

benchmark Borsa Istanbul 100 index lost

4.4 per cent. Both gauges hit their lowest
closing levels since mid-February.
We may see a rise in the costs of bor-
Greenshoe (n)
rowing, but I would not expect difficulty
borrowing, Ates Buldur, an analyst at
Credit Suisse Group in Istanbul, says.
In past crises, Turkish banks have
seen only an increase in the cost
An option that allows a bank
of funding.
Before the coup attempt, Turkish
banks were confronting deteriorating
underwriting a companys initial
asset quality in the tourism and energy
industries. Bomb blasts from Ankara to
public offering to issue more
Istanbul have deterred visitors, while
power companies are struggling to repay
loans amassed during an acquisition
shares than originally planned if
spree before energy prices slumped. Bad
debts among retailers also jumped 54 per
theres strong demand and the
cent in April from a year earlier, while the
proportion of soured loans in the con-
struction industry, which accounts for 12
stock price goes up. With more
per cent of bank assets, increased to 4.2
per cent from 3.4 per cent.
shares being sold, the under-
Moodys current assessment already
incorporates a high level of political
risk, but the impact of the failed coup
writer gets to collect more fees. 37

on Turkeys policy credibility seems set

to be negative, undermining economic
The option was first used in 1963
activity in the near and in particular
medium terms, Maya Senussi, an analyst
at Roubini Global Economics, says.
for Green Shoe Manufacturing.

More than 200 people died in the
effort to overthrow Erdoan, which the
This unicorn is going to be hot
president has blamed on exiled cleric
Fethullah Gulen. Tanks rolled through
the streets of Ankara and Istanbul on 15
when it IPOs. Well probably use
July, while warplanes and helicopters
circled overhead during the uprising.
its greenshoe.
Downside risks for Turkish banks
credit profiles and ratings have increased
as a result of the countrys attempted
Messaging app maker If the stock price Unicorns are not-yet-
military coup, Fitch Ratings said in a 20 Line expected to sell falls on the first public companies
July report. Turkish banks credit pro- 35 million shares in day of trading, the estimated to be worth
files are sensitive to country risks, access this years biggest
tech IPO. Investors
underwriter would
instead step in to buy
at least $1 billion.
Chinas Alibaba was a
to foreign credit markets and the lira gobbled up those shares on the open superunicorn: When
exchange rate. Banks accounted for shares on 14 July, and market to reverse it went public in 2014,
$170 billion of Turkeys $416 billion exter- a greenshoe kicked the decline. its greenshoe shares
in to sell an additional alone were worth
nal debt in the first quarter, with $100 5.25 million, raising a $3.3 billion.
billion maturing within a year, according total of $1.3 billion. Green Shoe eventually
to Fitch. Ercan Ersoy changed its name to
Stride Rite.
The bottom line A failed coup attempt is making
access to funding more difficult for Turkish banks
already impacted by a troubled economy.

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Focus On SPECIAL ADVERTISING SECTION

BANKING AND
FINANCE By Dominic Dudley

Could more mergers be on S1

the horizon? | S2

Digitially disrupted, but in a

bad way | S3
 Focus On
BANKING AND FINANCE

MARRIAGES OF
CONVENIENCE
As the regions economies slow, more mergers could be in line

A new regional heavyweight is about to banking sector last year suggests that there

S2
emerge in the banking sector. The merger
announced last month between Nation-
al Bank of Abu Dhabi and First Gulf Bank,
ID CERTAINLY may be some breathing room before further
consolidation becomes a must. The value
of banks assets increased in five of the six
also based in the UAE capital, will not only
create the largest bank in the UAE but also
the largest in the six-nation Gulf Cooperation
EXPECT FURTHER GCC countries last year (the exception being
Kuwait), according to KPMG, and net profits
rose across the board, with the UAE and
Council, overtaking the current leader Qatar
National Bank. The merger is expected to DISCUSSIONS TO Oman posting double-digit growth driven by
a rise in lending.
be completed in the first quarter of 2017 and Some banks saw particularly impressive
will create a bank with assets of 642 billion
dirhams ($175 billion), around 26 per cent
TAKE PLACE. I asset growth last year including Qatar Islamic
Bank, which saw a 32 per cent rise in assets,

DONT THINK WELL

of the entire UAE banking system, accord-
ing to Fitch Ratings. The deal has been wel-
comed by analysts. Moodys for example de-
scribed it as credit positive for both banks.
But beyond the potential benefits for the two
institutions involved, the deal could hold
greater significance, heralding a wave of con-
solidation in the regions banking sector.
The potential for more tie-ups seems clear
given the strain that banks are under from
shrinking deposits, lower liquidity and higher
costs of funding as a result of low oil prices
and government austerity. None of these
issues will disappear soon and, as they seek
protection from such headwinds, its likely
that banks will look at a team-up with com-
petitors as an increasingly viable option. Id
certainly expect further discussions to take
place, says Omar Mahmood, head of financial
services for the Middle East at consultancy
firm KPMG. I dont think well have hundreds
of them [but] I think we will see consolidation
in the form of mergers and reorganisations.
Still, the performance of the regions
Bank Muscat (29 per cent) and Commercial
Bank of Dubai (23 per cent). Net profit growth
was strong at Saudi Arabias Bank Aljazira,
HAVE HUNDREDS where it rose 125 per cent, and at Emirates
NBD (39 per cent) and Dubai Islamic Bank (34
per cent). Some of the regions newer banks
OF THEM [BUT] I have seen particularly strong growth, albeit
from a smaller base. Omans two young Shar-
ia-compliant banks, Alizz Islamic Bank and
THINK WE WILL SEE Bank Nizwa, posted asset growth of 111 per
cent and 37 per cent respectively, and Ku-
waits Warba Bank recorded over a seven-fold
CONSOLIDATION increase in net profits in 2015. The last few
years have also seen capital adequacy ratios
IN THE FORM OF decline across the regions banking sector,
largely as a result of the gradual adoption of
the Basel III rules imposed after the global fi-
MERGERS AND nancial crisis of 2008-9.
On the other hand, while banks in Bahrain,
Kuwait and Oman have managed to cut their
REORGANISATIONS cost-to-income ratios, return on equity and
return on assets were flat or declined in most
Omar Mahmood, markets last year. Liquidity pressures have
head of financial services for the Middle East, KPMG also been evidentwith a decline in the li-
 SPECIAL ADVERTISING SECTION

quidity ratio in every country bar the UAE
as a result of the fall in oil prices and a conse-
quent reduction in government spending.
Indicators from this years first quarter
results give an even more mixed picture.
Most of the largest banks have seen further
increases in assets since the first quarter of
2015, although NBAD did post
cessive quarters. Redmond Ramsdale, a
senior director at Fitch, predicts growth
in lending by UAE banks will fall from 8
per cent last year to 6-7 per cent this year,
adding over time we expect the weaker op-
erating environment and slower growth to
affect asset quality.
There are other issues that
presidential election in November will be
watched all the more closely after the unex-
pected decision by the UK electorate to vote
to leave the EU. The so-called Brexit vote
itself is unlikely to have many direct ram-
ifications for Gulf banks, although Steffen
Dyck, senior credit officer at Moodys, says
the UAE and Qatar are vulnerable to a re-

$175B
a slight decline. Profits appear could also have an impact. In
harder to come by however, particular, regulatory oversight
and both NBAD and National is only likely to get tougher, in
Bank of Kuwait posted year-on- Combined assets of NBAD areas like anti-money launder-
year double-digit falls in their ing and Basel III implementa-
net profit. First Gulf Bank also
and FGB tion. The subdued state of the
revealed a 6 per cent decline in its profits. wider economy will probably keep banks
Smaller lenders such as Sharjah Bank, pinned back to single digit profit growth at
which saw net profit remain static in the first best and further credit ratings downgrades
half of the year, began to show the effects of are a distinct possibilityMoodys current-
the slowing economy also. ly has a negative outlook for the banking
James Burdett, group chief financial systems in Bahrain, Oman and Saudi Arabia.
officer of NBAD, attributed the fall in his Any downgrades will have a knock-on effect
banks profits to a 73 per cent increase in on banks cost of funding, but they will find it
provisioning since the first quarter of last hard to pass that on to customers, which will
year, in a conference call with analysts on keep profit margins in check.
27 April, although he added we expect the Other global events also have the po-
provisions to tick down over the next suc- tential to upset market conditions. The US
trenchment of UK banks from the region.
Still, the decision has dented business confi-
dence and that will be further undermined if
Donald Trump wins the US presidential race.
With all of that, cost cutting is likely
to be a key focus for banks in the imme-
diate future, which could lead to more
mergers as institutions search for efficien-
cy savings. Mahmood points to Oman and
Qatar as among the more likely markets to
see mergers, while in Bahrain there could
be more restructuring. Whether such deals
emerge or not, the situation is undoubted-
ly tough around the region. Says Jarmo Ko-
tilaine, chief economist at Bahrains Eco-
nomic Development Board: You dont see
bankers jumping out of joy anywhere in the
region in the current environment. S3

BEHIND T he disruptive challenge presented by technology has become a clich in business life,
but that doesnt make it any less potent. Banks around the world have been grappling
with the opportunities and pitfalls of digital banking for decadesand across the Gulf Co-
operation Council countries it appears that struggle is far from over.

THE
According to the GCC Digital Banking Report 2015 by consultancy firm EY, based on a
survey of more than 2,000 customers in Saudi Arabia, the UAE, Kuwait and Qatar, the in-
dustry has a lot of ground to make up if its to meet customer expectations, particularly
in the field of mobile banking. Use of mobile banking ranges from 34 per cent of custom-

DIGITAL
ers in the UAE to just 15 per cent in Saudi Arabia. Among those that do use their phone for
balance enquiries, making payments or other services, satisfaction levels are low. Kuwaiti
customers are happiest, but even then only 50 per cent of them are satisfied with their
banks mobile service. Satisfaction rates fall to 45 per cent in the UAE, 42 per cent in Qatar
and just 34 per cent in Saudi Arabia.

CURVE
Gulf banks are still struggling to
appreciate the potential of technology
to improve customer experience
Online banking usage suffers from similarly underwhelming trends. A 2013 report by
consultancy firm AT Kearney showed only a third of all Gulf Cooperation Council bank cus-
tomers had registered for online services at the time and only around half of them18 per
cent of the total customer basewere active users.
If banks can improve their services theres a chance to increase the amount of busi-
ness their customers do with them, providing a route to higher profits. According to the
EY survey, 57 per cent of customers say a better digital experience would lead them to in-
crease their use of credit facilities, 51 per cent would save more and 43 per cent would use
investment services more. On the flipside, if their banks fall behind, 73 per cent of conven-
tional bank customers and 81 per cent of Islamic bank customers say they might switch to a
bank with a better digital offering.
 Focus On
BANKING AND FINANCE
Banks know the potential; the challenge
S4 is to develop the sort of website, mobile
app or other digital service that customers
want to use. Some have been experiment-
ing with services through social media plat-
forms, such as Commercial Bank of Dubais
Facebook branch, although such initiatives
WE HAVE SEEN are necessarily constrained by security con-
cerns. Others have developed novel ap-
proaches with wearable technology, such as
DATA THAT SHOW the Fitness Account launched by Emirates
NBD in November, which allows customers
to earn higher interest rates if they do more
THAT WHEN exercise, as measured by their Apple Watch.
There is a definitive shift taking place in
WELL-DESIGNED
the way that consumers in the UAE are
banking, says Sagheer Mufti, chief operat-
ing officer at Abu Dhabi Islamic Bank (ADIB).
ONLINE SERVICES We have seen data that show that when
well-designed online services are offered to
customers, banks see more business from
ARE OFFERED those clients.
On the other hand, many customers still
want access to traditional bank branch-
TO CUSTOMERS, es, particularly for more complex transac-
tions. Robo-advisers are starting to make
up ground on human wealth managers, but
BANKS SEE MORE this is in its infancy in the region. For local
banks this represents a threat as well as a
BUSINESS FROM challenge. Online services make it easier for
new competitors to enter the market, such
as the UKs IG Group, which opened a Dubai
THOSE CLIENTS office in September, promising access to
more than 10,000 markets, 24 hours-a-day
to retail investors.
Sagheer Mufti, chief operating officer, Abu Dhabi Islamic Bank
SPECIAL ADVERTISING SECTION
Full-service retail banks may
lose out to more nimble compet-
itors in such areas, although the
deeper relationship they have with
customers means that, if they get
their service offering right, they
should be able to retain a lot of
the business. Balancing the need
for both efficient digital servic-
es and personal, in-branch servic-
es will remain a conundrum for
them though, particularly at a time
when profits are under pressure from the
tougher macroeconomic environment. If
they can persuade more people to bank
via digital channels, it opens up the longer
term potential to scale back on expensive,
heavily-staffed branch networks. If people
dont visit branches were not going to have
branches anymore, says Aref Al Ramli,
head of electronic business and innovation
at Mashreq Bank. It is down to custom-
er behaviour. Branches are still an impor-
tant part of our network, but maybe well
move to a different model, automating the
branches more.
But technology isnt simply a matter of
designing a decent website or mobile app.
Banks also need to use technology behind
the scenes, to improve their internal pro-
cesses. If done properly, that can translate
into significant improvements in the cus-
tomer experience, for example by cutting
the time to process a loan application from
weeks to days. Theres a lot more to it than
online banking and a mobile app. Its about
how you acquire customers, how you go to
market, how you service customers, says
Omar Mahmood, head of financial services
for the Middle East at KPMG.
Of course, technology is a world that
doesnt stay still. Even if they can master
the current environment, banks will face
different challenges in the year ahead.
Going digital means having to respond to
customers evolving habits, wherever that
may take them.
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An Iranian-Canadian
developer and the
family of an exiled
former chairman of
Bank Melli Iran trade
accusations over a
Toronto property deal
By Katia Dmitrieva
 am Mizrahi, one of Canadas
best-known property develop-
ers, was building two luxury
condominiums in midtown
Toronto last year when he
says he received a phone call
from someone who demanded
millions of dollars, threatened to burn
his house down and ruin his reputa-
tion. The person on the other end of the
line, Mizrahi said in court filings, was
Mahmoud Reza Khavari, former chair-
man of Irans largest state-owned lender,
wanted since 2011 for his alleged involve-
ment in the biggest fraud scheme in Irans
history. He was also the father of Mizrahis
business partner and a key source of
capital for the developers two condo
projects, according to the documents.
How a real estate tycoon found himself
entangled with a wealthy fugitive, who
is now the subject of a diplomatic spat
between Canada and Iran, is detailed in
lawsuits before an Ontario court. The
dispute shines a light on the opaque world
of private condo funding in one of North
Americas hottest housing markets. The
allegations havent been proven in court
and the case is ongoing. The main lawsuit
centres on a deal between Mizrahi and
Khashayar Khavari, Mahmouds son, to
finance and build two luxury condos in
Torontos Yorkville district, an upscale
neighbourhood of shops and restaurants.
It details how their partnership soured,
and ultimately their battle over owner-
ship and profit.
45
The allegation that Mahmoud made
a threatening phone call to Mizrahi is
false and distracts from the real case,
Khashayar said in court documents. His
father is a mild-mannered 63-year-old
man who never made threats, he said in
the documents. He declined in an e-mail
to speak about his father. Several requests
seeking comment from Mahmoud
through his son, son-in-law and lawyers
in Toronto, by phone and e-mail, were
declined or not returned. Attempts to
reach Mahmoud through the phone
directory were unsuccessful and no one
answered the door at his north Toronto
address listed in court documents.
Khashayar and his brother-in-law
worked alongside Mizrahi as executives
at his company and launched the initial
lawsuit. They allege Mizrahi defrauded
them: misappropriating funds and failing
to properly manage the firm. Khashayar
claims hes owed profit and is seeking
damages of at least C$105 million ($81
million), as well as stakes in other proj-
ects he claims he worked on with Mizrahi,
including The One condo in Toronto,
slated to be Canadas tallest tower.
Mizrahi said in court filings that
 Khashayar and his father Mahmoud
in particular provided capital for the
Yorkville projects and are only owed 50
per cent of the profit when they are fin-
ished, as per their original agreement.
The Khavari family had no financial
involvement in other projects such as
The One, he said. He has also launched a
countersuit, seeking at least C$50 million
for breach of contract, negligence, intim-
idation, conspiracy to cause economic
harm, and defamation, among other
grievances. Im sticking to what the
agreement was, Mizrahi says in an inter-
view from his office across the street from
one of the condos. I have never deviated
from what the agreements were. We just
have to finish the project and you cant
come in before a project is finished and
expect to get paid out.
Although the two parties disagree
on much, they agree on the beginning:
Mizrahi first met the Khavaris about six
years ago when the family hired him to
do some development work on their
investment properties. Like the Khavaris,
Mizrahi is from Iran, moving to Canada
with his family in 1977 when he was six
years old. He never attended post-sec-
46 ondary school and describes himself
as an entrepreneur, running DoveCorp
Enterprises, a high-end dry-cleaning
company, until 2007 when it filed for
restructuring and its assets were sold.
The Khavaris wanted to invest in real
estate and Mizrahi, whose companies
include Mizrahi Developments, wanted
to build. The deal seemed straightfor-
ward: Khashayar and his family would
supply the financing, Mizrahi would con-
tribute expertise, and they would split
ownership and profit in the properties
50-50. The Khavaris contributed at least
C$14.2 million to purchase the land for
two properties, which would become
133 Hazelton Residences, with three-
dozen custom-designed units, and the
68-unit 181 Davenport, according to the
court documents.
This type of first-stage funding is
crucial for any developer. Its used for
initial overhead and to purchase land,
prices for which have skyrocketed to a
record in Toronto. Developers usually tap
private financing for this portion. When it
comes time for the more pricey and time-
intensive construction, they approach the
banks, which require at least 60 per cent
of a building to be sold before lending and
full disclosure on prior financing.
One of the attractions of working
with the Khavaris was that they said they
would fund the entire project so Mizrahi
wouldnt have to get bank financing,
according to Mizrahis court documents.
Khash, with the assistance of his family,
would contribute the equity required to
purchase the lands for development, as
well as the necessary construction financ-
ing to move forward with development of
the lands, Mizrahi said in the court files.
They represented they had vast financial
resources to fund these projects, Mizrahi
says in the interview at his office.
The Khavaris had a different view.
Sam represented to me that he had the
resources for development, construc-
tion, securing construction financing and
raising funds necessary for growth of a
development company, Khashayar says
in an e-mail through his lawyer.
As Mizrahi and the Khavaris prepared
to market the projects in September 2011,
events half a world away threatened the
deal. Seven state-owned and private banks
in Iran were linked to a $2.6 billion embez-
zlement case, including Bank Melli Iran,
the countrys largest state-owned bank.
Mahmoud resigned from his position as
chairman and managing director of the
Tehran-based lender, saying in his resig-
nation letter he was doing so to respect
public opinion and left for Canada,
where he has dual citizenship, according
to Iranian state media.
Iran sought his location and arrest for
allegedly aiding and abetting embez-
zlement and fraud, bribe-taking, illegal
acquisition of illicit property through the
bank systems, according to the Interpol
red notice issued at the time. The notice
has since been removed. Other alleged
participants in the Iran bank fraud have
been sentenced to death, life imprison-
ment, and flogging, according to local
media reports. Canada doesnt extra-
dite a person to a country where they
could face the death penalty and doesnt
have diplomatic ties or an extradition
agreement with Iran. As a result of my
fathers previous career, there are those
who would wish to physically harm
him, particularly religious and political
extremists, Khashayar said in the court
documents.
Despite Canada being a member of the
United Nations convention against cor-
ruption, it hasnt cooperated on return-
ing Mahmoud to Iran, Mostafa Pour
Mohammadi, the countrys justice minis-
ter, said in June, according to local media.
Unfortunately many countries just like to
talk and dont provide the necessary coop-
eration or commitment and so far they
havent cooperated, Pour Mohammadi
is quoted as saying.
Several calls, e-mails and faxes seeking
comment from the judicial authority of
Iran and Bank Melli werent returned.
A representative of Interpol declined to
comment on Khavari, referring ques-
tions to Iranian authorities. The gov-
ernment cant comment on whether it
has received an extradition request with
respect to any particular person unless
and until that person is arrested pursuant
to the Extradition Act, due to the confi-
dential nature of state-to-state commu-
nications, Ian McLeod, spokesman for
Canadas Department of Justice, said in
an e-mail. The parliamentary secretary for
consular affairs in Ottawa didnt respond
to requests seeking comment.
As the news of Mahmouds move made
Canadian headlines in October 2011,
Mizrahi met the family at their home
in Toronto, according to both parties.
Mizrahi said he sought to end the rela-
tionship because of the familys lack of
funds after their bank accounts in Canada
were frozen, according to the court docu-
ments. The Khavaris deny their accounts
were frozen and said the meeting was
an intimate family gathering, accord-
ing to court documents. They continued
working together.
Mizrahi and Khavari say they ham-
mered out new terms according to court
files: that Mizrahi would take full control
of the properties and associated com-
panies and the Khavaris would be paid
50 per cent of the profit, the files say.
Khashayar said his interest in the com-
panies was to be held in trust. Because
Mizrahi couldnt get access to the funds,
he said he had to unexpectedly borrow
C$88 million from banks to build the two
Yorkville condos at interest rates as high
as 20 per cent, the court files show.
Business continued as usual amid a
year of unprecedented growth in the
citys high-rise market. In 2011, more
than 28,000 new condo units were sold,
a record. In 2012, construction was started
on a record 24,388 units in Canadas
biggest city. Khashayar and his brother-
in-law continued to work as executives
at Mizrahis company, attending presen-
tations and being privy to conversations
with lenders for several projects includ-
ing The One, according to e-mails filed in
court. Mizrahi said in court files the family
only participated because they wanted
to learn about real-estate development,
and didnt contribute financially to the
other projects.
Khashayar alleges in the court docu-
ments he began to notice funds missing
from certain accounts, questionable
transactions, and that at one point,
Mizrahi admitted he had mismanaged
the projects. When Khashayar demanded
his equity stake back last year, Mizrahi
locked him and his brother-in-law out of
the office and cut ties, they said.
Thats when Khashayar filed a lawsuit.
He hired PricewaterhouseCoopers,
which laid out in a report filed in court
that Mizrahi withdrew money from
project accounts which he ultimately
used to buy an executive jet, pay tuition
for one of his children, and pay C$1.9
million for his custom-designed cottage.
Mizrahi said in court files that all alle-
gations he used money for improper
purposes is completely untrue. He
asked to see the data used in the report
and questioned the impartiality of the
researcher, according to court docu-
ments. He declined to comment further
on the report in the interview.
Mizrahi outlined a different story. He
alleges in an affidavit that on 30 June last
year Mahmoud called and said he would 47
burn down my house and everything that
I hold dear if I did not allow his family to
cash the cheques. He changed the locks
and updated the security at the office and
at his home. He said the Khavaris still par-
ticipated in the business. These accusa-
tions are false and in any event they are
entirely irrelevant to these proceedings,
Khashayar said in the documents.
In an attempt to fast-track the case
this year, Khashayar filed a motion on
a legal questionthe definition of their
initial agreement. An Ontario judge dis-
missed the suit on 24 March and sent all
parties back to the main lawsuit with a
hearing on 29 July.
While the legal battle continues, buyers
have moved into one of the Yorkville
projects and the other sold-out build-
ing is nearing completion. Mizrahi also
intends to start marketing the 80-storey,
416-unit tower at the corner of Yonge
and Bloor Streets, which has more than
2,000 people on a waiting list, including
for a C$30 million penthouse. You learn
what not to do from every experience
or you try to, Mizrahi says. I learned
what not to do from this experience.
Im moving forward. With assistance
from Ladane Nasseri, Golnar Motevalli and
Scott Deveau <BW>
 ST O M P I N G
48

UNDER ARMOUR MAKES ITS APPAREL WITH 250,000 OVERSEAS WORKER

 GROUNDS
49

S. CAN IT BRING JOBS BACK HOME TO BALTIMORE? BY RACHEL MONROE

 I
n March, Under Armour won a minor skirmish in
the war for sportswear dominance when it became
the first to sell a performance shoe with a 3D-printed
midsole. The shoe, the UA Architech, sold out online
in 19 minutes. Sure, there were only 96 pairs avail-
able, but, as Chief Executive Officer Kevin Plank says
one recent afternoon, Everyone was trying to do
it. No one thought that wed get there first. Plank is
sporting a pair of the $300 Architechs as he tours the
Lighthouse, the new home of Under Armours inno-
vation division in an industrial tract off the Middle
Branch of Baltimores Patapsco River. (It opened on 28
June.) Planks attitude seems to exist on a narrow spec-
trum between pumped and superpumped,
but the shoes are particularly enthusiasm-
inducing. Theyre like two clouds of awe-
someness Im walking on right now, he says.
I stole that from my 9-year-old, actually. My
kids have been watching a lot of My Little
Pony, and its rubbing off on me.
The shoes most notable feature is a lip-
stick-red midsole that resembles a whale-
bone corset. Its something you squint at and
wonder: How exactly did they make that?
The short answer involves polymers and a
partnership with DuPont. The long answer
includes Planks plans to reinvent his com-
panys supply chain, transform the city of
Baltimore, and maybe even outmanoeuvre
Nike in the process.
50 Its difficult to talk about athletics compa-
nies without resorting to sports metaphors.
In Under Armours case, theyre particularly
hard to resist, in part because sportiness is so
essential to its corporate culture. Employees
call one another teammates; 70 per cent of
them played high school sports. The current
headquarters, in south Baltimores Locust
Point neighbourhood, includes a 3,000-square-metre gym and a
basketball court that used to be open 24/7, until all the dribbling
during work hours proved too distracting. The walls are covered
with photos of Stephen Curry and Misty Copeland so large that
their beads of sweat are several centimetres wide. Plank, a high-
energy 43-year-old with gently greying hair, is fond of inspirational
analogies involving fires and races and winning. His teammates
speak of him in the reverent tones usually reserved for coaches.
The phrase aggressive, young, fearless is plastered all over
the walls. Its a quote from golfer Jordan Spieth describing himself
and the brand, but it could just as easily apply to Plank, who
propelled himself from walk-on to special-teams captain of the
University of Maryland football programme. During his senior
year, in 1995, the mid-Atlantic was seized by a record-setting heat
wave, and practicing in a sweat-soaked cotton T-shirt felt more
oppressive than usual. The year after he graduated, Plank devel-
oped a moisture-wicking shirt made from synthetic fabric and
began calling up former teammates. In Under Armours first year,
when the company was still operating out of his grandmothers
basement in the Georgetown neighbourhood of Washington,
Plank put more than 150,000 kilometres on his Ford Explorer
driving up and down the East Coast and trying to parlay those
friendships with former teammates into orders. I graduated
from college and realised, I know 60 people playing in the NFL
who have careers that are going to be somewhere between three
and five years, Plank says. So the window is about this big.
And I either take advantage of it now or lose it forever. Im think-
ing, Is there a way for me to give them a gift that would also
help me? And its that virtuous cycle that really got us going.
It worked better than he expected. A combination of innova-
tive technology and Planks fervour for his own product con-
tributed to Under Armours vertical rise, from $17,000 in sales
that first year, to $400 million in 2006, to a projection of almost
$5 billion in 2016.
An underdog ethic is still baked into company lore, even
though last year Under Armour overtook Adidas to become the
second-biggest sportswear brand in the US. In May, the company
signed the largest sponsorship deal in the history of college
sports, paying $280 million for a 15-year contract with UCLA.
Under Armour has invested more than $700 million in fitness
apps and activity-tracking technology, and it hired the designer
Tim Coppens, a fashion-forward Belgian, to help snag a portion
PREVIOUS SPREAD: PHOTO ILLUSTRATION BY 731. PHOTOS: 731 (SNEAKERS); GETTY IMAGES (2). THIS SPREAD:
of the lucrative athleisure market.
These days, Under Armour looks like an underdog only when
held up against Nike, a rival that Plank and other executives
refuse to even name. Five years ago, our largest competitor was
12 times our size, Plank says. Then it was 11 times, then 10 times.
Today, theyre roughly six times our size. But the fact is, theyre
still six times our size. So we have a lot of work to do. He clearly
relishes the idea of the worlds biggest sportswear company
feeling Under Armour breathing down its neck. This springs NBA
PHOTOGRAPHS BY RYAN LOWRY FOR BLOOMBERG BUSINESSWEEK
finals were the most recent proxy battle, between Nikes LeBron
James and Under Armours Curry, the MVP hero to underdogs
everywhere. Curry defected from Nike to Under Armour in
2013. It happened after Nike officials mispronounced Stephen
(as Steh-fawntwice!) during a recycled PowerPoint presenta-
tion that accidentally included Kevin Durants name instead of
his own, according to ESPN. James won the recent champion-
ship, but sales of Curry-branded shoes outpace those of every
other current NBA player. Under Armours revenue in the cat-
egory is up 350 per cent from last yeara potential tipping
point, one Morgan Stanley analyst wrote, signalling the end
of Nikes basketball dominance.
 Planks appreciation for
the overlooked and underes-
timatedhes the youngest of
five brothersis manifest in
his affection for Baltimore.
On the surface, there may
not seem to be much linking
the edgy, gritty city of John
Waters and The Wire with Under Armours performance-bro
aesthetic. But Plank sees an affinity between Baltimores hard-
working, blue-collar past and his companys relentless striving
to be the best sportswear company out there. When pressed
further, he just shrugs and quotes Drake: All I care about is
money and the city that Im from. Maybe thats human nature of its appeal, he says. We wouldnt be kicking out little old
not the money part, but the desire to see the place where you
live succeed.
Although Plank isnt technically from Baltimore properhe
grew up in a middle-class family in Kensington, Maryland, a
commuter suburb of D.C.he has adopted the city as his own.
Under Armour moved there in 1998, and his personal invest-
ments have one criterion: They have to benefit the company,
Baltimore, or preferably both. Hes invested millions in support-
ing Maryland traditions such as horse racing and rye whiskey.
In 2007 he purchased a 210-hectare horse farm once owned
by the Vanderbilt family. Blowing peoples minds is one of
my favourite things to do, he says. I bought the farmliter-
allybecause horse racing is an organic part of the culture of
Baltimore and because I wanted to bring people here and show
them a Baltimore that blows their mind. People like Tom Brady
and Colin Powell come up for the weekend and are like, I had
a different image of what Baltimore would be. And its only
27 kilometres north of the city.
By 2013, Under Armour was growing at such a fast clip that
it was clear the company needed to expand its footprint in
Baltimore. There was never really any question of leaving the
city or of relocating to the suburbs, Plank says. Instead, he set
his sights on a three-hectare parcel adjacent to the current head-
quarters. But after protracted wran-
Clockwise from left:
Plank (centre) at
gling with the city, Under Armour
the Lighthouse; the was turned down. When he got the
UA Architech; Under news, Plank was in Dubai drinking
Armour apparel with his chief of staff, who saw a
under wraps silver lining.
That land you were looking at? the chief of staff said. It
felttight.
I just looked up at the skyline of Dubai, and all I could think
to myself was that 15 years ago, that skyline didnt exist, Plank
says. Until someone with a vision, Sheikh Mohammed, said,
Im going to take this old fishing town and turn it into the eco-
nomic capital of the Middle East. Out of desert and a fishing
town. Thats vision. And Im looking out at it and thinking, Well,
what could we do?
By then, Plank owned a two-acre parcel in an industrial
part of Baltimore, where he planned to build a whiskey distill-
ery. The land was in a former brownfield site known as Port
Covington. That the area was largely uninhabited was part
ladies with 30 cats. Over the next few years, he spent more
than $100 million of his own money buying up nearby real
estate, ultimately acquiring 108 hectares under the umbrella
of his real estate investment arm, Sagamore Development.
In April 2015, when Baltimoreans took to the streets to protest
WHY IS THAT A BAD
THING? I LOVE
DISNEYLAND.
THE PURPOSE OF
DISNEYLAND IS TO MAKE
51
PEOPLE SMILE
police brutality after the death of Freddie Gray, Plank was trou-
bled by national news coverage that made it seem as if the entire
city was erupting in violence, when much of it was unscathed.
He understood that as a fast-growing company, Under Armour
would undoubtedly play a role in shaping the citys future. But
he was also becoming increasingly aware that as an individual
with a billion-dollar net worth, he too could have a significant
impact. We dont have a lot of people doing
stuff here [in Baltimore], Plank says. I can use
the heat and momentum [of Under Armour]
and, frankly, my balance sheet to get things
started and keep things moving. Someones
got to be the first stone in the stone soup. Then
someone else will bring the carrots and the
poultry. But were that first stone.
In January, Sagamore announced its plans for
Port Covington, which include a 370,00 square-
metre headquarters for Under Armour and
much, much more. Over the next 20 years,
Sagamore intends to essentially build a neigh-
bourhood from scratch. Comprising almost
50 city blocks, Port Covington will be larger
than Baltimores best-known tourist attrac-
tion, the Inner Harbor, and one of the biggest
urban renewal projects under way in the US. If
all goes according to plan, Port Covington
will be home to 7,500 housing units, a
hotel, shopping, two light-rail stops, and a stable for the citys
police horses.
There arent many CEOs who would take their personal
capital and deploy it like this, says Tom Geddes, CEO of Plank
Industries, the privately held company that serves as Planks per-
sonal investment arm. The one example we look at a lot is Dan
Gilbert, the chairman of Quicken Loans, who has spent more
than $1.5 billion buying up downtown property in Detroit since
2010. Hes someone else who looked at his big company and
said, This thing is an engine. If I invest around it and pull together
a critical mass, I can really make a significant difference.
In cities struggling with postindustrial disinvestment and
high rates of unemployment and poverty, such investors are
often treated as saviours. I would like to also extend a sense
of deep appreciation and true excitement on the part of the
city for what we see presented here, Baltimores city planning
director, Tom Stosur, said after Sagamore revealed the Port
Covington master plan.
Planks ideas for Port Covington have also faced criti-
cism that cuts against the saviour narrative, particularly after
Sagamore announced this spring that the arrangement would
seek $1.1 billion in support from local, state, and federal gov-
ernments, including $535 million in tax increment financing, or
TIF, from the city of Baltimore. The TIF money would go toward
infrastructure improvements and come from municipal bonds
issued by the city to be repaid by new property taxes eventu-
ally generated by the project. MuniCap, a Maryland consult-
ing firm that analysed the project,
A new Under Armour
estimates it wont create enough tax injection molding tech-
revenue to repay the TIF until 2038. nique (below left); lasts
More worrying, perhaps, is that the used to form-fit footwear
ITS BASICALLY A HIGHLY
O PT I M I S E D
VERSION OF A MIDDLE
AGES COBBLERS BENCH
CROSSED WITH A FORD
MODEL T PRODUCTION LINE
TIF request is so substantial, it would limit the citys ability to
issue other bonds without hurting its credit rating. Baltimore is
a deeply segregated city and has been for the past century, says
Lawrence Brown, a professor of community health and policy at
Morgan State University. A project like Port Covington, where
theres no fair-housing mandate and no promise for living wages,
is really a missed opportunity. Its reifying and intensifying the
two Baltimores problem we have now. In its sweeping vision
and unprecedented costs, Port Covington is an example of the
increasing influence corporations are having on city planning.
Others are concerned about earmarking so much money
for a new development company with no experience working
at this scale. During a recent meeting, members of the citys
Urban Design and Architectural Review Board pointed out that
preliminary designs for Port Covington looked something like
a millennial daydream, one that included a whiskey distillery
and makerspace, but no post office or fire station or library or
school. (A subsequent plan corrected those omissions.) Asked if
he is worried about criticism that hes essentially building a syn-
thetic, Disneyland version of Baltimoreall crab boils and race-
horsesPlank says, Why is that a bad thing? I love Disneyland.
The purpose of Disneyland is to make people smile.
The Disney vibe is hard to ignore during the June tour of the
Lighthouse, the first part of Under Armours headquarters to
open in Port Covington. The rest of the area is still largely unde-
veloped, but the Lighthouse offers an early idea of the scale of
Planks vision for both his company and this part of Baltimore.
Plank is an avowed fan of the wow factor, which is presumably
 In April, protesters demanded a halt in the approval process for
$535 million in city bonds to develop Port Covington until a new
mayor and city council take office.
Baltimore
Inner
Harbor
Current
Under Armour
headquarters
95
The Lighthouse
Port
Covington
Proposed Under Armour
headquarters
1 mi.
why entering the Lighthouse has been engineered to feel a little
bit like stepping into a theme park exhibition. Visitors walk into
a darkened chamber, where they watch a jump-cut-heavy video
that spells out the ambitious idea behind the facility: Namely, as
other industries have capitalised on technology, garment manu-
facturing is stuck in the past. When the video ends, black glass
doors slide open to reveal a gleaming 12,000-square-metre facil-
ity full of humming machines and technicians wearing white
lab coats emblazoned with the red Lighthouse logo. Its at once
theatrical and inspiring.
This is Planks first visit to the Lighthouse with most of the
machinery operational, though some massive 3D printers wont
be delivered until later in the week. Plank seems jazzed to see the
place up and running. The Lighthouse is not just a new facility
but also a proving ground for what Plank calls local for local
production, Under Armours goal of manufacturing its products
in the same place it sells them. Even in a very advanced foot-
wear manufacturing facility, you still have 150 or 200 people
touching every pair of shoes that moves down the line, says
GRAPHICS BY BLOOMBERG BUSINESSWEEK. DATA: OPENSTREETMAP, CITY OF BALTIMORE, SAGAMORE DEVELOPMENT
Kevin Haley, Under Armours president for product and innova-
tion. Its basically a highly optimised version of a Middle Ages
cobblers bench crossed with a Ford Model T production line.
Its crazy. In contrast, the Lighthouse will allow the company
to test streamlined, nimble, tech-centred production lines that
may require only a dozen workers. If they prove viable, they
could be set up across the country close to points of sale.
Vision is another big word for Plank. When he speaks about
Port Covington, the Lighthouse, Baltimore, local-for-local man-
ufacturing, its clear that he sees all his plans feeding into one
another. Startups using equipment at the Foundery, a Plank-
funded makerspace thats next to the Lighthouse, will come
up with ideas that Lighthouse engineers will incorporate into
Under Armour products. Other cutting-edge companies will
relocate to Baltimore, wanting to tap all this new energy. Their
employees will move to Port Covington and spend, providing
the tax base the city so desperately needs. Local-for-local may
even bring manufacturing back to the city.
Whether that all proves to be vision or mirage is yet to be
seen. In any case, when Plank sits down with Haley and Randy
Harward, senior vice president of advanced materials and man-
ufacturing, for an update on the Lighthouse, with a reporter
watching, he seems eager to show that he is focused on details.
Five years from today, how long is our lead time on the supply
chain? Plank asks.
Youll still have some things taking 12 to 14 months, but
youll have 30 to 50 per cent of your product made within
three weeks, Harward says. I hate to use the term Legobut,
well, think of Lego blocks. Were trying to think how [the man-
ufacturing process] can be iterated in small blocks, rather than
where the industry has been going with these massive, massive,
massive machines. So, not using a huge $5 million machine, but
this $9,000 printer that we have right out there.
Plank leans back in his chair. But we need to get beyond
novelty, he says. People say theyll pay more for something
made in the US, but they wont actually do it.
They wont be buying it because its a novelty, Harward
says. Theyll be buying it because we have the right size and
the right colour and the right design when they want it.
Under Armour is hardly the only company exploring how to
use automation and technology to streamline supply chains and
move production onshore. In 2015, Nike said its plans to increase
domestic production could create as many as 10,000 engineer-
ing and manufacturing jobs over the next decade. Under Armour
executives say theyre better positioned to take advantage of a
rapidly evolving industry. Under Armour is at that perfect size
where weve got enough scale to invest the millions of dollars it
requires to take on something like this, Haley says. But were
also small enough that we dont have a $30 billion supply chain
staring back at us, saying, How are you possibly going to turn
this battleship around?
For Plank, the revitalisation project extends beyond
Under Armour. We have 250,000 people making Under Armour 53
something at any given moment, he says. In the next three
years, well add another 200,000-plus. And zero of them are
pegged to come back to the US, because were all chasing cheap
labour all over Malaysia and the far corners of the earth. Its a
crime. We couldnt find a way to get 1,000 jobs back here? Or
5,000 jobs? Or 10,000 jobs? When you look at whats happen-
ing in Ferguson, whats happening in Baltimoreits jobs, we
need jobs, and were shedding all our jobs to other places. The
ability for us to bring that back, thats the big idea.
Its a long way to even 1,000 jobs. By the end of the year, the
Lighthouse will have just 100 full-time employees, half of them
engaged in manufacturing. This fall, Under Armour plans to offer
a version of its 3D-printed shoe to the wider retail market; it will
be manufactured in a New Hampshire facility that employs only
about a dozen people.
Meanwhile, Plank will continue his agitations, small and large,
to support the entwined futures of Under Armour and the city
of Baltimore. It is really hard work, its really dangerous invest-
ing, its really costly, and its a really big dealbut I think its the
right thing to do, he says. What I really want to do in life is to
build the baddest brand on the planet. I would love to do that
at the same time as anchoring it in a city that could really use a
hug. It seems like such a waste for us not to take advantage of
the momentum that Under Armour has right now.
Recently, Plank was watching the morning news and noticed
that the national stations showed the weather forecast for
Washington and Philadelphia and New York, but not Baltimore.
So he asked the Under Armour public-relations team to call up
the networks to ask them to include Charm City, too. Its about
making sure Baltimore isnt forgotten about, he says. Getting
us front of mind, putting us in that conversation. Everything we
do is about elevating that brand. <BW>
 NOB
CAME OUT
54 LOOKING GO
EXCEPT
L
eave it to the land of Shakespeare to stage a drama
where all the male leads end up dead. The first
head to roll after the UKs 23 June vote to leave
the European Union was Prime Minister David
Camerons. He resigned just hours after losing the
Brexit referendum, having gambled the nations
economic future for a few more years at 10 Downing
Street. Next on the chopping block was Boris Johnson, who
after leading the Leave campaign appeared startled and unpre-
pared for victory, and was forced out of the race to succeed
Cameron by an allys betrayal. A third leader, Jeremy Corbyn,
lost a vote of no confidence to the Labour Party rank-and-file,
which was furious over his halfhearted case for the Remain
side. Possibly the most shameless figure to exit the stage was
Nigel Farage, the leader of the UK Independence Party. He
admitted after victory that a critical argument for Brexit had
been a mistake, and then resigned his position.
The only major British politicians standing are two women:
Theresa May, the Tory member of Parliament who became prime
minister, and Nicola Sturgeon, the Scottish first minister. And
unlike May, who lucked her way into a battlefield promotion,
Sturgeon had a planand is arguably the sole British party leader
to emerge stronger from the Brexit bloodbath. She campaigned
to remain in the EU but has been steadier in defeat than anyone
SCOT
on the Leave side has been in victory. The morning after the
vote, Sturgeon gave a televised speech: a small, hardy woman in
a red suit, standing between Scottish and EU flags and project-
ing confidence to a rattled world. Sturgeon, 46, reminded her
audience that her Scottish National Party had run a dignified,
issues-based campaign. She spoke directly to immigrants, much
maligned in the contest, saying, You remain welcome here,
Scotland is your home, and your contribution is valued. And
she acknowledged the legitimacy of the Leave sides grievances.
The vote, Sturgeon said, was a clear expression of disaffection
with the political system that has failed in too many communi-
ties. The Westminster establishment has some serious soul-
searching to do.
Political commentators around the world were wowed by
the appearance of a grown-up. The Week, a popular British
news magazine, ran an illustrated cover showing Sturgeon
standing on solid ground while Cameron, Johnson, and
Corbyn teetered over fissures in the earth. In an editorial
headlined A Modest Proposal to End Political Anarchy in
the UK, the Toronto Star asked, Why not find a way to put
her in charge of righting the British ship and steering a path
through the Euro mess? The answer is that Sturgeon doesnt
aspire to lead Britain. She would rather sever it in two.
Since the age of 16, Sturgeons lodestar has been Scottish
 ODY
OF BREXIT
OOD
TLANDS NICOLA STURGEON
independence. She almost saw her dream realised in 2014,
when Scotland voted 55 per cent to 45 per cent to remain
in the UKa closer margin than many had expected. In the
Brexit referendum, 62 per cent of Scots, and a majority in
every Scottish county, voted to remain in the EU, but they
were outnumbered by the English and Welsh who wanted out.
This was, Sturgeon told the reporters watching her 24 June
speech, democratically unacceptable, and she declared that
a new Scottish independence referendum was on the table.
The Monday after the Brexit vote, Sturgeon rose at 4:15 a.m.
and travelled to EU headquarters in Brussels to discuss options
for keeping Scotland in the bloc. The same day, the Scottish
Parliament voted 92-0 to support Sturgeons efforts, and she
appointed a council of experts to advise her on European
affairs. Sturgeon clearly had a plan, says Michael Moore, who
served in Camerons cabinet as secretary of state for Scotland
from 2010 until 2013. It sits very neatly in contrast to the
chaos that has happened in every party in Westminster since
the EU referendum.
Sturgeon is an anomaly not only in Britain. She is a
nationalist courting Brussels at a time when nationalists in
other Western European countries are threatening to rend
the EU apart. Populist parties in France, Austria, and the
Netherlands applauded the Brexit and are hoping a Frexit,
BY
BEN CRAIR
Oexit, and Nexit will soon follow; Sturgeon, meanwhile,
55
happily snapped photos of herself with EU technocrats like
a teenager backstage at Coachella. Shes what George Reid,
the former presiding officer of the Scottish Parliament,
calls a canny radical, the political unicorn for which
liberals in just about every other European country hunt in
vaina beloved leader who has harnessed populist energy
to outward-looking social democratic policies, rather than
isolationism and ethnic rage.
here is a story about Robert the Bruce, who is
T Scotlands first hero king, says Alex Salmond,
Sturgeons predecessor as first minister of
Scotland and the architect of the SNPs success over the past
30 years. In the early 14th century, Bruce hid in a cave after
an unsuccessful revolt against the English. He watched a small
spider fail several times to weave a web across the cave ceiling.
On the seventh attempt, the spider successfully spun its web,
Salmond says. And that is when Robert the Bruce said, Ill have
one more go, which was successful.Nicola Sturgeon has shown
the same perseverance as Robert the Bruces spider.
Sturgeon declined to be interviewed, but party col-
leagues, political journalists, and a 2015 biography
describe a singularly focused career. She first dreamed
 of independence as a teenager in Dreghorn, the town in western
Scotland where she was born in 1970. At the time, Margaret
Thatchers economic policies were leading to the closure of
steel mills and industrial works across the country. Sturgeon,
the daughter of an electrician and a dental nurse, watched
hopelessness spread as Dreghorn boarded up its coal mines
and unemployment soared. Thatcher was the motivation for
my entire political career, she said later. I hated everything
she stood for.
Sturgeon was in good company. Under Thatchers Conservative
administration, Scotland became so pro-Labour that people joked
that election officials weighed votes instead of counting them.
But it wasnt enough to oust the PM, who remained popular in
England, where more than 80 per cent of Britains population
lived. Sturgeon feared that Scotland would always be at the mercy
of its southern neighbour, and she decided a divorce, after almost
300 years of marriage, was the only cure.
In 1987, Sturgeon, a quiet teen with a porcupine-like haircut,
visited Kay Ullrich, the local candidate for Parliament repre-
senting the Scottish National Party, which had been founded
in 1934 to advocate independence. I went to the door, and
this young girl was standing there, Ullrich remembers. She
said, Hullo, Mrs. Ullrich. My name is Nicola Sturgeon. Can
I help with your campaign? The SNP was on the fringe of
Scottish politics, and Ullrich had no real chance of winning,
but Sturgeon canvassed neighbourhoods late into the night,
long after the other volunteers had retired to the pub. She
was absolutely gutted that I didnt win, says Ullrich. Political
realism set in quickly with Nicola.
Sturgeon enrolled as a law student at the University of Glasgow
in 1988 and volunteered for Salmonds 1990 SNP leadership cam-
56 paign. She struck many of her peers as shy and awkward. She
was unnaturally serious, says Alex Bell, who served as the SNPs
policy director from 2010 to 2013. She didnt really have small
talk. Some party members called Sturgeon nippy sweetie
behind her backsexist slang for an ambitious woman.
In 1992 the SNP recruited the 22-year-old Sturgeon as the
youngest candidate in that years parliamentary elections.
She was more left-wing than Salmond, a former banker, but
she subscribed to his vision for the party. Unlike SNP hard-
liners, who demanded full independence as soon as possi-
ble, Salmond advocated a gradualist approach. For the SNP
to thrive, it would need to develop a robust social democratic
platform so it could compete for votes with Labour. The SNP
should not be for Scotland, for its own sake, he said. We
should be for Scotland for social and economic justice.
As a novice campaigner, Sturgeon struggled to connect
with voters and lost badly as Labour again trounced the SNP
across Scotland. She also lost in 1994, 1995, and 1997, in both
local and parliamentary elections, but each time she gained
stature in the SNP. Do not underrate the importance of stub-
bornness, stamina, and perseverance, Salmond says. By the
end of the decade, many saw Sturgeon as the most talented
young politician in the party, says James Mitchell, a political
scientist at the University of Edinburgh.
In 1999, Tony Blairs Labour government in Westminster
created a Scottish Parliament to address lingering resent-
ment over Thatchers interventions. Sturgeon ran for the
new chamber and lost, again, but was given a list seat that
DO NOT UNDER
the SNP, which finished second to Labour, was free to assign.
She quickly rose to the partys frontbench. Only five years
later, Salmond tapped her as his deputy. Sturgeon had still
never won an election, but at the age of 34 she was anointed
the SNPs future leader.
W
ith her new profile, Sturgeon nobly endured a media
campaign to warm her image with Scottish voters.
She led reporters on tours of her apartment, chat-
ting about shoes and designer clothes. Sturgeon
talked about Sex and the City, saying she identified
most with Mirandathe least vivacious, but most suc-
cessful, member of the shows quartet. Her countryman Sean
Connery taught her how to project her voice. Theres no doubt
that she became a much more outgoing person and politician,
Salmond says. She was much more willing to display her emo-
tions. Sturgeon also developed a political style distinct from
her mentors. For all Salmonds gifts, hes a gambler, says
Tom Devine, a Scottish historian. The thing about Sturgeon
is shes disciplined and methodical.
During debates before parliamentary elections, Sturgeon
outclassed her opponents. Some radicals will take to the bar-
ricade and shout the slogans. She is not like that at all, Reid
says. She does her homework. She delineates the issues, she
measures the risks, she consults, she decides. Finally, in 2007,
Sturgeon won an election, as a representative for Glasgow
in the Scottish Parliament. Left-wing voters had come to see
the SNP as a credible alternative to Labour, which was begin-
ning to lose its stranglehold on the Scottish electorate in the
waning years of the Blair administration. When Blairs succes-
sor, Gordon Brown, lost to Tory candidate Cameron in 2010,
Labours slide turned into collapse. The SNP won an outright
majority in the Scottish Parliamentand with it a mandate to
call for a long-awaited referendum on Scottish independence.
Salmond assigned Sturgeon to write the SNPs 670-page
white paper on independence and negotiate with Westminster.
Her counterpart was Moore, the secretary of state for Scotland.
He was disarmed by her preparedness. Her approach to it
would be to look for a weakness in the enemys logical argu-
ment and deploy fact-based arguments that came from very
thorough research, he says. There were no histrionics. It
became clear to me that she had been given the authority to
get the deal done. A referendum was announced for 2014.
When Salmond had to manage the government in Edinburgh,
Sturgeon led the SNPs independence campaign. They began
with polls showing support of just 30 per cent, as their oppo-
nents framed the debate as a choice between the status quo
and a leap into the unknown. At rallies and as a frequent guest
on British news broadcasts, Sturgeon made the case that there
were risks in staying, too: Presciently, she pointed out that
PREVIOUS SPREAD: JEFF J. MITCHELL/GETTY IMAGES
England could vote the UK out of the EU.
The SNP argued that an independent Scotland could thrive
like Ireland or Norway. There were good reasons, though,
to worry about an independent Scotlands economic future.
University of Glasgow economist Ronald MacDonald estimated
that independence would cut Scotlands economic output by
as much as 100 billion ($132.6 billion) by 2023. The SNP used
perhaps overly optimistic revenue projections for North Sea oil
to paint a rosy picture of Scotlands self-sufficiency. Salmond also
assured voters that Scotland would remain on the pound sterling
and seemed unprepared when the Treasury in London quickly
ruled out that possibility. Major financial institutions such as the
Royal Bank of Scotland and Standard Life threatened to move
to London if Scotland seceded. Still, Sturgeon and Salmonds
methods found converts from Camerons Better Together cam-
paign, which was dubbed Project Fear in the Scottish press.
By the day of the vote, 18 September, 2014, support for inde-
pendence had risen to 50 per cent in the polls. That night,
Sturgeon and Salmond gathered with the rest of the SNP lead-
ership at Dynamic Earth, a museum next to the extravagant
Scottish Parliament building in Edinburgh, and prepared for
a massive celebration. Instead, Sturgeon learned from an exit
poll at 10 p.m. that voters had chosen to remain in the UK. In
a small room, she hugged Salmond in silence. After the results
became official, her political mentor resigned as first minister.
There was no contest over who would replace him.
cottish nationalists know they cant lose a
S second referendum. The Parti Qubcois,
Quebecs separatists, managed to get a ref-
erendum for the provinces independence from Canada on
the ballot twice, in 1980 and 1995, but after the second close
loss, some concessions from Ottawa resulted in the Parti losing
momentum and cohesion. In Scotland, Sturgeon believes the
SNP can win an independence vote if the timing is right. Im
sure that her ideal would be to wait to have another indepen-
dence referendum until the polls have been running at 60 per
cent for six months and absolutely everything was in the bag,
says Hamish Macdonell, former political editor of the Scotsman.
Defeat in 2014 turned into a boon for the SNPs popularity.
The referendum turnout was 85 per cent, and with so many
new people involved in politics, party membership quadrupled
before the 2015 national elections, giving the SNP a chance to
send more of its members to Parliament in London. Sturgeon
hosted rallies across the country. The SNP began selling
T-shirts emblazoned with her signature, and British newspa-
pers described a Cult of Nicola. She continued to excel at
pre-election debates. At one, in April 2015, her cool-headed
intensity contrasted with leaden performances from Cameron
and Labours Ed Miliband, and polls afterward declared her the
winner. She was even stronger in the next debate. She called
it a disgrace that Cameron skipped the event, and it became
clear that the anger at the Conservative Party she had devel-
oped as a teenager still boiled. This election is about getting
rid of the Tories, she scolded Miliband, who had ruled out a
governing coalition with the SNP. We have a chance to kick
David Cameron out of Downing Street. Dont turn your back on
it. People will never forgive you. The SNP swamped Labour,
winning 56 of the 59 Scottish seats in Westminster, a gain of
50 that made it the third-biggest party in Parliament. Sturgeon
was now a force beyond Scotland. Polls showed her as the
most popular politician in the UK, even among English voters.
When Brexit debates began, Sturgeon was ruthless with
Johnson, the silver-tongued but clownish ex-mayor of London.
Whatever else you do, she warned the audience, do not
trust a word Boris Johnson says about the NHS [National Health
Service]. Sturgeon and Cameron were on the same side of this
referendum, but while the PM spoke of economic calamity, she
RRATE
crafted a positive argument for remaining in the EU, pointing to
the blocs protections for expectant mothers and the benefits
for young people of freedom of movement across the continent.
Yet Sturgeon didnt really believe the Brexit would happen.
It was only 10 days before the vote that she and her team
began drafting contingency plans, but still it was enough time
to prepare her better for the fallout than any of her rivals.
Afterwards, when she visited Brussels, Sturgeon met with
any official who would receive her. Her goal was to create as
much negotiating space as possible, suggesting Scotland could
remain in the EU with or without another independence refer-
endum. (The EU allowed Greenland to withdraw in 1985, even
though its a part of member state Denmark, setting a precedent
for one section of a country to leave and another to remain.)
So far, though, the EU has insisted it will negotiate only with
Westminster. Another major obstacle is that any country in
the bloc can veto a new member, and Spain doesnt want to
give its own separatists, in Catalonia, an example to follow.
Sturgeon must also consider that the economic case for
Scottish secession from the UK is weaker than it was in 2014. The
price of oil has plummeted from $90 a barrel to about $45. And
it will need to create a stable currency to join the EU, which the
University of Glasgows MacDonald says could require Scotland
to impose exactly the type of austerity measures that the SNP
denounces from Westminster. Even if these problems can be
addressed, its not clear if access to the European market can
ever be as important to Scotland as access to the English one:
some 80 per cent of Scottish goods and services go to England.
Still, some economists see a brighter future for Scotland in
the EU rather than an isolated UK. Christian Ewald, head of the
economics department at the University of Glasgows business
school, campaigned in 2014 for Scotland to remain with Britain. 57
The EU referendum has changed my mind fundamentally,
he says. On the streets of Edinburgh and Glasgow, one hears
lots of wishful thinking that English businesses would move to
Scotland to retain access to European markets.
One impact of the Brexit vote may be that economic argu-
ments hold less sway. Im not so sure that those issues are so
important anymore, Macdonell says. Oddly enough, what I
think the Brexit vote has done is legitimise big, shocking votes.
Short-term economic damage seems inevitable either way, and
Scottish voters are asking themselves with new urgency which
values they want their nation to enshrine.
Polls on Scottish independence after the Brexit vote have
put support in the low 50sa swing in Sturgeons direction, but
still less than the 60 per cent level that many people think the
SNP needs to ensure victory. People who know Sturgeon say
shed hoped the possibility of such a vote wouldnt come up
so early in her administration. Shed have preferred to govern
and continue to prove the SNPs abilities. If its clear now that
Sturgeon will have the opportunity to realise her lifelong dream
of Scottish independence, then its also clear that, for all her
success so far, her legacy isnt yet written.
All the big challenges of currency, economy, creating a
broad national consensus, the response to a possible Spanish
veto on an EU application, and the timing of a new referen-
dum have yet to be faced, says historian Devine. Only when
some of them are and the battle is joined can her capacities
really be measured. <BW>
STUBBORNNESS
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FOREVER FASHION ROCKETTE-FUELLED AIRBNB'S
DRESSER JONATHAN MILDENHALL

Zak Pashaks
made-in-
Detroit bicycles
are coming to
a bike-sharing
programme
near you

Wheeler
By
Tim
Dealer
Higgins

Photographs
by Ricky Rhodes
 Etc. Innovation Clockwise from right:
Shaun Lewis assembles
a wheel; Citi Bikes

T
ready to ship; Steven
he Detroit Bikes factory sits on the West Side of Broken City, which became one of Sprankle powder-coats
frames; welder
the city near scattered abandoned homes and a Calgarys premier live-music venues, Will Walker at work
scrapyard full of rusted car parts. Inside, workers without having run a bar before. He ran
are taking test rides through the 4,600-square- for City Council in 2010, having never sought public officeand
metre facility on a fleet of freshly assembled bicy- lost. It forced him to figure out what was next. Hed been fasci-
cles destined for New Yorks Citi Bike bike-share nated with Detroit since childhood, when he watched 80s action
programme. On foot, founder Zak Pashak, 36, dodges the riders, heroes such as Tom Selleck in Magnum, P.I., Peter Weller in
navigating a path around the chaotic floor and holding forth on RoboCop, and Eddie Murphy in Beverly Hills Cop, all of whom had
the virtues of American-made chromoly steelwhich, in case ties to the Motor City. I had this feeling that cool people came
youre not a metallur- from Detroit, Pashak
gist, is lighter and stron- says. I felt a gut draw.
ger than standard steel He wanted to be part of
and is what Pashak uses its economic rebound.
in his house line. He Detroit didnt need
stops and points to the another Broken City, he
loading dock, where a decided, but a factory
tractor-trailer waits to made sense. Its got a
haul the bikes more history of manufactur-
than 960 kilometres ing; there are a lot of
to Citi Bike headquar- people whove got skills
ters in Brooklyn. This who havent been able
was my dream when to use them in a long,
we got the factory long time, he says.
watching semis drive It was Pashaks
away at the end of the failed City Council bid

PHOTOGRAPHS BY RICKY RHODES FOR BLOOMBERG BUSINESSWEEK

day, Pashak says. that gave him a passion
When his factory for t wo - wheelers.
opened in 2013, bicycle While running for
60 manufacturing in the US office, he studied
had all but disappeared. The long, downward spiral began in the urban-transit public policy and came to see bikes as a solution
1980s, when industry-giant Schwinn shifted work to Asia, a cost- for big-city ailmentseverything from pollution to traffic conges-
saving move that other manufacturers such as Huffy soon copied. tion. Its a highly efficient machine, yet people have this compli-
In 2015 only 2.5 per cent of the estimated 12.6 million bikes sold cated relationship with it, he says. A lot of people think bikes
in the US (not including those for children) were made here, are for hippies or people who got a DUI, or for people who are
according to the National Bicycle Dealers Association. A lot of poor and cant afford a car. Or theyre for kids. Even more com-
people thought it was really goofy when I first started this, says plicated: price. High-end bikes with carbon-fibre frames, sus-
the bearded Pashak, who describes Detroit as a good spot for pension packages, and multispeed gears are expensive to buy,
urban revitalisation to take hold and is prone to similarly gran- let alone maintain. So Pashak thought a basic bike, meant for
diose talk about changing the world. If his tech-
nology werent 200 years old, he could pass for
a startup founder.
It probably was really goofy, based purely
I had this feeling
on economics. But at a time when we want our
kale organic and our beer microbrewed, manu-
that cool people
facturing bicycles in the cradle of the US trans-
portation industry turns out to be just rational
enough. Shinola, which also sells bikes, might
came from Detroit.
have stolen Pashaks thunder by becoming the
face of Detroits rebound. Yet Detroit Bikes I felt a gut draw
contract with Motivate, the company that runs
bike-sharing programmes in 12 metro areas, has helped put the nations urban jungles, might have
Pashaks company on pace to churn out 10,000 bikes this year. marketplace potential. And that was it.
Its nice that in doing so hell employ 50 people in a city with He was off to Detroit.
10 per cent unemployment, about double the national rate. Its When Pashak arrived, he bought an
perhaps more significant that without this Canadian transplants old house in the citys historic Boston-
operation, options for how busy urbanites get from point A to Edison neighbourhood, just blocks
point B might literally be fewer and farther between. from where Henry Ford once lived.
Pashak, whose former stepfather was an oilman and co-owner Like any good American entrepreneur,
of the Calgary Flames, had millions to spend on risky endeav- he began tinkering in his garage with
ours when he relocated to Detroit from Calgary five years ago. He a prototype inspired by a 2012 trip to
was used to riding without training wheels: In 2003 he opened Copenhagen, a city famed for its riding

culture. It was a process: Everything
that couldve gone wrong has done
so at least once, he says, explain-
ing that equipment broke and the
factory wasnt laid out efficiently. In
2013 production began on the A-Type
model. The $700 A-Type has a utilitar-
ian, matte-black frame, three speeds,
and a rear rack with the Detroit Bikes
logo. A womens version, the B-Type,
comes in white and mint.
Production was slow in 2014
when Pashak cold-called New Belgium Brewing in Fort Collins,
Colorado. He had a simple question: Did it need a bikemaker?
The brewery is best known for its Fat Tire amber ale, with a
shiny, vintage, red bicycle on the label. Every year the company
bestows bikes on employees to celebrate work anniversaries and
other special events, and for years it had turned to manufactur-
ers in Asia. It just so happened that New Belgiums bike designer
had started looking for an American manufacturer around the
time Pashak called. He was having trouble actually finding a
company in the US that could scale up and make 2,500 bikes,
says Bryan Simpson, a New Belgium spokes-
man. Detroit Bikes had capacity to spare;
production began in earnest earlier this
year. Pashak says: It was hugea big leap
of faith for them. They made this company
possible. The contract with Motivate
this spring made it a business. Currently,
Motivate uses Detroit Bikes-assembled bicy-
cles in New York, Boston, and Jersey City.
Back at the factory, Pashak heads to a
corner and shows off a machine that makes
wheels. This is how we won the con-
tract for Citi Bike, he says. Although New
Belgiums bikes are constructed start-to-
finish in Detroit, Citi Bikes technically arent
entirely American-made. The aluminium
Etc.
frames come from Asia, and Pashaks crew assembles
them. Wheels, however, are more cumbersome and
expensive to transport. By making those locally, says Jay
Walder, Motivates chief executive officer, the company
has reduced the number of shipping containers coming
from Asia by two-thirds. Better yet, being able to say
that Motivate bikes are assembled at home gives it a
leg up in negotiations with city governments as the
company expands. If youre a mayor or a transporta-
tion commissioner, its nice to be talking about the fact
that this programme, which is a big part of the commu-
nity, is creating jobs at home, Walder says.
When Walders tenure at Motivate started in October 2014,
finding a domestic manufacturer became a priority. But he strug-
gled to find anyone who could handle a 3,000-unit order built
to Motivates specs. The industry is not set up to do anything
like this, Walder says. Before Detroit Bikes, there were no bike-
share bicycles that were being made anywhere in the United
States. This year, Motivate plans to add 8,000 bikes, bringing the
total to 28,000. Pashakwhose factory has gone from pumping
out 20 bikes a day to 80 since signing on to make Citi Bikeswants
as much of that business as possible. He estimates that he, his
mother, and an inves-
tor named Bernard
Sucher, a native son
whos worked for
Goldman Sachs and
Merrill Lynch, have put
as much as $4 million 61
into Detroit Bikes.
Pashak is on pace
to break even this
year, he says.
With the New
Belgium and Motivate
contracts providing
some stability, Pashak
is looking to expand his
retail business. Earlier
this year he hired Scott Montgomery, a 30-year indus-
try veteran whose father co-founded Cannondale,
to head national sales. The move signalled to indus-
try watchers that the quirky company is emerging
from Shinolas shadow. If they expand their lineup,
theyll appeal to a lot more people, says Pete Kocher,
whos sold a few Detroit Bikes at Ride Brooklyn, with
shops in the boroughs cyclist-dense Park Slope and
Williamsburg neighbourhoods. Theyve got a load of
potential to grow. Montgomery says he wants Detroit
Bikes in 100 more stores by yearend, for a total of 400
retail outlets in 150 US cities. The company plans to
start selling a new design, the racing-oriented C-Type,
later this summer. The A-Type and B-Type will soon
get more gears and colours.
After walking through the factory, Pashak looks for
a quiet moment away from the banging of metal and
lingering smell of welded steel. Outside, the street is
calm and empty. Having a factory that impacts the
community directly is very cool, he says. Some of his
workers even walk to work: As an urbanist, idealist
kind of guy, thats the coolest thing. <BW>
 Etc.
The Only
Sweatshirt
Youll
Ever Own
Clothes that come with
a long-term commitment
By Mark Ellwood
Sprint 3G
62
Bryant, 28
T
om Cridland had no design
training or business experience
when he got a roughly 6,000
($8,000) startup loan from the
British government in 2014. I
wanted to create a direct-to-
consumer menswear brand that
wasnt like those fast- fashion
places, he says. His eponymous line
of preppy chinos drew celebrity fans
such as Daniel Craig and Leonardo
DiCaprio, but Cridland wasnt able to
manufacture them as eco-responsibly
as he liked. Fashion is not sustainable,
he says. Its the second-most polluting
industry after oil.
Cridlands solution is what he calls
the 30-Year Sweatshirt. Its a classic
crewneck thats available in nine colours
Retail
6:13 PM 84%
and comes with an unusual warranty:
free repairs on any rips or frays for the
next three decades. (So if you buy one
today, youre good until 2046.) Postage
is covered, too. The sweatshirts are
about $85, and theyre engineered to
last. The fabric is knitted with the tra-
ditional loopback methodit uses more
yarn per square centimetre than stan-
dard techniques to deter pillingand is
given a proprietary silicone treatment
to keep the garment from shrinking. As
for stains, we dont guarantee against
them, Cridland says, but if you spill T-shirts (T-shirts!) for $46 and two-
some Bolognese sauce on it, youre button sport coats from $330. This fall,
welcome to send it back to us.
Cridland tapped into a broader trend
of companies staking their reputations
on the idea that clothing should be built
Technically, the
30-Year Sweatshirt
isnt supposed
to last your whole
life, but heres
what it would look
like if it did
to lastand last and last. Theyre mostly
denim brands, though, that sell cloth-
ing slightly less likely to absorb your full
Bolognese splatter. Welsh denim retailer
Hiut sells jeans starting at about $166,
with free repairs for life. It receives
about 20 returns a week. Swedish rival
Nudie offers a similar service, having
converted most stores to specialty repair
shops for gratis on-site mending.
Cridland has sold 8,000 sweatshirts
in a year and has expanded his line.
Now there are poly-cotton blend 30-Year
PHOTOGRAPHS BY 731
hes introducing a 30-Year Christmas
Sweater, though if you wear it just once
a holiday season, it could probably last
20 times as long. <BW>
 What I Wear to Work Etc.
Whats it like working
with the Rockettes?
A lot of focus, not a
lot of sleep. Wed get into

MIA MICHAELS
the recording studio, DITA
create the music, develop
the choreography. Then
its staging, costumes,
lightingyou get the idea.

RICK OWENS 50, director and

How do you dress choreographer, New York
for that?
I love fashion, but when Spectacular Starring
Im working, I have a bit
of a uniform. No matter
the Radio City Rockettes,
how tired I am at 7 a.m., New York
I want to put on my
outfit and feel good and
funky and strong.

Those are
sophisticated
EILEEN FISHER
sneakers, too.
I wear them
with jeans, with
dresses, with
skirtsI wear
them all the time.

63

CARTIER

Your top certainly Do you need glasses?

looks comfortable. Yes. As you get older and
I have a million of your eyes get worse, its
important to keep your
these. They drape swag, so Im careful about
so well. UNIQLO the ones I buy. These are
Are they all
strong and sturdy, so I feel
in black?
like I can be pretty rough
Definitely. Im not
with them.
a bright-colour
kind of girl.
ASOS

Do you always cuff

your jeans?
PHOTOGRAPH BY CHRISTOPHER LEAMAN FOR BLOOMBERG BUSINESSWEEK

You know what? I do.

I want to show off my
sneakers and socks.
CHLOE
I like your blonde hair.
I bleached it last
Clearly. summer. Im like a
I remember once, I went to put
on my sneakers, and I didnt chameleon, depending
have any ankle socks, so I put on on what Im working
patterned socks I usually wear on. After a show opens,
with boots. The combo felt very
Raggedy Ann. Every time Id its time for a change.
look down and see these striped
socks with sneakers, Id giggle,
so I wound up keeping the look.
Interview by Jason Chen
 Etc. How Did I Get Here?

JONATHAN
MILDENHALL
Chief marketing officer, Airbnb

Im the only mixed child of five boys Education On my 16th birthday, I asked
my younger and older half-brothers were my mum for a subscription to Vogue.
white, and my father is Nigerian. I remember saying to her, One day,
John Smeaton
Im going to work in brands. I didnt
My career adviser Community High School, even know what marketing was.
said, Jonathan, advertising Leeds, England,
class of 1985
is incredibly white and Thomas Danby College,
Receiving an
honorary degree
middle-class, and they only Leeds, class of 1988 from Manchester
recruit from Oxbridge. Manchester
Metropolitan
University, 2008
You need to manage your Metropolitan University,
England, class of 1990
expectations. It made
me work incredibly hard.
Work
Experience
I got there at the
wrong time, when
64 the culture was
199092 We did French Connection,
imploding. Theyd
been bought by a
Account manager,
McCann Erickson
bringing FCUK to the world.
holding company,
199296
and I learned Account director,
how damaging an Bartle Bogle Hegarty
acquisition can For the 2014 Super Bowl, we
With specially commissioned
artwork commemorating be to a culture. 199699 had [an ad with] 13-year-old Americans
Board account director, from different cultures [singing]
Whitney Houston after her
Lowe Howard-Spink
death, 2012 America the Beautiful while showing
19992000 contemporary US families:
Head of account Mexican, same-sex, Caucasian,
management,
HHCL & Partners Native American, African
American. I am really, really proud
200005 of the impact of that work.
Managing director,
TBWA London
be successful if you stop pretending to know it all.

Toasting with Sir

200506
Strategy director,
Richard Branson
Mother London
and a Virgin
America flight
attendant, 2015
200614
Vice president for global
advertising, senior
VP for marketing and
My job is to help reach an audacious design, Coca-Cola
goal: that one day, all 7.5 billion people
will feel they can be trusting and open 2014
COURTESY SUBJECT (3). GETTY IMAGES (2)

Present
up their homes. Its just so far-reaching CMO, Airbnb
and exciting from a creative perspective.

Life Lessons With former Coca-Cola executive Don

Keough on the corporate campus, 2013
oull
Y

3.
1. Approach everything with brutal honesty. 2. Every night, ask yourself where you practiced humanity and creativity today and where you failed.
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