China’s Craft Beer Revolution is Under Way

The time is ripe to invest in China’s growing market.

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By:  Conner Murphy, Lynx Global Intelligence

 

Background

The craft beer market is going to get a lot bigger as small and medium sized competitors gain traction across China. The time is ripe for China’s craft beer revolution.

According to a recently released report from Drink Sector[2], a beverage industry research organization, China’s beer market is set to become the world’s largest in value by 2018. This shouldn’t come as much of a surprise – China is, after all, a very big country, and has long been the world’s largest consumer of alcoholic beverages (China surpassed the United States in 2011).  However, tastes have been shifting across the country. Traditional liquors such as baijiu, a sorghum based liquor, have dwindled in popularity, while red wine and beer are becoming increasingly popular alternatives. Though beer has always been readily available in China, traditional options such as Tsingtao and Budweiser do not quite appeal to the young, internationally minded, growing middle-class. For a generation raised on designer brands and the newest iPhone, domestic beer just doesn’t make the cut. Drinking cultures and tastes are changing. As put by a local beer representative in a recent CCTV report[3], younger generations prefer to drink until you are satisfied, not drink until you are full (ie. drunk). Enter craft beer.

China’s Beer Market at a Glance

Beer is not new to China – domestic names such as Tsingtao (青岛啤酒), Harbin 哈尔滨啤酒, and Snow雪花啤酒) have long dominated the market, and remain favorites from restaurant goers to the bar crowd. Large international breweries also have a strong presence in the country, with Budweiser and Heineken readily available from Shanghai to Chongqing.  However, while beer production is at an all-time high, revenues have been on the decline since 2013[4]. The market is changing, and consumers are demanding something different from the watered–down lagers of the past century. Small breweries in Beijing and Shanghai that were once exclusively frequented by expats are now full of locals looking to experience the craft beer craze that has exploded across the US and Europe.

Big breweries, wary of the competition they are facing abroad, are hoping to take advantage of the changing demands as quickly as possible. Tsingtao has been rebranding itself across wealthier cities, spreading its Tsingtao 1903 brand as a premium alternative to its typical party-go happy image. Small taprooms have sprung up in Beijing and Shanghai, serving beers such as Tsingtao IPA and Tsingtao Stout.

china 1

[5] Tap options at Beijing’s Tsingtao 1903 SoHo Taproom.  The Beijinger

china 2

[5] Tsingtao Standard with Tsingtao Stout. The Beijinger

Meanwhile, AB-InBev has increased imports of it’s The High End line of beers into China. Beers such as Goose Island IPA and Elysian Jasmine IPA are readily available across Beijing taprooms, and continue to increase their foothold as premium beer staples. Meanwhile, AB has begun targeting local operations, and in March acquired Boxing Cat Brewery[6], one of Shanghai’s most well-known craft breweries.  These trends signal two things: First, opportunities in China’s craft beer market are readily available. Second, it is crucial to enter the craft beer market before large brewing companies gain a stronger foothold.

china 3

At Beijing’s Home Plate BBQ, AB InBev’s Goose Island now tops the draft beer list. Photograph by Mark Leong, Fortune[7]

Opportunities

Partnering With a Local Craft Brewery

This is by far the most direct method of entering China’s craft beer market. Partnering with a local startup is a great way to make your brand known, develop a robust local market, distribute directly to the customer, and maintain a strong understanding of your business operations. Small craft breweries are popping up across China, and while capital is readily available, know-how is in short supply. Entrepreneurs are seeking foreign partnerships and brew masters to assist in creating strong competitors, premium internationally supported brands, and sound business strategies.

china 4

The Next Generation of Chinese Brew masters – Graduates from the China National Research Institute of Food & Fermentation Industries. Photo provided by Jeff Li, Graduate

Collaboration Projects

Less direct than a direct partnership, opportunities exist for collaboration projects in beer production. For example, a brew master guest-training program could be arranged between US and China partners; a US brewery provides the knowhow and helps to create a collaborative collection of beers. While this option provides less control over ground operations, it does represent a chance to make strong connections on the ground, gain a better understanding of the market, and help make your brand known in specific locales. This would also open the door for future opportunities, and provide an opportunity to test the waters of a future partnership with local breweries.

Import

Finally, exporting to China remains an option. The current trade climate appears positive, with the government steadily removing trade barriers on everything from agricultural goods to natural resources[8].This means the cost of exporting to China will go down. However, while this represents an easy inroad, it is also the least likely to bring future success. The trick is not to sell beer in China, it is to spread brand awareness and become a leading presence in the future beer market. This is both incredibly difficult and risky without a local presence.

Risks and Hurdles

As with any business practice, risks exist. Foreign and domestic competition will only continue to grow, highlighting the importance of early entry into the market. Marketing and branding strategies need to be adjusted on a locality-by-locality basis – what works in Shanghai may not work in Beijing. Open and frequent communication with local partnerships will help to ease the localization of your brand. Government regulations concerning the production and distribution of alcohol are constantly changing, and differ from city to city. Local partnerships again represent the best method for overcoming regulatory hurdles, as partners have the know-how necessary for meeting local compliance standards. Finally, intellectual property rights infringement represents a leading risk across China. Recipes and trade secrets should be kept secret unless absolutely necessary, and an on-the-ground presence is essential.  Distribution channels and retailers must also be monitored, and supply chain disruptions cannot go unnoticed. These risks, while prevalent, represent hurdles, not barriers. With an on-the-ground presence and a strong understanding of Chinese business practices, success in China’s craft beer revolution is possible.

 

 

[1] China’s taste for craft offers fizz for global brewers. Reuters. March 7, 2017. http://www.reuters.com/article/us-china-beer-idUSKCN0W813B

[2] China Craft Beer Market Report 2017. Drink Sector. January 2017. http://www.drinksector.com/reports/china-craft-beer-market-report-2017

[3]央视关注精酿啤酒啦!好消息?坏消息?。 爱啤酒。September 17, 2015. http://mp.weixin.qq.com/s/rFk4C6dCn–fxMy6JpdFYw

[4]Annual Report, 2016. Tsingtao Brewing CO., LTD. December 2016.  http://quote.morningstar.com/stock-filing/Annual-Report/2016/12/31/t.aspx?t=:TSGTF&ft=&d=475f0936590f75fc5557807a2271822e

[5] Tsingtao Opens Its Own Bar in Galaxy Soho With IPA (Occasionally) on Tap and Export Quality Bottles. The Beijinger.  https://www.thebeijinger.com/blog/2016/07/20/tsingtao-opens-its-own-bar-galaxy-soho

[6] China’s taste for craft offers fizz for global brewers. Reuters. March 7, 2017. http://www.reuters.com/article/us-china-beer-idUSKCN0W813B

[7] China’s New Craft-Beer Bully. Fortune. Mar 16, 2017.  http://fortune.com/2017/03/16/china-craft-beer-ab-inbev/

[8] Cheniere Circles China After Trade Deal Portends Gas Export Boost. The Wall Street Journal. May 12, 2017. https://www.wsj.com/articles/cheneire-circles-china-after-trade-deal-portends-gas-export-boost-1494619903?mod=e2fb

Overview: The Future of the Republic of Turkey Remains Unclear After Failed Coup d’état

Turkish politics have taken a nationalistic turn as domestic affairs spiral out of control. Massive expulsions of bureaucrats, journalists, academics, businesses and political opponents continues to worry the international community.

By:  Zana Silevani, Lynx Global Intelligence

 

Turkey’s significance in the international community

Historically, the Republic of Turkey has served the international community as a commercial hub which has facilitated international trade, communication and intercultural exchange for decades. Modern day Turkey is an extremely valuable partner as it has characteristically carried on it’s traditions of free trade, military cooperation and fortified secular values. Turkey has established it’s presence in the international community—it holds tremendous weight when discussing economic and political affairs. The economic and strategic value of Turkey is attributed to it’s physical coordination as it is situated in a unique geopolitical position. Turkey borders Syria, Iraq, Iran, Armenia, Georgia and Bulgaria with Russia and Ukraine just across the Black Sea.

turkey-2

In 2014, The Republic of Turkey ranked in as the 27th largest economy in the world [2]. The dynamic nature of the Turkish economy has facilitated strong partnerships with it’s primary import trade partners: China ($24.6B), Germany (23.5B), Russia ($14.7B), Italy ($12.3B) and the United States ($11.8B)—it’s largest export destinations: Germany ($16.9B), Iraq ($10.8B), the United Kingdom ($10.3B), France ($7.87B) and Italy ($7.58B) [2]. Furthermore, as a critical member of the North Atlantic Treaty Organization (NATO), Turkey is an important asset for US interests in the Middle East and Europe. Geopolitical configuration and a versatile economy puts partnerships with Turkey at a high priority, but the many successes of the Republic of Turkey overshadow the murky essence of recent Turkish political developments. Turkish nationalists such as President Reccep Tayyip Erdogan and his Justice and Development (AK) party have consolidated executive power after the recent Summer 2016 coup d’etat attempt which has resulted in the arrest and detainment of thousands of people accused of aiding the coup.

 

The failed 2016 coup attempt and a new face for the Republic of Turkey

July 15, 2016—chaos erupted as a faction of the Turkish military took up arms and attempted to overthrow President Erdogan. The military began with the occupation of the Bosphorus bridge which connects the two shores of Istanbul then attempted to control key points in the Turkish capitol of Ankara [3]. The separatist faction which called themselves the Peace at Home Council, were defeated when loyalists to Erdogan’s existing regime thwarted the coup attempt and restored power. Using state operated media (TRT) Erdogan was able to garnish support to abolish the coup and rally his supporters. At least 90 people were killed and nearly 1,100 more were injured during the coup attempt [3]. The coordination of the coup was ultimately blamed on the exiled cleric Fethullah Gulen who resides in Pennsylvania, USA and is a long time opponent of President Erdogan and his Justice and Development party. The coup attempt resulted in massive material losses, but ideological damage in Turkish civil society took the harshest damage as President Erdogan began a campaign aimed at suppressing opposition through detainments and arrests. Thousands of bureaucrats, academics, political leaders and military personnel have been expelled, arrested, or detained as a result of allegations of involvement in the coup.

The failed July 15, 2016 coup d’etat attempt in Turkey shook the foundations of the state and thrusted Turkey away from it’s traditional secularism and towards civic nationalism. President Erdogan has utilizes a parliamentary state of emergency to bypass constitutional provisions and mobilize political power to the executive branch. President Erdogan and his Justice and Development party have undertaken considerable measures to consolidate executive power [1]. After the summer of 2016, the Turkish state has detained over 35,000 individuals thought to have some sort of tertiary involvement in the influence or potting of the 2016 coup d’etat attempt [1]. Over 17,000 individuals have been arrested in connection with the coup attempt—one third of Turkish security forces have been arrested on specific charges. Arrests after the coup are based on allegation of affiliation with the Gulen movement. Ultimately, Erdogan has delineated executive power to suppress Kurdish influence in Turkey. Kurdish mayors, lawyers and activists have been expelled from their posts and accused of having ties to Kurdish separatist organizations. The new far-reaching executive authority has monopolized AK party initiatives.

 

The new US administration and the future of US-Turkey relations

In early February 2017 President Trump and President Erdogan publicly voiced mutual admiration for one another in a late night phone call, but the US has not established a stance on it’s future with President Erdogan. In the phone call president Erdogan remained firm in his stance to influence decisions which favor disarming Kurdish YPG militias in Syria. The US administration has not commented on future endeavors with Kurdish militias in Syria, but continues to maintain Turkey’s NATO status as a crucial geopolitical asset to strategic operations in Syria. Because of the geopolitical importance of Turkey in air/ground campaigns, Erdogan must cooperate and deter interest in weakening the Kurdish front against ISIS.

The US must leverage Turkish cooperation to grant Kurds in Syria resources to continue to engage ISIS on the ground in northern Syria. The YPG have proven to be non-confrontational and malleable to US interests on the condition of material support. The YPG are a crucial indigenous force who provide essential tactical and intelligence support to US Special Operations Command personnel on the ground in Syria. Ultimately, President Erdogan perceives the new US presidency as an opportunity to initiate communication which supplements Turkish interests in cooperation in the Syrian Civil War. Turkey is seeking to strengthen ties with the US to ultimately influence US military cooperation with Kurdish factions in Northern Syria. Through the recent radical political transition in Turkey in the summer of 2016 was drastic, President Erdogan remains opportunistic in seeking to gradually restore US-Turkish relations which experienced significant strain towards the end of 2016 with the departure of president Obama.

Granting Turkey greater autonomy to influence US defense policy will significantly alter US-Kurdish partnership in Syria. Turkey will ultimately remain a formidable and valuable US defense partner. Though Turkey has taken an abrupt nationalistic and at time anti-western turn, the United States needs Turkey as a partner to supplement it’s campaigns in Iraq and Syria. Turkey provides invaluable resources to the US with optimal strategic capabilities in the global war on terror.

 

[1] http://www.newyorker.com/news/news-desk/the-end-of-democracy-in-turkey

[2] http://atlas.media.mit.edu/en/profile/country/tur/

[3] http://www.businessinsider.com/turkey-istanbul-military-bridges-2016-7

[4] (image) https://www.wired.com/2016/07/turkey-coup-livestream-map/

[5] (image) https://twitter.com/alivelshiot/status/499693038328094720

Russia: A Political Risk Assessment (Economic Intelligence)

February 22, 2017

By:  R. Sonny Betancourt, Co-Founder, Lynx Global Intelligence

 

US – Russia Business Talking Points

Key Judgements

Engaging in business with Russia is complex. The United States is currently in a complicated relationship with Russia. The allegations of Russian hacking, influence on the US Presidential election and overall pent up hostility over actions in Syria, Crimea and Ukraine has complicated the relationship even further. The sanctions in place against Russia will require congressional support and consultation in order to be lifted.

Introduction

Doing business in Russia requires understanding the business climate, cultural nuances and ramifications of US-imposed economic sanctions.  Expertise is required to handle the current frameworks as well as this byzantine business maze. Business with Russia requires a business background with proficiency in foreign policy, security and regional dynamics. Currently, both US bilateral trade and investment relations have been obstructed or outright frozen.  This exposes companies to potential political risk in the spheres of political, economic, technological, legal, and regulatory frameworks.

Background

Globally Russia is the 8th largest economy (GDP) and 6th largest purchase power parity (PPP) and has over 142 million potential customers, acute infrastructure needs and is a vital export market for US businesses. Russia has a highly-educated culture that spans 11 time zones but there are significant barriers to entry: sanctions, corruption, burdensome regulations, competition from large state-owned entities and inadequate rule of law. Sanctions against Russia currently are the biggest barrier to entry. The sanctions regime against Russia was put in place in March of 2014 in response to Russia’s invasion and annexation of Crimea and use of force in Ukraine.  The sanctions primarily targeted 14 defense companies, 6 banks and 4 energy companies.  These sanctions include goods, services and credit financing.[1] Since the implementation, the sanctions have already caused Russia well over 100 billion in economic losses.

Sanctions (backgrounder)[2]

  • Executive Order 13660
    • Sanctions put in place restrictions on the travel of certain individuals and officials and showed our continued efforts to impose a cost on Russia and those responsible for the situation in Crimea.
  • Executive Order 13661
    • Prohibiting the provision, exportation, or reexportation of goods, services (not including financial services), or technology in support of exploration or production for deepwater, Arctic offshore, or shale projects that have the potential to produce oil in the Russian Federation, or in maritime area claimed by the Russian Federation
    • Sec 3 – Suspended entry of immigrant/nonimmigrant deemed detrimental to United States
  • Executive Order 13964[3]
    • Harm or compromise the provision of services by entities in a critical infrastructure sector;
    • Disrupt the availability of a computer or network or computers; or
    • Cause a misappropriation of funds or economic resources, trade secrets, personal identifiers or financial information for commercial or competitive advantage or private financial gain.
    • Order 13964 Expanded (December2016)
    • Russia’s Main Intelligence Directorate (Glavnoe Razvedyvatel’noe Upralenie or “GRU”);
    • Russia’s Federal Security Service (Federalnaya Sluzhba Bezopasnosti or “FSB”);
    • Special Technology Center (STLC, Ltd. Special Technology Center St. Petersburg);
    • Zorsecurity (Esage Lab);
    • Autonomous Noncommercial Organization Professional Association of Designers of Data Processing Systems (ANO PO KSI);
    • Igor Valentinovich Korobov, Chief of the GRU;
    • Sergey Aleksandrovich Gizunov, Deputy Chief of the GRU;
    • Igor Olegovich Kostyukov, First Deputy Chief of the GRU;
    • Vladimir Stepanovich Alexseyev, First Deputy Chief of the GRU;
    • Evgeniy Bogachev; and,
    • Aleksey Belan.
  • A group of US senators (both Republican and Democrat) and a separate house bill are poised to introduce legislation to prevent President Trump from lifting Russian sanctions

 

Economics (O&G snapshot)

  • Russian oil and gas companies including Rosneft, Transneft and Gazprom Neft have been blocked from securing long-term financing from US banks which has halted numerous large scale oil and gas projects[4]. These projects include expansion in the Arctic.
  • Well over 50% of Russia’s GDP comes from oil and oil activities[5] The sanctions in turn have crippled GDP and have also delayed or completely stalled new O&G development actions.
  • The Yamal LNG project ($27 billion dollars) could not obtain US financing and had to resort to Chinese banks. Chinese financing is less advantageous and is both more expensive and less flexible.
  • Lack of ability to finance exploration and production activities to find new oil plays and restrictions on U.S. technology purchases had a detrimental effect on Russian GDP (half of fracking tech used in Russia comes from the US). These restrictions could impact Russia’s overall O&G competitiveness on a global scale.
  • Import/Export trade constitutes 51% of GDP[6] This area has been significantly impacted due to both US and EU sanctions. The EU represents 8.4% of total Russian imports and is Russia’s biggest trading partner, constituting 48% of total foreign trade. Russia’s exports are dominated by mineral fuels 74.9% which has historically contributed to a Russian trade surplus in the range of 180 billion euros annually. (Notably gas was not under EU sanctions as member states are reliant on Russian gas).
  • All restrictions against IT & cyber-related products against the FSB were lifted on February 1, 2017[7]

 

Business Outlook/Industries

  • Russian Major Industries
    • Oil and Gas
    • Mining
    • Chemical/Petrochemical
    • Metallurgy
    • Agriculture
    • Weapon and Military
    • Aircraft Building
    • Aerospace
    • Transport
    • Pulp and Paper
    • Precious Stones

 

Forecasting

  • Lifting of the sanctions will be a boon for US oil and gas, banking and export industries
  • Easing as opposed to lifting sanctions are more likely to occur
  • Coordination in Syria and counterterrorism-related activities could potentially soften US stance
  • Academic and creative dialogues must be considered to repair foreign relations, security coordination and diplomatic dialogue
  • Opportunities legally exist within US businesses currently engaged in Russia – PepsiCo, Proctor & Gamble, McDonalds, General Motors, Johnson & Johnson, Alcoa, GE, Morgan Stanley and Cargill

 

Takeaways

  • The U.S.-Russian relationship is strained and requires adept, insightful analysis outside typical political dogma. How can we wage peace and reach an agreeable solution? Is it even possible to reach a diplomatic accord?
  • Russia has been buttressed by increased oil prices but has little control over sanction influence of global economy and domestic job losses.
  • How long can Russia continue to have sanctions impact GDP?

 

Historical Russian GDP Growth Rate Trending

A correlation between sanctions and a major drop in Russian GDP growth is clearly illustrated (see graph below). The sanctions will not remain in place indefinitely and need to be addressed before economic realities lead to potential conflict.

The ability to weather the storm requires adept business and geopolitical prowess. Doing business in Russia is possible but requires moving outside the realm of sanctioned sectors and positioning to be prepared when sanctions are lifted. Guidance within these frameworks requires expertise.

russia-gdp

Lynx Global Intelligence – Intelligence for Good

Lynx Global Intelligence provides an outside the beltway approach, dealing in fact, guiding companies currently in Russia to hedge their bets and provides the legal understanding to deal in a complicated geopolitical risk environment.

A looming Russian bank crisis, continued sanctions, reduced foreign direct investment, increased distrust and potential increased belligerency, requires a counterbalanced strategy. Tactics within the strategy should include maintaining open channels of communication, seeking negotiated solutions, and permitting U.S.-Russia foreign affairs to practice the waging of peace. Dealing with Russia requires a strong but respectful approach. The ability to engage in construction dialogue requires a balanced policy. This nuanced reaction requires an aptitude that Lynx Global Intelligence can navigate within security, economic, energy, investment and geopolitical realities to craft a business solution based on the realities on the ground.

[2] https://www.state.gov/e/eb/tfs/spi/ukrainerussia/

[3] http://www.polsinellioninternational.com/blog/2017/1/13/2017-begins-with-additional-us-sanctions-on-russia-for-malicious-cyber-related-activities

[4] http://www.forbes.com/sites/timdaiss/2016/08/19/prolonged-sanctions-rip-into-russia-causing-angst-for-putin/#cd8f3fc4c2f6

[5] http://carnegie.ru/commentary/?fa=61272

[6] http://www.heritage.org/index/country/russia

[7] http://www.usatoday.com/story/news/2017/02/02/us-eases-some-economic-sanctions-against-russia/97399136/

Back to the Future: Peru’s Shining Path and its Impact on Investment

Peru’s Shining Path remains a risk to address when conducting business.

“A journalist walks past a painting of Peru’s Shining Path guerrilla leader Abimael Guzman, who was captured in 1992, at a police museum in Lima, November 6, 2009” (Reuters/Mariana Bazo)

 

By:  Jon Vreede, Lynx Global Intelligence

 

If you were unaware that Shining Path was still operating in Peru, you could easily be forgiven. From 1980 until the late 1990s, the Communist Party of Peru in the Shining Path of José Carlos Mariátegui (to give them their proper name) was one of the most dangerous terrorist organizations in the Western Hemisphere. Driven by an ideology that drew heavily from Maoism, the group terrorized villagers in the rural Ayacucho and the Huallaga Valley regions, though their reach occasionally extended into Peru’s cities.

Peru’s Truth and Reconciliation Commission estimates that between 1980 and 200, Shining Path’s conflict with the Peruvian government killed approximately 69,000 people. But by the 21st century, with most of its top leaders killed or imprisoned, Shining Path appeared to be a spent force. Appearances however, can be deceiving. The continuing presence of Shining Path (SL) not only poses a risk to companies doing business in Peru, but represents a host of other risks these companies run when they do not account for the needs of the local community.

Despite frequent pronouncements about its imminent destruction, Shining Path is and still is very much alive. Although much of the information about the group is subject to conjecture. there are thought to be two main factions still fighting in remote parts of southern Peru: one in the Valleys of the of the Apurímac, Ene and Mantaro rivers (VRAEM) and the other in the Upper Huallaga Valley. Taking a page from their Colombian comrades, the FARC, both factions of SL survive by protecting or encouraging the cocaine trade in the regions they control. While there is continuing debate over the degree to which the two factions cooperate, they both nominally pledge fidelity to Shining Path’s imprisoned leadership, and neither should be taken lightly. Despite their close alliance with Peru’s narco-traffickers, Shining Path has not transformed into a mere drug cartel. They remain committed to their goal of overthrowing the Peruvian government, and continue to attack local and as well as national authorities.

As recently as April, 2016, SL guerillas attacked a military convoy carrying election materials to rural Peru[1]. They also engage in the sabotage of infrastructure projects near the regions they control, like the torching of three helicopters owned by an international gas consortium in 2012[2], or the kidnapping of local employees working for a Swedish construction firms that same year[3]. They also continue to kidnap Peruvians to join their movement and foreigners to hold for ransom. Nor is the Shining Path threat confined to military action. SL’s political arm, the Movement for Amnesty and Fundamental Rights (Movadef), is still active throughout Peru advocating for the release of Shining Path’s imprisoned leaders and organizing new supporters. For those companies seeking to do business in these parts of rural Peru, Shining Path still represents a risk to business, and their actions can endanger the safety of individuals and the security of projects.

While the danger from Shining Path may be limited to a handful of regions in Peru, the type of threat they represent is a risk to all companies working in the country. After all, people joined Shining Path in the 1970s and 1980s because they were unhappy with the status quo. They felt excluded from the prosperity that they saw other Peruvians enjoying and did not feel that local or national leaders were doing enough to eliminate this rising inequality. This sense of grievance was felt most acutely among the peasantry and the indigenous populations in rural areas, as well as young, educated people from these areas who felt their path was still being blocked despite their qualifications. These were just the sort of people Shining Path was looking to recruit with its Maoist-derived focus on rural uprising and enforced equality.

While SL may not be present in these regions anymore, that sense of grievance has not gone away. The new target of their anger is not only prosperous local officials, but the foreign companies that are perceived as the source of these official’s prosperity. If the residents of these communities believe that only a handful are benefiting from local development, they will respond; whether that action takes the form of scattered acts of sabotage or a coordinated campaign of violence. To avoid these dangerous and costly risks, those seeking to expand their business into Peru would be well-advised to engage with the communities they set up shop in.

While Shining Path continues to pose a danger to companies operating in certain parts of Peru, they also serve as a cautionary tale about danger businesses can face if they do not respect the needs and opinions of Peruvian communities. While businesses may be tempted to dismiss SL and their remaining fighters as a relic, the sentiment this group tapped into is very much alive throughout Peru. Operating a business with the support of a few local or national powerbrokers may work in the short-term, but in the long-run it will soon become more expensive. For business that operate this way will surely become a target of Shining Path or their next incarnation.

[1] http://www.ticotimes.net/2016/04/11/death-toll-climbs-10-peru-guerrilla-attack

[2] https://web.archive.org/web/20121007063357/http://abcnews.go.com/International/wireStory/rebels-burn-helicopters-peru-17413345#.WKphm2wizuh

[3] http://www.nytimes.com/2012/04/10/world/americas/peru-rebels-abduct-workers-at-gas-pipeline.html?rref=collection%2Ftimestopic%2FShining%20Path&action=click&contentCollection=timestopics&region=stream&module=stream_unit&version=latest&contentPlacement=9&pgtype=collection

The Digital Frontier: Africa’s Mobile Money Revolution

While many countries are still reeling from the blows of the global financial crisis, South Africa is experiencing substantial growth in many of its developing sectors, particularly in technology.

By:  Courtney Marshall, Lynx Global Intelligence

 

South Africa has set new investment records, with private equity funds growing to 3.2% of its GDP, compared to a global average of 2.7%. The burgeoning digital financial services market in Africa has been most prominent in Kenya where M-Pesa, a mobile-based banking product, has pushed the technological threshold of innovation and financial inclusion without losing its financial foothold.

While similar products exist in Zambia and Tanzania, it is Kenya’s flexible policy and regulatory environment that has allowed its digital potential to flourish.[1] In efforts to reach low-income populations, the Central Bank of Kenya worked with M-Pesa to promote financial inclusion through minimal sign-up requirements and a reduction in other barriers to entry. The country now has the world’s highest mobile money penetration rate. As World Bank economist Wolfgang Fengler described it, “They allowed regulation to follow innovation, whilst reassuring the market of its oversight.”[2]

As most development trends tend to flow from “the West to the rest,” Africa instead has leapfrogged ahead of many wealthier nations. Mobile money is being used throughout Africa to facilitate other services such as insurance, analytics, consumer credit, and e-commerce, making access to these services more convenient and less expensive. Rather than carry hard currency at the risk of it being lost or stolen, or decide how to best divide up the dinner check, mobile money provides an alternate solution to such antiquated payment ordeals. The practicality of electronic cash stored on a SIM card and loaded into a bank account created an innovative transactions platform, where national payments and reliable transactions did not exist in Africa before.[3]

So, how did a continent faced with widespread poverty, political corruption, and food insecurity manage to come to this groundbreaking mobile solution before Silicon Valley? In short, necessity drives creativity![4] The financial infrastructure gaps that existed prior to the 21st century are what have allowed Africa to make such major strides in the world of digital finance. As such, the Kenyan case proves that entrepreneurs and innovations can succeed given the right policy and regulatory environment. Africa has become the digital financing trailblazer and we can expect to see more financial innovation throughout the continent.

[1] http://www.africa.com/top-investment-opportunities-south-africa/

[2] http://rachelbotsman.com/work/mobile-money-the-african-lesson-we-can-learn/

[3] https://www.brookings.edu/research/boosting-transformational-technology/

[4] https://www.theatlantic.com/magazine/archive/2014/05/africas-tech-edge/359808/

 

What will a Trump Administration Mean for Conflict Around the World?

Co-Founder at Lynx Global Intelligence

 

Little appears certain within the incoming administration, policy-wise. “Predictioneering” will prove especially difficult considering the president-elect’s lack of government service record, exacerbated by waffling on issues like climate change. For the purpose of analysis, let’s assume “conflict” a unitary measure*, which will either increase or decrease during the next four years.

Conflict around the world will decrease:

 Trump has expressed a willingness to act in a way that appears pragmatic to some. His selection of Rex Tillerson as Secretary of State is nothing less than an overture to long-standing geopolitical frenemy, Russia. In keeping with Trump’s assertions about Putin’s greatness, the choice firms up what looks to be a warming in relations between the two nations. While this may produce a peace dividend of sorts for both countries (especially Russia), it is precisely this selectivity in friend-making that could raise the specter of conflict elsewhere. Nevertheless, a focus on pragmatic, pro-business cabinet members is a plus. Pragmatism leads to compromise, avoiding conflict and war.

Conflict around the world will increase:

 While a direct warming of relations with a former foe may prove beneficial in the short-term for Russia, the new relationship will come at a cost, certainly to those who inhabit Russia’s immediate periphery. As the residents of Crimea can surely relate, Russia’s willingness to use force covertly has not been meaningfully checked by the West. Residents in Syria will mirror that same sentiment, but regarding the overt use of violence to achieve political ends. The less willing a US president is to provide leadership that stands up to war crimes and the instruments of armed conflict, it becomes more likely nations will feel at liberty to commit such crimes. Globally, a selective preference for Russia as a partner will alienate the Chinese. China seeks pragmatic, long-term partnerships, not ignorance (see: Trump Taiwan call) or prolonged conflict. Preference towards Russian interests could come at the expense of relations with America’s second largest trading partner, China (following peaceful Canada at #1). Ignorance and a lack of respect for protocol, especially in diplomacy, raise both tensions and the risks a tactical mistake will be made, sparking war. That reality unfortunately promotes the idea that global conflict may increase in years to come.

 

 

*In reality, measures of human conflict as understood by scholars is a surprisingly complex measure. Everything from food insecurity to human rights abuses can spark conflict, which also varies in scale, latency and intensity.

Ignoring Politics in Business is Fatal

By:  Trevor Jones, Co-Founder at Lynx Global Intelligence

 

Managers and decision makers often make comments to me along the lines of:

“It’s difficult to make the case to my department that we need political risk analysis when leadership simply relies on the news to price-in what’s happening in our markets…”

When I hear statements like the one above, I’m always surprised. It is alarming to consider that large companies who perform business operations on multiple continents will leave their political risk analysis to in-house employees. I have also seen the harmful effects of treating the international economy as a system without risk. Here are some hazards of not considering political risk assessments:

1. News bias. No news source can replace due diligence conducted on the ground. Mainstream media operates in sensationalism, not in the ground truth. Detailed information about forecasts, market trends, emerging developments, country knowledge, organizations, and their strategies is crucial to stay competitive. Traditional news sources are a poor resource for crafting contingencies around political risk. A proactive approach can be the difference between rebounding from, or suffering because of, international events.

2. Manager bias. Not only are news sources limited in scope, but so is the ability as individuals to process information. That is why there is growing demand for intelligence tools that keep companies safe and profitable. These tools range from cybersecurity packages to tailored research on the ground. The aggregate information acquired from these tools are fed into our proprietary system at Lynx, allowing for a complete picture of the “ground truth”, free from the bias of any individual source.

3. Time efficiency. Managers are often focused on keeping a workforce productive, not assessing external risks. Nothing can replace the value of a regional expert who

can quickly bridge gaps and educate others about risks and opportunities in a specific country or area. Lynx’s experts not only have strong analytical backgrounds, but have lived in the places they analyze (and speak the language, too).

My response is the same when I receive statements like the one at the beginning of this article: “Ignoring politics in business is fatal.”

 

 

Written with edits by Lynx Fellows Matthew Bebb and Marc Babel.